Can Parties Choose Whether to Arbitrate When Clause Provides for Arbitration? Supreme Court Clarifies

The Supreme Court has held that a court must not infer that parties have a choice over whether or not to arbitrate when an arbitration clause clearly provides for the resolution of disputes through arbitration.

A Bench of Justices Sanjay Kumar and Sanjeev Sachdeva said the choice contemplated in such clauses is typically limited to deciding the mechanism for appointing the arbitrator, such as whether to nominate a sole arbitrator or have each party nominate a separate arbitrator. Such a choice does not negate the existence of an enforceable arbitration agreement, Court stressed.

Court made the observation while allowing an appeal filed by S R S Building Material Supplier against an April 10, 2026 order of the Punjab & Haryana High Court at Chandigarh.

What did the arbitration clause provide?

The arbitration clause in the agreement stated that any dispute or difference between the parties arising out of or touching upon the conditions of the agreement could first be settled amicably by the Managing Director/Partner/Proprietor of Party-A and Party-B.

It further provided that in the event of disagreement, the parties could refer the dispute to a sole arbitrator if they so agreed, or otherwise each party could nominate an arbitrator.

The clause also provided for an umpire in case of differences of opinion between the arbitrators and stated that the proceedings would be conducted in accordance with the Arbitration and Conciliation Act, 1996 and would be binding on both parties.

However, the progress of the work was not to be affected during the arbitral proceedings or the period of dispute resolution.

Why Supreme Court disagree with the high court?

The high court had held that there was no arbitration agreement between the parties and had refused to exercise its power under Section 11 of the Arbitration and Conciliation Act, 1996 to appoint an arbitrator.

The Supreme Court, however, held that the high court had incorrectly inferred that the arbitration clause gave the parties a choice as to whether or not they wanted to arbitrate.

Having considered the wording of the clause, the Bench said:

"We are of the opinion that the high court was not justified in inferring an element of choice as to whether or not to arbitrate as such choice seems to have been contemplated only in the context of either deciding upon a sole Arbitrator or in the event of failure in that regard, each party nominating a separate Arbitrator to represent it."

The Bench therefore held that the choice contemplated under the clause related to the mechanism for appointment of the arbitrator and not to whether the parties would resort to arbitration at all.

The Supreme Court accordingly allowed the appeal and set aside the April 10 order passed by the Punjab & Haryana High Court.

Appointment of sole arbitrator

Considering the quantum of the claim raised by the appellant, which would be the subject matter of the arbitration proceedings, the Supreme Court appointed Ms Kamini Lau, former District Judge, Delhi Higher Judicial Service, Delhi, as the sole arbitrator to resolve the disputes between the parties.

Court directed the arbitrator to file her declaration and disclosure in terms of Section 12 of the Arbitration and Conciliation Act, 1996 within 15 days from the date of receipt of a copy of the order.

It also clarified that she would be entitled to the fees prescribed under the Fourth Schedule to the 1996 Act.

Case Title: S R S Building Material Supplier Vs M/s S B Associates 

Bench: Justices Sanjay Kumar and Sanjeev Sachdeva 

Date of Judgment: September 24, 2026