Background
The dispute stemmed from the contract between the BGM and M-RPL-JMCT(JV) (“Appellant”) and Eastern Coalfields Limited (“Respondent”) pertaining to the transportation/handling of goods. Clause 13 of General Terms and Conditions stated “..….In any case of parties other than govt. agencies, the redressal of the dispute may be sought through Arbitration and Conciliation Act, 1996 as amended by Amendment Act of 2015”.
Treating the aforesaid clause as an arbitration agreement, the Appellant applied Section 11(6) of the Arbitration and Conciliation, 1996 Act (“1996 Act”) for the appointment of an Arbitrator. The Respondent objected that clause 13 is bereft of the essential ingredients to constitute an arbitration agreement and sought the rejection of the application. The Calcutta High Court, emphasising upon the use of word “may”, held that no arbitration agreement exists between the parties; hence, the prayer to appoint an Arbitrator is not sustainable.
Issue and Decision
Whether Clause 13 constitute an arbitration agreement between the parties under Section 7 of the 1996 Act.
Appellant submitted that the use of word “may” in clause 13 is used in the context that the parties have a recourse to resolve the dispute through arbitration. However, once that option is exercised by any of the parties to the agreement, as in the present case, it becomes a binding contract to settle inter se disputes through arbitration. It was further submitted that the cases Jagdish Chander v. Ramesh Chander and Others[1] and Mahanadi Coalfields Ltd. vs. IVRCL AMR Joint Venture[2] as relied by the Calcutta High Court, dealt with different clauses and hence not applicable.
On the contrary, Respondent submitted that the word “may” in clause 13 clearly indicates that at the time of entering the agreement, the parties were not ad idem on referring present or future disputes between them to arbitration. The clause only enabled the parties to agree on any future date to refer the disputes to arbitration. Therefore, in the absence of proof of any such agreement, reference to an arbitral tribunal should be declined. Reference was also made to Clause 32 of the Agreement, which provided jurisdiction to the district court for settling disputes.
The Supreme Court referring to Bihar State Mineral Development Corporation v. Encon Builders[3], expounded the essentials of an arbitration agreement as follows – (a) there must be a present or future difference in connection with some contemplated affair; (b) the parties must intend to settle such difference by a private tribunal; (c) the parties must agree in writing to be bound by the decision of such tribunal; and (d) the parties must be ad idem (¶20).
The Court referring to the cases of Jagdish Chander v. Ramesh Chander and Others[4] and Mahanadi Coalfields Ltd. vs. IVRCL AMR Joint Venture[5], affirmed that such clauses, where there is merely a possibility of the parties agreeing to arbitration in the future, and not an obligation to refer disputes to arbitration, are not valid and binding arbitration agreement. Further, mere use of the word “arbitration” or “arbitrator” in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration (¶26).
Applying the aforementioned rulings, the Supreme Court rejected the contention of the Appellant and held that use of word “may be sought” in Clause 13 implies that there is no subsisting agreement between parties and it is merely an “enabling clause”, requiring the parties to agree to resolve their dispute through arbitration (¶31).
The Supreme Court therefore upheld the decision of Calcutta High Court and the appeal was dismissed.
Significance
The ruling underscores the need for precise drafting and that mandatory language like “shall” is essential to create enforceable arbitration agreements. This decision strengthens Section 11 jurisprudence by empowering courts to filter out vague or inchoate clauses at the threshold.
Case Details
Citation Code: 2025 INSC 874
Date of Judgement: 18 July 2025
Court: Supreme Court of India
Coram: Justice Pamdighantam Sri Narasimha and Justice Manoj Misra
[1] 2007) 5 SCC 719.
[2] (2022) 20 SCC 636.
[3] (2003) 7 SCC 418.
[4] 2007) 5 SCC 719.
[5] (2022) 20 SCC 636.
Author(s)
Ashpinder Kaur
Student at HPNLU, Shimla