Use of the word “can” in an arbitration clause denotes mere possibility, not a binding obligation to arbitrate

 Use of the word “can” in an arbitration clause denotes mere possibility, not a binding obligation to arbitrate

Facts

Context: Dispute over delivery of goods and invocation of arbitration clause

The appellant contracted with the respondent for transport of goods (aluminium foil containers). A dispute arose when the respondent delivered goods without obtaining the original bill of lading, resulting in financial loss to the appellant (Para 3).

Clause 25 of the bill of lading provided:
“Any difference of opinion or dispute thereunder can be settled by arbitration…” (Para 3).

The appellant invoked arbitration; the respondent refused, contending the clause was optional. The Bombay High Court dismissed the Section 11 application, holding that the clause was not mandatory (Para 4).

Issues Framed

Issue (as framed by the Court):
Whether the use of the word “can” in an arbitration clause mandates arbitration or merely provides an option, leaving recourse to civil courts open (Para 2).

Court’s Reasoning

Focus: party autonomy, contractual interpretation, and validity of arbitration agreement

(a) Foundational Principle of Arbitration
The Court emphasized that arbitration is grounded in consent:
“The parties must mutually intend to refer their differences to arbitration as consent is the source…” (Para 6).

(b) Meaning of “can”
The Court held that “can” denotes possibility or capability, not obligation. Unlike “shall” (mandatory) or “may” (discretionary), “can” indicates only that something is possible (Para 7).

(c) Section 11 A&C Act – Limited Inquiry
At the referral stage, courts only examine prima facie existence of an arbitration agreement (Para 7.1). However, such existence requires a binding agreement, not a mere possibility.

(d) Contractual Interpretation
“The words chosen by the parties are the most reliable manifestation of the intent” (Para 11).
The Court refused to impute obligation where none was clearly expressed.

(e) Test for Arbitration Agreement
Relying on K.K. Modi and Jagdish Chander, the Court reiterated that an arbitration clause must show a determination and obligation to arbitrate, not merely a future possibility (Paras 12–13).

(f) Application to Clause 25
The clause stating disputes “can be settled by arbitration” only indicates a future possibility requiring fresh consent.
Quoting Jagdish Chander: clauses stating parties “can… refer their disputes to arbitration” are not binding agreements (Para 13).

Held

The arbitration clause was not a binding arbitration agreement. It merely provided an optional mechanism requiring further consent.
Accordingly, the appeal was dismissed.

Ratio

An arbitration clause using the word “can” indicates only a permissive possibility and does not constitute a binding arbitration agreement unless it reflects a clear and enforceable obligation to arbitrate. 

Case Details

Citation: 2026 INSC 384
Decided on: 17 April 2026
Case Title: Nagreeeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd.
Court: Supreme Court of India
Bench: Sanjay Karol, J.; Nongmeikapam Kotiswar Singh, J.


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