Arbitration Agreement Need Not Be Signed By Both Parties To Be Valid Under Section 7 of Arbitration and Conciliation Act: Kerala High Court

In a significant clarification regarding the formation of arbitration agreements, the Kerala High Court has affirmed that a written contract containing an arbitration clause does not necessarily require the physical signatures of both parties to be legally enforceable. Justice S. Manu, presiding over an Arbitration Request, emphasized that the intent of the parties—gleaned from their conduct and the broader commercial agreement—takes precedence over procedural formalities.

The Background of the Dispute

The matter involved Sigmatic Nidhi Limited , a financial services entity, and the respondents (a borrower and co-borrowers). Although the respondents had signed an agreement containing an arbitration clause, the document lacked the signature of a representative from the petitioner company.

Following a default in loan repayments, an arbitrator was appointed, and an award was issued in 2023. However, when the company moved to execute the award, a District Court dismissed the Execution Petition, citing that the appointment of the arbitrator was not in accordance with the Act because the underlying contract was unsigned. Faced with a nullified award, the petitioner knocked on the doors of the High Court to appoint a fresh arbitrator.

The Legal Question: Is a Signature Mandatory?

The central issue before Justice S. Manu was whether the absence of a signature from the petitioner on the agreement—referred to as "Annexure A2"—vitiated the arbitration clause. The court meticulously analyzed Section 7 of the Arbitration and Conciliation Act, 1996 , which outlines the requirements for a valid arbitration agreement.

While Section 7 (4)(a) mentions a document signed by the parties, the court noted that Section 7 (4)(b) and (c) expand this scope to include exchanges of correspondence or instances where the existence of an agreement is alleged by one party and not denied by the other. Relying on Supreme Court precedents, the court observed that "the mere fact of one party not signing the agreement cannot absolve him from the liability under the agreement" if the parties are, in fact, ad idem (of the same mind).

Key Observations

The High Court drew extensively from established apex court jurisprudence to support its reasoning:

• Priority of Intent: "The essential elements or attributes of an arbitration agreement is the accord to refer the disputes or differences to arbitration, which is expressly or impliedly spelt out from a clause in an agreement... or documents/correspondence exchanged between the parties."
• Commercial Efficacy: "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 'Writing' Requirement: "In the present day of e-commerce, in cases of internet purchases... if the identity of the parties is established, and there is a record of agreement it becomes an arbitration agreement if there is an arbitration clause showing ad idem between the parties."

The Verdict and Its Impact

Recognizing that the previous award was rendered by an improperly appointed arbitrator, the High Court allowed the arbitration request and directed the Kerala High Court Arbitration Centre to nominate a retired District Judge from the relevant panel to resolve the dispute.

Crucially, the Court clarified that all contentions, including the arbitrability of the dispute and questions of jurisdiction, remain open for the parties to raise before the new arbitrator. This ruling serves as a vital reminder to the legal fraternity that arbitration provisions in standard commercial contracts should be interpreted with a common-sense approach, prioritizing the parties’ clear intention to settle disputes out of court over rigid, pedantic interpretations of formal signing requirements.