Arbitration - Term "may" in arbitration clauses does not constitute a mandatory arbitration agreement

Madras High Court Dismisses Petition for Appointment of Arbitrator; Holds Arbitration Clause Non-Mandatory. Court clarifies the use of "may" in arbitration clauses, deeming it an option requiring mutual consent rather than a binding agreement.

In a significant judgment delivered on September 22, 2025, the Madras High Court, presided by Justice N. Anand Venkatesh, dismissed an arbitration petition filed by Mr. M. Arumugam against M/s CP Foods. The petition sought the appointment of a sole arbitrator to resolve disputes arising from an offer letter dated March 1, 2015. The Court held that the arbitration clause in the letter did not constitute a mandatory arbitration agreement under the Arbitration and Conciliation Act, 1996, due to the use of the term "may."

The dispute arose when the petitioner, Mr. Arumugam, a trader engaged in procuring Dhall varieties for the respondent, claimed unpaid commissions amounting to over Rs. 5 crore. Despite legal notices and attempts to settle the matter amicably, the respondent refused to consent to arbitration. The crux of the case revolved around the interpretation of the arbitration clause in the offer letter, which stated disputes "may be resolved" through arbitration.

Justice Venkatesh, in his ruling, emphasized that the term "may" in arbitration clauses merely provides an option for arbitration and does not bind the parties unless there is mutual consent. The judgment underscored that the clause in question failed to meet the requirements of a mandatory arbitration agreement as defined under Section 7 of the Act. The Court reasoned that the clause offered an option for arbitration contingent upon both parties agreeing to it, which had not occurred in this instance.

The Court's decision was informed by precedents such as Wellington Associates Ltd. v. Kirit Mehta and Jagdish Chander v. Ramesh Chander, where similar interpretations of arbitration clauses were made. In those cases, the Supreme Court had clarified that clauses using discretionary language, like "may," do not constitute firm arbitration agreements.

Ultimately, the Madras High Court concluded that the offer letter did not mandate arbitration and dismissed the petition. However, the Court granted Mr. Arumugam the liberty to seek remedies before a competent court. The judgment highlights the importance of clear and unequivocal language in drafting arbitration clauses to ensure they are enforceable.

Bottom Line:

Arbitration clause - Interpretation of the term "may" in arbitration clauses - Term "may" does not constitute a mandatory arbitration agreement but merely provides an option to the parties to refer disputes to arbitration, which requires mutual consent.

Statutory provision(s): Arbitration and Conciliation Act, 1996 - Sections 7, 11(5)

Mr. M. Arumugam v. M/s.CP Foods, (Madras) : Law Finder Doc Id # 2782634