Arbitration Clause with ‘May’ Not Binding Without Fresh Consent: Calcutta High Court [Read Order]

Kolkata: The Calcutta High Court has delivered a significant ruling, clarifying that an arbitration clause using the term “may” indicates a discretionary, rather than mandatory, approach to dispute resolution—requiring fresh consent from both parties.

Calcutta High Court Clarifies Legal Interpretation of Arbitration Clauses in Lease Agreements

Justice Shampa Sarkar made crucial observations on the interpretation of arbitration clauses and the legal implications of specific language used in agreements.

The court addressed a case involving a petition filed by Sunil Kumar Samanta against Smt. Sikha Mondal concerning a lease renewal dispute. It noted: “The use of the expression ‘may’ indicates that the parties had agreed that, in future, they may approach the arbitrator for settlement of disputes. The use of the expression ‘may’ is a possibility and not a binding agreement.”

Use of ‘May’ in Arbitration Clauses Deemed Non-Mandatory, Says High Court

Addressing the specific arbitration clause in the lease deed, which stated that disputes “may be decided by an Arbitrator to be appointed by the parties,” the court observed: “Not only must an arbitration clause indicate that the parties had agreed that they ‘shall’ refer the disputes to arbitration, but the clause should also indicate that the parties agreed to refer the dispute to a private tribunal and would be bound by the decision of the said Tribunal.”

The court highlighted the distinction between mandatory and optional dispute resolution mechanisms, stating: “The use of the expression ‘may’ in the clause clearly indicates that the parties had not decided to refer their disputes to arbitration, but had kept an option open that, in case the disputes were not settled, the parties would have an opportunity to approach an arbitrator for adjudication.”

In its ruling, the court relied on several precedents, including Wellington Associates Ltd. vs. Kirit Mehta, Jagdish Chander vs. Ramesh Chander and Ors., GTL Infrastructure Ltd. vs. Vodafone India Ltd., and M/s Linde Heavy Truck Division Ltd. vs. Container Corporation of India Ltd. & Anr.

The court emphasized that “if the agreement between the parties requires or contemplates a further or fresh consent for reference to arbitration, it would not constitute an arbitration agreement.” Justice Sarkar noted that, while the petitioner may have attempted to invoke arbitration by issuing a notice, the respondent’s refusal to accept the suggestion “itself shows that the parties did not agree to go to arbitration.”

The court dismissed application AP/15/2022 filed by the petitioner, seeking enforcement of what was claimed to be a binding arbitration clause.

Ms. Mayuri Ghosh, Ms. Somali Bhattacharya, and Ms. Megha Das, Advocates, appeared for the petitioner in this case.

Case Title: Sunil Kumar Samanta vs. Smt. Sikha Mondal

[Read Order]