The Delhi High Court ("High Court"), in Intec Capital Limited v. Mr. Shekhar Chand Jain, ARB. A. (COMM.) 25/2024 by its order dated September 4, 2025, held that an arbitration clause in a loan agreement stood incorporated by reference in the separate deeds of guarantee executed by the guarantors, even though the guarantors were not signatories to the loan agreement.
Factual Background
The appellant, Intec Capital Limited (the "Appellant") had granted a loan to Ms. Poonam Jain and Shri Digamber Polymers (collectively "Borrowers") by and under a loan agreement dated December 21, 2012 ("Loan Agreement"). The said loan was guaranteed by the respondents Mr. Shekhar Chand Jain and Messrs Ganesh Polymers (collectively "Respondents") by and under separate deeds of guarantee which were also executed on the same day as the Loan Agreement ("Guarantee Deeds"). Upon default in repayment of the loan by the Borrowers, the Appellant invoked the arbitration agreement contained in Clause 32 of the Loan Agreement. The Respondents filed an application seeking their discharge from the arbitration proceedings on the grounds that the Guarantee Deeds did not have an arbitration agreement. The application of the Respondents was allowed by the arbitrator and by an order dated April 20, 2024, the arbitrator held that there was no valid arbitration agreement between the Appellant and the Respondents. Aggrieved by this order of the arbitrator, the present appeal was filed by the Appellant.
Contentions of the Parties
Appellants' Contentions:
The Appellant relied on Clause 4 of the respective Guarantee Deeds to argue that the arbitration clause in the Loan Agreement was incorporated by reference in the Guarantee Deeds in accordance with Section 7(5) of the Arbitration and Conciliation Act, 1996. Clause 4 of each of the Guarantee Deeds stated that the guarantors were bound by the terms and conditions of the Loan Agreement and that the guarantee of the Respondents formed an integral part of the Loan Agreement.
The Appellant also contended that the Guarantee Deeds and the Loan Agreement form part of a single composite transaction executed contemporaneously and accordingly the same must be read together to determine the intention of the parties. Further, for the sake of argument, even if the reference to the Loan Agreement in the Deeds of Guarantee was treated as a general reference rather than incorporation of the provisions therein, the position would still not be in the Respondents' favour as the Guarantee Deeds and the Loan Agreement were standard form contracts and therefore a general reference of the Loan Agreement in the Guarantee Deeds was sufficient to incorporate the arbitration clause in the Guarantee Deeds.
In making its submissions, the Appellant relied on decisions passed by the Supreme Court of India ("Supreme Court") in M.R. Engineers & Contractors Private Limited v. Som Datt Builders Limited, (2009) 7 SCC 696, Messrs Inox Wind Limited v. Messrs Thermocables Limited, (2018) 2 SCC 519, Shinhan Bank v. Carol Info Services Limited, (2023) 20 SCC 388 and Punjab National Bank Limited v. Bikram Cotton Mills, AIR 1970 SC 1973 and the ruling made by the High Court in RBCL Piletech Infra v. Bholasingh Jaiprakash Construction Limited, 2024 DHC 5415.
Respondents' Contentions:
The Respondents submitted that the Loan Agreement containing the arbitration clause, to which the Respondents were not signatories was a distinct contract from the Guarantee Deeds. Since the Guarantee Deeds did not contain any arbitration agreement or a specific reference of the arbitration clause of the Loan Agreement being incorporated in the Guarantee Deeds, the Respondents could not be made parties to the arbitration proceedings under the Loan Agreement.
In making their submissions, the Respondents relied on decisions passed by the Supreme Court in M.R. Engineers & Contractors Private Limited v. Som Datt Builders Limited, (2009) 7 SCC 696, NBCC (India) Limited v. Zillion Infraprojects Private Limited, (2024) 7 SCC 174, STCI Finance Limited v. Shreyas Kirti Lal Doshi, 2020 SCC OnLine Del 100, S.N. Prasad, Hitek Industries (Bihar) Limited v. Monnet Finance Limited, (2011) 1 SCC 320, Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 and N.N. Global Mercantile (Private) Limited v. Indo Unique Flame Limited, (2021) 4 SCC 379.
Decision
The High Court while determining whether the parties intended to import the arbitration clause in the Guarantee Deeds, held that:
"46. Applying this principle to the present case, it is seen that Clause 4 of the Deeds of Guarantee is not a mere general reference but expressly acknowledges that the Guarantor has read and understood the Loan Agreement, agrees to be bound by its terms and accepts the Guarantee to be an "integral part" of the Loan Agreement. The use of the phrase "integral part" is significant, as it denotes that the Guarantee is not intended to operate as an isolated instrument, but in conjunction with and subject to the terms of the Loan Agreement.
47. Thus, this satisfies the test of incorporation of the Loan Agreement in entirety."
(emphasis supplied)
The High Court further held that the Loan Agreements and the Guarantee Deeds formed part of a single transaction where the commercial intention was to secure the repayment of the loan by binding both the Borrowers and the Respondents. Accordingly, it held that the arbitration clause applied to the Respondents, and the arbitrator's order dated April 20, 2024 suffered from patent illegality and was set aside.
Argus View
While rendering its decision, the High Court ultimately relied on the commercial understanding between the parties. This decision also reinforces the view that where several documents are executed for a single commercial transaction, the same must be read together to understand the intention of the parties. Hence, parties to a contract must ensure that their commercial understanding is clearly captured therein, with no room for interpretation.
Please find attached a copy of the Judgement, here.
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