The Madhya Pradesh High Court held that the word “may” in an arbitration clause does not make arbitration optional. Justice Deepak Khot ruled that parties’ intention must be examined from the agreement as a whole, allowing appointment of an arbitrator under Section 11(6).
The Madhya Pradesh High Court has ruled that the mere presence of the word “may” in an arbitration clause does not automatically make arbitration a voluntary or optional process. The Court held that the intention of the parties must be understood by examining the agreement as a whole, and arbitration cannot be avoided when the overall terms clearly indicate that disputes were intended to be resolved through arbitration.
Justice Deepak Khot delivered the judgment while allowing an application filed by M/s JVS Foods Pvt. Ltd. under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator in a dispute with M.P. State Agro Industries Development Corporation Ltd.
The application was filed in connection with a dispute arising out of a Shareholders’ Agreement executed between the parties on November 27, 2012.
Dispute Between Parties Over Share Transfer
The dispute emerged after the respondent corporation decided to exit the shareholding arrangement. Under the terms of the agreement, the equity shares held by the exiting party were required to be purchased by the remaining stakeholders.
However, disagreements arose between the parties regarding the valuation of those shares. Due to the failure to resolve the dispute mutually, JVS Foods invoked the arbitration clause contained in the agreement and issued a notice on May 22, 2024, seeking appointment of an arbitrator.
The applicant was represented by Advocate Astha Nagori, while Advocate Arjun Bajpai appeared on behalf of the respondent corporation.
The respondent opposed the appointment of an arbitrator, arguing that the arbitration clause did not create a mandatory obligation to refer disputes to arbitration.
The corporation relied upon the wording of the clause, which stated that either party “may” refer the dispute to arbitration. According to the respondent, the use of the term suggested that arbitration was only an alternative option and could not be forced upon a party unwilling to proceed through arbitration.
JVS Foods, however, argued that the clause clearly reflected the intention of both parties to resolve disputes through arbitration.
The applicant also pointed out that a similar dispute involving the same respondent and an identical arbitration clause had earlier been referred to arbitration by the High Court. That decision was later upheld by the Supreme Court.
Reliance was also placed on the Supreme Court judgment in Tarun Dhameja v. Sunil Dhameja, where it was held that describing arbitration as optional does not necessarily invalidate an arbitration agreement.
Observations of the High Court
After considering the submissions of both sides, the High Court observed that there was no disagreement regarding the existence of the arbitration clause, the existence of an actual dispute between the parties, or the fact that the claim was filed within the prescribed limitation period.
The Court examined Clause 16 of the Shareholders’ Agreement, which required the parties to first attempt negotiation. If the dispute remained unresolved, either party “may refer the dispute for resolution to a sole arbitrator.”
The respondent relied heavily on this language to argue that arbitration was not compulsory.
However, Justice Khot held that the legal position regarding arbitration agreements has already been clarified by the Supreme Court in Jagdish Chander v. Ramesh Chander, where courts are required to determine the real intention of the parties by reading the agreement as a whole.
The High Court explained that there is a distinction between clauses that merely indicate a possibility of entering into an arbitration agreement in the future and clauses where parties have already expressed their intention to resolve disputes through arbitration. In the present case, the agreement not only contained an arbitration mechanism but also specifically provided details relating to the seat of arbitration, applicable law and jurisdiction of courts.
According to the Court, these terms showed that the parties had consciously selected arbitration as the agreed method for resolving disputes.
The Court also considered the conduct of the respondent corporation, noting that in earlier similar matters it had relied upon arbitration as the appropriate remedy and had even objected to proceedings on the ground that arbitration was available. Justice Khot observed that a party cannot take contradictory positions depending upon convenience.
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The Court remarked that the corporation “cannot blow hot and cold according to their whims and wishes” when dealing with the appointment of an arbitrator.
The High Court further relied on the Supreme Court’s decision in Tarun Dhameja and reiterated that an arbitration clause does not become ineffective merely because it uses language suggesting that arbitration is optional. The Court clarified that such clauses remain enforceable unless the wording indicates that the parties intended to enter into a separate agreement before arbitration could begin.
In the present matter, the Court found that the parties had already agreed upon arbitration as the dispute resolution mechanism and there was no requirement for any additional consent.
Holding that the dispute was capable of being resolved through arbitration and that the parties had intended arbitration to be the chosen mechanism, the Madhya Pradesh High Court allowed the application filed by JVS Foods. The Court appointed former Madhya Pradesh High Court Judge Shri Alok Verma as the sole arbitrator to adjudicate the dispute.
The proceedings will be conducted in Bhopal and will follow the applicable rules of the Madhya Pradesh Arbitration Centre. With these directions, the arbitration application was disposed of.
The ruling reinforces the principle that arbitration clauses must be interpreted based on the overall intention of the parties rather than isolated words. The decision highlights that the use of terms such as “may” or “optional” in an arbitration clause will not by itself prevent arbitration, particularly where the agreement demonstrates a clear commitment towards resolving disputes through arbitration.
Case Title: M/s JVS Foods Pvt. Ltd. v. M.P. State Agro Industries Development Corporation Ltd.
