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

- **Citation:** 2026 INSC 342
- **Court:** Supreme Court of India
- **Decided:** 2026-04-09
- **Case number:** Civil Appeal No. 4307 of 2026
- **Bench:** J.K. Maheshwari, Atul S. Chandurkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/maharashtra-state-electricity-distribution-company-limited-msedcl-ors-v-r-z-39378
- **Pages:** 33

## Headnote

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 th

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[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.
Supreme Court Reports
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.
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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 fullyowned 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.
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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.
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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.
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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 subsection (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 co5
(2007) 5 SCC 295.
6
(2009) 1 SCC 107.
7
(2021) 2 SCC 1.
8
(2023) 9 SCC 385.
[2026] 5 S.C.R.
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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.
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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 'KompetenzKompetenz' 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
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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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Maharashtra State Electricity Distribution
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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.