Court Overturns Lower Court's Decision, Emphasizes Validity of Arbitration Clause Despite Unsigned Agreement
In a significant judgment issued on June 18, 2026, the Patna High Court, presided over by Justice Khatim Reza, has directed that the ongoing dispute between Bihar State Tourism Development Corporation Ltd. and Amit Kumar be referred to arbitration as per the arbitration clause in the allotment letter dated October 16, 2012. The decision overturns an earlier ruling by the Additional District Judge-1st Nalanda, Biharsharif, which had refused to refer the matter to arbitration, citing the absence of an objection to jurisdiction at the first instance by the defendant-appellant.
The case originated from a dispute over the management of Nalanda Cafeteria, for which Amit Kumar, the respondent, was the highest bidder in a tender process conducted by the Corporation. Despite the payment of the first year's license fee, subsequent financial disagreements arose, leading to the involvement of the courts. The Additional District Judge had previously ruled against arbitration, arguing that the arbitration clause could not be enforced as the lease agreement remained unsigned by both parties.
However, Justice Reza emphasized that an arbitration agreement could be inferred from the conduct and correspondence between the parties, even if unsigned, provided there was a meeting of minds (ad idem). The court relied on precedents such as the Supreme Court's decision in Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia Pvt. Ltd., which underscored that an agreement's validity could be discerned from the exchange of communications.
The court noted that the respondent had invoked Section 9 of the Arbitration and Conciliation Act, 1996, for interim relief, which further affirmed the applicability of arbitration procedures. The judgment stressed that once Section 9 is invoked, the jurisdiction of a civil court to adjudicate the dispute is negated, and the matter must be directed to arbitration.
Justice Reza's order mandates the learned trial court to refer the dispute to arbitration in accordance with the arbitration clause outlined in the allotment letter, effectively reinforcing the principle that arbitration clauses hold jurisdictional precedence in contractual disputes. The decision is expected to streamline the resolution of the dispute and uphold the integrity of arbitration agreements in contractual matters.
Bottom line:-
Arbitration - Allotment letter containing an arbitration clause - Even if the agreement is not signed by both parties, it can be inferred from the correspondence and conduct of the parties if they are ad idem to the terms - Civil Court lacks jurisdiction when there exists an arbitration clause, and the matter should be referred to arbitration.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 7, 8, 9
