SC to decide if Arbitration Clause in the principal contract be imported into subsequent contracts

Supreme Court: The bench of SA Bobde and SA Nazeer, JJ has issued notice to Pometon Spa, an Italian company involved in manufacturing, marketing of steel shot and steel grit, in a petition filed by Rotocast Industries, an Indian steel grit company, for appointment of arbitrator for resolution of dispute between the 2 companies.

According to the petition filed by Swarnendu Chatterji and Pallavi Pratap,

  • the 2 companies had entered into a Joint Venture wherein Pometon supplied special manufacturing equipment to Rotocast and would then sell the steel shot manufactured by Rotocast in regions around the world.
  • However, the machineries that were supplied were faulty which led to manufacture of defective product right from the beginning.
  • Several requests were made to the Respondents on various occasions, however, no help on the part of Respondents to solve the problems, which led to the total failure on the Joint Venture Project.
  • The petitioner has incurred losses to the tune of around Rs. 11 Cr.
  • The dispute relates to Supply of faulty and poor quality of machinery pursuant to Agreements dated 23.12.2018, which contains Arbitration Clause and any dispute arising out of Principal Agreement is to be delivered by way of arbitration which the petitioner has availed by invocation of the arbitration clause.

Since the Arbitration Clause is in the Main agreement and not in the other 2 agreements entered into by the parties i.e. Supply Agreement and Distribution Agreement, the question that arises for consideration is,

“Whether the Arbitration Clause in the Principal Agreement dated 23.12.2013, which refers to two other Agreements i.e. Supply Agreement and Distribution Agreement will also be read into the other two Agreements vide the theory of Incorporation?”

The petition reads,

“It is settled law that, Arbitration Clause in the principal contract can be imported into the subsequent contracts, notwithstanding the fact that arbitration clause is not specifically provided for in the subsequent Agreements or Agreements which are concurrent with the Principal Contract. Such incorporation of arbitration clause to a subsequent contract has been statutorily recognized [Section 7(5) Of the Arbitration and Conciliation Act, 1996]”

The petition not just calls for appointment of the arbitrator but also deals with the following important questions of law:

  1. Interpretation of Section 7(5) of the Arbitration and Conciliation Act, 1996.
  2. Whether the arbitration clause in the main agreement can be read into the subsequent agreements
  3. The arbitration clause in the agreement supersedes the dispute clause in the purchase order.

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