Mere Use of 'Arbitration' Without Binding Intent Does Not Create Arbitration Agreement: Supreme Court Dismisses Appeal Under Section 11(6)

"Parties may have labelled it ‘arbitration’, but there was neither binding intent nor finality – the clause was only a structured internal settlement mechanism, not a true arbitration agreement",  On November 6, 2025, the Supreme Court of India, in the case of M/s Alchemist Hospitals Ltd. vs M/s ICT Health Technology Services India Pvt. Ltd., delivered a significant ruling addressing the contours of what constitutes a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996. The Bench comprising Justices Dipankar Datta and Augustine George Masih upheld the Punjab and Haryana High Court’s dismissal of an application under Section 11(6) of the A&C Act, ruling that Clause 8.28 of the Software Implementation Agreement between the parties did not qualify as an arbitration agreement.

The Court concluded that mere reference to the term "arbitration", even repeated multiple times, without a clear intention to submit disputes to a binding adjudicatory process, does not meet the statutory threshold for an arbitration agreement under Indian law.

Dispute Arising from Failed Software Implementation

The appellant, M/s Alchemist Hospitals Ltd., a healthcare institution based in Haryana, entered into a Software Implementation Agreement with M/s ICT Health Technology Services India Pvt. Ltd., a Bengaluru-based health-tech company, on November 1, 2018. The object was the implementation of “HINAI Web Software” — a digital hospital management platform.

After initial implementation and a subsequent re-launch in January 2020, the hospital rolled back the software in April 2020 citing persistent malfunctions. The appellant then attempted to invoke Clause 8.28 of the Agreement — labelled as an "Arbitration" clause — and proposed names for a sole arbitrator. Upon non-cooperation from the respondent, the appellant moved under Section 11(6) before the High Court seeking appointment of an arbitrator. The High Court, however, dismissed the petition holding that the clause lacked the essential attributes of an arbitration agreement.

"Binding Nature and Neutrality Are Essential Attributes of Arbitration" – Court Examines Clause 8.28

The core issue before the Supreme Court was whether Clause 8.28 constituted a valid and binding arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996. The clause prescribed a three-tier process:

1. Negotiation between senior executives,

2. Mediation by Chairmen of the two companies, and,

3. If unresolved in 15 days, liberty to approach civil courts.

Though titled "Arbitration" and using the term thrice in its body, the clause assigned the role of “arbitrators” to the Chairmen of the two parties, without indicating any finality or binding nature of the outcome.

The Court held:

“Mere repetitive use of the word ‘arbitration’ 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.”

Further, the Court noted: “The individuals designated as ‘arbitrators’ were the respective Chairmen of the companies – not neutral third parties, as arbitration law requires.”

Relying heavily on K.K. Modi v. K.N. Modi [(1998) 3 SCC 573], Jagdish Chander v. Ramesh Chander [(2007) 5 SCC 719], and Mahanadi Coalfields Ltd. v. IVRCL AMR JV [(2022) 20 SCC 636], the Court reiterated that a valid arbitration agreement must display the clear intention to submit disputes to arbitration, the binding nature of the decision, and the appointment of a neutral third party as adjudicator.

"No Intention to be Bound by Arbitration – Clause Merely a Precursor to Court Remedies"

A central reason for the rejection of the arbitration clause was the inclusion of a fallback to civil courts in case disputes were unresolved within 15 days after the so-called "arbitration" process. This demonstrated that the Chairmen’s deliberation was not intended to be binding.

The Court observed:

“If the outcome of the so-called arbitration is not binding and the parties retain the right to litigate in courts, then the mechanism does not constitute arbitration. It is, at best, a tiered internal dispute resolution process.”

Further, in Jagdish Chander (supra), the Court had previously clarified that a clause allowing civil litigation if arbitration fails negates the mandatory character of an arbitration agreement. The present clause clearly allowed litigation after a failed internal process, proving that the parties never intended to be bound by the outcome of the discussions between Chairmen.

Post-Agreement Correspondence Cannot Create Arbitration Where None Exists

The appellant contended that since the respondent did not deny the arbitration clause in post-dispute correspondence, the clause must be given effect. However, the Supreme Court rejected this contention, distinguishing it from cases like Powertech [(2012) 1 SCC 361] and Visa International [(2009) 2 SCC 55], where parties unequivocally agreed to arbitration post-dispute.

The Bench clarified:

“Once it is found that there is no arbitration agreement in the first place, subsequent silence or correspondence cannot cure the foundational defect.”

Hence, mere silence or willingness to negotiate does not estop a party from later asserting that no arbitration agreement ever existed.

Clause Failed on All Essential Tests of Arbitration Law

The Court underscored the six essential attributes of an arbitration agreement laid out in K.K. Modi and Jagdish Chander, particularly:

• Binding nature of the decision,

• Impartiality of the adjudicator,

• Intent to submit to a private adjudicatory forum, and

• Waiver of court recourse, unless for enforcement.

On each count, Clause 8.28 failed.

“The arbitration agreement must contemplate that the decision of the tribunal will be binding on the parties to the agreement... In the present case, the alleged ‘arbitration’ is merely an attempt at amicable resolution between management heads, without any adjudicatory element.”

Appeal Dismissed – Arbitration Clause Not Valid Under Section 7

Upholding the High Court’s order, the Supreme Court dismissed the appeal, holding that no arbitration agreement existed between the parties within the meaning of Section 7 of the A&C Act. However, the appellant was permitted to pursue civil remedies.

“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.”

Date of Decision: November 6, 2025