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Arbitration or Mediation? Supreme Court Interprets the True Nature of Dispute Resolution Clauses

Background and Facts

The appellant, M/s Alchemist Hospitals Ltd., a private healthcare institution based in Panchkula, Haryana, entered into a Software Implementation Agreement dated 1 November 2018 with the respondent, M/s ICT Health Technology Services India Pvt. Ltd., a Bengaluru-based digital health technology company. The agreement was for the implementation of the respondent’s proprietary hospital management software, “HINAI Web Software,”  aimed at improving patient care operations, billing, diagnostics, and record management across the hospital’s network.

Following the contract, the respondent began implementation in late 2018. However, the appellant alleged that the project suffered from repeated technical failures, operational delays, and incomplete module integration. A second implementation attempt in January 2020 again failed, leading the hospital to roll back the system by April 2020.

On 1 April 2020, the appellant invoked Clause 8.28 of the Agreement, requesting a meeting between the Chairmen of both parties for mediation, either in person or via video conference, due to COVID-19 restrictions. The respondent replied on 3 April 2020, seeking cooperation for further attempts at resolution.

Subsequently, on 29 June 2020, the appellant issued a notice under Sections 11 and 21 of the Arbitration and Conciliation Act, 1996 (A&C Act), proposing the appointment of a sole arbitrator. The respondent acknowledged receipt but, in its reply dated 25 August 2020, expressed willingness to retry the project rather than proceed with arbitration. Aggrieved by the lack of consent to appoint an arbitrator, the appellant approached the Punjab and Haryana High Court under Section 11(6) of the A&C Act, seeking the appointment of an arbitrator.

 

The Arbitration Clause (Clause 8.28)

Clause 8.28 titled “Arbitration” outlined a three-step dispute resolution process:

  1. Negotiation between senior executives with settlement authority;
  2. Mediation between the respective Chairmen of the two parties (termed as “arbitrators”);
  3. If the dispute was unresolved within 15 days after such “arbitration,” the complaining party could seek remedies through the courts of law.

The clause also stated that any demand for “arbitration” must be made within 60 days of the dispute arising.

 

High Court’s Decision

The High Court held that Clause 8.28 was not a valid arbitration agreement under Section 7 of the A&C Act. It reasoned that:

  • The term “arbitration” had been loosely used to describe a process of internal negotiation and mediation.
  • The clause did not provide for an independent or binding adjudicatory mechanism; the Chairmen of the companies could not be treated as neutral arbitrators.
  • The clause explicitly permitted recourse to civil courts if disputes remained unresolved after 15 days, which showed that the parties never intended binding arbitration.

Accordingly, the High Court dismissed the appellant’s Section 11(6) application.

 

Supreme Court’s Analysis

The court reaffirmed that the party's intention is the cornerstone of arbitration. Under Section 7, an arbitration agreement must satisfy three key requirements:

  1. Existence of an agreement to refer disputes to arbitration;
  2. The dispute must arise from a defined legal relationship;
  3. The agreement must be in writing.

While requirements (2) and (3) were undisputed, the crucial question was whether there existed a genuine intention to refer disputes to arbitration.

 

Observations of the court

  • The clause used the word “arbitration” thrice, but its context suggested a negotiation-mediation process rather than true arbitration.
  • It lacked finality and binding effect; instead, it allowed the complaining party to approach courts after 15 days.
  • The clause’s structure negotiation, mediation by Chairmen, then court recourse- showed an escalation process for dispute resolution, not submission to an arbitral tribunal.
  • Designating the Chairmen of both companies as “arbitrators” indicated an internal management-level dialogue, not neutral adjudication as contemplated by Section 12 and the Seventh Schedule of the A&C Act.

Thus, the Court concluded that Clause 8.28 failed the statutory test of Section 7.

 

On Post-Notice Correspondence

The appellant argued that since the respondent never denied the existence of an arbitration clause, their correspondence implied acceptance.
The Court rejected this contention, distinguishing earlier decisions like Powertech World Wide Ltd. v. Delvin International (2012) and Visa International Ltd. v. Continental Resources (2009), noting that those cases involved explicit acceptance of arbitration.
Here, since no valid arbitration agreement existed in the first place, subsequent silence or cooperation could not cure the defect.

 

The verdict

The Supreme Court affirmed the High Court’s order, holding that Clause 8.28 was not a valid arbitration agreement under Section 7 of the A&C Act. It was merely a negotiation-cum-mediation mechanism lacking the intent, finality, and neutrality essential for arbitration.

Accordingly, the appeal was dismissed. The appellant was granted liberty to seek a remedy before the competent civil court. If the appellant claims exclusion of time under Section 14 of the Limitation Act, 1963, such a plea shall be considered by the civil court.

Case Reference:- CIVIL APPEAL NO. OF 2025  [ARISING OUT OF SLP (CIVIL) NO.  19647/2024] M/S ALCHEMIST HOSPITALS LTD. Vs. M/S ICT HEALTH TECHNOLOGY  SERVICES INDIA PVT. LTD.