Why the Word "Can" Fails to Create a Mandatory Arbitration Obligation: The Supreme Court of India’s Definitive Stance on Contractual Intent and the Necessity of Clear Mandates in Dispute Resolution Clauses.
In the world of commercial contracts, we often treat boilerplate clauses as settled territory. We assume that if a section is headed "Arbitration", the path to resolving disputes is set in stone. However, a recent landmark judgment by the Supreme Court of India in Nagreeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd. serves as a stark reminder that in the eyes of the law, a single modal verb can be the difference between a binding obligation and a mere suggestion.
The case centered on a dispute over the delivery of aluminum foil containers. The relevant bill of lading contained a clause stating that disputes "can be settled by arbitration". When a conflict arose, one party sought to trigger arbitration, while the other argued that the word "can" made the process optional. The Supreme Court’s analysis provides a masterclass in contractual interpretation and the nuances of the Arbitration and Conciliation Act, 1996.
The Linguistic Trap: 'Can' vs. 'Shall'The most immediate takeaway is the Court’s strict adherence to the literal and grammatical meaning of modal verbs. While "shall" or "must" signals a mandate, the Court observed that "can" denotes capacity, possibility, or factual potential. In a judicial context, "can" permits an action but does not require it.
This distinction is vital for drafters. The Court noted that while "may" often denotes discretion, "can" is even more tentative, often referring to a future possibility that remains contingent on further agreement. If the parties intended for arbitration to be the exclusive and mandatory forum, the language needed to reflect an unwavering obligation.
The 'Jagdish Chander' BenchmarkThe judgment heavily relied on the precedent set in Jagdish Chander v. Ramesh Chander, which established that the mere mention of "arbitration" or "arbitrator" does not automatically create a binding agreement. The Court reiterated that if a clause requires a "fresh consent" of the parties to actually refer a dispute to an arbitrator, it is not a valid arbitration agreement under Section 7 of the Act.
"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."
This reinforces the idea that an arbitration clause must be self-executing in its intent. If the door is left open for a party to say "no" when the dispute actually arises, the clause is effectively a "desire or hope" rather than a legal shield.
Headings Do Not Override SubstanceA common argument in legal interpretation is that the "heading" or "marginal note" of a section should guide its meaning. The appellant argued that because the clause was titled "Arbitration", the parties clearly intended to arbitrate. The Court, however, took a more holistic view. While headings can clear up ambiguities, they cannot transform a permissive clause into a mandatory one.
The Court applied the Latin maxim Ex praecedentibus et consequentibus optima fit interpretatio, which suggests that the best interpretation is made from the preceding and following context. By looking at the clause in its entirety, the Court found that the lack of a mandatory procedure for appointing a third arbitrator, combined with the word "can", pointed toward an incomplete and non-binding arrangement.
Protecting Party Autonomy Through RestraintPerhaps the most philosophically significant aspect of the judgment is the Court’s refusal to "force" arbitration upon an unwilling party in the absence of a clear contract. While Indian courts are generally "pro-arbitration", this judgment clarifies that such a stance does not mean the court will manufacture consent where none exists.
The Court emphasized that the "sine qua non" for arbitral proceedings is the mutual intention of the parties. By dismissing the appeal, the Supreme Court protected the principle of party autonomy, ensuring that a party is not stripped of its right to approach a Civil Court unless they have explicitly and mandatorily waived that right in writing.
Conclusion: A Lesson for DraftersFor legal professionals and business owners, the message is clear: precision is paramount. A "pragmatic approach" to interpretation will not save a poorly drafted clause that fails to express a definitive obligation. To ensure a dispute ends up in arbitration, the word "shall" remains the gold standard, leaving no room for the "future possibilities" that "can" entails.
Case: NAGREEKA INDCON PRODUCTS PVT. LTD. v. CARGOCARE LOGISTICS (INDIA) PVT. LTD.
Court: Supreme Court of India
Citation: 2026 INSC 384
Subjects: Arbitration and Conciliation Act, 1996; Section 7 of the Arbitration and Conciliation Act, 1996; Section 11 of the Arbitration and Conciliation Act, 1996; Principles of Contractual Interpretation; Indian Contract Act, 1872; Legal Maxim: Ex praecedentibus et consequentibus optima fit interpretatio
Decision Date: 17-04-2026