The case of M.R. Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd. stands as a significant milestone in Indian arbitration jurisprudence, particularly in the context of interpreting Section 7(5) of the Arbitration and Conciliation Act, 1996. At its core, the case tackled whether a general reference to another contract's terms, including an arbitration clause, could be deemed a valid arbitration agreement between parties not explicitly named in the original arbitration clause.
Background of the Case:

• The dispute emerged from a construction project commissioned by the Kerala Public Works Department (PWD), awarded to Som Datt Builders Ltd. as the main contractor.
• A portion of the work—construction of a Project Directorate Building—was sub-contracted to M.R. Engineers & Contractors Pvt. Ltd. through a work order dated May 4, 1994.
• This sub-contract made a general reference to the main contract, stating that it would be executed on the same terms and conditions, unless otherwise specified. However, it did not contain a specific arbitration clause.
• The main contract, meanwhile, included a detailed arbitration clause (Clause 67.3).
• M.R. Engineers alleged that they undertook additional work beyond the original scope and claimed unpaid dues. When Som Datt Builders refused arbitration, citing the absence of an arbitration clause in the sub-contract, M.R. Engineers invoked Section 11 of the Arbitration Act to seek appointment of an arbitrator. The petition was rejected, leading to an appeal to the Supreme Court.
   

Legal Issues Before the Court:

• Whether a general reference to the main contract incorporates the arbitration clause into the sub-contract.
• Whether Section 7(5) of the Arbitration and Conciliation Act permits such incorporation by reference.
• Whether the arbitration clause in the main contract could be enforced between a contractor and sub-contractor without explicit inclusion.
   

Arguments by the Appellant (M.R. Engineers):

• The appellant contended that the sub-contract's reference to the terms of the main contract included the arbitration clause, thus binding the parties to arbitration. They relied heavily on Section 7(5) and judicial precedents like Atlas Export Industries v. Kotak & Co. and Groupe Chimique Tunisien SA v. SPIC Ltd., arguing that such general references were sufficient under established jurisprudence.
• Further, the appellant claimed an arrangement where 80% of the arbitration award (related to the extra work) was owed to them by the respondent, which went unpaid despite an arbitral award obtained by the main contractor.

Arguments by the Respondent (Som Datt Builders):

• Som Datt Builders refuted the existence of any arbitration agreement within the sub-contract. They emphasized that arbitration clauses are procedural and collateral—not core to the execution of work—and therefore not automatically incorporated by a general reference.
• They also pointed out that Clause 67.3 of the main contract was tailored for disputes between the PWD and the main contractor, making it inapplicable to sub-contractors.

The Supreme Court's Decision:

• The Supreme Court upheld the decision to reject the arbitration petition. It ruled that a mere general reference to another contract's terms is insufficient to incorporate an arbitration clause.
• Key points of the judgment include:
  • Arbitration Clause as a Collateral Term: The Court noted that arbitration clauses are procedural and require explicit adoption, unlike operational terms such as execution methodology or pricing.
  • Clarity of Intent: For an arbitration clause to be validly incorporated under Section 7(5), the contract must clearly express an intent to include the arbitration provision specifically.
  • Inapplicability of Clause 67.3: The arbitration mechanism outlined in the main contract was designed specifically for disputes between the employer (PWD) and the contractor, with no provision for subcontractors.
  • The Court distinguished earlier cases cited by the appellant, explaining that those involved standard form contracts or widely recognized terms—unlike the unique and tailored agreement in the present case.

Guidelines Set by the Supreme Court:

• The ruling clarified several interpretive principles regarding Section 7(5):
• Mere Reference Is Not Sufficient: A general reference to another contract is inadequate to incorporate its arbitration clause.
• Clear Intention Needed: The parties must explicitly agree to incorporate the arbitration clause from the referred contract.
• Operational vs Procedural Terms: Execution-related terms may be adopted generally, but procedural clauses like arbitration require specific mention.
• Tailored Clauses Cannot Be Assumed Applicable: If an arbitration clause is customized for certain parties, it cannot apply to third parties like sub-contractors.
• Exception for Standard Forms: In the case of standard contracts or industry norms, general references may suffice due to common understanding.

Ratio Decidendi
The Court's core ruling affirms that an arbitration clause from another contract can only be incorporated if there is a clear, conscious, and specific reference to that clause. The distinction between execution-related terms and collateral dispute resolution provisions must be strictly maintained to preserve party autonomy and procedural fairness.

Critical Analysis and Conclusion
This judgment reinforces the sanctity of party consent in arbitration law. By insisting on express inclusion of arbitration clauses, the Court prevented the risk of parties being bound to arbitration without genuine agreement. While some may view this as overly formalistic—especially in commercial contexts like construction where contract terms are often mirrored—the decision ensures legal certainty and encourages meticulous contract drafting.

Ultimately, M.R. Engineers v. Som Datt Builders serves as a pivotal case clarifying the boundaries of Section 7(5). It sends a clear message: if parties intend to be bound by arbitration, they must say so clearly, not leave it to implication.