Holding

A mere general reference to tender documents in a Letter of Intent does not incorporate the arbitration clause, so no arbitration agreement exists and the appointment of an arbitrator must be set aside.

Summary

MSEDCL issued a Letter of Intent (LOI) accepting R Z Malpani's bid for a civil work tender but the LOI was conditional and did not constitute a final contract. The parties never executed a work order, and the LOI merely allowed preliminaries. The respondent invoked the arbitration clause in the tender's Special Conditions of Contract and sought appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. The High Court appointed a sole arbitrator, holding that an arbitration agreement existed. The Supreme Court examined whether, on a prima facie basis, an arbitration agreement was incorporated, concluding that the LOI only referenced the tender documents and did not specifically incorporate the arbitration clause, thus no arbitration agreement existed. Consequently, the Court set aside the High Court's order and allowed the appeal, denying the appointment of an arbitrator.

Issues considered

Whether a Letter of Intent that merely references tender documents creates a binding arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996.
Whether the High Court was justified in appointing an arbitrator under Section 11 when no prima facie arbitration agreement existed.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11, s. 7

Headnote

Issue for Consideration Whether, on a prima facie view, there exists an arbitration agreement between the parties and as such, whether the reference to arbitration u/s.11 by the High Court warrants interference by this Court. Headnotes† Arbitration – s.7 – Arbitration Agreement – General reference in the letter of intent to an arbitration clause contained in the tender documents does not have the effect of ‘incorporation’ of the arbitration clause contained therein in the contract – High Court on

Subjects

General reference in letter of intent to an arbitration clause contained in tender documents not sufficient for its incorporationNo arbitration agreement between partiesArbitration clause contained in Tender documents not incorporated in Letter of Intent (LOI)Reference vs incorporation of arbitration clausesLetter of intent does not create binding legal relationshipNo concluded contract between partiesScope of inquiry at Section 11, Arbitration and Conciliation Act, 1996Prima facie existence of arbitration agreement

Judgment

[2026] 5 S.C.R. 86 : 2026 INSC 342

Maharashtra State Electricity Distribution
Company Limited (MSEDCL) & Ors.
v.
R Z Malpani
(Civil Appeal No. 4307 of 2026)
09 April 2026
[J.K. Maheshwari* and Atul S. Chandurkar, JJ.]

Issue for Consideration
Whether, on a prima facie view, there exists an arbitration
agreement between the parties and as such, whether the reference
to arbitration u/s.11 by the High Court warrants interference by
this Court.

Headnotes†
Arbitration and Conciliation Act, 1996 – s.7 – Arbitration
Agreement – General reference in the letter of intent to
an arbitration clause contained in the tender documents
does not have the effect of ‘incorporation’ of the arbitration
clause contained therein in the contract – High Court on
application filed by the Respondent u/s.11, appointed a
sole arbitrator to adjudicate upon the disputes between the
parties – Respondent’s case is that the Letter of Intent (LOI)
incorporated the arbitration agreement from the terms of the
tender documents – It is the admitted case of the parties that
pursuant to the LOI and in terms of the tender documents,
neither any work order was issued to the Respondent nor
any formal agreement was entered into between the parties –
Appellant contended inter alia that even assuming that the LOI
itself can be considered a source of binding legal relationship
between the parties, the LOI made a general reference to the
tender documents and such a general reference cannot have
the effect of ‘incorporation’ of the arbitration clause contained
therein, in light of s.7(5):
Held: Impugned order set aside – Arbitration clause contained in
some document may be incorporated in the contract between the
parties only by a specific reference to the arbitration clause – The

* Author
[2026] 5 S.C.R. 87

Maharashtra State Electricity Distribution
Company Limited (Msedcl) & Ors. v. R Z Malpani

intent of the parties to incorporate the arbitration clause has to
be explicitly clear and a mere general ‘reference’ to the tender
conditions would not suffice – Present is a case of ‘reference’
and not ‘incorporation’ – There is no mention of any arbitration or
dispute resolution clause in the LOI itself, neither does it purport
specific incorporation thereof from the tender documents – As
such, the arbitration clause contained in the tender documents
could not be said to have been incorporated in the LOI to evince
the existence of an arbitration agreement between the parties on
its conjoint reading with the tender documents – The scope of
inquiry at the stage of s.11 is extremely limited and only pertains
to an examination about prima facie existence of an arbitration
agreement – Courts should follow the principle of ‘When in doubt,
do refer’ and lean towards referring matters to arbitration when
the arbitration agreement is prima facie existent – However, it
is only in the rarest of rare cases where even on a prima facie
view, without going into disputed facts between the parties, there
appears to be no existence of arbitration agreement between the
parties, the Court can reject the application for appointment of an
arbitrator and reference of the parties to arbitration – The instant
case is a fit case where even without going into the disputed
facts and merely on a prima facie view of the matter, there is no
existence of arbitration agreement – Moreover, LOI in the instant
case was indicative of a preliminary document in course of the
contract and was not intended to be an end-all-be-all contract
between the parties, it did not create contractual obligations or
legal relationship between them. [Paras 38, 39, 41, 42]

Letter of Intent (LOI) – Does not, in and of itself, create a legal
relationship or contractual obligations until there is a clear,
unambiguous final acceptance by parties – High Court inter
alia found that the offer made by the Respondent in response
to the Tender was accepted by the LOI which resulted in a duly
concluded contract and; existence of arbitration agreement
can be discerned from correspondence between the parties:
Held: Finding of the High Court that Appellant in its reply to the
Respondent’s arbitration notice ‘did not question the formation of
arbitration agreement on any ground other than the fact that the
project did not proceed further’ is prima facie erroneous and is set
aside – Therefore, there is no admission of any concluded contract,
88 [2026] 5 S.C.R.

Supreme Court Reports

much less an arbitration agreement between the parties by the
Appellant in its reply – Appellant throughout maintained that there
was no concluded contract between the parties and as such, no
reference to arbitration can be made u/cl.23 of Special Conditions
of Contract contained in the tender documents merely because of
a general reference to the tender documents in the LOI – Further,
a letter of intent does not, in and of itself, create a legal relationship
or contractual obligations until there is a clear, unambiguous final
acceptance by the parties – When the intent of the parties can be
evinced from the letter of intent or the tender specifications and it
is clear that the letter of intent is to be followed by a final award or
a concluded agreement, it cannot be said that the letter of intent
itself binds the parties to the terms of the tender – Contractual
obligations cannot be foisted upon a party without a clear indication
of its intent to enter into a binding concluded contract – LOI in the
facts of the instant case was a promise to make a promise and
not a promise itself and no agreement had concluded between the
parties – It contemplated a work order to be issued at a subsequent
stage – Neither the specifications of the tender documents, nor the
LOI provides that the LOI itself would result in a concluded contract
– The intent behind the LOI is explicitly clarified as merely to ensure
that preliminaries are complied with so that the work may begin
upon issuance of a work order – From a holistic reading of the
tender documents, the LOI and other subsequent communication
between the parties, the LOI does not evince the commercial
intention of the Appellant to create a binding legal relationship, it
informs the Respondent that the work was entrusted to them upon
opening of bids and lays down preliminary conditions to be fulfilled
in contemplation of a future work order and agreement in order to
ensure that prior to the work order being issued, everything is set
in place and the work may begin at once upon such issuance –
On facts, LOI did not have the effect of creating a binding legal
relationship between the parties – Arbitration and Conciliation Act,
1996. [Paras 29, 31, 33-36]

Words and Phrases – “Tender” – “Letter of Intent”:
Held: Letter of Intent is an expression of one party’s intent to enter
into a contract with the other party in the forthcoming future – When
the intent of the parties can be evinced from the letter of intent or
the tender specifications and it is clear that the letter of intent is to
[2026] 5 S.C.R. 89

Maharashtra State Electricity Distribution
Company Limited (Msedcl) & Ors. v. R Z Malpani

be followed by a final award or a concluded agreement, it cannot
be said that the letter of intent itself binds the parties to the terms
of the tender – Contractual obligations cannot be foisted upon a
party without a clear indication of its intent to enter into a binding
concluded contract – Therefore, what needs to be distinguished
is whether the intent of the parties is to make a ‘promise’ or a
‘promise to make a promise’ – A tender is essentially in the nature
of an ‘invitation to offer’ and submission of a bid by the tenderer
is an ‘offer’ – By means of a letter of intent, however, it must be
examined by the Court whether the party extending the letter of
intent is in consensus ad idem with the other party and intends to
create a conclusive and binding agreement. [Para 31]
Arbitration and Conciliation Act, 1996 – Scope of examination
at the stage of s.11 proceedings – Discussed.

Case Law Cited
State of Himachal Pradesh and Anr. v. OASYS Cybernatics Pvt.
Ltd., 2025 INSC 1355 : 2025 SCC OnLine SC 2536; South Eastern
Coalfields Limited and Ors. v. S. Kumar’s Associates AKM (JV)
[2021] 8 SCR 8 : (2021) 9 SCC 166; NBCC (India) Ltd. v. Zillion
Infraprojects Pvt. Ltd. [2024] 3 SCR 812 : (2024) 7 SCC 174; Office
for Alternative Architecture v. Ircon Infrastructure and Services
Ltd. [2025] 6 SCR 395 : 2025 SCC OnLine SC 1098; Maharshi
Dayanand University v. Anand Coop. L/C Society Ltd. [2006] Supp.
8 SCR 105 : (2007) 5 SCC 295; UNISSI (India) (P) Ltd. v. Post
Graduate Institute of Medical Education and Research [2008] 14
SCR 108 : 2025 SCC OnLine SC 1815 : (2009) 1 SCC 107; Vidya
Drolia & Ors. v. Durga Trading Corporation [2020] 11 SCR 1001 :
(2021) 2 SCC 1; NTPC Ltd. v. SPML Infra Ltd. [2023] 2 SCR 846 :
(2023) 9 SCC 385; SBI General Insurance Co. Ltd. v. Krish Spg.
[2024] 7 SCR 840 : (2024) 12 SCC 1; Interplay Between Arbitration
Agreements under Arbitration Act, 1996 & Stamp Act, 1899, In re.
[2023] 15 SCR 1081 : (2024) 6 SCC 1; Govind Rubber Ltd. v.
Louis Dreyfus Commodities Asia (P) Ltd. [2014] 12 SCR 488 :
(2015) 13 SCC 477; M.R. Engineers & Contractors (P) Ltd. v.
Som Datt Builders Ltd. [2009] 10 SCR 373 : (2009) 7 SCC 696;
Inox Wind Ltd. v. Thermocables Ltd. [2018] 1 SCR 86 : (2018) 2
SCC 519 – referred to.
Glencore International AG v. Shree Ganesh Metals, 2025 SCC
OnLine SC 1815 – held not applicable.
90 [2026] 5 S.C.R.

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List of Acts
Arbitration and Conciliation Act, 1996.

List of Keywords
General reference in letter of intent to an arbitration clause
contained in tender documents not sufficient for its incorporation
in the contract; No arbitration agreement between parties; No
existence of arbitration agreement; Arbitration clause contained
in Tender documents not incorporated in Letter of Intent (LOI);
‘reference’; ‘incorporation’; Incorporation of arbitration clauses
contained in tender documents by means of reference in letter of
intent; No admission of any concluded contract; Letter of intent;
LOI did not create a binding legal relationship between parties; No
concluded contract between parties; No reference to arbitration
can be made; Special Conditions of Contract in Tender documents;
Tender documents along with LOI not sufficient to form a valid
contract or arbitration agreement; No work order issued; Scope of
inquiry at the stage of Section 11, Arbitration and Conciliation Act,
1996; Examination about prima facie existence of an arbitration
agreement; No mention of any arbitration or dispute resolution
clause in LOI.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4307
of 2026
From the Judgment and Order dated 01.10.2025 of the
High Court of Judicature at Bombay in ARBA(L) No. 1417 of
2025.

Appearances for Parties
Advs. for the Appellant(s):
Vikas Singh, Sr. Adv., Samir Malik, Tushar Mathur, Mahip Singh
Sikarwar, Ms. Snehal Kaila, Ms. Yachana Gupta, Ms. Deepeika
Kalia, Deepanshu Shakargaye, Sudeep Chandra, Ms. Khushi,
Samir Malik.
Advs. for the Respondent(s):
Abhijit A. Desai, Satyajit A. Desai, Parth Johari, Parth Kumar
Singh, Satya Kam Sharma.
[2026] 5 S.C.R. 91

Maharashtra State Electricity Distribution
Company Limited (Msedcl) & Ors. v. R Z Malpani

Judgment / Order of the Supreme Court

Judgment

J.K. Maheshwari, J.

1. Leave granted.

2. The instant appeal is directed against the judgment dated 01.10.2025
of the Bombay High Court (hereinafter referred to as “High Court”)
in Arbitration Application (L) No. 1417 of 2025.

3. By the impugned order, the High Court disposed of the application
filed by the Respondent under Section 11 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as “1996 Act”) and
appointed a sole arbitrator to adjudicate upon the disputes and
differences between the parties.

FACTS

4. The Appellant, Maharashtra State Electricity Distribution Company
Limited (MSEDCL) is a State Government company, which is a fully-
owned corporate entity owned by the Government of Maharashtra.
It is an electricity distribution utility which distributes electricity
throughout Maharashtra including a few suburbs of Mumbai. The
Respondent is a partnership firm engaged in civil construction and
other allied businesses.

5. The Appellant floated a Tender dated 11.08.2021 bearing Code
EEC/BND/TECH/42/21-22 for ‘Civil & Interior work – Providing /
renovating 134 CFC Centres at various O&M Divisions of SEDCL
throughout the State’. (hereinafter referred to as the “Tender”)
Total estimated cost of the tender was ₹17,41,37,020. The Tender
document contained four different constituents, being (i) Instructions
to Tenderers & Qualifying Criteria (ii) General Specifications
(iii) Technical Specifications (iv) Special Conditions of Contract.
(collectively referred to as “Tender documents”) The Tender
documents also contained an agreement pro-forma. The timeline
for the tender process as per the Tender documents was as
follows:
92 [2026] 5 S.C.R.

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Particulars Date / Time
Bid Start Date 15.07.2011, 13:00
Bid End Date 06.08.2021, 11:30
Techno-commercial Bid opening 18.08.2021, 15:00
Price Bid opening on Will be declared later
Winner Selection Date 18.08.2021, 15:30

6. The Respondent participated in the tender process and submitted a
bank guarantee of ₹17,45,100 valid up to 06.03.2022. Respondent
then submitted its bid/quotation against the said Tender with a validity
of 120 days on 03.09.2021. Upon opening of the techno-commercial
and price bids, the Appellant, vide letter bearing No. CEC/CCO/
Tech/350 dated 16.11.2022 (hereinafter referred to as “LOI”) accepted
the bid of the Respondent and entrusted the work under the said
tender process to the Respondent for a value of ₹17,76,19,699.
7. On 29.11.2022, the Respondent furnished a further bank guarantee
to the tune of ₹44,40,500 as security deposit valid up to 27.05.2023.
The Appellant wrote to the Respondent on 13.12.2022 requesting
that bank guarantee be furnished on stamp paper of ₹500 value
instead of ₹100 and sent a reminder in that respect on 31.12.2022.
The Respondent submitted revised bank guarantee on stamp paper
with value of ₹500 on 31.01.2023.
8. On 02.02.2023, the Holding Company of the Appellant wrote to
the Executive Engineer of the Appellant seeking correction in
the forwarding letter of the bank guarantees. Pursuant thereto,
the Respondent sent a corrected forwarding letter with the bank
guarantees on 06.02.2023.
9. Thereafter, the Respondent sent various letters and representations
to the Appellant seeking issuance of a Work Order in terms of the
LOI, but no Work Order was issued by the Appellant. On 08.08.2023,
the Respondent submitted revised / renewed bank guarantees as
security deposit.
10. Despite repeated requests being made by the Respondent, the Work
Order was not issued by the Appellant and ultimately, on 05.08.2024,
the Respondent terminated the contract, citing Appellant’s failure to
hand over the sites for the work to begin. Thereafter, on 30.08.2024,
[2026] 5 S.C.R. 93

Maharashtra State Electricity Distribution
Company Limited (Msedcl) & Ors. v. R Z Malpani

the Respondent issued a notice under Clause 23 of the Special
Conditions of Contract in the Tender documents, seeking reference
of the disputes to arbitration and seeking compensation to the tune
of ₹4,89,85,500.
11. On 27.09.2024, the Appellant formally cancelled the Tender and EMD,
Security Deposit submitted by the Respondent was duly refunded
on 24.10.2024. It is pertinent that the cancellation itself was not
challenged by the Respondent availing public law remedies and
instead, the Respondent chose to pursue its remedy by means of
arbitration under the Tender documents.
12. On 01.10.2024, the Respondent again invoked the arbitration
agreement contained in Clause 23 of the Special Conditions of Contract
in the Tender documents. On 04.11.2024, the Appellant replied to the
Respondent’s arbitration notice and specifically stated therein that
Tender documents along with LOI are not sufficient to form a valid
contract or arbitration agreement. On 06.11.2024 and 03.12.2024, the
Appellant informed the Respondent that since the EMD and Security
Deposit has been refunded, no claims or dues are pending.
13. At this stage, the Respondent filed an application under Section 11
of the 1996 Act before the High Court being Arbitration Application
No. 1417 of 2025, seeking appointment of an arbitrator. Notice was
issued by the High Court on 21.01.2025 and service was complete,
but on 26.06.2025 and 17.07.2025, the Appellant did not appear
before the High Court. The High Court vide the impugned ex-parte
order on 01.10.2025 appointed one Mr. Drupad Patil, Advocate
as the Sole Arbitrator to adjudicate the disputes between the
parties.

FINDINGS OF THE HIGH COURT
14. The High Court found that the offer made by the Respondent in
response to the Tender was accepted by the LOI dated 16.11.2022
which resulted in a duly concluded contract. Existence of arbitration
agreement can be discerned from correspondence between the
parties and the scope of enquiry in Section 11 proceedings is
limited to examining the existence of a valid arbitration agreement.
It was observed by the High Court that Appellant in their reply to
the arbitration notice has not denied the existence of an arbitration
agreement, hence directed appointment of an arbitrator.
94 [2026] 5 S.C.R.

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ARGUMENTS ADVANCED
15. Mr. Vikas Singh, learned senior counsel for the Appellants has
vehemently argued that there exists no concluded contract between
the parties, much less an arbitration agreement under the meaning
of Section 7 of the 1996 Act, and as such, the High Court has erred
in directing appointment of an arbitrator. He submitted the impugned
order is patently erroneous in recording that the Appellant had not
disputed the existence of an arbitration agreement in their reply to
the notice under Section 21 of the 1996 Act. Drawing our attention to
the letter dated 04.11.2024 of the Appellant, it is stated that a specific
plea was taken about non-existence of arbitration agreement at the
very first instance by the Appellant. He further submitted that in the
absence of a concluded contract between the parties, there can be
no question of existence of an arbitration agreement complying with
Section 7 of the 1996 Act. In reference to the Tender documents with
the LOI, it is submitted that looking to the material does not evince
a concluded contract since the LOI itself is contingent in nature, it
provides that a detailed Work Order and formal agreement was to
follow and as such it is a precursor to a contract and not the contract
itself. He has placed reliance on the recent judgement of this Court
in State of Himachal Pradesh and Anr. v. OASYS Cybernatics
Pvt. Ltd.1 and the judgement of South Eastern Coalfields Limited
and Ors. v. S. Kumar’s Associates AKM (JV)2 in support of this
argument.
16. The Appellant has argued that, assuming arguendo, even if the
LOI is construed to be a contract creating legal relationship, mere
reference in the LOI to the terms of the Tender documents would
not have the effect of importing the arbitration clause as contained
therein. Further, learned senior counsel has drawn our attention
to the judgement of this Court in NBCC (India) Ltd. v. Zillion
Infraprojects Pvt. Ltd.3 to submit that mere reference to another
document containing an arbitration clause is not sufficient unless
the arbitration clause is specifically incorporated in the subsequent
document. He has submitted, therefore, that the instant appeal

1 2025 SCC OnLine SC 2536.
2 (2021) 9 SCC 166.
3 (2024) 7 SCC 174.
[2026] 5 S.C.R. 95

Maharashtra State Electricity Distribution
Company Limited (Msedcl) & Ors. v. R Z Malpani

deserves to be allowed and the impugned order passed by the High
Court warrants interference by this Court.
17. Appearing for the Respondents, learned counsel Mr. Abhijit A. Desai
has argued with equal force that the instant appeal warrants dismissal
since an order appointing an arbitrator is final and non-appealable
as per Section 11(7) of the 1996 Act. He submits that this Court in a
special leave petition arising out of such appointment, must exercise
caution while interfering against appointment of an arbitrator and the
tribunal has the jurisdiction to decide on its jurisdiction under Section
16 of the 1996 Act in light of the principle of Kompetenz-Kompetenz.
He has submitted that the instant case is a feeble attempt at delaying
arbitration proceedings by the Appellant who has chosen not to appear
before the High Court despite adequate service of notice. He has
further argued that the existence of an arbitration agreement is clear
from a conjoint reading of: (i) Clause 23 of the Special Conditions
of the Tender documents; (ii) Respondent’s bid dated 03.09.2021;
(iii) LOI dated 16.11.2022 accepting the Respondent’s bid. It is
submitted that furnishing and repeated renewal of bank guarantees
by the Appellant, exchange of correspondence regarding renewal
of bank guarantees would further show that there was a concluded
contract between the parties.
18. Since an arbitration agreement can be formed by exchange of
communication under Section 7(4)(b) of the 1996 Act, a formally
executed commercial contract is not necessary and tender conditions
containing an arbitration clause, once accepted and acted upon,
form a valid arbitration agreement under Section 7 of the 1996 Act.
Learned counsel has placed reliance on the judgement of this Court
in Office for Alternative Architecture v. Ircon Infrastructure and
Services Ltd.4 to argue that the scope of scrutiny by the Court in an
application under Section 11 of the 1996 Act is circumscribed by sub-
section (6A) thereto and as such, unnecessary judicial interference
in arbitration proceedings is not warranted. Since the question
relates to formation of the contract, it must be left to the arbitrator
to decide in an application under Section 16 of the 1996 Act as held
by this Court in Maharshi Dayanand University v. Anand Coop.

4 2025 SCC OnLine SC 1098.
96 [2026] 5 S.C.R.

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L/C Society Ltd.5 Much emphasis has been laid on the judgement
of this Court in UNISSI (India) (P) Ltd. v. Post Graduate Institute
of Medical Education and Research6 to argue that where the
tender conditions contain an arbitration clause and the tender has
been acted upon by the parties, it cannot be said that there existed
no concluded contract and consequently, no arbitration agreement.
Lastly, it has been submitted that cancellation of the tender itself
does not extinguish the arbitration agreement between the parties
and the said cancellation is a subject matter of arbitration. As such,
he has urged that the instant appeal warrants dismissal.

ANALYSIS
19. After hearing learned counsel for the parties and having gone
through the documents on record, the short question which falls for
our consideration in the instant appeal is whether, on a prima facie
view, there exists an arbitration agreement between the parties and
as such, whether the reference to arbitration under Section 11 by
the High Court warrants interference by this Court?
20. The law on appointment of an arbitrator under Section 11 of the 1996
Act has undergone windfall change in the recent years, especially
after the insertion of sub-section 6A therein w.e.f. 23.10.2015 which
confines the Court’s jurisdiction to the examination of existence of an
arbitration agreement. Initially, this Court in Vidya Drolia & Ors. v.
Durga Trading Corporation,7 had developed what came to be
known as the ‘ex-facie’ test, holding in clear terms that while scope
of judicial review and interference by Courts at the Section 11 stage
is extremely limited, the Courts may interfere where it is ‘manifestly
and ex-facie certain that the arbitration agreement is non-existent,
invalid or the disputes are non-arbitrable’. The ‘eye of the needle’
test was propounded by the judgement of this Court in NTPC Ltd. v.
SPML Infra Ltd.8 to hold that limited scrutiny at the pre-arbitral stage
by the referral court through the ‘eye of the needle’ must be done in
order to protect the parties from being forced to arbitrate a matter
which is demonstrably non-arbitrable. Subsequently, however, a co-

5 (2007) 5 SCC 295.
6 (2009) 1 SCC 107.
7 (2021) 2 SCC 1.
8 (2023) 9 SCC 385.
[2026] 5 S.C.R. 97

Maharashtra State Electricity Distribution
Company Limited (Msedcl) & Ors. v. R Z Malpani

ordinate bench of this Court in SBI General Insurance Co. Ltd. v.
Krish Spg.,9 relying on the seven-judge bench decision in Interplay
Between Arbitration Agreements under Arbitration Act, 1996 &
Stamp Act, 1899, In re,10 has held that the ‘ex-facie meritless’ and
‘eye of the needle’ tests cannot be said to be in conformity with
the principles of modern arbitration and they would not apply after
the decision of the seven-judge bench, since even though they
endeavour to minimise judicial interference, yet require the Courts
to enter into a factual examination of contested facts and evidence,
however minimal. Relevant portion of the judgement in SBI General
Insurance Co. Ltd. is quoted herein for reference:
“114. In view of the observations made by this Court
in In Re : Interplay (supra), it is clear that the scope of
enquiry at the stage of appointment of arbitrator is limited
to the scrutiny of prima facie existence of the arbitration
agreement, and nothing else. For this reason, we find it
difficult to hold that the observations made in Vidya Drolia
(supra) and adopted in NTPC v. SPML (supra) that the
jurisdiction of the referral court when dealing with the issue
of “accord and satisfaction” under Section 11 extends to
weeding out ex-facie non -arbitrable and frivolous disputes
would continue to apply despite the subsequent decision
in In Re : Interplay (supra).
….
118. Tests like the “eye of the needle” and “ex-facie
meritless”, although try to minimise the extent of judicial
interference, yet they require the referral court to examine
contested facts and appreciate prima facie evidence
(however limited the scope of enquiry may be) and thus are
not in conformity with the principles of modern arbitration
which place arbitral autonomy and judicial non-interference
on the highest pedestal.”
21. As such, the pronouncement of this Court in SBI General Insurance
Co. Ltd. (Supra) lays down a clear and comprehensive explanation
about the scope of examination at the stage of Section11 proceedings:

9 (2024) 12 SCC 1.
10 (2024) 6 SCC 1.
98 [2026] 5 S.C.R.

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it is limited to finding a prima facie existence of arbitration agreement
and nothing beyond it. Questions of ‘accord and satisfaction’,
limitation, dishonesty and frivolity, arbitrability of the subject-matter
are to be left to the adjudication by the arbitral tribunal under Section
16 of the 1996 Act which is a reflection of the doctrine of ‘Kompetenz-
Kompetenz’ or ‘compétence de la compétence’. It is therefore
incumbent upon us to only examine the prima facie existence of an
arbitration agreement.
22. At the outset, it would be apposite to extract the arbitration agreement
purportedly contained in Clause 23 of the Special Conditions of
Contract in the Tender documents. It reads as thus:
“23. Arbitration Clause:
a. The matters to be determine by the Chief Engineer:
All disputes and differences of any kind whatsoever
arising out of or in connection with the contract, whether
during the progress of the work or after its completion and
whether before or after the determination of the contract
shall be referred by the contractor to the C. E. and the C.
E. shall [within 120 days) after receipt of the contractor’s
representation make and notify decisions of all matters
referred to by the contractor in writing.
b. Demand for Arbitration:
i) In the event of any dispute or difference between the
parties hereto as to the construction or operation of this
contract, or the respective rights and liabilities of the parties
on any matter in question, the dispute or difference on
any account or as to the withholding by M.S.E.D.C.LTD.
of any certificate to which the contractor may claim to be
entitled to or if the C. E. fails to make a decision (within
120 days), then and in any such case, the contractor (after
120 days) but within (180 days) of his presenting his final
claim on disputed matters, shall demand in writing that the
dispute or difference to be referred to arbitration.
ii) The demand for arbitration shall specify the matters which
are in question, or subject of the dispute or difference as
also the amount of claim item wise. Only such dispute(s)
or difference(s) in respect of which the demand has
[2026] 5 S.C.R. 99

Maharashtra State Electricity Distribution
Company Limited (Msedcl) & Ors. v. R Z Malpani

been made, together with counter claims or set off, shall
be referred to arbitration and other matters shall not be
included in the reference.
a) The arbitration proceedings shall be assumed to
have commenced from the day, a written and valid
demand for arbitration is received by the Company.
b) The claimant shall submit his claim stating the
facts supporting the claims along with all relevant
documents and the relief or remedy sought against
each claim Within a period of 30 days from the date
of appointment of the Arbitral Tribunal.
c) The Company shall submit its defense statement
and counter claim(s), if any, within a period of 60
days of receipt of copy of claims from the Tribunal
thereafter unless otherwise extension has been
granted by the Tribunal.
iii) No new claim shall be added during the proceedings by
either party. However, a party may amend or supplement
the original claim or defense thereof during the course of
arbitration proceedings subject to acceptance by Tribunal
having due regard to the delay in making it.
iv) If the contractor(s) does/do not prefer his/their specific
and final claims in writing, within a period of 90 days
of receiving the intimation from the Company, that the
final bill is ready for payment, he/they will be deemed to
have waived his/their claim(s) and the Company shall be
discharged and released of all liabilities under the contract
in respect of these claims.
c. Obligation during pendency of Arbitration:
Work under the contract shall, unless otherwise directed by
the Engineer, continue during the arbitration proceedings,
and no payment due or payable by the Company shall
be withheld on account of such proceedings, provided,
however, it shall be open for Arbitral Tribunal to consider
and decide whether or not such work should be continued
during arbitration proceedings.
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In cases where the total value of all claims in question
added together does not exceed Rs.1,00,00,000/- (Rs.
One Crore) the Arbitrate Tribunal shall consist of a Sole
Arbitrator who shall be either the C.E. of the Company
or serving or retired officer of the Company/Government
not below the grade of C.E. or equivalent nominated by
the Chairman of the Company in that behalf. The Sole
Arbitrator shall be appointed within 60 days from the day
when a written and valid demand for arbitration is received
by the Company.
i) In cases the value of the claim exceeds Rs. 1,00,00,000/-
(Rs. One Crore) as above, the Arbitral Tribunal shall consist
of panel of 3 serving or retired officers of M.S.E.D.C.LTD./
Govt not below the grade of C.E./CA.O. as the Arbitrators.
For this purpose, the Company will send a panel of more
than 3 names of arbitrators of one or more department of
the Company/Govt. to the contractor who will be asked to
suggest to the Chairman at least 2 names for appointment
as contractor’s nominee. The Chairman shall appoint at
least one of them as the contractor’s nominee and will
also appoint the balance number of arbitrators either from
the panel or from outside the panel, duly indicating the
presiding arbitrator from amongst the three [3) arbitrators
so appointed. While nominating arbitrators, it will be
necessary to ensure that one of them is or has worked
in Accounts department.
ii) If one or more arbitrators appointed as above refuses to
act as arbitrator, withdraws from his office as arbitrator or
vacates his/their office/offices or is/are unable or unwilling
to perform his functions as arbitrator for any reason
whatsoever or dies or in the opinion of the Chairman fails
to act without undue delay. The Chairman shall appoint
new arbitrators to act in his/their place in the same manner
in which the earlier arbitrator/s had been appointed. Such
reconstituted Tribunal, may, as its discretion proceed with
the reference from the stage at which it was left by the
previous arbitrator(s).
iii) The Tribunal shall have powers to call for such evidence
by way of affidavits or otherwise as the Arbitral Tribunal
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shall think proper, and it shall be the duty of the parties
hereto to do or cause to be done all such things as may
be necessary to enable the Arbitral Tribunal to make the
award without any delay.
iv) While appointing arbitrator(s) as above, due care
shall be taken that he/they is/are not the one/those who
had an opportunity to deal with the matters to which
the contract relates or who in the course of his/their
duties as Company’s servant(s) expressed views on all
or any of the matters under dispute or differences. The
proceedings or the Arbitral Tribunal or the award made
by such Tribunal will, however, not be invalid merely for
the reason that one or more arbitrator had, in the course
of his service, opportunity to deal with the matters to
which the contract relates or who in the course of his/their
duties expressed views on all or any of the matters under
dispute.
v) Arbitral award shall state item wise, the sum and reasons
upon which it is based.
vi) A party may apply for corrections of any computational
errors, any typographical or clerical errors or any other error
of similar nature occurring in the award and interpretation
of specific point of award to tribunal within 30 days of
receipt of the award.
vii) A party may apply to Tribunal within 30 days of receipt of
award to make an additional award as to claims presented
in the arbitral proceedings, but omitted from the arbitral
award.
viii) In case of the Tribunal, comprising of three members
any ruling or award shall be made by a majority of Members
of Tribunal. In the absence of such a majority, the views
of the Presiding Arbitrator shall prevail.
ix) Where the arbitral award is for payment of money,
no interest shall be payable on whole or any part of the
money for any period till the date on which the award is
made.
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x) The cost of the arbitration shall be borne equally by the
respective parties. The cost shall inter-alia include fees of
the arbitrators as per the rates fixed by the Company from
time to time. Provided that the fees payable per arbitrator for
claims up to Rs. One Crore, shall not exceed Rs. 2000/- per
sitting subject to a maximum of Rs. 25,000/- and the fees
payable per arbitrator for claims over Rs. One Crore, shall
not exceed Rs. 2000/- per sitting subject to a maximum
of Rs. 50,000/-. Provided further that the arbitrators who
are in service of Govt/M.S.E.D.C. LTD. shall draw fees at
half of the rates mentioned above.
xi) Company shall maintain a list of arbitrators. The
Chairman shall have full powers to delete or add the name
of the arbitrators in the list or to make amendments to the
said list as per his discretion.
xii) The arbitral proceedings should be completed and
the award be finalized within one year ff om the date of
appointment of arbitrators.
xiii) Subject to the provisions as aforesaid, Arbitration &
Conciliation Act,1996 and the rules there under, and any
statutory notification thereof shall apply to the arbitration
proceedings under this clause.”
23. The ‘Instructions to Tenderers’ contained in the Tender documents at
Clause 23 provides that the successful tenderer will have to execute
an agreement with the Company (Appellant) in the Company’s
standard proforma. It reads as thus:
“23.0 The successful tenderer will also have to execute
an agreement with the Company in Company’s standard
proforma. The cost of stamp paper shall be borne by the
contractor. (The value of Stamp paper for agreement is
Rs. 500/- up to ten lakh Plus RS. 100 for every one lakh
or part there of above Rs Ten Lacks)”
24. Clause 42 of the ‘Instructions to Tenderers’ contained in the Tender
documents provides that in case the work is cancelled before starting
the work for any reason after placement of work order, only E.M.D. /
S.D. shall be refunded and no other claim in this respect shall be
entertained. Clause 39 of the ‘Instructions to Tenderers’ in the Tender
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documents provides that the ‘Instructions to Tenderers’ shall form
part of the contract.
25. The entire thrust of the argument of the Respondent is that the
arbitration clause contained in Clause 23 of the Special Conditions
of Contract in the Tender documents has been incorporated in the
contract which has been concluded by the Appellant’s LOI dated
16.11.2022. The LOI references the Tender documents and in the
initial paragraphs, provides that the terms and conditions of the
contract as per the reference documents shall be interpreted by
reading together with them the terms of the LOI itself and in case
of conflict, the terms of the LOI shall prevail. The said portion of the
LOI is quoted herein for reference:
“…
With reference to the above, on behalf of MSEDCL tender
No. EEC/BND/TECH/T-42/2021-22 is invited for providing /
renovating the CFC center at various O&M Division of
MSEDCL throughout the State vide E-Tender Notice PR
No. 295/2021 dt. 14.7.2021. In this regards the undersigned
is pleased to inform you that your offer for the above work
covered under the scope of Schedule-B of the said tender
has been accepted and work covered under the scope of
the contract is entrusted to you subject to the following
terms and conditions.
Notwithstanding that reference are given above, the
terms and conditions and specifications of contract
shall be interpreted by reading together the terms and
conditions, specifications and contents of this Letter of
intent as below. In case of any deviations with the contents
of this Letter of intent from corresponding conditions
in the above said tender specifications or contents
of the letter under reference as read and interpreted
up to date, the contents of this Letter of intent shall
prevail.”
26. In the concluding portion of the LOI, it is stated that the LOI has
been issued to the Respondent to start with preliminaries and to
start the work on the issuance of the detailed work order. The said
portion of the LOI is quoted herein for reference:
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“…
This letter of intent is issued to enable you to start with
preliminaries to start the work as soon as the detailed
work order is issued.
...”
27. It is the admitted case of the parties that pursuant to the LOI and in
terms of Clause 23 of the ‘Instructions to Tenderers’ of the Tender
documents, neither any work order was issued to the Respondent
nor any formal agreement was entered into between the parties on
the proforma of the Appellant. It is therefore required to be examined
as to whether any agreement to arbitrate has formed at this stage
in order to meet the requirement of Section 7 of the 1996 Act. The
said section is relevant for this purpose and is therefore quoted
below for reference:
“7. Arbitration Agreement:
(1) In this Part, ‘arbitration agreement’ means 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.
(2) An arbitration agreement may be in the form of an
arbitration clause in a contract or in the form of a separate
agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in –
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or
other means of telecommunications including
communication through electronic means which
provide a record of the agreement; or
(c) an exchange of statement of claim and defence
in which the existence of the agreement is alleged
by one party and not denied by the other.
(5) The reference in a contract to a document containing
an arbitration clause constitutes an arbitration agreement
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if the contract is in writing and the reference is such as to
make that arbitration clause part of the contract.”
28. Section 7(1) of the 1996 Act posits that there must be a defined ‘legal
relationship’ between the parties and the agreement to arbitrate may
be contractual or not. As such, conclusion of a contract might not be
necessary for that purpose and what needs to be seen is whether the
parties were ad idem in their intention to refer a dispute to arbitration
as evinced from their communication.11 A distinction, however, is
drawn when the arbitration agreement is contained in some document
which is sought to be incorporated within another. Section 7(5)
is attracted in such a situation and it refers to the incorporation
of an arbitration agreement contained in some document into a
‘contract’ which has to be in writing. The use of the word ‘contract’
when dealing with incorporation of an arbitration agreement from
some other document is intentional and consequential. Since in the
present appeal the Respondent’s case is that the LOI incorporates
the arbitration agreement from the terms of the Tender documents,
both the contractual nature of the LOI as well as the validity of
incorporation becomes relevant for our examination.
29. In this context, at the very threshold it must be observed that the
finding of the High Court that Appellant in its reply dated 04.11.2024
to the Respondent’s arbitration notice ‘did not question the formation
of arbitration agreement on any ground other than the fact that the
project did not proceed further’ is prima facie erroneous and stares
at the face of the record, and is liable to be set aside. It has been
contended in plain terms by the Appellant in its reply dated 04.11.2024
that there was no concluded contract between the parties and that
the LOI cannot bind either party to a contract, it is merely indicative
of a party’s intention to enter into a contract. There is, therefore,
no admission of any concluded contract, much less an arbitration
agreement between the parties by the Appellant in its reply dated
04.11.2024. The Appellant has throughout maintained that there was
no concluded contract between the parties and as such, no reference
to arbitration can be made under Clause 23 of Special Conditions
of Contract contained in the Tender documents merely because of
a general reference to the Tender documents in the LOI.

11 Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd., (2015) 13 SCC 477.
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30. A co-ordinate bench of this Court in OASYS Cybernatics (Supra)
has exhaustively discussed the effect of a letter of intent pursuant
to a tender, its legal character and the nature of rights flowing
therefrom. Relevant paragraphs of the said judgement are quoted
herein for reference:
“11. The first issue that falls for our determination concerns
the legal character of the LoI dated 02.09.2022 and the
nature of rights, if any, accrued to the Respondent-company
thereunder.
12. This question goes to the root of the matter, and is
not one of mere semantics, i.e. ascertaining whether the
issuance of the LoI created a concluded contract capable
of enforcement, or whether it remained a conditional and
inchoate expression of intent, leaving the Government
free to reassess its position prior to formal acceptance.
The answer defines the legal threshold for the Appellant-
State’s power to cancel and the Respondent-company’s
entitlement to protection.
13. The jurisprudence on the subject is neither nascent nor
unsettled. A catena of decisions starting from Rajasthan
Cooperative Dairy Federation Ltd. v. Maha Laxmi
Mingrate Marketing Service (P) Ltd., through Dresser
Rand S.A. v. Bindal Agro Chem Ltd., to Level 9 Biz Pvt.
Ltd. v. HP Housing & Urban Development Authority, this
Court has consistently held that an LoI is, in the ordinary
course, a precursor to a contract and not the contract
itself.
14. In Dresser Rand (supra), it was re-stated with clarity that
“a letter of intent merely indicates a party’s intention
to enter into a contract with the other party in future.
A letter of intent is not intended to bind either party
ultimately to enter into any contract.” The same principle
animated Rajasthan Cooperative Dairy Federation (supra),
where this Court observed that until the offer is accepted
unconditionally and the preconditions are satisfied, “no
binding legal relationship” comes into existence. The
rationale is thus simple but fundamental: the law of contract
distinguishes between a promise to make a promise and
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a promise performed. The former is not legally binding
until its contingencies are fulfilled.
15. These authorities collectively articulate a coherent
doctrine: an LoI creates no vested right until it passes the
threshold of final and unconditional acceptance. It is but a
“promise in embryo,” capable of maturing into a contract
only upon the satisfaction of stipulated preconditions or
upon the issue of an LoA. A bidder’s expectation that such
a contract will follow may be commercially genuine, but
it is not a juridical entitlement. To hold otherwise would
be to bind the State in contract before it has consciously
chosen to be bound—a proposition foreign to both contract
law and public administration.
16. Turning then to the LoI before us, its conditionality is
beyond doubt. As noticed heretofore in para 5.7, it required
the Respondent-company to:
(i) undertake compatibility testing of its proposed
ePoS devices at NICSI, Hyderabad;
(ii) provide a live demonstration of the devices with
NIC’s application before the Directorate at Shimla;
(iii) execute a formal agreement only after successful
completion of the aforesaid steps; and
(iv) furnish a detailed MRP and landing cost of the
devices and their major components.
17. Each requirement was framed as a condition precedent;
the LoI itself stated that a “final award letter” would issue
only after the successful completion of these tasks. This
language admits of no ambiguity. The tender architecture
was sequential: testing, demonstration, acceptance, then
execution. It was never contemplated that the LoI would
operate as the contract itself.
18. The cumulative effect of the foregoing analysis is that
the LoI was no more than a provisional communication
signifying the Appellant-State›s intent to enter into a
formal arrangement upon fulfilment of certain technical
and procedural conditions. The acceptance of tender and
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the consequential formation of a binding contract were
contingent upon satisfaction of these prerequisites. The
Respondent-company’s reliance upon the LoI as a source
of vested contractual rights is, therefore, wholly misplaced.
19. As a result, the First Issue is answered in the
negative. We have no difficulty in holding that the LoI did
not give rise to any binding or enforceable rights in favour
of the Respondent-company.”
31. It is settled law that a letter of intent does not, in and of itself, create
a legal relationship or contractual obligations until there is a clear,
unambiguous final acceptance by the parties. It is an expression of
one party’s intent to enter into a contract with the other party in the
forthcoming future. When the intent of the parties can be evinced
from the letter of intent or the tender specifications and it is clear that
the letter of intent is to be followed by a final award or a concluded
agreement, it cannot be said that the letter of intent itself binds the
parties to the terms of the tender. Contractual obligations cannot
be foisted upon a party without a clear indication of its intent to
enter into a binding concluded contract. Therefore, what needs to
be distinguished is whether the intent of the parties is to make a
‘promise’ or a ‘promise to make a promise’. We are mindful of the
fact that a tender is essentially in the nature of an ‘invitation to offer’
and submission of a bid by the tenderer is an ‘offer’. By means of a
letter of intent, however, it must be examined by the Court whether
the party extending the letter of intent is in consensus ad idem
with the other party and intends to create a conclusive and binding
agreement.
32. Further, in South Eastern Coalfields Ltd. (Supra), this Court held
that the question as to whether a contract had been concluded
between the parties can be discerned by the notice inviting tender,
the letter of intent and the conduct of parties. Relevant paragraph
of the said judgement is quoted herein for reference:
“22. We would like to state the issue whether a concluded
contract had been arrived at inter se the parties is in turn
dependent on the terms and conditions of the NIT, the Lol
and the conduct of the parties. The judicial views before
us leave little doubt over the proposition that an Lol merely
indicates a party’s intention to enter into a contract with
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the other party in future. No binding relationship between
the parties at this stage emerges and the totality of the
circumstances have to be considered in each case. It
is no doubt possible to construe a letter of intent as a
binding contract if such an intention is evident from its
terms. But then the intention to do so must be clear and
unambiguous as it takes a deviation from how normally
a letter of intent has to be understood. This Court did
consider in Dresser Rand S.A. case that there are cases
where a detailed contract is drawn up later on account
of anxiety to start work on an urgent basis. In that case
it was clearly stated that the contract will come into force
upon receipt of letter by the supplier, and yet on a holistic
analysis - it was held that the Lol could not be interpreted
as a work order.”
33. Applying the said principles of law to the facts of this case, we are
in agreement with the argument of the Appellant that the LOI in the
facts of the instant case was a promise to make a promise and not a
promise itself and no agreement had concluded between the parties.
The word ‘contract’ as defined in Clause 1(c) of the Special Conditions
contained in the Tender documents is ‘the document forming Notice
Inviting Tenders, Tender Form, General Conditions of Contract,
Technical Specifications, priced schedule of items, contract agreement
and drawings and any other document which may be included at
the time of signing of contract agreement along with acceptance of
the contract thereof together’. This definition incorporates the tender
framework under Clause 23 of the ‘Instructions to Tenderers’ of the
Tender documents, which posits that an agreement will be entered
into by the Appellant with the successful bidder.
34. The LOI provided that the work under the contract is entrusted to
the Respondent subject to terms and conditions and as per clause
2 of the LOI, the time-limit to complete the entire work was six
months from the date of handing over of the sites. Pertinently, the
Appellant never handed over the sites to the Respondent. Clause 3
provided that security deposit to the tune of 5% of order value, being
₹88,81,000 must be deposited by means of demand draft or F.D.R.
or B.G. of any nationalized bank within 10 days from the date of
receipt of LOI. Alternatively, 50% of the security deposit, amounting
to ₹44,40,500 shall be deposited in the said form and the balance
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amount of ₹44,40,500 may be deducted from the R.A. bill. Clause 7
of the LOI provides for the requirement to obtain insurance in specific
form as mentioned therein. At the end of the LOI, it is mentioned
that the LOI has been issued to enable the Respondent to start
with the preliminaries so that work may be initiated as soon as the
work order is issued. It contemplates a work order to be issued at
a subsequent stage.
35. Neither the specifications of the Tender documents, nor the LOI
provides that the LOI itself would result in a concluded contract.
Rather, the Tender documents in Clause 23 of the ‘Instructions to
Tenderers’ specifically provides for an agreement to be entered into
between the Appellant and the successful tenderer and same is the
import of Clause 1(c) defining the word ‘contract’. The intent behind
the LOI is explicitly clarified as merely to ensure that preliminaries
are complied with so that the work may begin upon issuance of a
work order. No such work order was issued pursuant to the LOI. On
this count, it is stressed by the Respondent that it had submitted
the requisite security deposit by means of bank guarantees and
they were renewed from time to time. However, neither the LOI nor
the Tender documents contemplate that upon submission of bank
guarantees, the contract would be said to be concluded, creating
a binding legal relationship. Rather, they both contemplate the
issuance of a work order and the signing of an agreement; mere
completion of preliminaries cannot be said to be sufficient to form a
binding legal relationship unless specified in the terms of the tender
specifications. From a reading of the LOI, the clauses relating to
submission of security deposit and insurance clearly show the tender
framework, where after acceptance of the bid, work was entrusted
to the Respondent subject to terms and conditions which were
procedural in nature, contemplating that at a later stage, a final work
order was to be issued and an agreement was to be entered into
between the parties.
36. In the above conspectus of facts, from a holistic reading of the Tender
documents, the LOI and other subsequent communication between
the parties, the LOI does not evince the commercial intention of
the Appellant to create a binding legal relationship, it informs the
Respondent that the work was entrusted to them upon opening of bids
and lays down preliminary conditions to be fulfilled in contemplation
of a future work order and agreement in order to ensure that prior to
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the work order being issued, everything is set in place and the work
may begin at once upon such issuance. As such, it cannot be said
that the LOI had the effect of creating a binding legal relationship
between the parties.
37. In the instant case, the Appellant argues further that even assuming
arguendo that the LOI itself can be considered a source of binding
legal relationship between the parties, the LOI has made a general
reference to the Tender documents and such a general reference
cannot have the effect of ‘incorporation’ of the arbitration clause
contained therein, in light of Section 7(5) of the 1996 Act. Section 7(5)
provides that ‘The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the contract
is in writing and the reference is such as to make that arbitration
clause part of the contract.’.
38. Reference in this respect has also been made to the judgement of this
Court in NBCC (India) Ltd. (Supra). In the said judgement, this Court
dealt with facts which are somewhat similar to the instant appeal; the
arbitration clause was contained in the ‘Request for Proposal’ in the
tender documents and the contract was awarded to the Respondent
therein by means of issuance of a letter of intent which made the
terms and conditions of the said tender documents applicable to
the letter of intent as well. This Court drew a distinction between
‘reference’ and ‘incorporation’ of an arbitration clause, and after
discussing the decisions in M.R. Engineers & Contractors (P) Ltd.
v. Som Datt Builders Ltd.,12 and Inox Wind Ltd. v. Thermocables
Ltd.,13 found that the arbitration clause contained in some document
may be incorporated in the contract between the parties only by a
specific reference to the arbitration clause. The intent of the parties
to incorporate the arbitration clause has to be explicitly clear and a
mere general ‘reference’ to the tender conditions would not suffice.
Relevant paragraphs of the said judgement are quoted herein for
reference:
“16. The issue is no more res integra. The provisions of
sub-section (5) of Section 7 of the Arbitration Act have
been considered by this Court in M.R. Engineers &

12 (2009) 7 SCC 696.
13 (2018) 2 SCC 519.
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Contractors [M.R. Engineers & Contractors (P) Ltd. v.
Som Datt Builders Ltd., (2009) 7 SCC 696 : (2009) 3 SCC
(Civ) 271] . After considering the relevant passages from
Russell on Arbitration and various English judgments, this
Court held thus : (SCC p. 707, para 24)
“24. The scope and intent of Section 7(5) of the Act
may therefore be summarised thus—
(i) An arbitration clause in another document, would
get incorporated into a contract by reference, if the
following conditions are fulfilled;
(1) the contract should contain a clear reference
to the documents containing arbitration clause,
(2) the reference to the other document should
clearly indicate an intention to incorporate the
arbitration clause into the contract,
(3) the arbitration clause should be appropriate,
that is capable of application in respect of
disputes under the contract and should not be
repugnant to any term of the contract.
(ii) When the parties enter into a contract, making a
general reference to another contract, such general
reference would not have the effect of incorporating
the arbitration clause from the referred document
into the contract between the parties. The arbitration
clause from another contract can be incorporated into
the contract (where such reference is made), only by
a specific reference to arbitration clause.
(iii) Where a contract between the parties provides
that the execution or performance of that contract
shall be in terms of another contract (which contains
the terms and conditions relating to performance and
a provision for settlement of disputes by arbitration),
then, the terms of the referred contract in regard to
execution/performance alone will apply, and not the
arbitration agreement in the referred contract, unless
there is special reference to the arbitration clause also.
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(iv) Where the contract provides that the standard
form of terms and conditions of an independent
trade or professional institution (as for example the
standard terms and conditions of a trade association
or architects association) will bind them or apply
to the contract, such standard form of terms and
conditions including any provision for arbitration in
such standard terms and conditions, shall be deemed
to be incorporated by reference. Sometimes the
contract may also say that the parties are familiar with
those terms and conditions or that the parties have
read and understood the said terms and conditions.
(v) Where the contract between the parties stipulates
that the conditions of contract of one of the parties
to the contract shall form a part of their contract (as
for example the general conditions of contract of
the Government where the Government is a party),
the arbitration clause forming part of such general
conditions of contract will apply to the contract
between the parties.”
17. It could thus be seen that this Court has held that when
the parties enter into a contract, making a general reference
to another contract, such general reference would not have
the effect of incorporating the arbitration clause from the
referred document into the contract between the parties.
It has been held that the arbitration clause from another
contract can be incorporated into the contract (where
such reference is made), only by a specific reference to
arbitration clause. It has further been held that where a
contract between the parties provides that the execution or
performance of that contract shall be in terms of another
contract (which contains the terms and conditions relating
to performance and a provision for settlement of disputes
by arbitration), then, the terms of the referred contract in
regard to execution/performance alone will apply, and not
the arbitration agreement in the referred contract, unless
there is special reference to the arbitration clause also.
18. This Court further held that where the contract provides
that the standard form of terms and conditions of an
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independent trade or professional institution will bind them
or apply to the contract, such standard form of terms and
conditions including any provision for arbitration in such
standard terms and conditions, shall be deemed to be
incorporated by reference. It has been held that sometimes
the contract may also say that the parties are familiar with
those terms and conditions or that the parties have read and
understood the said terms and conditions. It has also been
held that where the contract between the parties stipulates
that the conditions of contract of one of the parties to the
contract shall form a part of their contract, the arbitration
clause forming part of such general conditions of contract
will apply to the contract between the parties.
19. A perusal of sub-section (5) of Section 7 of the
Arbitration Act itself would reveal that it provides for a
conscious acceptance of the arbitration clause from another
document, by the parties, as a part of their contract, before
such arbitration clause could be read as a part of the
contract between the parties.
20. It is thus clear that a reference to the document in
the contract should be such that shows the intention
to incorporate the arbitration clause contained in the
document into the contract.
21. The law laid down in M.R. Engineers & Contractors
[M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders
Ltd., (2009) 7 SCC 696 : (2009) 3 SCC (Civ) 271] has
been followed by this Court in Duro Felguera, S.A. v.
Gangavaram Port Ltd. [Duro Felguera, S.A. v. Gangavaram
Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764]
and Elite Engg. & Construction (Hyd.) (P) Ltd. v. Techtrans
Construction India (P) Ltd. [Elite Engg. & Construction
(Hyd.) (P) Ltd. v. Techtrans Construction India (P) Ltd.,
(2018) 4 SCC 281 : (2018) 3 SCC (Civ) 60]
22. No doubt that this Court in Inox Wind Ltd. v.
Thermocables Ltd. [Inox Wind Ltd. v. Thermocables
Ltd., (2018) 2 SCC 519 : (2018) 2 SCC (Civ) 195] has
distinguished the law laid down in M.R. Engineers &
Contractors [M.R. Engineers & Contractors (P) Ltd. v. Som
[2026] 5 S.C.R. 115

Maharashtra State Electricity Distribution
Company Limited (Msedcl) & Ors. v. R Z Malpani

Datt Builders Ltd., (2009) 7 SCC 696 : (2009) 3 SCC (Civ)
271]. In the said case (i.e. Inox Wind [Inox Wind Ltd. v.
Thermocables Ltd., (2018) 2 SCC 519 : (2018) 2 SCC (Civ)
195] ), this Court has held that though general reference to
an earlier contract is not sufficient for incorporation of an
arbitration clause in the later contract, a general reference
to a standard form would be enough for incorporation of
the arbitration clause. Though this Court in Inox Wind
[Inox Wind Ltd. v. Thermocables Ltd., (2018) 2 SCC 519 :
(2018) 2 SCC (Civ) 195] agrees with the judgment in M.R.
Engineers & Contractors [M.R. Engineers & Contractors
(P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696 :
(2009) 3 SCC (Civ) 271] , it holds that general reference to
a standard form of contract of one party along with those of
trade associations and professional bodies will be sufficient
to incorporate the arbitration clause. In the said case (i.e.
Inox Wind [Inox Wind Ltd. v. Thermocables Ltd., (2018) 2
SCC 519 : (2018) 2 SCC (Civ) 195] ), this Court found that
the purchase order was issued by the appellant therein
in which it was categorically mentioned that the supply
would be as per the terms mentioned therein and in the
attached standard terms and conditions. The respondent
therein by his letter had confirmed its acceptance. This
Court found that the case before it was a case of a single
contract and not two-contract case and, therefore, held
that the arbitration clause as mentioned in the terms and
conditions would be applicable.
23. The present case is a “two-contract” case and not a
“single-contract” case.
…
29. As already discussed hereinabove, when there is a
reference in the second contract to the terms and conditions
of the first contract, the arbitration clause would not ipso
facto be applicable to the second contract unless there is
a specific mention/reference thereto.
30. We are of the considered view that the present case
is not a case of “incorporation” but a case of “reference”.
As such, a general reference would not have the effect of
116 [2026] 5 S.C.R.

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incorporating the arbitration clause. In any case, Clause 7.0
of the LoI, which is also a part of the agreement, makes
it amply clear that the redressal of the dispute between
NBCC and the respondent has to be only through civil
courts having jurisdiction of Delhi alone.”
39. Although this Court in NBCC (India) Ltd. (Supra) was dealing
with a factual situation which was quite similar to the instant case,
the reasons why the Court interfered with the appointment of an
arbitrator in the said case were twofold. Apart from the fact that
a general reference in the letter of intent to an arbitration clause
contained in the tender documents was found to not be sufficient
for its incorporation, the second reason was that the letter of intent
in that case had a separate dispute resolution clause which limited
redressal of disputes to civil courts having jurisdiction of Delhi alone.
Even then, the law laid down in respect of incorporation of arbitration
clauses contained in tender documents by means of reference in
the letter of intent is squarely applicable to the facts of the instant
case. The LOI in the instant case makes a reference to the Tender
documents contained in the following terms:
“Notwithstanding that reference are given above, the terms
and conditions and specifications of contract shall be
interpreted by reading together the terms and conditions,
specifications and contents of this Letter of intent as
below. In case of any deviations with the contents of this
Letter of intent from corresponding conditions in the above
said tender specifications or contents of the letter under
reference as read and interpreted up to date, the contents
of this Letter of intent shall prevail.”
In our view, this is a case of ‘reference’ and not ‘incorporation’. There
is no mention of any arbitration or dispute resolution clause in the
LOI itself, neither does it purport specific incorporation thereof from
the tender documents. As such, the arbitration clause contained in
the Tender documents could not be said to have been incorporated in
the LOI to evince the existence of an arbitration agreement between
the parties on its conjoint reading with the Tender documents.
40. The judgements of this Court in NBCC (India) Ltd. (Supra) as well
as M.R. Engineers & Contractors (P) Ltd. (Supra) were recently
discussed and distinguished on facts by a co-ordinate bench of this
[2026] 5 S.C.R. 117

Maharashtra State Electricity Distribution
Company Limited (Msedcl) & Ors. v. R Z Malpani

Court in Glencore International AG v. Shree Ganesh Metals14. In
the facts of that case, there was no incorporation of the arbitration
agreement, but rather the contract containing the arbitration
agreement was never signed by the parties, but it was acted upon
and the communication between the parties evinced the creation
of a binding legal relationship between them. In such context, the
Court placed reliance on the judgement in Govind Rubber Ltd.
(Supra) and held that non-signing of the contract containing the
arbitration agreement cannot invalidate the arbitration agreement
which is in writing and the parties seem to be ad idem in respect of
the agreement by communication about the contract. The judgement
in Glencore International AG (Supra) is not applicable to the facts
of this case since it distinguishes the judgement in NBCC (India)
Ltd. (Supra) where the factual scenario was quite similar to the facts
of the instant appeal.
41. Similar is the case of the judgement in UNISSI (India) (P) Ltd. (Supra)
relied upon by the Appellant where the tender documents contained
an arbitration clause and the tender offer of the Appellant therein was
accepted and the Appellant therein acted upon the said acceptance
and made supply of oxymeters required under the tender even though
no formal contract was signed between the parties. In such context,
the Court held that the arbitration agreement contained in the tender
was applicable and dispute between the parties ought to be referred
to an arbitrator. In the facts of the present case, the terms of the
tender itself have never been worked upon by the Respondent. The
Work Order was never issued by the Appellant and the sites were
never handed over by the Appellant. The Respondent has submitted
bank guarantees pursuant to the LOI, which at best is a preliminary
requirement as a precursor to the Work Order being issued. As
discussed above, the LOI in the instant case was indicative of a
preliminary document in course of the contract and was not intended
to be an end-all-be-all contract between the parties, it did not create
contractual obligations or legal relationship between them.
42. It goes without saying that the scope of inquiry at the stage of
Section 11 is extremely limited and only pertains to an examination
about prima facie existence of an arbitration agreement. Judicial

14 2025 SCC OnLine SC 1815.
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non-interference in the arbitration process is the sacrosanct principle
which guides alternative dispute resolution and Courts must be
highly circumspect in interfering at the referral stage, especially
since there is no appeal available in the 1996 Act against an order
under Section 11. The Arbitral Tribunal, in exercise of its jurisdiction
under Section 16 must be left to decide on its jurisdiction. The
Courts should follow the principle of ‘When in doubt, do refer’ and
lean towards referring matters to arbitration when the arbitration
agreement is prima facie existent. However, it is only in the rarest
of rare cases where even on a prima facie view, without going into
disputed facts between the parties, there appears to be no existence
of arbitration agreement between the parties, the Court can reject
the application for appointment of an arbitrator and reference of
the parties to arbitration. The instant case appears to be a fit case
where, as discussed, even without going into the disputed facts and
merely on a prima facie view of the matter, there is no existence of
arbitration agreement and therefore, the decision of the High Court
to appoint an arbitrator requires interference.
43. As an upshot of the above discussion, the instant appeal deserves
to be allowed and the order impugned passed by the High Court
stands set aside. The Respondent is given the liberty to pursue other
alternative remedies in accordance with law, if any, available to it.
All interim application(s) shall be treated to be disposed of.

Result of the case: Appeal allowed.

†
Headnotes prepared by: Divya Pandey