Inox Wind v Thermocables: Supreme Court Allows Arbitration Clause Incorporated by Reference
The Supreme Court held that a general reference to standard terms and conditions attached to a purchase order can incorporate an arbitration clause, even where the standard form was not issued by a trade association or professional body. The Court allowed the appeal and appointed an arbitrator.
Background of Inox Wind Ltd v Thermocables Ltd
A Bench comprising Justice S. A. Bobde and Justice L. Nageswara Rao considered Civil Appeal No. 19 of 2018, arising from SLP (Civil) No. 31049 of 2016. Inox Wind Ltd manufactured wind turbine generators, while Thermocables Ltd supplied wind power cables and other cables.
Inox Wind issued purchase orders dated 13 December 2012 and 2 February 2013 for cables required for wind turbine generators. The orders referred to attached standard terms and conditions containing a dispute-resolution clause providing for a sole arbitrator under the Arbitration and Conciliation Act, 1996. By letter dated 15 December 2012, Thermocables accepted the purchase-order terms except for the delivery period.
After delivery, Inox Wind alleged that the outer sheaths of certain 150 sq. mm cables were cracked, requiring shutdown of wind turbine generators to prevent damage to expensive equipment. It claimed the supplier did not replace the cables. Inox Wind issued a notice dated 30 October 2014 proposing a sole arbitrator. When no response followed, it approached the Allahabad High Court under Section 11(6) of the 1996 Act.
The High Court rejected the request, holding that the existence of an arbitration agreement had not been proved. Inox Wind appealed to the Supreme Court.
Applicable provisions of the Arbitration and Conciliation Act, 1996
Section 7: Arbitration agreement
Section 7 defines an arbitration agreement as an agreement by parties to submit existing or future disputes concerning a defined legal relationship to arbitration. Such an agreement must be in writing. Under Section 7(5), a reference in a written contract to a document containing an arbitration clause constitutes an arbitration agreement if the reference is such as to make that clause part of the contract.
Section 11(6): Appointment of an arbitrator
Section 11 deals with appointment of arbitrators. Sub-section (6) provides a statutory mechanism where an agreed appointment procedure fails, subject to the applicable version of the Act and procedural framework. In this case, the request arose because the supplier did not respond to the proposed appointment.
For the statutory text, see the Arbitration and Conciliation Act, 1996 on India Code. The Act has been amended since the judgment; current procedural requirements should be checked for a new application.
What the Supreme Court decided
The Court considered the distinction between merely referring to another contract and incorporating standard terms into a single contract. It examined the earlier decision in M. R. Engineers and Contractors Pvt Ltd v Som Datt Builders Ltd and the approach to incorporating arbitration clauses by reference.
The Supreme Court explained that a general reference to a standard form contract may suffice to incorporate its arbitration clause. This principle extends to a consensual standard form of one contracting party and is not confined to standard forms issued by trade associations or professional institutions.
In the present case, the purchase orders expressly referred to the attached standard terms, and the supplier had accepted the terms apart from delivery time. The Court treated the purchase order and attached terms as a single contract. It therefore held that the arbitration clause was incorporated and the High Court's contrary conclusion could not stand.
Outcome: The Supreme Court allowed the appeal and appointed Justice Sushil Harkauli as the arbitrator to decide the dispute between the parties.
Practical implications for commercial contracts
The judgment is significant for purchase orders, supply contracts and commercial standard terms. Parties should make clear which standard terms are incorporated, ensure the terms are available to the counterparty, and record acceptance. Expressly identifying the arbitration clause can reduce disputes about consent and incorporation.
It does not mean that every casual reference to a separate document automatically incorporates an arbitration clause. Whether a reference is sufficient depends on its wording, the type of document and the contractual context. References to separate contracts may require closer examination than references to agreed standard terms.
Read the Supreme Court judgment dated 5 January 2018
Read the original judgment PDF
Alternatively, consult the official Supreme Court judgment PDF.