The Supreme Court recently set aside a decision by the Madhya Pradesh High Court that had deemed arbitration under a specific clause as ‘optional,’ requiring mutual consent from both parties to invoke the process. The Court emphasized that arbitration is not an optional remedy and clarified that the mere inclusion of mutual consent for the appointment of an arbitrator does not make the arbitration clause optional or non-binding.
A bench led by Chief Justice Sanjiv Khanna and Justice Sanjay Kumar heard the appeal, which arose from a dispute where the High Court had refused to appoint an arbitrator on the grounds that the arbitration clause would only be invoked if both parties agreed. The Supreme Court disagreed, stating that while the appointment of the arbitrator could require mutual consent, the invocation of the arbitration clause itself was not optional.
The Court interpreted the arbitration clause pragmatically, stressing that it is meant to resolve disputes, and even if the parties failed to agree on an arbitrator, the Court could appoint one under Section 11(6) of the Arbitration and Conciliation Act, 1996. The Court remarked that the arbitration clause should be understood in its entirety, with the agreement allowing an aggrieved party to seek arbitration, even if mutual consent on the arbitrator is not immediately reached.
Ultimately, the appeal was allowed, and the Court directed the appointment of an arbitrator, reinforcing that arbitration clauses should be read in a manner that facilitates dispute resolution.
Case Title: Tarun Dhameja v. Sunil Dhameja & Anr.
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