Court Holds Arbitration Clause Prima Facie Valid Despite Non-Binding Term Sheet; Rejects Unilateral Arbitrator Appointment and Keeps Merits Open for Tribunal
In a significant ruling on October 30, 2026, the Bombay High Court, presided over by Justice Amit Borkar, granted an application under Section 11 of the Arbitration and Conciliation Act, 1996, appointing an independent sole arbitrator to adjudicate disputes arising from a Term Sheet and an Advisory Fee Letter Agreement between Nisus Finance Services Co. Limited and Blisvins Realty Private Limited.
The dispute centers on a Term Sheet dated December 15, 2025, which was described as "for discussion purposes only" and non-binding, except for specific clauses relating to Transaction Costs, Exclusivity, and Confidentiality. Clause 25 of the Term Sheet contained an arbitration clause providing for resolution of disputes concerning any binding provisions of the Term Sheet or definitive agreements. The applicants contended that the exclusivity clause (Clause 23) and advisory fee arrangements created binding obligations, notwithstanding the overall non-binding nature of the Term Sheet.
The respondents challenged the existence and enforceability of the arbitration agreement, arguing that the Term Sheet had not been signed by all parties within the stipulated seven-day period (Clause 27), thus rendering it expired and non-binding. They also disputed the applicability of the arbitration clause to the Advisory Fee Letter Agreement dated December 18, 2025, and questioned the presence of a defined legal relationship necessary to invoke arbitration.
Justice Borkar's judgment carefully analyzed the scope of the arbitration clause in light of the non-binding nature of the Term Sheet, the conduct of parties, and the relevant Supreme Court precedents. The Court held that the arbitration clause must be read in conjunction with the Closing Note and binding provisions, and that disputes relating to the binding exclusivity clause and advisory fee arrangement prima facie fall within the arbitration clause's ambit. It further observed that the absence of a signature by one applicant on the Term Sheet was not decisive, given that arbitration agreements can be established by an exchange of letters and electronic communications, and the parties had acted on the transaction.
Rejecting the respondents' contention that the Term Sheet's expiry barred arbitration, the Court noted that the Advisory Fee Letter and subsequent correspondence demonstrated continued dealings and a defined legal relationship between the parties. The Court distinguished the present facts from cases where only a "promise to make a promise" existed, emphasizing that the parties had created identifiable rights and obligations.
The Court also invalidated the unilateral appointment of a sole arbitrator by the Facility Agent (Applicant No. 2), citing Supreme Court precedent that such unilateral appointments by interested parties are invalid but do not negate the arbitration agreement itself. Consequently, the Court appointed Justice Rohit B. Deo (Retired) as the independent sole arbitrator to adjudicate disputes relating to the exclusivity provision and advisory fees.
All questions on merits, including the enforceability of claims, breach of exclusivity, and exact fee amounts, were expressly left open for the arbitral tribunal's determination. The Court's order directs the arbitrator to issue statutory disclosures and schedule proceedings accordingly, ensuring procedural fairness.
This decision underscores the nuanced approach courts take in balancing the non-binding nature of preliminary documents with binding clauses therein, and affirms the principle that arbitration clauses relating to binding provisions can be enforced even when other parts of the agreement are not finalized. It also reiterates that unilateral arbitrator appointments by interested parties are subject to judicial scrutiny to preserve impartiality.
Bottom Line:
Arbitration and Conciliation Act, 1996 - Section 11 - Term Sheet described as non-binding except certain clauses - Arbitration clause referring to disputes concerning "any binding provision" held prima facie enforceable in respect of binding exclusivity clause - Connected Advisory Fee Letter Agreement treated as part of same transaction - Unilateral appointment of sole arbitrator by interested party invalid, but arbitration agreement itself remains valid - Independent sole arbitrator appointed.
Statutory provision(s): Arbitration and Conciliation Act, 1996, Sections 7, 11, 12
