Justice Shampa Sarkar holds that arbitration clause employing ‘may’ is discretionary, not binding.
In a recent order dated April 7, 2025, the Calcutta High Court refused to appoint an arbitrator in a lease dispute, ruling that the arbitration clause in the lease deed did not meet the statutory requirements of a binding arbitration agreement under the Arbitration and Conciliation Act, 1996. The Court was dealing with an application under Section 11 of the Act in Sunil Kumar Samanta v. Smt. Sikha Mondal (2022).
The petitioner sought reference of disputes to arbitration arising from an alleged failure of the respondent to renew a 21-year lease executed on August 16, 2001, by the respondent's predecessor-in-interest, Jiten Mondal. Although the lease expired on August 15, 2022, the petitioner claimed that he had exercised the option for renewal by letter dated August 21, 2021, as per the terms of the lease. The respondent, however, contested the petitioner’s entitlement to renewal and denied the same through her counsel.
Central to the controversy was the interpretation of the arbitration clause in the lease deed, which read: “The Lessor shall be bound to renew the lease for subsequent periods of same tenure if such option is exercised by the Lessee. The rent and other terms and conditions shall be mutually agreed and if not agreed upon the same may be decided by an Arbitrator to be appointed by the parties.”
The Court noted that the petitioner asserted the existence of a binding arbitration agreement and invoked arbitration under the above clause. However, Justice Shampa Sarkar found otherwise.
Relying on settled precedent, the Court held that the clause failed to constitute a binding arbitration agreement within the meaning of Section 7 of the Arbitration and Conciliation Act, 1996. It observed that: “The use of the expression ‘may’ indicates that the parties had agreed that, in future the parties may approach the arbitrator for settlement of disputes. The use of the expression ‘may’ is a possibility and not a binding agreement.”
The Court further clarified that: “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.”
Citing the Supreme Court’s ruling in Wellington Associates Ltd. v. Kirit Mehta, (2000), the Court emphasized that the language used in an arbitration clause is determinative of the parties’ intention. The Supreme Court in that matter had declined to read “may” as “shall”, observing that where “the word ‘may’ was used not without reason”, the clause was merely enabling and not mandatory.
Justice Sarkar also referred to Jagdish Chander v. Ramesh Chander, (2007), wherein the apex court examined the distinction between “shall” and “may” in arbitration clauses. Applying the ratio of that decision, the Court held: “The word ‘may’ denotes a discretion and is typically non-binding.”
It was further held that the language used in the clause under consideration lacked the essential attributes of an enforceable arbitration agreement. The clause did not reflect a definitive consensus ad idem between the parties to submit disputes to arbitration. Rather, it left open the option of approaching an arbitral tribunal, thereby necessitating a fresh consent at the time of dispute.
Justice Sarkar fortified her conclusion with reference to judgments from the Bombay and Delhi High Courts, including GTL Infrastructure Ltd. v. Vodafone India Ltd. (2022), and Linde Heavy Truck Division Ltd. v. Container Corporation of India Ltd. (2012), both of which underscore that arbitration clauses incorporating permissive language, such as “may”, are not enforceable unless followed by unequivocal commitment to arbitrate upon the exercise of such discretion.
Accordingly, the Court declined to entertain the application under Section 11 of the Act and dismissed the plea for reference to arbitration.
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