Mere Use Of Expression “Arbitration” Insufficient To Constitute A Binding Agreement U/S 7 Of A&C Act: Calcutta High Court

The Calcutta High Court bench of Justice Shampa Sarkar has held that mere use of the expression “Arbitration” in a clause will not automatically make the clause a binding arbitration agreement as contemplated under Section 7 of the Arbitration Conciliation Act, 1996 unless there is a clear intent to refer disputes to Arbitration. The court observed that an arbitration agreement has to be couched not in precatory, but obligatory words. Although, there is no particular form or universally practiced format in framing an arbitration agreement, but the words used must be certain, definite and indicative of the determination of the parties to go for arbitration and not a choice or a mere possibility to refer such dispute to arbitration. Brief Facts The petitioner entered into a contract with the respondent, National Projects Construction Corporation Ltd. (NPCCL) for reconstruction and upgradation of NH-717A in Sikkim under the General Conditions of Contract (GCC). Clause 76.0 of the GCC contained an arbitration clause. Disputes arose over the withholding of the running account bill, invocation of bank guarantees after termination, and non-refund of security deposits. The petitioner claimed that the third and final RA bill became due in February/March 2021. After issuing a notice invoking arbitration on 19.02.2022, and receiving no response from NPCCL, the petitioner approached the Court for appointment of an arbitrator. Contentions Mr. Probal Kumar Mukherjee, senior advocate for the petitioner, argued that Clause 76.0 of the GCC was a valid arbitration clause. He argued that the contract was a standard form drafted by NPCCL, leaving the petitioner no scope for negotiation. Mr. Basu, senior advocate for the respondents, countered that the claim was barred by limitation. He contended that the notice invoking arbitration was defective and that Clause 76.0 did not constitute a valid arbitration clause. Observations The court noted Clause 76 of the GCC, which reads as under: “76.0 ARBITRATION The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act 1996 (26 of 1996) or any statutory modifications or re-enactment thereof and the rules made there under and for the time being in force shall apply under this clause” The Court held that the said clause did not satisfy the definition of an arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996. It did not indicate that the parties had agreed to refer present and future disputes arising during or after the execution of the subject contract, to arbitration. It was thus not a dispute resolution clause. The Court observed that while courts should interpret clauses in line with “business common sense”, the GCC here was devoid of any indication that the parties intended arbitration. It held that a mere heading in a clause will not make the said clause an arbitration agreement. It further observed that even an inartistic or unworkable clause could be saved if there was clear intention, but here the intention itself was missing. The Court referred to Visa International Ltd. v. Continental Resources (USA) Ltd. (2009), where the Supreme Court held that parties cannot take advantage of poor drafting if the intention to arbitrate is clear. The Court however, held that it was neither a case of inarticulate drafting of an arbitration clause nor a case of ambiguity in the said clause. The Court noted Clause 73.3, which allowed NPCC to retain money until disputes were settled “either mutually by arbitration or by the competent court.” This clause gave only an option of arbitration and was not a binding arbitration agreement. The Court cited BGM and M-RPL-JMCT (JV) v. Eastern Coalfields Limited (2025), wherein the Supreme Court held: “Mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration…Any agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement.” The Court also noted that there was not a single clause which talked about dispute resolution. By mere use of the heading 'Arbitration' above clause 76, the said clause did not become a binding arbitration agreement. The intention of the parties to refer any or all disputes arising out of the concerned agreement to arbitration was absent. The Court referred to the judgment in Wellington Associates Ltd. vs. Kirit Mehta, where the Supreme Court observed that the clause which stated disputes “may be referred” to arbitration, was merely an enabling provision and was not a firm or mandatory arbitration clause or a binding arbitration agreement. It was held that fresh consent for arbitration was necessary when the clause used the...

Mere Use Of Expression “Arbitration” Insufficient To Constitute A Binding Agreement U/S 7 Of A&C Act: Calcutta High Court

Tazeen Ahmed

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Mere Use Of Expression “Arbitration” Insufficient To Constitute A Binding Agreement U/S 7 Of A&C Act: Calcutta High Court

Tazeen Ahmed

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