The Supreme Court in Mahanadi Coalfields Ltd. vs IVRCL AMR Joint Venture laid down that merely using words like “Arbitration” or “Arbitrator” does not make that document an Arbitration Agreement especially if it requires or contemplates a further or fresh consent of the parties for reference to arbitration.
The content of Clause 15 in question titled 'Settlement of Disputes/Arbitration' reads thus:
“15.1 It is incumbent upon the contractor to avoid litigation and disputes during the course of execution. However, if such disputes take place between the contractor and the department, effort shall be made first to settle the disputes at the company level. The contractor should make a request in writing to the Engineer-in-Charge for settlement of such disputes/claims within 30 (thirty) days of arising of the case of dispute/claim failing which no disputes/claims of the contractor shall be entertained by the company.
15.2 If differences still persist, the settlement of the dispute with Govt. Agencies shall be dealt with as per the Guidelines issued by the Ministry of Finance, Govt. of India in this regard. In case of parties other than Govt. Agencies, the redressal of the disputes may be sought in the Court of Law.”
It was noted that Section 2(b) of the 1996 Act defines an arbitration agreement to mean an agreement as referred to in Section 7. In terms of Section 7, an arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Sub-section (2) of Section 7 stipulates that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. In terms of sub-section (3) of Section 7, the arbitration agreement has to be in writing.
The Court further referred to the dictum laid down in Jagdish Chander v. Ramesh Chande, it stated that:
“8 (i) The intention of the parties to enter into an arbitration agreement shall have to be gathered from the terms of the agreement………. While there is no specific form of an arbitration agreement, the words used should disclose a determination and obligation to go to arbitration and not merely contemplate the possibility of going for arbitration. Where there is merely a possibility of the parties agreeing to arbitration in future, as contrasted from an obligation to refer disputes to arbitration, there is no valid and binding arbitration agreement…
(iv) .......... But 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……………. 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. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. 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.”
Therefore, the Court observed that in the present case, clause 15 of the Contract Agreement is titled “Settlement of Disputes/Arbitration”. However, the substantive part of the provision makes it abundantly clear that there is no arbitration agreement between the parties agreeing to refer either present or future disputes to arbitration.