“Arbitration” in Name Is Not Arbitration in Law: Supreme Court holds internal, non‑final processes do not meet Section 7; post‑notice correspondence cannot cure the absence of an arbitration agreement

Introduction

The Supreme Court of India in M/S Alchemist Hospitals Ltd. v. M/S ICT Health Technology Services India Pvt. Ltd. (2025 INSC 1289, decided on 06 November 2025) addressed a recurring and consequential question in arbitration law: when does a contractual clause labelled “arbitration” actually constitute a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996 (A&C Act)?

The appellant, a hospital based in Panchkula, and the respondent, a Bengaluru-based health-tech company, entered into a Software Implementation Agreement dated 1 November 2018 for deploying the respondent’s HINAI Web Software across the appellant’s facilities. After two unsuccessful “go‑live” attempts and subsequent disputes over performance and integration, the appellant invoked Clause 8.28—titled “Arbitration”—and moved the High Court under Section 11(6) seeking appointment of a sole arbitrator. The High Court refused, holding that Clause 8.28 did not create a binding arbitration agreement. The Supreme Court granted leave and examined whether Clause 8.28 met Section 7’s requirements.

The core issue was deceptively simple: does Clause 8.28—though repeatedly using the word “arbitration”—actually evince a binding intention to submit disputes to a private adjudicatory forum whose decision would be final and enforceable?

Summary of the Judgment

The Supreme Court affirmed the High Court’s refusal to appoint an arbitrator under Section 11(6), holding that Clause 8.28 is not a valid arbitration agreement under Section 7 of the A&C Act.
Despite using the term “arbitration” three times, the clause revealed a multi-tier internal dispute resolution mechanism—negotiation followed by mediation-like engagement between the companies’ Chairmen—not a reference to a neutral, adjudicatory arbitral tribunal.
Crucially, the clause provided that if disputes were not “resolved within fifteen (15) days after arbitration,” the complaining party may seek remedies in court, demonstrating the absence of finality or binding effect—an essential attribute of arbitration.
The designation of the parties’ own Chairmen as “arbitrators” supported the conclusion that the process was an internal amicable settlement attempt rather than neutral adjudication.
Post‑notice correspondence did not salvage the absence of an arbitration agreement. While subsequent exchanges may, in appropriate cases, clarify or even constitute a fresh arbitration agreement, here there was no unequivocal, Section 7‑compliant agreement to arbitrate.
The appeal was dismissed with liberty to the appellant to pursue civil remedies; the Court noted that any claim under Section 14 of the Limitation Act, 1963 (exclusion of time spent in bona fide proceedings) may be considered by the competent civil court.

Detailed Analysis

The Clause at the Heart of the Dispute (Clause 8.28)

First tier: good faith negotiation by senior executives.
Second tier: a process labelled “mediation,” followed by a colon and an operative sentence stating that disputes “shall be resolved by arbitration through senior management comprising respective Chairmen of the two parties (Arbitrators).”
Critical tailpiece: “Should the dispute not be resolved within fifteen (15) days after arbitration, the complaining party shall seek remedies through the courts of law.”

The Court described the drafting as lacking in “art, science and logic,” but assessed it on substance rather than form, consistent with Section 7 and long-standing precedent.

Precedents Cited and Their Influence

Smt. Rukmanibai Gupta v. Collector, Jabalpur: Reinforces that there is no rigid form for an arbitration agreement; substance controls over nomenclature. The Court invoked this to underline that mere labels cannot create an arbitration where the essential attributes are missing.
K.K. Modi v. K.N. Modi: The Court recited the classic attributes of an arbitration agreement: binding decision; tribunal’s jurisdiction based on consent/statute/court; adjudication of substantive rights; impartial and judicial decision-making; legal enforceability; decision upon a crystallized dispute; and procedural elements like receiving evidence and hearing both sides. This framework was central to assessing Clause 8.28.
Jagdish Chander v. Ramesh Chander: The Court distilled principles that:
- The parties’ intention to be bound by a private tribunal’s decision must be clear.
- Mere use of the word “arbitration” does not suffice if a further consent is required or if the decision is not final and binding.
- Clauses permitting recourse to civil courts if dissatisfied, or denying finality, are not arbitration agreements.
This case is directly on point; the Court relied on it to hold that a clause signaling court recourse upon non‑resolution negates arbitral finality.
Mahanadi Coalfields Ltd. v. IVRCL AMR JV: A clause titled “Settlement of Disputes/Arbitration” was held non‑arbitral where the substance spoke only to negotiation and court litigation. The Supreme Court analogized: titles or repeated use of the word “arbitration” cannot override the operative text.
Bangalore Electricity Supply Co. Ltd. v. E.S. Solar Power (P) Ltd.: Emphasized contractual interpretation rooted in the parties’ expressed words, read in context and purpose. Applied here, the Court chose the meaning more consistent with the clause’s structure: a structured amicable process, not adjudicative arbitration.
Wellington Associates Ltd. v. Kirit Mehta; Bihar State Mineral Development Corpn. v. Encon Builders; BGM and M‑RPL‑JMCT (JV) v. Eastern Coalfields Ltd.: These decisions reiterate that arbitration requires a clear submission to binding adjudication; where finality is negated or third‑party neutrality is absent in substance, the clause is not arbitral.
State of Orissa v. Damodar Das and Bharat Bhushan Bansal v. U.P. Small Industries Corpn. Ltd.: Support the principle that an agreement to possibly refer disputes in future, or to seek a further consensus, is not an arbitration agreement under Section 7.
Powertech World Wide Ltd. v. Delvin International General Trading LLC and Visa International Ltd. v. Continental Resources (Usa) Ltd.: The Court acknowledged that post‑notice correspondence can, in some cases, clarify the parties’ ad idem intention or even constitute a fresh arbitration agreement by conduct or express assent. However, both cases were distinguished: in those cases the opposing party acknowledged arbitration and engaged on the choice of arbitrator; here, there was no such unequivocal assent that could satisfy Section 7.

Court’s Legal Reasoning

1) Section 7: Substance over form and the indispensability of finality

Section 7 requires an agreement to submit disputes to arbitration—i.e., a private adjudicatory process culminating in a decision binding in law.
Mere use of the term “arbitration” (even repeatedly) is not decisive. The parties’ intention must be to be bound by the decision of the tribunal.
Clause 8.28’s tailpiece—authorizing court action if the dispute is not “resolved” within 15 days “after arbitration”—is antithetical to finality. It signals an amicable, time‑bound attempt at settlement, not a submission to adjudication.

2) Nature of the forum: “Arbitrators” as the parties’ own Chairmen

Designating the Chairmen of the very disputing entities as “arbitrators” indicates an internal settlement mechanism, not a neutral adjudication by a private tribunal.
While Section 12 read with the Seventh Schedule addresses independence and impartiality (and can be expressly waived post‑dispute under the proviso to Section 12(5)), that alone is not dispositive here. The designation was treated as an interpretive indicator of the parties’ true intention: internal negotiation/mediation rather than neutral arbitration.

3) Clause architecture and language

The clause prescribes a tiered process: negotiation → “mediation” (via Chairmen) → if not resolved within 15 days, court action. Read holistically, the “arbitration” label is embedded within a mediation tier and framed as an attempt at resolution—not adjudication.
The Court adhered to the approach in Bangalore Electricity Supply: construe the words used against the contract’s object and context, preferring the meaning consistent with the clause’s purpose and structure.

4) Post‑notice correspondence cannot create an arbitration agreement unless it is an unequivocal, Section 7‑compliant agreement

The respondent never expressly denied “arbitration” in its responses; it sought another trial run of the project. The Court held that silence or ambivalence cannot cure the absence of an arbitration agreement.
By distinguishing Powertech and Visa International, the Court clarified that later exchanges can matter only if they unmistakably constitute an agreement to arbitrate—e.g., agreeing on appointment of an arbitrator—thus satisfying Section 7. That did not happen here.

Result

Clause 8.28 does not qualify as an arbitration agreement. Section 11(6) petition was rightly dismissed.
Appellant may pursue civil remedies; any plea under Section 14 of the Limitation Act for exclusion of time may be considered by the civil court.

Impact and Prospective Application

1) Drafting of multi‑tier dispute resolution clauses

Labels do not control. If a step‑clause provides negotiation/mediation and then court litigation, the insertion of the term “arbitration” within an internal step will not, by itself, create an arbitration agreement.
To be arbitral, a clause must:
- Expressly state that disputes “shall be referred to arbitration” and that the award shall be “final and binding.”
- Provide for a neutral tribunal, procedural fairness, and application of law.
- Avoid provisions that allow de novo civil suits merely because a party is dissatisfied with the decision or because time elapses.

2) Section 11 gateway scrutiny

This decision is a clear illustration of the “rare case” where the court, at the Section 11 stage, can conclude that no arbitration agreement exists. Courts will not compel arbitration on the strength of labels where finality and binding intent are absent.

3) Internal dispute processes vs. arbitration

Company-to-company “arbitration” via office-bearers (like Chairmen) will typically be characterized as negotiation/mediation unless the clause clearly empowers a neutral, adjudicatory process producing a binding award.

4) Post‑dispute correspondence

Practitioners should not rely on silence or non‑denial to “manufacture” an arbitration agreement. A fresh agreement by exchange of letters/emails must be unequivocal—e.g., consenting to arbitrate and moving to appointment.

5) Limitation and procedural strategy

Parties who unsuccessfully pursue Section 11 may still seek exclusion of time under Section 14 of the Limitation Act when they file a civil suit, subject to the civil court’s assessment of good faith and due diligence.

Complex Concepts Simplified

Arbitration agreement (Section 7, A&C Act): A written agreement where parties consent to submit disputes to a private tribunal whose decision (award) will be final and binding, enforceable in law.
Finality: The tribunal’s decision binds the parties; they cannot re‑litigate the same dispute in civil court merely due to dissatisfaction.
Multi‑tier (step) clauses: Contracts often require negotiation and mediation before arbitration. These preliminary steps are non‑adjudicative; arbitration is the adjudicative step that yields a binding award.
Section 11(6): Provision allowing a party to seek court appointment of an arbitrator when the agreed procedure fails. The court’s threshold inquiry includes whether an arbitration agreement exists.
Section 12(5) and Seventh Schedule: Rules regarding arbitrator independence and impartiality; certain relationships render arbitrators ineligible unless expressly waived in writing after disputes arise.
Ad idem intention: Meeting of minds—mutual agreement on referring disputes to arbitration and being bound by the outcome.
Section 14, Limitation Act: Permits exclusion of time spent in bona fide proceedings before a court lacking jurisdiction or otherwise unable to entertain the matter, when computing limitation for a fresh proceeding.

Practical Drafting Guidance (Checklist)

Use clear mandatory language: “Any dispute shall be referred to arbitration under [institution/Rules].”
Insert finality: “The award shall be final and binding on the parties.”
Specify the tribunal: number of arbitrators, seat/venue, governing law, and institution/rules if any.
Avoid internal office‑bearers as “arbitrators” unless neutrality and independence are preserved, and ensure compliance with Section 12(5) (or provide for an eligible independent arbitrator).
Do not provide for automatic recourse to civil courts if “arbitration” does not resolve a dispute in X days; such language signals non-finality and may invalidate arbitral intent.
Keep negotiation/mediation separate and clearly non‑adjudicative; then provide an unmistakable adjudicatory arbitration step.
Post‑dispute communications: if parties intend to arbitrate despite a defective clause, record an unequivocal fresh arbitration agreement in writing (email/letter exchange agreeing to appointment suffices under Section 7).

Why This Judgment Matters

It curbs the practice of loosely labelling internal settlement attempts as “arbitration,” restoring doctrinal clarity to Section 7’s essentials.
It provides a clean, practical rule on the evidentiary value of post‑notice correspondence: it can confirm or constitute an arbitration agreement only if it is clear and unequivocal; otherwise, the original defects remain fatal.
It harmonizes contract interpretation with arbitration doctrine: purpose and structure of the clause, not titles or stray words, determine whether parties agreed to arbitration.

Conclusion

Alchemist Hospitals v. ICT Health reiterates and sharpens a foundational principle: arbitration is a creature of consent, not of labels. A clause that deploys the word “arbitration” but withholds the core attributes of neutral adjudication and binding finality is not an arbitration agreement within Section 7. Internal, management‑led efforts—however sincere—remain non‑adjudicative unless the contract plainly confers decisional authority on a neutral tribunal whose award binds the parties.

Equally important is the Court’s clarification on post‑notice conduct: while later correspondence can, in appropriate cases, prove consensus ad idem or even constitute a fresh arbitration agreement, it must be unequivocal and Section 7‑compliant. Silence, ambiguity, or continued negotiation will not transform a non‑arbitral clause into an arbitration agreement.

For drafters and disputants alike, the takeaways are crisp:

State the obligation to arbitrate clearly and make the award final and binding.
Separate non‑adjudicative steps (negotiation/mediation) from the adjudicative step (arbitration); do not undermine finality by providing default access to civil courts upon non‑resolution within a time window.
When salvaging defective clauses post‑dispute, record an explicit, written agreement to arbitrate and promptly move to appointment.

On facts, the Supreme Court’s refusal to compel arbitration was inevitable. On law, its structured reaffirmation of Section 7’s requirements—finality, neutrality, and binding intent—will guide courts and contract drafters, reducing future challenges at the Section 11 gateway and promoting clearer, enforceable arbitration agreements.