General reference in a letter of intent cannot incorporate an arbitration clause from tender documents.

The Appellant (MSEDCL) floated a tender for civil and interior works throughout Maharashtra

The Respondent participated and was issued a Letter of Intent (LOI) on November 16, 2022, for a value of ₹17.76 Crores

While the Respondent furnished bank guarantees and renewed them repeatedly, the Appellant never issued a formal "Work Order" nor executed a formal agreement on its standard proforma as required by the tender's instructions

No sites were handed over to the Respondent

Consequently, the Respondent terminated the contract and invoked the arbitration clause (Clause 23) contained in the Special Conditions of Contract of the Tender documents

The Appellant subsequently cancelled the tender and refunded the deposits

The Respondent filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 ("1996 Act").

The Bombay High Court, in an ex-parte order, appointed a sole arbitrator, holding that the LOI resulted in a concluded contract and the existence of an arbitration agreement could be discerned from the correspondence

Section 7 of the 1996 Act, which mandates that an arbitration agreement must be in writing and requires "conscious acceptance" for incorporation by reference under sub-section (5)

SBI General Insurance Co. Ltd. v. Krish Spg., which limits the judicial role under Section 11 to examining the prima facie existence of an arbitration agreement

State of Himachal Pradesh v. OASYS Cybernatics Pvt. Ltd., establishing that an LOI is typically a precursor to a contract and not the contract itself unless it matures through the satisfaction of preconditions

the principles from M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd. and NBCC (India) Ltd. v. Zillion Infraprojects Pvt. Ltd., which distinguish between "reference" and "incorporation," holding that a general reference to another document is insufficient to incorporate an arbitration clause unless there is a specific reference to said clause

The Court found that the High Court erred in concluding that the Appellant had admitted to the arbitration agreement

Analyzing the LOI and tender specifications, the Court observed that the "contract" was defined as requiring the signing of a formal agreement and the issuance of a "Work Order"

The LOI was explicitly issued to enable "preliminaries" and was contingent upon a future work order; thus, it was a "promise to make a promise" rather than a concluded contract

Regarding incorporation, the Court noted that the LOI made only a general reference to the terms and conditions of the tender without specific mention of the arbitration clause

Under Section 7(5), this constitutes a mere "reference" and fails the test for "incorporation"

The Court emphasized that while judicial interference at the Section 11 stage is limited, it is permissible in rare cases where it is manifest that no arbitration agreement exists

Since neither a concluded contract nor a specifically incorporated arbitration clause existed, there was no "defined legal relationship" to support the reference to arbitration

The Court held that the LOI did not create a binding legal relationship as it was a preliminary document subject to further conditions that were never met

It further held that a general reference to tender documents in an LOI does not ipso facto incorporate an arbitration clause contained therein

The Respondent was granted liberty to pursue other alternative legal remedies