The Supreme Court of India has ruled that an arbitration clause using the word ‘can’ does not necessitate the mandatory reference of disputes to arbitration. A bench comprising Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh held that such phrasing indicates a future possibility of arbitration rather than a binding obligation, leaving recourse to other dispute resolution mechanisms, including civil courts, open to the parties.
Background of the Case
The appellant, Nagreeka Indcon Products Pvt. Ltd., a manufacturer of aluminium foil containers, entered into a contract with the respondent, Cargocare Logistics (India) Pvt. Ltd., for the transport of goods to South Carolina, USA. A dispute arose regarding the delivery of the fifth of six containers. The appellant alleged that the respondent handed over the goods to the buyer (M/s. American Alupack Industries) without receiving payment or the original bill of lading, resulting in a financial loss of USD 28,064.86.
The dispute resolution mechanism in the Bill of Lading (Clause 25) stated:
“Any difference of opinion or dispute thereunder can be settled by arbitration in India or a place mutually agreed with each party appointing an arbitrator.”
The appellant invoked arbitration, but the respondent disputed the reference, arguing the clause was optional. The High Court of Judicature at Bombay dismissed the appellant’s Section 11 application for the appointment of an arbitrator, leading to this appeal.
Arguments of the Parties
Appellant’s Submissions:
- Section 7 of the Arbitration and Conciliation Act, 1996, does not prescribe a specific form for an agreement.
- The heading ‘Arbitration’ and the inclusion of the clause demonstrated a clear intent to arbitrate.
- Relying on Vidya Drolia v. Durga Trading Corporation, the appellant argued that courts should lean toward arbitration when in doubt.
- Cited Zhejiang Bonly Elevator Guide Rail Manufacture Co. Ltd. v. Jade Elevator Components, where an arbitrator was appointed despite the clause mentioning “arbitration or the court.”
Respondent’s Submissions:
- Clause 25 did not convey a definitive agreement to arbitrate.
- Relying on Jagdish Chander v. Ramesh Chander, the respondent argued that words like ‘can’ do not constitute a binding agreement.
- The clause was also technically deficient as it did not provide for a third presiding arbitrator, violating Section 10 of the A&C Act.
Court’s Analysis
The Court focused on the interpretation of the word ‘can’. It noted that while ‘shall’ signals a mandate and ‘may’ often denotes discretion, ‘can’ refers to “capacity, capability or factual possibility.”
On Contractual Interpretation: The Court observed that the written word is the foundation of legal obligation. To impute a meaning not intended would compromise party autonomy.
“The parties must mutually intend to refer their differences to arbitration as consent is the source of the Arbitral Tribunal’s jurisdiction over them.”
On the Validity of the Clause: The Court referred to the requirements of a valid arbitration agreement as set out in K.K. Modi v. K.N. Modi. Crucially, it cited Jagdish Chander v. Ramesh Chander, which clarified that a clause is not an arbitration agreement if it requires further consent. The Court noted:
“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, but an agreement to enter into an arbitration agreement in future.”
The Court distinguished this case from Zhejiang Bonly, noting that in that instance, the word used was ‘should’ and the intent to arbitrate was clearer. In the present case, the use of ‘can’ and the incomplete procedure for appointing arbitrators indicated that the parties were not ad idem (of one mind) regarding mandatory arbitration.
The Decision
The Supreme Court concluded that Clause 25 merely indicates a desire or hope to explore arbitration as a mode of settlement.
“The clause subject matter of dispute in this appeal indicates merely the future possibility of referring disputes to arbitration and as such, it cannot be said to be a binding arbitration agreement.”
Finding the appeal bereft of merit, the Court dismissed it, upholding the High Court’s decision that arbitration could not be forced upon a party in the absence of a mandatory agreement.
Case Details
- Case Title: Nagreeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd.
- Case No.: Civil Appeal No. ___ of 2026 (@ SLP (C) No. 19026 of 2023)
- Bench: Justice Sanjay Karol, Justice Nongmeikapam Kotiswar Singh
- Date: April 17, 2026
