The Supreme Court has clarified that a contractual clause merely stating disputes “can be settled by arbitration” does not automatically bind parties to arbitrate. Such language, the Court held, reflects only a possibility—not a firm commitment.
A bench comprising Justices Sanjay Karol and N. Kotiswar Singh dismissed an appeal challenging a decision of the Bombay High Court. The dispute centered on Clause 25 of a Bill of Lading, which mentioned that disagreements “can be settled by arbitration.” The Court found that the clause lacked the essential ingredients of a valid arbitration agreement because it did not impose a mandatory obligation to arbitrate.
Emphasizing the importance of precise wording, the Court observed that an arbitration clause must reveal a clear determination by parties to resolve disputes through arbitration. If the language merely leaves room for arbitration as one of several options, it falls short of creating a binding mechanism.
The bench endorsed earlier observations that a valid arbitration agreement must reflect a definite intention to refer disputes to arbitration and to be bound by the tribunal’s decision. A clause that only signals a potential route, without imposing obligation, does not meet that threshold.
Reiterating the principle, the Court noted that contractual language plays a decisive role in discerning parties’ intent. Since the clause in question did not mandate arbitration, it could not be treated as an enforceable arbitration agreement.
Finding no merit in the challenge, the Court dismissed the appeal.
