The word “can” in an arbitration agreement not to act as an impediment to refer the dispute to arbitration

In the recent case of Panasonic India Private Limited v. Shah Aircon, the Division Bench of the High Court of Delhi observed that the word “can” in an arbitration agreement is not to act as an impediment to refer the dispute to arbitration.

The brief facts of the case are that Panasonic India Pvt. Ltd. entered into a Distribution Agreement with Shah Aircon for the sale of electronic goods. Panasonic’s claims arose out of alleged unpaid invoices which were raised by it for the goods sold to Shah Aircon. The claims were raised by both parties against each other and demand Notices were served by each party to the other for payment of their dues under the Agreement. As the disputes
remained unresolved, Panasonic invoked the Arbitration Clause contained in the Agreement. Shah Aircon stated that it did not sign the Agreement with the Petitioner and that the disputes were to be referred to the court of competent jurisdiction in Gurugram, Haryana by filing a Civil Suit. Thus, Shah Aircon filed a Civil Suit before the Court in Gurugram, Haryana. Panasonic filed an application before the Civil Court for referring the disputes to arbitration.

In this backdrop, the Court observed that the use of words such as “parties can, if they so desire, refer their disputes to arbitration” or “in the event of any dispute, the parties may also agree to refer the same to arbitration” or “if any disputes arise between the parties, they should consider settlement by arbitration” in a
clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. However, the Arbitration Agreement in question here stated that either party ‘can’ refer the dispute to Arbitration. When Arbitration was invoked by one party, the other party argued that the presence of the word ‘can’ in place of ‘shall’ indicates that the reference to Arbitration is not binding and mandatory in nature. The High Court analysed the provisions of the Agreement in entirety and concluded that the true intent of the parties to the
Agreement were to refer disputes to Arbitration, and mere presence of the word ‘can’ would not render the Arbitration Agreement non-binding on the parties.