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R.V. RAVEENDRAN, J.

Leave granted. Heard learned counsel for both parties. The matter relates to interpretation of sub-section (5) of section 7 of Arbitration and Conciliation Act, 1996 ('Act' for short) and the issue involved is whether an arbitration clause contained in a main contract, would stand incorporated by reference, in a sub-contract, where the sub-contract provided that it "shall be carried out on the terms and conditions as applicable to the main contract."

2. The Public Works Department, Government of Kerala, (in short `PW Department') entrusted the work of "Four Laning and Strengthening of Alwaye - Vyttila and Aroor - Cherthala and Strengthening of Vyttila to Aroor Section of NH 47 - N2 & N3 packages" which included the work of "Construction of Project Directorate Building for National Highway Four Laning Project at Edapally, Cochin" to the respondent. The said contract between PW Department and the respondent contained a provision for arbitration, as per clause 67.3 of the General Conditions of Contract. The relevant portion of the said clause is extracted below:

(v) Where the contract between the parties stipulates that the Conditions of Contract of one of the parties to the contract shall form a part of their contract (as for example the General Conditions of Contract of the Government where Government is a party), the arbitration clause forming part of such General Conditions of contract will apply to the contract between the parties.

14. The Learned counsel for appellant relied on two decisions to contend that even a general reference to the main contract (between PW Department and the respondent) in the sub-contract was sufficient to incorporate the arbitration clause in the main contract, into the sub-contract, even if there was no special reference to the arbitration clause. We will refer to them briefly.

15. The work order (sub-contract), relevant portions of which have been extracted in para 3 above, shows that the intention of the parties was not to incorporate the main contract (between the PW Department and respondent) in entirety into the sub contract. The use of the words "This sub-contract shall be carried out on the terms and conditions as applicable to main contract" in the work order would indicate an intention that only the terms and conditions in the main contract relating to execution of the work, were adopted as a part of the sub-contract between respondent and appellant, and not the parts of the main contract which did not relate to execution of the work, as for example the terms relating to payment of security deposit, mobilization advance, the itemised rates for work done, payment, penalties for breach etc., or the provision for dispute resolution by arbitration. An arbitration clause though an integral part of the contract, is an agreement within an agreement. It is a collateral term of a contract, independent of and distinct from its substantive terms. It is not a term relating to `carrying out' of the contract. In the absence of a clear or specific indication that the main contract in entirety including the arbitration agreement was intended to be made applicable to the sub-contract between the parties, and as the wording of the sub-contract discloses only an intention to incorporate by reference the terms of the main contract relating to execution of the work as contrasted from dispute resolution, we are of the view that the arbitration clause in the main contract did not form part of the sub-contract between the parties. We are fortified in this view, by the decision in Alimenta SA. v. National Agricultural Co-op. Marketing Federation of India Ltd. [1987 (1) SCC 615]. The NAFED - the respondent therein entered into two contracts with Alimenta S.A. for the supply of certain goods referred to HPS. Clause 11 of the first contract stipulated that "other terms and conditions as per FOSFA- 20 contract terms". (FOSFA-20 being a standard form of contract of the Federation of Oils, Seeds and Fats Association Ltd. containing an Arbitration clause). Clause 9 of the second contract provided that "all other terms and conditions for supply not specifically shown and covered hereinabove shall be as per previous contract signed between us for earlier supplies of HPS". The question before this court was whether the arbitration clause in FOSFA -20 was incorporated in the first contract by way of Clause 11 and in the second contract by virtue of Clause 9. The Court held that while the Arbitration clause was incorporated in the first contract, the same was not incorporated in the second contract. The following reasoning of the Court while dealing with the second contract is relevant for our purpose:

(emphasis supplied)

16. Even assuming that the arbitration clause from the main contract had been incorporated into the sub-contract by reference, we are of the view that the appellant could not have claimed the benefit of the arbitration clause. This is in view of the principle that the document to which a general reference is made, contains an arbitration clause whose provisions are clearly inapt or inapplicable with reference to the contract between the parties, it would be assumed or inferred that there was no intention to incorporate the arbitration clause from the referred document. In this case the wording of the arbitration clause in the main contract between the PW Department and contractor makes it clear that it cannot be applied to the sub-contract between the contractor and the sub-contractor. The arbitration clause in the main contract states that the disputes which are to be referred to the committee of three arbitrators under clause 67(3) are disputes in regard to which the decision of the Engineer (`Engineer' refers to person appointed by State of Kerala to act as Engineer for the purpose of the contract between PW Department and the respondent) has not become final and binding pursuant to sub-clause 67.1 or disputes in regard to which amicable settlement has not been reached between the State of Kerala and the respondent within the period stated in sub-clause 67.2. Obviously neither 67.1 nor 67.2 will apply as the question of `Engineer' issuing any decision in a dispute between the contractor and sub-contractor, or any negotiations being held with the Engineer in regard to the disputes between the contract and sub-contractor does not arise. The position would have been quite different if the arbitration clause had used the words "all disputes arising between the parties" or "all disputes arising under this contract". Secondly the arbitration clause contemplates a committee of three arbitrators, one each to be appointed by the State of Kerala and the respondent and the third (Chairman) to be nominated by the Director General, Road Development Ministry of Surface, Transport, Roads Wing, Govt. of India. There is no question of such nomination in the case of a dispute between the contractor and sub-contractor. It is thus seen that the entire arbitration agreement contained in the main contract between the employer and the contractor was tailor-made to meet the requirements of the contract between the employer and the contractor and is wholly inapt and inapplicable in the context of a dispute between the contractor and the sub-contractor. This makes it clear that the arbitration clause contained in the main contract would not apply to the disputes arising with reference to the sub-contract.