Supreme Court of India.
Supreme Court: Use of ‘May Be’ in Arbitration Clause Not a Binding Agreement: New Delhi, India – July 19, 2025 – In a significant ruling that clarifies the interpretation of arbitration clauses in contracts, the Supreme Court of India has held that a provision merely stating that disputes “may be” referred to arbitration does not constitute a legally binding arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996. The apex court emphasized that such phrasing serves only as an enabling clause, allowing parties to opt for arbitration if they mutually agree, rather than mandating it.
A Bench comprising Justices PS Narasimha and Manoj Misra delivered the verdict in the case of BGM and M-RPL-JMCT (JV) vs Eastern Coalfields Limited. The Court asserted that the use of “may be sought” indicates the absence of a pre-existing, subsisting agreement to arbitrate. Instead, it implies that one or both parties would need to actively seek dispute settlement through arbitration, which would then require a fresh consensus. “It is just an enabling clause whereunder, if parties agree, they could resolve their dispute(s) through arbitration,” the Bench stated unequivocally.
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Justice PS Narasimha.
The ruling came in response to a challenge against a January 2024 order by the Calcutta High Court, which had dismissed an application for the appointment of an arbitrator under Section 11 of the Arbitration Act. The dispute originated from a contract between Eastern Coalfields Limited (ECL) and the appellant, a joint venture involving BGM, M-RPL, and JMCT, concerning the transportation and handling of goods.
The appellant had invoked Clause 13 of their contract, which outlined a two-stage dispute resolution process. Initially, disagreements were to be addressed internally with company officials. If unresolved, the matter would then be referred to a committee constituted by the owner. The crucial part of Clause 13, which became the subject of contention, 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.”
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Justice Manoj Misra.
The appellant contended that this wording provided either party with the option to initiate arbitration, and once exercised, it should become binding. However, both the Calcutta High Court and subsequently the Supreme Court disagreed with this interpretation. The top court meticulously examined the language of Clause 13, noting the absence of any words that would make arbitration mandatory. The Bench stressed that there was no language suggesting disputes “shall” be referred to arbitration, nor did it indicate that parties were agreeing, at the time of entering the contract, to arbitration as their chosen forum for dispute resolution.
“The phraseology of clause 13 is not indicative of a binding agreement that any of the parties on its own could seek redressal of inter se dispute(s) through arbitration,” the Court concluded, solidifying the principle that clear and mandatory language is imperative for an arbitration agreement to be legally enforceable. This decision provides crucial clarity for businesses and legal practitioners on drafting and interpreting dispute resolution clauses in contracts across India.
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