Nagreeka INDCON Products Pvt Ltdv.Cargocare Logistics (India) Pvt Ltd

Legal Analysis: Nagreeka Indcon Products Pvt. Ltd. vs. Cargocare Logistics (India) Pvt. Ltd

Citation: 2026 INSC 384
Court: Supreme Court of India
Bench: Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh (Division Bench)
Judgment Author: Justice Sanjay Karol
Date of Decision: April 17, 2026
Nature of Judgment: Civil Appeal under Article 136 against High Court order dismissing application for appointment of arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

Synopsis of the Judgment

The dispute arose from a contract of carriage where the bill of lading contained an arbitration clause stating that disputes “can be settled by arbitration”. The appellant sought appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. The respondent opposed, arguing that the word “can” indicates a choice, not a mandatory obligation to arbitrate. The High Court dismissed the application. The Supreme Court upheld this decision, holding that the use of the word “can” denotes a mere possibility or option, not a binding agreement to refer disputes to arbitration. Such a clause requires a further consensus between the parties before arbitration can be invoked, and therefore does not constitute a valid arbitration agreement under Section 7 of the Act.

1. Basic Information of the Judgment

Field Details Case Title Nagreeka Indcon Products Pvt. Ltd. vs. Cargocare Logistics (India) Pvt. Ltd. Civil Appeal No. Arising out of SLP(C) No. 19026 of 2023 Bench Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh Date of Decision April 17, 2026 Citation 2026 INSC 384 Appeal FromOrder dated 23.02.2023 of Bombay High Court in Arbitration Application No. 168 of 2022

2. Legal Framework

Laws Involved:

• Arbitration and Conciliation Act, 1996 (A&C Act): Section 7 (definition of arbitration agreement), Section 11 (appointment of arbitrators by Court).

• Indian Contract Act, 1872: Principles of contractual interpretation.

• Code of Civil Procedure, 1908: Not directly applicable.

Precedents Cited:

• Jagdish Chander v. Ramesh Chander (2007) 5 SCC 719 – A clause that merely indicates a desire or possibility to arbitrate, requiring further consent, is not a valid arbitration agreement.

• K.K. Modi v. K.N. Modi (1998) 3 SCC 573 – Six attributes of a valid arbitration agreement.

• Eastern Coalfields Ltd. v. Sanjay Transport Agency (2009) – Heading of clause can resolve ambiguity.

• Babanrao Rajaram Pund v. Samarth Builders (2021) – Use of “shall” indicates mandatory arbitration.

• Visa International Ltd. v. Continental Resources (USA) Ltd. (2009) – Whole clause must be read to gather intent.

• Enercon (India) Ltd. v. Enercon GmbH (2014) – Pragmatic construction of arbitration clause.

• Zhejiang Bonly Haulong Crafts Co. Ltd. v. Prime Craft (India) Pvt. Ltd. (2022) – Option clause.

• Vidya Drolia v. Durga Trading Corpn. (2021) – Referral Court’s limited jurisdiction.

• Interplay Between Arbitration Agreements under the Arbitration Act, 1996 & the Stamp Act, 1899, In re (2024) – Prima facie existence of arbitration agreement sufficient for Section 11.

• Goqii Technologies (P) Ltd. v. Sokrati Technologies (P) Ltd. (2024) – Referral Court should not go into detailed merits.

What the Judgment is About: The judgment clarifies that an arbitration clause using the word “can” (as opposed to “shall” or “must”) does not create a binding obligation to arbitrate. It merely indicates a possibility or option, requiring further mutual consent before arbitration can be invoked. Such a clause is not an arbitration agreement under Section 7 of the A&C Act.

3. Relevant Facts

• Contract: The appellant (Nagreeka) contracted with the respondent (Cargocare) for transport of six containers of goods to USA.

• Dispute: The respondent delivered the fifth container without production of the original bill of lading, resulting in non-payment by the consignee. The appellant suffered a loss of USD 28,064.86.

• Arbitration clause (Clause 25 of Bill of Lading): “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.”

• Invocation: Appellant invoked arbitration on 10.03.2022. Respondent refused, arguing that the clause was not mandatory.

• Section 11 application: Appellant filed Arbitration Application No. 168 of 2022 before Bombay High Court for appointment of arbitrator.

• High Court order (23.02.2023): Dismissed the application, holding that the word “can” does not make arbitration imperative, and since the respondent refused, there was no binding arbitration agreement.

• Appeal to Supreme Court: Appellant challenged the High Court order.

4. Issues

1. Whether an arbitration clause that uses the word “can” (instead of “shall” or “must”) constitutes a binding arbitration agreement under Section 7 of the A&C Act.

2. Whether the High Court was justified in dismissing the application under Section 11 on the ground that the clause was permissive and not mandatory.

5. Ratio Decidendi

• Word “can” indicates possibility, not obligation: The Court held that the ordinary meaning of “can” denotes ability or possibility, not a mandatory duty. In contractual interpretation, “can” leaves a choice to the parties, unlike “shall” which imposes an obligation (Para 6, 13).

• Arbitration requires clear mutual consent to arbitrate: The sine qua non of arbitration is party autonomy and consent. If the clause merely provides a possible mode of dispute resolution without compelling the parties to adopt it, there is no binding arbitration agreement (Para 6, citing Cox & Kings concurring opinion).

• Clause falls within Jagdish Chander category: Relying on Jagdish Chander, the Court held that clauses using words such as “can if they so desire”, “may also agree to refer”, or “if the parties so decide” are not arbitration agreements. They merely indicate a hope or tentative arrangement requiring further consent. The present clause falls squarely in that category (Para 13).

• Distinction from cases where intent was clear: The Court distinguished cases where the clause used “shall” or where the parties were ad idem on arbitration. In Enercon, the intent to arbitrate was clear despite procedural gaps; here, the very existence of an arbitration agreement was disputed (Para 9.4).

• Limited scope of Section 11 does not override absence of agreement: While the referral court’s jurisdiction is limited to prima facie existence of an arbitration agreement, that prima facie existence must still be established. Here, on a plain reading, the clause did not evidence a binding agreement to arbitrate (Para 7.1-7.2).

6. New Legal Principles Established / Reiterated

• “Can” in an arbitration clause is presumptively permissive, not mandatory: The judgment provides clear guidance that the use of “can” (or similar permissive words) in a dispute resolution clause does not create a binding arbitration agreement. Parties must use words like “shall”, “must”, or “will be referred” to indicate mandatory arbitration.

• Clauses requiring further consensus are not arbitration agreements: Reaffirming Jagdish Chander, the Court held that any clause which requires the parties to agree again to arbitrate (whether expressly or by implication) is an “agreement to agree” and not enforceable under Section 7.

• Liberal approach to construction applies only when parties are ad idem on arbitration: The Court clarified that while arbitration clauses are to be construed pragmatically and liberally, this principle applies only when there is no dispute about the parties’ intent to arbitrate. If one party denies that the clause even constitutes an arbitration agreement, the court must first determine that threshold question.

7. Court’s Analysis and Examination of Concepts

• Ordinary dictionary meaning of “can”: The Court referred to dictionary definitions (Oxford, Merriam-Webster) to establish that “can” expresses possibility or ability, not a command or obligation (Para 6).

• Comparison with mandatory language: The Court noted that in Babanrao Rajaram Pund, the presence of the word “shall” was critical to holding the arbitration clause mandatory. The absence of such mandatory language here was fatal (Para 9.2).

• Incomplete appointment procedure as additional indicator: The clause provided that each party would appoint an arbitrator but did not specify how the tribunal would be constituted (e.g., no provision for presiding arbitrator). This incompleteness, while not decisive, further indicated that the parties had not finalised arbitration as a binding mechanism (Para 9.3).

• Party autonomy as the foundation: The Court emphasised that arbitration is consensual. A court cannot compel a party to arbitrate where the contract does not clearly evidence a mutual intention to do so. To force arbitration on a party who has not agreed would violate the fundamental principle of party autonomy (Para 6, 11).

• Distinction from “option” clauses in other contexts: In Zhejiang Bonly, the clause used “should” and gave an option between arbitration and court proceedings. The party invoking arbitration chose that option, and the Court upheld it. Here, the clause did not even present a clear option; it merely stated a possibility. Moreover, the respondent unequivocally refused arbitration (Para 9.5).

8. Critical Analysis

Strengths: The judgment provides a clear, practical rule for drafting arbitration clauses. It respects party autonomy and prevents a party from being forced into arbitration based on ambiguous language. The reliance on Jagdish Chander is correct and reaffirms settled law. The distinction between “can” and “shall” is a bright-line test that will reduce litigation over interpretation.

Potential concerns: The judgment may be seen as overly literal. Commercial parties often use “can” interchangeably with “may” without intending to create a non-binding clause. The Court’s strict approach could defeat legitimate expectations of parties who assumed that “can” meant “may” in the sense of “is permitted to” (i.e., the parties have the option to arbitrate, but if one chooses it, the other must submit). However, the Court’s reasoning that arbitration requires mutual consent at the time of reference is consistent with the principle that a party cannot be compelled to arbitrate without a clear prior agreement.

Practical impact: This judgment will be cited by parties opposing arbitration where the clause uses permissive language (“can”, “may”, “if the parties so desire”). It will also guide drafters to use mandatory language (“shall”, “must”, “will be referred exclusively to arbitration”) to avoid disputes over enforceability.

9. Final Outcome

Appeal dismissed. The High Court was correct in holding that Clause 25 of the Bill of Lading did not constitute a binding arbitration agreement. The use of the word “can” indicates a mere possibility, not an obligation to arbitrate. Consequently, the application under Section 11 of the A&C Act was rightly dismissed. No order as to costs.

10. Practical Application (Use in Court)

• By parties opposing arbitration: If the arbitration clause uses permissive words like “can”, “may”, “if the parties so desire”, or “may agree to refer”, cite this judgment to argue that there is no binding arbitration agreement. The clause requires further mutual consent, and since you have not given such consent, the court should refuse to appoint an arbitrator.

• By parties seeking arbitration: Ensure that your arbitration clause uses mandatory language such as “shall be referred to arbitration”, “must be resolved by arbitration”, or “any dispute arising out of this contract will be settled exclusively by arbitration”. Avoid words like “can” or “may”. If the clause is ambiguous, argue that the parties’ conduct (e.g., participation in arbitration proceedings) may evidence mutual consent, but the safer course is clear drafting.

• By courts (referral courts under Section 11): When examining an arbitration clause, first determine whether the language creates a binding obligation to arbitrate or merely a possibility. If the clause uses permissive language and one party objects, the court should not appoint an arbitrator. The limited scope of Section 11 does not permit overriding the absence of a valid arbitration agreement.

11.  Court Lines

“The sum and substance of the appellant’s case is that Clause 25 … constitutes a binding arbitration clause. … 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.” (Para 9.1)

“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.” (Para 13, quoting Jagdish Chander)

“To disregard or to impute an obligation or meaning which was not intended would compromise party autonomy.” (Para 11)

“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.” (Para 6)

12. Legal Strategy Insight

For the party opposing arbitration (respondent): Immediately upon receiving a notice of arbitration or Section 11 application, examine the arbitration clause. If it uses permissive language (“can”, “may”, “if the parties so agree”), file a preliminary objection before the referral court. Argue that the clause does not constitute a binding arbitration agreement under Jagdish Chander and this judgment. Emphasise that you have not given any subsequent consent to arbitrate. Request dismissal of the Section 11 application. If the court nevertheless appoints an arbitrator, challenge the appointment before the arbitral tribunal under Section 16 of the A&C Act.

For the party seeking arbitration (claimant): Before signing a contract, ensure the arbitration clause uses mandatory language. Use a standard clause such as: “Any dispute arising out of or in connection with this contract shall be finally resolved by arbitration in accordance with the Arbitration and Conciliation Act, 1996.” If the existing clause uses “can”, try to obtain a separate arbitration agreement after the dispute arises (e.g., a memorandum of agreement to arbitrate). If the other party refuses, you will have to resort to civil litigation. Do not rely on a permissive clause to compel arbitration.