Correspondence as a Valid Arbitration Agreement: Bombay High Court Ruling on Section 7

A signed, formal contract is not always necessary for an arbitration agreement to be valid in India. In Exelixi Management Co. (P) Ltd. v. Nishi Retails (P) Ltd., decided on 23 February 2026 and reported as 2026 SCC OnLine Bom 1753, the Bombay High Court held that an exchange of correspondence between parties can constitute a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996, even where no formally executed contract bearing both parties' signatures exists. The ruling clarifies the outer limits of what counts as an "agreement in writing" for the purpose of invoking arbitration, with significant practical implications for businesses that negotiate deals by email or letter.

What Section 7 Requires

Section 7 of the Arbitration and Conciliation Act, 1996 defines an arbitration agreement as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Crucially, Section 7(3) requires the agreement to be in writing. Section 7(4) elaborates on what constitutes an agreement in writing: it is deemed to be in writing if it is contained in a document signed by the parties, or in an exchange of letters, telexes, telegrams, or other means of telecommunication including communication through electronic means which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. The key phrase is "exchange of letters or other means of telecommunication": this explicitly contemplates that correspondence, including email, can satisfy the writing requirement.

The Exelixi Management Case: Facts

Exelixi Management was the master franchisee for a toy brand and entered into negotiations with Nishi Retails to make it a sub-franchisee. The parties executed a Letter of Intent (LOI) in July 2014 which did not contain an arbitration clause. Nishi Retails paid an advance of Rs 24.76 lakhs on the basis of the LOI. In November 2014, Exelixi sent a draft franchise agreement by email to Nishi Retails for execution, requesting that it be signed and returned by courier. The draft agreement contained an arbitration clause. A dispute arose and Exelixi invoked arbitration. Nishi Retails challenged the arbitral award under Section 34, arguing that no valid arbitration agreement existed because the draft was never signed and returned. The arbitrator had held that the exchange of email and conduct constituted a valid arbitration agreement. Nishi Retails sought to set the award aside.

The High Court's Analysis

The Bombay High Court refused to set aside the award. It held that the absence of a physical signature on the draft franchise agreement does not automatically invalidate an arbitration agreement where the parties' subsequent conduct and correspondence indicates that both treated the agreement as governing their relationship. The Court affirmed the arbitrator's finding that an exchange of correspondence can constitute a valid arbitration agreement under Section 7. The Court's reasoning drew on the explicit text of Section 7(4), which contemplates communication through letters and electronic means as sufficient to satisfy the writing requirement. Physical execution of a contract bearing original signatures is not a mandatory precondition. What matters is whether the record of correspondence demonstrates that both parties agreed, even if informally, to refer disputes to arbitration.

Limits of the Ruling: When Correspondence Is Not Enough

The ruling does not mean that any email mentioning arbitration binds the parties. For correspondence to constitute a valid arbitration agreement under Section 7, the exchange must create a sufficiently clear record that both parties agreed to refer disputes to arbitration. A unilateral proposal to arbitrate that was never accepted by the other side will not suffice. Where the correspondence shows that the offeree explicitly refused the arbitration clause, or where the draft was sent but the parties instead entered into a separate signed agreement that omits the arbitration clause, the correspondence will likely be displaced by the final signed instrument. Courts also look at whether the parties conducted themselves consistently with the agreement: where a party proceeds under a draft, accepts deliveries or payments on its terms, and does not object to its provisions, that conduct reinforces the inference that the draft governed the relationship.

Practical Takeaways

The Exelixi Management ruling carries important lessons for businesses that regularly conduct commercial negotiations by email before executing formal agreements. First, where a draft agreement containing an arbitration clause is sent by email and the other party acts on it without objecting, there is a risk that the arbitration clause is binding even without a physically signed contract. Parties who wish to ensure that no contract, including its arbitration clause, is binding until a formal agreement is executed should include an explicit "subject to contract" notation in all pre-execution communications. Second, businesses that wish to preserve their right to arbitrate in situations where formal contracts are sometimes not executed should ensure that the key commercial correspondence contains explicit reference to the draft terms and reflects both parties' acceptance. Third, where an arbitration agreement is disputed at the Section 34 or Section 11 stage, parties should present the full sequence of pre-contract communications to demonstrate whether conduct and correspondence supports or undermines the claim of a binding arbitration agreement.