The Calcutta High Court, in a significant ruling, has stated that an arbitration clause contained in a Memorandum of Understanding (MOU) that was not finalized cannot form the basis for arbitration proceedings. The judgment was delivered by Justice Shampa Sarkar, who emphasized that if the document remains incomplete and lacks crucial details, it cannot be enforced as a binding agreement.

Background of the Case

In October 2020, the respondent engaged with the petitioner regarding the sale and takeover of assets, including plants and machinery, for a sum of Rs. 21 crores. The agreement also included an advance payment of Rs. 3 crores, which would be forfeited if the respondent failed to meet their obligations. To formalize the arrangement, the parties prepared an MOU on February 9, 2022, which contained an arbitration clause.

However, the respondent failed to fulfill the agreed payment obligations, leading to disputes. Subsequently, an arbitrator was appointed by the respondent, but neither the respondent nor the arbitrator attended the scheduled arbitration proceedings. As a result, the arbitral tribunal's mandate was terminated.

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Following this, the petitioner issued a demand letter on September 14, 2023, which was met with a denial of claims by the respondent. Consequently, the petitioner proceeded under Section 15(2) of the Arbitration Act, appointing a substitute arbitrator, a senior advocate from the Calcutta High Court. Despite this, disputes regarding the validity of arbitration proceedings continued, leading the petitioner to seek the court’s intervention for the appointment of an arbitrator under clause 12.3 of the MOU.

The petitioner argued that:

• The MOU dated December 7, 2020, was an interim arrangement to facilitate the transfer of operational control to the respondent.
• The exchange of emails constituted a legally valid execution of the arbitration agreement.
• Clause 12.3 of the MOU was a binding arbitration clause as per Section 7(4)(b) of the Arbitration Act.
• The allegations of fraud and misrepresentation were also arbitrable, and an arbitrator should be appointed to resolve all disputes, including challenges to the validity of the MOU.

Respondent’s Counterarguments

On the other hand, the respondent contended that:

• The MOU had never been formally executed as there were multiple blank spaces left in the draft.
• Essential details such as identities of representatives, loan amounts, takeover modalities, outstanding liabilities, asset purchase considerations, and payment phases were missing.
• The arbitration clause could not be invoked because the draft MOU had never been finalized or signed with all necessary details incorporated.
• As per Section 11 of the Arbitration Act, the application should have been filed before the Odisha High Court, as the respondent operated in Odisha and the MOU was executed there.
• The demand letter dated September 14, 2023, did not mention the arbitration clause, further proving that the petitioner did not consider it a binding document at the time.

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The court noted that the MOU dated February 9, 2022, remained incomplete, lacking crucial information such as:

• Identity of representatives
• Loan amount
• Takeover modalities
• Outstanding liabilities
• Asset purchase consideration
• Bank liability and payment phases

Justice Shampa Sarkar ruled that:

“The MOU circulated on February 9, 2022, was incomplete with blank spaces for crucial details, which made it unenforceable. The mere lack of response to an email cannot be interpreted as acceptance.”

The court further stated that since the cause of action arose in Odisha and Raipur/Chhattisgarh, there was no justification for filing the case in the Calcutta High Court. Additionally, the demand letter from the petitioner’s advocate, dated September 14, 2023, did not mention any arbitration clause, reinforcing the conclusion that the petitioner was relying on an oral agreement rather than the disputed MOU.

"The tenor of the demand letter clearly indicates that the petitioner sought to hold the respondent liable through civil or criminal proceedings but did not invoke any arbitration clause. This further strengthens the conclusion that the arbitration agreement was not binding."

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Accordingly, the court dismissed the petition, ruling that an arbitration clause in an incomplete MOU cannot be the basis for arbitration proceedings.

Case Details

• Case Title: M/S GREENBILT INDUSTRIES PRIVATE LIMITED vs. M/S A B DINESH CONCRETE PRIVATE LIMITED
• Case Number: AP (COM) 421 of 2024
• Order Date: March 27, 2025
• Presiding Judge: Justice Shampa Sarkar
• Petitioner’s Counsel: Mr. Kumarjit Banerjee, Ms. Sanchari Chakraborty
• Respondent’s Counsel: Mr. Sourav Kumar Mukherjee, Ms. Falguni Jana, Ms. Sahana Pal, Mr. Souhardya Mitra