The Hon’ble Supreme Court in a recent judgment dated 17.04.2026 in Nagreeka Indcon Products Pvt. Ltd. vs Cargocare Logistics (India) Pvt. Ltd. [Civil Appeal No. 4563 of 2026] answered the question,when the arbitration clause in the contract uses the word “can”, does it necessitate the reference of all disputes to arbitration or is recourse to other dispute resolution mechanisms, including that of the civil court, open for the parties.

Legal Issue
Whether an arbitration clause using the word “can” constitutes a mandatory arbitration agreement enforceable under Section 7 of the Arbitration and Conciliation Act, 1996 or merely provides an optional method of dispute resolution?

Background of the Dispute
The appellant, Nagreeka Indcon Products Pvt. Ltd., a manufacturer of aluminium foil containers and kitchen rolls engaged Cargocare Logistics (India) Pvt. Ltd. for transporting the export consignments to U.S.A. Out of six consignments, four were delivered successfully. The dispute arose out of the fifth consignment. The bills of lading issued by the respondent contained Clause 25, which reads as:

“25. Arbitration.- The contract evaluated hereby or contained herein shall be governed by and construed according to Indian laws. Any difference of opinion or dispute thereunder can be settled by arbitration in India or a place mutually agreed with each party appointing an arbitrator.”

The appellant invoked arbitration, and sought appointment of a sole arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. The respondent disputed the reference to arbitration on the ground that the clause merely permitted arbitration rather than mandating it. The High Court of Judicature at Bombay dismissed the Arbitration Application No. 168 of 2022 seeking appointment of a sole arbitrator, in terms of the judgment dated 23.02.2023

Analysis
The Supreme Court observed that arbitration is based on party autonomy and mutual consent. Parties cannot be compelled to resort to arbitration unless they have unequivocally agreed to do so. The legitimacy of the Arbitration is derived from the party’s explicit consent to the arbitration clause in the contract. The court also analysed the dictionary meaning of the word “can” and observed that it denotes possibility or discretion, but not compulsion to act.

The Supreme Court observed that a valid arbitration agreement must disclose an absolute intention to submit disputes to arbitration rather than merely expressing a future possibility. The Supreme Court examined Jagdish Chander v. Ramesh Chander (2007) 5 SCC 719. The relevant para is reproduced as under:

"(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 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."

Conclusion
The Hon’ble Supreme Court vide its decision dated 17.04.2026 dismissed the appeal and upheld the Bombay High Court decision. The Supreme Court observed that the word “can” signifies only a possibility and not a binding commitment to arbitrate. The Supreme Court held that the arbitration clause did not constitute a binding arbitration agreement because it merely contemplated the possibility of arbitration rather than creating a mandatory obligation to arbitrate disputes. The intention behind the wording/framing of the arbitration clauses needs to be looked carefully, whether it’s a permissive contractual clause or a binding arbitration clause. The parties entering into a contract must showcase their true and clear intention, through the contract drafting and make sure there is no room for ambiguity. This decision would influence future contract drafting and arbitration clauses therein, which would ultimately reflect the genuine intent of the parties entering into a contractual relationship.

By - C. George Thomas and Dhananjay Kataria