Author: M.V. Geethika Reddy, Alliance University
To the Point
The Babanrao Rajaram Pund v. Samarth Builders and Developers and Others, 2022 SCC OnLine SC 1165 ruling of the Supreme Court is a key ruling on the legal framework of arbitration agreements in India, particularly with regard to their structure and the parties’ intentions. In Babanrao Rajaram Pund, the dispute centered on allegations regarding a development agreement between Pund (the landowner) and Samarth Builders (the developer), under which the existence and enforceability of an arbitration clause came into question. The Bombay High Court refused to send the parties to arbitration under Section 11 of the Arbitration and Conciliation Act, 1996, arguing that the agreement lacked the wording required to make the arbitration clause final and binding. Consequently, the matter reached the Supreme Court.
Abstract
The Supreme Court was asked to determine whether the parties’ intention to arbitrate disagreements resulting from their agreement could be revoked if the arbitration clause lacked explicit language such as “final and binding” or other precise wording. The principle at the center of the case was that the validity of an arbitration agreement is determined more by the parties’ intention to submit disputes to arbitration than by the exact language used in the agreement.
The Proof
Factual Matrix
Development Agreement: Parties signed a development agreement for the construction of the property.
Conflict: There were disagreements about how the agreement was to be carried out and the responsibilities that came with it. To settle the disagreement, the landowner used the arbitration clause.
Disputed Clause: Citing the lack of specific language commonly found in such clauses (such as “decision shall be final and binding”) and claiming it showed no intention to require arbitration, the developer contested the arbitration clause’s legality.
Legal Proceedings
By ruling that the clause lacked specificity and, as a result, did not embody a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, the Bombay High Court declined to refer the matter to arbitration. In order to clarify the necessary components of an arbitration agreement, the Supreme Court examined the statutory framework, the agreement’s wording, and—most importantly—Indian and international case law after receiving an appeal.
Use of legal jargon
The Doctrine of Intention
The Supreme Court firmly decided that an arbitration clause does not need to be written in a particular way or with a specific set of words in order to be enforceable under Section 7 of the Arbitration Act. The Court emphasized that what mattered was the parties’ desire to arbitrate their disputes, a stance supported by several prior decisions.
If the overall tone of the contract indicates intent for private dispute resolution by arbitration, the term “final and binding” does not invalidate the arbitration agreement. The Court reiterated that form is subordinate to substance: courts must not set a high threshold for what constitutes a valid arbitration agreement as long as the parties’ intent is clear.
Prima Facie Test at Section 11 Stage
Echoing principles from Vidya Drolia v. Durga Trading Corporation and Mayavati Trading Pvt Ltd. v. Pradyuat Deb Burman, the Supreme Court reiterated that the court’s role at the Section 11 referral stage is limited to a prima facie determination of a valid arbitration agreement’s existence—complex questions regarding sufficiency, enforceability, or validity must be left to the arbitral tribunal. Only in clear cases of patent invalidity or non-existence should the court decline a referral.
Arbitration Agreement Ingredients
According to the ruling, an arbitration agreement under Section 7 must meet the following requirements:
Consensus among the parties to refer disputes to arbitration.
Recognition that the arbitral award will have binding force.
The Supreme Court cited Indian and foreign authorities to confirm that even informal, fragmented, or poorly drafted clauses may qualify as arbitration agreements if the parties’ mutual intention is manifest.
Case Law Referenced
• Vidya Drolia v. Durga Trading Corporation (2020): At this point, the court’s review is grammatical and constrained.
• Pradyuat Deb Burman v. Mayavati Trading Pvt Ltd. (2019): Complex issues must be brought before the tribunal.
• Duro Felguera S.A. v. Gangavaram Port Ltd. (2017): Courts shouldn’t get into the specifics of enforceability.
• International experts on the form versus content of arbitration agreements—English, Singaporean, and UNCITRAL model examples.
Key Principles Established
The intent to arbitrate takes precedence over specific wording.
Minimal Judicial Interference: The tribunal hears complex cases involving validity or enforceability.
Commercial Efficacy: By prohibiting technical exclusions from arbitration, the ruling promotes commercial confidence.
Conclusion
A strong confirmation of the parties’ intent in arbitration and a dismissal of overly technical objections to arbitral referral can be found in Babanrao Rajaram Pund v. Samarth Builders. It unifies the pro-arbitration position of Indian courts, stressing that the kompetenz-kompetenz principle should prevent judicial overreach at the mere referral stage and that substance must prevail over form. The ruling will support an arbitration-friendly business environment in India for years to come by influencing contract drafting, dispute resolution, and judicial approach.
FAQS
Q1: Is specific legal phrasing required for valid arbitration agreements?
No. The Supreme Court clarified that detailed legalistic formulations are not required; mutual intent suffices.
Q2: Can courts decide enforceability/scope of arbitration agreements at referral stage?
No—unless the agreement is patently void or non-existent. All other factual and legal disputes must go to the tribunal.
Q3: What distinguishes an arbitration agreement from other dispute resolution clauses?
It must express intent to refer disputes to arbitration, either directly or through context, with binding force.
Q4: What does this ruling mean for commercial agreements?
The ruling encourages commercial parties to actively choose arbitration and reassures them courts won’t defeat their intent based on drafting technicalities.
