Full Judgment Text
REPORTABLE
2025 INSC 874
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO……….. OF 2025
(Arising out of SLP (C) Diary No. 21451/2024)
BGM AND M-RPL-JMCT (JV) …APPELLANT (S)
VERSUS
EASTERN COALFIELDS LIMITED …RESPONDENT(S)
J U D G M E N T
MANOJ MISRA, J.
1. Leave granted.
1
2. This appeal impugns an order of the High Court dated
2
19.01.2024 whereby the application of the appellant, under
3
Section 11 of the Arbitration and Conciliation Act, 1996 , was
dismissed on the ground that there exists no arbitration
agreement between the parties.
1
The High Court at Calcutta
2
A.P. No. 745 of 2023
3
1996 Act
Signature Not Verified
Digitally signed by
BORRA LM VALLI
Date: 2025.07.18
18:06:29 IST
Reason:
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 1 of 26
FACTS
3. The appellant and the respondent entered into a contract
relating to transportation/handling of goods. Disputes arose
between the parties during the subsistence of the contract.
Clause 13 of the General Terms and Conditions, appended to
the e-tender notice, which forms part of the contract and relied
upon by the appellant as an arbitration agreement, is the
subject matter of interpretation. The same is extracted below:
“13. SETTLEMENT OF DISPUTES
It is incumbent upon the contractor to avoid
litigation and disputes during the course of
execution. However, if such disputes take place
between the contractor and the department,
effort shall be made first to settle the disputes at
the company level.
The contractor should make request in writing to
the Engineer-in-charge for settlement of such
disputes/claims within 30 (thirty) days of arising
of the cause of dispute/ claim failing which no
disputes/ claims of the contractor shall be
entertained by the company.
Effort shall be made to resolve the dispute in two
stages.
In first stage dispute shall be referred to Area
CGM, GM. If difference still persist the dispute
shall be referred to a committee constituted by
the owner. The Committee shall have one
member of the rank of Director of the company
who shall be chairman of the company.
If differences still persist, the settlement of the
dispute shall be resolved in the following
manner:
In the event of any dispute or difference relating
to the interpretation and application of the
provisions of commercial contract(s) between
Central Public Sector Enterprises (CPSEs)/ Port
Trusts inter se and also between CPSEs and
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 2 of 26
Government Departments/ Organizations
(excluding disputes concerning railways, Income
Tax, Customs & Excise Departments), such
dispute or difference shall be taken up by either
party for resolution through AMRCD as
mentioned in DPE OM No. 4(1)/2013-DPE
(GM)/FTS-1835 dated 22-05-2018.
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”
(Emphasis supplied)
4. Treating the underscored portion of clause 13 as an
arbitration agreement, the appellant filed an application under
Section 11(6) of the 1996 Act for appointment of an Arbitrator
for settlement of the disputes inter se the parties.
5. The respondent objected to the prayer for appointment
of an Arbitrator, , on the ground that clause 13 is
inter-alia
bereft of the essential ingredients to constitute an arbitration
agreement and therefore the application seeking appointment
of an Arbitrator deserves rejection.
6. The High Court accepted the objection and dismissed
the application. While rejecting the prayer, the High Court laid
emphasis on use of the word “ may ” before “ be sought ” in the
underscored portion of clause 13 and, inter alia , relied on two
decisions of this Court, namely, Jagdish Chander vs. Ramesh
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 3 of 26
4
Chander and Others and Mahanadi Coalfields Ltd. vs.
5
IVRCL AMR Joint Venture to hold that where the word “may”
is used there is no clear intention of the parties to refer the
dispute between them to arbitration and therefore, the prayer
to appoint an Arbitrator is not sustainable.
7. We have heard learned counsel for the parties and have
perused the materials on record.
SUBMISSIONS ON BEHALF OF THE APPELLANT
8. The learned counsel for the appellant contended that
the use of the word “may” is only to indicate that parties to the
agreement have an option to take recourse to settlement of
dispute(s) through arbitration under the 1996 Act. However,
once that option is exercised by any of the parties to the
agreement, as in the present case, it becomes a binding
contract to settle inter se dispute(s) through arbitration. It was
contended that the decisions of this Court in Jagdish
Chander (supra) and Mahanadi Coalfields (supra) dealt with
entirely different clauses than the one in question and,
therefore, the High Court erred in placing reliance on them to
reject the application of the appellant.
4
(2007) 5 SCC 719
5
(2022) 20 SCC 636
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9. In addition to above, it was argued that at the stage of
appointment of an arbitrator the court is required to examine
whether arbitration agreement exists or not. Such examination
is for the Court to satisfy itself that, prima facie, an arbitration
agreement exists, though the final call on its existence is to be
taken by the arbitral tribunal, which is competent to rule on its
own jurisdiction, including ruling on any objections with
respect to the existence or validity of the arbitration agreement.
Thus, it was argued, the appropriate course for the High Court
was to appoint an arbitral tribunal and leave the issue open for
the arbitral tribunal to decide.
SUBMISSIONS ON BEHALF OF THE RESPONDENT
10. Per contra, the learned counsel for the respondent
supported the impugned order and also referred to Clause 32
of the Instructions to Bidders to contend that there was no
definite agreement between the parties to settle their disputes
through arbitration. According to the learned counsel for the
respondent, the use of the word “may” in the so-called
arbitration clause clearly indicates that at the time of entering
the agreement, parties were not ad idem on referring present
or future disputes between them to arbitration. The clause only
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 5 of 26
enabled the parties to agree on any future date to refer the
disputes to arbitration. Therefore, in the absence of proof of any
such agreement, reference to arbitral tribunal has been
justifiably declined.
11. In addition to above, by referring to Clause 32 of the
Instructions to Bidders, the learned counsel for the respondent
contended that disputes between the parties were to be settled
through regular court proceedings and not through arbitration.
Clause 32 is extracted below:
“Clause 32- Legal Jurisdiction: - Matters
relating to any dispute or difference arising
out of this tender and subsequent contract
awarded based on this tender shall be subject
to the jurisdiction of District Court where the
subject work is to be executed.”
12. Besides above, the learned counsel for the respondent
submitted that if, on a plain reading of the relevant clause,
relied by any one of the parties as an arbitration agreement, it
does not appear that parties are ad idem on settlement of inter
se , present or future, disputes through arbitration to the
exclusion of domestic courts, the very existence of an
arbitration agreement comes into question, which can be taken
notice of by the Court so as to decline the prayer for
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appointment of an arbitral tribunal under Section 11 of the
1996 Act.
ISSUES
13. Having regard to the facts and the submissions made
before us, we are of the view that following three issues arise
for our consideration:
(i) Whether the question of existence of an arbitration
agreement should be left for the arbitral tribunal to decide?
(ii) Whether clause 13 (supra) would constitute an
arbitration agreement between the parties as
contemplated under Section 7 of the 1996 Act?
(iii) Whether clause 32 of Instructions to Bidders negates
the existence of an arbitration agreement?
ISSUE (I)
14. Insofar as issue (i) is concerned, a seven-Judge
Constitution Bench of this Court in Interplay Between
Arbitration Agreements under Arbitration, 1996 & Stamp
6
Act, 1899 In re ,
, after surveying several decisions as also the
impact of the 2015 Amendment on the 1996 Act, has settled
the law in the following terms:
6
(2024) 6 SCC 1
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 7 of 26
“ 164. The 2015 Amendment Act has laid down
different parameters for judicial review under
Section 8 and Section 11. Where Section 8
requires the Referral Court to look into the prima
existence of a arbitration agreement,
facie valid
Section 11 confines the Court's jurisdiction to
the examination of the existence of an
arbitration agreement. Although the object and
purpose behind both Sections 8 and 11 is to
compel parties to abide by their contractual
understanding, the scope of power of the Referral
Courts under the said provisions is intended to
be different. The same is also evident from the
fact that Section 37 of the Arbitration Act allows
an appeal from the order of an Arbitral Tribunal
refusing to refer the parties to arbitration under
Section 8, but not from Section 11. Thus, the
2015 Amendment Act has legislatively overruled
the dictum of Patel Engg. [ SBP & Co. v. Patel
Engg. Ltd. , (2005) 8 SCC 618] where it was held
that Section 8 and Section 11 are
complementary in nature. Accordingly, the two
provisions cannot be read as laying down a
similar standard.
165. The legislature confined the scope of
reference under Section 11(6-A) to the
examination of the existence of an arbitration
agreement. The use of the term “examination” in
itself connotes that the scope of the power is
limited to a prima facie determination. Since the
Arbitration Act is a self-contained code, the
requirement of “existence” of an arbitration
agreement draws effect from Section 7 of the
Arbitration Act. In Duro Felguera [ Duro Felguera,
S.A. v. Gangavaram Port Ltd. , (2017) 9 SCC 729
: (2017) 4 SCC (Civ) 764] , this Court held that
the Referral Courts only need to consider one
aspect to determine the existence of an
arbitration agreement — whether the underlying
contract contains an arbitration agreement
which provides for arbitration pertaining to the
disputes which have arisen between the parties
to the agreement. Therefore, the scope of
examination under Section 11(6-A) should be
confined to the existence of an arbitration
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agreement on the basis of Section 7. Similarly,
the validity of an arbitration agreement, in view
of Section 7, should be restricted to the
requirement of formal validity such as the
requirement that the agreement be in writing.
This interpretation also gives true effect to the
doctrine of competence-competence by leaving
the issue of substantive existence and validity of
an arbitration agreement to be decided by
Arbitral Tribunal under Section 16. We
accordingly clarify the position of law laid down
in Vidya Drolia [ Vidya Drolia v. Durga Trading
Corpn. , (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549]
in the context of Section 8 and Section 11 of the
Arbitration Act.
166. The burden of proving the existence of
arbitration agreement generally lies on the party
seeking to rely on such agreement. In
jurisdictions such as India, which accept the
doctrine of competence-competence, only prima
facie proof of the existence of an arbitration
agreement must be adduced before the Referral
Court. The Referral Court is not the appropriate
forum to conduct a mini-trial by allowing the
parties to adduce the evidence in regard to the
existence or validity of an arbitration agreement.
The determination of the existence and validity
of an arbitration agreement on the basis of
evidence ought to be left to the Arbitral Tribunal.
This position of law can also be gauged from the
plain language of the statute.
167. Section 11(6-A) uses the expression
“examination of the existence of an arbitration
agreement”. The purport of using the word
“examination” connotes that the legislature
intends that the Referral Court has to inspect or
scrutinise the dealings between the parties for
the existence of an arbitration agreement.
Moreover, the expression “examination” does not
connote or imply a laborious or contested
inquiry. [ P. Ramanatha Aiyar, The Law
Lexicon (2nd Edn., 1997) 666.] On the other
hand, Section 16 provides that the Arbitral
Tribunal can “rule” on its jurisdiction, including
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the existence and validity of an arbitration
agreement. A “ruling” connotes adjudication of
disputes after admitting evidence from the
parties. Therefore, it is evident that the Referral
Court is only required to examine the existence
of arbitration agreements, whereas the Arbitral
Tribunal ought to rule on its jurisdiction,
including the issues pertaining to the existence
and validity of an arbitration agreement. A
similar view was adopted by this Court in Shin-
Etsu Chemical Co. Ltd. v. Aksh Optifibre
Ltd. [ Shin-Etsu Chemical Co. Ltd. v. Aksh
Optifibre Ltd. , (2005) 7 SCC 234]
xxx xxx xxx
169. When the Referral Court renders a prima
facie opinion, neither the Arbitral Tribunal, nor
the Court enforcing the arbitral award will be
bound by such a prima facie view. If a prima facie
view as to the existence of an arbitration
agreement is taken by the Referral Court, it still
allows the Arbitral Tribunal to examine the issue
in depth. Such a legal approach will help the
Referral Court in weeding out prima facie non-
existent arbitration agreements. It will also
protect the jurisdictional competence of the
Arbitral Tribunals to decide on issues pertaining
to the existence and validity of an arbitration
agreement.”
15. The legal principles deducible from the above decision
qua the scope of Referral Court’s power under Section 11 of
1996 Act are as follows:
(a) Section 11 confines the Court's jurisdiction to the
examination regarding the existence of an arbitration
agreement.
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(b) The use of the term “examination” in itself connotes
that the scope of the power is limited to a prima facie
determination.
(c) Referral Courts only need to consider one aspect to
determine the existence of an arbitration agreement —
whether the underlying contract contains an arbitration
agreement which provides for arbitration pertaining to the
disputes which have arisen between the parties to the
agreement. Therefore, the scope of examination under
Section 11(6-A) should be confined to the existence of an
arbitration agreement on the basis of Section 7. Such a
legal approach will help the Referral Court in weeding out
prima facie non-existent arbitration agreements.
(d) The purport of using the word “examination” connotes
that the legislature intends that the Referral Court has to
inspect or scrutinise the dealings between the parties for
the existence of an arbitration agreement. However, the
expression “examination” does not connote or imply a
laborious or contested inquiry.
(e) The burden of proving the existence of arbitration
agreement generally lies on the party seeking to rely on
such agreement. Only prima facie proof of the existence of
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an arbitration agreement must be adduced before the
Referral Court. The Referral Court is not the appropriate
forum to conduct a mini-trial by allowing the parties to
adduce the evidence in regard to the existence or validity
of an arbitration agreement. The determination of the
existence and validity of an arbitration agreement on the
basis of evidence ought to be left to the Arbitral Tribunal.
(f) Section 16 provides that the Arbitral Tribunal can
“rule” on its jurisdiction, including the existence and
validity of an arbitration agreement. A “ruling” connotes
adjudication of disputes after admitting evidence from the
parties. Therefore, when the Referral Court renders a
prima facie opinion, neither the Arbitral Tribunal, nor the
Court enforcing the arbitral award is bound by such a
prima facie view. If a prima facie view as to the existence of
an arbitration agreement is taken by the Referral Court, it
still allows the Arbitral Tribunal to examine the issue in
depth.
16. What can be deduced from the above decision is that
the Referral Court before appointing an arbitral tribunal will
have to be prima facie satisfied that an arbitration agreement
as contemplated in Section 7 of the 1996 Act exists. For this
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limited purpose it can scrutinize the documents relied upon by
the parties in proof of its existence. Though the burden of
proving the existence of arbitration agreement lies on the party
seeking to rely on such agreement, only prima facie proof of its
existence must be adduced before the Referral Court because
the Referral Court is not the appropriate forum to conduct a
mini-trial by allowing the parties to adduce the evidence in
regard to its existence.
17. However, where professed arbitration agreement is
found in an undisputed document, no trial or inquiry is
required as to its existence. In such a situation, the Court
would have to simply peruse the same to satisfy itself whether
it, prima facie , fulfills the essential ingredients of an arbitration
agreement as contemplated under Section 7 of the 1996 Act.
But where the professed arbitration agreement is not contained
in any one document and is to be inferred from two or more
documents, such as exchange of letters or communications,
parties may raise various pleas and place various documents
to prove or disprove its existence. In such a scenario, if from
the documents placed, existence of an arbitration agreement,
as defined in Section 7, is prima facie made out, Referral Court,
instead of undertaking a deeper probe or inquiry, should refer
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the matter to the arbitral tribunal. More so, because opinion of
the Referral Court as to existence of an arbitration agreement
is neither binding on the arbitral tribunal nor the Court dealing
with the arbitral award.
18. In the instant case, the appellant is relying on just one
clause in the contract which, according to the appellant,
constitutes an arbitration agreement whereas according to the
respondent, though the clause is not disputed, the same does
not constitute an arbitration agreement. In such
circumstances, the Court while exercising power under Section
11 would not have to hold a mini-trial or an enquiry into its
existence rather a plain reading of the clause would indicate
whether it is, or it is not, an arbitration agreement, prima facie ,
satisfying the necessary ingredients of it, as required by Section
7 of the 1996 Act. In our view, such a limited exercise would
7
not transgress the limit set out by sub-section (6-A) of Section
11 of the 1996 Act as introduced by 2015 Amendment because
the object of such an exercise (i.e., of examination) is to weed
7
Section 11.
(6-A). The Supreme Court or, as the case may be, the High Court, while considering any
application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding
any judgment, decree or order of any Court, confine to the examination of the existence of an
arbitration agreement.
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 14 of 26
out frivolous claims for appointment of an arbitrator/ reference
to an arbitral tribunal.
19. In view of the above discussion, the argument of the
appellant that Referral Court should straight away refer the
matter and leave it to the arbitral tribunal to decide whether
the arbitration agreement exists or not cannot be accepted.
Issue (i) is decided accordingly.
ISSUE (II)
20. Before we proceed to consider whether Clause 13
would constitute an arbitration agreement, it would be useful
to examine the law as to when an arbitration agreement comes
into existence. An arbitration agreement is the foundation of
arbitration as it records the consent of the parties to submit
their disputes to arbitration. Section 2(b) of the 1996 Act
defines an arbitration agreement to mean an agreement
8
referred to in Section 7 . In Bihar State Mineral Development
8
Section 7. Arbitration Agreement. - (1) In this Part, “arbitration agreement” means an
agreement by the parties to submit to arbitration all or certain disputes which have arisen or
which may arise between them in respect of a defined legal relationship, whether contractual or
not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in –
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication including
communication through electronic means which provide a record of the agreement; or
(c) an exchange of statements of claim and defense in which the existence of the
agreement is alleged by one party and not denied by the other.
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9
Corporation vs. Encon Builders , this Court culled out the
essential ingredients of an arbitration agreement as follows: (a)
there must be a present or future difference in connection with
some contemplated affair; (b) the parties must intend to settle
such difference by a private tribunal; (c) the parties must agree
in writing to be bound by the decision of such tribunal; and (d)
the parties must be ad idem .
21. In Cox and Kings Limited vs. SAP India Private
10
Limited and another , a Constitution Bench of this Court
held:
“61. An arbitration agreement is a contractual
undertaking by two or more parties to resolve
their disputes by the process of arbitration,
even if the disputes themselves are not based
on contractual obligations. An arbitration
agreement is a conclusive proof that the
parties have consented to submit their dispute
to an arbitral tribunal to the exclusion of
domestic courts. The basis for an arbitration
agreement is generally traced to the
contractual freedom of parties to codify their
intention to consensually submit their
disputes to an alternative dispute resolution
process.”
(5) The reference in a contract to a document containing an arbitration clause constitutes an
arbitration agreement if the contract is in writing and the reference is such as to make that
arbitration clause part of the contract.
9
(2003) 7 SCC 418
10
(2024) 4 SCC 1
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22. The principles regarding what constitutes an
arbitration agreement were summarized by this Court in
Jagdish Chander (supra) in the following terms: -
“8. …..this Court held that a clause in a contract
can be construed as an 'arbitration agreement'
only if an agreement to refer disputes or
differences to arbitration is expressly or
impliedly spelt out from the clause. We may at
this juncture set out the well settled principles
in regard to what constitutes an arbitration
agreement :
(i) The intention of the parties to enter
into an arbitration agreement shall have to
be gathered from the terms of the
agreement. If the terms of the agreement
clearly indicate an intention on the part of
the parties to the agreement to refer their
disputes to a private tribunal for
adjudication and a willingness to be bound
by the decision of such tribunal on such
disputes, it is arbitration agreement. While
there is no specific form of an arbitration
agreement, the words used should disclose
a determination and obligation to go to
arbitration and not merely contemplate the
possibility of going for arbitration. Where
there is merely a possibility of the parties
agreeing to arbitration in future, as
contrasted from an obligation to refer
disputes to arbitration, there is no valid and
binding arbitration agreement.
(ii) Even if the words 'arbitration' and
'arbitral tribunal (or arbitrator)' are not
used with reference to the process of
settlement or with reference to the private
tribunal which has to adjudicate upon the
disputes, in a clause relating to settlement
of disputes, it does not detract from the
clause being an arbitration agreement if it
has the attributes or elements of an
arbitration agreement. They are : (a) The
agreement should be in writing. (b) The
parties should have agreed to refer any
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 17 of 26
disputes (present or future) between them
to the decision of a private tribunal. (c) The
private tribunal should be empowered to
adjudicate upon the disputes in an
impartial manner, giving due opportunity to
the parties to put forth their case before it.
(d) The parties should have agreed that the
decision of the private tribunal in respect of
the disputes will be binding on them.
(iii) Where the clause provides that in the
event of disputes arising between the
parties, the disputes shall be referred to
arbitration, it is an arbitration agreement.
Where there is a specific and direct
expression of intent to have the disputes
settled by arbitration, it is not necessary to
set out the attributes of an arbitration
agreement to make it an arbitration
agreement. But where the clause relating to
settlement of disputes, contains words
which specifically excludes any of the
attributes of an arbitration agreement or
contains anything that detracts from an
arbitration agreement, it will not be an
arbitration agreement. For example, where
an agreement requires or permits an
authority to decide a claim or dispute
without hearing, or requires the authority to
act in the interests of only one of the parties,
or provides that the decision of the
Authority will not be final and binding on
the parties, or that if either party is not
satisfied with the decision of the Authority,
he may file a civil suit seeking relief, it
cannot be termed as an arbitration
agreement.
(iv) But mere use of the word 'arbitration'
or 'arbitrator' in a clause will not make it an
arbitration agreement, if it requires or
contemplates a further or fresh consent of
the parties for reference to arbitration. For
example, use of words such as "parties can,
if they so desire, refer their disputes to
arbitration" or "in the event of any dispute,
the parties may also agree to refer the same
to arbitration" or "if any disputes arise
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 18 of 26
between the parties, they should consider
settlement by arbitration" in a clause
relating to settlement of disputes, indicate
that the clause is not intended to be an
arbitration agreement. Similarly, a clause
which states that "if the parties so decide,
the disputes shall be referred to arbitration"
or "any disputes between parties, if they so
agree, shall be referred to arbitration" is not
an arbitration agreement. Such clauses
merely indicate a desire or hope to have the
disputes settled by arbitration, or a
tentative arrangement to explore arbitration
as a mode of settlement if and when a
dispute arises. Such clauses require the
parties to arrive at a further agreement to go
to arbitration, as and when the disputes
arise. Any agreement or clause in an
agreement requiring or contemplating a
further consent or consensus before a
reference to arbitration, is not an
arbitration agreement, but an agreement to
enter into an arbitration agreement in
future.”
(Emphasis supplied)
23. In Jagdish Chander (supra) , the issue that arose for
consideration was whether paragraph 16 in the partnership
agreement constituted an arbitration agreement. Clause 16
under consideration there, is extracted below:
“16) If during the continuance of the
partnership or at any time afterwards any
dispute touching the partnership arises
between the partners, the same shall be
mutually decided by the partners or shall be
referred for arbitration if the parties so
determine .”
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 19 of 26
While holding that clause 16 did not constitute an arbitration
agreement, this Court observed:
“9. Para 16 of the Partnership deed provides that
if there is any dispute touching the partnership
arising between the partners, the same shall be
mutually decided by the parties or shall be
referred to arbitration if the parties so determine.
If the clause had merely said that in the event of
disputes arising between the parties, they "shall
be referred to arbitration", it would have been an
arbitration agreement. But the use of the words
"shall be referred for arbitration if the parties so
determine" completely changes the complexion
of the provision. The expression "determine"
indicates that the parties are required to reach a
decision by application of mind. Therefore, when
clause 16 uses the words "the dispute shall be
referred for arbitration if the parties so
determine", it means that it is not an arbitration
agreement but a provision which enables
arbitration only if the parties mutually decide
after due consideration as to whether the
disputes should be referred to arbitration or not.
In effect, the clause requires the consent of
parties before the disputes can be referred to
arbitration. The main attribute of an arbitration
agreement, namely, consensus ad idem to refer
the disputes to arbitration is missing in clause
16 relating to settlement of disputes. Therefore,
it is not an arbitration agreement, as defined
under section 7 of the Act. In the absence of an
arbitration agreement, the question of exercising
power under section 11 of the Act to appoint an
Arbitrator does not arise.”
(Emphasis supplied)
24. In Mahanadi Coalfields (supra) , this court was
required to consider whether clause 15 constituted an
arbitration agreement. Clause 15 under consideration there, is
extracted below:
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“ 15. Settlement of Disputes/Arbitration :
15.1 It is incumbent upon the contractor to avoid
litigation and disputes during the course of
execution. However, if such disputes take place
between the contractor and the department,
effort shall be made first to settle the disputes at
the company level. The contractor should make
request in writing to the Engineer-in-Charge for
settlement of such disputes/claims within 30
(thirty) days of arising of the case of
dispute/claim failing which no disputes/claims
of the contractor shall be entertained by the
company.
15.2 If differences still persist, the settlement of
the dispute with Govt. Agencies shall be dealt
with as per the Guidelines issued by the Ministry
of Finance, Govt. of India in this regard. In case
of parties other than Govt. Agencies, the
redressal of the disputes may be sought in the
Court of Law.”
25. Following the decision in Jagdish Chander (supra) ,
this Court, in Mahanadi Coalfields (supra), held that Clause
15 of the Contract Agreement though is titled “Settlement of
Disputes /Arbitration”, the substantive part of it makes it
abundantly clear that there is no arbitration agreement
between the parties to refer either present or future dispute to
arbitration.
26. What is clear from the judgment in Mahanadi
Coalfields (supra) is that mere use of the word “arbitration” or
“arbitrator” in a clause will not make it an arbitration
agreement, if it requires or contemplates a further or fresh
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 21 of 26
consent of the parties for reference to arbitration. In Jagdish
Chander (supra) , use of words such as "parties can, if they so
desire, refer their disputes to arbitration", or "in the event of
any dispute, the parties may also agree to refer the same to
arbitration", or "if any disputes arise between the parties, they
should consider settlement by arbitration", in a clause relating
to settlement of disputes, were found not indicative of an
arbitration agreement. Similarly, a clause which states that "if
the parties so decide, the disputes shall be referred to
arbitration" or "any disputes between parties, if they so agree,
shall be referred to arbitration" would not constitute an
arbitration agreement. Because such clauses merely indicate a
desire or hope to have the disputes settled by arbitration, or a
tentative arrangement to explore arbitration as a mode of
settlement if and when a dispute arises. This is so, because
such clauses require the parties to arrive at a further
agreement to go to arbitration, as and when disputes arise.
Therefore, any agreement, or clause in an agreement, requiring
or contemplating a further consent or consensus before a
reference to arbitration, is not an arbitration agreement.
27. Now, the question which arises for our consideration is
whether Clause 13 constitutes an arbitration agreement or it is
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 22 of 26
just an enabling provision for parties to agree to refer the
dispute(s) for settlement through arbitration.
28. Clause 13 in its first paragraph sets out intent to avoid
litigation and advises the contractor to make effort to settle the
dispute at the company level. Second paragraph sets out the
procedure for raising the dispute/ claim for settlement at the
company level. It provides that the contractor should make
request in writing to the Engineer-in-charge for settlement of
disputes/ claims within 30 days of arising of the cause of
dispute/ claim failing which it shall not be entertained by the
company. Thereafter, clause 13 provides for a two-stage
procedure for resolution of the dispute. In the first stage,
dispute is to be referred to Area CGM, GM. If difference persists,
the dispute is to be referred to a committee constituted by the
owner. If difference continues to persist, the second stage
procedure becomes applicable. According to which, if the
dispute or difference relates to the interpretation and
application of the provisions of commercial contracts between
Central Public Sector Enterprises CPSEs /Port Trusts inter se ,
or is between CPSEs and Government Departments/
Organizations (excluding disputes concerning railways, income
tax, Customs and Excise departments), such dispute or
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 23 of 26
difference shall be taken up by either party for resolution
through AMRCD as mentioned in DPE OM No.4(1)/2013-DPE
(GM)/FTS -1835 dated 22-05-2018. However, in case of parties
other than Govt. Agencies, the redressal of the dispute may be
sought through arbitration as per 1996 Act.
29. The High Court opined that use of the words “may be
sought through Arbitration…” indicate that at the stage of
entering the contract, parties were not ad idem that inter se
dispute shall be resolved through arbitration, therefore the said
clause would not constitute an arbitration agreement.
30. The argument of the learned counsel for the appellant
is that clause 13 provides option to the parties, which include
any of one of the parties, to seek dispute resolution through
arbitration and, therefore, it is nothing but an arbitration
clause. According to him, use of the word “may” in clause 13
does not provide choice to the parties to agree, or not to agree,
for arbitration, rather it is a choice given to either of the parties
to seek a settlement through arbitration and, therefore, when
one party exercises the option, the other party cannot resile
from the agreement. In that sense, according to him, clause 13
is an arbitration agreement.
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 24 of 26
31. We do not agree with the aforesaid submission because
clause 13 does not bind parties to use arbitration for settlement
of the disputes. Use of the words “may be sought”, imply that
there is no subsisting agreement between parties that they, or
any one of them, would have to seek settlement of dispute(s)
through arbitration. It is just an enabling clause whereunder,
if parties agree, they could resolve their dispute(s) through
arbitration. In our view, 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. We are, therefore, of the considered view that the
High Court was justified in holding that clause 13 does not
constitute an arbitration agreement.
32. As it is not the case of the appellant that parties at any
later stage have agreed to refer the disputes to arbitration, in
our view, the High Court was justified in rejecting the
application seeking appointment of an arbitrator. Issue (ii) is
decided in the aforesaid terms.
ISSUE (III)
33. Having decided issue (ii) in the negative, deciding issue
(iii) is of no consequence. However, we may observe that clause
32 does not exclude resolution of disputes through arbitration
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 25 of 26
agreement. It only fixes jurisdiction and in the event of there
being an arbitration agreement could determine the juridical
seat. However, since we have held that there is no arbitration
agreement between the parties, decision of issue (iii) is of no
consequence.
34. In the light of our conclusion on the issues discussed
above, the appeal fails and is, accordingly, dismissed.
35. There is no order as to costs.
36. Pending application(s), if any, shall stand disposed of.
……..…............................................. J.
(PAMIDIGHANTAM SRI NARASIMHA)
……................................................. J.
(MANOJ MISRA)
New Delhi;
July 18, 2025
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 26 of 26
2025 INSC 874
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO……….. OF 2025
(Arising out of SLP (C) Diary No. 21451/2024)
BGM AND M-RPL-JMCT (JV) …APPELLANT (S)
VERSUS
EASTERN COALFIELDS LIMITED …RESPONDENT(S)
J U D G M E N T
MANOJ MISRA, J.
1. Leave granted.
1
2. This appeal impugns an order of the High Court dated
2
19.01.2024 whereby the application of the appellant, under
3
Section 11 of the Arbitration and Conciliation Act, 1996 , was
dismissed on the ground that there exists no arbitration
agreement between the parties.
1
The High Court at Calcutta
2
A.P. No. 745 of 2023
3
1996 Act
Signature Not Verified
Digitally signed by
BORRA LM VALLI
Date: 2025.07.18
18:06:29 IST
Reason:
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 1 of 26
FACTS
3. The appellant and the respondent entered into a contract
relating to transportation/handling of goods. Disputes arose
between the parties during the subsistence of the contract.
Clause 13 of the General Terms and Conditions, appended to
the e-tender notice, which forms part of the contract and relied
upon by the appellant as an arbitration agreement, is the
subject matter of interpretation. The same is extracted below:
“13. SETTLEMENT OF DISPUTES
It is incumbent upon the contractor to avoid
litigation and disputes during the course of
execution. However, if such disputes take place
between the contractor and the department,
effort shall be made first to settle the disputes at
the company level.
The contractor should make request in writing to
the Engineer-in-charge for settlement of such
disputes/claims within 30 (thirty) days of arising
of the cause of dispute/ claim failing which no
disputes/ claims of the contractor shall be
entertained by the company.
Effort shall be made to resolve the dispute in two
stages.
In first stage dispute shall be referred to Area
CGM, GM. If difference still persist the dispute
shall be referred to a committee constituted by
the owner. The Committee shall have one
member of the rank of Director of the company
who shall be chairman of the company.
If differences still persist, the settlement of the
dispute shall be resolved in the following
manner:
In the event of any dispute or difference relating
to the interpretation and application of the
provisions of commercial contract(s) between
Central Public Sector Enterprises (CPSEs)/ Port
Trusts inter se and also between CPSEs and
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 2 of 26
Government Departments/ Organizations
(excluding disputes concerning railways, Income
Tax, Customs & Excise Departments), such
dispute or difference shall be taken up by either
party for resolution through AMRCD as
mentioned in DPE OM No. 4(1)/2013-DPE
(GM)/FTS-1835 dated 22-05-2018.
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”
(Emphasis supplied)
4. Treating the underscored portion of clause 13 as an
arbitration agreement, the appellant filed an application under
Section 11(6) of the 1996 Act for appointment of an Arbitrator
for settlement of the disputes inter se the parties.
5. The respondent objected to the prayer for appointment
of an Arbitrator, , on the ground that clause 13 is
inter-alia
bereft of the essential ingredients to constitute an arbitration
agreement and therefore the application seeking appointment
of an Arbitrator deserves rejection.
6. The High Court accepted the objection and dismissed
the application. While rejecting the prayer, the High Court laid
emphasis on use of the word “ may ” before “ be sought ” in the
underscored portion of clause 13 and, inter alia , relied on two
decisions of this Court, namely, Jagdish Chander vs. Ramesh
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 3 of 26
4
Chander and Others and Mahanadi Coalfields Ltd. vs.
5
IVRCL AMR Joint Venture to hold that where the word “may”
is used there is no clear intention of the parties to refer the
dispute between them to arbitration and therefore, the prayer
to appoint an Arbitrator is not sustainable.
7. We have heard learned counsel for the parties and have
perused the materials on record.
SUBMISSIONS ON BEHALF OF THE APPELLANT
8. The learned counsel for the appellant contended that
the use of the word “may” is only to indicate that parties to the
agreement have an option to take recourse to settlement of
dispute(s) through arbitration under the 1996 Act. However,
once that option is exercised by any of the parties to the
agreement, as in the present case, it becomes a binding
contract to settle inter se dispute(s) through arbitration. It was
contended that the decisions of this Court in Jagdish
Chander (supra) and Mahanadi Coalfields (supra) dealt with
entirely different clauses than the one in question and,
therefore, the High Court erred in placing reliance on them to
reject the application of the appellant.
4
(2007) 5 SCC 719
5
(2022) 20 SCC 636
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 4 of 26
9. In addition to above, it was argued that at the stage of
appointment of an arbitrator the court is required to examine
whether arbitration agreement exists or not. Such examination
is for the Court to satisfy itself that, prima facie, an arbitration
agreement exists, though the final call on its existence is to be
taken by the arbitral tribunal, which is competent to rule on its
own jurisdiction, including ruling on any objections with
respect to the existence or validity of the arbitration agreement.
Thus, it was argued, the appropriate course for the High Court
was to appoint an arbitral tribunal and leave the issue open for
the arbitral tribunal to decide.
SUBMISSIONS ON BEHALF OF THE RESPONDENT
10. Per contra, the learned counsel for the respondent
supported the impugned order and also referred to Clause 32
of the Instructions to Bidders to contend that there was no
definite agreement between the parties to settle their disputes
through arbitration. According to the learned counsel for the
respondent, the use of the word “may” in the so-called
arbitration clause clearly indicates that at the time of entering
the agreement, parties were not ad idem on referring present
or future disputes between them to arbitration. The clause only
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 5 of 26
enabled the parties to agree on any future date to refer the
disputes to arbitration. Therefore, in the absence of proof of any
such agreement, reference to arbitral tribunal has been
justifiably declined.
11. In addition to above, by referring to Clause 32 of the
Instructions to Bidders, the learned counsel for the respondent
contended that disputes between the parties were to be settled
through regular court proceedings and not through arbitration.
Clause 32 is extracted below:
“Clause 32- Legal Jurisdiction: - Matters
relating to any dispute or difference arising
out of this tender and subsequent contract
awarded based on this tender shall be subject
to the jurisdiction of District Court where the
subject work is to be executed.”
12. Besides above, the learned counsel for the respondent
submitted that if, on a plain reading of the relevant clause,
relied by any one of the parties as an arbitration agreement, it
does not appear that parties are ad idem on settlement of inter
se , present or future, disputes through arbitration to the
exclusion of domestic courts, the very existence of an
arbitration agreement comes into question, which can be taken
notice of by the Court so as to decline the prayer for
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 6 of 26
appointment of an arbitral tribunal under Section 11 of the
1996 Act.
ISSUES
13. Having regard to the facts and the submissions made
before us, we are of the view that following three issues arise
for our consideration:
(i) Whether the question of existence of an arbitration
agreement should be left for the arbitral tribunal to decide?
(ii) Whether clause 13 (supra) would constitute an
arbitration agreement between the parties as
contemplated under Section 7 of the 1996 Act?
(iii) Whether clause 32 of Instructions to Bidders negates
the existence of an arbitration agreement?
ISSUE (I)
14. Insofar as issue (i) is concerned, a seven-Judge
Constitution Bench of this Court in Interplay Between
Arbitration Agreements under Arbitration, 1996 & Stamp
6
Act, 1899 In re ,
, after surveying several decisions as also the
impact of the 2015 Amendment on the 1996 Act, has settled
the law in the following terms:
6
(2024) 6 SCC 1
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 7 of 26
“ 164. The 2015 Amendment Act has laid down
different parameters for judicial review under
Section 8 and Section 11. Where Section 8
requires the Referral Court to look into the prima
existence of a arbitration agreement,
facie valid
Section 11 confines the Court's jurisdiction to
the examination of the existence of an
arbitration agreement. Although the object and
purpose behind both Sections 8 and 11 is to
compel parties to abide by their contractual
understanding, the scope of power of the Referral
Courts under the said provisions is intended to
be different. The same is also evident from the
fact that Section 37 of the Arbitration Act allows
an appeal from the order of an Arbitral Tribunal
refusing to refer the parties to arbitration under
Section 8, but not from Section 11. Thus, the
2015 Amendment Act has legislatively overruled
the dictum of Patel Engg. [ SBP & Co. v. Patel
Engg. Ltd. , (2005) 8 SCC 618] where it was held
that Section 8 and Section 11 are
complementary in nature. Accordingly, the two
provisions cannot be read as laying down a
similar standard.
165. The legislature confined the scope of
reference under Section 11(6-A) to the
examination of the existence of an arbitration
agreement. The use of the term “examination” in
itself connotes that the scope of the power is
limited to a prima facie determination. Since the
Arbitration Act is a self-contained code, the
requirement of “existence” of an arbitration
agreement draws effect from Section 7 of the
Arbitration Act. In Duro Felguera [ Duro Felguera,
S.A. v. Gangavaram Port Ltd. , (2017) 9 SCC 729
: (2017) 4 SCC (Civ) 764] , this Court held that
the Referral Courts only need to consider one
aspect to determine the existence of an
arbitration agreement — whether the underlying
contract contains an arbitration agreement
which provides for arbitration pertaining to the
disputes which have arisen between the parties
to the agreement. Therefore, the scope of
examination under Section 11(6-A) should be
confined to the existence of an arbitration
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 8 of 26
agreement on the basis of Section 7. Similarly,
the validity of an arbitration agreement, in view
of Section 7, should be restricted to the
requirement of formal validity such as the
requirement that the agreement be in writing.
This interpretation also gives true effect to the
doctrine of competence-competence by leaving
the issue of substantive existence and validity of
an arbitration agreement to be decided by
Arbitral Tribunal under Section 16. We
accordingly clarify the position of law laid down
in Vidya Drolia [ Vidya Drolia v. Durga Trading
Corpn. , (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549]
in the context of Section 8 and Section 11 of the
Arbitration Act.
166. The burden of proving the existence of
arbitration agreement generally lies on the party
seeking to rely on such agreement. In
jurisdictions such as India, which accept the
doctrine of competence-competence, only prima
facie proof of the existence of an arbitration
agreement must be adduced before the Referral
Court. The Referral Court is not the appropriate
forum to conduct a mini-trial by allowing the
parties to adduce the evidence in regard to the
existence or validity of an arbitration agreement.
The determination of the existence and validity
of an arbitration agreement on the basis of
evidence ought to be left to the Arbitral Tribunal.
This position of law can also be gauged from the
plain language of the statute.
167. Section 11(6-A) uses the expression
“examination of the existence of an arbitration
agreement”. The purport of using the word
“examination” connotes that the legislature
intends that the Referral Court has to inspect or
scrutinise the dealings between the parties for
the existence of an arbitration agreement.
Moreover, the expression “examination” does not
connote or imply a laborious or contested
inquiry. [ P. Ramanatha Aiyar, The Law
Lexicon (2nd Edn., 1997) 666.] On the other
hand, Section 16 provides that the Arbitral
Tribunal can “rule” on its jurisdiction, including
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 9 of 26
the existence and validity of an arbitration
agreement. A “ruling” connotes adjudication of
disputes after admitting evidence from the
parties. Therefore, it is evident that the Referral
Court is only required to examine the existence
of arbitration agreements, whereas the Arbitral
Tribunal ought to rule on its jurisdiction,
including the issues pertaining to the existence
and validity of an arbitration agreement. A
similar view was adopted by this Court in Shin-
Etsu Chemical Co. Ltd. v. Aksh Optifibre
Ltd. [ Shin-Etsu Chemical Co. Ltd. v. Aksh
Optifibre Ltd. , (2005) 7 SCC 234]
xxx xxx xxx
169. When the Referral Court renders a prima
facie opinion, neither the Arbitral Tribunal, nor
the Court enforcing the arbitral award will be
bound by such a prima facie view. If a prima facie
view as to the existence of an arbitration
agreement is taken by the Referral Court, it still
allows the Arbitral Tribunal to examine the issue
in depth. Such a legal approach will help the
Referral Court in weeding out prima facie non-
existent arbitration agreements. It will also
protect the jurisdictional competence of the
Arbitral Tribunals to decide on issues pertaining
to the existence and validity of an arbitration
agreement.”
15. The legal principles deducible from the above decision
qua the scope of Referral Court’s power under Section 11 of
1996 Act are as follows:
(a) Section 11 confines the Court's jurisdiction to the
examination regarding the existence of an arbitration
agreement.
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 10 of 26
(b) The use of the term “examination” in itself connotes
that the scope of the power is limited to a prima facie
determination.
(c) Referral Courts only need to consider one aspect to
determine the existence of an arbitration agreement —
whether the underlying contract contains an arbitration
agreement which provides for arbitration pertaining to the
disputes which have arisen between the parties to the
agreement. Therefore, the scope of examination under
Section 11(6-A) should be confined to the existence of an
arbitration agreement on the basis of Section 7. Such a
legal approach will help the Referral Court in weeding out
prima facie non-existent arbitration agreements.
(d) The purport of using the word “examination” connotes
that the legislature intends that the Referral Court has to
inspect or scrutinise the dealings between the parties for
the existence of an arbitration agreement. However, the
expression “examination” does not connote or imply a
laborious or contested inquiry.
(e) The burden of proving the existence of arbitration
agreement generally lies on the party seeking to rely on
such agreement. Only prima facie proof of the existence of
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 11 of 26
an arbitration agreement must be adduced before the
Referral Court. The Referral Court is not the appropriate
forum to conduct a mini-trial by allowing the parties to
adduce the evidence in regard to the existence or validity
of an arbitration agreement. The determination of the
existence and validity of an arbitration agreement on the
basis of evidence ought to be left to the Arbitral Tribunal.
(f) Section 16 provides that the Arbitral Tribunal can
“rule” on its jurisdiction, including the existence and
validity of an arbitration agreement. A “ruling” connotes
adjudication of disputes after admitting evidence from the
parties. Therefore, when the Referral Court renders a
prima facie opinion, neither the Arbitral Tribunal, nor the
Court enforcing the arbitral award is bound by such a
prima facie view. If a prima facie view as to the existence of
an arbitration agreement is taken by the Referral Court, it
still allows the Arbitral Tribunal to examine the issue in
depth.
16. What can be deduced from the above decision is that
the Referral Court before appointing an arbitral tribunal will
have to be prima facie satisfied that an arbitration agreement
as contemplated in Section 7 of the 1996 Act exists. For this
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 12 of 26
limited purpose it can scrutinize the documents relied upon by
the parties in proof of its existence. Though the burden of
proving the existence of arbitration agreement lies on the party
seeking to rely on such agreement, only prima facie proof of its
existence must be adduced before the Referral Court because
the Referral Court is not the appropriate forum to conduct a
mini-trial by allowing the parties to adduce the evidence in
regard to its existence.
17. However, where professed arbitration agreement is
found in an undisputed document, no trial or inquiry is
required as to its existence. In such a situation, the Court
would have to simply peruse the same to satisfy itself whether
it, prima facie , fulfills the essential ingredients of an arbitration
agreement as contemplated under Section 7 of the 1996 Act.
But where the professed arbitration agreement is not contained
in any one document and is to be inferred from two or more
documents, such as exchange of letters or communications,
parties may raise various pleas and place various documents
to prove or disprove its existence. In such a scenario, if from
the documents placed, existence of an arbitration agreement,
as defined in Section 7, is prima facie made out, Referral Court,
instead of undertaking a deeper probe or inquiry, should refer
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 13 of 26
the matter to the arbitral tribunal. More so, because opinion of
the Referral Court as to existence of an arbitration agreement
is neither binding on the arbitral tribunal nor the Court dealing
with the arbitral award.
18. In the instant case, the appellant is relying on just one
clause in the contract which, according to the appellant,
constitutes an arbitration agreement whereas according to the
respondent, though the clause is not disputed, the same does
not constitute an arbitration agreement. In such
circumstances, the Court while exercising power under Section
11 would not have to hold a mini-trial or an enquiry into its
existence rather a plain reading of the clause would indicate
whether it is, or it is not, an arbitration agreement, prima facie ,
satisfying the necessary ingredients of it, as required by Section
7 of the 1996 Act. In our view, such a limited exercise would
7
not transgress the limit set out by sub-section (6-A) of Section
11 of the 1996 Act as introduced by 2015 Amendment because
the object of such an exercise (i.e., of examination) is to weed
7
Section 11.
(6-A). The Supreme Court or, as the case may be, the High Court, while considering any
application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding
any judgment, decree or order of any Court, confine to the examination of the existence of an
arbitration agreement.
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 14 of 26
out frivolous claims for appointment of an arbitrator/ reference
to an arbitral tribunal.
19. In view of the above discussion, the argument of the
appellant that Referral Court should straight away refer the
matter and leave it to the arbitral tribunal to decide whether
the arbitration agreement exists or not cannot be accepted.
Issue (i) is decided accordingly.
ISSUE (II)
20. Before we proceed to consider whether Clause 13
would constitute an arbitration agreement, it would be useful
to examine the law as to when an arbitration agreement comes
into existence. An arbitration agreement is the foundation of
arbitration as it records the consent of the parties to submit
their disputes to arbitration. Section 2(b) of the 1996 Act
defines an arbitration agreement to mean an agreement
8
referred to in Section 7 . In Bihar State Mineral Development
8
Section 7. Arbitration Agreement. - (1) In this Part, “arbitration agreement” means an
agreement by the parties to submit to arbitration all or certain disputes which have arisen or
which may arise between them in respect of a defined legal relationship, whether contractual or
not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in –
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication including
communication through electronic means which provide a record of the agreement; or
(c) an exchange of statements of claim and defense in which the existence of the
agreement is alleged by one party and not denied by the other.
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 15 of 26
9
Corporation vs. Encon Builders , this Court culled out the
essential ingredients of an arbitration agreement as follows: (a)
there must be a present or future difference in connection with
some contemplated affair; (b) the parties must intend to settle
such difference by a private tribunal; (c) the parties must agree
in writing to be bound by the decision of such tribunal; and (d)
the parties must be ad idem .
21. In Cox and Kings Limited vs. SAP India Private
10
Limited and another , a Constitution Bench of this Court
held:
“61. An arbitration agreement is a contractual
undertaking by two or more parties to resolve
their disputes by the process of arbitration,
even if the disputes themselves are not based
on contractual obligations. An arbitration
agreement is a conclusive proof that the
parties have consented to submit their dispute
to an arbitral tribunal to the exclusion of
domestic courts. The basis for an arbitration
agreement is generally traced to the
contractual freedom of parties to codify their
intention to consensually submit their
disputes to an alternative dispute resolution
process.”
(5) The reference in a contract to a document containing an arbitration clause constitutes an
arbitration agreement if the contract is in writing and the reference is such as to make that
arbitration clause part of the contract.
9
(2003) 7 SCC 418
10
(2024) 4 SCC 1
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 16 of 26
22. The principles regarding what constitutes an
arbitration agreement were summarized by this Court in
Jagdish Chander (supra) in the following terms: -
“8. …..this Court held that a clause in a contract
can be construed as an 'arbitration agreement'
only if an agreement to refer disputes or
differences to arbitration is expressly or
impliedly spelt out from the clause. We may at
this juncture set out the well settled principles
in regard to what constitutes an arbitration
agreement :
(i) The intention of the parties to enter
into an arbitration agreement shall have to
be gathered from the terms of the
agreement. If the terms of the agreement
clearly indicate an intention on the part of
the parties to the agreement to refer their
disputes to a private tribunal for
adjudication and a willingness to be bound
by the decision of such tribunal on such
disputes, it is arbitration agreement. While
there is no specific form of an arbitration
agreement, the words used should disclose
a determination and obligation to go to
arbitration and not merely contemplate the
possibility of going for arbitration. Where
there is merely a possibility of the parties
agreeing to arbitration in future, as
contrasted from an obligation to refer
disputes to arbitration, there is no valid and
binding arbitration agreement.
(ii) Even if the words 'arbitration' and
'arbitral tribunal (or arbitrator)' are not
used with reference to the process of
settlement or with reference to the private
tribunal which has to adjudicate upon the
disputes, in a clause relating to settlement
of disputes, it does not detract from the
clause being an arbitration agreement if it
has the attributes or elements of an
arbitration agreement. They are : (a) The
agreement should be in writing. (b) The
parties should have agreed to refer any
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 17 of 26
disputes (present or future) between them
to the decision of a private tribunal. (c) The
private tribunal should be empowered to
adjudicate upon the disputes in an
impartial manner, giving due opportunity to
the parties to put forth their case before it.
(d) The parties should have agreed that the
decision of the private tribunal in respect of
the disputes will be binding on them.
(iii) Where the clause provides that in the
event of disputes arising between the
parties, the disputes shall be referred to
arbitration, it is an arbitration agreement.
Where there is a specific and direct
expression of intent to have the disputes
settled by arbitration, it is not necessary to
set out the attributes of an arbitration
agreement to make it an arbitration
agreement. But where the clause relating to
settlement of disputes, contains words
which specifically excludes any of the
attributes of an arbitration agreement or
contains anything that detracts from an
arbitration agreement, it will not be an
arbitration agreement. For example, where
an agreement requires or permits an
authority to decide a claim or dispute
without hearing, or requires the authority to
act in the interests of only one of the parties,
or provides that the decision of the
Authority will not be final and binding on
the parties, or that if either party is not
satisfied with the decision of the Authority,
he may file a civil suit seeking relief, it
cannot be termed as an arbitration
agreement.
(iv) But mere use of the word 'arbitration'
or 'arbitrator' in a clause will not make it an
arbitration agreement, if it requires or
contemplates a further or fresh consent of
the parties for reference to arbitration. For
example, use of words such as "parties can,
if they so desire, refer their disputes to
arbitration" or "in the event of any dispute,
the parties may also agree to refer the same
to arbitration" or "if any disputes arise
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 18 of 26
between the parties, they should consider
settlement by arbitration" in a clause
relating to settlement of disputes, indicate
that the clause is not intended to be an
arbitration agreement. Similarly, a clause
which states that "if the parties so decide,
the disputes shall be referred to arbitration"
or "any disputes between parties, if they so
agree, shall be referred to arbitration" is not
an arbitration agreement. Such clauses
merely indicate a desire or hope to have the
disputes settled by arbitration, or a
tentative arrangement to explore arbitration
as a mode of settlement if and when a
dispute arises. Such clauses require the
parties to arrive at a further agreement to go
to arbitration, as and when the disputes
arise. Any agreement or clause in an
agreement requiring or contemplating a
further consent or consensus before a
reference to arbitration, is not an
arbitration agreement, but an agreement to
enter into an arbitration agreement in
future.”
(Emphasis supplied)
23. In Jagdish Chander (supra) , the issue that arose for
consideration was whether paragraph 16 in the partnership
agreement constituted an arbitration agreement. Clause 16
under consideration there, is extracted below:
“16) If during the continuance of the
partnership or at any time afterwards any
dispute touching the partnership arises
between the partners, the same shall be
mutually decided by the partners or shall be
referred for arbitration if the parties so
determine .”
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While holding that clause 16 did not constitute an arbitration
agreement, this Court observed:
“9. Para 16 of the Partnership deed provides that
if there is any dispute touching the partnership
arising between the partners, the same shall be
mutually decided by the parties or shall be
referred to arbitration if the parties so determine.
If the clause had merely said that in the event of
disputes arising between the parties, they "shall
be referred to arbitration", it would have been an
arbitration agreement. But the use of the words
"shall be referred for arbitration if the parties so
determine" completely changes the complexion
of the provision. The expression "determine"
indicates that the parties are required to reach a
decision by application of mind. Therefore, when
clause 16 uses the words "the dispute shall be
referred for arbitration if the parties so
determine", it means that it is not an arbitration
agreement but a provision which enables
arbitration only if the parties mutually decide
after due consideration as to whether the
disputes should be referred to arbitration or not.
In effect, the clause requires the consent of
parties before the disputes can be referred to
arbitration. The main attribute of an arbitration
agreement, namely, consensus ad idem to refer
the disputes to arbitration is missing in clause
16 relating to settlement of disputes. Therefore,
it is not an arbitration agreement, as defined
under section 7 of the Act. In the absence of an
arbitration agreement, the question of exercising
power under section 11 of the Act to appoint an
Arbitrator does not arise.”
(Emphasis supplied)
24. In Mahanadi Coalfields (supra) , this court was
required to consider whether clause 15 constituted an
arbitration agreement. Clause 15 under consideration there, is
extracted below:
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“ 15. Settlement of Disputes/Arbitration :
15.1 It is incumbent upon the contractor to avoid
litigation and disputes during the course of
execution. However, if such disputes take place
between the contractor and the department,
effort shall be made first to settle the disputes at
the company level. The contractor should make
request in writing to the Engineer-in-Charge for
settlement of such disputes/claims within 30
(thirty) days of arising of the case of
dispute/claim failing which no disputes/claims
of the contractor shall be entertained by the
company.
15.2 If differences still persist, the settlement of
the dispute with Govt. Agencies shall be dealt
with as per the Guidelines issued by the Ministry
of Finance, Govt. of India in this regard. In case
of parties other than Govt. Agencies, the
redressal of the disputes may be sought in the
Court of Law.”
25. Following the decision in Jagdish Chander (supra) ,
this Court, in Mahanadi Coalfields (supra), held that Clause
15 of the Contract Agreement though is titled “Settlement of
Disputes /Arbitration”, the substantive part of it makes it
abundantly clear that there is no arbitration agreement
between the parties to refer either present or future dispute to
arbitration.
26. What is clear from the judgment in Mahanadi
Coalfields (supra) is that mere use of the word “arbitration” or
“arbitrator” in a clause will not make it an arbitration
agreement, if it requires or contemplates a further or fresh
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 21 of 26
consent of the parties for reference to arbitration. In Jagdish
Chander (supra) , use of words such as "parties can, if they so
desire, refer their disputes to arbitration", or "in the event of
any dispute, the parties may also agree to refer the same to
arbitration", or "if any disputes arise between the parties, they
should consider settlement by arbitration", in a clause relating
to settlement of disputes, were found not indicative of an
arbitration agreement. Similarly, a clause which states that "if
the parties so decide, the disputes shall be referred to
arbitration" or "any disputes between parties, if they so agree,
shall be referred to arbitration" would not constitute an
arbitration agreement. Because such clauses merely indicate a
desire or hope to have the disputes settled by arbitration, or a
tentative arrangement to explore arbitration as a mode of
settlement if and when a dispute arises. This is so, because
such clauses require the parties to arrive at a further
agreement to go to arbitration, as and when disputes arise.
Therefore, any agreement, or clause in an agreement, requiring
or contemplating a further consent or consensus before a
reference to arbitration, is not an arbitration agreement.
27. Now, the question which arises for our consideration is
whether Clause 13 constitutes an arbitration agreement or it is
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just an enabling provision for parties to agree to refer the
dispute(s) for settlement through arbitration.
28. Clause 13 in its first paragraph sets out intent to avoid
litigation and advises the contractor to make effort to settle the
dispute at the company level. Second paragraph sets out the
procedure for raising the dispute/ claim for settlement at the
company level. It provides that the contractor should make
request in writing to the Engineer-in-charge for settlement of
disputes/ claims within 30 days of arising of the cause of
dispute/ claim failing which it shall not be entertained by the
company. Thereafter, clause 13 provides for a two-stage
procedure for resolution of the dispute. In the first stage,
dispute is to be referred to Area CGM, GM. If difference persists,
the dispute is to be referred to a committee constituted by the
owner. If difference continues to persist, the second stage
procedure becomes applicable. According to which, if the
dispute or difference relates to the interpretation and
application of the provisions of commercial contracts between
Central Public Sector Enterprises CPSEs /Port Trusts inter se ,
or is between CPSEs and Government Departments/
Organizations (excluding disputes concerning railways, income
tax, Customs and Excise departments), such dispute or
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difference shall be taken up by either party for resolution
through AMRCD as mentioned in DPE OM No.4(1)/2013-DPE
(GM)/FTS -1835 dated 22-05-2018. However, in case of parties
other than Govt. Agencies, the redressal of the dispute may be
sought through arbitration as per 1996 Act.
29. The High Court opined that use of the words “may be
sought through Arbitration…” indicate that at the stage of
entering the contract, parties were not ad idem that inter se
dispute shall be resolved through arbitration, therefore the said
clause would not constitute an arbitration agreement.
30. The argument of the learned counsel for the appellant
is that clause 13 provides option to the parties, which include
any of one of the parties, to seek dispute resolution through
arbitration and, therefore, it is nothing but an arbitration
clause. According to him, use of the word “may” in clause 13
does not provide choice to the parties to agree, or not to agree,
for arbitration, rather it is a choice given to either of the parties
to seek a settlement through arbitration and, therefore, when
one party exercises the option, the other party cannot resile
from the agreement. In that sense, according to him, clause 13
is an arbitration agreement.
CIVIL APPEAL NO………..OF 2025 (@ SLP (C) D.No. 21451/2024) Page 24 of 26
31. We do not agree with the aforesaid submission because
clause 13 does not bind parties to use arbitration for settlement
of the disputes. Use of the words “may be sought”, imply that
there is no subsisting agreement between parties that they, or
any one of them, would have to seek settlement of dispute(s)
through arbitration. It is just an enabling clause whereunder,
if parties agree, they could resolve their dispute(s) through
arbitration. In our view, 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. We are, therefore, of the considered view that the
High Court was justified in holding that clause 13 does not
constitute an arbitration agreement.
32. As it is not the case of the appellant that parties at any
later stage have agreed to refer the disputes to arbitration, in
our view, the High Court was justified in rejecting the
application seeking appointment of an arbitrator. Issue (ii) is
decided in the aforesaid terms.
ISSUE (III)
33. Having decided issue (ii) in the negative, deciding issue
(iii) is of no consequence. However, we may observe that clause
32 does not exclude resolution of disputes through arbitration
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agreement. It only fixes jurisdiction and in the event of there
being an arbitration agreement could determine the juridical
seat. However, since we have held that there is no arbitration
agreement between the parties, decision of issue (iii) is of no
consequence.
34. In the light of our conclusion on the issues discussed
above, the appeal fails and is, accordingly, dismissed.
35. There is no order as to costs.
36. Pending application(s), if any, shall stand disposed of.
……..…............................................. J.
(PAMIDIGHANTAM SRI NARASIMHA)
……................................................. J.
(MANOJ MISRA)
New Delhi;
July 18, 2025
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