The Supreme Court of India, in a significant 2026 judgment, has clarified an important aspect of arbitration law, whether the use of permissive language like “can” in a dispute resolution clause creates a binding arbitration agreement. The ruling in Nagreeeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd. (2026 INSC 384) reinforces a foundational principle of arbitration: party consent is paramount, and arbitration cannot be imposed in the absence of a clear and mandatory agreement.
This judgment assumes great importance in commercial contracts where loosely drafted arbitration clauses often lead to disputes over jurisdiction. The Court has drawn a clear distinction between clauses that mandate arbitration and those that merely offer it as an option, thereby impacting how contracts must be drafted in the future.
Facts of the Case
The appellant, Nagreeeka Indcon Products Pvt. Ltd., was engaged in manufacturing aluminium foil containers and had entered into a commercial arrangement involving the transportation of goods to the United States. For this purpose, it contracted with the respondent, Cargocare Logistics (India) Pvt. Ltd.
The dispute arose when one of the consignments was delivered without ensuring payment or presentation of the original bill of lading, resulting in financial loss to the appellant. The appellant claimed that the respondent had acted negligently and sought compensation.
The contract between the parties contained an arbitration clause (Clause 25), which stated that any dispute “can be settled by arbitration” in India or at a mutually agreed place. Based on this clause, the appellant invoked arbitration and approached the High Court under Section 11 of the Arbitration and Conciliation Act, 1996 for the appointment of an arbitrator.
However, the respondent opposed the application, arguing that the clause was not mandatory and did not bind the parties to arbitration.
The High Court agreed with the respondent and refused to appoint an arbitrator. Aggrieved by this decision, the appellant approached the Supreme Court.
Key Issue Before the Court
The central issue before the Supreme Court was:
Whether the use of the word “can” in an arbitration clause makes it a binding agreement requiring disputes to be mandatorily referred to arbitration.
Legal Framework
The dispute revolved around the interpretation of Section 7 of the Arbitration and Conciliation Act, 1996, which defines an arbitration agreement. The provision does not prescribe a rigid format but requires that the agreement must reflect a clear intention of the parties to submit disputes to arbitration.
The Court also relied on established precedents such as:
- K.K. Modi v. K.N. Modi
- Jagdish Chander v. Ramesh Chander
- Vidya Drolia v. Durga Trading Corporation
These cases laid down essential attributes of a valid arbitration agreement, especially the requirement of definitive and binding consent.
Arguments of the Parties
The appellant argued that:
- Section 7 does not require specific wording for arbitration clauses.
- The presence of the word “arbitration” itself reflects the intention of the parties.
- Courts should adopt a pragmatic approach and lean in favour of arbitration, especially in commercial disputes.
On the other hand, the respondent contended that:
- The clause merely indicates a possibility of arbitration, not an obligation.
- Words like “can” are permissive and require further consent of parties.
- A valid arbitration agreement must clearly bind parties to arbitration without ambiguity.
Supreme Court’s Analysis
Meaning of the Word “Can”
The Supreme Court undertook a detailed linguistic and legal analysis of the word “can”. It observed that:
- “Can” denotes possibility or capability, not compulsion.
- It is distinct from “shall,” which conveys a mandatory obligation.
- In contractual interpretation, such wording becomes crucial in determining intent.
The Court held that “can” merely indicates that arbitration is an available option, not a compulsory mechanism.
Importance of Party Autonomy
The Court reiterated that arbitration is fundamentally based on mutual consent. It quoted the principle that:
Arbitration derives its jurisdiction from the agreement of the parties.
Thus, unless both parties clearly agree to submit disputes to arbitration, courts cannot compel them to do so.
Distinction Between Mandatory and Optional Clauses
The Court drew a distinction between:
- Clauses that state disputes “shall be referred to arbitration” (binding), and
- Clauses that state disputes “can be referred to arbitration” (optional).
It held that the clause in the present case falls in the second category and therefore does not create a binding arbitration agreement.
Reliance on Precedents
The Court relied heavily on the ruling in Jagdish Chander v. Ramesh Chander, where it was held that:
- Clauses indicating that parties “may” or “can” refer disputes to arbitration
- Or clauses requiring further consent
do not qualify as arbitration agreements.
Such clauses are merely agreements to agree in the future, which are not enforceable.
Incomplete Arbitration Procedure
Another critical observation made by the Court was that:
- The clause did not provide a complete mechanism for the appointment of arbitrators.
- It failed to specify how a presiding arbitrator would be appointed.
This further reinforced the conclusion that the clause lacked the essential attributes of a valid arbitration agreement.
Limited Scope Under Section 11
The Court also clarified the role of courts under Section 11 of the Arbitration Act:
- Courts are only required to conduct a prima facie examination of the existence of an arbitration agreement.
- If no binding agreement exists, the court cannot appoint an arbitrator.
In the present case, since the clause did not qualify as an arbitration agreement, the High Court was correct in rejecting the application.
Judgment
The Supreme Court upheld the decision of the High Court and dismissed the appeal.
It held that:
- The clause using the word “can” does not create a binding obligation.
- It merely provides an option to the parties.
- Arbitration can proceed only if both parties agree at the time of the dispute.
Therefore, the arbitration application was rightly rejected.
Conclusion
The Supreme Court’s ruling in Nagreeeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd. marks a crucial development in arbitration jurisprudence. It reiterates that arbitration is not merely a procedural mechanism but a consensual process rooted in party autonomy.
By holding that the use of the word “can” does not create a binding arbitration agreement, the Court has sent a clear message: precision in contractual drafting is indispensable. The judgment strengthens the legal framework by ensuring that arbitration remains voluntary and not imposed through ambiguous language.
In essence, the decision serves as a reminder that in arbitration law, intent is everything, and that intent must be expressed clearly, not left to interpretation.