The main legal point established is that the intention of the parties to enter into an arbitration agreement should be determined from the language used in the contract clauses, and a binding obligation to go to arbitration is essential for the existence of a valid arbitration agreement.

V.K. JAIN, J.

IA No. 2153/2012 (under Section 8 of Arbitration & Conciliation Act, 1996) in CS(OS) 23/2012

1. This is a suit for recovery of Rs 11,71,46,949/-. The case of the plaintiff is that it entered into an agreement dated 04.07.2007 with defendant No. 1 for manufacture, supply and commissioning of 15 Reach Stackers, along with operation and maintenance of those stackers, at the specified terminals of defendant No. 1, for a period of 5 years. The plaintiff alleges material breach of the terms of the contract by defendant No. 1 and claims that an amount of Rs 4,92,73,207/- is due and payable to it towards the supply, operation and maintenance of machines. The contract was terminated by defendant No. 1 vide letter dated 24.05.2011. The bank guarantees furnished to it by the plaintiff were then invoked by defendant No. 1. The plaintiff is claiming Rs 56,68,000/- alleging that the invocation of the bank guarantees was illegal. Some other amounts have also been claimed in the present suit, thereby raising the total claim to Rs 11,71,46,494/-

2. IA No. 2153/2012 has been filed by defendant No. 1 seeking stay of the suit and reference to arbitration in terms of clause 15 of Section (iii) of the contract between the parties. The application has been opposed by the plaintiff primarily on the ground that there is no arbitration agreement between the parties.

3. Clauses 15.3 to 15.6 of the contract are relevant and read as under:-

“15.3 Jurisdiction of Courts: the Courts of the place from where the acceptance of tender has been issued shall alone have jurisdiction to decide any dispute arising out of or in respect of the contract i.e. New Delhi (INDIA)

15.4 In case of any dispute or difference whatsoever arising between the parties out of the relating to the construction, interpretation, application, meaning, scope operation or effect of this contract or the validity or the breach thereof, CONCOR and supplier shall make very effort to resolve amicable by direct informal negotiation any disagreement or dispute arising between them under or in connection with the contract.

15.5 If, after 30(thirty) day from the commencement of such informal negotiation, CONCOR and the supplier have been unable to resolve amicably the contract dispute, either party may require that the dispute be referred for resolution by arbitration in accordance with the rules of Arbitration of the “Standing Committee on Public Enterprises” of India (SCOPE) from the “Conciliation and Arbitration” and award made in pursuance thereof shall be binding on the parties.

15.6 During settlement of disputes in arbitration proceedings, both parties shall be obliged to carry out their respective obligation under the contract”

4. In Wellington Associates Ltd. v. Kirit Mehta (2004) 4 SCC 272, clause 4 and 5 of the agreements between the parties read as under:-

“4. It is hereby agreed that, if any dispute arises in connection with these presents, only courts in Bombay would have jurisdiction to try and determine the suit and the parties hereto submit themselves to the exclusive jurisdiction of the courts in Bombay.”

5. It is also agreed by and between the parties that any dispute or differences arising in connection with these presents may be referred to arbitration in pursuance of the Arbitration Act, 1947, by each party appointing one arbitrator and the arbitrators so appointed selecting an umpire. The venue of arbitration shall be at Bombay. Holding that clause 5, extracted above, does not constitute a firm or mandatory arbitration clause, Supreme Court, inter alia, held as under:-

“21. Does clause 5 amount to an arbitration clause as defined in Section 2(b) read with section 7? I may here state that in most arbitration clauses, the words normally used are that “disputes shall be referred to arbitration”. But in the case before me, the words used are “may be referred”.

22. It is contended for the petitioner that the word “may” in clause 5 has to be construed as “shall”