Interpretation of Section 7(4) (b) of the Arbitration and Conciliation Act, 1996

Section 7(4) (b) of the Arbitration & Conciliation Act, 1996 reads as –
an exchange of letters, telex, telegrams or other means of
telecommunication 1[including communication through electronic means] which
provide a record of the agreement

It sets out about how an arbitration agreement can be construed to be in writing

an arbitration agreement can be evidenced from the correspondence exchanged between the
parties.

Arbitration clause by implication

Section - 7 is an expressed acceptance of the arbitration agreement by means of
telecommunication or by traditional methods of communication like letters, telex and
telegram. Acceptance of the bills by the petitioner was held not as part of the method of
communication expressed under Section 7(4)(b) of the said Act.

An arbitration agreement has to be in writing. This is mandatory. One of the methods by

which an arbitration agreement can be construed to be in writing is set out in Clause(b) of
sub-section (4) of Section 7 of the said Act. It is specifically provided that the same can be
by exchange of letters, telex, telegrams or other means of telecommunication which provide
a record of the agreement. There are thus specific modes provided by which the agreement
can be construed to be in writing. There is no reference to a method whereby such an
arbitration clause can be incorporated by implication — from a collective set of documents of
trade where one such contained the arbitration clause.

 In the sequence of documents issued, it is the respondent who first issued the purchase
order. This does not contain an Arbitration Clause. The document of delivery of goods also
does not contain an arbitration clause. It is stated to be signed by the ‘gate keeper’ of the
respondent. It is only the invoice issued to the petitioner which contains the artbitration
clause and it is stated to have been simultaneously issued in view of the factum of the same
being interlinked to the goods received. This document neither contains the declaration in
the prescribed form duly signed at the back nor is there any other endorsement so as to
consider it as an acceptance on the part of the respondent. There is in fact thus no
agreement whatsoever inter se the parties on the issue of the mode of resolution of the
dispute through arbitration and there cannot be an arbitration clause by implication in any
other document

Nimet Resources Inc. v. Essar Steels Ltd., (2000) 7 SCC 497.

Unissi (India) Private Limited v. Post Graduate Institute of Medical Education and Research, (2009) 1 SCC 107.
An exchange of letters, telex, telegrams or other means of electronic or telecommunication
may form the basis to show the existence of an arbitration agreement between the parties.
The issue first came into consideration before the Supreme Court in the case of Nimet
Resources.4 The Court observed that if a contract containing an arbitration clause, without
signatures of either party is referred to in communications between the parties, that would
imply that the arbitration agreement is a part of the contract. The Court however, refrained
from finally deciding upon the issue, by directing the parties to refer this issue to the arbitral
tribunal under Section 16 of the Act.

The matter was decided by the Supreme Court for the first time in Unissi.5 In the said case,
the tender offer of one party, which contained an arbitration clause, was accepted by the
other party. However, only one party had signed the Agreement and the other party had
failed to do so. The Supreme Court, relying on the judgement in Nimet Resources, held that
an arbitration agreement did exist in the particular case. The Court was of the opinion that
the offer and acceptance of the tender through various communications, was sufficient to
hold that an arbitration agreement existed between the parties despite both parties having
not signed the agreement.

It is further pertinent to note that such record or understanding may be through an exchange
over any means of telecommunication. Post the 2015 amendment to the
Act,6 communication by electronic means can also be used to disclose consent between
parties to the terms of the contract.

an arbitration agreement can also be inferred from the exchange of letters,

telex, telegrams, or other means of telecommunication, which provide a
record of the agreement between the parties. In short, an agreement can be
construed from the correspondence of the parties where there is a clear and
unequivocal intention to refer the disputes to arbitration.

Pravinchandra Murarji Savla v. Meghji Murji Shah, it was held that it is the
substance of the agreement and not the form which is of importance.
Galaxy Infra and Engineering Pvt. Ltd v. Pravin Electricals Pvt. Ltd the Delhi High Court
held that the draft agreement exchanged by email between the parties can be construed as a
valid arbitration agreement.

he present judgement of the Court highlighted the fact that the arbitration agreement need not be
in any particular form so long as it is in writing. -  Chaitanya Construction Company v. Delhi Jal
Board[, ARB.P. 795/2019.

In the case of Rukmanibai v. Collector, (1980) 4 SCC 556 : AIR 1981 SC 479,

the Supreme Court has also held that arbitration agreement is not required to be in
any particular form and that what is required to be ascertained is whether the
parties have agreed that if disputes arise between them in respect of the subject-
matter of contract such disputes shall be referred to arbitration, then such an
arrangement would spell out an arbitration agreement.

upreme Court in case of Govind Rubber Limited Vs. Louis Dreyfus Commodities Asia
Private Limited reported in (2015) 13 SCC 477 to submit that an arbitration agreement
even though in writing need not be signed by the parties, if the record of agreement is
provided in exchange of letters, telex, telegrams or other means of communications.