Introduction
The question of incorporation of arbitration clauses referred to in another document has been a bone of contention between parties, in view of the absence of statutory guidance under Section 7 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). Although the principle of incorporating an arbitration clause, referred to in another document is a well-established principle in arbitral jurisprudence,[1] Section 7(5) only provides that the reference should be “such as to make that arbitration clause part of the contract”. Hence, it has been left to the courts to determine the conditions that need to be satisfied for the same.
Digital contracts – incorporation of general terms and conditions
The determination of incorporation through reference becomes crucial in the expanding realm of digital contracts. The majority of digital contracts provide hyperlinks to the applicable general terms and conditions (which contain the arbitration clause), as opposed to setting out the text of the general terms and conditions. The practical rationale may be to ensure uniformity in terms, ease of access, and to save time involved in settling the terms of the contract by avoiding negotiation on standard terms. In the event of a dispute between parties, an attempt is made to enforce the arbitration clause contained in the said general terms and conditions, which in turn, invites the question of whether the reference to general terms and conditions is adequate to make the arbitration clause therein a part of the underlying contract, as envisaged under Section 7(5) of the Arbitration Act.
At this juncture, it is pertinent to note that hyperlinked terms and conditions can be compared to a ‘standard form of contract’, a term that has been consistently used in the context of incorporation of arbitral clauses by reference. Standard form of contract is a type of contract where the conditions are fixed by one of the parties in advance and are open to acceptance by anyone,[2] however, there is no scope for negotiation in the terms of such contract. Evidently, hyperlinked terms and conditions bear the same characteristics as a standard form of contract.
Position of law on incorporation of arbitral clause by reference
The Supreme Court of India has addressed the issue of incorporation by reference in a catena of judgments. The Court has adopted a consistent view that a specific reference to an arbitration clause in another document is required to be incorporated into the contract where such reference is made.[3] However, in 2009, in M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited[4], the Supreme Court had carved out an exception for “standard form of terms and conditions of an independent trade or professional institution” and “conditions of contract of one of the parties to the contract”, whereby a general reference to such documents would be sufficient to incorporate the arbitration clause contained therein. Additionally, in Inox Wind Limited v. Thermocables Limited[5], the Supreme Court expanded the exception to specifically include single contracts (explained below), and held that a general reference to the standard terms and conditions (containing an arbitration clause) attached to the purchase order would be adequate to incorporate the arbitration clause, by reference.
Single contract case and two contract case are English law constructs, recognised by the Supreme Court in Inox Wind. A single contract case contemplates a situation wherein the referred document and the primary contract involve the same parties. This also includes a reference to a standard form of contract. In the event the referred document has at least one different party, it would be a two-contract case.
The position of law enumerated in Inox Wind finds support from the Supreme Court decision in Giriraj Garg v. Coal India Ltd. and Others[6],where it was observed that the “arbitration agreement need not necessarily be in the form of a clause in the substantive contract itself. It could be an independent agreement; or it could be incorporated by reference either from a parent agreement, or by reference to a standard form contract.”
In view of the above, an inference can be drawn that an arbitral clause in the hyperlinked terms and conditions can be deemed to have been incorporated in the principal contract between the parties.
Separately, in M.R. Engineers, although the Supreme Court observed that a specific reference to arbitration clause is required, the Court went on to differentiate ‘reference’ from ‘incorporation’, and observed that the latter would include instances where a contract provides that (i) a referred document would form part and parcel of the contract; (ii) all the terms of the referred document shall be treated as part of the contract; (iii) the contract will be governed by the provisions of the referred document; or (iv) the terms of the referred document shall be incorporated into the contract. In such cases, the arbitral clause will also be incorporated in the principal contract.
Therefore, an arbitration clause contained in the general terms and conditions can also be deemed to have been incorporated by reference, if the wording of the reference clause in the principal contract satisfies the test set out above.
The Delhi High Court’s take on incorporation of digital contracts
In this backdrop, it becomes relevant to consider the decision of the Delhi High Court in Oravel Stays Pvt. Ltd. v. Nikhil Bhalla[7]. Here, OSPL (formerly Oyo), providing online hotel booking services, digitally entered into a Marketing and Operational Consulting Agreement (“MOCA”) with Nikhil Bhalla, a hotel operator. The MOCA inter alia provided for listing of Nikhil Bhalla’s hotel on OSPL’s online platform, against associated minimum guarantee and commission payments. A dispute arose between the parties with respect to non-payment of minimum guarantee. OSPL sought to refer the dispute to arbitration. To this end, reliance was placed on Clause 15 of the MOCA, which stipulated that “By agreeing to the terms and conditions of this Agreement, the Hotel also accepts the term and conditions published on the website (https://www.oyorooms.com/terms) and any and all changes made therein from time to time. Further, this Agreement alongwith with the terms and conditions available on the Website shall constitute the entire agreement between the Hotel and OYO.” Clause 14 of the said terms and conditions, at the relevant time, prescribed resolution of disputes by way of arbitration.
While the Delhi High Court had to consider multiple aspects, the aspect pertinent to the current discussion is whether an arbitration agreement existed between the parties, i.e., whether the general reference to Clause 15 of MOCA had the effect of incorporating the arbitral clause contained in the hyperlinked terms and conditions, to the MOCA.
The Court, relying on the decision in M.R. Engineers, observed that:
- the entirety of terms and conditions (including the arbitration clause) stood incorporated by virtue of Clause 15 of the MOCA; and
- by placing reliance on the Inox Winds decision,to hold that this was a single contract case and hence, a general reference to a standard form of contract meets the test for ‘incorporation by reference’.
As a result, an arbitration agreement was held to exist between the parties.
It may also be pertinent to highlight one of the contentions raised by the Respondent, that the hyperlink did not directly lead to the applicable terms and conditions. A party was required to take an additional step of selecting the option of ‘channel partner’ from the menu that appeared on clicking the link, which would then lead the party to the applicable terms and conditions containing an arbitration clause. However, the Delhi High Court dismissed this contention, observing that there is nothing wrong with classifying the terms and conditions applicable for different classes of persons, and it was undisputed that Nikhil Bhalla was a channel partner.
Risks of incorporation by way of general reference
In the latest line of judgments, the Supreme Court in NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd.[8] also recognised the principles laid down in Inox Winds, but held a general reference to the terms and conditions of the tender as insufficient to incorporate the arbitral clause, in light of a clause in the primary contract providing for redressal of disputes only through civil courts of Delhi alone.
The decision in NBCC (India) Limited was followed by the Delhi High Court in Deepa Chawla v. Raheja Developers Ltd.[9]In this case,on account of references to a prior agreement between the parties pertaining to the same transaction, the arbitration clause contained in the prior agreement was sought to be made applicable to a dispute under a subsequent agreement. A few relevant clauses of the subsequent agreement are:
- Jurisdiction clause: The courts of “Delhi/ New Delhi” would have jurisdiction on the subject matter of the agreement; and
- Conflict clause: The subsequent agreement shall be read with the prior agreement, and in case of any conflict, the provisions of the subsequent agreement shall prevail/ supersede those of the prior agreement.
The Delhi High Court relied on NBCC (India) Limited to observe that a specific reference to the arbitration clause of the prior contract was required for it be incorporated. Pertinently, the determinative factor considered by the High Court was the presence of an overriding clause in the second contract, which resulted in express exclusion of the arbitration clause.
Hence, parties ought to be cautious while hyperlinking terms and conditions in digital contracts containing an arbitration clause, i.e., incorporating an arbitration clause by way of general reference. It becomes imperative to draft the terms in a clear and unequivocal manner, and ensure that there is no provision demonstrating a contrary intention of the parties that may impact the enforceability of the arbitration clause.
Conclusion
The predominant test adopted by courts in India, while determining reference to arbitration, is to look at the intention of parties. This is to respect party autonomy and to ensure that neither party is taken by surprise by the reference to arbitration.
While entering into digital contracts, parties typically choose to refer to general terms and conditions by way of a hyperlink, rather than incorporating them into the contract, in the interest of brevity and uniformity. The question of whether the arbitration clause contained in such general terms and conditions would apply to the contract in question, would require an analysis of the contractual provisions to ascertain the true intentions of the parties.
To our mind, parties may consider adopting one or more of the following measures while drafting digital contracts:
- adding a specific and unequivocal reference in the digital contract, to the arbitration clause contained in the general terms and conditions;
- drafting reference clauses in digital contracts to expressly incorporate the general terms and conditions into the contract; and
- ensuring that the digital contract does not contain any contradictory/ inconsistent dispute resolution clause.
[1] Giriraj Garg v. Coal India Limited and Others, (2019) 5 SCC 192.
[2] Bihar State Electricity Board, Patna and Others v. M/s Green Rubber Industries and Others, (1990) 1 SCC 731.
[3] See, M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited, (2009) 7 SCC 696; Duro Felguera, S.A. v. Gangavaram Port Limited; (2017) 9 SCC 729; Elite Engineering and Construction (Hyderabad) Private Limited v. Techtrans Construction India Private Limited; (2018) 4 SCC 281; and NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd., 2024 SCC OnLine SC 323.
[4] Supra note 3.
[5] (2018) 2 SCC 519.
[6] (2019) 5 SCC 192.
[7] 2024 SCC OnLine Del 2848.
[8] 2024 SCC OnLine SC 323.
[9] 2024 SCC OnLine Del 4489.
