The Supreme Court has held that in the absence of a concluded contract, no arbitration agreement can be said to exist, setting aside the appointment of an arbitrator in a dispute arising out of a government tender process. 

The bench of Justice J.K. Maheshwari and Justice Atul S. Chandurkar has observed that a Letter of Intent is generally only an expression of intent and not a binding contract unless clearly intended otherwise. In the present case, the LOI itself contemplated that a detailed work order and formal agreement would follow, which never happened. Since no concluded contract came into existence, the arbitration clause contained in the tender documents could not be invoked.

The dispute stemmed from a tender issued by Maharashtra State Electricity Distribution Company Limited for civil and interior works relating to the renovation of multiple customer facilitation centres across Maharashtra.

Although a Letter of Intent (LOI) was issued to the contractor after the bidding process, no formal work order was ever issued and no agreement was executed between the parties. Despite repeated correspondence and submission of bank guarantees, the project did not commence.

Subsequently, the contractor terminated the arrangement and invoked arbitration, seeking compensation. However, the state utility rejected the claim, asserting that no binding contract or arbitration agreement existed. 

The Bombay High Court appointed a sole arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, holding that the Letter of Intent and tender conditions indicated the existence of an arbitration agreement. 

The core issue before the Supreme Court was whether an arbitration agreement could be inferred solely from a Letter of Intent and tender documents when no formal contract had been executed.

The Supreme Court clarified that the scope of inquiry under Section 11 is limited to determining the prima facie existence of an arbitration agreement, but this does not dispense with the requirement of a legally enforceable foundation.

The Court also found that the High Court had erred in observing that the existence of an arbitration agreement was not disputed, noting that the state utility had consistently denied it. 

Interpreting Section 7(5) of the Arbitration Act, the Court emphasized that mere reference to another document containing an arbitration clause does not automatically incorporate it unless there is a valid and binding contract.

In this case, the absence of a concluded agreement meant that the arbitration clause in the tender documents was never legally incorporated. 

Allowing the appeal, the Supreme Court set aside the High Court’s order appointing the arbitrator, holding that there was no concluded contract between the parties. Consequently, there was no valid arbitration agreement. The reference to arbitration was therefore legally unsustainable.

Case Details

Case Title: Maharashtra State Electricity Distribution Company Limited Versus R Z Malpani

Citation: JURISHOUR-700-SC-2026

Case No.: SLP (C) No. 36889 OF 2025

Date: 09/04/2026

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