Introduction
The emergence of digital platforms catering to instant communication has transformed the structure and form in which business transactions are negotiated between the parties. Various facets of a transaction may be discussed and finalised over digital platforms such as Whatsapp and Slack. This discussion often extends and culminates in the finalisation of agreements. This raises the question of whether such agreements, and the dispute resolution clauses contained therein, are binding on the parties to such e-negotiations. The Delhi High Court addressed this very dilemma in the case of Belvedere Resources DMCC v. OCL Iron and Steel Ltd. & Ors1. The judgement addressed the question of whether informal electronic communications can constitute valid arbitration agreements under extant arbitration law.
Case background
Two companies, namely Belvedere Resources DMCC ("Belvedere"), and S.M. Niryat Private Limited ("SMN"), entered in negotiations for the supply of coal. Almost the entirety of the negotiations carried out by the parties were via Whatsapp. As the negotiations progressed, an authorised representative of Belvedere offered to sell a certain quantity of coal to SMN. The offer was accepted via a confirmation over Whatsapp on the same day. Subsequent to this understanding, Belvedere shared a standard template of a Standard Coal Trading Agreement ("SCTA") with SMN via email. This SCTA contained a detailed dispute resolution clause which stated that any dispute with regard to the terms and conditions of the SCTA would be referred to arbitration. SMN assured Belvedere that it would share a signed copy of the SCTA shortly. Despite this assurance, SMN did not sign the SCTA. Belvedere sent multiple reminders via Whatsapp and email pushing for the execution of the SCTA.
Eventually, SMN requested for a change in the delivery timelines under the SCTA. Within 24 (twenty-four) hours of this request being made, SMN sent a formal cancellation request to Belvedere. This triggered a dispute between the parties, and in accordance with the dispute resolution clause of the SCTA, Belvedere invoked arbitration claiming wrongful termination of contract. Belvedere also approached the Delhi High Court ("Court") to seek interim relief; however, it was redirected to the appropriate tribunal. Belvedere appealed this order, contending that a valid arbitration agreement was signed between the parties, and that Belvedere was well within its rights to initiate proceedings seeking interim relief under the current arbitration framework against SMN.
Deliberations of the Court
The matter was heard by a single judge bench of the Court. Justice Jasmeet Singh acknowledged that the primary issue in the dispute pertained to the determination of whether the exchange of documents and confirmatory correspondence between the parties established the existence of a valid arbitration agreement between the parties. This issue required the Court to evaluate the essence of Section 7(4)(b) of the Arbitration and Conciliation Act, 1996 ("Act"), which governs the formation of arbitration agreements through electronic communications.
The petitioner, i.e. Belvedere, contended that the evolving nature of contracts required the Court to evaluate whether the parties were ad idem on all terms of contract on the basis of the e-communication between the parties. Belvedere emphasised that the SCTA was finalized after extensive negotiations and was based on SMN's confirmation of the terms and conditions of the SCTA. The SCTA was governed by English law, which stated that the acceptance of a contract could be inferred from the conduct of parties irrespective of whether formal signatures had been affixed to the document. Reliance was placed on the precedent established in the case of Anotech International (UK) Limited v. Reveille Independent LLC2 to support the proposition that formal execution is not always necessary for contract validity. Conversely, the respondent challenged the presence of a valid arbitration agreement on the grounds that in the absence of a binding and concluded SCTA, no arbitration agreement could exist between the parties.
Upon deliberating on the arguments put forth by both parties, the Court emphasized that Section 7(4)(b) of the Act does not require the parties to carry out the conventional contractual formalities but instead focuses on the manifestation of consent through documentary evidence. The Court relied on the judgement made in Cox & Kings Ltd. v. SAP India (P) Ltd3. to emphasise that arbitration agreements can be inferred from various documents approved by parties. The Supreme Court's observation that "Section 7(4)(b) dispenses with the conventional sense of an agreement as a document with signatories" was highlighted.
In order to determine whether the document was "approved" by the parties, the Court analysed the email communication via which Belvedere forwarded the SCTA to SMN, and the subsequent responses from SMN requesting for updates on the progress of subject matter of the SCTA. The Court also scrutinised the WhatsApp communication between the parties, wherein SMN assured Belvedere that "the SCTA would be signed and sent immediately". These two trail of digital communication between the parties was deemed conclusive evidence of mutual consent.
The Court concluded that "the above correspondence leaves no room for doubt that the arbitration agreement was contained in the exchange of email and WhatsApp communications between the parties."
Conclusion
The Court's observation that the trail of correspondence across multiple digital communication platforms is sufficient to establish that both parties mutually consented to the terms of the arbitration agreement establishes a significant precedent for the recognition of electronic communications as valid arbitration agreements.
The judgment lays out fundamental principles regarding electronic arbitration agreements that will guide parties engaging in virtual business negotiations. The most of important of these is the assurance that formal signatures are not mandatory for creating valid arbitration agreements under Section 7(4)(b) of the Act. Secondly, the Court established that arbitration agreements can be inferred from conduct, and that electronic communications that demonstrate mutual consent are more than sufficient to infer the existence of a valid arbitration agreement. Third, the Court reconciled the extant arbitration laws with the digital world by recognizing that modern business communications through WhatsApp and email constitute a valid "means of telecommunication" under the statutory framework.
Footnotes
1 O.M.P.(I)(COMM.) 397/2024
2 A3/2015/1099
3 (2024) 4 SCC 1
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
