Section 7(5) Arbitration Act | General Reference to TCOs in Work Orders Suffices for Arbitration Agreement : Delhi HC

The Delhi High Court has clarified that a general reference to a Techno-Commercial Offer containing an arbitration clause, when incorporated into subsequent Work Orders, is sufficient to establish a prima facie arbitration agreement under Section 7(5) of the Arbitration and Conciliation Act, 1996. This ruling reinforces party autonomy and minimizes judicial intervention at the appointment stage, providing critical guidance for construction and infrastructure contracts.

Background & Facts

The Dispute

The petitioner, Moonwalk Infra Projects Private Limited, is a private limited company engaged in the supply, design, and erection of prefabricated buildings. The respondent, M/A ONSTRUQ Interlayer Private Limited, was the main contractor for two infrastructure projects: Project I at Sri City, Chittoor, Andhra Pradesh, and Project II at Logos Luhari Logistics Estate, Haryana. The petitioner submitted Techno-Commercial Offers (TCOs) in response to the respondent’s inquiries for subcontracting work on these projects.

Key Facts

• The petitioner submitted TCO No. QN2300986 dated 08.11.2023 for Project I, containing detailed technical specifications and an arbitration clause.
• The petitioner submitted TCO No. QN2300864 dated 25.09.2023 for Project II, similarly containing technical specifications and an arbitration clause.
• Both TCOs included a Governing Law clause stating: "unresolved issues, if any, will be settled by arbitration as per the Indian Arbitration and Conciliation Act, and the venue of the arbitration will be Delhi, India."
• The respondent issued two Work Orders dated 12.02.2024 for Project I, expressly referencing TCO No. QN2300986 and stating the supply and erection orders were awarded "based on the technical specification shared by you."
• The respondent issued two Work Orders dated 16.10.2023 for Project II, similarly referencing TCO No. QN2300864 and stating the work orders were awarded "based on the technical specification shared by you."
• The total contract value for Project I was Rs. 11,65,74,071 for supply and Rs. 73,25,928.52 for erection.
• The total contract value for Project II was Rs. 7,60,50,378 for supply and Rs. 1,13,55,307 for erection.
• The petitioner completed substantial work on both projects but alleged that the respondent withheld payments totaling Rs. 1.47 crores and failed to release dues as per agreed terms.
• The respondent terminated the contracts on 18.06.2025 without settling outstanding dues.

Procedural History

• 08.11.2023: TCO No. QN2300986 submitted for Project I.
• 25.09.2023: TCO No. QN2300864 submitted for Project II.
• 16.10.2023: Two Work Orders issued for Project II.
• 12.02.2024: Two Work Orders issued for Project I.
• 12.03.2025: Legal notice invoking arbitration for Project I.
• 02.07.2025: Legal notice invoking arbitration for Project II.
• 17.03.2026: Judgment pronounced by Delhi High Court on ARB. P. 1139/2025 and ARB. P. 1335/2025.

The Parties' Positions

The petitioner contended that the TCOs, with their arbitration clauses, were incorporated into the Work Orders by reference, forming a binding arbitration agreement. The respondent argued that the TCOs were mere proposals that never matured into contracts due to lack of acceptance, and that the Work Orders, being the only concluded agreements, contained no arbitration clause.

Relief Sought

The petitioner sought appointment of a Sole Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, to adjudicate disputes arising from the non-payment and termination of contracts for both projects.

The Legal Issue

The central question was whether a general reference in a Work Order to a prior Techno-Commercial Offer containing an arbitration clause is sufficient to incorporate that clause into the Work Order under Section 7(5) of the Arbitration and Conciliation Act, 1996, even in the absence of an explicit mention of arbitration.

Arguments Presented

For the Petitioner

Mr. Rajeev Kumar, Advocate, argued that the Work Orders expressly referenced the TCOs and were issued "based on the technical specifications shared by you," thereby incorporating all terms therein, including the arbitration clause. He relied on Inox Wind Ltd. v. Thermocables Ltd. (2018) 2 SCC 519 and Balasore Alloys Ltd. v. Medima LLC (2020) 9 SCC 136 to contend that where a party issues a purchase order or work order based on a detailed offer containing arbitration terms, a general reference suffices for incorporation under the "single-contract" category. He emphasized that the parties’ conduct - issuing work orders, making partial payments, and accepting supplies - demonstrated mutual affirmation of the TCO terms.

For the Respondent

Mr. Anish Maheshwari, Advocate, contended that the TCOs were mere proposals under the Indian Contract Act, 1872, which never received absolute and unqualified acceptance. He argued that the TCOs lapsed on 11.11.2023 and 28.09.2023 respectively, as per their own validity clauses, and thus could not form the basis of any binding agreement. He relied on NBCC (India) Ltd. v. Zillion Infraprojects Pvt. Ltd. (2024) 7 SCC 174 to assert that incorporation by reference requires a specific mention of arbitration, especially where the underlying document is not a standard form. He further argued that the Work Orders, being the only concluded contracts, contained no arbitration clause and therefore no enforceable agreement existed.

The Court's Analysis

The Court began by reaffirming the limited scope of judicial review under Section 11 of the Arbitration Act, as clarified in In re: Interplay Between Arbitration Agreements under Arbitration, 1996 & Stamp Act, 1899 (2024) 6 SCC 1: "The scope of examination at the stage of appointment of an Arbitrator is limited to a prima facie assessment of the existence of a valid arbitration agreement."

The Court then examined the nature of the TCOs and Work Orders. It noted that the TCOs were not standard forms issued by trade associations but were bespoke commercial offers containing detailed technical specifications and an arbitration clause. Crucially, the Work Orders explicitly stated they were issued "based on the technical specification shared by you," thereby linking them directly to the TCOs.

"The reference to the quotation is neither incidental nor merely descriptive; rather, it forms the very foundation upon which the Work Orders have been issued."

The Court held that this factual matrix fell squarely within the "single-contract" category as defined in Inox Wind Ltd., where the same parties are involved and the later document (Work Order) is founded on the earlier document (TCO). In such cases, a general reference suffices for incorporation of the arbitration clause.

The Court rejected the respondent’s reliance on NBCC v. Zillion, distinguishing it on the ground that NBCC involved a "two-contract" scenario where a party sought to incorporate terms from a contract with a third party. Here, both the TCO and Work Order were between the same parties, and the Work Orders explicitly incorporated the petitioner’s own technical specifications.

The Court further held that even if the TCOs had lapsed under Section 6(2) of the Indian Contract Act, the Work Orders themselves constituted a new, independent acknowledgment of the TCO terms, thereby reviving the incorporation. The Court emphasized that the existence of a concluded contract is not a prerequisite for the existence of an arbitration agreement under Section 7(5); the focus is on the parties’ intent as evidenced by their communications.

The Verdict

The petitions were allowed. The Court appointed Ms. Maneesha Dhir, Advocate (Mob. No. 9810113325), as Sole Arbitrator. The arbitration proceedings shall be conducted under the rules of the Delhi International Arbitration Centre (DIAC). The arbitrator’s remuneration shall be as per DIAC (Administrative Cost and Arbitrators’ Fees) Rules, 2018. The parties are directed to approach the Arbitrator within two weeks from the date of judgment. Each petition shall be treated as a separate reference. All substantive claims, counterclaims, and preliminary objections are left open for adjudication by the Arbitrator.

What This Means For Similar Cases

General Reference Can Suffice for Arbitration Incorporation

• Practitioners may now rely on general references to underlying commercial offers containing arbitration clauses in purchase orders, work orders, or delivery notes, provided the reference is foundational and not merely descriptive.
• The burden shifts to the opposing party to prove the absence of mutual intent to arbitrate, not the presence of explicit arbitration language.

Work Orders Are Not Isolated Documents

• Work Orders issued after detailed TCOs are not standalone contracts but extensions of the original offer.
• Any dispute resolution clause embedded in the TCO becomes part of the contractual framework if the Work Order explicitly ties itself to the TCO’s technical or commercial terms.

Lapsed Proposals May Still Support Arbitration Agreements

• Even if a proposal has technically lapsed under the Indian Contract Act, subsequent conduct - such as issuing work orders referencing the proposal - can revive its terms for the purpose of arbitration.
• The Court’s focus remains on the objective manifestation of intent, not the technical validity of the underlying contract.

Avoid Overreliance on NBCC Precedent

• NBCC v. Zillion applies only to "two-contract" scenarios involving third-party terms.
• In "single-contract" cases between the same parties, a general reference suffices - this judgment clarifies the boundary.

Practical Takeaway

• Drafters of TCOs should ensure arbitration clauses are clearly stated and prominently placed.
• Contractors should explicitly reference TCOs in Work Orders using language such as "based on," "in accordance with," or "subject to the terms of."
• Opposing counsel must now argue intent and context, not mere absence of the word "arbitration" in the final document.