From “Can” to Chaos: Ambiguous Drafting of Arbitration Clauses and the Rise of Avoidable Litigation — A Critical
Analysis

Abstract

Ambiguity in contractual drafting, particularly in arbitration clauses, has emerged as a significant cause of avoidable commercial litigation. The recent judgment of the Supreme Court in Nagreeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd. (2026) revisits foundational principles governing arbitration agreements and reiterates that permissive language such as “can” does not create a binding obligation to arbitrate. This article undertakes a doctrinal analysis of the judgment, read alongside Himdari Speciality Chemical Limited v. Jindal Coke Limited (2026), to examine how poor drafting undermines party autonomy and burdens the judicial system.

It argues that ambiguity in dispute resolution clauses is not merely a drafting defect but a systemic inefficiency and proposes principled drafting standards to ensure enforceability and reduce litigation.

I. Introduction

The efficacy of commercial contracts depends not merely on the substantive rights they create but on the precision with which those rights are expressed. In contemporary commercial practice, dispute resolution clauses—particularly arbitration clauses—are often treated as standard boilerplate provisions. However, the Supreme Court’s decision in Nagreeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd. demonstrates that even a single word, if imprecisely employed, can render an entire dispute resolution mechanism ineffective.

The case illustrates a recurring structural problem in Indian commercial jurisprudence: deficiencies in drafting at the inception of a contract manifest as jurisdictional disputes at the enforcement stage. What should have been a straightforward invocation of arbitration instead escalated into litigation before the High Court and ultimately the Supreme Court solely because the clause employed the expression “can” instead of a mandatory formulation.

This concern is not isolated. The Supreme Court in Himdari Speciality Chemical Limited v. Jindal Coke Limited has recently underscored the adverse consequences of ambiguous drafting, particularly where such ambiguity compels courts to intervene in matters that ought to have been resolved through clearly defined contractual mechanisms. Together, these decisions signal a judicial shift toward insisting upon clarity, certainty, and enforceable intent in contractual drafting.

II. Factual Matrix and the Core Issue

The dispute arose out of a commercial arrangement evidenced through a bill of lading, which contained a clause captioned as “Arbitration”. The clause provided that any dispute between the parties “can be settled by arbitration”. The appellant sought to invoke this clause by filing an application under Section 11 of the Arbitration and Conciliation Act, 1996, for appointment of an arbitrator. The respondent resisted the application, contending that the clause was merely permissive and did not constitute a binding arbitration agreement.

The Supreme Court was thus called upon to determine a narrow yet significant question: whether the use of the word “can” in an arbitration clause creates a binding obligation to arbitrate or merely leaves arbitration as an optional mechanism.

Although the issue appeared linguistic at first glance, its implications were far-reaching. The answer would determine not only the fate of the dispute between the parties but also the broader contours of how arbitration clauses are to be drafted and interpreted under Indian law.

III. Arbitration as a Creature of Consent

At the outset, the Supreme Court reaffirmed a foundational principle of arbitration law that arbitration is a creature of consent. Unlike courts, which derive their authority from constitutional or statutory sources, arbitral tribunals derive their jurisdiction exclusively from the agreement of the parties. This principle is embedded in Section 7 of the Arbitration and Conciliation Act, 1996, which requires a clear agreement to submit disputes to arbitration.

The Court relied upon the concurring opinion in Cox & Kings Ltd. v. SAP India (P) Ltd., wherein it was observed that “consent is the source of the arbitral tribunal’s jurisdiction.” This formulation encapsulates the essence of arbitration law: the legitimacy of the arbitral process depends entirely on the existence of a definitive and binding agreement between the parties.

The implications of this principle are twofold. First, parties are free to choose arbitration as their preferred mode of dispute resolution, reflecting the doctrine of party autonomy. Secondly, and more importantly, courts cannot compel parties to arbitrate in the absence of such agreement. To do so would be to transform arbitration from a consensual mechanism into a compulsory one, thereby undermining its very foundation.

In this context, the Court emphasised that clauses which merely contemplate the possibility of arbitration, or leave the decision to arbitrate contingent upon future consent, do not satisfy the statutory requirement of an arbitration agreement. Such clauses indicate, at best, an intention to negotiate arbitration in the future, but not a present commitment to be bound by it.

IV. Interpretation of the Word “Can”

The central issue in the case turned upon the interpretation of the word “can”. The Court undertook a detailed examination of its ordinary and legal meaning, noting that the word is generally understood to denote possibility or capability, rather than obligation.

This distinction assumes critical importance in the context of arbitration clauses. The Court contrasted “can” with the word “shall”, which is ordinarily used to denote a mandatory obligation. While the latter indicates a binding commitment, the former merely indicates that a particular course of action is permissible.

Applying this distinction, the Court held that the clause in question did not mandate arbitration but merely left it open as one of the possible modes of dispute resolution. In other words, arbitration was not the exclusive or obligatory forum; it was only an optional avenue that could be pursued if both parties agreed at a later stage.

Such a clause, the Court held, cannot be construed as an arbitration agreement within the meaning of Section 7 of the Arbitration and Conciliation Act, 1996. It lacks the essential element of definitive intent to arbitrate and therefore cannot be enforced through the mechanism of Section 11 of the Act.

V. Precedential Framework and Doctrinal Consistency

The Court’s reasoning is firmly rooted in established precedent. In Jagdish Chander v. Ramesh Chander, the Supreme Court had categorically held that clauses which merely indicate that parties “can” or “may” refer disputes to arbitration do not constitute binding arbitration agreements. Such clauses require a further act of consent at the time of dispute and are therefore insufficient to invoke arbitration.

Similarly, in K.K. Modi v. K.N. Modi, the Court laid down the essential attributes of an arbitration agreement, emphasising that the agreement must reflect a clear intention to submit disputes to a binding adjudicatory process. This principle was reiterated in Bihar State Mineral Development Corporation v. Encon Builders, where the Court stressed that the agreement must contemplate a binding decision by an arbitral tribunal.

The Court also distinguished cases such as Enercon (India) Ltd. v. Enercon GmbH and Visa International Ltd. v. Continental Resources USA Ltd. In those cases, although the clauses were imperfect or incomplete, the underlying intention to arbitrate was clear. The courts, therefore, adopted a pragmatic approach to give effect to that intention. In contrast, the clause in the present case suffered from a more fundamental defect: the absence of clear intent itself.

VI. Incomplete Drafting as a Compounding Defect

Apart from the ambiguity in language, the clause in question was also procedurally deficient. It provided for each party to appoint an arbitrator but did not specify the mechanism for appointment of a presiding arbitrator. Nor did it clearly indicate whether the decision of the arbitral tribunal would be binding.

While courts have, in certain cases, supplied procedural gaps to uphold arbitration agreements, such an approach is permissible only where the intention to arbitrate is unequivocal. Where the clause itself is ambiguous, procedural incompleteness further weakens its enforceability.

The present case thus illustrates how linguistic ambiguity and procedural incompleteness can operate cumulatively to render a clause ineffective.

VII. Himdari Case and Judicial Disapproval of Ambiguity

The Supreme Court’s observations in Himdari Speciality Chemical Limited v. Jindal Coke Limited reinforce the approach adopted in Nagreeka Indcon. In Himdari, the Court expressly deprecated ambiguous contractual clauses, observing that they give rise to conflicting interpretations and unnecessary litigation.

The Court emphasised that commercial contracts must be drafted with clarity, precision, and enforceable intent, particularly in relation to dispute resolution mechanisms. This marks a significant development in Indian jurisprudence, as it reflects a shift from merely interpreting contracts to actively discouraging defective drafting practices.

VIII. Principles of Contractual Interpretation

The judgment also reiterates well-settled principles of contractual interpretation. The Court observed that the words chosen by the parties are the most reliable indicator of their intent, and courts must interpret those words in their contextual setting rather than rewrite them.

This principle finds support in Union of India v. Raman Iron Foundry and Provash Chandra Dalui v. Biswanath Banerjee, where the Court held that contractual terms must be interpreted as they stand, without importing meanings that were not intended by the parties.

The governing maxim, ex praecedentibus et consequentibus optima fit interpretatio, underscores that the best interpretation arises from the context of the contract as a whole. However, contextual interpretation cannot be used to override clear linguistic indicators of non-mandatory intent.

IX. Drafting Lessons and the Imperative of Precision

The jurisprudence emerging from Nagreeka Indcon and Himdari offers important lessons for legal practitioners. Arbitration clauses must be drafted with precision, leaving no scope for ambiguity or future negotiation.

i. Use of Mandatory Language

Expressions such as “shall be referred to arbitration” clearly indicate binding intent, whereas words like “can” or “may” introduce uncertainty.

ii. Avoidance of Future Contingency

The clause must not make arbitration contingent upon future agreement, as this negates the existence of a present arbitration agreement.

iii. Procedural Completeness

The clause must provide a complete procedural framework, including:

  • Number of arbitrators
  • Method of appointment
  • Seat of arbitration
  • Governing law

iv. Binding Nature of Award

The clause must expressly state that the arbitral award shall be final and binding.

Failure to adhere to these principles not only undermines the enforceability of the clause but also exposes the parties to protracted litigation.

X. Conclusion

The decision in Nagreeka Indcon serves as a cautionary tale for the legal community. It demonstrates that ambiguity at the drafting stage inevitably translates into litigation at the enforcement stage. Courts, consistent with established principles, will not infer arbitration agreements where the intention to arbitrate is unclear.

When read alongside Himdari, the message from the Supreme Court is unequivocal: precision in contractual drafting is a legal necessity, not a matter of stylistic preference. In the context of arbitration clauses, the distinction between “can” and “shall” is not merely semantic—it is determinative of jurisdiction.

References

  1. Nagreeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd., 2026 INSC 384 (SC), decided on 17 April 2026.
  2. Himadri Speciality Chemicals Ltd. v. Jindal Coke Ltd., SLP (C) No. 6470 of 2026, order dated 19-2-2026 (SC).
  3. Nagreeka Indcon, supra note 1, para 2.
  4. Id., para 6.
  5. Cox & Kings Ltd. v. SAP India (P) Ltd., (2024) 4 SCC 1.
  6. Nagreeka Indcon, supra note 1, paras 7–8.
  7. Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719.
  8. K.K. Modi v. K.N. Modi, (1998) 3 SCC 573.
  9. Bihar State Mineral Development Corpn. v. Encon Builders (I) (P) Ltd., (2003) 7 SCC 418.
  10. Enercon (India) Ltd. v. Enercon GmbH, (2014) 5 SCC 1.
  11. Visa International Ltd. v. Continental Resources USA Ltd., (2009) 2 SCC 55.
  12. Himdari Speciality Chemical Limited v. Jindal Coke Limited, (2026) (SC).
  13. Union of India v. Raman Iron Foundry, (1974) 2 SCC 231.
  14. Provash Chandra Dalui v. Biswanath Banerjee, 1989 Supp (1) SCC 487.