Parties Must Clearly State Intention To Arbitrate Within Agreement, Usage Of Words Such As 'May,' 'If', Or 'But' Not Unequivocal: Calcutta HC

The Calcutta High Court has recently held that parties to an arbitration agreement must clearly state their intention to arbitrate through a resounding yes and there cannot be any ifs and buts or an undecided mumble.

A single bench of Justice Moushumi Bhattacharya while dismissing a plea for appointment of an arbitrator under Section 11 of the Arbitration & Conciliation Act, 1996, held:

Section 11 of the 1996 Act is one of the earlier interventions by a Court on the presumption of the existence of an arbitration clause. The Court must hence ensure the existence of an arbitration agreement before flagging of the road to the award and beyond. The parties cannot set forth on the procedural journey if there is no arbitration agreement. In the present case, the arbitration agreement muddies the waters with regard to the immediate and unequivocal reference of the dispute to arbitration. The word “may” in the relevant part of the clause gives an option to the parties to either refer the dispute to arbitration or hold back on the arbitration. The word “may” makes the clause conditional on a future event/s or to the other parts of the clause and gives the parties the option to resile from the clause. 

Brief facts

The petitioner had approached the Court seeking the appointment of an arbitrator by relying on Clause 13 of the General Terms & Conditions (GCC) of an e-Tender notice dated 2019, issued by the respondent Eastern Coalfields Limited (ECL) for the removal and transportation of material for a project at Nakrakonda – Kumardih.

It was submitted that the dispute arose after the petitioner had been engaged as a contractor and allegedly revolved around the disagreement of the parties on changes made to the price component of the contract.

Counsel for the respondent raised a question on the maintainability of the plea. It was argued that Clause 13 did not constitute an arbitration agreement. 

Court's findings

The Court looked at the case records and evidence and noted that the parties, as per the GCC were obliged to resolve disputes in two stages. 

It considered whether the word "may" used in Clause 13 would be construed to be an arbitration agreement under Section 7 of the 1996 Act.

Presence of the word “may” in the arbitration clause in the matter at hand is required to be tested against mindset of the parties to the agreement. Parties consenting to arbitration including to the mode and mechanism of the procedure forms the mainstay of the 1996 Act, it said.

In relying on the Apex Court judgment in Jagdish Chander vs. Ramesh Chander; (2007), it held that the parties must be clear of their intention to arbitrate and ensure the same was expressed in writing within the arbitration agreement; there could not be any room for doubt or second-guessing, the Court said.

While looking at the nature of Section 11, the Court held that such an intervention by the Court in appointing an arbitrator would presume the existence of a valid arbitration clause and that in this case, with the presence of the clause itself having been muddled due to the use of a vague reference such as "may," there could not be a definite conclusion on the intention of the parties to arbitrate. 

It was also found that the absence of the arbitration agreement had been urged by the respondent before the Commercial court as well as before a coordinate division bench. 

There are also no attending circumstances in the present case by way of correspondence or otherwise which would show that the parties intended to refer the dispute to arbitration even if the clause says otherwise, the Court said.

Accordingly in holding that Clause 13 of the GCC did not represent an arbitration agreement, the Court observed that the petitioner would not be left remedyless due to the presence of Clause 32 which allowed an aggrieved party to approach the jurisdictional court. It concluded:

It is important that contractors / parties engaging with public sector undertakings / Government Companies be made aware of the words used in the arbitration clause which have the effect of negating the arbitration agreement altogether. In many cases, the contractor does not have a say in the drafting of these clauses and it is hence all the more necessary for the parties to be put on notice and guard themselves against vague or uncertain dispute resolution clauses. 

Citation: 2023 LiveLaw (Cal) 24

Case: BGM and M-RPL-JMCT (JV) v Eastern Coalfields Limited 

Case No: AP 745 of 2023

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