SYMMETRICAL OPTIONAL ARBITRATION CLAUSES: THE DILEMMA

This article has been authored by Dhruv Srivastava, a final year student at Lloyd Law College, Greater Noida

Introduction

Arbitration is in the forefront of changing dispute resolution. Arbitration is a method of dispute resolution involving one or more neutral third parties who are usually agreed to by the disputing parties and whose decision is binding. It’s flexible because it allows parties to choose a procedure which fits the nature and the context in which it occurs. Speaking of flexibility, optional arbitration clauses tender flexibility in arbitration. It offers the parties to choose from a mode of dispute resolution. Common example of an optional clause would be between: litigation or arbitration. Symmetrical clauses offer the parties in dispute a uniform choice whereas asymmetrical clauses vest the power with only one party. The article will illuminate on the aspect of symmetrical clauses.

Prior Predicaments

The crux of a symmetrical clause is formed by the use of the following words:

1. Shall,

2. Can,

3. May,

4. Will,

5. Or;

The clauses are formulated wherein the choice of these words deem the clause to be an optional symmetrical clause. The use of words ‘Shall’ or ‘will’, are basically a five-finger exercise, uncomplicated in simpler terms. Ergo, the use of the two words denotes a simpler exegesis. Howbeit, the term ‘may’ is where incertitude arises. ‘May’ can never be construed as mandatory or an obligatory term (See The Labour Commissioner, Madhya Pradesh v. Burhanpur Tapti Mills Ltd.; Jamatraj Kewalji Gavani v. State of Maharashtra and Mahalumxi Rice Mills v. State of U.P.). The word shall has to be construed mandatorily whereas or as distinctive (See Powertech World Wide Ltd. v. Delvin International General Trading LLC). The word ‘can’ denotes a pre-existing possibility between the parties. (See Jyoti Brothers v. Shree Durga Mining Co). The case of Indtel Technical Services v. W.S Atkins Rail Limited, dealt primarily with the words adjudicator or courts, however, the clause used the word will which denoted a preexisting agreement between the parties.

The Supreme Court dealt with a question in terms of arbitration agreement as per Section 7 of the Arbitration & Conciliation Act, 1996 (hereinafter “The Act”) and the use of word ‘may’ in the Case of Wellington Associates v. Kirit Mehta, wherein the following was interposed:

“The words in sub-section (1) of Section 7, “means an agreement by the parties to submit to arbitration”, postulate an agreement which necessarily or rather mandatorily requires appointment of arbitrator/arbitrators. Section 7 does not cover the case where the parties agree that they “may” go to a suit or that they “may “also go to arbitration.”

The genesis behind the decision is that under the virtue of Section 7, an arbitration agreement is by which the parties refer their dispute to a sole or a panel of arbitrators. The use of word ‘may’ will not hold up in court in light of Section 7 of the Act. The following rationale was followed by Delhi High Court in the case of Panchsheel Constructions v. Davinder Pal Singh Chauhan and Another. However, In Rajiv Vyas v. Johnwin, it has been held that it’s the discretion of the court to entertain an application under Section 11 of the Act.

Coming to the other aspect, the Supreme Court dealt with the question of symmetrical clause in the case of Zhejiang Bonly Elevator Guide Rail Manifacture Co. Ltd. v. Jade Elevator Components. The court elucidated on the clause to connote that the parties have two alternatives obtainable to them if there’s no cordial settlement – Litigation or Arbitration. More or less the same was deliberated upon by the Supreme Court in a former case of Jagdish Chander v. Ramesh Chander. Wherein, the principle of consent was postulated by the revered judges. The clause in the said case explicitly mentioned the principle of consent. This is stated as follows:

“If … any dispute touching the partnership arises between the partners, the same shall be mutually decided by the partners or shall be referred for arbitration if the parties so determine."

The judgments of the court in Zheijang Bonly & Jagdish Chander (supra) provide for the same principle of law and no such conflict of opinion arises from the said cases. The consent is an important aspect which has been time and again reiterated in the concept of arbitration. It forms the basic notion of arbitration.

The Supreme Court in light of vague dispute resolution clauses held in the case of Visa International Ltd. v. Continental Resources (USA) Ltd., that the agreement need not be in any particular form and nothing to that effect can deny the willingness of the parties to solve their disputes by arbitration. In my opinion, the alternate dispute resolution lies on the basic notion of consent and willingness of parties. If the dispute lies within the scope of arbitration and even if any agreement between the parties does not provide for the words like arbitrators or arbitration, but the essence of dispute resolution with the help of a private independent third party is present in a matter, then a court has to recommend the resolution of dispute via arbitration.

The Quickheal Stance

The most recent predicament apropos symmetrical optional arbitration clause has been dealt by the Bombay High Court in the case of Quickheal Technologies v. NCS Computech. The use of the word ‘may’ had resuscitated the talk. The relevant clause has been reproduced as follows:

“17. Dispute Resolution:

a. All disputes under this Agreement shall be amicably discussed for resolution by the designated personnel of each party, and if such disputes cannot be resolved within 30 days, the same may by referred to arbitration as stated below.

b. Disputes under this Agreement shall be referred to arbitration as per the Arbitration and Conciliation Act, 1996 as amended from time to time. The place of arbitration shall be at Pune and language shall be English. The arbitral tribunal shall comprise of one arbitrator mutually appointed, failing which, three (3) arbitrators, one appointed by each of the Parties and the third appointed by the 2 so appointed arbitrators and designated as the presiding arbitrator and shall have a decisive vote.

c. Subject to the provision of this clause, the courts in Pune, India, shall have the exclusive jurisdiction and the parties may pursue any remedy available to them at law or equity.”

In light of the aforementioned clause, the court discerned a difference between the clauses granting the party an option. The court observed that vis-à-vis optional clauses the wordings are supposed to be clear. The use of ‘shall´ or ‘should’ are to be used. The word ‘may’ is not binding and clear. Ergo, it was held that there was no valid arbitration agreement.

The reverberation of the court’s judgment on the matter is that the principle of consent is imperative where the word ‘may’ comes into picture. ‘May’ provides for an option and an arbitration agreement cannot be left to the option of the parties. Its efficaciousness is completely vitiated as a result. So, where the consent of parties is obtained, the parties in dispute can proceed to file an application or can themselves appoint an arbitrator(s), if they are found on the same footing. The second scenario provides for clear wordings for the option of litigation or arbitration. The parties ‘shall’ choose between the two alternatives available in front of them.

Conclusion:

As mentioned above, the word may is in fact a word for option. In my opinion, the word has not been properly construed in the judgments mentioned above. The common law principles in the UK and Australia provide for a mandatory conciliatory period, on the failure of which parties ‘may’ opt for arbitration or continue with litigation as the case may be. The word ‘may’ denotes an invalid arbitration agreement. The said rationale hampers the pro arbitration stance India has committed itself into. At the least it should not be construed an invalid agreement. This will put India on the right track of being an arbitration hub.

However, keeping in mind the law laid down by the judiciary in the said regard, the parties and their advocates must be explicit in drafting a symmetrical optional arbitration clause in an agreement.