2026 INSC 384 Page 1 of 18

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO OF 2026

(@ Special Leave Petition (Civil) No.19026 of 2023)

NAGREEKA INDCON PRODUCTS

PVT. LTD. …APPELLANT (S)

[

VERSUS

CARGOCARE LOGISTICS

(INDIA) PVT. LTD. …RESPONDENT (S)

J U D G M E N T

SANJAY KAROL J.

Leave Granted.

2. The short but significant question arising in this appeal is,

when the arbitration clause in the contract uses the word ‘can’,

does it necessitate the reference of all disputes to arbitration or is

recourse to other dispute resolution mechanisms, including that

of the Civil Court, open for the parties.

Page 2 of 18

3. The facts of this case lie in a narrow compass. The

appellant is a manufacturer of aluminium foil containers and

kitchen rolls. In the course of business, it received a contract for

purchase of corrugated boxes of aluminium foil from M/s.

American Alupack Industries

1

. The eventual product was to be

delivered to South Carolina, USA, and regarding such transport,

the appellant contracted with the respondent for a total

consideration of Rs.2,23,550/- which was inclusive of freight

charges, ocean freight, ACD charges, container maintenance

charges etc. The total consignment was of six containers, out of

which four were delivered successfully prior to the dispute

arising between the parties. When it came to the delivery of the

fifth container, the dispute in question arose. Apparently, when

the respondent delivered the fifth consignment to AAI, the latter

failed to pay the requisite amount or, as per established practice,

produced the original bill of lading at the time of delivery.

Despite this the respondent handed over the goods to AAI on 21

st

October 2020 resulting into financial loss to the appellant as did

not receive payment for supply of the goods to the tune of USD

28064.86. On 10

th

December 2020 the appellant raised this issue

with the respondent, who asserted the factum of a differing past

practice of handing over the goods without production of the

original bill of lading and denied any liability.

1

‘AAI’

Page 3 of 18

It may be noted here that the bills of lading issued by the

respondent contained as Clause 25, a dispute resolution

mechanism captioned arbitration which reads as under:

“25. Arbitration:

The contract evaluated hereby or contained herein shall be

governed by and construed according to Indian Laws. Any

difference of opinion or dispute thereunder can be settled by

arbitration in India or a place mutually agreed with each party

appointing an arbitrator.”

In view of the above dispute, by notice of invocation dated 10

th

March 2022 the appellant suggested the matter be referred to

arbitration for a total amount of USD 13230.86. Apart from

replying to the merits of the notice, the respondent also disputed

the reference to arbitration suggesting that the clause reproduced

supra is not a mandate but leaves open the option to the parties

to take the matter to arbitration.

4. The appellant preferred Arbitration Application No.168 of

2022 before the High Court of Judicature at Bombay, seeking

appointment of sole arbitrator, which was disposed of in terms of

the impugned judgment dated 23

rd

February 2023 whereby the

learned Single Judge held as follows:

“…However, in the present case when it is manifestly and ex-

facie certain that there is no agreement between the parties to

mandatorily refer the disputes that have arisen between them

for arbitration, I am unable to be persuade myself by the

submission of the learned counsel for the Applicant that the

Page 4 of 18

clause involved make arbitration as a compulsory choice for

the parties for resolution of disputes.

18] In the wake of above discussion, since I am of the view

that Arbitration clause, which had used the word ‘can’, do not

make it imperative for the parties to be referred for arbitration

and specifically when the Respondent has refused to be

referred for arbitration, in the wake of the choice being

available, in terms of the clause contained in the agreement.

The Arbitration Application deserve to be dismissed, as it

cannot be construed as amounting to ‘Arbitration’ as the

mode of” resolving disputes, in absence of affirmation at the

end of the opposing party.

Hence, Arbitration Application No.168 of 2022 is

dismissed.”

5. We have heard learned counsel for the parties.

5.1 The case set up by the appellant is that Section 7 of

the Arbitration and Conciliation Act 1996

2

does not

prescribe any form for an arbitration agreement. Apart

from that, the intent of the parties to have arbitration be the

chosen method of dispute resolution is evident from the

bill containing a clause to that effect. The heading of the

clause acquires importance in view of the judgment of this

Court in Eastern Coalfields v. Sanjay Transport Agency

and Another

3

, it has also been held in Babanrao Rajaram

Pund v. M/s Samarth Builders And Developers

4

and

Enercon (India) Ltd. v. Enercon GmbH

5

that a pragmatic

2

A&C Act

3

2009 (7) SCC 345

4

2022 (9) SCC 691

5

2014 (5) SCC 1

Page 5 of 18

approach should be taken to interpretation of arbitration

clauses. The drafting of such a clause, in view of the

intention demonstrated otherwise, cannot be taken

advantage of by any party [See: Visa International Ltd. v.

Continental Resources USA Limited

6

]. In reference to

Vidya Drolia v. Durga Trading Corporation

7

, it is

submitted that at the stage of Section 11 application only

the existence of the clause is to be looked into, in other

words a prima facie view is to be taken. Reliance is also

placed on the observation that when there is a doubt,

Courts should lean towards referring the matter to

arbitration. Further, by relying on a judgment of a Delhi

High Court in Panasonic India (P) Ltd. v. Shah Aircon

8

,

it is submitted that ‘can’ does constitute a mandatory

arbitration clause. Further, strength is drawn from

appointment of an arbitrator by this Court in Zhejiang

Bonly Elevator Guide Rail Manufacture Company

Limited v. Jade Elevator Components

9

. When the dispute

resolution clause stated “arbitration or the court”.

5. 2 Per contra, inter alia the respondents submitted that

clause 25 of Bill of lading does not constitute a valid

6

2009 (2) SCC 55

7

2021 (2) SCC 1

8

2022 SCCOnline Del 3288

9

2018 (9) SCC 774

Page 6 of 18

arbitration clause as it does not convey definitive

agreement between the parties to that end. With reference

to K.K. Modi v. K.N. Modi

10

and Bihar State Mineral

Development Corporation v. Encon Builders (I) (P)

Ltd.

11

it is submitted that the necessary elements of a valid

arbitration clause has been set out in these judgments and

the same are not met in the present case. Further, relying

on BGM and M-RPL-JMCT(JV) v. Eastern Coalfields

Ltd

12

and Jagdish Chander v. Ramesh Chander

13

it is

argued that words such as ‘can’ do not constitute a binding

arbitration agreement. Further ground of attack on part of

the respondent is that Clause 25 provided for each party

appointing one arbitrator but does not contemplate the two

arbitrators so appointed, collectively appointing the third,

presiding arbitrator and this position is in derogation of

Section 10 of the A&C Act.

5.3 In the light of the afore-stated submissions, we now

proceed to consider the question formulated in paragraph

2.

6. As commercial transactions grow to involve more and

more moving parts, naturally resulting in heightened complexity,

10

1998 (3) SCC 573

11

2003 (7) SCC 418

12

2025 SCCOnline SC 1471

13

2007 (5) SCC 719

Page 7 of 18

time has become a prized commodity and possession. To that

end, Alternate Dispute Resolution mechanisms, have deservedly

become the preferred medium, overcoming the otherwise

common factors of delay, cost and also its openness to public,

which can have detrimental effect on the commercial value of the

dispute. It has become a preferred medium while keeping its most

essential factor at the forefront, that is, party autonomy, or its

inherently voluntary characteristic. The concurring opinion of

P.S. Narasimha, J., in Cox & Kings Ltd. v. SAP India (P)

Ltd.

14

, succinctly captures the sine qua non for arbitral

proceedings - “The parties must mutually intend to refer their

differences to arbitration as consent is the source of the Arbitral

Tribunal's jurisdiction over them.” In other words, Alternate

Dispute Resolution mechanisms or more particularly, arbitration,

which is relevant in this case, can only be the chosen method if

both/all parties to the dispute can agree that it will be so. This

freedom is not only in so far as choosing the medium, but it also

encompasses choice of forum, applicable law and to some extent

even procedural norms. This enables parties to have their dispute

decided by keeping in view their own structures and realities.

7. Since the judgment impugned before us was an application

for appointment of arbitrator, it is apposite to refer to the duty

cast upon the Court in deciding such an application.

14

(2024) 4 SCC 1

Page 8 of 18

The main dispute before us swings on the interpretation of

the word ‘can’. As ordinarily understood, it means capacity,

capability or factual possibility. The Oxford Learner’s

Dictionary discusses the word ‘can’ as a word that is “used to

say that it is possible for someone or something to do something,

or for something to happen”

15

. Similarly, Merriam Webstar says

‘can’ is a word that is “used to indicate possibility”

16

. Lastly, we

may refer to the Britannica Dictionary, it defines the word as

follows: “to be able to (do something)”; “to know how to (do

something)”; “to have the power or skill to (do something)”

17

.

Having understood the meaning of the word, it may be observed

that its use in judicial interpretative context is limited. Most often

the words ‘may’ or ‘shall’ are used. Normally, the former

denotes discretion but not compulsion to act, but then it is all

contextual. Put differently, the authority is permitted to do

something but is not required to. If it is the requirement that is to

be denoted, ‘shall’ is the most appropriate word which signals a

mandate or obligation.

7.1 In SBI General Insurance Co. Ltd. v. Krish Spg.

18

, a

bench of three judges held as under:

“114. The use of the term “examination” under Section 11(6-

15

https://www.oxfordlearnersdictionaries.com/american_englist/can1

16

https://www.merriam-webstar.com/dictionary/can

17

https://www.britannica.com/dictionary/can

18

(2024) 12 SCC 1

Page 9 of 18

A) as distinguished from the use of the term “rule” under

Section 16 implies that the scope of enquiry under Section

11(6-A) is limited to a prima facie scrutiny of the existence

of the arbitration agreement, and does not include a contested

or laborious enquiry, which is left for the Arbitral Tribunal to

“rule” under Section 16. The prima facie view on existence

of the arbitration agreement taken by the Referral Court does

not bind either the Arbitral Tribunal or the Court enforcing

the arbitral award.

…

117. In view of the observations made by this Court

in Interplay Between Arbitration Agreements under the

Arbitration Act, 1996 & the Stamp Act, 1899, In re [Interplay

Between Arbitration Agreements under the Arbitration Act,

1996 & the Stamp Act, 1899, In re, (2024) 6 SCC 1 : 2023

INSC 1066] , it is clear that the scope of enquiry at the stage

of appointment of arbitrator is limited to the scrutiny of prima

facie existence of the arbitration agreement, and nothing else.

For this reason, we find it difficult to hold that the

observations made in Vidya Drolia [Vidya Drolia v. Durga

Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549]

and adopted in NTPC Ltd. v. SPML Infra Ltd. [NTPC

Ltd. v. SPML Infra Ltd., (2023) 9 SCC 385 : (2023) 4 SCC

(Civ) 342] that the jurisdiction of the Referral Court when

dealing with the issue of “accord and satisfaction” under

Section 11 extends to weeding out ex facie non-arbitrable and

frivolous disputes would continue to apply despite the

subsequent decision in Interplay Between Arbitration

Agreements under the Arbitration Act, 1996 & the Stamp Act,

1899, In re [Interplay Between Arbitration Agreements under

the Arbitration Act, 1996 & the Stamp Act, 1899, In re, (2024)

6 SCC 1 : 2023 INSC 1066] .

…

127. Section 11 also envisages a time-bound and expeditious

disposal of the application for appointment of arbitrator. One

of the reasons for this is also the fact that unlike Section 8,

once an application under Section 11 is filed, arbitration

cannot commence until the Arbitral Tribunal is constituted by

the Referral Court. This Court, on various occasions, has

given directions to the High Courts for expeditious disposal

of pending Section 11 applications. It has also directed the

litigating parties to refrain from filing bulky pleadings in

Page 10 of 18

matters pertaining to Section 11. Seen thus, if the Referral

Courts go into the details of issues pertaining to “accord and

satisfaction” and the like, then it would become rather

difficult to achieve the objective of expediency and

simplification of pleadings.”

7.2 In Goqii Technologies (P) Ltd. v. Sokrati

Technologies (P) Ltd.

19

, the Court held:

“21. Before we conclude, we must clarify that the limited

jurisdiction of the referral courts under Section 11 must not

be misused by parties in order to force other parties to the

arbitration agreement to participate in a time consuming and

costly arbitration process. This is possible in instances,

including but not limited to, where the claimant canvasses the

adjudication of non-existent and mala fide claims through

arbitration.”

8. Since the discussion made in the impugned judgment

pertained only to whether Clause 25 did or did not constitute a

binding arbitration agreement between the parties, it can be

observed that the learned Single Judge kept to the jurisdictional

confines as mandated by the A&C Act. Next, we consider the

rival contentions of the parties.

9. The sum and substance of the appellant’s case is that

Clause 25 reproduced (supra) constitutes a binding arbitration

clause. In furtherance of this position reliance has been placed

on various judgments of this Court and also of the High Court.

Let us examine them.

9.1. In Eastern Coalfields (supra), it has been observed

19

(2025) 2 SCC 192

Page 11 of 18

that section, heading or a marginal note, can be relied on to

clear any doubt or ambiguity. In that case, interpretation

was regarding a mandatory arbitration clause but, the

dispute was as to upon whom the said arbitration clause

applies. Having regard to the heading of the section, it was

held that the arbitration clause would apply only to disputes

between public sector enterprises and government

departments and would not apply to any dispute involving

a private party. In the present case, there is no such

distinction or dispute. The heading uses only one word

arbitration but as opposed to the case referred to (supra),

the modal here is ‘can’, indicating a choice available to the

parties.

9.2 In Babanrao Rajaram Pund (supra) which has been

relied upon by the appellant to submit that a pragmatic

approach should be taken, observes that when an

arbitration agreement, apart from using the word

‘arbitration’ or ‘arbitrators’ spells out its clear intention

by the use of the word ‘shall’, its mandatory nature is clear.

It has been also observed that deficiency of words and

agreement which otherwise fortifies the intention cannot

delegitimize the arbitration clause. As is obvious, the

intention of the parties is anything but clear in the present

case. This latter aspect will be elucidated with more clarity

Page 12 of 18

in the succeeding paragraphs of this judgement.

9.3 In Visa International (supra) the dispute resolution

clause provided that any disputes arising between the

parties, if any, shall be settled in accordance with the

provisions of the A&C Act; and did not specifically state

as to whether the chosen method would be arbitration or

conciliation. While holding that a binding arbitration

clause did exist, the Court held that one or two words being

absent is not the deciding factor and in fact, it is the whole

clause providing for the settlement of disputes that are to

be seen together to gather the intention of the parties. There

can be no qualms with this position. Reading the arbitration

clause in this case, it can in no way be said that the intent

of the parties is clear. This is on two counts, one the use of

the word ‘can’ and second, providing for the incomplete

procedure regarding appointment of arbitrators if at all.

9.4 In Enercon (India) (supra) the question involved

amongst others, not relevant to the present dispute, was

regarding an arbitration clause being rendered

unworkable on account of the fact that it did not provide

for the manner in which the 3

rd

arbitrator was to be

appointed. It only provided that each party to the

arbitration would appoint one arbitrator of their choice.

This Court observed that the intent to appoint an arbitrator

Page 13 of 18

cannot be frustrated on account of the fact that the clause

is unworkable. There was no dispute as to arbitration

being the chosen mechanism to resolve conflict. In the

facts and circumstances, it was read into the clause that

the two arbitrators so appointed by each party would then

appoint the third arbitrator. In doing so, it was observed

that the approach taken to construe an arbitration clause

should not be pedantic but pragmatic. The crucial

distinction with the present facts is that the intent to

arbitrate was clear. It is not the case before us as one party

says that the arbitration clause is binding and the other

does not even consider the clause to be an arbitration

clause to begin with.

9.5 In Zhejiang Bonly (supra) the opposing

contentions of the parties were that when the clause for

dispute settlement says arbitration or the Court, which one

would prevail. The Court here held that an option was

available to the parties and the one who invoked the

dispute settlement process chose to go for arbitration, as

such, with that being an option available to him, no-fault

could be found with that choice. The word used in the

clause was ‘should’, which is consistent with the fact that

an option had been provided to the parties. The facts of

this case, as it appears to us, are in no way similar to the

Page 14 of 18

present case and as such the same would not be of any aid

to the appellant.

9.6 In Vidya Drolia (supra) the Court observed that

when there is a doubt, the matter be referred to arbitration.

It has also been observed that in matters of purely

commercial nature, a liberal approach should be adopted

as a one-stop dispute resolution process would be

favourable. Once again, these observations are such that

no question can be raised against them. The doubt referred

to here arises in the construction of the arbitration clause

when it is vaguely worded or the like. The question of

construction, however, only arise when the parties are ad

idem as to arbitration. Despite the dispute before us being

purely of a commercial nature, it is the parties themselves

that cannot agree on arbitration being the chosen medium.

When that is the case, it is not for a Court to compulsorily

send such parties before the jurisdiction that they have not

chosen.

10. The appellant’s reliance on Panasonic India (P) Ltd.

(supra) is misplaced for the learned Single Judge therein

observed that the word ‘can’ featuring in the subject arbitration

clause was not qua arbitration itself but was in reference to the

ability resting with either party to invoke arbitration. Here, the

situation is different.

Page 15 of 18

11. In light of the above discussion, it is also to be noted that

principles of contractual interpretation are now well settled. The

words chosen by the parties are the most reliable manifestation of

the intent. The meaning of the words used in contract is not found

in strict etymological propriety or popular usage of word(s) as in

the subject, occasion or context in which they are used, within the

contractual realm. The latin maxim ‘Ex praecedentibus et

consequentibus optima fit interpretatio’ signifies this statement.

[See: Union of India v. Raman Iron Foundry

20

; Provash

Chandra Dalui v. Biswanath Banerjee

21

] The written word

is, therefore, the foundation of legal obligation. To disregard or

to impute an obligation or meaning which was not intended would

compromise party autonomy.

12. Having taken due note of the interpretation of the word

‘can’ as also well-established principles of contractual

interpretation, we now move to consider whether Clause 25

actually constitutes an arbitration clause. Sujata Manohar J., in

K.K. Modi (supra) spelt out the requirements of such a clause in

the following terms:

“17. Among the attributes which must be present for an

agreement to be considered as an arbitration agreement are:

(1) The arbitration agreement must contemplate that the

decision of the tribunal will be binding on the parties to the

agreement,

20

(1974) 2 SCC 231

21

1989 Supp (1) SCC 487

Page 16 of 18

(2) that the jurisdiction of the tribunal to decide the rights of

parties must derive either from the consent of the parties or

from an order of the court or from a statute, the terms of which

make it clear that the process is to be an arbitration,

(3) the agreement must contemplate that substantive rights of

parties will be determined by the agreed tribunal,

(4) that the tribunal will determine the rights of the parties in

an impartial and judicial manner with the tribunal owing an

equal obligation of fairness towards both sides,

(5) that the agreement of the parties to refer their disputes to

the decision of the tribunal must be intended to be enforceable

in law and lastly,

(6) the agreement must contemplate that the tribunal will

make a decision upon a dispute which is already formulated

at the time when a reference is made to the tribunal.”

These requirements have been repeatedly restated. [See: Encon

Builders (I) (P) Ltd (supra) ;Alchemist Hospitals Ltd. v. ICT

Health Technology Services India (P) Ltd.

22

and M.P. Rajya

Tilhan Utpadak Sahakari Sangh Maryadit v. Modi

Transport Service

23

]. In Jagdish Chander (supra), recently

followed in BGM and M-RPL-JMCT(JV) (supra) the Court set

out what constitutes an arbitration agreement. Raveendran J.,

writing for the Court, held that the words used in the agreement

should disclose a determination and obligation to go for

arbitration and not only provide for the possibility of going to

arbitration. When the word provides only a possibility, the same

does not constitute a valid arbitration agreement.

13. Turning to the words used in Clause 25, we find it to

22

2025 SCC OnLine SC 2354

23

(2022) 14 SCC 345

Page 17 of 18

stipulate to the effect that if there is any dispute between the

parties, they can settle the same by arbitration. In view of Jagdish

Chander (supra) which holds as under:

“(iv) But 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. For example, use of words

such as “parties can, if they so desire, refer their disputes to

arbitration” or “in the event of any dispute, the

parties may also agree to refer the same to arbitration” or “if

any disputes arise between the parties, they should consider

settlement by arbitration” in a clause relating to settlement of

disputes, indicate that the clause is not intended to be an

arbitration agreement. Similarly, a clause which states that “if

the parties so decide, the disputes shall be referred to

arbitration” or “any disputes between parties, if they so agree,

shall be referred to arbitration” is not an arbitration

agreement. Such clauses merely indicate a desire or hope to

have the disputes settled by arbitration, or a tentative

arrangement to explore arbitration as a mode of settlement if

and when a dispute arises. Such clauses require the parties to

arrive at a further agreement to go to arbitration, as and when

the disputes arise. Any agreement or clause in an agreement

requiring or contemplating a further consent or consensus

before a reference to arbitration, is not an arbitration

agreement, but an agreement to enter into an arbitration

agreement in future.”

The clause subject matter of dispute in this appeal indicates

merely the future possibility of referring disputes to arbitration

and as such, it cannot be said to be a binding arbitration

agreement. In other words, the possibility of arbitration being

used to settle disputes is open however, for the disputes to be

settled by arbitration, further agreement between the parties

would be required and needless to add, such an agreement can

Page 18 of 18

only come into existence when both parties agree to the same. In

that view of the matter, we are of the considered view that this

appeal is bereft of merit. It is accordingly dismissed.

Pending application(s) if any stands disposed of.

………………………………… …………… …J.

(SANJAY KAROL)

…………………………………… …………… .J.

(NONGMEIKAPAM KOTISWAR SINGH)

New Delhi;

17

th

April 2026