General Reference To Tender Document Containing Arbitration Clause Will Not Amount To Its Incorporation In Contract : Supreme Court

The Supreme Court has reiterated that a general reference in a Letter of Intent to an arbitration clause contained in a tender document cannot form a valid arbitration clause to seek an appointment of an arbitrator.A Bench of Justice J.K. Maheshwari and Justice Atul S. Chandurkar set aside a Bombay High Court order that had appointed an arbitrator in a construction dispute. The High Court had originally allowed the Respondent's plea for arbitration by concluding that a valid agreement existed. It reached this conclusion because the Letter of Intent (LOI) issued by the Appellant made a general reference to tender documents that contained an arbitration clause. However, the Supreme Court overruled this, holding that a mere general reference in an LOI of a tender document containing an arbitration clause is insufficient to specifically incorporate an arbitration clause from a separate document unless a specific reference to incorporate an arbitration clause from the tender document into the LOI was made. “…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…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 court observed. The judgment authored by Justice Maheshwari observed that "contractual obligations cannot be foisted upon the parties without a clear indication of its intent to enter into a binding concluded contract." By this, the Court emphasized that a tender is merely an invitation to offer—not a final agreement—and its specific terms (including arbitration clauses) cannot be bindingly extended to the parties unless there is a clear and mutual intention to incorporate those exact terms into a final contract. “…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.”, the court observed. In support, the Court referenced NBCC (India) Ltd. v. Zillion Infraprojects Pvt. Ltd., 2024 LiveLaw (SC) 246 where it was held that a dispute cannot be referred to arbitration based on the arbitration clause contained in another contract unless a specific reference was made in the main contract to incorporate the arbitration clause into the main contract. The Supreme Court observed that during the appointment stage, a court must strictly examine the prima facie existence of an arbitration clause. The Bench found that the High Court erred in its appointment because no valid arbitration agreement actually existed between the parties; consequently, the Court set aside the High Court's decision to refer the dispute to an arbitrator. The appeal was allowed accordingly. Cause Title: MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LIMITED (MSEDCL) & ORS. VERSUS R Z MALPANICitation : 2026 LiveLaw (SC) 356Click here to download judgmentAppearance: For Petitioner(s) :Mr. Vikas Singh, Sr. Adv. Mr. Samir Malik, Adv. Mr. Tushar Mathur, Adv. Mr. Mahip Singh Sikarwar, Adv. Ms. Snehal Kaila, Adv. Ms. Yachana Gupta, Adv. Ms. Deepeika Kalia, Adv. Mr. Deepanshu Shakargaye, Adv. Mr. Sudeep Chandra, Adv. Ms. Khushi, Adv. Mr. Samir Malik, AOR For Respondent(s) :Mr. Abhijit A. Desai, Adv. Mr. Satyajit A. Desai, Adv. Mr. Parth Johari, Adv. Mr. Parth Kumar Singh, Adv. Mr. Satya Kam Sharma, AOR

General Reference To Tender Document Containing Arbitration Clause Will Not Amount To Its Incorporation In Contract : Supreme Court

Yash Mittal

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