Supreme Court Holds Clause Naming Company Chairmen for "Arbitration" Is Not an Arbitration Agreement

A bench of Justices Dipankar Datta and Augustine George Masih heard a civil appeal arising out of SLP (C) No. 19647/2024 in which a private hospital challenged a Punjab & Haryana High Court order that dismissed its application under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of a sole arbitrator under a software implementation agreement.

The Court affirmed the High Court and held that Clause 8.28 of the parties’ Software Implementation Agreement did not constitute a valid arbitration agreement. The judges concluded that the clause envisaged a three-tier internal dispute-resolution process of negotiation, followed by mediation between the respective Chairmen, and thereafter permitted civil litigation if the matter remained unresolved — a structure that lacked the element of finality and a consensual submission to an independent arbitral tribunal. The Court noted that “the mere use of the word ‘arbitration’ in a clause of an agreement is not clinching or decisive” and observed that the designation of the Chairmen as “Arbitrators” pointed to an internal settlement mechanism rather than reference to a neutral adjudicator. The Court, in its reasoning, observed: Background

The dispute arose from a Software Implementation Agreement dated 1 November 2018 under which the respondent agreed to implement its proprietary “HINAI Web Software” for the appellant hospital. Clause 8.28 provided a staged process: negotiation between senior executives; mediation through the respective Chairmen as “Arbitrators”; and, if unresolved within 15 days after such “arbitration”, liberty for the complaining party to seek remedies through the courts. The appellant alleged repeated implementation failures, rollback of the system and sought appointment of a sole arbitrator under Sections 11 and 21 of the A&C Act. The respondent replied to correspondence and asked for further trial of the project.

The High Court interpreted Clause 8.28 as employing the term “arbitration” loosely and held that it contemplated internal negotiation and mediation without creating a binding arbitral process; it therefore dismissed the Section 11(6) petition. Before the Supreme Court, counsel for both parties argued the scope and effect of the clause. The Court applied settled precedents including K.K. Modi v. K.N. Modi, Jagdish Chander v. Ramesh Chander and Mahanadi Coalfields Ltd. v. IVRCL AMR Joint Venture and emphasised that an arbitration agreement must reflect an intention to submit to a binding, impartial adjudicatory forum and to be bound by its decision. The Court distinguished authorities where subsequent correspondence evidenced consent to arbitration, observing that mere non-denial of the term “arbitration” in post-contract exchanges could not transform an original clause that lacked the essential attributes into a binding arbitration agreement.

The Supreme Court affirmed the High Court order and dismissed the appeal. It directed that the appellant was free to pursue remedies in a competent civil court and noted that any claim for the benefit of Section 14 of the Limitation Act, 1963 could be considered by that court. The parties were directed to bear their own costs; no interim directions were issued.

Case Details: Case No.: Civil Appeal No. ………….. of 2025 [ARISING OUT OF SLP (CIVIL) NO. 19647/2024] Case Title: M/s Alchemist Hospitals Ltd. v. M/s ICT Health Technology Services India Pvt. Ltd. Appearances: For the Petitioner(s): Mr. Puneet Bali, Senior Counsel For the Respondent(s): Mr. Shamik Sanjanwala, Advocate