Mere Use Of "Arbitration" In Heading Does Not Create Binding Clause If Fresh Consent Of Parties Is Required For Reference: Calcutta High Court

Brief Facts:

The West Bengal Highway Development Corporation Limited (WBHDCL), incorporated under the Companies Act, 1956, invited bids in 2019 for the construction, widening, and strengthening of the Bongaon-Chakdaha Road from two lanes to four lanes. The petitioner submitted a bid, which was accepted, and a letter of acceptance was issued on September 17, 2019, for Rs. 379 crores. The agreement was executed on December 2, 2019.

The Petitioner submitted that the parties agreed to resolve disputes amicably, failing which arbitration would follow. Despite numerous communications from the petitioner, disputes remained unresolved. WBHDCL repeatedly raised unnecessary queries, and despite the petitioner's persistent efforts to seek payment, the authorities remained silent and took no initiative to settle the matter.

It was further submitted that the clause requiring the parties to go for conciliation at the first instance, was directory and not mandatory. Further submission was that, the continuous exchange of letters between the parties since 2021, would clearly indicate that an further attempt at conciliation would be an empty formality.

It was further submitted that WBHDCL acknowledged the arbitration clause but insisted that conciliation must precede arbitration. When conciliation stalled and WBHDCL refused to form an arbitral tribunal, the petitioner sent a final demand letter on September 17, 2024.

It was also submitted that WBHDCL replied on September 20, 2024, stating the demand was under review by the competent authority and pending DRC constitution, as per Clause 26.3 for dispute settlement.

Lastly, it was submitted that since the DRC was not constituted and any unilateral committee formation was legally invalid, the petitioner invoked arbitration via an advocate's letter on October 21, 2024, proposing an arbitrator from a suggested panel. When respondents declined, the petitioner filed an application before this Court.

Per contra, the Respondent submitted that if conciliation succeeded, the parties would sign a settlement agreement, binding under Section 73 of the Arbitration Act. Clauses 26.1 to 26.3 require disputes to be resolved through conciliation first, which the petitioner did not complete before filing. The arbitration application was therefore premature.

It was further submitted that the use of the expression 'may' in Clause 26.2 would clearly indicate that there was no binding arbitration clause either in the EPC agreement or the Supplementary Agreement.

It was lastly submitted that the heading of Clause 26.3 titled "Arbitration" does not by itself establish that the parties agreed to arbitrate disputes. WBHDCL consistently denied the existence of any arbitration clause and insisted on following the dispute resolution mechanism under Clause 26.2, refusing to consent to the petitioner's arbitration proposal.

Observations:

The court observed that the Respondent's argument that the application was premature due to non-exhaustion of conciliation is rejected. Despite numerous letters from the petitioner and assurances from WBHDCL, no conciliator was appointed, nor was the DRC constituted. The Court held that further conciliation would be futile, as the respondents showed no genuine intention to resolve the dispute.

The Supreme Court in Visa International Ltd. v. Continental Resources (USA) Ltd., (2009) noted that the exchange of letters between CRL and VISA shows efforts were made to amicably resolve disputes under the executed agreements. However, despite repeated requests, the petitioner failed to provide funding schedules and supporting documents, hindering financial closure. As these efforts proved unsuccessful, invoking the arbitration clause became the only recourse.

After referring to various clauses of the Agreement, the court noted that the use of "shall" in Clause 26.1.1 and "may" in Clause 26.2 reflects a deliberate choice by the parties: while conciliation was mandatory, referral to arbitration upon its failure remained optional. This distinction shows that arbitration was not automatic but contingent upon a party's discretion after failed conciliation.

The Supreme Court in Wellington Associates Ltd. vs. Kirit Mehta (2000) held that the phrase “may be referred” in Clause 5, when read alongside Clause 4, suggests that the clause is not a binding or mandatory arbitration clause. Instead, it implies that arbitration would require a fresh and mutual agreement between the parties to proceed.

The court noted that in the above matter, the Apex Court held that the use of the words “shall” and “may” in different clauses of the same contract indicated a deliberate and conscious choice by the parties. Rejecting the argument that “may” should be construed as “shall,” the Court observed that the general intention was to allow for civil litigation, while still permitting arbitration as an optional route. Hence, “may” could not be interpreted as mandatory.

It further observed that an arbitration agreement must be framed in obligatory, not precatory, language. While no fixed format is required, the terms must clearly reflect a definite and mutual intent to arbitrate, rather than suggest arbitration as a mere option. In the present case, the requirement to first pursue conciliation was expressed in mandatory terms.

The Supreme Court in Jagdish Chander held that 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.

Applying the ratio in Jagdish Chander , it was held that the mere use of the word “Arbitration” in the heading of Clause 26.3 does not constitute a binding arbitration agreement under Section 7 of the Arbitration Act. The use of the term “may” indicates that arbitration is contingent upon mutual consent, and the clause reflects only a possibility—not an obligation—to arbitrate in the future.

The court held that nothing in the contract suggests that the parties intended the DRC to act as an arbitral tribunal. The option to refer disputes to arbitration was discretionary, requiring future mutual consent. Absent is any clear intent to submit disputes to arbitration under the Arbitration Act. Thus, the clause does not amount to a binding arbitration agreement.

Accordingly, the present application was declared to be not maintainable.

Case Title: BVEPL BHARTIA (JV) VS STATE OF WEST BENGAL AND ORS

Case Number: AP-COM/991/2024

Judgment Date: 22/05/2025

For the petitioner : Mr. Krishnaraj Thaker, Sr. Adv. Mr. Indranil Munshi

For the respondent No.1./State : Mr. Sirsanya Bandopadhyay, Sr. Adv. Mr. Paritosh Sinha, AoR. Mr. Arindam Mandal, Ms. Swagata Ghosh

For the respondent Nos. 2 & 3 : Mr. Suddhasatva Banerjee, Mr. Shashwat Nayak, Mr. Dipankar Das

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