MP High Court Refers Gopal Enterprises-NCL Dispute To Arbitration Despite Use Of 'May' in Clause

The Madhya Pradesh High Court has referred a payment dispute between Gopal Enterprises and Northern Coalfields Limited (NCL) to arbitration.

It held that the use of the word "may" in the contract's dispute resolution clause did not dilute the parties' intention to resolve disputes through arbitration.

Justice Deepak Khot rejected NCL's objections and appointed Justice H.P. Singh, a former judge of the High Court of Madhya Pradesh, as the sole arbitrator.

"The intention of the parties to enter into an arbitration agreement must be inferred from the terms of the agreement. Where the terms of an agreement clearly reveal the intention of the parties to submit their disputes to a private tribunal for resolution and to accept the decision of the tribunal as binding, the agreement constitutes an arbitration agreement," the court observed.

The dispute arose from an agreement executed on March 19, 2021 between Gopal Enterprises and NCL. The firm alleged that certain dues for work carried out under the contract remained unpaid. It claimed to have sent several communications seeking payment and resolution of the dispute.

According to Gopal Enterprises, those efforts did not elicit a response. After the in-house dispute resolution mechanism failed, the firm invoked the arbitration clause and approached the High Court for appointment of an arbitrator.

Opposing the plea, NCL argued that the arbitration clause was unenforceable because written consent of all partners of the firm had not been furnished at the bid stage.

The company also contended that Gopal Enterprises had not properly followed the contractual dispute resolution process, including by not approaching the Engineer-In-Charge within the stipulated period.

NCL further argued that the use of the word "may" showed that arbitration was optional. It contended that a fresh agreement between the parties would be required before any dispute could be referred to arbitration.

The court rejected the objection relating to consent. It accepted the firm's submission that the proceedings had been initiated with authorization from all partners.

"There cannot be any iota of doubt that the firm is not consented to invoke arbitration as per clause 16 and 16A of the agreement," the court observed.

Justice Khot also noted that NCL had executed the agreement despite the alleged absence of consent from all partners at the time of submission of the bid.

"Once the respondent with an open eye has executed an agreement with the firm having the clause of arbitration, then the respondent cannot shy away with the arbitration on the ground that such consent was not given by all the partners of the firm at the time of submission of the bid," the court ruled.

Examining the arbitration clause, the court held that the word "may" could not be read in isolation. It noted that while one part of the dispute resolution mechanism used the word "may," other provisions of the agreement unequivocally contemplated reference of disputes to arbitration.

The court found that the agreement reflected a clear intention to submit disputes arising from the contract to arbitration. It held that the clause did not merely contemplate the possibility of a future agreement to arbitrate.

The court consequently concluded that a valid and enforceable arbitration agreement existed between the parties. It appointed Justice H.P. Singh as the sole arbitrator and directed that the arbitral proceedings be conducted at Jabalpur.

For Applicant (Gopal Enterprises): Advocates Praveen Dubey and Abhyuday Singh.

For Respondent (Northern Coalfields Limited): Advocates Greeshm Jain, Shraddha Pandey, Pankaj Bhatt and Sana Khan.