Explicit Stipulation in Letter of Intent Overrides Arbitration Clause – specific reference to the arbitration clause is necessary: Supreme Court
In a significant ruling, the Supreme Court in the case of NBCC (India) Limited vs. Zillion Infraprojects Pvt. Ltd., addressed the critical issue of whether an arbitration clause from a primary contract gets incorporated into a subsequent Letter of Intent (L.O.I.).
Legal Point of Judgement: The crux of the judgement revolved around the interpretation and incorporation of the arbitration clause into the Letter of Intent. The Court specifically examined if a general reference to a contract implied the incorporation of its arbitration clause.
Facts and Issues: NBCC (India) Limited challenged the orders of the Delhi High Court, which had appointed a Sole Arbitrator to resolve a dispute arising from a Letter of Intent dated December 4, 2006. The contention centered on whether the dispute resolution mechanism would be arbitration, as per the primary contract, or through civil courts, as specified in the L.O.I.
Court’s Assessment: The Supreme Court, led by Justices B.R. Gavai and Sandeep Mehta, extensively reviewed the case’s details. The Court noted, “A mere reference to the terms and conditions without incorporation in the L.O.I. would not make the lis between the parties amenable to arbitration proceedings.” It was emphasized that a specific reference to the arbitration clause is necessary for its incorporation. The Court found that Clause 7.0 of the L.O.I., stating the jurisdiction of Delhi civil courts, overrode the arbitration clause in the primary contract, showing a clear intent for dispute resolution through civil courts.
Decision: The Supreme Court reversed the Delhi High Court’s decision, establishing that the arbitration clause was not incorporated into the L.O.I. Consequently, the dispute resolution should proceed through the civil courts of Delhi, in accordance with the explicit terms of the L.O.I.
Date of Decision: March 19, 2024
NBCC (India) Limited vs. Zillion Infraprojects Pvt. Ltd.
