The Supreme Court clarified that even an unsigned contract containing an arbitration clause can be binding if the parties have accepted and acted upon its terms, stressing that conduct and intention matter more than the absence of signatures.
The Supreme Court ruled that an unsigned contract with an arbitration clause can still bind parties if they have accepted and acted upon its terms.
Justices Sanjay Kumar and Satish Chandra Sharma emphasized that refusing to refer disputes to arbitration in such cases would be “unsustainable.”
They set-aside decisions made by the Delhi High Court, which had concluded that no arbitration agreement existed between the parties.
The Court pointed out that the respondent had fulfilled significant obligations under the 2016 contract, such as issuing letters of credit and taking delivery of part of the contracted goods, demonstrating acceptance of the contract and its arbitration clause.
It highlighted that a party cannot later claim the absence of a signature to escape obligations when its actions clearly indicate consent.
The bench noted,
“The mere fact that the contract was not signed by the respondent would not obviate from this principle when the conduct of the parties, in furtherance of the contract, clearly manifested acceptance of the terms and conditions contained therein, including the arbitration agreement,”
The case originated from a series of zinc supply transactions between Swiss commodity trading firm Glencore International and Indian metal manufacturer Shree Ganesh Metals.
Previous contracts from 2011 and 2012 included arbitration clauses directing disputes to the London Court of International Arbitration. In March 2016, the parties negotiated a new contract for the supply of 6,000 metric tonnes of zinc, finalizing terms through email exchanges.
The Indian company proposed changes to the pricing formula, which the seller accepted.
Following this, the seller issued a formal contract reflecting the modified terms and supplied 2,000 metric tonnes of zinc. Invoices associated with this contract were honored, and standby letters of credit were opened by the buyer’s bank, explicitly referencing the 2016 contract. Subsequent communications confirmed the buyer’s commitment to fulfill obligations under this contract.
When disputes arose regarding further supplies and pricing, the Indian company filed a civil suit in Delhi, seeking to invalidate the invocation of the letters of credit. The seller invoked the arbitration clause, requesting that the matter be referred to arbitration under Section 45 of the Arbitration and Conciliation Act, 1996.
A single judge of the Delhi High Court dismissed the application, asserting that no concluded contract existed due to the buyer’s lack of a signature. This view was later upheld by a Division Bench of the High Court, concluding that the parties were not ad idem on arbitration, prompting the appeal to the Supreme Court.
The apex court disagreed with the High Court’s perspective, referring to emails, invoices, and letters of credit that confirmed the full execution of the 2016 contract. It highlights that, under the law, an arbitration agreement must only be in writing, and signatures are not a requisite if consent can be inferred from conduct.
The Bench cited earlier rulings, including Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia Pvt. Ltd. and Caravel Shipping Services Pvt. Ltd. v. Premier Sea Foods Exim Pvt. Ltd., to affirm that commercial contracts with arbitration clauses should be interpreted to reflect the parties’ intentions rather than invalidate them.
The Court observed,
“For construing an arbitration agreement, the intention of the parties must be looked into… If it can be prima facie shown that the parties are at ad idem, then the mere fact of one party not signing the agreement cannot absolve it from liability under the agreement,”
Consequently, the Supreme Court allowed the appeal, reinstating the seller’s request for referral to arbitration and directing the referral court to proceed accordingly.
Senior Advocate Gourab Banerji, along with Sumeet Lall, Partner, Sidhant Kapoor, Legal Director, and Palak Rawat, Associate, from CSL Chambers, represented Glencore International AG.
Senior Advocate Vinay Garg, along with advocates Piyush Sharma, Karunesh Tandon, Aditya Dikshit, and Sonal Jain, represented Shree Ganesh Metals.