M/S ALCHEMIST HOSPITALS LTD. V. M/S ICT HEALTH TECHNOLOGY SERVICES INDIA PVT. LTD 2025 INSC 1289:

DATE: 06/11/2025

COURT: Supreme Court of India

BENCH: Justice Dipankar Datta and Justice Augustine George Masih

FACTS:

The appellant, a private healthcare institution based in Panchkula, Haryana, entered into a Software Implementation Agreement with the respondent, a Bengaluru-based technology company, on 1 November 2018 for the installation of “HINAI Web Software,” an integrated hospital management system. The appellant alleged that the respondent repeatedly failed to deliver a functional system due to technical and operational issues, even after a second implementation attempt in January 2020. Following these failures, the appellant invoked Clause 8.28 of the Agreement—which mentioned negotiation, mediation, and “arbitration” and sought to initiate arbitration proceedings by suggesting names of potential arbitrators. When the respondent failed to cooperate, the appellant approached the Punjab & Haryana High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a sole arbitrator. The High Court dismissed the application, holding that Clause 8.28 did not constitute a valid arbitration agreement, prompting the present appeal before the Supreme Court.

ISSUES:

The central issue before the Supreme Court was whether Clause 8.28 of the Software Implementation Agreement could be interpreted as a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996, thereby warranting the appointment of an arbitrator under Section 11(6) of the Act.

JUDGEMENT WITH REASONING:

The Supreme Court upheld the High Court’s decision, holding that Clause 8.28 was not a valid arbitration agreement within the meaning of Section 7 of the Arbitration and Conciliation Act, 1996. The Court observed that the clause merely provided for negotiation and mediation between the parties’ Chairmen without conferring any final or binding adjudicatory authority. Consequently, the appellant’s application under Section 11(6) was dismissed, though liberty was granted to seek remedies before a competent civil court.

The Court reasoned that an arbitration agreement must reflect a clear and binding intention of the parties to refer disputes to arbitration and to abide by the decision of a neutral adjudicatory body. Referring to precedents such as K.K. Modi v. K.N. Modi, Jagdish Chander v. Ramesh Chander, and Mahanadi Coalfields Ltd. v. IVRCL AMR Joint Venture, the Court reiterated that the mere use of the word “arbitration” is insufficient to constitute a valid arbitration clause unless it evidences a definitive commitment to arbitrate. Clause 8.28, on its face, contemplated a non-binding internal dispute resolution process, first negotiation, then mediation between the Chairmen, and if unresolved, recourse to courts. The clause’s language, especially the phrase permitting parties to seek legal remedies after “arbitration,” made it clear that no binding arbitral determination was envisaged.

Furthermore, the Court emphasized that the designation of the parties’ own Chairmen as “arbitrators” lacked the neutrality required under Section 12 of the Act, which presumes an independent and impartial adjudicator. The structure of Clause 8.28 revealed that the process was intended as an internal mechanism for amicable settlement rather than a formal arbitration proceeding. The Court also rejected the appellant’s argument that the respondent’s non-denial of the arbitration clause in correspondence constituted consent, clarifying that when no arbitration agreement exists in the first place, subsequent conduct cannot create one. Accordingly, the Supreme Court affirmed the High Court’s judgment and advised the appellant to pursue appropriate remedies in civil court.

ANALYSIS:

The Supreme Court’s decision in this case reaffirms the fundamental requirement that an arbitration agreement must clearly express the parties’ intent to submit disputes to a binding arbitral process, rather than merely engaging in negotiation or mediation. By holding that Clause 8.28 of the Software Implementation Agreement did not amount to a valid arbitration clause, the Court emphasized the importance of clarity, mutual consent, and finality in creating an enforceable arbitration mechanism. The Court’s reliance on precedents such as K.K. Modi v. K.N. Modi and Jagdish Chander v. Ramesh Chander underscores its consistent stance that the mere inclusion of the word “arbitration” or a loosely structured dispute resolution process cannot substitute for an express, binding commitment to arbitrate. This ruling thus delineates a clear boundary between informal settlement mechanisms and formal arbitration, safeguarding the integrity of the arbitral process under the Arbitration and Conciliation Act, 1996.

The judgment also highlights the Court’s insistence on procedural neutrality and the independence of the adjudicator as core components of arbitration. By rejecting the idea of the parties’ own Chairmen acting as arbitrators, the Court reinforced the principle that arbitration must be impartial and free from internal control or bias. Additionally, the Court clarified that subsequent conduct or correspondence cannot retroactively create an arbitration agreement when one does not exist in the contract itself. This interpretation ensures that arbitration remains a consensual and legally rigorous process rather than an assumed or implied arrangement. Overall, the ruling strengthens the framework of commercial dispute resolution in India by promoting precision in drafting arbitration clauses and discouraging the misuse of Section 11 proceedings in the absence of a valid arbitration agreement.