18 July 2025 Civil Appeals >> Civil & Consumer Law  

In a recent civil appeal decided by the Supreme Court of India on July 18, 2025, the court addressed a dispute between BGM & M-RPL-JMCT (JV) (the appellant) and Eastern Coalfields Limited (the respondent). The core issue revolved around whether a specific clause in their contract constituted a valid and binding arbitration agreement. The case, Civil Appeal No. of 2025, arose from a special leave petition (C) Diary No. 21451 of 2024 and was presided over by Justice Pamidighantam Sri Narasimha and Justice Manoj Misra. The judgment was authored by Justice Manoj Misra.

The dispute originated from a contract for the transportation and handling of goods. During the contract's term, disagreements arose between the parties. The appellant's application to the High Court at Calcutta for the appointment of an arbitrator, pursuant to Section 11 of the Arbitration and Conciliation Act, 1996 (1996 Act), was dismissed on January 19, 2024. The High Court's reasoning was that no arbitration agreement existed between the parties.

The appellant had relied on Clause 13 of the General Terms and Conditions of the contract, specifically the portion stating that for "parties other than Govt. Agencies, the redressal of the dispute may be sought through ARBITRATION AND CONCILIATION ACT, 1996". The High Court, in its decision, focused on the word "may" in this clause, concluding it did not show a clear intention by the parties to refer their disputes to arbitration. The High Court cited two previous Supreme Court decisions, Jagdish Chander vs. Ramesh Chander and Others and Mahanadi Coalfields Ltd. vs. IVRCL AMR Joint Venture, to support its ruling.

In their appeal, the appellant's counsel argued that the word "may" simply indicated an option to use arbitration, and once a party chose this option, it became a binding agreement. They also contended that the High Court should have appointed an arbitral tribunal and allowed it to make the final determination on the existence of the arbitration agreement, as per the doctrine of competence-competence.

Conversely, the respondent's counsel supported the High Court's decision, asserting that the use of "may" indicated a lack of a definite agreement to arbitrate disputes at the time the contract was made. They argued that the clause only enabled a future agreement to refer disputes to arbitration, which had not occurred. The respondent also pointed to Clause 32 of the "Instructions to Bidders," which stated that "matters relating to any dispute or difference...shall be subject to the jurisdiction of District Court" as evidence against the existence of an arbitration agreement.

The Supreme Court, after considering the arguments, framed three issues:

• Whether the question of the existence of an arbitration agreement should be left to the arbitral tribunal.
• Whether Clause 13 constituted an arbitration agreement under Section 7 of the 1996 Act.
• Whether Clause 32 of the Instructions to Bidders negated the existence of an arbitration agreement.

Regarding the first issue, the court referred to a seven-judge Constitution Bench decision (Interplay Between Arbitration Agreements under Arbitration, 1996 & Stamp Act, 1899, In re), which clarified the scope of a Referral Court's power under Section 11 of the 1996 Act. The court's role is limited to aprima facie examination of whether an arbitration agreement exists, not to conduct a "mini-trial" or a "laborious or contested inquiry". The court concluded that while the burden of proof is on the party asserting the agreement, only prima facie evidence is required at this stage. Therefore, the argument that the matter should be straight away referred to an arbitral tribunal was rejected.

On the second and main issue, the court examined the wording of Clause 13 in light of established legal principles. Citing Jagdish Chander and Mahanadi Coalfields, the court reiterated that an arbitration agreement must show a clear "determination and obligation to go to arbitration" and not merely contemplate the "possibility of going for arbitration". The court noted that clauses suggesting parties "may also agree" or "should consider settlement by arbitration" are not considered arbitration agreements because they require a "further consent or consensus". Applying this to Clause 13, the court held that the phrase "may be sought through arbitration" was merely an "enabling clause" and not a binding agreement to arbitrate. The court found the High Court was correct in its decision. Since the appellant did not claim that the parties had later agreed to arbitration, the application was justifiably rejected.

Having decided against the existence of an arbitration agreement, the court deemed the third issue moot. Consequently, the appeal was dismissed, with no order as to costs.

Arbitration and Conciliation Act, 1996