Supreme Court clarifies the test of validity of Arbitration Agreement under Part II of the Arbitration and Conciliation Act, 1996

The Supreme Court in its judgment dated 25 August 2025 passed in Glencore International AG v. Shree Ganesh Metals & Anr., 2025 INSC 1036, examined the effect of an unsigned contract on the existence and validity of arbitration agreement contained therein. The Hon’ble Court also had the occasion to deal with standard of inquiry under Section 45 of the Arbitration and Conciliation Act, 1996 (“A&C Act, 1996”) which provides for reference of disputes to arbitration under Part II, when the seat is outside India.

Background 

Brief facts leading up to the decision of the Hon’ble Supreme Court were that the Hon’ble Division bench of Delhi High Court vide its order dated 14 November 2019 upheld the decision dated 02 November 2017 of the Ld. Single Judge of the Delhi High Court, refusing to recognize the arbitration agreement between the parties as valid and binding and therefore rejected the Appellant’s plea to refer the parties to London seated arbitration in terms of the arbitration agreement contained in the unsigned contract. 

The Courts below had opined that the parties are not ad idem on the contract containing the arbitration agreement since there were no circumstances to demonstrate why the contract was not executed. Aggrieved by the decisions of the Ld. Single Judge and Division Bench of Hon’ble Delhi High Court, the Appellant approached the Hon’ble Supreme Court by way of a Special Leave Petition. 

While granting special leave to appeal, the Hon’ble Supreme Court specifically answered in the facts of the case the question of a binding arbitration agreement between the parties through their conduct. 

Brief Facts 

Between 2011 and 2012, Appellant and Respondents had entered into four contracts for the supply of zinc, each of which contained a London-seated arbitration clause under the Rules of the London Court of International Arbitration (LCIA). In March 2016, the parties proposed to enter into a fifth contract and terms and modalities for this contract were sought to be worded out by the parties. In that context certain emails were exchange between the parties where proposed amendments to the contract being negotiated were suggested by the Respondent. In turn, the Appellant promised to revert with the formal contract and thanked the Respondent for the business confirmation. Ultimately the Appellant forwarded the contract signed by it for Respondent’s signature and this version of the contract incorporated the terms and modalities agreed upon between parties through earlier email correspondence (“2016 Contract”). Illustratively, the 2016 Contract contained clauses for pricing, opening of Standby Letters of Credit (“SBLCs”), invoicing and other material clauses for the performance of the 2016 Contract. 

The 2016 Contract was for purchase of 6000 MT of Zinc metal by the Respondent from the Appellant for the period March 2016 to February 2017. The Respondent never signed the contract and therefore averred that the Contract no./Contract was irrelevant and its reference on the correspondence was only for the convenience and nomenclature such that it had no intention to be bound it. During the course of performance of the 2016 Contract, owing to Respondent’s breaches, the Appellant ultimately encashed the SBLCs which led to the Respondent filing a suit before the Hon’ble Delhi High Court. In the said suit the Respondent prayed for declaration that the invocation of SBLC by the Appellant was null and void and to pass a decree for recovery of USD 1.2 million in its favour. 

In the above background facts, the Hon’ble Supreme Court adjudicated the appeal as under. 

Observations and Analysis 

The Respondents’ conduct in the facts unequivocally demonstrated that it accepted and acted upon the 2016 Contract. So far as the conduct was concerned the Hon’ble Court sift through the factual matrix and highlighted that the correspondence issued by the Respondent specially referring to 2016 Contract, the issuance of SBLCs by the Respondent’s bank towards discharge of its obligations under 2016 Contract, picking up of part material supplied by Appellant by the Respondent, receipt of invoices under the 2016 Contract and ultimately filing a suit pertaining to invocation of SBLC pertaining to 2016 Contract demonstrates unequivocal acceptance by the Respondent who cannot regal out the terms by its failure to sign the contract. 

The Court then analysed Section 44 of the A&C Act, 1996 which defines a foreign award and Section 45 of the A&C Act, 1996  which provides for reference of parties to arbitration under Part II and observed that only prima facie existence of an arbitration agreement needs to be adduced before the referral court. The referral court is not an appropriate forum to conduct a mind trial by allowing the parties to adduce evidence in regard to the existence or validity of an arbitration agreement, as the same ought to be left to the arbitral tribunal. While making the above observation the Court relied on Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Stamp Act, 1899 (2024) 6 SCC 1, which reaffirmed the judgment passed in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. & Anr, (2005) 7 SCC 234, on the threshold of reference under Section 45, Part II of the A&C Act, 1996.

The Court also observed that courts should lean towards giving effect to the arbitration clause in the commercial contracts if it meets the threshold of Section 7(3) of the A&C Act, 1996, contained in Part I, which equally applies to arbitration agreements under Section 44 and 45 of the A&C Act, 1996. The Court relied upon Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia Pvt. Ltd. (2015) 13 SCC 477 and Scrutton on Charter Parties, 17th Edition, Sweet & Maxwell, London, 1964 while making such observation. 

Requirement of signature of an arbitration agreement pale into insignificances when it can be prima facie shown, such as in the present case, that the parties are ad idem and the materials on record make it clear that the Respondent was acting upon the 2016 Contract issued by the Appellant. The Court relied on Caravel Shipping Services Private Limited vs. Premier Sea Foods Exim Private Limited (2019) 11 SCC 461, which affirmed the judgment passed in Jugal Kishore Rameshwardas vs. Goolbai Hormusji (1955) 2 SCC 187, to the effect that an arbitration agreement needs to be in writing though it need not be signed. 

In light of the above, the Court ultimately set aside the judgment of the Hon’ble Division Bench and Ld. Single Judge holding the decisions to be unsustainable on facts and in law. The Hon’ble Court found the arbitration agreement contained in 2016 Contract to be valid and binding and accordingly restored the Section 45 application filed by Appellant for reference of dispute between the parties to arbitration  by the referral court in accordance with law. 

Conclusion 

The Decision by the Hon’ble Supreme Court reaffirms India’s stand when it comes to international commercial arbitration i.e., a pro arbitration approach, upholding the parties intention and following the duty of the referral courts to relegate the parties to the contractually agreed mechanism under Part II of the A&C Act, 1996 on a prima facie view without inviting the rigmors of disputed questions of facts involving leading of extensive evidence. 
The decision further reinforces the efficacy and primacy of arbitration agreements for resolution of disputes when manifestly intended by parties. 

**The Appellant was represented by the authors, Sumeet Lall, Sidhant Kapoor and Palak Rawat. 
 

Authors

Sumeet Lall, Partner, CSL Chambers

Sidhant Kapoor, Legal Director, CSL Chambers

Palak Rawat, Associate, CSL Chambers
 

**CSL Chambers, is an associated firm of Clyde & Co LLP, a Full Service Global Law Firm.

For any inquiries, please feel free to contact the authors