For arbitration, there has to be a specific allegation about existence of an arbitration agreement by one party and non denial thereof by other party

In MS. G. KAPOOR vs M/S REACON ENGINEERS PVT. LTD., before the Delhi High Court in ARB.P. 131/2019, the petitioner and the respondent entered into an agreement for carrying out internal electrical works for renovation and expansion of ESIC Hospital, Okhla Project. The main contract was between ESIC and TCIL. A further sub-contract was between the respondent and TCIL. Due to payment dispute, the petitioner applied for appointment of arbitrator arguing that clause 2 of the LOI based on which the respondent had awarded contract to the petitioner clearly states that the scope of work, commercial and technical terms and conditions including payment terms of contract between the petitioner and the respondent is on back-to-back basis with the main contract between the ESIC and TCIL and as such all the terms and conditions will apply to the agreement between the petitioner and the respondent including the arbitration clause.

The respondent argued that any incorporation of an arbitration clause has to be by way of a specific reference to the arbitration clause. In other words, there has to be a specific incorporation of the arbitration clause and in the absence of such clause having been incorporated in the LOI, it cannot be said an arbitration clause / agreement binds the parties herein.

The High Court observed that the said clause 2 does mention 'back to back basis' and that the words ''back-to-back basis‟ has some meaning / relevance. The words ''back-to-back‟ means “consecutive” as per the Cambridge Guide (Ref: Cambridge Guide to English Usage), Cambridge University Press, South Asian Edition, 2004.

Further, in reply dated December 19, 2016 to the notice of the petitioner, the respondent had not disputed the existence of the arbitration clause between them. The relevant portion of which has been reproduced above does reveal that the respondent intended to suggest its own list of Arbitrators if at all dispute is relegated for arbitration. The words “if at all the dispute is relegated for arbitration” has to be read in the context that the respondent disputed the claim raised by the petitioner in its notice but not their arbitrability.

Referring to the judgment of the Supreme Court in S.N. Prasad, Hitek Industries (Bihar) Ltd. v. Monnet Finance Ltd. and Ors. (2011) 1 SCC 320, the High Court held that it is clear, that to constitute an arbitration agreement under Section 7(4)(c) of the Act, there is a statement of claim containing a specific allegation about the existence of an arbitration agreement by the petitioner and non denial thereof by the other party. The said requirement is fulfilled in this case, inasmuch as the respondent did not dispute the existence of an arbitration clause.