A promise to make a promise: Supreme court on letters of intent, concluded contracts, and incorporation of arbitration clauses

Supreme Court Examines Letters of Intent and Arbitration Clauses in New Ruling.

Case: Maharashtra State Electricity Distribution Company Ltd. (MSEDCL) and Ors. v. R Z Malpani

Citation: Civil Appeal No. 4307 of 2026 (SLP (C) No. 36889 of 2025) | Decided on: April 9, 2026

Bench: Justice J.K. Maheshwari and Justice A.S. Chandurkar Background

Maharashtra State Electricity Distribution Company Ltd. (MSEDCL), a State Government-owned electricity distribution utility, floated a tender in August 2021 for civil and interior renovation work at 134 Customer Facilitation Centres across Maharashtra, with an estimated cost of Rs. 17,41,37,020. R Z Malpani, a partnership firm engaged in civil construction, participated in the tender and submitted its bid on September 3, 2021.

On November 16, 2022, MSEDCL issued a Letter of Intent (LOI) accepting Malpani's bid for a value of Rs. 17,76,19,699. Malpani furnished a bank guarantee of Rs. 44,40,500 as security deposit. The parties exchanged correspondence regarding the bank guarantee formalities, which were completed by January and February 2023. Malpani then made repeated requests for issuance of a Work Order, but no Work Order was ever issued by MSEDCL, and the sites were never handed over.

On August 5, 2024, Malpani terminated the contract citing MSEDCL's failure to hand over sites. On August 30, 2024, Malpani issued an arbitration notice under Clause 23 of the Special Conditions of Contract in the Tender documents claiming compensation of Rs. 4,89,85,500. On September 27, 2024, MSEDCL formally cancelled the Tender and refunded the EMD and security deposit. Malpani did not challenge the cancellation through public law remedies and instead pursued arbitration. On October 1, 2024, Malpani again invoked the arbitration clause. MSEDCL replied on November 4, 2024 disputing the existence of a concluded contract and any valid arbitration agreement. Before the High Court

Malpani filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 before the Bombay High Court seeking appointment of an arbitrator. Despite service of notice, MSEDCL did not appear on two dates. The High Court, by an ex-parte order dated October 1, 2025, appointed a sole arbitrator. The High Court found that the LOI constituted a duly concluded contract and that the existence of an arbitration agreement could be discerned from the correspondence between the parties. It also recorded, incorrectly as it turned out, that MSEDCL had not denied the existence of an arbitration agreement in its reply to the arbitration notice. MSEDCL challenged this order before the Supreme Court. What the Supreme Court Held

The Supreme Court allowed the appeal and set aside the High Court's order. The Court examined two distinct questions: first, whether the LOI constituted a concluded contract creating a binding legal relationship; and second, whether the general reference to the Tender documents in the LOI was sufficient to incorporate the arbitration clause contained therein.

On the first question, the Court held that the LOI in the present case was a promise to make a promise and not a promise itself. The Court relied on the settled legal position, confirmed most recently in State of Himachal Pradesh v. OASYS Cybernatics Pvt. Ltd., that a letter of intent is ordinarily a precursor to a contract and not the contract itself. A letter of intent merely indicates a party's intention to enter into a contract in the future and does not create binding legal obligations until there is clear, unambiguous, and final acceptance. Applying this to the facts, the Court noted the following: the LOI expressly stated that it was issued to enable Malpani to start with preliminaries to start the work as soon as the detailed Work Order was issued; Clause 23 of the Instructions to Tenderers required the successful tenderer to execute a formal agreement with MSEDCL on the Company's standard proforma; the definition of 'contract' in the Tender documents itself incorporated the contract agreement as a necessary component; the Work Order was never issued and the sites were never handed over; and no formal agreement was ever executed. The submission of bank guarantees by Malpani did not change this position, as neither the LOI nor the Tender documents contemplated that mere submission of security deposit would constitute a concluded contract. The Court also held that the High Court's finding that MSEDCL had not disputed the existence of an arbitration agreement was plainly erroneous and stared at the face of the record. MSEDCL's reply dated November 4, 2024 had expressly stated that there was no concluded contract between the parties and that the LOI could not bind either party to a contract. On the second question, the Court held that even assuming the LOI created a binding legal relationship, the general reference to the Tender documents in the LOI was insufficient to incorporate the arbitration clause contained in Clause 23 of the Special Conditions of Contract. The Court relied on the law laid down in NBCC (India) Ltd. v. Zillion Infraprojects Pvt. Ltd. and M.R. Engineers and Contractors (P) Ltd. v. Som Datt Builders Ltd., which establish that when a contract makes a general reference to another contract, such general reference does not incorporate the arbitration clause from the referred document. Incorporation of an arbitration clause from another document requires a specific reference to the arbitration clause. The intent of the parties to incorporate the arbitration clause must be explicitly clear.

The LOI in the present case made a general reference to the Tender documents and contained no mention of any arbitration or dispute resolution clause. There was no specific incorporation of the arbitration clause. The Court categorised this as a case of 'reference' and not 'incorporation' within the meaning of Section 7(5) of the 1996 Act. The Standard for Interference at the Section 11 Stage The Court also set out the applicable standard for judicial interference at the stage of appointment of an arbitrator. It affirmed that after the insertion of Section 11(6A), the scope of inquiry at the Section 11 stage is limited to examining the prima facie existence of an arbitration agreement, and nothing beyond. Questions of limitation, arbitrability, and accord and satisfaction are for the arbitral tribunal under Section 16. The general principle is 'when in doubt, do refer'. However, the Court held that this is one of those rarest of rare cases where, even on a prima facie view, without going into disputed facts, there is no existence of an arbitration agreement, and the High Court's order appointing an arbitrator therefore warranted interference. Direction of the Court

The Supreme Court set aside the High Court's order and allowed the appeal. Malpani was given liberty to pursue any other alternative remedies available in accordance with law.