“Permissive” Arbitration Clauses Are Not Arbitration Agreements:
Detailed Commentary on BGM and M-RPL-JMCT (JV) v. Eastern Coalfields Limited (2025 INSC 874)

1. Introduction

On 18 July 2025, the Supreme Court of India decided BGM and M-RPL-JMCT (JV) v. Eastern Coalfields Limited, Civil Appeal arising out of SLP (C) Diary No. 21451/2024, reported as 2025 INSC 874. The ruling addresses a deceptively simple yet recurring problem under the Arbitration and Conciliation Act, 1996 (“1996 Act”): Does a clause that merely says disputes “may be sought” to be resolved through the 1996 Act amount to a binding arbitration agreement?

The appellant consortium (“BGM-JV”) had invoked Section 11(6) of the 1996 Act before the Calcutta High Court, seeking appointment of an arbitrator. The High Court refused, holding Clause 13 of the contract did not constitute an arbitration agreement. The consortium appealed. The Supreme Court, speaking through Justice Manoj Misra (Justice P.S. Narasimha concurring), dismissed the appeal, firmly reaffirming that:

• a court seized of a Section 11 petition must first undertake a prima facie examination of the existence of an arbitration agreement; and
• clauses couched in permissive language (“may be sought through arbitration”) do not, without more, satisfy Section 7 of the 1996 Act.

2. Summary of the Judgment

The Court framed three issues:

1. Scope of Court’s Inquiry under Section 11: Must the Court decide existence of an arbitration agreement or leave it to the tribunal?
2. Nature of Clause 13: Does it amount to an arbitration agreement under Section 7?
3. Effect of Jurisdiction Clause 32: Does it negate arbitration?

Main holdings:

• Issue I – Limited Judicial Scrutiny: Following the 7-Judge ruling in Interplay Between Arbitration Agreements & Stamp Act, 1899, In re (2024 6 SCC 1), a Section 11 court conducts only a prima facie scrutiny for existence of an arbitration agreement; it cannot conduct a “mini-trial”.
• Issue II – Clause 13 Not an Arbitration Agreement: The permissive wording (“the redressal of the dispute may be sought through [the] Arbitration and Conciliation Act, 1996”) does not evince consensus ad idem to arbitrate. Reliance on Jagdish Chander v. Ramesh Chander (2007 5 SCC 719) and Mahanadi Coalfields Ltd. v. IVRCL-AMR JV (2022 20 SCC 636) was approved.
• Issue III – Clause 32 Irrelevant: The jurisdiction clause only stipulates court jurisdiction if litigation arises; it does not foreclose arbitration. But once Issue II is answered against the appellant, Issue III becomes academic.

Consequently, the appeal was dismissed; no arbitrator was appointed; no costs were awarded.

3. Analysis

3.1 Precedents Cited and Their Influence

a) Interplay Between Arbitration Agreements & Stamp Act, 1899, In re (Constitution Bench, 2024)

This benchmark decision clarified the distinct statutory tests under Sections 8 and 11 post the 2015 Amendment: Section 11 courts examine existence; Section 8 courts look at prima facie validity. The Court in BGM-JV quotes paragraphs 164-169 extensively to underscore that the Section 11 court’s task is confined yet real—“examination” denotes scrutiny, not trial.

b) Jagdish Chander v. Ramesh Chander (2007)

Often cited for the “no fresh consent” principle, Jagdish Chander held that clauses using language such as “shall be referred … if the parties so determine” are not arbitration agreements because they require a subsequent agreement. The Supreme Court used this yardstick to test Clause 13.

c) Mahanadi Coalfields Ltd. v. IVRCL-AMR JV (2022)

Applying Jagdish Chander, this case dealt with a government tender clause similar in structure to Clause 13. Its reiteration that permissive language plus an internal dispute-resolution hierarchy negates arbitration was decisive.

d) Other Authorities

• Bihar State Mineral Development Corporation v. Encon Builders (2003): articulated four essentials of an arbitration agreement.
• Cox & Kings Ltd. v. SAP India Pvt. Ltd. (Constitution Bench, 2024): stressed party autonomy and exclusive jurisdiction of arbitral tribunals where an agreement exists.

3.2 The Court’s Legal Reasoning Deconstructed

(i) Distilling the Statutory Test under Section 11(6A)

Section 11(6A) (inserted in 2015) commands courts to “confine to the examination of the existence of an arbitration agreement.” Relying on Interplay, In re, the Court stresses that “examination” is a limited, prima facie exercise, but it still permits rejection of “non-existent” agreements at the threshold. This balances:

• the kompetenz-kompetenz principle (tribunal’s power to rule on jurisdiction under Section 16) and
• judicial efficiency (filtering frivolous Section 11 petitions).

(ii) Applying Section 7 to Clause 13

Section 7 requires a written agreement to submit disputes to arbitration. The Court employs a two-step lens:

1. Does Clause 13 display an intention to resolve disputes to the exclusion of courts?
   – Answer: No. Parties are merely allowed to “seek” arbitration.
2. Does the clause leave anything to future consent?
   – Answer: Yes. Use of “may” shows arbitration is optional and contingent on further agreement.

Therefore, the clause lacks consensus ad idem; it is only an “enabling provision,” not an arbitration agreement.

(iii) Interaction with Clause 32

The jurisdiction clause (subjecting disputes to district courts) does not conflict with arbitration per se. However, once Clause 13 fails to qualify under Section 7, Clause 32 inevitably governs.

3.3 Potential Impact of the Judgment

i. Drafting Culture

• “Shall” vs. “May”: Drafters—particularly within PSUs and government e-tenders—must abandon permissive language if arbitration is intended. Clear mandatory wording (“shall be referred to arbitration”) is now non-negotiable.
• Internal Escalation Clauses: Multi-tier dispute mechanisms must culminate in a binding arbitration clause, not an optional one, to avoid invalidation.

ii. Section 11 Practice

Petitioners can no longer rely on permissive clauses, hoping the “pro-arbitration” bias will save them. Courts, armed with this precedent, are likely to dismiss Section 11 applications at the threshold, saving docket time.

iii. PSU & Government Contracts

Many standard-form conditions in CPSE contracts mirror Clause 13. Unless amended, disputes will have to be litigated, not arbitrated, potentially clogging civil courts.

iv. Comparative Jurisprudence

The judgment aligns Indian law with the UNCITRAL Model Law’s emphasis on “agreement to submit” and with English law’s requirement of “mandatory commitment” (see P. v. Q. [2017] EWCA Civ 194). It also contrasts with the U.S. “federal policy favouring arbitration,” under which courts often compel arbitration even on somewhat permissive wording.

4. Complex Concepts Simplified

• Arbitration Agreement (Section 7): A written pact by which parties submit current or future disputes to arbitration.
• Section 11 (Appointment of Arbitrators): Allows High Courts/Supreme Court to appoint arbitrators when parties default. Post-2015, the court only verifies if an arbitration agreement exists.
• Prima Facie Examination: A quick, surface-level check—does the clause, on its face, look like an arbitration agreement? No evidence-taking, witnesses, or detailed arguments.
• Kompetenz-Kompetenz: The arbitral tribunal’s power to decide its own jurisdiction, including the existence or validity of the arbitration agreement (Section 16).
• Permissive vs. Mandatory Language: “May/Can” = optional, requires further consent; “Shall/Will” = mandatory, immediate obligation.

5. Conclusion

BGM & M-RPL-JMCT (JV) v. Eastern Coalfields Ltd. cements a twin principle:

1. A Section 11 court must indeed decide whether an arbitration agreement exists, albeit only prima facie.
2. A clause that only says disputes “may be referred” or that arbitration “may be sought” is not an arbitration agreement—it at best opens a door that parties must later choose to enter together.

The decision serves as a cautionary tale for contract drafters and litigants alike: clarity and firmness in arbitration clauses are indispensable. Any ambiguity will revert parties to the courtroom rather than the arbitral forum. By drawing a bright line, the Supreme Court advances both legal certainty and judicial economy, ensuring that India’s pro-arbitration stance is not diluted by imprecise drafting.