Interpretation of the term 'can' appearing in arbitration clause of an agreement.

Recently, the Hon'ble Supreme Court in Nagreeeka Indcon Products Pvt. Ltd. v. Cargocare Logistics (India) Pvt. Ltd. (2026 INSC 384) interpreted the term 'can' appearing in an Arbitration Clause of an agreement. 

The issue that arose before the Court was to decide, when the arbitration clause in the contract uses the word ‘can’, does it necessitate the reference of all disputes to arbitration or is recourse to other dispute resolution mechanisms, including that of the Civil Court, open for the parties. 

Facts: Appellant before the Supreme Court was manufacturer of aluminium foil containers and kitchen rolls. It had received a contract for purchase of corrugated boxes of aluminium foil from M/s. American Alupack Industries, the delivery was to take place in USA. For the said purpose, the Appellant had entered into a contract with the Respondent. Disputes later arose between the parties with respect to the delivery of the said produced. The bill of lading issued by the Respondent contained an arbitration clause. The clause reads as under: 

“25. Arbitration:

The contract evaluated hereby or contained herein shall be governed by and construed according to Indian Laws. Any difference of opinion or dispute thereunder can be settled by arbitration in India or a place mutually agreed with each party appointing an arbitrator.”

The arbitration notice issued by the Appellant based on the above-mentioned clause was contested by the Respondent on the basis that the clause does not mandate to refer to arbitration but leaves the option open to the parties whether they would want to refer the matter to arbitration or not. 

Matter was filed before the Bombay High Court seeking appointment of sole arbitrator. The Hon'ble Bombay High Court held that the arbitration clause which uses the term 'can' does not make it mandatory/imperative for the parties to be referred to arbitration. 

Decision of the Hon'ble Supreme Court: 

The Supreme Court examined the definition of the term 'can' and observed that its use or interpretation in judicial context is limited. Most often the words ‘may’ or ‘shall’ are used. Normally, the former denotes discretion but not compulsion to act, but then it is all contextual. Put differently, the authority is permitted to do something but is not required to. If it is the requirement that is to be denoted, ‘shall’ is the most appropriate word which signals a mandate or obligation. The Hon'ble Supreme Court, thereafter, extensively relied upon various jurisprudence/decisions of the Court as rendered earlier and held that the clause in subject matter before the parties merely indicates a future possibility of referred disputes to arbitration, which cannot be said to be a binding arbitration agreement. For the disputes to be settled by arbitration between the parties, further agreement between the parties would be required, which can come into effect and existence only when both parties agree to the same. The appeal was, therefore, dismissed.