The Calcutta High Court has reaffirmed that an arbitration clause must reflect a clear, binding, and certain mutual intention to refer disputes to arbitration. A clause that leaves the appointment of an arbitrator contingent upon further consent of the parties is not enforceable, regardless of the mere use of the term 'Arbitrator'. This judgment underscores the strict threshold for validity under the Arbitration and Conciliation Act, 1996.
Background & Facts
The Dispute
The dispute arose from a commercial agreement between Sriman Krishnendu Mondal (petitioner) and Swapan Dey (respondent). Clause 17 of the agreement, which forms the crux of the litigation, reads: "That in event of any problem that the both party can appoint any Arbitrator with the consent of other party."
The petitioner filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator. The respondent opposed the application, contending that the arbitration clause was invalid, unintelligible, and lacked mutuality. The petitioner, through his original counsel, conceded during the hearing that the clause was misconceived and not subsisting.
Key Facts
- The commercial agreement containing Clause 17 was executed on an unspecified date prior to the filing of the Section 11 application
- Clause 17 is the sole provision purporting to establish an arbitration mechanism
- The clause uses the word "can" and requires mutual consent for appointment of an arbitrator
- No alternative dispute resolution mechanism was provided in the agreement
- The respondent filed an application under Section 9 of the Act before the District Judge, Alipore (Misc. Case No. 15/2023), seeking interim relief
Procedural History
- Date of filing of Section 11(6) application: Not specified in judgment, but proceedings concluded on 19 April 2024
- 19 April 2024: Single Judge of Calcutta High Court dismissed the Section 11(6) application, holding the arbitration clause was unintelligible and lacked mutuality
- 19 April 2024: The Court also held that the Section 9 proceedings before the District Judge were misconceived
- 22 April 2024: Petitioner filed the present review application (RVWO/23/2024)
- 1 April 2026: Review application heard and dismissed by the same Bench
The Parties' Positions
Petitioner’s Position: Argued that despite the cryptic wording, the use of the term "Arbitrator" demonstrated a clear intention to arbitrate. Relied on Jagdish Chander v. Ramesh Chander, Visa International Ltd. v. Continental Resources, and Powertech World Wide Ltd. v. Delvin International to contend that courts should uphold arbitration agreements by giving effect to the parties’ intent.
Respondent’s Position: Contended that the clause was not a binding arbitration agreement because it required further consent for arbitrator appointment, rendering it contingent and unenforceable. Relied on BGM and M-Rpl-Jmct (JV) v. Easter Coalfields Ltd., BVEPL Bhartia (JV) v. State of West Bengal, and South Delhi Municipal Corporation v. SMS Ltd. to argue that mere reference to "Arbitrator" without certainty of procedure or obligation is insufficient.
Relief Sought
The petitioner sought review of the order dated 19 April 2024 on the grounds of error apparent on the face of the record. He requested that the Court reconsider the validity of Clause 17 and appoint an arbitrator under Section 11(6). He did not seek any monetary relief.
The Legal Issue
The central question was whether an arbitration clause stating that parties "can appoint any Arbitrator with the consent of other party" constitutes a binding and enforceable arbitration agreement under Section 11(6) of the Arbitration and Conciliation Act, 1996, or whether its contingent and non-obligatory language renders it void for uncertainty.
Arguments Presented
For the Petitioner
The petitioner’s counsel argued that the clause, though poorly drafted, evidenced a clear intention to arbitrate. They relied on Visa International Ltd. v. Continental Resources, where the Supreme Court held that courts should interpret arbitration clauses generously to uphold arbitration. They contended that the word "Arbitrator" in the clause was sufficient to infer mutual intent, and that technical imperfections should not defeat arbitration. They further argued that the Court’s earlier concession by their former counsel should not bind the new counsel, and that review was permissible to correct an error apparent on the record.
For the Respondent
The respondent contended that the clause was not a binding agreement because it lacked finality and mutuality. The use of "can" instead of "shall" indicated permissiveness, not obligation. The requirement of mutual consent for arbitrator appointment introduced an unenforceable contingency. The respondent relied on BGM and M-Rpl-Jmct (JV) v. Easter Coalfields Ltd., which held that an arbitration clause must be capable of being performed without further negotiation. They also cited South Delhi Municipal Corporation v. SMS Ltd., which emphasized that courts cannot rewrite or complete incomplete arbitration agreements.
The Court's Analysis
The Court began by noting that the order dated 19 April 2024 was passed at the invitation of the petitioner’s original counsel, who expressly conceded the clause was misconceived. The Court held that a mere change of counsel does not permit reopening of a concession duly recorded in the order.
The Court then turned to the substantive issue: whether Clause 17 constituted a valid arbitration agreement. It emphasized that the Arbitration and Conciliation Act, 1996 is a self-contained code and that judicial intervention under Section 11 is limited to determining the existence of a valid arbitration agreement, not to create one.
"An arbitration agreement must reflect a definitive and mutual intention to refer the disputes to arbitration. The agreement must contemplate a binding and enforceable resolution of disputes. There must be both clarity and certainty in an arbitration clause."
The Court distinguished Visa International, where the clause used the word "shall" to indicate a mandatory obligation. Here, the use of "can" rendered the clause optional and contingent. The Court held that requiring further consent for arbitrator appointment introduced an element of uncertainty that made the clause incapable of enforcement.
"There is something incomplete and tentative about the arbitration clause and the same requires the parties to arrive at a further agreement to go to arbitration. An agreement requiring further consent is not a binding arbitration agreement."
The Court rejected the petitioner’s reliance on Jagdish Chander, noting that in that case, the clause was ambiguous but still contained a clear obligation to arbitrate. Here, there was no obligation at all. The Court also cited BVEPL Bhartia (JV) v. State of West Bengal and South Delhi Municipal Corporation v. SMS Ltd. to reinforce that courts cannot supply missing terms or fill gaps in defective arbitration clauses.
Finally, the Court held that review jurisdiction under Order XLVII Rule 1 of the CPC cannot be invoked to re-agitate issues decided under Section 11(6), as the Act provides no appeal mechanism and permits challenge only before the Supreme Court under Section 37. To permit review would undermine the statutory scheme of minimal judicial interference.
The Verdict
The review application was dismissed both on grounds of maintainability and on the merits. The Court upheld its order dated 19 April 2024, holding that Clause 17 of the agreement was not a valid arbitration agreement under Section 11(6) of the Arbitration and Conciliation Act, 1996. The Court confirmed that the Section 9 application before the District Judge, Alipore, remains open for adjudication on its own merits. No further directions were issued.
What This Means For Similar Cases
Arbitration Clauses Must Be Binding, Not Permissive
- Practitioners must ensure arbitration clauses use mandatory language (e.g., "shall", "must") and not permissive terms (e.g., "can", "may")
- Clauses requiring mutual consent for arbitrator appointment are likely to be struck down as unenforceable
- Drafting arbitration clauses with conditional or contingent language invites judicial invalidation
Courts Will Not Rewrite Incomplete Agreements
- The doctrine of severance or reading-in does not apply to arbitration clauses lacking essential terms
- Parties cannot rely on courts to infer intent where the clause is silent on procedure, venue, number of arbitrators, or governing law
- Any ambiguity in the clause will be construed against enforceability, especially where the clause is one-sided or boilerplate
Section 11 Applications Cannot Be Revived Through Review
- Orders under Section 11 are not subject to review under Order XLVII CPC
- The only recourse is to challenge the order before the Supreme Court under Section 37, if applicable
- Attempts to re-litigate Section 11 decisions via review applications will be summarily dismissed
