Maharashtra State Electricity Distribution Company Ltd (Msedcl) vs. R Z Malpani

REPORTABLE
IN THE SUPREME COURT OF INDIA
2026 INSC 342
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). OF 2026
(Arising out of SLP (C) No. 36889 OF 2025)
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION
COMPANY LIMITED
(MSEDCL) & ORS. …APPELLANT(S)

VERSUS
R Z MALPANI …RESPONDENT
J U D G M E N T
J.K. MAHESHWARI, J.
1. Leave granted.
2. The instant appeal is directed against the judgment dated
01.10.2025 of the Bombay High Court (hereinafter referred to as
“ High Court ”) in Arbitration Application (L) No. 1417 of 2025.
3. By the impugned order, the High Court disposed of the
application filed by the Respondent under Section 11 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as
“ 1996 Act ”) and appointed a sole arbitrator to adjudicate upon
Signature Not Verified
Digitally signed by
Gulshan Kumar Arora
Date: 2026.04.09
17:32:55 IST
Reason:
the disputes and differences between the parties.
1

FACTS
4. The Appellant, Maharashtra State Electricity Distribution
Company Limited (MSEDCL) is a State Government company,
which is a fully-owned corporate entity owned by the Government
of Maharashtra. It is an electricity distribution utility which
distributes electricity throughout Maharashtra including a few
suburbs of Mumbai. The Respondent is a partnership firm
engaged in civil construction and other allied businesses.
5. The Appellant floated a Tender dated 11.08.2021 bearing
Code EEC/BND/TECH/42/21-22 for ‘Civil & Interior work –
Providing / renovating 134 CFC Centres at various O&M
Divisions of SEDCL throughout the State’. (hereinafter referred to
as the “ Tender ”) Total estimated cost of the tender was
₹ 17,41,37,020. The Tender document contained four different
constituents, being (i) Instructions to Tenderers & Qualifying
Criteria (ii) General Specifications (iii) Technical Specifications (iv)
Special Conditions of Contract. (collectively referred to as “ Tender
documents ”) The Tender documents also contained an
agreement pro-forma. The timeline for the tender process as per
the Tender documents was as follows:
2

6. The Respondent participated in the tender process and
submitted a bank guarantee of ₹ 17,45,100 valid up to
06.03.2022. Respondent then submitted its bid/quotation
against the said Tender with a validity of 120 days on
03.09.2021. Upon opening of the techno-commercial and price
bids, the Appellant, vide letter bearing No. CEC/CCO/Tech/350
dated 16.11.2022 (hereinafter referred to as “ LOI ”) accepted the
bid of the Respondent and entrusted the work under the said
tender process to the Respondent for a value of ₹ 17,76,19,699.
7. On 29.11.2022, the Respondent furnished a further bank
guarantee to the tune of ₹ 44,40,500 as security deposit valid up
to 27.05.2023. The Appellant wrote to the Respondent on
13.12.2022 requesting that bank guarantee be furnished on
₹ ₹
stamp paper of 500 value instead of 100 and sent a reminder
in that respect on 31.12.2022. The Respondent submitted revised
3

₹
bank guarantee on stamp paper with value of 500 on
31.01.2023.
8. On 02.02.2023, the Holding Company of the Appellant wrote
to the Executive Engineer of the Appellant seeking correction in
the forwarding letter of the bank guarantees. Pursuant thereto,
the Respondent sent a corrected forwarding letter with the bank
guarantees on 06.02.2023.
9. Thereafter, the Respondent sent various letters and
representations to the Appellant seeking issuance of a Work
Order in terms of the LOI, but no Work Order was issued by the
Appellant. On 08.08.2023, the Respondent submitted revised /
renewed bank guarantees as security deposit.
10. Despite repeated requests being made by the Respondent,
the Work Order was not issued by the Appellant and ultimately,
on 05.08.2024, the Respondent terminated the contract, citing
Appellant’s failure to hand over the sites for the work to begin.
Thereafter, on 30.08.2024, the Respondent issued a notice under
Clause 23 of the Special Conditions of Contract in the Tender
documents, seeking reference of the disputes to arbitration and
seeking compensation to the tune of ₹ 4,89,85,500.
4

11. On 27.09.2024, the Appellant formally cancelled the Tender
and EMD, Security Deposit submitted by the Respondent was
duly refunded on 24.10.2024. It is pertinent that the cancellation
itself was not challenged by the Respondent availing public law
remedies and instead, the Respondent chose to pursue its remedy
by means of arbitration under the Tender documents.
12. On 01.10.2024, the Respondent again invoked the
arbitration agreement contained in Clause 23 of the Special
Conditions of Contract in the Tender documents. On 04.11.2024,
the Appellant replied to the Respondent’s arbitration notice and
specifically stated therein that Tender documents along with LOI
are not sufficient to form a valid contract or arbitration
agreement. On 06.11.2024 and 03.12.2024, the Appellant
informed the Respondent that since the EMD and Security
Deposit has been refunded, no claims or dues are pending.
13. At this stage, the Respondent filed an application under
Section 11 of the 1996 Act before the High Court being
Arbitration Application No. 1417 of 2025, seeking appointment of
an arbitrator. Notice was issued by the High Court on 21.01.2025
and service was complete, but on 26.06.2025 and 17.07.2025,
5

the Appellant did not appear before the High Court. The High
Court vide the impugned ex-parte order on 01.10.2025 appointed
one Mr. Drupad Patil, Advocate as the Sole Arbitrator to
adjudicate the disputes between the parties.
FINDINGS OF THE HIGH COURT
14. The High Court found that the offer made by the
Respondent in response to the Tender was accepted by the LOI
dated 16.11.2022 which resulted in a duly concluded contract.
Existence of arbitration agreement can be discerned from
correspondence between the parties and the scope of enquiry in
Section 11 proceedings is limited to examining the existence of a
valid arbitration agreement. It was observed by the High Court
that Appellant in their reply to the arbitration notice has not
denied the existence of an arbitration agreement, hence directed
appointment of an arbitrator.
ARGUMENTS ADVANCED
Mr. Vikas Singh, learned senior counsel for the Appellants
15.
has vehemently argued that there exists no concluded contract
between the parties, much less an arbitration agreement under
the meaning of Section 7 of the 1996 Act, and as such, the High
6

Court has erred in directing appointment of an arbitrator. He
submitted the impugned order is patently erroneous in recording
that the Appellant had not disputed the existence of an
arbitration agreement in their reply to the notice under Section
21 of the 1996 Act. Drawing our attention to the letter dated
04.11.2024 of the Appellant, it is stated that a specific plea was
taken about non-existence of arbitration agreement at the very
first instance by the Appellant. He further submitted that in the
absence of a concluded contract between the parties, there can
be no question of existence of an arbitration agreement complying
with Section 7 of the 1996 Act. In reference to the Tender
documents with the LOI, it is submitted that looking to the
material does not evince a concluded contract since the LOI itself
is contingent in nature, it provides that a detailed Work Order
and formal agreement was to follow and as such it is a precursor
to a contract and not the contract itself. He has placed reliance
on the recent judgement of this Court in
State of Himachal
1
and the
Pradesh and Anr. v. OASYS Cybernatics Pvt. Ltd.
judgement of
South Eastern Coalfields Limited and Ors. v. S.
2
in support of this argument.
Kumar’s Associates AKM (JV)
1 2025 SCC OnLine SC 2536.
2 (2021) 9 SCC 166.
7

arguendo
16. The Appellant has argued that, assuming , even if
the LOI is construed to be a contract creating legal relationship,
mere reference in the LOI to the terms of the Tender documents
would not have the effect of importing the arbitration clause as
contained therein. Further, learned senior counsel has drawn our
attention to the judgement of this Court in NBCC (India) Ltd. v.
3
Zillion Infraprojects Pvt. Ltd. to submit that mere reference to
another document containing an arbitration clause is not
sufficient unless the arbitration clause is specifically incorporated
in the subsequent document. He has submitted, therefore, that
the instant appeal deserves to be allowed and the impugned order
passed by the High Court warrants interference by this Court.
17. Appearing for the Respondents, learned counsel Mr. Abhijit
A. Desai has argued with equal force that the instant appeal
warrants dismissal since an order appointing an arbitrator is
final and non-appealable as per Section 11(7) of the 1996 Act. He
submits that this Court in a special leave petition arising out of
such appointment, must exercise caution while interfering
against appointment of an arbitrator and the tribunal has the
jurisdiction to decide on its jurisdiction under Section 16 of the
3 (2024) 7 SCC 174.
8

1996 Act in light of the principle of Kompetenz-Kompetenz . He has
submitted that the instant case is a feeble attempt at delaying
arbitration proceedings by the Appellant who has chosen not to
appear before the High Court despite adequate service of notice.
He has further argued that the existence of an arbitration
agreement is clear from a conjoint reading of: (i) Clause 23 of the
Special Conditions of the Tender documents; (ii) Respondent’s bid
dated 03.09.2021; (iii) LOI dated 16.11.2022 accepting the
Respondent’s bid. It is submitted that furnishing and repeated
renewal of bank guarantees by the Appellant, exchange of
correspondence regarding renewal of bank guarantees would
further show that there was a concluded contract between the
parties.
18. Since an arbitration agreement can be formed by exchange
of communication under Section 7(4)(b) of the 1996 Act, a
formally executed commercial contract is not necessary and
tender conditions containing an arbitration clause, once accepted
and acted upon, form a valid arbitration agreement under Section
7 of the 1996 Act. Learned counsel has placed reliance on the
judgement of this Court in Office for Alternative Architecture
9

4
v. Ircon Infrastructure and Services Ltd. to argue that the
scope of scrutiny by the Court in an application under Section 11
of the 1996 Act is circumscribed by sub-section (6A) thereto and
as such, unnecessary judicial interference in arbitration
proceedings is not warranted. Since the question relates to
formation of the contract, it must be left to the arbitrator to
decide in an application under Section 16 of the 1996 Act as held
by this Court in
Maharshi Dayanand University v. Anand
5
Much emphasis has been laid on the
Coop. L/C Society Ltd.
judgement of this Court in
UNISSI (India) (P) Ltd. v. Post
6
to
Graduate Institute of Medical Education and Research
argue that where the tender conditions contain an arbitration
clause and the tender has been acted upon by the parties, it
cannot be said that there existed no concluded contract and
consequently, no arbitration agreement. Lastly, it has been
submitted that cancellation of the tender itself does not
extinguish the arbitration agreement between the parties and the
said cancellation is a subject matter of arbitration. As such, he
has urged that the instant appeal warrants dismissal.
4 2025 SCC OnLine SC 1098.
5 (2007) 5 SCC 295.
6 (2009) 1 SCC 107.
10

ANALYSIS
19. After hearing learned counsel for the parties and having
gone through the documents on record, the short question which
whether, on a
falls for our consideration in the instant appeal is
prima facie view, there exists an arbitration agreement between the
parties and as such, whether the reference to arbitration under
Section 11 by the High Court warrants interference by this Court?
20. The law on appointment of an arbitrator under Section 11 of
the 1996 Act has undergone windfall change in the recent years,
especially after the insertion of sub-section 6A therein w.e.f.
23.10.2015 which confines the Court’s jurisdiction to the
examination of existence of an arbitration agreement. Initially,
this Court in Vidya Drolia & Ors. v. Durga Trading
7
Corporation , had developed what came to be known as the ‘ex-
facie’ test, holding in clear terms that while scope of judicial
review and interference by Courts at the Section 11 stage is
extremely limited, the Courts may interfere where it is ‘manifestly
7 (2021) 2 SCC 1.
11

and ex-facie certain that the arbitration agreement is non-
existent, invalid or the disputes are non-arbitrable’. The ‘eye of
the needle’ test was propounded by the judgement of this Court
8
in NTPC Ltd. v. SPML Infra Ltd. to hold that limited scrutiny at
the pre-arbitral stage by the referral court through the ‘eye of the
needle’ must be done in order to protect the parties from being
forced to arbitrate a matter which is demonstrably non-arbitrable.
Subsequently, however, a co-ordinate bench of this Court in
SBI
9
, relying on the
General Insurance Co. Ltd. v. Krish Spg.
seven-judge bench decision in
Interplay Between Arbitration
Agreements under Arbitration Act, 1996 & Stamp Act, 1899,
10
has held that the ‘ex-facie meritless’ and ‘eye of the
In re,
needle’ tests cannot be said to be in conformity with the
principles of modern arbitration and they would not apply after
the decision of the seven-judge bench, since even though they
endeavour to minimise judicial interference, yet require the
Courts to enter into a factual examination of contested facts and
evidence, however minimal. Relevant portion of the judgement in
SBI General Insurance Co. Ltd. is quoted herein for reference:
8 (2023) 9 SCC 385.
9 (2024) 12 SCC 1.
10 (2024) 6 SCC 1.
12

“ 114. In view of the observations made by this Court in In
Re : Interplay (supra), it is clear that the scope of enquiry
at the stage of appointment of arbitrator is limited to the
scrutiny of prima facie existence of the arbitration
agreement, and nothing else. For this reason, we find it
difficult to hold that the observations made in Vidya Drolia
(supra) and adopted in NTPC v. SPML (supra) that the
jurisdiction of the referral court when dealing with the
issue of “accord and satisfaction” under Section 11
extends to weeding out ex-facie non -arbitrable and
frivolous disputes would continue to apply despite the
subsequent decision in In Re : Interplay (supra).
….
118. Tests like the “eye of the needle” and “ex-facie
meritless”, although try to minimise the extent of judicial
interference, yet they require the referral court to examine
contested facts and appreciate prima facie evidence
(however limited the scope of enquiry may be) and thus are
not in conformity with the principles of modern arbitration
which place arbitral autonomy and judicial non-
interference on the highest pedestal. ”
21. As such, the pronouncement of this Court in
SBI General
(Supra) lays down a clear and comprehensive
Insurance Co. Ltd.
explanation about the scope of examination at the stage of
Section 11 proceedings: it is limited to finding a prima facie
existence of arbitration agreement and nothing beyond it.
Questions of ‘accord and satisfaction’, limitation, dishonesty and
frivolity, arbitrability of the subject-matter are to be left to the
adjudication by the arbitral tribunal under Section 16 of the
1996 Act which is a reflection of the doctrine of ‘ Kompetenz-
Kompetenz ’ or ‘ compétence de la compétence ’. It is therefore
13

incumbent upon us to only examine the prima facie existence of
an arbitration agreement.
22. At the outset, it would be apposite to extract the arbitration
agreement purportedly contained in Clause 23 of the Special
Conditions of Contract in the Tender documents. It reads as
thus:
“
23. Arbitration Clause:
a. The matters to be determine by the Chief Engineer:
All disputes and differences of any kind whatsoever
arising out of or in connection with the contract, whether
during the progress of the work or after its completion and
whether before or after the determination of the contract
shall be referred by the contractor to the C. E. and the C. E.
shall [within 120 days) after receipt of the contractor's
representation make and notify decisions of all matters
referred to by the contractor in writing.
b. Demand for Arbitration:
i) In the event of any dispute or difference between the
parties hereto as to the construction or operation of this
contract, or the respective rights and liabilities of the
parties on any matter in question, the dispute or difference
on any account or as to the withholding by M.S.E.D.C.LTD.
of any certificate to which the contractor may claim to be
entitled to or if the C. E. fails to make a decision (within
120 days), then and in any such case, the contractor (after
120 days) but within (180 days) of his presenting his final
claim on disputed matters, shall demand in writing that
the dispute or difference to be referred to arbitration.
ii) The demand for arbitration shall specify the matters
which are in question, or subject of the dispute or
difference as also the amount of claim item wise. Only
such dispute(s) or difference(s) in respect of which the
demand has been made, together with counter claims or
14

set off, shall be referred to arbitration and other matters
shall not be included in the reference.
a) The arbitration proceedings shall be assumed to
have commenced from the day, a written and valid
demand for arbitration is received by the Company.
b) The claimant shall submit his claim stating the
facts supporting the claims along with all relevant
documents and the relief or remedy sought against
each claim Within a period of 30 days from the date of
appointment of the Arbitral Tribunal.
c) The Company shall submit its defense statement
and counter claim(s), if any, within a period of 60 days
of receipt of copy of claims from the Tribunal thereafter
unless otherwise extension has been granted by the
Tribunal.
iii)No new claim shall be added during the proceedings by
either party. However, a party may amend or supplement
the original claim or defense thereof during the course of
arbitration proceedings subject to acceptance by Tribunal
having due regard to the delay in making it.
iv) If the contractor(s) does/do not prefer his/their specific
and final claims in writing, within a period of 90 days of
receiving the intimation from the Company, that the final
bill is ready for payment, he/they will be deemed to have
waived his/their claim(s) and the Company shall be
discharged and released of all liabilities under the contract
in respect of these claims.
c. Obligation during pendency of Arbitration:
Work under the contract shall, unless otherwise directed by
the Engineer, continue during the arbitration proceedings,
and no payment due or payable by the Company shall be
withheld on account of such proceedings, provided,
however, it shall be open for Arbitral Tribunal to consider
and decide whether or not such work should be continued
during arbitration proceedings.
15

In cases where the total value of all claims in question
added together does not exceed Rs.1,00,00,000/- (Rs. One
Crore) the Arbitrate Tribunal shall consist of a Sole
Arbitrator who shall be either the C.E. of the Company or
serving or retired officer of the Company/Government not
below the grade of C.E. or equivalent nominated by the
Chairman of the Company in that behalf. The Sole
Arbitrator shall be appointed within 60 days from the day
when a written and valid demand for arbitration is
received by the Company.
i) In cases the value of the claim exceeds Rs.
1,00,00,000/- (Rs. One Crore) as above, the Arbitral
Tribunal shall consist of panel of 3 serving or retired
officers of M.S.E.D.C.LTD. /Govt not below the grade of
C.E./CA.O. as the Arbitrators. For this purpose, the
Company will send a panel of more than 3 names of
arbitrators of one or more department of the
Company/Govt. to the contractor who will be asked to
suggest to the Chairman at least 2 names for appointment
as contractor's nominee. The Chairman shall appoint at
least one of them as the contractor's nominee and will also
appoint the balance number of arbitrators either from the
panel or from outside the panel, duly indicating the
presiding arbitrator from amongst the three [3) arbitrators
so appointed. While nominating arbitrators, it will be
necessary to ensure that one of them is or has worked in
Accounts department.
ii) If one or more arbitrators appointed as above refuses to
act as arbitrator, withdraws from his office as arbitrator or
vacates his/their office/offices or is/are unable or
unwilling to perform his functions as arbitrator for any
reason whatsoever or dies or in the opinion of the
Chairman fails to act without undue delay. The Chairman
shall appoint new arbitrators to act in his/their place in the
same manner in which the earlier arbitrator/s had been
appointed. Such reconstituted Tribunal, may, as its
discretion proceed with the reference from the stage at
which it was left by the previous arbitrator(s).
iii)The Tribunal shall have powers to call for such evidence
by way of affidavits or otherwise as the Arbitral Tribunal
16

shall think proper, and it shall be the duty of the parties
hereto to do or cause to be done all such things as may be
necessary to enable the Arbitral Tribunal to make the
award without any delay.
iv) While appointing arbitrator(s) as above, due care shall
be taken that he/they is/are not the one/those who had
an opportunity to deal with the matters to which the
contract relates or who in the course of his/their duties as
Company's servant(s) expressed views on all or any of the
matters under dispute or differences. The proceedings or
the Arbitral Tribunal or the award made by such Tribunal
will, however, not be invalid merely for the reason that one
or more arbitrator had, in the course of his service,
opportunity to deal with the matters to which the contract
relates or who in the course of his/their duties expressed
views on all or any of the matters under dispute.
v) Arbitral award shall state item wise, the sum and
reasons upon which it is based.
vi) A party may apply for corrections of any computational
errors, any typographical or clerical errors or any other
error of similar nature occurring in the award and
interpretation of specific point of award to tribunal within
30 days of receipt of the award.
vii) A party may apply to Tribunal within 30 days of
receipt of award to make an additional award as to claims
presented in the arbitral proceedings, but omitted from the
arbitral award.
viii) In case of the Tribunal, comprising of three
members any ruling or award shall be made by a majority
of Members of Tribunal. In the absence of such a majority,
the views of the Presiding Arbitrator shall prevail.
ix) Where the arbitral award is for payment of money, no
interest shall be payable on whole or any part of the
money for any period till the date on which the award is
made.
x) The cost of the arbitration shall be borne equally by the
respective parties. The cost shall inter-alia include fees of
the arbitrators as per the rates fixed by the Company from
17

time to time. Provided that the fees payable per arbitrator
for claims up to Rs. One Crore, shall not exceed Rs. 2000/-
per sitting subject to a maximum of Rs. 25,000/- and the
fees payable per arbitrator for claims over Rs. One Crore,
shall not exceed Rs. 2000/- per sitting subject to a
maximum of Rs. 50,000/-. Provided further that the
arbitrators who are in service of Govt/M.S.E.D.C. LTD.
shall draw fees at half of the rates mentioned above.
xi) Company shall maintain a list of arbitrators. The
Chairman shall have full powers to delete or add the name
of the arbitrators in the list or to make amendments to the
said list as per his discretion.
xii) The arbitral proceedings should be completed and
the award be finalized within one year ff om the date of
appointment of arbitrators.
xiii) Subject to the provisions as aforesaid, Arbitration
& Conciliation Act,1996 and the rules there under, and any
statutory notification thereof shall apply to the arbitration
proceedings under this clause.”
23. The ‘Instructions to Tenderers’ contained in the Tender
documents at Clause 23 provides that the successful tenderer
will have to execute an agreement with the Company (Appellant)
in the Company’s standard proforma. It reads as thus:
“ 23.0 The successful tenderer will also have to execute an
agreement with the Company in Company’s standard
proforma. The cost of stamp paper shall be borne by the
contractor. (The value of Stamp paper for agreement is Rs.
500/- up to ten lakh Plus RS. 100 for every one lakh or
part there of above Rs Ten Lacks) ”
24. Clause 42 of the ‘Instructions to Tenderers’ contained in the
Tender documents provides that in case the work is cancelled
18

before starting the work for any reason after placement of work
order, only E.M.D. / S.D. shall be refunded and no other claim in
this respect shall be entertained. Clause 39 of the ‘Instructions to
Tenderers’ in the Tender documents provides that the
‘Instructions to Tenderers’ shall form part of the contract.
25. The entire thrust of the argument of the Respondent is that
the arbitration clause contained in Clause 23 of the Special
Conditions of Contract in the Tender documents has been
incorporated in the contract which has been concluded by the
Appellant’s LOI dated 16.11.2022. The LOI references the Tender
documents and in the initial paragraphs, provides that the terms
and conditions of the contract as per the reference documents
shall be interpreted by reading together with them the terms of
the LOI itself and in case of conflict, the terms of the LOI shall
prevail. The said portion of the LOI is quoted herein for reference:
“ …
With reference to the above, on behalf of MSEDCL tender
No. EEC/BND/TECH/T-42/2021-22 is invited for providing
/ renovating the CFC center at various O&M Division of
MSEDCL throughout the State vide E-Tender Notice PR No.
295/2021 dt. 14.7.2021. In this regards the undersigned
is pleased to inform you that your offer for the above work
covered under the scope of Schedule-B of the said tender
has been accepted and work covered under the scope of
19

the contract is entrusted to you subject to the following
terms and conditions.
Notwithstanding that reference are given above, the terms
and conditions and specifications of contract shall be
interpreted by reading together the terms and conditions,
specifications and contents of this Letter of intent as below.
In case of any deviations with the contents of this Letter of
intent from corresponding conditions in the above said
tender specifications or contents of the letter under
reference as read and interpreted up to date, the contents
of this Letter of intent shall prevail. ”
26. In the concluding portion of the LOI, it is stated that the LOI
has been issued to the Respondent to start with preliminaries
and to start the work on the issuance of the detailed work order.
The said portion of the LOI is quoted herein for reference:
…
“
This letter of intent is issued to enable you to start with
preliminaries to start the work as soon as the detailed
work order is issued.
... "
27. It is the admitted case of the parties that pursuant to the
LOI and in terms of Clause 23 of the ‘Instructions to Tenderers’ of
the Tender documents, neither any work order was issued to the
Respondent nor any formal agreement was entered into between
the parties on the proforma of the Appellant. It is therefore
required to be examined as to whether any agreement to arbitrate
20

has formed at this stage in order to meet the requirement of
Section 7 of the 1996 Act. The said section is relevant for this
purpose and is therefore quoted below for reference:
“ 7. Arbitration Agreement :
(1) In this Part, ‘arbitration agreement’ means an
agreement by the parties to submit to arbitration all or
certain disputes which have arisen or which may arise
between them in respect of a defined legal relationship,
whether contractual or not.
(2) An arbitration agreement may be in the form of an
arbitration clause in a contract or in the form of a separate
agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained
in –
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other
means of telecommunications including communication
through electronic means which provide a record of the
agreement; or
(c) an exchange of statement of claim and defence in
which the existence of the agreement is alleged by one
party and not denied by the other.
(5) The 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. ”
28. Section 7(1) of the 1996 Act posits that there must be a
defined ‘legal relationship’ between the parties and the agreement
to arbitrate may be contractual or not. As such, conclusion of a
contract might not be necessary for that purpose and what needs
21

to be seen is whether the parties were ad idem in their intention
to refer a dispute to arbitration as evinced from their
11
communication. A distinction, however, is drawn when the
arbitration agreement is contained in some document which is
sought to be incorporated within another. Section 7(5) is
attracted in such a situation and it refers to the incorporation of
an arbitration agreement contained in some document into a
‘contract’ which has to be in writing. The use of the word
‘contract’ when dealing with incorporation of an arbitration
agreement from some other document is intentional and
consequential. Since in the present appeal the Respondent’s case
is that the LOI incorporates the arbitration agreement from the
terms of the Tender documents, both the contractual nature of
the LOI as well as the validity of incorporation becomes relevant
for our examination.
29. In this context, at the very threshold it must be observed
that the finding of the High Court that Appellant in its reply
dated 04.11.2024 to the Respondent’s arbitration notice ‘ did not
question the formation of arbitration agreement on any ground
other than the fact that the project did not proceed further ’ is prima
11 Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd. , (2015) 13 SCC 477.
22

facie erroneous and stares at the face of the record, and is liable
to be set aside. It has been contended in plain terms by the
Appellant in its reply dated 04.11.2024 that there was no
concluded contract between the parties and that the LOI cannot
bind either party to a contract, it is merely indicative of a party’s
intention to enter into a contract. There is, therefore, no
admission of any concluded contract, much less an arbitration
agreement between the parties by the Appellant in its reply dated
04.11.2024. The Appellant has throughout maintained that there
was no concluded contract between the parties and as such, no
reference to arbitration can be made under Clause 23 of Special
Conditions of Contract contained in the Tender documents
merely because of a general reference to the Tender documents in
the LOI.
30. A co-ordinate bench of this Court in OASYS Cybernatics
(Supra) has exhaustively discussed the effect of a letter of intent
pursuant to a tender, its legal character and the nature of rights
flowing therefrom. Relevant paragraphs of the said judgement are
quoted herein for reference:

23

24

Turning then to the LoI before us, its conditionality is
16.
beyond doubt. As noticed heretofore in para 5.7 , it
required the Respondent-company to:
(i) undertake compatibility testing of its proposed ePoS
devices at NICSI, Hyderabad;
(ii) provide a live demonstration of the devices with NIC's
application before the Directorate at Shimla;
(iii) execute a formal agreement only after successful
completion of the aforesaid steps; and
(iv) furnish a detailed MRP and landing cost of the
devices and their major components.

As a result, the
19. First Issue is answered in the
negative . We have no difficulty in holding that the LoI did
not give rise to any binding or enforceable rights in favour
of the Respondent-company. ”
31. It is settled law that a letter of intent does not, in and of
itself, create a legal relationship or contractual obligations until
25

there is a clear, unambiguous final acceptance by the parties. It
is an expression of one party’s intent to enter into a contract with
the other party in the forthcoming future. When the intent of the
parties can be evinced from the letter of intent or the tender
specifications and it is clear that the letter of intent is to be
followed by a final award or a concluded agreement, it cannot be
said that the letter of intent itself binds the parties to the terms
of the tender. Contractual obligations cannot be foisted upon a
party without a clear indication of its intent to enter into a
binding concluded contract. Therefore, what needs to be
distinguished is whether the intent of the parties is to make a
‘promise’ or a ‘promise to make a promise’. We are mindful of the
fact that a tender is essentially in the nature of an ‘invitation to
offer’ and submission of a bid by the tenderer is an ‘offer’. By
means of a letter of intent, however, it must be examined by the
Court whether the party extending the letter of intent is in
consensus ad idem with the other party and intends to create a
conclusive and binding agreement.
32. Further, in South Eastern Coalfields Ltd. (Supra), this
Court held that the question as to whether a contract had been
26

concluded between the parties can be discerned by the notice
inviting tender, the letter of intent and the conduct of parties.
Relevant paragraph of the said judgement is quoted herein for
reference:
“ 22. We would like to state the issue whether a concluded
contract had been arrived at inter se the parties is in turn
dependent on the terms and conditions of the NIT, the Lol
and the conduct of the parties. The judicial views before us
leave little doubt over the proposition that an Lol merely
indicates a party's intention to enter into a contract with
the other party in future. No binding relationship between
the parties at this stage emerges and the totality of the
circumstances have to be considered in each case. It is no
doubt possible to construe a letter of intent as a binding
contract if such an intention is evident from its terms. But
then the intention to do so must be clear and unambiguous
as it takes a deviation from how normally a letter of intent
has to be understood. This Court did consider in Dresser
Rand S.A. case that there are cases where a detailed
contract is drawn up later on account of anxiety to start
work on an urgent basis. In that case it was clearly stated
that the contract will come into force upon receipt of letter
by the supplier, and yet on a holistic analysis - it was held
that the Lol could not be interpreted as a work order. ”
33. Applying the said principles of law to the facts of this case,
we are in agreement with the argument of the Appellant that the
LOI in the facts of the instant case was a promise to make a
promise and not a promise itself and no agreement had
concluded between the parties. The word ‘contract’ as defined in
Clause 1(c) of the Special Conditions contained in the Tender
27

documents is ‘ the document forming Notice Inviting Tenders,
Tender Form, General Conditions of Contract, Technical
Specifications, priced schedule of items, contract agreement and
drawings and any other document which may be included at the
time of signing of contract agreement along with acceptance of the
contract thereof together
’. This definition incorporates the tender
framework under Clause 23 of the ‘Instructions to Tenderers’ of
the Tender documents, which posits that an agreement will be
entered into by the Appellant with the successful bidder.
34. The LOI provided that the work under the contract is
entrusted to the Respondent subject to terms and conditions and
as per clause 2 of the LOI, the time-limit to complete the entire
work was six months from the date of handing over of the sites.
Pertinently, the Appellant never handed over the sites to the
Respondent. Clause 3 provided that security deposit to the tune
₹
of 5% of order value, being 88,81,000 must be deposited by
means of demand draft or F.D.R. or B.G. of any nationalized bank
within 10 days from the date of receipt of LOI. Alternatively, 50%
of the security deposit, amounting to ₹ 44,40,500 shall be
₹
deposited in the said form and the balance amount of 44,40,500
28

may be deducted from the R.A. bill. Clause 7 of the LOI provides
for the requirement to obtain insurance in specific form as
mentioned therein. At the end of the LOI, it is mentioned that the
LOI has been issued to enable the Respondent to start with the
preliminaries so that work may be initiated as soon as the work
order is issued. It contemplates a work order to be issued at a
subsequent stage.
35. Neither the specifications of the Tender documents, nor the
LOI provides that the LOI itself would result in a concluded
contract. Rather, the Tender documents in Clause 23 of the
‘Instructions to Tenderers’ specifically provides for an agreement
to be entered into between the Appellant and the successful
tenderer and same is the import of Clause 1(c) defining the word
‘contract’. The intent behind the LOI is explicitly clarified as
merely to ensure that preliminaries are complied with so that the
work may begin upon issuance of a work order. No such work
order was issued pursuant to the LOI. On this count, it is
stressed by the Respondent that it had submitted the requisite
security deposit by means of bank guarantees and they were
renewed from time to time. However, neither the LOI nor the
29

Tender documents contemplate that upon submission of bank
guarantees, the contract would be said to be concluded, creating
a binding legal relationship. Rather, they both contemplate the
issuance of a work order and the signing of an agreement; mere
completion of preliminaries cannot be said to be sufficient to form
a binding legal relationship unless specified in the terms of the
tender specifications. From a reading of the LOI, the clauses
relating to submission of security deposit and insurance clearly
show the tender framework, where after acceptance of the bid,
work was entrusted to the Respondent subject to terms and
conditions which were procedural in nature, contemplating that
at a later stage, a final work order was to be issued and an
agreement was to be entered into between the parties.
36. In the above conspectus of facts, from a holistic reading of
the Tender documents, the LOI and other subsequent
communication between the parties, the LOI does not evince the
commercial intention of the Appellant to create a binding legal
relationship, it informs the Respondent that the work was
entrusted to them upon opening of bids and lays down
preliminary conditions to be fulfilled in contemplation of a future
30

work order and agreement in order to ensure that prior to the
work order being issued, everything is set in place and the work
may begin at once upon such issuance. As such, it cannot be
said that the LOI had the effect of creating a binding legal
relationship between the parties.
37. In the instant case, the Appellant argues further that even
assuming arguendo that the LOI itself can be considered a source
of binding legal relationship between the parties, the LOI has
made a general reference to the Tender documents and such a
general reference cannot have the effect of ‘incorporation’ of the
arbitration clause contained therein, in light of Section 7(5) of the
1996 Act. Section 7(5) provides that ‘ The 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. ’.
38. Reference in this respect has also been made to the
judgement of this Court in NBCC (India) Ltd. (Supra). In the said
judgement, this Court dealt with facts which are somewhat
similar to the instant appeal; the arbitration clause was
contained in the ‘Request for Proposal’ in the tender documents
31

and the contract was awarded to the Respondent therein by
means of issuance of a letter of intent which made the terms and
conditions of the said tender documents applicable to the letter of
intent as well. This Court drew a distinction between ‘reference’
and ‘incorporation’ of an arbitration clause, and after discussing
the decisions in M.R. Engineers & Contractors (P) Ltd. v. Som
12
Datt Builders Ltd. , and Inox Wind Ltd. v. Thermocables
13
Ltd. , found that the arbitration clause contained in some
document may be incorporated in the contract between the
parties only by a specific reference to the arbitration clause. The
intent of the parties to incorporate the arbitration clause has to
be explicitly clear and a mere general ‘reference’ to the tender
conditions would not suffice. Relevant paragraphs of the said
judgement are quoted herein for reference:

12 (2009) 7 SCC 696.
13 (2018) 2 SCC 519.
32

33

34

35

Although this Court in (Supra) was
39. NBCC (India) Ltd.
dealing with a factual situation which was quite similar to the
36

instant case, the reasons why the Court interfered with the
appointment of an arbitrator in the said case were twofold. Apart
from the fact that a general reference in the letter of intent to an
arbitration clause contained in the tender documents was found
to not be sufficient for its incorporation, the second reason was
that the letter of intent in that case had a separate dispute
resolution clause which limited redressal of disputes to civil
courts having jurisdiction of Delhi alone. Even then, the law laid
down in respect of incorporation of arbitration clauses contained
in tender documents by means of reference in the letter of intent
is squarely applicable to the facts of the instant case. The LOI in
the instant case makes a reference to the Tender documents
contained in the following terms:
“ Notwithstanding that reference are given above, the terms
and conditions and specifications of contract shall be
interpreted by reading together the terms and conditions,
specifications and contents of this Letter of intent as below.
In case of any deviations with the contents of this Letter of
intent from corresponding conditions in the above said
tender specifications or contents of the letter under
reference as read and interpreted up to date, the contents
of this Letter of intent shall prevail. ”
In our view, this is a case of ‘reference’ and not ‘incorporation’.
There is no mention of any arbitration or dispute resolution
37

clause in the LOI itself, neither does it purport specific
incorporation thereof from the tender documents. As such, the
arbitration clause contained in the Tender documents could not
be said to have been incorporated in the LOI to evince the
existence of an arbitration agreement between the parties on its
conjoint reading with the Tender documents.
40. The judgements of this Court in (Supra)
NBCC (India) Ltd.
as well as (Supra) were
M.R. Engineers & Contractors (P) Ltd.
recently discussed and distinguished on facts by a co-ordinate
bench of this Court in Glencore International AG v. Shree
14
Ganesh Metals . In the facts of that case, there was no
incorporation of the arbitration agreement, but rather the
contract containing the arbitration agreement was never signed
by the parties, but it was acted upon and the communication
between the parties evinced the creation of a binding legal
relationship between them. In such context, the Court placed
reliance on the judgement in Govind Rubber Ltd. (Supra) and
held that non-signing of the contract containing the arbitration
agreement cannot invalidate the arbitration agreement which is
in writing and the parties seem to be ad idem in respect of the
14 2025 SCC OnLine SC 1815.
38

agreement by communication about the contract. The judgement
in (Supra) is not applicable to the
Glencore International AG
facts of this case since it distinguishes the judgement in
NBCC
(Supra) where the factual scenario was quite similar
(India) Ltd.
to the facts of the instant appeal.
41. Similar is the case of the judgement in UNISSI (India) (P)
Ltd. (Supra) relied upon by the Appellant where the tender
documents contained an arbitration clause and the tender offer
of the Appellant therein was accepted and the Appellant therein
acted upon the said acceptance and made supply of oxymeters
required under the tender even though no formal contract was
signed between the parties. In such context, the Court held that
the arbitration agreement contained in the tender was applicable
and dispute between the parties ought to be referred to an
arbitrator. In the facts of the present case, the terms of the tender
itself have never been worked upon by the Respondent. The Work
Order was never issued by the Appellant and the sites were never
handed over by the Appellant. The Respondent has submitted
bank guarantees pursuant to the LOI, which at best is a
preliminary requirement as a precursor to the Work Order being
39

issued. As discussed above, the LOI in the instant case was
indicative of a preliminary document in course of the contract
and was not intended to be an end-all-be-all contract between the
parties, it did not create contractual obligations or legal
relationship between them.
42. It goes without saying that the scope of inquiry at the stage
of Section 11 is extremely limited and only pertains to an
examination about prima facie existence of an arbitration
agreement. Judicial non-interference in the arbitration process is
the sacrosanct principle which guides alternative dispute
resolution and Courts must be highly circumspect in interfering
at the referral stage, especially since there is no appeal available
in the 1996 Act against an order under Section 11. The Arbitral
Tribunal, in exercise of its jurisdiction under Section 16 must be
left to decide on its jurisdiction. The Courts should follow the
principle of ‘When in doubt, do refer’ and lean towards referring
matters to arbitration when the arbitration agreement is prima
facie existent. However, it is only in the rarest of rare cases where
even on a prima facie view, without going into disputed facts
between the parties, there appears to be no existence of
40

arbitration agreement between the parties, the Court can reject
the application for appointment of an arbitrator and reference of
the parties to arbitration. The instant case appears to be a fit
case where, as discussed, even without going into the disputed
facts and merely on a prima facie view of the matter, there is no
existence of arbitration agreement and therefore, the decision of
the High Court to appoint an arbitrator requires interference.
43. As an upshot of the above discussion, the instant appeal
deserves to be allowed and the order impugned passed by the
High Court stands set aside. The Respondent is given the liberty
to pursue other alternative remedies in accordance with law, if
any, available to it. All interim application(s) shall be treated to be
disposed of.
.…..………………………….J.
(J.K. MAHESHWARI)
.…..………………………….J.
(ATUL S. CHANDURKAR)
NEW DELHI;
APRIL 09, 2026.
41