Supreme Court: While considering an appeal revolving around existence of an arbitration agreement between the parties; the Division Bench of P.S. Narasimha and Manoj Misra*, JJ., upheld Calcutta High Court’s impugned judgment wherein it had held that, when there is use of “may” in a supposed arbitration clause, there is no clear intention of the parties to refer the dispute between them to arbitration.
Background:
Appellant and the respondent entered into a contract relating to transportation/handling of goods. Disputes arose between the parties during the subsistence of the contract. Clause 13 of the General Terms and Conditions, appended to the e-tender notice, which was part of the contract, was relied upon by the appellant as an arbitration agreement. Clause 13 stated that “In 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 Clause 13 as an arbitration agreement, the appellant filed an application under Section 11(6) of the A&C Act for appointment of an Arbitrator for settlement of the disputes inter se the parties. The respondent objected to the prayer for appointment of an Arbitrator, inter-alia, on the ground that Clause 13 was bereft of the essential ingredients to constitute an arbitration agreement.
Upon perusal of the issue, Calcutta High Court accepted the respondent’s objection and dismissed the application. While rejecting the prayer, the High Court laid emphasis on use of the word “may” before “be sought” in Clause 13 and held that where the word “may” is used there is no clear intention of the parties to refer the dispute between them to arbitration and therefore, the prayer to appoint an Arbitrator was held to be unsustainable.
Aggrieved with the afore-stated dismissal, the appellant hence approached the Supreme Court.
The appellant’s counsel contended that the use of the word “may” is only to indicate that parties to the agreement have an option to take recourse to settlement of disputes through arbitration under the A&C Act. However, once that option is exercised by any of the parties to the agreement, it becomes a binding contract to settle inter se disputes through arbitration.
Per contra, the respondent argued that that there was no definite agreement between the parties to settle their disputes through arbitration. The use of the word “may” in Clause 13 clearly indicated that at the time of entering the agreement, 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.
Issues Framed and Court’s Assessment:
Perusing the issue, the Court framed the following issues and answered them accordingly:
(i) Whether the question of existence of an arbitration agreement should be left for the arbitral tribunal to decide?
While considering this issue, the Court referred to Interplay Between Arbitration Agreements under Arbitration, 1996 & Stamp Act, 1899, In re, (2024) 6 SCC 1, and pointed out that Section 11 of the A&C Act confines the Court’s jurisdiction to the examination of the existence of an arbitration agreement. The use of the term “examination” in itself connotes that the scope of the power is limited to a prima facie determination. The scope of examination under Section 11(6-A) should be confined to the existence of an arbitration agreement on the basis of Section 7. Such a legal approach will help the Referral Court in weeding out prima facie non-existent arbitration agreements. The burden of proving the existence of arbitration agreement generally lies on the party seeking to rely on such agreement. Only prima facie proof of the existence of an arbitration agreement must be adduced before the Referral Court.
The determination of the existence and validity of an arbitration agreement on the basis of evidence ought to be left to the Arbitral Tribunal.
The Court pointed out that in the instant case, the appellant relied on just one clause in the contract which, supposedly constitutes an arbitration agreement. In such circumstances, the Court while exercising power under Section 11 would not have to hold a mini-trial or an enquiry into its existence, rather a plain reading of the clause would indicate whether it is, or it is not, an arbitration agreement, prima facie, satisfying the necessary ingredients of it, as required by Section 7 of the 1996 Act. “In our view, such a limited exercise would not transgress the limit set out by Section 11(6-A) of the A&C Act as introduced by 2015 Amendment because the object of such an exercise (i.e., of examination) is to weed out frivolous claims for appointment of an arbitrator/ reference to an arbitral tribunal”.
Therefore, the appellant’s argument that Referral Court should straight away refer the matter and leave it to the arbitral tribunal to decide whether the arbitration agreement exists or not, was held to be unacceptable.
(ii) Whether clause 13 (supra) would constitute an arbitration agreement between the parties as contemplated under Section 7 of the A&C Act?
Examining this issue, the Court firstly delved into examine the law as to when an arbitration agreement comes into existence. Referring to relevant precedents, the Court pointed out that 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. Similarly, a clause which states that “if the parties so decide, the disputes shall be referred to arbitration” or “any disputes between parties, if they so agree, shall be referred to arbitration” would not constitute an arbitration agreement. Because such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Therefore, any agreement, or clause in an agreement, requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement.
Coming onto clause 13 being an arbitration agreement or not, the Court pointed out that clause 13 does not bind parties to use arbitration for settlement of the disputes. Use of the words “may be sought”, imply that there is no subsisting agreement between parties that they, or any one of them, would have to seek settlement of dispute(s) through arbitration. It is just an enabling clause whereunder, if parties agree, they could resolve their dispute(s) through arbitration. The Court thus opined that the phraseology of clause 13 is not indicative of a binding agreement that any of the parties on its own could seek redressal of inter se disputes through arbitration. Therefore, the Court opined that the High Court was justified in holding that clause 13 did not constitute an arbitration agreement.
Therefore, with the afore-stated assessment, the Court upheld Calcutta High Court’s impugned verdict and dismissed the instant appeal.
[BGM and M-RPL-JMCT (JV) v. Eastern Coalfields Limited, 2025 SCC OnLine SC 1471, decided on 18-7-2025]
*Judgment by Justice Manoj Misra
Advocates who appeared in this case:
For Petitioner(s): Mr. Shubhabrata Dutta, Adv. Mr. Sunando Raha, Adv. Mr. Subhojit Seal, Adv. Mr. Sk Sayan Uddin, Adv. Mr. Vikalp Gupta, Adv. Ms. Shruti Bist, Adv. Ms. Anna Oommen, Adv. Mr. Kunal Malik, AOR Mr. Akash Singh Rana, Adv. Mr. Piyush Malik, Adv.
For Respondent(s): Mr. R. Venkat Prabhat, AOR Mr. Daksh Pandit, Adv.
