“Can” Means Non-Mandatory Arbitration: Clauses Expressing Mere Possibility Are Not Arbitration Agreements Without Fresh Consent

1. Introduction

This appeal arose from a Section 11 application under the Arbitration and Conciliation Act 1996 (“A&C Act”) seeking appointment of an arbitrator based on Clause 25 of a bill of lading. The appellant (a manufacturer-exporter) blamed the respondent logistics service provider for releasing goods to the overseas buyer without production of the original bill of lading, allegedly causing non-payment and loss. When the appellant invoked arbitration, the respondent objected that the clause was optional, not mandatory.

The core legal issue was narrow but commercially significant: does the use of the word “can” in a dispute resolution clause (“Any… dispute… can be settled by arbitration…”) create a binding obligation to arbitrate, or does it merely preserve arbitration as one possible option requiring fresh consent?

2. Summary of the Judgment

The Supreme Court dismissed the appeal and upheld the Bombay High Court’s refusal to appoint an arbitrator. It held that Clause 25—stating that disputes “can be settled by arbitration”—does not constitute a binding arbitration agreement because it indicates only a future possibility of arbitration and contemplates the need for further consent.

The Court reaffirmed that arbitration rests on party consent and autonomy. A clause that provides only that parties may/can arbitrate, without a clear obligation to do so, is not an “arbitration agreement” in law as explained in Jagdish Chander v. Ramesh Chander and recently followed in BGM and M-RPL-JMCT(JV) v. Eastern Coalfields Ltd.

3. Analysis

3.1 Precedents Cited (and How They Shaped the Outcome)

A. Consent and party autonomy as the foundation of arbitration

• Cox & Kings Ltd. v. SAP India (P) Ltd. (concurring opinion of P.S. Narasimha, J.) was used to foreground first principles: arbitration jurisdiction arises from mutual intent—consent is the “source” of the tribunal’s authority. This set the normative frame for construing ambiguous wording against compulsion.

B. Section 11 “referral court” scrutiny—limited, but not blind

• SBI General Insurance Co. Ltd. v. Krish Spg. was relied on for the proposition that Section 11 involves a prima facie scrutiny of the existence of the arbitration agreement, distinct from the tribunal’s Section 16 power to “rule” on jurisdiction. The Court approved the High Court’s approach as staying within Section 11’s confined remit: deciding whether a clause is an arbitration agreement at all.
• Interplay Between Arbitration Agreements under the Arbitration Act, 1996 & the Stamp Act, 1899, In re and the discussion in NTPC Ltd. v. SPML Infra Ltd. were referenced through SBI General Insurance Co. Ltd. v. Krish Spg. to emphasize expeditious, non-laborious Section 11 decision-making, focused on agreement existence.
• Goqii Technologies (P) Ltd. v. Sokrati Technologies (P) Ltd. provided a cautionary counterbalance: limited Section 11 scrutiny should not be abused to force parties into costly arbitration on non-existent/mala fide claims—reinforcing that courts must still ensure a real arbitration agreement exists before compelling arbitration.

C. What counts as an “arbitration agreement”: the controlling line

• K.K. Modi v. K.N. Modi was treated as a foundational statement of the “attributes” of an arbitration agreement (binding decision; consent-derived jurisdiction; adjudication of substantive rights; impartial, judicial determination; enforceability; formulated dispute at reference). The Court reiterated these requirements and noted their repeated restatement in:
  • Bihar State Mineral Development Corporation v. Encon Builders (I) (P) Ltd.
  • Alchemist Hospitals Ltd. v. ICT Health Technology Services India (P) Ltd.
  • M.P. Rajya Tilhan Utpadak Sahakari Sangh Maryadit v. Modi Transport Service
• Jagdish Chander v. Ramesh Chander was decisive. The Court extracted and applied its specific rule: clauses using wording such as “parties can… refer disputes to arbitration” indicate only a desire/possibility, and therefore are not arbitration agreements because they require “further agreement” when disputes arise.
• BGM and M-RPL-JMCT(JV) v. Eastern Coalfields Ltd was cited as a recent reaffirmation of Jagdish Chander, strengthening the doctrinal continuity.

D. Authorities invoked by the appellant—why they did not carry the day

• Eastern Coalfields v. Sanjay Transport Agency and Another (headings/marginal notes can help resolve ambiguity) was distinguished: it concerned the scope of a mandatory clause’s applicability, whereas here the heading “Arbitration” could not override the operative modal “can”, which signalled choice.
• Babanrao Rajaram Pund v. M/s Samarth Builders And Developers (pragmatic interpretation; “shall” indicating mandatory arbitration; deficiencies not fatal where intention is clear) was held unhelpful because the intention to arbitrate was not clear in the present clause.
• Visa International Ltd. v. Continental Resources USA Limited (missing words not decisive; whole clause read to gather intention) was distinguished: there, intention to use the A&C Act dispute mechanism was sufficiently clear; here, the combination of “can” and other features did not yield clear consent.
• Enercon (India) Ltd. v. Enercon GmbH (unworkable appointment mechanics cured by pragmatic construction; intent to arbitrate not frustrated) was distinguished on the key point that intent to arbitrate was undisputed in Enercon, whereas in this case one party denied any binding commitment to arbitrate.
• Zhejiang Bonly Elevator Guide Rail Manufacture Company Limited v. Jade Elevator Components (clause offering “arbitration or the court”; option available; choice respected) was distinguished: it involved an express alternative forum structure and the word “should” consistent with optionality; it did not support converting “can” into a mandate against the respondent’s refusal.
• Vidya Drolia v. Durga Trading Corporation (when in doubt, refer; liberal approach in commercial matters) was confined: the Court clarified that “doubt” operates within a situation where parties are ad idem on arbitration but wording is imperfect; it cannot be used to force arbitration where the clause itself shows only a non-binding possibility.
• Panasonic India (P) Ltd. v. Shah Aircon was held inapplicable because there “can” related to the ability of either party to invoke arbitration, not to whether arbitration itself was optional.

E. Contract interpretation authorities supporting textual primacy

• Union of India v. Raman Iron Foundry and Provash Chandra Dalui v. Biswanath Banerjee were invoked for settled principles: contractual words must be understood in their context; the written word is the foundation of legal obligation; courts should not impute obligations not intended—especially important in arbitration, where consent is jurisdictional.

3.2 Legal Reasoning

A. The semantic pivot: “can” denotes capability/possibility, not obligation

The Court treated the clause’s operative word—“can”—as determinative. It contrasted “can” (possibility/capacity) with “shall” (mandate) and “may” (permission, typically discretionary). In the arbitration context, this distinction matters because arbitration is consensual; a court cannot derive compulsion from language that only preserves an option.

B. Clause 25 as an “agreement to agree” on arbitration in future

Applying Jagdish Chander v. Ramesh Chander, the Court characterized Clause 25 as indicating merely a future possibility of arbitration. Such clauses are not arbitration agreements; they are at most an indication that parties might arbitrate if they later mutually decide to do so. Consequently:

C. Section 11 outcome: no prima facie “existence” of an arbitration agreement

Even on a prima facie test, the Court found the clause failed the threshold of an arbitration agreement. Therefore, the court’s Section 11 power to appoint an arbitrator never arose.

D. The appointment-mechanics argument: secondary but reinforcing

The respondent argued the clause’s appointment procedure was incomplete (each party appoints an arbitrator, no express provision for a presiding arbitrator), allegedly conflicting with Section 10. The Court did not make this the ratio; however, it noted alongside “can” that intention was unclear and that the procedure was “incomplete” if arbitration were to occur. The larger point was: pragmatic gap-filling (as in Enercon (India) Ltd. v. Enercon GmbH) is justified only when consent to arbitrate is clear; it is not a tool to manufacture consent where the clause is optional.

3.3 Impact

A. Drafting discipline in commercial documentation (bills of lading, logistics, trade)

The ruling is a strong warning to commercial drafters that headings like “Arbitration” do not cure optional language. In standard-form shipping/logistics documentation, clauses often use permissive modals (“may/can”) to preserve flexibility; after this decision, such phrasing will more readily be treated as non-binding, leaving parties in civil courts unless a fresh arbitration submission is executed.

B. Limits of “pro-arbitration” interpretive lean

The judgment narrows any tendency to stretch the “when in doubt, refer” principle. Courts may lean toward arbitration only when the clause evidences a real agreement but suffers from ambiguity or curable pathology. Where wording shows arbitration is only a possibility, the pro-arbitration tilt yields to the deeper pro-consent principle.

C. Section 11 practice: threshold vigilance remains essential

Even with Section 11’s limited scope, referral courts must still determine whether there is an arbitration agreement in the first place. This decision reinforces that a swift Section 11 process does not mean automatic referral; it means a focused, text-driven check for consent.

4. Complex Concepts Simplified

• Arbitration agreement (Section 7, A&C Act): a binding contract term by which parties agree that disputes will be decided by arbitration. If the clause requires parties to decide later whether to arbitrate, it is not an arbitration agreement.
• Section 11 application: a request to court to appoint an arbitrator when parties fail to do so. The court can appoint only if an arbitration agreement exists (prima facie).
• Section 16 (“kompetenz-kompetenz”): once constituted, the arbitral tribunal can rule on its own jurisdiction. But the tribunal cannot be constituted via Section 11 if there is no arbitration agreement at all.
• Modal verbs in drafting:
  • “Shall” = obligation/mandate (typically creates compulsory arbitration if linked to arbitration).
  • “May” = permission/discretion (often indicates optional arbitration unless context clearly mandates).
  • “Can” = capability/possibility (here treated as indicating mere possibility, not a commitment).
• “Agreement to agree”: wording that postpones a key commitment (like choosing arbitration) to a future mutual decision; such arrangements are generally not enforceable as final dispute-resolution commitments.

5. Conclusion

The Supreme Court’s central takeaway is doctrinally crisp: a dispute clause stating that disputes “can be settled by arbitration” does not, without more, create a binding arbitration agreement. By anchoring arbitration in consent and applying Jagdish Chander v. Ramesh Chander, the Court prioritised party autonomy over a generalized pro-arbitration leaning.

For future cases, the decision will likely be cited at the Section 11 stage to resist forced arbitration where the clause is permissive or contingent. For commerce, it underscores that arbitration must be drafted in mandatory terms—otherwise, civil court jurisdiction remains open unless parties later and expressly choose arbitration.