Background
Maharashtra State Electricity Distribution Company Limited, a State owned electricity distribution utility, floated a tender on 11 August 2021 for civil and interior works relating to 134 CFC centres across Maharashtra. R. Z. Malpani, a partnership firm engaged in civil construction, participated in the tender process and submitted the required earnest money and security bank guarantees. Its bid was accepted through a Letter of Intent dated 16 November 2022 for a contract value of ₹17,76,19,699.
After issuance of the Letter of Intent, the respondent furnished and later renewed the required security bank guarantees. However, no work order was ever issued and no site was handed over for commencement of work. Despite repeated requests by the respondent, the project did not move forward. Ultimately, on 5 August 2024, the respondent terminated the arrangement and invoked Clause 23 of the tender conditions, seeking reference of disputes to arbitration and claiming compensation of ₹4,89,85,500.
The appellant thereafter formally cancelled the tender on 27 September 2024 and refunded the earnest money deposit and security deposit. The respondent did not challenge the cancellation in public law proceedings, but instead pursued arbitration.
When MSEDCL denied the existence of a binding contract and arbitration agreement, the respondent approached the Bombay High Court under Section 11 of the Arbitration and Conciliation Act, 1996. By an ex parte order dated 1 October 2025, the High Court appointed a sole arbitrator. That order was challenged before the Supreme Court.
Issue
Whether, on a prima facie examination, there existed a valid arbitration agreement between the parties so as to justify appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.
Findings of the Supreme Court
The Supreme Court allowed the appeal and set aside the High Court’s order appointing the arbitrator. It held that no prima facie arbitration agreement existed between the parties.
The Court found, first, that the Letter of Intent did not result in a concluded contract. The tender documents themselves contemplated that a formal agreement would be executed and that a detailed work order would subsequently be issued.
The Letter of Intent also expressly stated that it was issued to enable the contractor to complete preliminaries so that work could begin once the detailed work order was issued. Since no work order was issued and no formal agreement was executed, the Court held that the Letter of Intent remained only a preliminary step and not a binding contract creating enforceable legal relations.
Secondly, the Court held that even if the Letter of Intent were assumed to create some legal relationship, its reference to the tender documents was only a general reference and not a specific incorporation of the arbitration clause contained in those documents.
Under Section 7(5) of the 1996 Act, a reference to another document constitutes an arbitration agreement only if the reference is such as to make the arbitration clause part of the contract. In the present case, the Letter of Intent did not specifically adopt or incorporate the arbitration clause. It merely referred generally to the tender terms and conditions. That, the Court held, was insufficient in law.
Court’s Reasoning
The Supreme Court reaffirmed that the scope of examination under Section 11 is narrow and is confined to the prima facie existence of an arbitration agreement. It noted that recent precedent has curtailed deeper judicial scrutiny at the referral stage and emphasised arbitral autonomy. Even so, the Court clarified that in the rare case where the absence of an arbitration agreement is evident on the face of the record, a reference to arbitration can and should be declined.
Applying that test, the Court held that the present case fell within that narrow category. The High Court had proceeded on an incorrect factual premise when it observed that MSEDCL had not disputed the existence of an arbitration agreement. The record showed that MSEDCL had specifically denied both the existence of a concluded contract and the existence of an arbitration agreement in its reply dated 4 November 2024.
The Court relied on its recent decision in State of Himachal Pradesh v. OASYS Cybernetics Pvt. Ltd. to reiterate that a Letter of Intent is ordinarily only an expression of intention to enter into a contract in future, unless its terms clearly show a final and binding arrangement. It also relied on South Eastern Coalfields Ltd. v. S. Kumar’s Associates AKM (JV) for the principle that whether a concluded contract exists depends on the tender conditions, the Letter of Intent, and the conduct of the parties.
On the question of incorporation, the Court followed NBCC (India) Ltd. v. Zillion Infraprojects Pvt. Ltd. and the line of authority beginning with M.R. Engineers, holding that a mere general reference to another document does not incorporate the arbitration clause contained in that document. A specific reference showing a clear intention to import the arbitration clause is required. Since the Letter of Intent in this case contained no specific reference to arbitration, the arbitration clause in the tender documents could not be treated as incorporated into the alleged contract.
The Court also distinguished authorities such as UNISSI (India) Pvt. Ltd. and Glencore International AG, observing that those were cases where the contractual arrangement had either been acted upon in substance or the communications otherwise demonstrated a binding legal relationship. In the present matter, no work order was issued, no site was handed over, and the tender terms were never actually worked upon. The furnishing of bank guarantees alone was treated as compliance with preliminary requirements and not as proof of a concluded contract.
The Supreme Court set aside the Bombay High Court’s order appointing the sole arbitrator and allowed the appeal. At the same time, it granted liberty to the respondent to pursue any other remedies that may be available in law .
Ratio
A Letter of Intent issued in a tender process does not by itself create a concluded contract unless its terms clearly disclose an intention to be immediately and finally bound. Further, a general reference in such a Letter of Intent to tender documents does not amount to incorporation of the arbitration clause contained in those documents.
In the absence of a concluded contract or a specific incorporation satisfying Section 7(5) of the Arbitration and Conciliation Act, 1996, no arbitration agreement can be said to exist even prima facie.
AMLEGALS Remarks
This judgment is an important reminder that courts remain pro arbitration, but not at the cost of inventing an arbitration agreement where none exists. The decision draws a clear distinction between a commercial arrangement that is merely in contemplation and one that has actually matured into a binding legal relationship.
It also reinforces that if parties intend to adopt an arbitration clause from tender documents, that intention must be expressed with clarity and precision. A general reference to tender terms will not suffice.
Case Brief: MSEDCL v. R. Z. Malpani
Court: Supreme Court of India
Citation: 2026 INSC 342
Date: 9 April 2026