Conduct Speaks Louder Than Signatures: Supreme Court Upholds Arbitration Agreement Despite Unsigned Contract

1. Background: A Commercial Relationship Turned Contentious

Glencore International AG, the appellant, is a Swiss company engaged in the business of mining and commodity trading. Shree Ganesh Metals, respondent No. 1, is an Indian proprietorship concern located at Kala Amb, Himachal Pradesh, and is a producer of zinc alloys. Respondent No. 1 had earlier purchased zinc metal from the appellant under contracts dated 20.04.2011, 01.07.2011, 23.11.2011 and 11.01.2012. All the four contracts contained arbitration clauses which stated that any dispute in connection with that contract would be referred to arbitration to be resolved under the Rules of the London Court of International Arbitration and the seat of the arbitration would be London.

The parties then proposed to enter into a fifth contract, whereby respondent No. 1 was to buy 6,000 metric tons of zinc metal from the appellant from March, 2016 to February, 2017. The appellant addressed email dated 10.03.2016 to respondent No. 1, proposing specific terms including provisional pricing based on the London Metal Exchange (LME) average and requiring a Standby Letter of Credit.

Respondent No. 1 replied, vide email dated 11.03.2016, wherein it stated: “We confirm the same terms as said just one thing that provisional price of both, either LC or Invoice, will be average of last 5 (five) LME days”. The appellant then forwarded Contract No. 061-16-12115-S dated 11.03.2016, duly signed by it, to respondent No. 1 for its signatures. This clause demonstrates that the modification suggested by respondent No. 1 in its email dated 11.03.2016 was duly accepted and acted upon by the appellant.

Significantly, this contract also contained an arbitration agreement in clause 32.2, which provided: “Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Rules of the London Court of International Arbitration, which Rules are deemed to be incorporated by reference into this clause. The seat, or legal place, of arbitration shall be London”.

2. Actions Speak Louder: Performance Under the Unsigned Contract

It is an admitted fact that respondent No. 1 did not affix its signatures upon Contract No. 061-16-12115-S. However, it is also an admitted fact that 2,000 metric tons of zinc metal were supplied by the appellant and accepted by respondent No. 1 under the aforestated contract leading to the raising of 8 invoices by the appellant on various dates during the months of April, May, June, September, October and November 2016. All these invoices referred to Contract No. 061-16-12115-S.

Further, at the behest of respondent No. 1, HDFC Bank, respondent No. 2 herein, issued two separate Standby Letters of Credit dated 22.04.2016 and 17.11.2016, specifically referring to Contract No. 061-16-12115-S. In fact, owing to a mistake in the Standby Letter of Credit dated 22.04.2016 that recorded the date of the contract erroneously as 12.04.2016, respondent No. 1 furnished an amended Standby Letter of Credit on 02.07.2016; wherein Contract No. 061-16-12115-S was correctly shown as dated 11.03.2016.

Respondent No. 1 addressed email dated 08.09.2016, wherein it explicitly referred to Contract No. 061-16-12115-S for the sale of 6,000 metric tons of zinc metal, stating that it would not commit any default in the performance of the contract and promised that everything would be in line and it would surely complete its quantity within the contract time.

3. The Litigation and High Court’s Flawed Reasoning

At this stage, respondent No. 1 filed a civil suit in CS (Comm) No. 154 of 2017 before the Delhi High Court. Its prayer therein was to declare that the invocation of the Standby Letters of Credit dated 22.04.2016 and 17.11.2016 by the appellant was null and void; to pass a decree for recovery of US$1,200,000 (Rs. 8 crores approximately) in its favour and against the appellant, along with interest thereon @ 18% per annum.

The appellant, thereupon, filed I.A. No. 4550 of 2017 in the civil suit invoking Section 45 of the Arbitration and Conciliation Act, 1996, and requested that the matter be referred to arbitration in terms of clause 32.2 of Contract No. 061-16-12115-S. Respondent No. 1 contested this application claiming that the parties had never concluded the said contract.

By order dated 02.11.2017, a learned Judge of the Delhi High Court rejected I.A. No. 4550 of 2017 filed by the appellant. Therein, the learned Judge recorded that no concluded contract came into existence for the sale-purchase of 6,000 metric tons of zinc metal in 2016 as the contract did not bear signatures of respondent No. 1 and was only signed by the appellant. Aggrieved thereby, the appellant filed an appeal in FAO (OS) (COMM) No. 195 of 2017. However, by way of the impugned judgment dated 14.11.2019, a Division Bench of the Delhi High Court concurred with the view taken by the learned Judge and dismissed the appeal.

4. The Supreme Court’s Analysis: Conduct Over Formality

The Supreme Court observed that the Division Bench and the learned Judge of the Delhi High Court lost sight of certain crucial factual aspects which showed that Contract No. 061-16-12115-S was duly accepted and acted upon by respondent No. 1. Such actions on its part implied that the arbitration agreement therein also came into effect and bound the parties thereto.

The Court held that it was not necessary for the appellant to fall back upon the contract of 2012 in the light of the admitted facts that demonstrated, in no uncertain terms, that the parties duly accepted and acted upon Contract No. 061-16-12115-S dated 11.03.2016. There is no denying the legal proposition that an arbitration agreement can be inferred even from an exchange of letters, including communication through electronic means, which provide a record of the agreement. The mere fact that Contract No. 061-16-12115-S was not signed by respondent No. 1 would not obviate from this principle when the conduct of the parties in furtherance of the said contract, clearly manifested respondent No. 1’s acceptance of the terms and conditions contained therein, which would include the arbitration agreement in clause 32.2 thereof.

The Supreme Court relied on Govind Rubber Limited v. Louis Dreyfus Commodities Asia Private Limited, wherein this Court observed that a commercial document having an arbitration clause has to be interpreted in such a manner as to give effect to the agreement rather than invalidate it. The Court observed that an arbitration agreement even though in writing need not be signed by the parties if the record of agreement is provided by exchange of letters, telex, telegrams or other means of telecommunication.

Conclusion: Upholding Commercial Certainty

In light of the settled legal position and the admitted facts, which unequivocally demonstrate that respondent No. 1 signified its consent to the terms set out in the appellant’s email dated 10.03.2016 that were subsequently incorporated into Contract No. 061-16-12115-S, which was accepted and acted upon by respondent No. 1, the Supreme Court held that the arbitration agreement in clause 32.2 thereof was available to the appellant and its invocation under Section 45 of the 1996 Act was fully justified.

The appeal was accordingly allowed, setting aside the judgment dated 14.11.2019 of the Division Bench and the order dated 02.11.2017 of the learned Single Judge of the Delhi High Court. Consequently, I.A. No. 4550 of 2017 in CS (Comm) No. 154 of 2017 shall stand restored to the file, and the disputes between the parties shall be referred to arbitration by the referral Court in accordance with law.

The Supreme Court’s judgment is a significant victory for commercial certainty and the enforcement of arbitration agreements in international trade. It establishes that parties cannot selectively accept the benefits of a contract whilst simultaneously denying its binding nature based on the technicality of an unsigned document. For commercial parties engaged in international trade, this judgment serves as a crucial reminder that actions speak louder than signatures. When parties exchange emails confirming terms, issue letters of credit referencing specific contracts, accept deliveries, and engage in correspondence acknowledging contractual obligations, they cannot later claim that no binding agreement existed merely because a formal signature was not affixed.