Arbitration Clause in an Agreement Cannot Be Considered 'Optional': Supreme Court
The Supreme Court, in Tarun Dhameja v. Sunil Dhameja & Anr., ruled that arbitration cannot be "optional" based on mutual agreement to invoke the arbitration clause. Setting aside the Madhya Pradesh High Court's decision, the Court clarified that arbitration clauses are not optional in practice and cannot be narrowly interpreted to require both parties’ consent to invoke arbitration.
A bench comprising CJI Sanjiv Khanna and Justice Sanjay Kumar held that while appointing an arbitrator may require mutual consent, the arbitration clause itself can be invoked by any aggrieved party. The Court emphasized that the clause's purpose is to resolve disputes, and if the parties fail to agree on an arbitrator, the Court can appoint one under Section 11(6) of the Arbitration and Conciliation Act, 1996.
The Court rejected the interpretation of the clause as requiring mutual agreement to trigger arbitration, observing that arbitration agreements must be read pragmatically and in their entirety. Accordingly, the appeal was allowed, and the Court directed the appointment of an arbitrator.