Clause Saying ‘Can Be Settled By Arbitration’ Does Not Create Mandate To Arbitrate : Supreme Court
The Supreme Court has recently held that an arbitration clause framed as “can be settled by arbitration” does not create a mandatory obligation to arbitrate; it merely indicates a possibility of arbitration and not a binding arbitration agreement.
What the Court held
-
The Bench of Justice Sanjay Karol and Justice N. Kotiswar Singh dismissed an appeal against the Bombay High Court, which had held that a clause 25 in a Bill of Lading (“Any difference of opinion or dispute thereunder can be settled by arbitration in India or a place mutually agreed with each party appointing an arbitrator”) did not amount to a valid, enforceable arbitration clause.
-
The Court reiterated settled dicta (e.g., Jagdish Chander v. Ramesh Chander, 2007, and Alchemist Hospitals Ltd. v. ICT Health Technology Services India (P) Ltd., 2025) that the words in an agreement must show a clear and binding intention to refer disputes to arbitration; phrases like “can be settled by arbitration” indicate only a future possibility, not a mandate.
Key legal principle
-
The Supreme Court emphasised that permissive language (e.g., “can”, “may”) falls short of creating a binding arbitration agreement under the Arbitration and Conciliation Act, 1996, because it leaves the parties free to choose other dispute‑resolution mechanisms, including civil courts.
-
The test is the parties’ true intention: if the clause only enables arbitration as an option, it cannot be invoked to compel a reluctant party to arbitrate; compulsion requires mandatory language such as “shall be referred to arbitration” or similar unambiguous terms.
Practical takeaway for drafters and litigators
-
For a clause to be enforceable, parties should use mandatory language (for example, “shall be referred to arbitration” with a specified seat, rules, and mode of appointment of arbitrator), rather than permissive or enabling wording.
-
Courts will closely scrutinise the exact phrasing: if the wording suggests that arbitration is merely a contingent or optional route, they will uphold the right of a party to resort to litigation instead.
