Recently, the Supreme Court of India in Glencore International AG v. M/s Shree Ganesh Metals and Another observed that an arbitration agreement is binding even if not signed by a party, provided the parties acted in furtherance of the same.

Glencore International AG, a Swiss company, had entered into a contract with Shree Ganesh Metals for supplying zinc metals to the latter vide four contracts executed between 2011 and 2012. Each of the four contracts contained an arbitration clause whereunder the seat of arbitration was London and the Rules of the London Court of International Arbitration (LCIA) were made applicable.

Subsequently, the parties decided to enter into another contract for the supply of additional zinc metal. Accordingly, by way of an email dated March 10, 2016, Glencore stipulated the terms and conditions of the proposed contract including the provisional price. Importantly, it was also specified that all other terms of the previously executed contracts between the parties were to be retained. In response, Ganesh Metals vide email dated March 11, 2016, confirmed the terms as suggested, but sought a slight modification pertaining to provisional pricing.

Thereafter, Glencore sent an email on March 11, 2016, forwarding a signed copy of the contract dated March 11, 2016, incorporating the modification as sought by Ganesh Metals.

While the contract in question remained unsigned by Ganesh Metals, the delivery of 2,000 metric tons of zinc metal was accepted by it, leading to the issuance of eight invoices by Glencore between April and November 2016. All these invoices referred to the contract in question.

At the same time, HDFC Bank had also issued two separate letters of credit (LOCs), both referring to the contract in question. When the parties discovered that an LOC mistakenly recorded the date of the contract in question incorrectly, Ganesh Metals produced an amended LOC recording the correct date of the contract in question.

Thereafter, Glencore wrote to Ganesh Metals on February 20, 2017 that on account of its failure to pay the outstanding amount, its LOCs had been encashed and that the balance amount under the LOCs along with cash deposit had been retailed towards the postponement fees.

Ganesh Metals filed a suit before the Delhi High Court for declaration that the invocation of the LOCs by Glencore was null and void. It also sought recovery of US $1,200,000 along with interest and a permanent injunction against Glencore from invoking the LOCs and injunction.

In the suit, Glencore filed an application under Section 45 of the Arbitration and Conciliation Act, 1996 (A&C Act) and sought reference of the disputes to arbitration. Ganesh Metals objected to the aforesaid application, contending that since the contract in question was never concluded, there was no binding arbitration agreement between the parties.

A Single Judge of the Delhi High Court rejected the application, holding that since Ganesh Metals did not accept, sign or stamp the contract in question, it was never concluded.

Aggrieved, Glencore approached the Division Bench of the High Court, which dismissed the appeal. Interestingly, the Division Bench did not analyse whether the arbitration clause of the contract in question would govern the disputes between the parties. Rather, the Division Bench proceeded on the issue as to whether the disputes between the parties would be governed by the arbitration agreement between the parties under a contract executed in 2012, being clause 29.2.

Thus, Glencore approached the Supreme Court in appeal.

At the outset, the Supreme Court opined that the Division Bench was not required to analyse whether a contract executed between the parties in 2012 would govern the present disputes inasmuch as the parties had duly accepted and acted upon the contract in question. This was evident from the fact that Glencore had supplied 2,000 metric tons of zinc metal to Ganesh Metals pursuant to the contract in question; as many as eight invoices were raised by Glencore pursuant to the supply of 2,000 metric tons of zinc metal by it; Ganesh Metals had duly performed its obligations under the contract in question by furnishing LOCs as well as an amended LOC; all the LOCs were issued by the HDFC Bank at the behest of Ganesh Metals and all of them referred to the contract in question; all the contemporaneous communications exchanged between the parties referred to the contract in question. In fact, the only modification which Ganesh Metals sought pertained to provisional pricing, which was duly incorporated.

Therefore, the Supreme Court held that in such a scenario, Ganesh Metals “cannot blithely bank upon its own failure to sign the said contract to wriggle out of the terms and conditions mentioned therein”.

The Supreme Court cited its previous judgments in Interplay between Arbitration and Conciliation Act, 1996 and Stamp Act, 1989 and Shin-Etsu Chemical Co Ltd v. M/s Aksh Optifibre Ltd to observe that the referral court cannot conduct a mini-trial in regard to existence or validity of an arbitration agreement and it is the arbitral tribunal which is empowered to try the issue and render the final opinion.

On the question of non–signing of the arbitration agreement, the Supreme Court relied on its previous judgment in Caravel Shipping Services Private Limited v. Premier Sea Foods Exim Private Limited which had reiterated the position laid down in Jugal Kishore Rameshwardas v. Goolbai Hormusji that in terms of Section 7(3) of the A&C Act, the only requirement of a valid arbitration agreement is that the same needs to be in writing. On the other hand, Section 7(4) of the A&C Act “only added that an arbitration agreement could be found in the circumstances mentioned in the three sub – clauses that make up Section 7(4) but that did not mean that, in all cases, an arbitration agreement needs to be signed”. As long as the only pre-requisite of the arbitration agreement being in writing is satisfied, the same becomes binding. Interestingly, without any detailed discussion, the Supreme Court observed that its findings on the scope of Section 7 of the A&C “would hold good equally for an arbitration agreement covered” under Sections 44 and 45 of the A&C Act.

The Supreme Court also relied on its judgment in Govind Rubber Limited v. Louis Drefus Commodities Asia Private Limited to opine “that a commercial document having an arbitration clause has to be interpreted in such a manner as to give effect to the agreement rather than invalidate it”.

Additionally, the reliance placed on the judgments of MR Engineers and Contractors Pvt Ltd v. Som Datt Builders Ltd and NBCC (India) Ltd v. Zillion Infraprojects Private Limited by Ganesh Metals in support of the Division Bench’s ruling was not entertained by the Supreme Court on account on its finding that the contract in question constituted a valid and binding arbitration agreement between the parties.

At the outset, the authors agree with the ruling of the Supreme Court in the instant case. By placing due reliance on the conduct as well as the contemporaneous correspondences exchanged between the parties, the Supreme Court rightly resolved the uncertainty continuing to loom over the enforceability of an arbitration agreement that is unsigned. Even in Caravel Shipping, the Supreme Court had analysed the conduct of the parties in arriving at its conclusion.

The Supreme Court in the instant case explained how conduct and contemporaneous communications can be analysed by courts/arbitral tribunals to ascertain whether an unsigned arbitration agreement is binding or not between the parties. Accordingly, this judgment will act as guidance for courts/arbitral tribunals going forward while ruling on similar situations. Further, commercial parties will also get clarity on the importance of ‘conduct’ and ‘communication/correspondences’ while negotiating/deliberating.

However, in the instant case, it appears that none of the courts analysed the LCIA Rules while arriving at their respective decisions, especially since the Preamble of the LCIA Rules itself contemplates the possibility of entertaining an arbitration agreement even if it is unsigned. The authors believe that given India aims to become global hub of arbitration, the judgments of Indian courts must not shy away from referring to foreign authorities/materials, more so when the seat of arbitration is outside India.

Lastly, and rather curiously, the judgment of the Supreme Court is labelled as ‘non-reportable’. Whereas this label does not affect the precedential value of a judgment (as also analysed previously here), it is still nonetheless unclear as to why a judgment which finally settled a controversy arising as far back as in 2019 is labelled as such.

Raghav Bhatia is an Advocate practicing before the Supreme Court of India and High Court of Delhi.

Disha Joshi is an Advocate practicing before the High Court of Delhi.