Clause Permitting Arbitration "May Be Sought" Does Not Constitute Arbitration Agreement: Supreme Court

A Bench of Justice Pamidighantam Sri Narasimha and Justice Manoj Misra heard an appeal against a Calcutta High Court order that dismissed an application under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator in a commercial contract for transportation and handling of goods between the appellant consortium and Eastern Coalfields Limited.

The Court dismissed the appeal and held that Clause 13 of the contract did not, prima facie, constitute an arbitration agreement as contemplated by Section 7 of the 1996 Act. The Bench emphasised the limited scope of judicial scrutiny under Section 11, drawing on this Court’s recent rulings that “Section 11 confines the Court's jurisdiction to the examination of the existence of an arbitration agreement.” The Court noted that only prima facie proof of an arbitration agreement was required at the Section 11 stage and that detailed determination of existence and validity should ordinarily be left to an arbitral tribunal under the doctrine of competence‑competence. The Court, in its reasoning, observed: “We do not agree with the aforesaid submission because 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. In our view, 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 dispute(s) through arbitration. We are, therefore, of the considered view that the High Court was justified in holding that clause 13 does not constitute an arbitration agreement.”

Background

The dispute arose under a contract formed through an e‑tender for transportation/handling of goods. Clause 13 of the General Terms and Conditions, incorporated into the contract, set out a staged dispute resolution mechanism: first company‑level settlement, then reference to Area CGM/GM and an owner‑constituted committee, and thereafter a provision stating that disputes between CPSEs and certain government bodies would be taken up through AMRCD, while “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.” The appellant treated the underscored portion as an arbitration agreement and moved the High Court under Section 11(6) for appointment of an arbitrator.

The respondent opposed the petition, contending that Clause 13 lacked the essential attributes of an arbitration agreement because it used permissive language — notably the word “may” — and pointed to Clause 32 of the Instructions to Bidders which fixed jurisdiction of district courts where the work was to be executed. The High Court dismissed the Section 11 application, relying on precedents including Jagdish Chander v. Ramesh Chander and Mahanadi Coalfields Ltd. v. IVRCL AMR Joint Venture, which held that clauses requiring further consent or contemplating only a future agreement to arbitrate did not constitute binding arbitration agreements.

On appeal, the Supreme Court reviewed the law on the scope of inquiry at the Section 11 stage, referring to the seven‑Judge decision in In re Interplay Between Arbitration Agreements under Arbitration, 1996 & Stamp Act, 1899. The Bench reiterated that the Referral Court must be prima facie satisfied of the existence of an arbitration agreement as defined in Section 7, but should not conduct a mini‑trial; where an arbitration clause is clear and undisputed in a single document a court may satisfy itself on a plain reading. Applying those principles, the Court concluded that Clause 13’s phrase “may be sought” created only an enabling provision and did not record a binding consensus ad idem to submit disputes to arbitration. The appeal was dismissed and there was no order as to costs; pending applications were disposed of.

Case Details: Case No.: 2025 INSC 874 Case Title: BGM AND M-RPL-JMCT (JV) v. EASTERN COALFIELDS LIMITED Appearances: For the Petitioner(s): Not indicated in the judgment For the Respondent(s): Not indicated in the judgment