Court Cannot Create a Contract Where None Exists: Delhi High Court Refuses to Stall IBC Proceedings

“A Mere General Reference Is Not Incorporation of an Arbitration Clause” , In a significant ruling on the limits of interim protection under Section 9 of the Arbitration and Conciliation Act, 1996, the Delhi High Court has held that before granting any interim relief, the Court must first prima facie ascertain the existence of a valid arbitration agreement — and it cannot enforce a draft restructuring proposal as if it were a concluded contract.

Justice Jasmeet Singh dismissed petitions seeking to restrain ARCIL from rejecting a restructuring proposal and from pursuing Section 7 proceedings under the Insolvency and Bankruptcy Code, 2016.

The Court categorically held that “in the absence of even a prima facie finding regarding the existence of an arbitration agreement, the question of granting an anti-suit or anti-tribunal injunction does not arise.”

From Loan Exposure to Failed Restructuring

Parsvnath Developers and its group companies had availed loan facilities aggregating over ₹4,861 crores. After assignment of the loan exposure to ARCIL, the parties entered into settlement negotiations towards the end of 2024.

The petitioners claimed that a composite restructuring agreement had been concluded for a settlement amount of ₹750 crores, out of which ₹125 crores had been paid. They alleged that ARCIL’s email dated 16.07.2025, rejecting the restructuring proposal, was unlawful and sought interim protection under Section 9 to stay its effect, restrain coercive measures, and halt Section 7 IBC proceedings before the NCLT.

ARCIL, however, contended that no arbitration agreement governed the alleged restructuring arrangement and that no concluded contract ever came into existence.

Section 9 Begins with a Threshold: Is There an Arbitration Agreement?

The Court began by emphasizing that the scope of enquiry under Section 9 is analogous to that under Section 11. Judicial intervention at the pre-arbitral stage is narrowly circumscribed.

Relying on SBI General Insurance Co. Ltd. and the Constitution Bench ruling in Interplay Between Arbitration Agreements under the Arbitration Act & the Stamp Act, the Court reiterated that the enquiry is confined to a prima facie examination of the existence of an arbitration agreement.

“The aforesaid principles, however, would apply only after the Court arrives at a prima facie finding that a valid and binding arbitration agreement exists between the parties.”

In this case, that foundational requirement itself was missing.

Novation or Survival? Petitioners’ Inconsistent Stand

The Court found the petitioners’ position internally contradictory. At one stage, they suggested that the original loan agreements stood novated by a fresh restructuring arrangement. Yet, they simultaneously sought to rely on the arbitration clause contained in those very loan agreements.

Justice Singh observed that under Section 62 of the Contract Act, novation substitutes and discharges the original contract in its entirety. If novation had occurred, the arbitration clause in the original agreement would also perish. Conversely, if the original contract survived, the plea of novation could not stand.

Such “shifting stands,” the Court noted, “seriously undermine the plea of a clear and binding agreement.”

Incorporation by Reference: A General Clause Is Not Enough

The petitioners argued that the arbitration clause in the original loan agreements stood incorporated into the Draft Restructuring Agreement through Clause 7(i), which provided that existing facility documents would remain in force “unless otherwise stated herein.”

Rejecting this contention, the Court relied on M.R. Engineers, Elite Engineering, and NBCC v. Zillion Infraprojects to reiterate settled law:

“A mere reference to a document would not have the effect of making an arbitration clause from that document, a part of the contract.”

The Court stressed that Section 7(5) of the Act requires a “conscious acceptance” of the arbitration clause. A general reference is insufficient; there must be a specific and clear intention to incorporate the arbitration clause.

Further, the Draft Restructuring Agreement contained an exclusive jurisdiction clause conferring jurisdiction on courts at New Delhi. This, the Court held, was “wholly inconsistent with any intention to submit disputes… to arbitration.”

“In view of the above, I have no hesitation in holding that there is neither a specific reference nor a clear intention to incorporate the arbitration clause.”

No Concluded Contract: Essential Terms Left Blank

The heart of the petitioners’ case was that a binding settlement had crystallised through email dated 30.12.2024, subsequent payments, and court-recorded statements before the NCLT and High Court.

However, the record revealed continuous negotiations, exchange of drafts, open issues, and most crucially — blank material terms.

Key provisions in the Draft Restructuring Agreement left the settlement amount, repayment schedule, interest rate, and security perfection timelines unspecified.

The Court observed that the very email dated 04.06.2025 described the document as a “draft settlement agreement… for perusal,” clearly indicating that the proposal had not attained finality.

Applying the principles reiterated in Rutu Mihir Panchal v. Union of India, the Court emphasized that a proposal becomes a promise only upon absolute and unqualified acceptance.

“There was no consensus ad idem on the essential terms and conditions of the proposed restructuring arrangement.”

The rejection email dated 16.07.2025 constituted a “clear and unequivocal rejection,” putting an end to any possible inference of a concluded contract.

Section 9 Cannot Become a Vehicle for Specific Performance

Perhaps the most crucial legal finding lies in the Court’s refusal to grant relief that would effectively enforce the draft restructuring proposal.

Justice Singh accepted the respondent’s submission that granting Prayer (a) — staying the rejection email — would amount to creating and enforcing a contract where none existed.

Quoting Mayawanti v. Kaushalya Devi, the Court reiterated:

“Where a valid and enforceable contract has not been made, the court will not make a contract for them.”

Further relying on Pink City Expressway v. NHAI, the Court held that Section 9 is confined to preservation of the subject matter and cannot be extended to directing specific performance.

“The scope of relief under Section 9 cannot be extended to directing specific performance of the contract itself.”

To grant the relief sought would be to compel the parties to continue a contractual arrangement that had not legally crystallised — an impermissible exercise of jurisdiction.

IBC and SARFAESI Arguments Left Open

Since the Court found no prima facie arbitration agreement and no concluded settlement, it declined to examine the larger issues regarding the bar under Sections 63, 231, and 238 of the IBC, or whether SARFAESI proceedings could be interdicted.

“To enter into an examination of those issues… would be a purely academic exercise.”

The interim order dated 26.09.2025 was vacated. O.M.P. (I) (COMM) 330/2025 was dismissed, and O.M.P. (I) (COMM) 367/2025, arising from an identical matrix, was also dismissed.

The judgment stands as a strong reaffirmation that Section 9 cannot be used as a backdoor to enforce unfinished commercial negotiations, nor can courts conjure arbitration agreements by implication where the parties have not clearly and consciously agreed to arbitrate.

Date of Decision: 19.02.2026