Mere Use Of The Term "Arbitration" Does Not Constitute An Arbitration Agreement - Supreme Court In Alchemist Hospitals Ltd V. ICT Health Technology Services India Pvt. Ltd.

Introduction

Arbitration in India, as governed by the Arbitration and Conciliation Act, 1996 ("the Act"), rests fundamentally upon the cornerstone principle of party autonomy. The legislative intent has always been minimization of judicial intervention while upholding and enforcing the parties' agreement to resolve their disputes through private adjudication. However, it is crucial to recognise that this autonomy is not absolute. It is conditioned upon the parties' explicit and mutual intention to refer their disputes to arbitration, a foundational principle that constitutes the heart of Section 7 of the Act.

At its core, Section 7 adopts both a literal and purposive interpretative approach. Literally, the provision requires an agreement to submit disputes to arbitration, in writing, and mutually assented to. Contractually, the courts have consistently emphasised that arbitration is a matter of consensus ad idem, necessitating clear intention, not inferred or presumed merely from isolated terminology such as 'arbitration', 'arbitrator', or similar expressions. The jurisprudential essence of Section 7 therefore lies in identifying substantive intent rather than semantic cues, that the parties consciously elected arbitration as their dispute resolution mechanism and agreed to be bound by it.

Indian courts, applying established principles of contractual interpretation, have repeatedly held that agreements must be read as a whole, harmoniously, and in their commercial context. A stray reference to arbitration cannot fulfil the statutory mandate unless the clause conveys that disputes shall or must be resolved through arbitration.

The recent decision of the Supreme Court in M/s Alchemist Hospitals Ltd. v. M/s ICT Health Technology Services India Pvt. Ltd. (2025 SCC OnLine SC 2354; decided on 6 November 2025) revisits the foundational question that whether the mere use of the word "arbitration" in a contract would suffice to constitute a valid and enforceable arbitration agreement. The two-judge bench, speaking through Hon'ble Mr. Justice Dipankar Dutta, answered this in the negative, reinforcing that the essence of an arbitration clause lies not in its form or isolated language, but in the unequivocal intention of the parties to be bound by the arbitral process.

Brief Background

Alchemist Hospitals Ltd. ("AHL"), a private healthcare institution based in Panchkula, entered into a Software Implementation Agreement with ICT Health Technology Services India Pvt. Ltd. ("ICT"), a Bengaluru-based technology company, for the deployment and implementation of a hospital management software called "HINAI Web Software" to streamline patient-care operations, billing systems, diagnostics services, and record management across AHL's healthcare facilities.

After the agreement was executed and implementation of the software commenced, disputes arose over repeated technical failures and incomplete software integration. AHL invoked Clause 8.28 of the Agreement, titled "Arbitration", which prescribed a multi-tiered process including negotiation, mediation, and an arbitration between the Chairmen of both companies (in this order), followed by recourse to courts if unresolved.

In view of the above, AHL first requested ICT for settling the disputes through mediation between the Chairmen, followed by the notice for appointment of a sole arbitrator under Sections 11 and 21 of the Act. After failure of negotiations, AHL sought the appointment of an arbitrator under Section 11(6) of the Act before the High Court of Punjab and Haryana ("High Court"). The High Court dismissed the petition, holding that Clause 8.28 was not a valid arbitration agreement as the parties never intended to refer the disputes to private or independent adjudicators or that the decision of those two Chairmen would be binding on them. AHL thereafter approached the Supreme Court for adjudication of the primary and basic question that whether the said clause in the agreement constituted a valid arbitration agreement.

Statutory Provision – Section 7 of the Act

Section 7 of the Act constitutes the statutory foundation for determining the existence and validity of an arbitration agreement. There are three essential requirements which emerge from an analysis of Section 7 - (a) there must be an agreement to refer disputes to arbitration; (b) the disputes must arise from a defined legal relationship; and (c) the agreement must be in writing. In the present case before the Supreme Court, the controversy centred specifically on whether the first requirement, that is, existence of an intention to refer disputes to arbitration, was satisfied by the Arbitration clause in the agreement between AHL and ICT.

Judicial precedents on what constitutes an Arbitration Agreement

The Supreme Court examined several precedents that have progressively clarified and refined the jurisprudential understanding of what constitutes a valid arbitration clause. The crux of these decisions has been on the intention of parties to refer the disputes to arbitration, finality of the arbitral tribunal's decision, and neutrality of the whole adjudicatory mechanism.

In K.K. Modi v. K.N. Modi¹, a two-judge bench of the Supreme Court emphasised on the following attributes that ought to be present for an agreement to qualify as a valid arbitration agreement:

1. Fundamentally, the agreement must envisage that the tribunal's determination will have binding effect upon the parties, and that the tribunal's authority to adjudicate the parties' rights emanates from their mutual consent or a court directive or statutory provisions that explicitly establish the process as arbitration.
2. The arrangement must provide for the tribunal to resolve the substantive rights and obligations of the parties in a dispute that has already crystallized at the time of reference to the tribunal.
3. The tribunal must function in an impartial and judicial capacity, owing equal duties of fairness to both sides without favoring either party.
4. The parties' agreement to submit their disputes to the tribunal's determination must be intended to create legally enforceable obligations, distinguishing it from mere aspirational or non-binding arrangements.

These combined elements would ensure that the agreement established a genuine arbitral process characterized by consensual submission to binding adjudication, impartial determination of substantive rights, and legal enforceability of the resulting decision.
Subsequently in Jagdish Chander v. Ramesh Chander², a two-judge Bench of the Supreme Court reiterated that an arbitration agreement must indicate a clear and definite commitment by the parties to submit their disputes to a private tribunal and be bound by its decision, rather than merely contemplate arbitration as a possibility. It was held that the specific terms "arbitration" or "arbitrator" need not be used if the essential characteristics of arbitration were present. Conversely, the mere inclusion of these words did not automatically create a valid arbitration agreement. The Court observed that any clause that required or contemplated additional consent or agreement from the parties in the future before referring disputes to arbitration failed to qualify as a binding arbitration agreement assuch provisions merely expressed an intention or aspiration to potentially pursue arbitration if and when disputes arose, effectively constituting an agreement to agree rather than an actual arbitration agreement. The clause ought to impose an obligation to arbitrate, not simply leave open the possibility of doing so, and it must not contain elements that contradict the fundamental attributes of arbitration, such as provisions permitting unilateral decision-making without hearings, or the decision-maker to favour one party, or parties to pursue civil litigation if dissatisfied with the outcome of the arbitration.

Applying the above principles, the Supreme Court examined a clause titled "Settlement of Disputes/Arbitration" which contained no substantive arbitration mechanism and instead provided for court remedies in the case of Mahanadi Coalfields Ltd. v. IVRCL AMR JV³. The Court held that the mere use of word "arbitration" in the title of the clause without any corresponding substantive provision relating to arbitration could not be considered a valid arbitration agreement under Section 7 of the Act.

Other decisions, such as Wellington Associates v. Kirit Mehta⁴ and Bihar State Mineral Development Corp. v. Encon Builders⁵, reaffirmed that clauses permitting recourse to courts or requiring further consent are not valid arbitration agreements.

Supreme Court decision in Alchemist Hospitals

After a comprehensive analysis of the statutory framework and precedents, the Court held that the Arbitration Clause (i.e. Clause 8.28) did not qualify as a valid arbitration agreement under Section 7 of the Act. Despite multiple references to "arbitration" in the clause, the process fundamentally lacked any binding effect and was merely an internal dispute resolution mechanism rather than a valid and enforceable arbitration agreement.

The Court observed that while the clause enabled the Chairmen of both companies to "arbitrate" disputes, it expressly permitted the complaining party to approach courts if the dispute remained unresolved. Therefore, the repetitive use of the term "arbitration" was neither clinching nor decisive. The substance would have to prevail over the form, and the form alone could not create a valid arbitration agreement where the essential attributes, i.e. the binding effect and neutral adjudication, were absent. The process therefore lacked finality and neutrality, indicating an intent for negotiation or mediation, but not arbitration.

The Court also cautioned that while subsequent communications between the parties may clarify an otherwise ambiguous arbitration clause, that cannot create an arbitration agreement where none existed. In this case, since Clause 8.28 itself did not satisfy the statutory requirements of Section 7, post-notice exchanges could not retrospectively transform it into a valid arbitration agreement, and the parties' remedy thus lied only before the civil courts.

Conclusion

The decision serves as a clear and unequivocal reminder that arbitration must be founded upon the bedrock of mutual intent and binding consent, and not merely upon semantics or nomenclature. It is critical that parties must exercise considerable care in drafting dispute resolution clauses to ensure that if arbitration is indeed the intended mechanism, the agreement ought to clearly and unambiguously reflect a binding obligation to arbitrate, to accept the decision of the arbitral tribunal and exclude recourse to courts except as permitted by the Act itself.

Footnotes

1 (1998) 3 SCC 573

2 (2007) 5 SCC 719

3 (2022) 20 SCC 636

4 (2002) 4 SCC 272

5 (2003) 7 SCC 718

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