Calcutta High Court: In a matter before the Court for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (the Act), a single-judge bench comprising of Moushumi Bhattacharya,* J., held that Clause 13 of the General Terms and Conditions in the e-tender notice does not constitute a valid arbitration agreement under Section 7 of the Act and hence, dismissed the present application on the grounds of maintainability.
Brief Facts
In the instant matter, the petitioner seeks the appointment of an arbitrator under Section 11 of the Act. The dispute arises from the petitioner’s engagement as a contractor for a project specified in an e-tender notice issued by the respondent, Eastern Coalfields Limited (ECL). The petitioner relied on Clause 13 of the General Terms and Conditions in the e-tender notice, claiming it contains an arbitration clause. The respondent challenges the maintainability of the application, arguing the absence of an arbitration agreement.
Moot Point
Whether the use of the word “may” in the arbitration clause implies a clear intention to arbitrate, as required by Section 7 of the Act?
Legal Framework
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Section 7(1) of the Act defines an “arbitration agreement” as an agreement to submit disputes to arbitration.
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Section 7(3) requires the agreement to be in writing.
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Section 11 deals with the appointment of an arbitrator.
Court’s Assessment
Relevant Clause 13 of General Terms and Conditions
The Court noted that Clause 13 of the General Terms and Conditions outlines the process for settling disputes, requiring the contractor to make a written request for settlement within 30 days of the dispute arising. The Court observed that Clause 13 outlines the process for settling disputes, with a two-stage process for dispute resolution between the contractor and the department. If disputes cannot be settled at the company level, the clause states that, “in case of parties other than Govt. Agencies, the redressal of the dispute may be sought through Arbitration and Conciliation Act, 1996”.
Interpretation of “May” in Arbitration Clause
The Court noted that the crucial term in dispute is the use of the word “may” in the clause, creating ambiguity regarding the parties’ intent to submit disputes to arbitration and examined the significance of the term “may” in the context of arbitration agreements. Referring to Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719, the Court emphasised the importance of parties’ unequivocal intent to arbitrate. The Supreme Court, in Jagdish Chander (Supra), set out 4 broad principles on what would constitute an arbitration agreement:
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“The intent of the parties to enter into an arbitration agreement as discernible from the terms of the agreement;
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Absence of the words “arbitration” / “arbitral tribunal” would not be fatal to the existence of an arbitration clause if the clause has the attributes or the elements of an arbitration agreement;
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The clause must provide that the disputes shall be referred to arbitration in the event of disputes arising between the parties;
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Mere use of the words “arbitration” / “arbitrator” in a clause will not make it an arbitration agreement if the clause requires further consent of the parties for reference to arbitration.”
The Court argued that words like “may” introduce indecision and lack of clarity, potentially undermining the existence of a valid arbitration agreement. The Court cited Food Corpn. of India v. National Collateral Management Services Ltd., (2020) 19 SCC 464 and Mahanadi Coalfields Ltd. v. IVRCL AMR Joint Venture, 2022 SCC OnLine SC 960, to support the argument that the word “may” has been interpreted as indicating a lack of finality and an absence of a clear intention to arbitrate.
Clarity of Intention in Arbitration Agreements
The Court noted that the absence of a clear intention to arbitrate was a fundamental argument raised by the respondent at Section 11 stage. The Court emphasised the need for a clear and unambiguous expression of intent to arbitrate, citing examples of phrases that may undermine such intent. The Court asserted that arbitration agreements should not be conditional upon future events or contingent upon other clauses. The Court emphasised the necessity for clarity in dispute resolution clauses, especially in agreements involving public sector undertakings.
“It is also important that contractors / parties engaging with public sector undertakings / Government Companies be made aware of the words used in the arbitration clause which have the effect of negating the arbitration agreement altogether. In many cases, the contractor does not have a say in the drafting of these clauses and it is hence all the more necessary for the parties to be put on notice and guard themselves against vague or uncertain dispute resolution clauses.”
The Court stated that despite the absence of an arbitration agreement, the petitioner has alternative remedies available through the jurisdictional court, as indicated in Clause 32 of the Instructions to Bidders, which forms part of the e-tender document gives the option to an aggrieved party to approach the jurisdictional Court. “Hence, the petitioner will not be rendered remedy-less.”
Court’s Decision
The Court held that the arbitration clause in Clause 13 is muddled, and the use of “may” introduces an element of uncertainty. The Court held that the clause does not constitute a valid arbitration agreement under Section 7 of the Act. The Court dismissed the application on the ground of maintainability, emphasising the importance of clear dispute resolution clauses, with no order as to costs.
[BGM & M-RPL-JMCT (JV) v. Eastern Coalfields Ltd., 2024 SCC OnLine Cal 486, order dated 19-01-2024]
*Judgment by Justice Moushumi Bhattacharya
Advocates who appeared in this case :
Mr. Debajyoti Basu, Mr. Diptomoy Talukdar, Mr. Dibyendu Ghosh, Ms. C. Chatterjee, Counsel for the Petitioner
Mr. Debnath Ghosh, Mr. Sayed Nurul Arefin, Mr. Sayed M. Arefin, Ms. Rashmi Binayak, Counsel for the Respondent
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