Clause Saying All Terms of Earlier Agreement "Shall Be Binding" Incorporates Its Arbitration Clause

A Division Bench of the Supreme Court held that Clause 14 of the Accommodation Agreements bodily imported the Development Agreement, including its arbitration clause, by incorporation under Section 7(5) of the Arbitration and Conciliation Act, 1996.

The Supreme Court on 13 May 2026 set aside a Bombay High Court order that had refused to appoint an arbitrator in disputes between a real estate developer and five members of a co-operative housing society. 

The High Court had held that a generic reference to an earlier Development Agreement in the later Permanent Alternate Accommodation Agreements was insufficient to incorporate the arbitration clause from the former into the latter. 

The Supreme Court disagreed. It held that a clause expressly stating that all terms and conditions of the Development Agreement “shall be construed to form a part of these presents and all the clauses of the same shall be binding on the parties” was not a mere reference but a wholesale incorporation, carrying the arbitration clause with it. The Court appointed a sole arbitrator and disposed of the five applications.

How the Dispute Reached the Court

Hirani Developers, a proprietary concern in the real estate business, entered into a Development Agreement on 20 December 2011 with Nehru Nagar Samruddhi Co-operative Housing Society Limited for the redevelopment of a dilapidated project. 

The agreement was registered on 4 July 2012. Clause 36 of that Development Agreement contained an arbitration clause requiring the parties to appoint a sole arbitrator for any dispute arising from the agreement.

Years later, the appellant entered into separate Permanent Alternate Accommodation Agreements with the society and individual members. Five such agreements, executed on 2 September 2023 and 12 January 2024, are the subject of these appeals. 

Each agreement was on identical terms and each contained Clause 14, which stated that all terms and conditions of the Development Agreement dated 4 July 2012 shall be construed to form part of the later agreement and all clauses of the same shall be binding on the parties.

The five respondent members — Narayan Haldankar, Malan Valkunde, Ravindra Walanju, Pradeep Govekar, and Suchita Pawar — filed complaints against the appellant under the Consumer Protection Act, 2019. 

The appellant responded by issuing legal notices dated 28 February 2025 under Section 21 of the Arbitration Act, invoking Clause 36 of the Development Agreement. By reply dated 7 March 2025, the respondent members refused to arbitrate, stating they had already approached the Consumer Disputes Redressal Commission at Bandra.

The appellant then filed five applications before the Bombay High Court under Section 11 of the Arbitration Act seeking appointment of an arbitrator.

What the Bombay High Court Held

By a common order dated 26 June 2025, the Bombay High Court dismissed all five applications. Its reasoning rested on two planks.

First, the High Court read Section 7(5) of the Arbitration Act as requiring more than a generic reference to an earlier document. It held that the later contract must itself demonstrate a firm commitment to arbitrate; a mere reference to an earlier document containing an arbitration clause would not suffice.

Second, the High Court held that the respondent members were not privy to the arbitration clause in the Development Agreement in their individual capacity. The arbitration clause bound the appellant and the society, not the individual members. A generic reference in the Accommodation Agreements could not extend that clause to bind the members individually.

 The High Court concluded that for arbitration to be firmly discerned, a specific arbitration clause binding the members was necessary, and that being absent, the appellant had to seek other remedies.

The Legal Framework: Section 7(5) and the Distinction Between Reference and Incorporation

Section 7(5) of the Arbitration Act provides that a reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

The Court turned to its earlier decision in M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited, (2009) 7 SCC 696, which had drawn a clear line between two situations. In the first, parties intend to adopt only specific portions of a referred document. In the second, parties intend to incorporate the referred document in its entirety. The test is whether the reference is to the whole document or only to particular provisions for a limited purpose.

Paragraph 17 of M.R. Engineers set out illustrations. Where a contract provides that a referred document “shall form part and parcel of the contract”, or that “all terms and conditions of the said document shall be read or treated as a part of the contract”, the terms of that document get bodily lifted and incorporated, including any arbitration clause. By contrast, a reference to a document only for a specific purpose — say, specifications of goods — does not bring in the rest of the document.

The Court also cited NBCC (India) Limited v. Zillion Infraprojects Private Limited, (2024) 7 SCC 174, which held that an arbitration clause in another document gets incorporated by reference if the contract contains a clear reference to that document, the reference clearly indicates an intention to incorporate the arbitration clause, and the clause is capable of application to the disputes under the contract and is not repugnant to any term of the contract. A general reference alone would not suffice.

Why the Supreme Court Reversed the High Court

Applying the M.R. Engineers framework, the Court found that Clause 14 of the Permanent Alternate Accommodation Agreements fell squarely within the category of full incorporation, not mere reference.

Clause 14 did two things. It first stated that all terms and conditions of the Development Agreement dated 4 July 2012 shall be construed to form part of the later agreements. It then went further and affirmed that all clauses of the Development Agreement shall be binding on the parties to the Accommodation Agreements. The Court found this to be an unequivocal expression of intent to import the Development Agreement “body and soul” into the later contracts.

The Court held that this was precisely the situation described in paragraph 17 of M.R. Engineers: a clause making all terms and conditions of an earlier document part of the later contract and binding on its parties. That kind of clause carries every term of the earlier document, including its arbitration clause, into the later contract.

The High Court's conclusion that Clause 14 was only a generic reference, insufficient to incorporate the arbitration clause, was therefore wrong in law. The Court held that the High Court had misread the legal position under Section 7(5) as explained in M.R. Engineers and NBCC v. Zillion. This was a fit case for the High Court to have accepted the appellant's plea that an arbitration agreement existed between the parties by incorporation.

On the High Court's separate concern about privity — that the individual members were not party to the Development Agreement — the Court's reasoning implicitly addressed this by finding that the members themselves signed the Accommodation Agreements containing Clause 14. By signing those agreements, the members accepted all terms and conditions of the Development Agreement, including Clause 36, as binding on them. The incorporation was not being imposed on them from outside; they had agreed to it in their own contracts with the appellant.

Order

The Supreme Court set aside the common order of the Bombay High Court dated 26 June 2025 and allowed all five appeals. Mr. Vishal Kanade, Advocate, Bombay High Court, was appointed as the Sole Arbitrator to resolve the disputes between the appellant and the five respondent members. The arbitrator was directed to make his declaration under Section 12 of the Arbitration Act within fifteen days of receiving a copy of the order. His fees are to be governed by the Fourth Schedule to the Arbitration Act. Pending applications, if any, were disposed of.