Intention as the Cornerstone: Determining the Existence of an Arbitration Agreement under Indian Law

By – Astha Sharma and Asmita Narula

Table of Contents

INTRODUCTION

Arbitration is fundamentally a creature of consent, and a valid arbitration agreement constitutes the heart of an arbitration. The determination of whether an arbitration agreement exists or not, therefore, turns on a careful examination of what constitutes such an agreement under law and, more importantly, whether the parties intended to resolve their disputes through arbitration. While the Arbitration and Conciliation Act, 1996 provides a statutory framework defining what constitutes an arbitration agreement, the Courts in India have consistently emphasised that statutory compliance alone is not determinative. Over the years, judicial interpretation has played a decisive role in shaping the contours of arbitration agreements, clarifying when a dispute resolution clause crosses the threshold from negotiation or expert determination into arbitration, and when it falls short. Through a rich body of jurisprudence, courts have examined not merely the language of dispute resolution clauses, but their substance, surrounding circumstances, and the conduct of the parties.

This article examines the statutory framework governing arbitration agreements, the essential elements distilled by judicial precedents, and the importance of intention of the parties. Recent judicial pronouncements are also discussed to highlight the evolving approach of the Courts in identifying and enforcing arbitration agreements in complex commercial arrangements.

Statutory Framework under the Arbitration and Conciliation Act, 1996

Prior to the enactment of the Arbitration and Conciliation Act, 1996 (“the 1996 Act”), the law of arbitration in India was substantially contained in three statutes – the Arbitration Act, 1940 (“the 1940 Act”), the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. The 1940 Act (now repealed) defined ‘arbitration agreement’ as a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not.

The aforesaid three statutes were repealed by way of the 1996 Act, which was enacted to inter alia consolidate the law with respect to the domestic and international arbitration, and enforcement of foreign arbitral awards, and also to pave way for a more effective and forward-looking approach. The Act provides a more comprehensive definition of an ‘arbitration agreement’. 

An agreement for arbitration is the sine qua non for invocation of the arbitral process and Section 7 of the Act succinctly summarises the basic building blocks of a valid arbitration agreement, including its genesis and structure. Section 7 of the Act defines an ‘arbitration agreement’ as 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. The agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. The Act also provides for incorporation by reference inasmuch as it states that a reference in a contract to a document containing an arbitration clause also constitutes an arbitration agreement provided the contract is in writing and the reference is such as to make the clause a part of the contract.

The Act mandates that an arbitration agreement must be in writing and stipulates that this requirement is fulfilled if it is contained in (a) a document signed by the parties, (b) an exchange of communication (letters, telex, telegrams, communication through electronic means, etc.) which provides a record of the agreement, or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

Essential elements of an arbitration agreement

The statutory framework is not exhaustive on this subject and the courts in India have repeatedly observed that the fulfilment of the requirements of the statute does not ipso facto establish an arbitration agreement. It is in this view that it is crucial to examine the various judicial precedents to ascertain the essential elements which the courts consider while determining whether an arbitration agreement exists or not in a given set of facts and circumstances.

In the year 1998, in K.K. Modi v. K.N. Modi, the Supreme Court culled out the factors which are to be considered while deciding whether there is an arbitration agreement or not, after examining the ratio laid down in several judgments. This decision has served as the foundation for numerous subsequent judgments in which Courts have been called upon to determine the existence of a valid arbitration agreement.

In this case, a Memorandum of Understanding was arrived at for asset division based on third-party valuation and company division based on third-party scheme of arrangement. Any dispute or clarification with respect to its implementation had to be decided by the Chairman (IFCI), whose decision will be final and binding. The Supreme Court held that this is not a valid arbitration clause because the clause only intended to clear any difficulties that may arise in the implementation of the agreement and did not contemplate any judicial determination by the Chairman. While discussing the attributes to be present for an agreement to be considered as an arbitration agreement, the Supreme Court laid down the following: 

1. the decision of the tribunal shall be binding on the parties,
2. the tribunal must derive its jurisdiction either from the parties’ consent or a court order or a statute, the terms of which make it clear that the process is to be an arbitration,
3. the agreement must contemplate that parties’ substantive rights will be determined in an impartial and judicial manner with an equal obligation of fairness to both sides,
4. the agreement must be intended to be enforceable in law,
5. the agreement must contemplate that the tribunal will decide a dispute which is already formulated at the time when the reference is made,
6. whether the agreement contemplates that the tribunal will receive evidence and hear the contentions of the parties, in other words that there has to be a judicial determination,
7. whether the words of the agreement are consistent or inconsistent with the view that the process was intended to be an arbitration, and
8. whether the agreement requires the tribunal to decide the dispute according to law.

Relying on K.K. Modi, in Bihar State Mineral Development Corpn. v. Encon Builders (I) (P) Ltd., the Supreme Court narrowed down the essential features to the following:

1. existence of a present or future difference in connection with some contemplated affair,
2. intention of the parties to settle such difference by a private tribunal,
3. agreement in writing to be bound by the decision of such tribunal, and
4. parties must be ad idem.

Recently, in May 2025, in South Delhi Municipal Corporation of Delhi v. SMS Limited, the Supreme Court has held that the ingredients necessary for a valid arbitration agreement to exist are (a) clear intent to arbitrate, (b) binding adjudicatory process, and (c) compliance with the arbitration norms. The Court has further clarified that all the ingredients must co-exist and the onus to prove the same lies on the party asserting that a valid arbitration agreement exists.

Intention of the parties to submit disputes to arbitration is the governing principle

Arbitration is a creature of consensus, and it completely depends on party autonomy and the intention expressed in the agreement between them. An arbitration agreement must either expressly or by implication state that there is an agreement between the parties to refer their disputes to arbitration i.e., there must be consensus ad idem, as opposed to internal negotiations, departmental adjudications, expert determination and administrative reviews.

As early as in the year 1980, the Supreme Court came to a conclusion that an arbitration agreement is not required to be in a particular form and what is required to be ascertained is whether the parties agreed to refer their disputes to arbitration. In State of West Bengal and Others v. Haripada Santra, the Calcutta High Court held that an arbitration agreement will come into existence at once if the parties desired and intended that the dispute be referred to arbitration and that they undertake to abide by the decision. A similar finding has been given by the Supreme Court in Punjab State and Others v. Dina Nath.

In Jagdish Chander v. Ramesh Chander and Others, while culling out the well-settled principles in respect of what constitutes an arbitration agreement, the Supreme Court has observed that there must be an obligation to refer disputes to arbitration and not only a mere possibility of the parties agreeing to it in the future. Clauses containing the language “parties can, if they so desire, refer their disputes to arbitration”, “in the event of any dispute, the parties may also agree to refer the same to arbitration”, “if any disputes arise between the parties, they should consider settlement by arbitration”, “if the parties so decide, the disputes shall be referred to arbitration”, “any disputes between parties, if they so agree, shall be referred to arbitration” etc. do not constitute a valid arbitration agreement.

This also encompasses within it the element of ‘mutuality’ i.e., a mutual promise to submit disputes to arbitration. In Tata Capital Housing Finance Ltd. v. Shri Chand Construction and Apartment Private Limited, the relevant clause permitted the Appellant to enforce the security under another statute, subsequent to which the clause ceases to have any effect. In essence, the Appellant was given an option to abandon arbitration however, a similar option was not given to the Respondent. The Delhi High Court held that mutuality does not permit reservation of the right of reference to arbitration to only one party. Such a clause destroys the essential feature of mutuality and is against public policy. It is essential for a valid arbitration agreement that both parties have an equal right to ask for a reference.

Interpretation of the arbitration clause in the agreement

The consensus / intention of the parties to arbitrate may be gathered from the terms of the contract, conduct of the parties, and the correspondences exchanged between them. Section 7 of the 1996 Act contemplates that the parties’ intention can be deciphered from the communication exchanged between them and it does not necessarily require a contract.

The duty of the court is not to delve deep into the intricacies of the human mind to explore the undisclosed intention but to take the meaning of the words used. In cases where a clause is ambiguous and has two possible meanings, the Court has to consider the meaning which is more in accord with the underlying purpose and intent of the contract.

Arbitration agreements are to be construed according to general principles of statutes, statutory instruments and other contractual documents. The meaning of a contract must be gathered by adopting a common-sense approach and it must not be thwarted by a pedantic and legalistic interpretation. It is the duty of the court to make the same workable within the permissible limits of law.

In July 2025, in Belvedere Resources DMCC v. OCL Iron and Steel Ltd. and Others, the Delhi High Court relied upon Section 7(4)(b) of the 1996 Act to come to a conclusion that the documents and correspondences exchanged between the parties (emails and whatsapp messages) show existence of a valid arbitration agreement between them. The Court observed that as per Section 7(4)(b) of the Act, it is not necessary for a concluded contract to exist for a valid arbitration agreement to exist between the parties, and the arbitration agreement must form a part of documents / communication exchanged between them.

Recently, in November 2025, in Alchemist Hospitals Ltd. v. ICT Health Technology Services India Pvt. Ltd., an interesting point was raised before the Supreme Court – whether the lack of denial of the arbitration agreement by a party in a correspondence between the parties subsequent to the notice being issued would have a bearing on question of existence of an arbitration agreement. The Supreme Court referred to the decision in Powertech World Wide Ltd. v. Delvin International General Trading LLC, wherein it has been held that correspondence post issuance of the notice for arbitration can be a factor to determine the intention of the parties. The Court however clarified that a subsequent correspondence cannot displace the original intention. Where there is no arbitration agreement in the first place, the lack of denial by a party is of no consequence.

Use of the terms ‘arbitrator’ and ‘arbitration’

The parties’ intention has to be ascertained based on the broad and clear reading of the terms of the agreement, without being circumscribed. If the intention can be clearly ascertained, it is immaterial if the terms ‘arbitrator’, ‘arbitration’ etc. have not been used in the agreement. The Courts apply the principle of substance over form in determining the existence of an arbitration agreement. Mere use of such words does not conclude the inquiry of the existence of an arbitration agreement, nor does the absence of the same necessarily negate such existence. In Mahanadi Coalfields Ltd. v. IVRCL AMR Joint Venture, the Supreme Court held that the mere use of the word ‘arbitration’ in the clause title without any corresponding substantive part relating to arbitration is not sufficient. 

In Alchemist Hospitals Ltd., the Supreme Court dealt with an issue whether the mere repetitive use of the word ‘arbitration’ is clinching or decisive. In this case, the dispute clause envisaged a three-tier process i.e., (i) attempt to resolve a dispute promptly by negotiation between high level executives, (ii) if not resolved, then through mediation i.e., arbitration through senior management comprising respective Chairmen (Arbitrators), and (iii) if not resolved within 15 days, the complaining party can seek remedies through the court. It also stipulated that the demand for arbitration had to be made within a reasonable time (maximum 60 days) after the dispute had arisen. The interesting point was that the word ‘arbitration’ had been used 3 times in the body of the clause in addition to being used in the title of the clause. Relying on the decisions in Rukmanibai Gupta, K.K. Modi, Jagdish Chander, and Mahanadi Coalfields Ltd., the Supreme court reiterated that mere use of the word ‘arbitration’ in a clause provides a discernible clue to the parties’ underlying intention however, it is not clinching or decisive for the existence of a valid and binding arbitration agreement.

Section 7 of the 1996 Act presupposes an express intention of the dispute being resolved through arbitration. Mere reference to the term is not sufficient to meet this threshold.

Is it mandatory to sign an arbitration agreement for it to be valid and binding?

An arbitration agreement does not necessarily have to be signed by the parties, and the only requirement is that it should be reduced into writing and the agreement of the parties thereto should be established. 

The said principle has been recently affirmed in Glencore International AG v. Shree Ganesh Metals and Another. In this case, four earlier contracts between the parties, for sale of zinc metal, contained arbitration clauses and the parties proposed a fifth contract, which also contained an arbitration clause. The Respondent accepted supply of part quantity but did not sign the contract. Disputes arose between the parties, and the Respondent filed a suit. The Appellant sought reference to arbitration, which was opposed by the Respondent on the ground that there was no concluded contract. While holding that a binding arbitration agreement existed between the parties, the Supreme Court observed that such an agreement may be inferred from an exchange of letters, including communications through electronic means, provided they record the agreement between the parties. The Court clarified that the mere absence of a party’s signature on the contract does not negate the existence of an arbitration agreement where the conduct of the parties, in furtherance of the contract, clearly demonstrates acceptance of its terms, including the arbitration clause. A party cannot blithely rely on its own failure to sign the contract to wriggle out of the terms and conditions mentioned therein.

Intention of the parties that the decision will be final and binding

Finality and binding effect of a decision are hallmarks of arbitration. An arbitration agreement should have an element of the nature of finality to refer the matters to arbitration. This principle has been clearly carved out in K.K. Modi, Bihar State Mineral Development Corpn. and SMS Limited i.e., the parties must agree in writing to be bound by the decision of the arbitral tribunal. If the outcome of the process is advisory, recommendatory, or subject to further approval, the clause is unlikely to constitute an arbitration agreement. 

An agreement can constitute a valid arbitration agreement even if the words ‘final and binding’ have not been expressly incorporated therein if the other recitals strongly point towards an unambiguous intention of the parties to refer their disputes to arbitration, as held by the Supreme Court in Babanrao Rajaram Pund v. Samarth Builders & Developers. If the agreement otherwise fortifies the parties’ intention to arbitrate, the deficiency of words in it cannot legitimise the annulment of the arbitration clause. In this case, the Court observed that (a) the clause uses the terms ‘arbitration’ and ‘arbitrator’, (b) the mandatory nature of reference to arbitration had been enunciated by use of the term ‘shall be referred’, (c) the method of appointing the third arbitrator was mentioned, and (d) the governing law was also chosen by the parties, which are recitals that strongly point towards an unambiguous intention of the parties to refer their disputes to arbitration.

However, where the dispute clause does not envisage that the decision of the authority will be final and binding on the parties or permits the unsatisfied party to approach a court for relief under a different procedure, for instance a civil suit, it cannot be termed as an arbitration agreement. Such a situation arose in Alchemist Hospitals Ltd. as well, where the dispute clause stipulated that the complaining party could seek remedies through the courts of law. The Supreme Court concluded that there was no indication that the proposed ‘arbitration’ was supposed to be final and binding as the clause did not contemplate a definite submission to arbitration.

Scope of arbitration norms

There is no straitjacket formula or an exhaustive list of arbitration norms. In SMS Limited, the Supreme Court has discussed some of these norms however, it is not an exhaustive list. Some of the norms are as follows:

1. There must be party autonomy in the appointment of the arbitrator.
2. It must be an adversarial process i.e., there must be a provision for oral hearings, examination and cross-examination of witnesses, and application of formal rules of evidence or procedure.
3. The principles of natural justice must be followed i.e., the arbitrator must be neutral, impartial, unbiased and independent.

The importance of proper drafting of an arbitration clause / agreement

Arbitration was conceived as an alternative mechanism for the speedy and effective resolution of disputes. However, an analysis of the judicial pronouncements discussed in this article reveals that, in several cases, parties prolong litigation at the pre-reference stage itself, even before the dispute is referred to arbitration for adjudication on merits. A significant contributor to this delay is the manner in which arbitration agreements or clauses are drafted, often riddled with ambiguity. This has also been recognised by the Supreme Court in SMS Limited, where the Court emphatically underscored the responsibility of legal counsel, advisors, and practitioners to draft arbitration clauses with precision and clarity, and to avoid ambiguous or equivocal language. The Court further placed a corresponding obligation on courts to reject shoddily drafted clauses at the threshold, observing that the sanctity of arbitration agreements must be preserved in order to uphold the integrity of the arbitral process.

Structure of a valid arbitration agreement in foreign jurisdictions

The structure of a valid arbitration agreement under the Indian law is majorly aligned with that in foreign jurisdictions. The 1996 Act has been modelled after the UNCITRAL Model Law which has influenced the law on arbitration across different jurisdictions.

In the United States of America, the Federal Arbitration Act applied to inter-state commerce. It provides that an arbitration agreement must be in writing and contained within a contract involving commerce and should establish the agreement of the parties to submit future disputes to arbitration. Several states in America have enacted statutes with a similar provision. In the United Kingdom, domestic and international arbitration is governed by the Arbitration Act, 1996, which also stipulates that an arbitration agreement must be in writing whereby the parties agree to submit their disputes to arbitration. In Singapore, domestic arbitrations are governed by the Arbitration Act 2001, which also provides that an arbitration agreement has to be in writing, and it should demonstrate the intention of the parties to submit their disputes arising from a defined legal relationship to arbitration.

Conclusion

The determination of whether an arbitration agreement exists is ultimately an exercise in discerning party intention. The Courts in India have consistently reiterated that arbitration cannot be imposed by implication, nomenclature, or mechanical reliance on statutory definitions. While the 1996 Act adopts a liberal and pro-arbitration framework, it does not dilute the fundamental requirement of clear consent to arbitrate. The judicial decisions from K.K. Modi to Alchemist Hospitals Ltd. demonstrates a principled approach that prefers substance over form, safeguards consensual adjudication, and draws a careful distinction between arbitration, expert determination, and internal dispute resolution mechanisms. Recent rulings further reinforce that the presence or absence of specific expressions such as ‘arbitration’ or ‘final and binding’ is not conclusive. Rather, the Courts must examine whether the clause, read as a whole, evidences an unequivocal intention to submit disputes to a binding adjudicatory process.

At the pre-reference stage, the Courts continue to perform a crucial gatekeeping role, ensuring that arbitral jurisdiction is founded on genuine agreement and not on ambiguity or convenience. The underlying message is clear – while the arbitration regime in India favours enforcement and minimal judicial interference, it remains a creature of consent. Where such consent is absent, unclear, or fundamentally inconsistent with binding adjudication, the Courts do not hesitate to refuse reference to arbitration, however, powers of Courts under Section 89 of Code of Civil Procedure, 1908 remain unexplored in such cases. As the law stands today, intention, therefore, remains the lodestar in determining the existence and enforceability of an arbitration agreement.

FAQs

References –

1. Section 2 (a)
2. South Delhi Municipal Corporation of Delhi v. SMS Limited, SLP (C) No. 16913/2017, Judgment dated 15.05.2025
3. Section 7 (1), Arbitration and Conciliation Act, 1996
4. Section 7 (2), Arbitration and Conciliation Act, 1996
5. Section 7 (5), Arbitration and Conciliation Act, 1996
6. Section 7 (3), Arbitration and Conciliation Act, 1996
7. Inserted by way of the Arbitration and Conciliation (Amendment) Act, 2015
8. Section 7 (4), Arbitration and Conciliation Act, 1996
9. (1998) 3 SCC 573
10. supra
11. (2003) 7 SCC 418
12. supra
13. State of U.P. v. Tipper Chand, (1980) 2 SCC 341; State of Orissa and Another v. Damodar Das, (1996) 2 SCC 216; Sapna Gupta v. Ajay Kumar Gupta and Others, 2021 SCC OnLine Del 5313
14. SMS Limited (supra)
15. Rukmanibai Gupta v. Collector, Jabalpur and Others, (1980) 4 SCC 556
16. 1989 SCC OnLine Cal 238
17. (2007) 5 SCC 28
18. (2007) 5 SCC 719
19. 2021 SCC OnLine Del 5091
20. Mahanagar Telephone Nigam Limited v. Canara Bank and Others, (2020) 12 SCC 767
21. Bangalore Electricity Supply Co. Ltd. v. E.S. Solar Power (P) Ltd., (2021) 6 SCC 718
22. Mahanagar Telephone Nigam Limited (supra)
23. 2025 SCC OnLine Del 4652
24. 2025 SCC OnLine SC 2354
25. (2012) 1 SCC 361
26. Jammu and Kashmir State Forest Corporation v. Abdul Karim Wani and Others, (1989) 2 SCC 701
27. M. Dayanand Reddy v. A.P. Industrial Infrastructure Corporation Limited and Others, (1993) 3 SCC 137; Bihar State Mineral Development Corpn. (supra)
28. (2022) 20 SCC 636
29. supra
30. supra
31. supra
32. supra
33. supra
34. Jugal Kishore Rameshwardas v. Goolbai Hormusji, (1955) 2 SCC 187; Caravel Shipping Services Private Limited v. Premier Sea Foods Exim Private Limited, (2019) 11 SCC 461
35. 2025 SCC OnLine SC 1815
36. Alchemist Hospitals Ltd. (supra)
37. supra
38. supra
39. supra
40. (2022) 9 SCC 691
41. Jagdish Chander (supra)
42. supra
43. supra
44. supra

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