SUPREME COURT CLARIFIES: WHEN USING THE TERM “ARBITRATION” IS NOT ENOUGH IN ALCHEMIST HOSPITALS VS ICT HEALTH

Introduction
On 06.11.2025, the Apex Court n Alchemist Hospitals vs ICT Health Technology Services India Pvt Ltd., 2025 INSC 1289 reiterated that principle of arbitration law and examined whether a clause described as “arbitration” tantamount to arbitration agreement under Arbitration and Conciliation Act 1996. The ruling reinforces a basic but important principle- merely using the word “arbitration” is not enough but parties’ intention to submit their disputes before arbitral adjudication.
Background of the dispute
The dispute arises out of Software Implementation Agreement executed on 01.11.2018 between Alchemist Hospitals Ltd, healthcare institution based in Haryana and ICT Health Technology Services India Pvt Ltd, a technology company. The agreement contemplated implementation of a hospital information system known as HINAI Web Software.
Due to repeated technical failures, operation deficiencies and implementation delays led Petitioner to roll back the software and invoke Clause 8.28 of the agreement. When consensus on appointment of an arbitrator failed, the Petitioner approached Punjab and Haryana High Court under Section 11(6) of Arbitration and Conciliation Act 1996.
Clause 8.28 of the Agreement
Clause 8.28 of the agreement envisages a three-stage dispute resolution process- first, good-faith negotiation between the senior executives, second, mediation or “arbitration” by the respective chairmen of the parties and finally, recourse to the courts of law if the disputes were not resolved within 15 days.
Although the clause used the terms “arbitration”, it also expressly allowed parties to seek remedies before civil courts thereafter, an aspect that became the issue for judicial analysis.
Issue involved and Section 7 of the Arbitration and Conciliation Act 1996
The present case involved is whether Clause 8.28 of the agreement can be considered to be a valid agreement under Arbitration and Conciliation Act. To understand the issue, we must refer to Section 7 of the Act which lays down certain attributes of an arbitration agreement.
7. Arbitration Agreement-
(1) In this part, “arbitration agreement” means 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.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it contained in-
(a) a document signed by the parties
(b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; o
(c)an exchange of statements of claim and defense in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
High Court’s View: No arbitration agreement
Section 11 petition filed before the Punjab & Haryana High Court was dismissed reasons that Cluse 8.28 did not constitute a valid arbitration agreement. The court observed that the aforesaid clause in the agreement lacked the attributes of finality, neutrality and binding adjudication and instead resembled an internal dispute resolution or mediation mechanism.
Analysis and reasoning by the Supreme Court
The Supreme Court re-affirmed the high court’s reasoning, examined that Section 7 of the Arbitration and Conciliation Act define arbitration agreement as an agreement to submit disputes with the intention of being binding by decision of a private tribunal.
The Court reiterated that arbitration requires a clear and mandatory obligation to refer disputes to binding adjudication by relying on the decisions in KK Modi vs KN Modi (1998) 3 SCC, Jagdish Chander vs Ramesh Chander (2007) 5 SCC 719 and Mahanadi Coalfields Ltd vs IVRCL AMR Joint Venture (2022) 20 SCC 636.
It was held that Clause 8.28 failed the twin test laid down under Section 7 of Arbitration and Conciliation Act for two key reasons: (i) the clause expressly permitted parties to approach civil courts if the dispute remained unresolved which negated arbitral finality and; (ii) the designation of the chairmen of the contracting parties as “arbitrators” indicates an internal settlement process rather than an impartial adjudicatory forum.
Conclusion
The Supreme Court’s ruling in the present case affirmed that an arbitration agreement must emphasize a clear, binding and enforceable commitment to private adjudication. The ruling strengthens certainty in Indian arbitration by drawing a line between consensual adjudication and informal settlement mechanisms and further underscores that the parties intending to arbitrate must clearly provide the terms without any contradiction.

SHIRISHTI BANSAL
Legal Associate
The Indian Lawyer & Allied Services

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