Arbitration In IndiaUnsigned Arbitration Agreement can be binding based on Party Conduct

Introduction

In a significant ruling that reinforces the primacy of substance over form in commercial contracts, the Supreme Court of India has held that an arbitration agreement can be binding even if it is not signed by a party, provided their conduct demonstrates clear consent to its terms.

The bench in the case of Glencore International AG v. M/s. Shree Ganesh Metals and another Civil Appeal no. 11067 of 2025, set aside a Delhi High Court decision and affirmed that in the modern era of e-commerce, an exchange of communications and subsequent actions are sufficient to constitute a valid arbitration agreement.

Factual Background

The dispute arose between Glencore International AG, a Swiss commodity trading company, and M/s. Shree Ganesh Metals, an Indian proprietorship. The parties had a pre-existing business relationship, having executed four contracts between 2011 and 2012, all containing clauses for arbitration in London under the LCIA Rules.

In March 2016, the parties negotiated a fifth contract for the sale of 6,000 metric tons of zinc. The key communications were where Glencore proposed the terms, stating that all other conditions from their last contract would remain intact, and the Reply by Shree Ganesh which confirmed the terms but suggested a single modification to the provisional pricing formula.

Glencore accepted this modification and sent a formal contract (No. 061-16-12115-S), which was duly signed by them. This contract incorporated the change requested by Shree Ganesh and included an arbitration clause (Clause 32.2) for dispute resolution in London.

Although Shree Ganesh never signed this formal contract, its subsequent actions were crucial. It accepted a supply of 2,000 metric tons of zinc under the contract, for which Glencore raised eight invoices that all referenced the contract number. More significantly, at the behest of Shree Ganesh, HDFC Bank issued two Standby Letters of Credit that explicitly referred to Contract No. 061-16-12115-S. Shree Ganesh even furnished an amended Letter of Credit to correct an error in the contract date, further linking their actions to the unsigned agreement.

When a dispute arose over payments and the encashment of the Letters of Credit, Shree Ganesh filed a civil suit in the Delhi High Court. In response, Glencore filed an application under Section 45 of the Arbitration and Conciliation Act, 1996 (“the Act”), to refer the matter to arbitration based on the clause in the 2016 contract.

Contentions of the Parties

The Appellant, Glencore International AG, argued that a binding contract existed because Shree Ganesh’s conduct—accepting goods, acting on invoices, and arranging for Letters of Credit that specifically referenced the contract number—demonstrated unequivocal acceptance of its terms, including the arbitration clause. They contended that the exchange of emails and subsequent performance constituted an agreement in writing under the Act, making the lack of a signature immaterial.

On the other hand, the Respondent M/s. Shree Ganesh Metals (Respondent), contended that no concluded contract came into existence as they had never signed the document. They argued that they were therefore not bound by the arbitration clause contained within it. They claimed that the exchange of emails was insufficient to bind them to the arbitration clause and that the references to the contract number in banking documents were merely for transactional context.

Decision of the Court

The Supreme Court overturned the decisions of the single Judge and the Division Bench of the Delhi High Court, holding that they had “lost sight of certain crucial factual aspects”. The Court found that the conduct of Shree Ganesh after the contract was drafted was undeniable proof of its acceptance. The key findings of the Supreme Court were:

1. Conduct as Acceptance: The Court held that Shree Ganesh’s actions, including the partial performance by accepting 2,000 metric tons of zinc and furnishing Letters of Credit that explicitly quoted the contract number, demonstrated “due and complete acceptance of the said contract”. The Court emphatically stated that a party “cannot blithely bank upon its own failure to sign the said contract to wriggle out of the terms and conditions mentioned therein”.
2. ‘In Writing’ Does Not Mean ‘Signed’: The Court reaffirmed the legal principle that while an arbitration agreement must be in writing as per Section 7(3) of the Act, it does not necessarily need to be signed by both parties. Citing its previous decision in Govind Rubber Limited, the Court noted that an agreement can be established through an exchange of letters, telex, or other telecommunications that provide a record of the agreement. This principle, the Court held, applies equally to international arbitrations under Section 45 of the Act.
3. E-Commerce Reality: The judgment acknowledged the realities of modern commerce, stating that in cases of internet purchases and other forms of e-commerce, if the parties’ identities are established and a record of their agreement exists, it becomes a valid arbitration agreement.
4. Prima Facie Standard for Referral: The Court reiterated that a judicial authority, when deciding on a referral to arbitration under Section 45, only needs to establish prima facie proof of the existence of an arbitration agreement. It is not the forum to conduct a “mini-trial” on the validity of the agreement, as that is a matter for the arbitral tribunal to decide under the Kompetenz-Kompetenz doctrine.

The Supreme Court allowed the appeal and directed that the disputes be referred to arbitration in accordance with the contract.

AMLEGALS Remarks

The Supreme Court’s judgement in Glencore International is a welcome and pragmatic decision that aligns Indian arbitration law with contemporary commercial practices.

The ruling provides significant clarity and reinforces the legal tenet that the conduct of parties can be sufficient to form a binding contract, including its arbitration clause. In a globalized economy where deals are often concluded swiftly via email and performance commences almost immediately, this judgement ensures that legal formalities do not override the clear commercial intent of the parties.

This decision serves as a strong reminder that a party cannot “cherry-pick” the terms of a contract. It is untenable for a party to accept the commercial benefits of an agreement (such as receiving goods) while simultaneously disavowing its associated obligations, including the agreed-upon dispute resolution mechanism.

The judgment strengthens India’s reputation as a pro-arbitration jurisdiction. By focusing on the substance of the parties’ agreement rather than a procedural lapse, the Court has promoted the efficacy and efficiency of arbitration. It sends a clear message that courts will lean in favour of giving effect to an arbitration clause where the parties’ intent to arbitrate is discernible from their communications and actions.

This ruling is a crucial lesson for commercial entities. It underscores the importance of understanding that actions like partial performance or referencing a contract in official correspondence can have binding legal consequences. Businesses must exercise diligence and be aware that they can be held to the terms of an unsigned contract if their conduct implies acceptance.

— Team AMLEGALS

Please reach out to us at rohit.lalwani@amlegals.com in case of any query.