The Supreme Court recently ruled that a contract clause which merely states that the disputes 'may be' resolved through arbitration does not amount to an arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996 [BGM and M-RPL-JMCT (JV) vs Eastern Coalfields Limited]
A Bench of Justices PS Narasimha and Manoj Misra said that the use of the phrase "may be sought" implies that there is no subsisting agreement between parties and that they, or any one of them, would have to seek the settlement of disputes through arbitration.
"It is just an enabling clause whereunder, if parties agree, they could resolve their dispute(s) through arbitration,” the Bench held.
The Bench was hearing a challenge to a January 2024 order of the Calcutta High Court that had dismissed an application for appointment of an arbitrator under Section 11 of the Act.
The litigation arose from a contract awarded by Eastern Coalfields Limited (ECL) to the appellant, a joint venture comprising BGM, M-RPL and JMCT for the transportation and handling of goods.
The appellant invoked Clause 13 of the contract, which contained provisions for the settlement of disputes, and filed a petition under Section 11(6) seeking the appointment of an arbitrator.
Clause 13 provided for a two-stage dispute resolution process. First, the dispute was to be taken up internally with the officials of the company. If differences still remained, the dispute was to be referred to a committee constituted by the owner.
The relevant part of clause 13 read,
“In case of parties other than Govt. Agencies, the redressal of the dispute may be sought through Arbitration and Conciliation Act, 1996 as amended by Amendment Act of 2015.”
The appellant argued that this wording gave either party the option to invoke arbitration, and once that was done, it became binding.
Advocates Shubhabrata Dutta, Sunando Raha, Subhojit Seal, Sk Sayan Uddin, Vikalp Gupta, Shruti Bist, Anna Oommen, Akash Singh Rana, and Piyush Malik, along with Advocate-on-Record Kunal Malik, appeared for the petitioners.
On the respondent's side, Advocate-on-Record R. Venkat Prabhat and Advocate Daksh Pandit appeared.
[Read Judgment]