Arbitration Clause Cannot Be Considered Binding If Mandatory Arbitration Reference Is Missing: Calcutta High Court

The Calcutta High Court bench of Justice Shampa Sakar has held that if a clause in an agreement gives the parties discretion to refer the matter to arbitration after disputes have arisen, it cannot be construed as a binding arbitration agreement. Such invocation of the arbitration clause requires fresh consent of the other party before the matter can be referred to arbitration. Brief Facts: The lease deed was executed between Jiten Mondal, the respondent's predecessor (husband), and Sunil Kumar Samanta (petitioner) for a term of 21 years. Jiten Mondal passed away on June 26, 2013. Although the lease expired on August 15, 2022, the respondent allegedly began creating disturbances and sought to evict the petitioner. The lease included a renewal clause. The petitioner, through her advocate, exercised the renewal option via a letter dated August 21, 2021. The respondent, through her advocate, denied the renewal, leading to disputes. The lease deed also contains an arbitration clause. The Petitioner submitted that the said clause is a binding arbitration clause and the dispute should be referred to arbitration. The respondent failed to renew the lease, which gives rise to a dispute. Observations: The court at the outset observed that the arbitration clause provides that the lessor will be bound to renew the lease for subsequent periods of the same tenure if the lessee exercises the option, and the rent and terms shall be mutually agreed upon. In case of failure to agree, it may be decided by an arbitrator appointed by the parties. It further added that the use of the expression may indicates that the parties had agreed that they may approach arbitration in future. May implies a possibility, not a binding agreement. The meeting of minds to refer disputes to arbitration is not evident from the clause. An arbitration clause must show that parties agreed they shall refer disputes to arbitration and be bound by the decision of a private tribunal. The Supreme Court in Jagdish Chander Vs. Ramesh Chander and Ors. (2007) held that if such dispute/s cannot be resolved by the designated personnel within 30 days, the same "may" be referred to Arbitration, thereby clearly making it optional to refer the disputes to Arbitration, in contrast to the earlier mandatory agreement to refer the disputes for amicable settlement to the designated personnel of each party . Similarly, the Supreme Court in GTL Infrastructure Ltd. vs Vodafone India Ltd. (VIL) held that ultimately, the position of law discerned from authoritative pronouncements is that the word 'may', however conclusive, signifies only a possibility or discretion to refer disputes to arbitration. The court further held that its use does not establish an arbitration agreement but merely contemplates a future choice. It provides an option to agree or not to arbitration, removing any element of compulsion and necessarily requiring future consent for reference to arbitration. The court noted that the Delhi High Court in M/S Linde Heavy Truck Division Ltd vs Container Corporation of India Ltd & Anr. while interpreting a clause of the same nature held that this clause does not reflect a firm determination or binding obligation on the parties to resolve disputes through arbitration. It merely gives either party the option to seek arbitration, subject to the other's acceptance. It further added that as held by the Supreme Court in Jagdish Chander (supra), if the agreement requires or contemplates further consent for arbitration, it does not constitute an arbitration agreement. The Court held that where parties state they may refer disputes to arbitration, it does not amount to a binding arbitration agreement. Accordingly, the present application was dismissed. Case Title: Sunil Kumar Samanta Vs. Smt. Sikha Mondal Case Number: AP/15/2022 Judgment Date: 07/04/2025 Ms. Mayuri Ghosh, Adv. Ms. Somali Bhattacharya, Adv. Ms. Megha Das, Adv. …for petitioner. Click here to download Order/Judgement

Arbitration Clause Cannot Be Considered Binding If Mandatory Arbitration Reference Is Missing: Calcutta High Court

Mohd Malik Chauhan

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