Clause Captioned As “Arbitration”, Doesn’t Conclusively Imply Mandatory Nature Of Arbitration: Bombay High Court
The Bombay High Court has ruled that the use of the word ‘can’ in the relevant clause has the effect of qualifying Arbitration as a mode of settlement, and the mere fact that a particular clause is captioned as “Arbitration”, does not conclusively imply the mandatory nature of arbitration when the option is left to the parties to settle their disputes through the mode...
The Bombay High Court has ruled that the use of the word ‘can’ in the relevant clause has the effect of qualifying Arbitration as a mode of settlement, and the mere fact that a particular clause is captioned as “Arbitration”, does not conclusively imply the mandatory nature of arbitration when the option is left to the parties to settle their disputes through the mode of arbitration.
The bench of Justice Bharati Dangre observed that in cases involving debatable and disputable facts, the Court would force the parties to abide by the arbitration agreement as the Arbitral Tribunal has primary jurisdiction to decide the issue regarding its jurisdiction. However, in the present case, in view of use of the word ‘can’, it was manifestly and ex-facie certain that there was no arbitration agreement between the parties to mandatorily refer the dispute for arbitration, the Court said.
The applicant, Nagreeka Indcon Products Pvt Ltd, entered into an Agreement with the respondent, Cargocare Logistics (India) Pvt Ltd, who is engaged in the transportation and shipping business, for delivery of certain consignments. After certain disputes arose between the parties relating to the delivery of a container, the applicant issued a notice invoking the arbitration clause contained in the Bill of Lading.
The respondent, in its reply to the legal notice, contended that the said clause did not provide arbitration as a mandatory mode of dispute resolution, in view of use of the words “can be settled”.
Consequently, the applicant filed an application under Section 11(5) of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Bombay High Court seeking appointment of the Sole Arbitrator.
The High Court observed that Section 7(1) of the A&C Act makes it manifestly clear that there must be an agreement between the parties to submit the dispute to arbitration, which necessarily presupposes an agreement which mandatorily contemplates appointment of an Arbitrator.
Where there is merely a possibility of the parties agreeing to arbitration in future in contrast to an obligation indicating the intention of the parties to refer the dispute to arbitration, there is no valid and binding arbitration agreement, the Court said.
“In the present case the word used “can” is indicative of the possibility or the ability to do something. It indicates that one can and will do something. In contrast of use of the word “shall” which is indicative of certainty that is it must happen or that ‘you are determined that something will happen’,” said the bench.
Noting that the relevant clause in the bill of lading had used the term “can be settled”, the Court ruled that the same leaves an option for settlement of disputes by the mode of arbitration.
Thus, the word ‘can’ has qualified Arbitration as a mode of settlement, the Court held. It also reckoned that the said clause has been further qualified by an option of having the arbitration either in India or a place mutually agreed between the parties.
The bench concluded that the choice being left open to the parties to have the disputes settled through arbitration, is not equivalent to the parties mutually agreeing that they “shall” refer themselves to arbitration.
“The mere caption of a particular clause “Arbitration” do not conclusively imply the mandatory nature of arbitration when the option is left to the parties to settle their disputes through arbitration. The definite and explicit intention of the parties unmistakenly and unequivocally agreeing that if the dispute arise between the parties, it shall be settled by arbitration, is not discerned from the concerned clause,” the Court ruled.
The Court reiterated that at the stage of considering a Section 11 petition, all that is required to be examined is whether or not an arbitration agreement exists between the parties which is relatable to the dispute in hand.
Further, it observed that in view of the Apex Court’s decision in Vidya Drolia vs. Durga Trading Corporation & Ors. (2020), the issue regarding the existence of an “arbitration agreement” in a Section 11 petition would also include the aspect of validity of the arbitration agreement, to be determined on a prima facie basis. Also, only in case of debatable and disputable facts, the Court would force the parties to abide by the arbitration agreement as the Arbitral Tribunal has primary jurisdiction and authority to decide the question of jurisdiction and non-arbitrability, the Court took note.
The bench, however, held that in the present case, it was manifestly and ex-facie certain that there is no agreement between the parties to mandatorily refer the dispute for arbitration.
“I am of the view that Arbitration clause, which had used the word ‘can’, do not make it imperative for the parties to be referred for arbitration and specifically when the Respondent has refused to be referred for arbitration, in the wake of the choice being available, in terms of the clause contained in the agreement,” the bench ruled.
The Court thus dismissed the petition.
Case Title: Nagreeka Indcon Products Pvt Ltd vs. Cargocare Logistics (India) Pvt Ltd
Dated: 23.02.2023
Counsel for the Applicant: Mr. Amit Singh a/w Shivani Deshmukh and Kabeer Pansare i/b Abhay Nevagi & Associates
Counsel for the Respondent: Mr. Dhruva Gandhi a/w Sneha Pandey i/b Motiwalla & Co.