Mere Use Of Word 'Arbitration' In Clause Of Agreement Not Clinching Or Decisive; Ad Idem Intention Of Parties Is Paramount: Supreme Court

The Appeals before the Apex Court were filed against the judgment of the Punjab & Haryana High Court dismissing an application filed by the appellant under Section 11(6) of the Arbitration and Conciliation Act, 1996.

The Division Bench of Justice Dipankar Datta and Justice Augustine George Masih held, “The above rulings lead us to the irresistible conclusion that mere use of the word “arbitration” in a clause of an agreement is not clinching or decisive. Section 7 presupposes an express intention of the dispute/difference being resolved through arbitration and mere reference to the term is not sufficient to meet this threshold. The A&C Act acknowledges the existence of an arbitration agreement based on its substance rather than its form. Regardless of the formal structure, effect has to be given to an arbitration agreement in essence. Arbitration being the creature of a contract, the ad idem intention of the parties is paramount to determine whether there exists a valid arbitration agreement. That being said, the invocation of the word “arbitration” nonetheless provides, at the very least, a discernible clue to the parties’ underlying intention.”

AOR Aditya Soni represented the Appellant, while AOR Shamik Shirishbhai Sanjanwala represented the Respondent.

Factual Background

The appellant, a private healthcare institution having its principal establishment at Panchkula, Haryana, entered into a Software Implementation Agreement with the respondent, a Bengaluru-based technology company specialising in digital health-management platforms. Under the agreement, the respondent undertook to implement its proprietary hospital-management product known as “HINAI Web Software intended to streamline patient-care operations. The appellant alleged that there were repeated procedural delays and technical failures on the part of the respondent, including sluggish performance, billing malfunctions, and incomplete integration of diagnostic modules.

The appellant had also addressed an email to the respondent invoking Clause 8.28 of the Agreement and requesting a mediation meeting between the Chairmen of the two companies. The Appellant called upon the respondent to concur in the appointment of a sole arbitrator. Constrained by the respondent’s reply requesting trial of the project one last time, the appellant approached the High Court, invoking Section 11(6) of the A&C Act and praying for the appointment of a sole arbitrator. The High Court dismissed the application with the observation that the term “arbitration” had been loosely employed in Clause 8.28 and the true intention discernible from its language was only to provide for negotiation and mediation at an internal company level. Aggrieved thereby, the appellant approached the Apex Court.

Reasoning

The Bench explained that Section 7 of the Arbitration & Conciliation Act posits certain requirements that need to be fulfilled to satisfy the attributes of an arbitration agreement. These include the requirement that there must exist an agreement between the parties to refer a dispute/all disputes to arbitration, either before or after the said disputes arise; the disputes must be in connection with a defined legal relationship, whether contractual or not, and lastly, the agreement must be in writing. “It is settled law that Section 7 or any other provision of the A&C Act requires that an arbitration agreement need not be in any specific form, apart from compliance with the requirements that Section 7 of the A&C Act ordains”, it mentioned.

Referring to the judgment in Jagdish Chander v. Ramesh Chander (2007), the Bench explained, “What, therefore, follows from the above passage is that the mere use of the word “arbitration” is not sufficient to treat the clause as an arbitration agreement when the corresponding mandatory intent to refer the disputes to arbitration and the consequent intent to be bound by the decision of the arbitral tribunal is missing.”

The Bench noticed that Clause 8.28 of the Agreement stated that the parties must first attempt to negotiate the dispute in good faith. The agreement also stipulated that should the dispute not be resolved within 15 days after the proposed “arbitration”, the complaining party shall seek remedies through the courts of law. It was also noticed that the word “arbitration”, apart from appearing in the title of the relevant clause, has been used 3 times in the body of the clause.

The Bench found that in Clause 8.28, there was no indication that the proposed “arbitration” was supposed to be final and binding. The penultimate sentence of the clause stipulated that should the dispute not be resolved within 15 days after arbitration, the complaining party shall seek remedies through the courts of law. “This suggests an attempt at amicable resolution inter se rather than a definitive submission to arbitration, failing which the party has the option to proceed to the courts of law”, it added.

The Bench further considered the fact that the individuals designated as “arbitrators” under the clause were the respective Chairmen of the parties themselves whereas arbitration contemplates reference to a neutral third party, a process supported by Section 12 read with the Seventh Schedule of the A&C Act. “In our view, Clause 8.28 of the Agreement does not evince an intention to refer disputes to arbitration, for the above-mentioned reason”, it held.

The Bench was of the view that when there has indeed been no arbitration agreement in the first place, therefore, subsequent correspondence between the parties cannot displace the original intention. Thus, affirming the judgment of the High Court and dismissing the appeal, the Bench ordered, “Appellant is free to seek remedy in accordance with law before the competent civil court. If the benefit of Section 14 of the Limitation Act, 1963 is claimed, the relevant court may decide such claim appropriately.”

Cause Title: M/S Alchemist Hospitals Ltd. v. M/s ICT Health Technology Services India Pvt. Ltd. (Neutral Citation: 2025 INSC 1289)

Appearance

Appellant: AOR Aditya Soni, Advocate Rajat Gautam

Respondent: AOR Shamik Shirishbhai Sanjanwala, Advocates Aditya Tripathi, Aarushi Gupta, Rishav Gupta, AOR Shamik Shirishbhai Sanjanwala

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