Supreme Court 2026: Why 'Can' Does Not Mean 'Shall' in Arbitration Clauses

In Nagreeka Indcon Products Ltd. v. Cargocare Logistics, the Supreme Court of India addressed a question that recurs frequently in commercial arbitration: does the word "can" in an arbitration clause create a binding obligation to arbitrate, or does it merely confer a permissive option? The Court held that "can" is not equivalent to "shall" and that a clause using permissive language does not constitute a mandatory arbitration agreement. This ruling has significant implications for how commercial contracts are drafted and interpreted in India, particularly in the logistics and international trade sectors where arbitration clauses are standard but their precise language varies widely.

Facts of the Case: A USD 28,000 Shipping Dispute

The dispute arose between Nagreeka Indcon Products Ltd. and Cargocare Logistics over a bill of lading involving a payment of approximately USD 28,000. The relevant clause in the bill of lading stated that disputes "can" be referred to arbitration. When a dispute arose regarding the payment, one party sought to invoke this clause to compel arbitration. The other party resisted, arguing that the use of "can" rather than "shall" or "must" meant the clause was merely permissive and did not create a binding obligation to submit the dispute to arbitration. The matter eventually reached the Supreme Court, which was called upon to determine whether the clause constituted an "arbitration agreement" within the meaning of Section 7 of the Arbitration and Conciliation Act, 1996.

Section 7 and the Requirement of a Binding Agreement to Arbitrate

Section 7 of the Arbitration and Conciliation Act, 1996 defines an arbitration agreement as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them. The provision requires that the agreement be in writing and that it reflect the parties' mutual consent to resolve disputes through arbitration rather than through courts. The Supreme Court has consistently held that the existence of an arbitration agreement is a jurisdictional prerequisite: without a valid agreement, no court or tribunal can refer parties to arbitration under Section 8 or appoint an arbitrator under Section 11. The critical question in Nagreeka was whether a clause using the word "can" demonstrates the requisite mutual consent to arbitrate, or whether it merely presents arbitration as one of several available options that the parties may or may not choose to exercise.

The Court's Reasoning: Permissive Language Does Not Create Mandatory Obligation

The Supreme Court held that the word "can" in the arbitration clause is permissive, not mandatory. A clause that says disputes "can" be referred to arbitration gives the parties an option to pursue arbitration but does not bind them to it. For a clause to qualify as an arbitration agreement under Section 7, it must use language that reflects a definite commitment by both parties to submit disputes to arbitration. Words such as "shall," "must," "will," or "agree to" create this mandatory character. The word "can," by contrast, indicates possibility or permission rather than obligation. The Court also observed that the determination of whether a valid arbitration agreement exists, as well as the question of arbitrability, falls within the domain of the Arbitral Tribunal under Section 16 (the kompetenz-kompetenz principle). However, this principle only applies once a prima facie valid arbitration agreement has been established. Where the clause itself fails to meet the Section 7 threshold due to permissive language, the question of Section 16 competence does not arise.

Implications for Contract Drafting in India

The Nagreeka ruling carries direct implications for how commercial contracts, particularly in sectors like shipping, logistics, and international trade, should draft their dispute resolution clauses. Many standard-form contracts, including bills of lading and charter party agreements, use templated language that may include permissive terms like "can" or "may" rather than mandatory terms like "shall" or "must." Parties who intend for arbitration to be the exclusive dispute resolution mechanism must ensure that their clauses use unambiguous mandatory language. A clause such as "Any dispute arising out of or in connection with this contract shall be referred to and finally resolved by arbitration" leaves no room for the interpretation problem that arose in Nagreeka. By contrast, a clause using "can" or "may" now clearly runs the risk of being treated as non-binding, allowing either party to pursue litigation instead.

Key Takeaways for Businesses and Legal Practitioners

The Nagreeka v. Cargocare judgment underscores the importance of precise language in arbitration clauses. Businesses entering into commercial contracts should audit their existing standard-form agreements to identify any clauses that use permissive language like "can" or "may" for dispute resolution. Where the parties' intention is to mandate arbitration, the clause must be redrafted to use mandatory language. Legal practitioners advising clients on contract drafting should treat this judgment as a clear reminder that Indian courts will not read mandatory intent into permissive words. For parties currently engaged in disputes where the arbitration clause uses ambiguous language, the Nagreeka ruling may provide grounds to resist a reference to arbitration or, conversely, may require a strategic reassessment of the available dispute resolution options. The ruling also reinforces the broader principle that arbitration, while favoured by Indian courts, remains a creature of consent, and that consent must be clearly and unambiguously expressed in the contractual text.