"Arbitration Without Commitment? The Supreme Court Says No."

In the contemporary and rapidly evolving commercial landscape, arbitration presents an expedited and confidential mechanism for the resolution of disputes. This process enables enterprises to avoid long judicial battles and concentrate on their core operations. Nevertheless, a recent ruling by the Supreme Court of India in M/S Alchemist Hospitals Ltd. v. M/s ICT Health Technology Services India Pvt. Ltd.¹ illustrates that merely incorporating the term "arbitration" into a contractual agreement is insufficient. The apex court affirmed that good faith isn't good enough and the stipulation must unequivocally show the genuine intent of both parties to engage in a binding arbitral procedure. This judgment serves as an essential reference for businesses. It illuminates the requisite elements for drafting agreements that facilitate the intended efficacy of arbitration, particularly in accordance with the Arbitration and Conciliation Act, 1996 (A&C Act).

The verdict came out in October 2025 by Justices Dipankar Datta and Augustine George Masih. It dismissed an appeal for the appointment of an arbitrator pursuant to Section 11(6) of the A&C Act. The matter at hand revolved around a software agreement involving a hospital chain in Haryana and a technology firm based in Bengaluru. The decision underscores that arbitration requires genuine agreement, not vague promises. As Indian enterprises increasingly adopt arbitration bolstered by the Act's provisions and international frameworks such as the New York Convention, this case underscores the imperative for enhanced contract drafting to avert disputes from escalating into judicial proceedings.

The Case From Software Issues to Court Battles

The story started in 2022. M/S Alchemist Hospitals Ltd. entered into a Software Implementation Agreement with M/s ICT Health Technology Services India Pvt. Ltd. The primary objective was to install ICT's "HINAI Web Software" to systematically manage patient records, billing, and diagnostics in a digital format. However, complications arose: delays in the setup, failures in integration, and inaccuracies in billing severely hindered the operational workflow of the hospital. In the latter part of 2023, Alchemist invoked Clause 8.28 of the agreement. They dispatched an electronic correspondence proposing a mediation meeting between the respective chairpersons of the companies and requested the appointment of a sole arbitrator.

In response, ICT requested an additional test run, thereby disregarding the arbitration proposal. Subsequently, Alchemist sought recourse through the Punjab & Haryana High Court under Section 11(6) of the A&C Act to facilitate the appointment of an arbitrator. The High Court denied the petition, interpreting Clause 8.28 as a provision for amicable discussions rather than a definitive arbitration mechanism. This clause emphasised "good faith" negotiations among the leadership without establishing a mandate for a conclusive, impartial resolution. Alchemist subsequently appealed to the Supreme Court, contending that the repeated references to "arbitration" within the clause sufficed to trigger the provisions of the Act.

The Supreme Court concurred with the High Court's assessment and dismissed the appeal. According to Section 7 of the A&C Act, an arbitration agreement must be documented in writing and manifest a clear intention to resolve disputes through arbitration. Clause 8.28 titled "Dispute Resolution and Arbitration," outlined three stages: initial good-faith negotiations within a period of 15 days; thereafter, "arbitration" conducted by the chairpersons of the companies; and finally, court intervention if the issue remained unresolved after an additional 15 days. The critical flaw identified was the absence of binding authority. There was no obligation to adhere to the chairpersons' determinations, and courts remained an easy option. The court referenced its precedent in the 2007 case of Jagdish Chander v. Ramesh Chander, which states that arbitration entails a voluntary relinquishment of judicial rights in favour of a conclusive arbitral determination.

This process - from breach of contract to adjudication in the high court and ultimately the Supreme Court exemplifies the perils associated with ambiguous contractual provisions. Alchemist's claim is now directed to a conventional civil court, facing new time limits under the Limitation Act of 1963. Although this ruling is specifically pertinent to the technological healthcare agreement, it bears implications for many commercial contracts.

Understanding the Judgment: Focus on Real Intent

The Supreme Court's rationale is based on the principle that arbitration arises from contractual agreements. A genuine meeting of minds, or ad idem, is essential. Section 7 mandates a written agreement linking disputes to a legal relationship and committing to arbitration. The bench analysed Clause 8.28 and deemed its title deceptive. It resembled a framework for settlement discussions rather than authentic arbitration.

Significant concerns included the "arbitrators" being the chairmen, which compromised neutrality and contravened Section 12 and the Seventh Schedule's impartiality standards. There was a lack of specifications regarding hearings, evidence, or award enforcement as outlined in Sections 17-34. The 15-day "arbitration" phase ultimately redirected matters to the courts. The court emphasised that mere terminology of "arbitration" is insufficient; intent must be demonstrated. Nevertheless, the word suggests a need for robust, explicit terms for conclusive decisions.

This methodology is pragmatic rather than overly meticulous. The A&C Act of 1996 sought to alleviate court workloads, but ambiguous clauses create additional scrutiny under Section 11 cases. The ruling aligns with international standards, particularly the UNCITRAL Model Law's emphasis on robust agreements. In India, courts have favoured arbitration since the 2015 amendments, though they will not endorse weak agreements.

Why It Matters for Businesses to Avoid Hidden Risks?

This case serves as a caution for enterprises in India's expanding economy. The healthcare technology sector, currently valued at $50 billion and projected to reach $372 billion by 2030, depends on vendor agreements such as this one. A poorly constructed clause can escalate a trivial software disagreement into years of appeals, incurring significant costs and straining partnerships. Small and medium enterprises utilising standard templates are particularly vulnerable. Their provisions may incorporate mediation without enforceable components, risking nullification. Multinational corporations entering India ought to scrutinise legacy contracts to prevent enforcement complications under international regulations. The ruling enhances judicial scrutiny at the outset (Section 11), potentially increasing workload despite the Act's intentions. Conversely, it advocates for improved contract drafting, mitigating fraudulent arbitration claims while elevating preliminary expenses. With the rise of digital agreements, disputes rising by 20% annually according to FICCI, this judgment highlights systemic vulnerabilities. Firms that disregard this ruling confront not only delays but also reputational damage, as they may be labelled for engaging in "arbitration" that lacks substance.

Wrapping Up

The Alchemist case does not undermine the efficacy of arbitration; rather, it fortifies it by demanding clarity. Within India's $3 trillion economy propelled by FDI, robust contractual agreements are essential for cultivating trust. By employing precise, impartial, and enforceable terminology, enterprises fulfil the objectives of the Arbitration and Conciliation Act and safeguard their collaborations. As Justice Datta elucidated, the success of arbitration is predicated on unambiguous intent. It is imperative to act upon this: revise contractual templates, educate teams, and seek expert counsel. The next contract may encounter scrutiny so ensure that its arbitration clause yields tangible outcomes. In this manner, disputes may be resolved expeditiously, fostering development within India's arbitration-conducive environment.

Footnote

1. (2025 INSC 1289)

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