Supreme Court Sets Aside Section 11 Appointment; Holds No Arbitration Agreement Where LOI Does Not Create Concluded Contract or Incorporate Arbitration Clause

Case Name: Maharashtra State Electricity Distribution Company Limited (MSEDCL) & Ors. v. R Z Malpani
Citation: 2026 INSC 342
Date of Judgment/Order: 09 April 2026
Bench: Hon’ble Mr. Justice J.K. Maheshwari; Hon’ble Mr. Justice Atul S. Chandurkar

Held: The Supreme Court held that no arbitration agreement exists where a Letter of Intent does not result in a concluded contract and merely makes a general reference to tender documents without specifically incorporating the arbitration clause, and consequently, appointment of an arbitrator under Section 11 is unsustainable.

Summary: The dispute arose from a tender process wherein the respondent’s bid was accepted through a Letter of Intent, but no formal work order was issued and no agreement was executed. The respondent invoked arbitration relying on the arbitration clause in the tender documents, and the High Court appointed an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. The Supreme Court examined whether an arbitration agreement existed and reiterated that the scope of Section 11 is confined to prima facie determination of existence of such agreement. It held that a Letter of Intent is ordinarily a precursor to a contract and does not create binding obligations unless it reflects clear intent to conclude a contract. In the present case, the LOI was conditional, contemplated issuance of a work order and execution of a formal agreement, and therefore did not result in a concluded contract. The Court further held that even assuming a contractual relationship, mere reference to tender documents does not amount to incorporation of the arbitration clause unless there is a specific intention to incorporate it, as required under Section 7(5). Distinguishing precedents on incorporation and conduct-based formation of arbitration agreements, the Court found that neither the terms of the LOI nor the conduct of the parties established a binding arbitration agreement.

Decision: The Supreme Court allowed the appeal, set aside the High Court’s order appointing the arbitrator under Section 11, held that no arbitration agreement existed between the parties, and granted liberty to the respondent to pursue alternative remedies in accordance with law, with all pending applications disposed of.