Wellington Associates Ltd. v. Kirit Mehta

Facts

An agreement contained one clause providing that disputes 'shall be decided by courts at Bombay' and another clause stating the parties 'may' refer disputes to arbitration. When disputes arose, one party filed a petition under Section 11 seeking appointment of an arbitrator. The opposite party disputed the very existence of a binding arbitration agreement.

Issues

• Whether a clause using the word 'may' refer disputes to arbitration constitutes a binding arbitration agreement under Section 7.
• Whether the Chief Justice or his designate, in a Section 11 petition, can decide the preliminary question of the existence of an arbitration agreement.

Arguments

The petitioner argued the 'may' clause embodied an agreement to arbitrate and sought appointment of an arbitrator. The respondent argued that the word 'may', read with the separate jurisdiction clause, showed arbitration was optional and contingent, so there was no concluded arbitration agreement.

Held

The Court held that the word 'may' in the clause indicated that the parties had not made a firm and binding commitment to refer disputes to arbitration; it was at best a possibility requiring further consent, particularly when read with the clause conferring jurisdiction on the Bombay courts. Hence there was no arbitration agreement within Section 7. The Court also held that the Chief Justice/designate acting under Section 11 has the power to decide the threshold question whether an arbitration agreement exists before appointing an arbitrator.

Ratio decidendi

A dispute-resolution clause that merely permits ('may') reference to arbitration, without a binding obligation, is not an arbitration agreement under Section 7; and the authority under Section 11 may determine the existence of the arbitration agreement.

Significance

An early and frequently cited authority on the 'may'/'shall' distinction in arbitration clauses and on the scope of inquiry under Section 11; informed the later jurisprudence culminating in SBP & Co. v. Patel Engineering on the nature of the Section 11 power.

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