In a significant judgment, the Calcutta High Court has clarified that an arbitration clause in a lease agreement cannot be treated as a binding arbitration agreement if it lacks a mandatory reference to arbitration. Justice Shampa Sarkar, presiding over the matter of Sunil Kumar Samanta vs. Smt. Sikha Mondal [AP/15/2022], concluded that the use of the term “may” in the arbitration clause signified only a possibility—not a binding obligation—to resolve disputes through arbitration.
The dispute originated from a registered lease deed dated August 16, 2001, executed between Jiten Mondal (the late husband of the respondent) and the petitioner, Sunil Kumar Samanta. The lease was set for 21 years and ended on August 15, 2022. Following the death of Jiten Mondal in 2013, the petitioner claimed that despite validly exercising the option to renew the lease through a letter dated August 21, 2021, the respondent refused to honor the renewal. This disagreement led to disputes, with the petitioner invoking the arbitration clause in the lease deed.
"The Lessor shall be bound to renew the lease for subsequent periods of same tenure if such option is exercised by the Lessee. The rent and other terms and conditions shall be mutually agreed and if not agreed upon the same may be decided by an Arbitrator to be appointed by the parties."
Justice Sarkar observed that the use of the word “may” in this context indicated only a potential course of action, and not a definitive agreement to arbitrate.
The court relied on the principle laid down in Jagdish Chander vs. Ramesh Chander and Others, where the Supreme Court held that arbitration clauses using non-mandatory language like “may” or “if parties agree” are not sufficient to form an arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996.
“A clause which states that disputes may be referred to arbitration, or if the parties so agree, shall be referred to arbitration, is not an arbitration agreement. Such clauses merely indicate a desire or hope,” the Supreme Court had ruled.
The Calcutta High Court further referenced the judgment in Wellington Associates Ltd vs. Kirit Mehta, where the Apex Court interpreted the words “may be referred” as enabling but not binding. Similarly, in GTL Infrastructure Ltd. vs. Vodafone India Ltd., the Bombay High Court emphasized that the presence of the word “may” suggests a future possibility requiring fresh consent.
The Delhi High Court’s decision in M/S Linde Heavy Truck Division Ltd vs Container Corporation of India Ltd was also cited, which reaffirmed that a clause offering optional arbitration requires a fresh agreement at the time of dispute and does not in itself amount to a binding arbitration agreement.
In the present case, although the petitioner attempted to initiate arbitration, the respondent did not agree to such a process, indicating that there was no mutual consent.
“The petitioner may have exercised such right by issuing a notice, but the respondent did not accept such suggestion, which itself shows that the parties did not agree to go to arbitration,” the court stated.
On this basis, the application filed by Sunil Kumar Samanta seeking reference to arbitration was dismissed.
Case Title: Sunil Kumar Samanta Vs. Smt. Sikha Mondal
Case Number: AP/15/2022
