Draft Agreements, WhatsApp Chats Alone Cannot Create Binding Arbitration Agreement: Delhi High Court

The Delhi High Court has held that draft agreements, WhatsApp exchanges and prolonged commercial negotiations cannot, by themselves, create a binding arbitration agreement unless the parties have clearly and finally agreed on all essential terms of their arrangement.

A Bench of Justice Harish Vaidyanathan Shankar dismissed a petition filed by Midpoint Commodeal Private Limited seeking protection of ₹15.30 crore allegedly invested in the "Sky Palazzos" real estate project in Gurugram.

“Mere negotiations, exchanged communications, draft agreements, tentative proposals, preliminary understandings, or ongoing commercial discussions may at best indicate an intention to negotiate or explore a prospective business relationship; however, such circumstances do not, by themselves, mature into a legally enforceable contract unless the parties demonstrably arrive at a final, unequivocal, and binding meeting of minds on all essential terms of the arrangement,” the Court observed.

The Court further observed, “Similarly, the WhatsApp exchanges and other communications relied upon by the Petitioner do not establish any unequivocal assent or concluded agreement between the parties. At best, the said communications reflect ongoing commercial negotiations and attempts to arrive at mutually acceptable terms. They do not disclose any final consensus on the essential contractual terms, much less any clear and binding agreement to arbitrate disputes.”

The dispute arose out of negotiations concerning "Sky Palazzos", a real estate project spread across approximately 11 acres in Sector 88B, Gurugram. In March 2024, Madhur Mittal approached Kanodia Hi-Tech Private Limited for financial participation in the project. That arrangement was later unwound for commercial and regulatory reasons, following which Midpoint Commodeal was introduced as the proposed investing entity.

According to Midpoint Commodeal, it paid ₹1.10 crore towards acquiring a 10% stake in Fidatocity Homes Private Limited and advanced another ₹14.39 crore as an unsecured loan. The company claimed that ₹20 lakh was subsequently repaid.

Midpoint Commodeal stated that drafts of a share purchase agreement and a shareholders' agreement were exchanged in August 2024. It claimed that after discussions and suggested modifications, final versions were circulated and that Madhur Mittal conveyed approval of the revised agreements and assured the company that executed copies and share transfer documents would be furnished.

The company alleged that despite repeated follow-ups, the agreements were never executed and the shares were never transferred. It subsequently issued notices seeking repayment of the money and execution of the transaction documents.

Fidatocity Homes, Trinity Landspace, and the other respondents argued that no arbitration agreement ever came into existence. 

Midpoint Commodeal argued that the arbitration clause remained enforceable despite the shareholders' agreement not being executed. It relied on the parties' negotiations, WhatsApp exchanges, and subsequent conduct to contend that there was sufficient consensus to arbitrate disputes.

The Court rejected that submission. It found that the record showed continuing revisions and modifications to the draft agreements, which indicated that negotiations had not attained contractual finality. The Court also noted that no material had been placed before it showing unconditional acceptance of the final drafts by Fidatocity Homes or Trinity Landspace.

The Court emphasized that while an arbitration agreement need not always be contained in a formally executed document, the law still requires a clear meeting of minds between the parties.

“Commercial negotiations undertaken by representatives, agents, or intermediary negotiators do not attain the character of a concluded and binding agreement unless the same are supported by legally recognizable acts evidencing final acceptance by duly authorized persons acting on behalf of the concerned entities. Any communication exchanged during the course of negotiations, unless shown to have culminated into an unequivocal and authorized acceptance, cannot be construed as creating binding contractual obligations upon the Respondent,” it held.

The Court found that Midpoint Commodeal had failed to produce any material showing that the individuals involved in the negotiations had authority to bind the companies to the proposed arrangements. Mere participation in discussions, it held, could not create enforceable contractual obligations.

Addressing Midpoint Commodeal's reliance on the doctrine of separability, the Court held that the arbitration clause could not be treated as binding in isolation from the surrounding facts. It noted that the clause formed part of a draft shareholders' agreement that itself never attained finality.

“Mere incorporation or presence of an arbitration clause in a draft agreement exchanged during negotiations cannot, by itself, lead to the conclusion that the parties had arrived at a concluded arbitration agreement, unless the material on record demonstrates consensus ad idem between competent and authorized representatives of both sides in relation thereto,” the Court observed.

The court also distinguished the Supreme Court decisions cited by Midpoint Commodeal. It noted that those cases involved parties who had accepted and acted upon finalized contractual terms.

In contrast, the Court found that the record reflected ongoing negotiations, unresolved contractual issues, and subsequent discussions concerning fresh loan agreements.

Holding that no valid and enforceable arbitration agreement existed between the parties, the Court dismissed the petition. 

For Petitioner (Midpoint Commodeal Private Limited): Senior Advocate Jayant Mehta along with Advocates Vijay Nair, Arpit Dwivedi, Manmeet Singh Nagpal and Mansvini Jain.

For Respondent (Fidatocity Homes Private Limited & Ors.): Senior Advocate Akhil Sibal along with Advocates Nitesh Jain and Nishant Bhargava.