The case is between Nagreeka Indcon Products Pvt. Ltd. and Cargocare Logistics (India) Pvt. Ltd., embodying a critical question of Law, i.e., Whether the use of the word “can” in an arbitration clause creates a mandatory obligation to refer disputes to arbitration, or if it merely suggests a future possibility that requires fresh mutual consent once a dispute arises.
The fact of the case was that Nagreeka Indcon Products Pvt. Ltd., a manufacturer of aluminium foil containers, engaged Cargocare Logistics (India) Pvt. Ltd. to ship products to the US. While previous shipments were successful, a dispute arose during the fifth shipment when the logistics firm released the goods to the buyer without securing payment or the necessary paperwork, resulting in financial losses for the manufacturer. The manufacturer sought to initiate arbitration based on their shipping document, which stated that any dispute “can be settled by arbitration”. However, the logistics firm refused to participate, arguing that the word “can” made arbitration entirely optional rather than mandatory.
The Supreme Court held that the word “can” denotes a possibility or permission rather than a mandatory requirement. The Court clarified that by employing the term “can,” the parties merely treated arbitration as an option for the future, which legally necessitates a fresh agreement between them once a dispute actually begins. Because the logistics firm rejected arbitration when it was proposed, no mutual agreement existed to go forward. Ultimately, the Supreme Court dismissed the manufacturer’s appeal, ruling that while the judiciary supports arbitration, it cannot compel parties to use it unless they have clearly, explicitly, and unmistakably agreed to be bound to do so.
The significance of this case lies in its reinforcement of party autonomy and the absolute necessity for precision in legal drafting. The ruling highlights that every word in a contract carries immense weight, establishing that permissive language like “can” or “may” does not fulfil the statutory requirements of a valid arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996. For commercial entities and legal practitioners, this decision serves as a stark warning, i.e., to guarantee a binding path to arbitration and avoid protracted, costly litigation over jurisdiction, contracts must explicitly use mandatory terms such as “shall” or “will”.