Arbitration by Conduct under Part II: Analyzing the Supreme Court’s Approach in Glencore v. Shree Ganesh Metals

[Anwesha is a student at National Law University Odisha.]

In its recent judgment of Glencore International AG v. M/s Shree Ganesh Metals and Another (Glencore Judgement), the Supreme Court (SC) adopted a distinctively pro-arbitration stance, stating that an arbitration agreement is binding when the conduct of the parties implies acceptance of the terms of the contract, even if the contract remains unsigned. In doing so, the SC has addressed a recurring problem in the commercial space, where performance of contractual duties often begins even before the contract is formally signed and completed. While this affirmative judgement can help dispel the uncertainty around an unsigned document, it also at the same time presses the need for a clear and predictable framework on validity of unsigned arbitration agreements.

This article critically examines the court’s willingness to infer a binding arbitration agreement from parties’ conduct despite the absence of a signed contract. It assesses the doctrinal conflict between Part I and Part II of the Arbitration and Conciliation Act  1996 (1996 Act), the statutory and Convention-based limits on recognizing arbitration by conduct, and the risks created by an undefined notion of “conduct of the parties.” The purpose of the article is threefold: (i) to analyze whether the court’s pro-arbitration approach is legally and practically justified; (ii) to show how that approach may undermine the prima facie referral standard and parties’ autonomy; and (iii) to propose targeted judicial and legislative measures to restore clarity, predictability, and fairness in recognizing arbitration agreements.

Factual Background

In the present case, Shree Ganesh Metals (Respondent), a proprietorship firm, had entered into four separate contracts with Glencore International AG (Appellant), between 2011 and 2012 for the purchase of zinc alloy metals. The contract contained an arbitration clause stating that in the case of any dispute arising out of the contract, it shall be referred to and finally resolved by arbitration under the Rules of the London Court of International Arbitration, and the seat of arbitration shall be London.

In 2016, the parties entered into a fifth agreement, negotiating terms and modalities through email. It was the Appellant who proposed price fixation based on the London Metal Exchange average over ten consecutive market days and insisted on standby letters of credit. Respondent, in reply to the mail, suggested reducing the number of days to five and confirmed with the other clauses stating “confirm the same terms.”

Although the Respondent never signed the Fifth Contract or accepted the new arbitration clause explicitly, it accepted 2,000 metric tonnes of zinc supplied under its terms. At the Respondent’s request, HDFC Bank (respondent number 2) issued two standby letters of credit. A dispute arose when the Respondent failed to issue a further letter of credit, leading to civil proceedings.

Court's Decision and Reasoning

The SC opined that an arbitration agreement needs to be in writing, though it need not be signed. It relied on the case of Govind Rubber Limited v. Louis Dreyfus Commodities Asia Private Limited and Caravel Shipping Services Private Limited v. Premier Sea Foods Exim Private Limited, which had held that only the pre-requisite of an arbitration agreement is that it must be in writing, but need not necessarily bear the signatures of both sides, as long as it satisfies Section 7(3) of the 1996 Act. It also confirmed that this legal principle would hold good equally for an arbitration agreement covered by Sections 44 and 45 of the 1996 Act.

The SC determined that an arbitration agreement can be inferred from exchanges of correspondence, including electronic communications. The conduct of the parties can show acceptance of the contractual terms, including the arbitration clause.

Statutory Framework and Doctrinal Foundations

The 1940 law did not contain any provision requiring a document to be signed for it to qualify as a valid written arbitration agreement. The specific introduction of Section 7, however, clarifies that an arbitration agreement must be in writing. A document is considered “in writing” when it is signed by the parties or when its terms are recorded through electronic, telex, or similar communication.

Part II of the 1996 Act mirrors Article II of the New York Convention (Convention). Under Article II(2), the requirement of an agreement in writing is satisfied when the arbitration clause or agreement is signed by the parties. It may also be fulfilled through an exchange of letters or telegrams. However, it is important to note that Section 45 of the 1996 Act does not include the alternative modes of acceptance provided in the Convention. It does not recognize electronic or telex communication as sufficient to meet the “in writing” requirement.

The SC in Arif Azim Company Limited v. Micromax Informatics FZE ruled that Part I of the 1996 Act does not apply to Part II. The SC and various High Courts have repeatedly examined whether Part I applies to international commercial arbitrations seated outside India. In Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., the SC held that Part I does not apply to arbitrations seated outside India.

Core Critique: The Problem of Undefined "Conduct of Parties"

Firstly, the SC’s distinction between the 2012 and 2016 contracts is doctrinally unsustainable because it sidesteps binding precedents such as M.R. Engineers v. Som Datt Builders, NBCC v. Zillion, and S.N. Prasad v. Monnet Finance, all of which unequivocally hold that an arbitration clause binds a party only when it is clearly and consciously accepted, and that no arbitration clause can be imported from another document absent explicit adoption.

In Glencore Judgment, the SC rejected the respondent's claim, stating the 2016 contract contains its own arbitration clause which “governed the field.” However, in carefully reading, the author argues that the arbitration clause of the 2016 contract was different from that of its predecessor contracts, to which the respondent never proposed explicit acceptance. The Respondent’s email stating “same terms as said” can at best be read as acceptance of negotiated commercial terms like price and quantity, not an intention to accept a foreign-seated arbitration clause. By treating the unsigned 2016 contract as accepted merely because the parties performed commercially under similar arrangements, the court effectively inferred the arbitration clause from the earlier contract without the conscious acceptance by the respondent as mandated by precedents. As the Respondent never signed the document and never acknowledged the new arbitration clause of 2016, the court’s conclusion that the earlier contract binds the respondent to arbitration represents a flawed logic.

Furthermore, there is no defined boundary as to what constitutes “implied conduct of the parties.” To infer consent, a court ought to decide whether the conduct of the parties imply that they are acting in furtherance of the contract, which is a discretionary power. For instance, in Glencore Judgment, in order to infer consent from conduct, the court relied heavily on a wide array of granular factual material emails modifying provisional prices, invoices referencing the contract, letters of credit issued “as per instructions” of the Appellant, internal correspondence acknowledging an “outstanding balance for September 2016 shipment,” and even the respondent’s acceptance of 2,000 MT of zinc under the unsigned contract.

However, such an exercise is fundamentally incompatible with the prima facie standard mandated Section 5 of the 1996 Act and doctrine of kompetenz-kompetenz, both of which limit judicial scrutiny at the referral stage to a threshold inquiry into the existence not the deeper scrutiny. Therefore, the outcome in Glencore Judgment departs from arbitration’s objective of certainty, predictability, and minimal judicial interference. Worse yet, by allowing ordinary commercial performance such as accepting goods or acknowledging outstanding balances to operate as implied consent to a foreign-seated arbitration clause, the Court departs from earlier binding precedents such as MR Engineers, NBCC v. Zillion, and SN Prasad v. Monnet Finance. These cases insist on clear, conscious acceptance, especially where a clause affects fundamental procedural rights like waiver of jurisdiction.

Further, the blend of Part I and Part II of the 1996 Act, gives wide discretionary power to the court. Section 45 of the 1996 Act mirrors Article II of the Convention, and Part II does not incorporate the “second alternative” recognized in Article II(2), which is assent through an exchange of communications. It also doesn’t recognize the flexible standards of Section 7, which applies only to domestic arbitration. By relying on invoices, letters of credit and an ambiguous “same terms” email, Glencore effectively applies Section 7 reasoning to a foreign-seated arbitration, even though the Parliament omitted such flexibility in Part II.

Conclusion and Reform Recommendations

A clearer statutory framework is required to prevent courts from over-expanding the notion of “conduct of parties.” The Parliament should define what qualifies as conduct indicating acceptance, ensuring that such conduct is unequivocally linked to the arbitration clause and not merely general commercial performance. At a bare minimum, there should be some form of express written acknowledgement such as an reply/response, showing acceptance of the arbitration mechanism.

At the referral stage, courts should restrict themselves to the established threshold questions: (i) whether there is a written communication acknowledging the arbitration clause; and (ii) whether the subsequent conduct corroborates that acknowledgement. To preserve the limited prima facie standard, the statute should expressly limit courts’ power to engage in deeper factual scrutiny at this stage.

Finally, Part II should be amended to clarify that its requirements cannot be diluted by importing the flexible standards of Section 7 of the 1996 Act without legislative sanction. To ensure certainty in cross-border transactions, the legislature should reinforce the preference for signed arbitration agreements in foreign-seated arbitrations.