Introduction
Under Section 7 of the Arbitration and Conciliation Act, 1996, the Supreme Court ruled that a statement that parties “may” refer disputes to arbitration is not a legally binding arbitration agreement. This ruling significantly clarifies the Indian judiciary’s position on arbitration.In the case of BGM AND M-RPL-JMCT (JV) v. Eastern Coalfields Limited, the bench led by Justices B.R. Gavai, P.S. Narasimha, and Manoj Misra in the matter of BGM AND M-RPL-JMCT (JV) v. Eastern Coalfields Limited, puts strong emphasis on clear words while drafting arbitration clauses.
Background
The dispute was of a contract between the appellant joint venture (BGM AND M-RPL-JMCT) and Eastern Coalfields Limited concerning the handling and transport of goods.The appellant requested arbitration under the Arbitration and Conciliation Act, 1996, and invoked Clause 13 of the General Terms and Conditions annexed to the e-tender in order to resolve any contractual disputes.
A multi-level grievance redressal procedure was provided by Clause 13. It included company-level internal negotiations, and as a next step, reference to the higher authorities like the Area CGM/GM or the nominated committees. Where disputes concerned parties other than government organizations or CPSEs, the clause said that disputes “may be redressed” under the Arbitration Act.
The appellant, asserting that this was a proper arbitration clause, filed an application under Section 11(6) of the Act for the appointment of an arbitrator. The Calcutta High Court rejected the plea, after which the appellant went to the Supreme Court.
Major Legal Questions Before the Supreme Court
Jurisdiction of Courts under Section 11 of the 1996 Act – Whether the referral court should decide whether an arbitration agreement is in existence or leave that to the arbitral tribunal under Section 16.
Validity of Clause 13 as an Arbitration Agreement – Whether the language of Clause 13 complies with the provisions of a binding arbitration agreement under Section 7 of the 1996 Act.
Effect of Clause 32 (Jurisdiction Clause) – Whether an independent clause conferring jurisdiction to civil courts disavows the existence of an arbitration agreement.
Supreme Court’s Observations
Regarding Jurisdiction of Referral Courts:
Referring to the decision of the Constitution Bench in Vidya Drolia v. Durga Trading Corporation, the Court reminded that Section 11 referral courts can undertake only a prima facie examination to find out whether an arbitration agreement is present or not. They are not to hold a trial but decline reference only when the non-existence of such an agreement is evident.
On the Meaning of the Term “May” in Clause 13:
The Court was careful to state that in Section 7 of the Arbitration and Conciliation Act, 1996, the arbitration agreement which is valid must be a clear, mutual commitment on the part of the parties to refer the dispute to arbitration. Phrases such as “may refer,” “may agree,” or “should consider” do not mean a commitment, but only a possibility.
Referring to precedents such as Jagdish Chander v. Ramesh Chander and Mahanadi Coalfields Ltd. v. IVRCL AMR Joint Venture, the Court held that such indulgent language does not have the obligatory intent that is necessary to constitute an arbitration agreement.
In regard to Clause 32 – Jurisdiction Clause:
Although the clause provided jurisdiction to district courts, the Court held that such clauses do not, in themselves, exclude the presence of an arbitration agreement. But as Clause 13 was not a valid arbitration agreement, the jurisdiction clause became immaterial.
Recent Development
The Supreme Court rejected the appeal, confirming the Calcutta High Court’s opinion that Clause 13 was not a valid arbitration agreement. The Court explained that parties wishing to depend on arbitration should employ plain and mandatory language in their agreements. Intention or possibility in the future is not enough.
Conclusion
This ruling provides fundamental direction on how to draft arbitration clauses for commercial contracts. It clarifies that uncertain or permissive wording such as “may” cannot form binding obligations. Parties who actually intend to arbitrate need to convey that intent in definite, certain, and obligatory language. The Supreme Court decision enhances the tenet that arbitration is a question of consent, not assumption or interpretation. This ruling serves as a powerful reminder to legal draftsmen and business organizations to carefully design dispute resolution clauses in order to steer clear of expensive litigation on their enforceability.
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WRITTEN BY AYUSHI TRIVEDI
