Recently, the Calcutta High Court held that Clause 76 of the General Conditions of Contract (GCC) does not amount to a binding arbitration agreement as it fails to demonstrate the parties’ intention to refer disputes to arbitration. The Court, while dismissing an application under Section 11 of the Arbitration and Conciliation Act, emphasized that a mere reference to arbitration, without a clearly expressed obligation, is not sufficient to constitute an enforceable arbitration clause.
Brief Facts:
The petitioner, a contractor, sought the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, invoking Clause 76 of the GCC. This clause stated that any disputes arising out of the contract "may be referred to arbitration" under certain procedures. The respondent resisted the petition, arguing that there was no valid arbitration agreement between the parties and that Clause 76 was not mandatory but merely permissive.
Contentions of the Petitioner:
The petitioner contended that Clause 76 of the GCC constituted a valid arbitration agreement. It was argued that the clause provided a mechanism for dispute resolution and made reference to arbitration under the Indian Arbitration Act, thus fulfilling the statutory requirement of a valid arbitration clause under Section 7 of the Act. The petitioner relied on the language of Clause 76 and urged that it should be interpreted in favour of arbitration, especially when read in conjunction with the contract as a whole.
Observations of the Court:
The Court meticulously analysed Clause 76 and held that it lacked the essential ingredients of a binding arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996. The Court observed that the clause did not reveal any firm or unequivocal intention of the parties to submit disputes to arbitration. It emphasized that for a clause to be recognised as a valid arbitration agreement, it must be "obligatory in nature and not merely optional."
Referring to the Supreme Court’s decisions in Jagdish Chander v. Ramesh Chander and Wellington Associates Ltd. v. Kirit Mehta, the Court reiterated that the use of expressions such as “may be referred to arbitration” or “if the parties so desire” indicate a tentative arrangement and not a concluded contract to arbitrate. The Court observed, “In the absence of a clear, unequivocal, and binding agreement to arbitrate, the machinery under Section 11 cannot be set into motion. The Court is required to determine the existence of a valid arbitration agreement before appointing an arbitrator.”
It further held that when the arbitration clause contains language that requires further consent or mutual decision at a future point, such clause cannot be treated as a binding arbitration agreement. Thus, in the absence of any mandatory obligation on the part of the parties to refer disputes to arbitration, Clause 76 could not be enforced.
The decision of the Court:
Dismissing the petition under Section 11(6), the High Court held that Clause 76 of the GCC was not a valid arbitration agreement and did not disclose the parties' intention to be bound by arbitration. The Court concluded that the clause was merely enabling and did not amount to a concluded agreement to arbitrate. Accordingly, the request for appointment of an arbitrator was rejected.
Case Title: Roshan Agarwal vs National Projects Construction Corporation Limited (Npccl) & Anr.
Case No.: AP-COM/218/2025
Coram: Justice Shampa Sarkar
Advocate for Petitioner: Adv. Probal Kumar Mukherjee (Sr.Adv.), Sanjay Mukherjee
Advocate for Respondent: Adv. Debajyoti Basu (Sr.Adv.), Diptomoy Talukder, D. Ghosh
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