\n<\/p>\n
[This guest post is authored by Raghav Agrawal, a third-year B.A., LL.B. (Hons.) student at Hidayatullah National Law University, Naya Raipur]<\/em><\/strong><\/p>\n One of the mistakes in corporate drafting today is to include \u201ccan\u201d or \u201cmay\u201d in a clause that addresses the dispute resolution mechanism, with the intention of improving out-of-court options. However, the\u00a0Supreme Court of India<\/a>\u00a0in\u00a0Nagreeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd.<\/a>\u00a0(Nagreeka<\/em><\/strong>) dealt a decisive blow to contract drafters by strictly enforcing a textualist approach to interpreting arbitration agreements. This approach dictates that courts must prioritise the literal, ordinary grammatical meaning of the explicit words chosen by the parties over any unexpressed commercial intentions. Applying this, the Court emphasised that no intention to be bound by an arbitration agreement can be derived from the permissive verb \u2018can\u2019 as required in\u00a0Section 7 of the Arbitration and Conciliation Act, 1996<\/a>\u00a0(\u2018the Act\u2019).<\/p>\n The Supreme Court\u2019s judgement clarifies the literal meaning of the law, but also reveals gaps in its conceptual foundations. The decision effectively means that a permissive clause is a dead letter and thus vitiates the prima facie need for judicial review as provided under\u00a0Section 11 of the Act<\/a>. In practice, the ruling forces commercial parties into protracted court litigation, forgoing the faster resolution that ADR promises. This systemic shortcoming requires the development of an accurate and well-tuned interpretive system that accounts for party autonomy while respecting the State\u2019s pro-arbitration policy.<\/p>\n Factual matrix\u00a0<\/strong><\/p>\n The question before the Supreme Court was whether a court exercising jurisdiction under\u00a0Section 11 of the Act<\/a>\u00a0may appoint an arbitrator where the dispute resolution clause uses permissive phrasing such as \u2018can\u2019 or \u2018may\u2019 rather than mandatory language The dispute was based on a contract of affreightment that the respondent logistics company had entered into, to transport goods to the USA, but delivered the fifth consignment to the buyer without production of the original bill of lading, causing the appellant financial loss.\u00a0The appellant relied upon Clause 25, which provided that \u201c\u2026[a]ny difference of opinion or dispute thereunder can be settled by arbitration in India or a place mutually agreed with each party appointing an arbitrator<\/em>\u201d.\u00a0The appellant subsequently approached the Bombay High Court under Section 11. The High Court rejected the application on the ground that there was no \u2018mandatory intent\u2019 to arbitrate.\u00a0<\/p>\n In the appeal, the Supreme Court upheld the literal interpretation and stated that Clause 25 is not a valid or binding arbitration agreement under Section 7 of the Act. However, the Court noted that the word \u201ccan\u201d is a modal verb that in its normal usage indicates only a capability, a permission, or a future possibility that is factual, but not a mandatory obligation as indicated by the word \u201cshall\u201d. The Supreme Court pointed out that an option clause is simply a draft provision that considers the possibility of trying other avenues. It is not judicially enforceable, since fresh consent to arbitrate is required once a dispute ripens.<\/p>\n The Supreme Court\u2019s literal interpretation raises serious structural issues in the Indian pro-arbitration regime.\u00a0The Supreme Court found that the word \u201ccan\u201d indicates \u201cthe power or option to do something\u201d rather than \u201ca thing that is legally required.\u201d\u00a0The Supreme Court relied on\u00a0Jagdish Chander v. Ramesh Chander<\/a>\u00a0<\/em>[(2007) 5 SCC 719]\u00a0and determined that such an expression of permissiveness would indicate a future, but not a present, right to arbitration, which would mean that fresh consent has to be obtained when a dispute arises.\u00a0The Court further underscored that courts may not add mandatory intent absent from the text.<\/p>\n The Supreme Court decided to consider Clause 25 a non-binding \u201cagreement to agree\u201d because it placed the formal grammar of the contract ahead of any commercial significance and took into account the structural problems, such as the absence of a mechanism for appointing a presiding third arbitrator \u2014 a requirement under Section 10 of the Act.\u00a0This two-pronged finding (permissive language plus structural defect) distinguishes\u00a0Nagreeka<\/em>\u00a0from cases like\u00a0Enercon (India) Ltd. v. Enercon GmbH<\/a>\u00a0[(2014) 5 SCC 1], where the intent to arbitrate was unambiguous.\u00a0<\/p>\n Loopholes and Challenges<\/strong><\/p>\n The Supreme Court\u2019s analysis of \u201ccan\u201d and willingness to override an arbitration clause is a departure from the clear legislative intent behind the Act. This directive is, in essence, a broken alternative dispute resolution mechanism, in which an option-oriented clause is treated as a nullity. This approach does not acknowledge the principles of party autonomy and judicial non-intervention that are envisaged by\u00a0Section 5 of the Act<\/a>. This is in contrast to\u00a0Smt. Rukamanibai Gupta v. Collector, Jabalpur<\/a>\u00a0[(1980) 4 SCC 556], where the mandatory intent to exclude civil courts was established not by grammatical precision, but by the overall structure and tenor of the dispute resolution clause.\u00a0<\/p>\n A further concern is how courts ought to calibrate their response to textually deficient arbitration clauses.\u00a0Proportionality<\/a>calls for first using process-compatible, curative tools to resolve drafting ambiguities, and only invalidating the entire contract if there is a \u201ctotal absence of any intent to arbitrate\u201d. However,\u00a0Nagreeka<\/em>\u00a0permits any referral to be disrupted on a single contested word. The Supreme Court declined to go beyond the clause in\u00a0Section 11<\/a>\u00a0and adopt a more-than-grammatical, resolution-oriented approach.<\/p>\n Finally, the use of \u201ccan\u201d as meaning \u201cagreement to agree\u201d in the future demonstrates a proportionality concern as well. The Supreme Court\u2019s reasoning in the case is contrary to the approach taken in\u00a0In re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 & the Stamp Act, 1899<\/em><\/a>\u00a0[(2024) 6 SCC 1], which characterised contractual validity risks as process-internal issues. Under Interplay, a prima facie visual check sufficed; yet the Court conducted granular textual analysis of \u201ccan\u201d, effectively elevating a stylistic question into a threshold jurisdictional bar.<\/p>\n The Act provides for the resolution of doubts arising from the interpretation of the arbitral provisions by giving the tribunal the power to determine its own jurisdiction in\u00a0Section 16.<\/a>\u00a0Interpretation of an arbitration clause should work towards maintaining the \u201cprocedural continuity\u201d of the arbitral tribunal \u2013 and not by a\u00a0Section 11<\/a>\u00a0court acting prematurely, in keeping with the principle of\u00a0Kompetenz-Kompetenz<\/em><\/a>.<\/p>\n The entanglements of international shipping and logistics regulations, in which commercial enterprises find themselves caught, illustrate the transaction costs imposed by this judgment. In\u00a0Jagdish Chander v. Ramesh Chander<\/a>\u00a0[(2007) 5 SCC 719], cited above, the Supreme Court held that words such as \u201cparties can, if they so desire, refer their disputes to arbitration\u201d do not constitute a binding arbitration agreement as they contemplate a further, fresh consent. The Supreme Court in Nagreeka applied this directly to Clause 25 as this case was the respondent\u2019s primary authority, not a pro-arbitration proposition. If the arbitral option is terminated at the Section 11 stage, those systemic protections are lost, and commercial parties face the protracted civil proceedings that ADR was meant to alleviate.<\/p>\n Way Forward<\/u><\/strong><\/p>\n The tension between the contrasting goals of text-centric gatekeeping and contractual continuity must be mitigated through an innovative and nuanced approach to interpreting laws that takes into account the shortcomings in the contracts, while not hindering other mechanisms of dispute resolution. The answer is to establish a multi-layered review system for permissive clauses in Section 11 of the Act based on the approach of established international arbitral seats such as London and Singapore. This strict literalist reading of \u201ccan\u201d should be replaced by an option-mutation approach drawing on comparative jurisprudence. The\u00a0Privy Council<\/a>\u00a0in\u00a0Anzen Ltd v Hermes One Ltd<\/a>\u00a0[2016] UKPC 1 held that such wording as \u201cmay\u201d creates a unilateral option to elect arbitration, not a binding agreement to arbitrate in the first instance \u2014 either party could commence litigation<\/em>. Once either party makes an unequivocal election to arbitrate, the clause becomes operative and litigation is stayed \u2014 without requiring fresh consent from the other party. This reframing \u2014 from outright invalidity to curative election \u2014 would allow a tribunal to resolve drafting ambiguities without defeating the parties\u2019 shared intent to arbitrate.<\/p>\n This option-mutation approach fits into the existing statutory structure of the Act, and can be implemented through three process-integrated safeguards. First, the fact that\u00a0Section 7(1)<\/a>\u00a0imposes an obligation to submit disputes to arbitration does not imply that the obligation must be unconditional at the time the contract is signed. An optional clause satisfies Section 7 once one party unilaterally issues an invocation notice electing arbitration.\u00a0Lastly, it is important to remember that the inquiry of the Section 11 court should be limited to the\u00a0prima facie<\/em>\u00a0visual existence of the clause as per the legislative objective of the\u00a02015<\/a>\u00a0and\u00a02019<\/a>\u00a0amendments. Complex issues, including interpretation of \u201ccan\u201d or \u201cmay\u201d in an arbitration agreement or the true intent of the parties, should be left to the specialised skill of the arbitral tribunal as required by the \u201cKompetenz-Kompetenz<\/a>\u201d mandate in\u00a0Section 16<\/a>.\u00a0\u00a0<\/p>\n ***<\/p>\n<\/p><\/div>\n\n","protected":false},"excerpt":{"rendered":" [This guest post is authored by Raghav Agrawal, a third-year B.A., LL.B. (Hons.) student at Hidayatullah National Law University, Naya Raipur] One of the mistakes in corporate drafting today is to include \u201ccan\u201d or \u201cmay\u201d in a clause that addresses the dispute resolution mechanism, with the intention of improving out-of-court options. However, the\u00a0Supreme Court of […]<\/p>\n","protected":false},"author":1,"featured_media":364185,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[112560,185580,185581,103321],"tags":[27371,185584,43633,4691,185583,24717,185582,32688],"dealstore":[],"offerexpiration":[],"class_list":["post-364184","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-arbitration","category-intention-to-arbitrate","category-section-11","category-supreme-court","tag-arbitration","tag-cargocare","tag-clause","tag-effect","tag-indcon","tag-logistics","tag-nagreeka","tag-unpacking"],"yoast_head":"\n