Clause Saying 'Can Be Settled By Arbitration' Does Not Create Mandate To Arbitrate : Supreme Court

The Supreme Court on Friday (April 17) held that an arbitration clause employing the word “can” does not constitute a binding arbitration agreement.

A bench of Justice Sanjay Karol and Justice N. Kotiswar Singh dismissed an appeal filed against the Bombay High Court's decision, which held that Clause 25 of the Bill of Lading containing the arbitration agreement lacked the essential attributes of a valid arbitration agreement as it stated that the dispute 'can be settled by arbitration'.

“…the words used in the agreement should disclose a determination and obligation to go for arbitration and not only provide for the possibility of going to arbitration. When the word provides only a possibility, the same does not constitute a valid arbitration agreement.”, the court endorsed the observation made in Jagdish Chander v. Ramesh Chander, 2007 (5) SCC 719.

Reference may also be made to the recent judgment of Alchemist Hospitals Ltd. v. ICT Health Technology Services India (P) Ltd., 2025 LiveLaw (SC) 1070, where the Court tried to connect the analogy that “mere use of the word 'arbitration” is not sufficient to treat the clause as an arbitration agreement when the corresponding mandatory intent to refer the disputes to arbitration and the consequent intent to be bound by the decision of the arbitral tribunal is missing.”

In essence, the Court said that the words used in the contract play a prominent role in ascertaining the parties' intention to adjudicate the dispute via arbitration. Applying the law, the Court held that Clause 25 of the Bill of Laden would not constitute an arbitration clause, as it doesn't mandate arbitration.

Accordingly, the appeal lacking merit was dismissed.

Headnote

Arbitration and Conciliation Act, 1996 – Section 7 and Section 11 – Validity of Arbitration Clause – Interpretation of the word 'can' – Held: An arbitration clause stating that disputes "can" be settled by arbitration does not constitute a mandatory or binding arbitration agreement - The word 'can' in this context signifies a factual possibility or a choice available to the parties, rather than a definitive mandate to refer all disputes to arbitration.

Mandatory vs. Permissive Clauses – Requirement of Fresh Consent – Held: For a clause to be a valid arbitration agreement, it must disclose a determination and obligation to go for arbitration - Clauses that require or contemplate further/fresh consent of the parties at the time a dispute arises indicated by language such as "parties can" or "if they so agree" are merely agreements to enter into an arbitration agreement in the future and are not enforceable as binding mandates.

Party Autonomy and Contractual Interpretation – Held: The written word is the foundation of legal obligation - To disregard the chosen language of the parties and impute a mandatory obligation where none was intended would compromise party autonomy - Since the respondent refused to refer the matter to arbitration and the clause provided a choice rather than a mandate, the High Court's dismissal of the Section 11 application is upheld. [Relied on Jagdish Chander v. Ramesh Chander (2007) 5 SCC 719; Paras 7-13]

Cause Title: NAGREEKA INDCON PRODUCTS PVT. LTD. VERSUS CARGOCARE LOGISTICS (INDIA) PVT. LTD.

Citation : 2026 LiveLaw (SC) 388

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Appearance:

For Petitioner(s) :Mr. Deepak Nargolkar, Sr. Adv. Mr. Krishan Kumar, AOR Mr. Abhay Nevagi, Adv. Mr. Nitin Pal, Adv. Mr. Hitesh Choudhary, Adv. Mr. Aziz Hasan, Adv.

For Respondent(s) :Mr. Rohan Ganpathy, AOR