In BGM AND M-RPL-JMCT (JV) v. Eastern Coalfields Ltd., 2025 SCC OnLine SC 1471, the Hon’ble Supreme Court of India (“Supreme Court”) clarified the requirements for an arbitration clause to qualify as a binding agreement under Section 7 of the Arbitration and Conciliation Act, 1996 (“the Act”). Relying on Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719 and Mahanadi Coalfields Ltd. v. IVRCL AMR JV, (2022) 20 SCC 636, the Supreme Court reiterated that the language and intent of the clause must unequivocally reflect consensus ad idem to arbitrate.

The dispute arose from a contract for transportation and handling of goods. BGM AND M-RPL-JMCT (JV) (“the Appellants”) invoked Clause 13 of the General Terms and Conditions - annexed to the e-tender notice - as an arbitration clause and filed an application under Section 11(6) of the Act seeking appointment of an arbitrator. Clause 13, titled “Settlement of Disputes,” stated that in cases involving non-Government parties, disputes may be sought to be resolved under the Act.

Eastern Coalfields Limited (“the Respondent”) opposed the application, arguing that Clause 13 lacked the mandatory language required to constitute a valid arbitration agreement. The Calcutta High Court (“the High Court”) agreed, holding that the use of “may” indicated a non-binding, optional mechanism. It concluded that the clause did not reflect a definitive intent to arbitrate and dismissed the application.

Before the Supreme Court, the Appellants contended that the clause became binding once arbitration was invoked, and that the High Court’s role was limited to a prima facie determination of the existence of an arbitration agreement. They argued that the arbitral tribunal should decide any jurisdictional objections.

The Respondent maintained that Clause 13 merely enabled future agreement to arbitrate and did not itself constitute a binding arbitration agreement. In the absence of any subsequent consensus, unilateral invocation was impermissible.

The Supreme Court upheld the High Court’s decision, affirming that Clause 13 did not satisfy the requirements of Section 7. It held that the phrase “may be sought” denotes a permissive provision, operative only upon mutual agreement. The clause lacked the certainty and binding intent necessary to constitute an arbitration agreement. The Supreme Court emphasized that arbitration cannot be imposed unilaterally where the clause merely provides an option.

Further, the Supreme Court clarified that under Section 11(6A) of the Act, the referral court must be prima facie satisfied of the existence of an arbitration agreement. This involves limited scrutiny of documents to filter out frivolous claims. Where the agreement is contained in a single, undisputed document, a plain reading suffices. If multiple documents are involved and a prima facie case is made out, the matter may be referred to arbitration. However, in the present case, no such prima facie agreement existed.

Accordingly, the Supreme Court reinforced that permissive language such as “may” does not create a binding obligation to arbitrate and dismissed the appeal.

By - Gurkaranbir Singh