Calcutta HC Emphasizes Clarity in Arbitration Agreements: ‘May,’ ‘If,’ or ‘But’ Not Acceptable

LI Network

Published on: January 22, 2024 at 19:23 IST

In a recent judgment, the Calcutta High Court underscored the necessity for parties entering into arbitration agreements to express a clear and unambiguous intention to arbitrate.

Justice Moushumi Bhattacharya, presiding over a single bench, rejected a plea for the appointment of an arbitrator under Section 11 of the Arbitration & Conciliation Act, 1996.

The Court emphasized that Section 11 of the 1996 Act, a preliminary intervention by the court presuming the existence of an arbitration clause, requires an unequivocal arbitration agreement.

Justice Bhattacharya highlighted that the procedural journey should not commence without a definite arbitration agreement in place.

In this specific case, the Court found ambiguity in the arbitration agreement, particularly in the use of the term “may,” which grants the parties the option to either refer the dispute to arbitration or withhold it.

The petitioner had sought the appointment of an arbitrator based on Clause 13 of the General Terms & Conditions (GCC) in an e-Tender notice issued by Eastern Coalfields Limited (ECL) for a project at Nakrakonda – Kumardih. The dispute arose from changes made to the contract’s price component after the petitioner was engaged as a contractor.

The Court, scrutinizing the case records and evidence, determined that the parties were obligated to resolve disputes in two stages as per the GCC.

It deliberated on whether the term “may” in Clause 13 could be construed as an arbitration agreement under Section 7 of the 1996 Act.

Referring to the precedent set in Jagdish Chander vs. Ramesh Chander (2007), the court asserted that parties must express a clear intention to arbitrate in writing within the arbitration agreement, leaving no room for doubt or speculation.

Examining the nature of Section 11, the Court noted that appointing an arbitrator presupposes a valid arbitration clause. However, due to the vague reference of “may” in the clause, the court couldn’t conclusively determine the parties’ intention to arbitrate.

The respondent argued that Clause 13 did not constitute an arbitration agreement, and the court concurred, observing that the petitioner could seek recourse through Clause 32, which allowed approaching the jurisdictional court.

The Court’s decision highlighted the importance of contractors and parties dealing with public sector undertakings or government companies being vigilant about the language used in arbitration clauses.

The ruling emphasized the need for clarity in such agreements to prevent negation of the arbitration process.

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