• Introduction

Arbitration law in India rests on the cardinal principle of party autonomy, and it demands clear and unequivocal consent to arbitrate. Consent cannot be deferred to a future election or a contingent decision, it must be embedded in the contract at the time a dispute arises. This clear consent‑centric approach shapes the judicial aversion towards optional or hybrid arbitration clauses, which are common and offer parties the flexibility to choose between arbitration and litigation, as per their convenience when a dispute arises. While these clauses may be attractive as they render a choice to the parties, they raise a critical legal question and highlight the vulnerability of such arbitration agreements:

Would such agreements constitute a binding arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996 (“Act”), and would they withstand scrutiny under Section 11 of the Act?

The article aims to address this issue in four steps. First, by tracing the evolution of Indian law on permissive arbitration language and the judiciary’s insistence on present consent. Second, it examines how Section 11 of the Act has evolved into a gatekeeping stage for screening optionality. Third, it contrasts India’s approach with the more adaptive models followed in Malaysia and Australia, as well as the autonomy forward posture adopted in England. Finally, it identifies the narrow Indian exception where optionality at the invocation stage may be permissible and proposes a drafting framework that reconciles commercial flexibility with the Indian judiciary’s demand for certainty.

Optional Arbitration Clauses: Commercial context, present consent, and Section 11 scrutiny.

  • Commercial Use of Optional Arbitration Clauses

Optional or hybrid arbitration clauses allow parties to either jointly or unilaterally choose between arbitration and litigation. In bilateral clauses, both parties share this discretion, however, in unilateral clauses, it typically rests with the party holding greater bargaining power, such as a lender in financing arrangements.

These clauses are particularly common in sectors like infrastructure, project finance, and international trade, where disputes vary in complexity and value. They offer commercial flexibility, minor disputes may be better suited to courts, while high‑value or technically complex matters benefit from arbitration’s expertise and confidentiality. This adaptability enables parties to avoid prematurely committing to a single forum.

However, Indian courts frequently view such flexibility as a ground of uncertainty, often resulting in an additional litigation on whether a valid arbitration agreement exists, ending up undermining the very efficiency these clauses seek to achieve.

  • Requirement of consent: Section 7 of the Act

Judicial scepticism toward optional arbitration clauses stems directly from Section 7 of the Act, requiring parties to undertake to submit disputes to arbitration. Indian courts interpret this as demanding explicit and clear consent at the time of contracting, not consent deferred to a future contingency.

The Hon’ble Supreme Court of India (“Supreme Court”) in Jagdish Chander v. Ramesh Chander[1] held that clauses merely suggesting arbitration as a possible option despite using terms like ‘arbitration’ or ‘arbitrator’ do not constitute binding agreements. Such language indicates only a ‘desire or hope’ for arbitration, not a binding obligation. It was observed that a clause must disclose a ‘determination and obligation’ to arbitrate. This principal now acts as a touchstone for agreements to be considered as a valid arbitration agreement.

This doctrine first appeared in Wellington Associates Ltd. v. Kirit Mehta[2], where the Supreme Court invalidated an arbitration clause that used the enabling language ‘may’ holding that such wording was insufficiently certain. This approach was later reaffirmed in Jagdish Chander (supra). Together, these cases illustrate the Supreme Court’s consistent position that an arbitration clause must be self‑executing once a dispute arises, leaving no room for further negotiation or deferred consent.

  • Threshold for judicial scrutiny: Section 11 of the Act

The requirement of present consent assumes sharper significance under Section 11 of the Act, which empowers courts to appoint arbitrators. Instead of deferring validity issues to the arbitral tribunal under the kompetenz kompetenz principle embodied in Section 16 of the Act, Indian courts increasingly undertake prima facie scrutiny at the stage of appointment of arbitrator under Section 11 of the Act to filter out clauses that do not constitute binding arbitration agreements.

Basis the above principal, the Supreme Court in BGM & M-RPL-JMCT (JV) v. Eastern Coalfields Ltd.[3], declined to appoint an arbitrator for a clause stating that disputes ‘may be sought through arbitration.’, drawing direct inference from Jagdish Chander (supra), it was held that a clause contingent on further agreement is merely enabling and therefore non‑binding, thus unsuitable for reference under Section 11 of the Act. By doing so, the judgment not only applies but extends the earlier doctrine, emphasizing that Section 11 of the Act serves as a gatekeeping mechanism to prevent futile arbitrations.

While the practical implications of such an interpretation are significant, it creates a real risk of early dismissal of an arbitration reference, leading to delays and increased costs as disputes default to litigation. This judicial progression from Wellington Associates (supra) to Jagdish Chander (supra) and then to BGM & M‑RPL‑JMCT (supra), illustrates a maturing jurisprudence that prioritizes efficiency by resolving enforceability issues at the threshold.

  • International contrast: Hybrid clauses and crystallisation of consent

Unlike Indian courts, which require immediate and unconditional consent, several foreign jurisdictions recognise that consent may crystallise only when a party elects arbitration, reflecting a more flexible understanding of party autonomy.

  • The eastern reflection of adaptability: Malaysia and Australia

Malaysia’s position has recently shifted from an Indian‑style insistence on upfront certainty to a more adaptive model. The Court of Appeal in Malayasia in a landmark case of Setia Awan Management Sdn Bhd v. SPNB Aspirasi Sdn Bhd[4] upheld a hybrid clause allowing parties to elect between arbitration and litigation reasoning that the mere presence of alternatives does not erode certainty, instead, binding consent crystallises once arbitration is invoked, without requiring fresh agreement. This stands contrary to India's Jagdish Chander (supra) test where any deferral of consent is fatal to the validity of arbitration agreement.

A foundational influence is drawn from Australia, where the Victorian Supreme Court of Appeal upheld a similar hybrid mechanism in Manningham City Council v. Dura (Australia) Constructions Pty Ltd. [5]. The Court emphasized that the contractual right to elect litigation operates as a default remedy, however, once arbitration is invoked, it creates a binding and exclusive path. Unlike India’s insistence on a clear ‘determination and obligation’ at the inception of the agreement, Australia focuses on the enforceability of the forum chosen at the time of invocation, treating the clause as a menu of options that crystallizes upon selection. Taken together, the approaches in Malaysia and Australia prioritise post‑dispute adaptability over upfront rigidity, offering a sharp contrast to India’s requirement of immediate and unequivocal consent under Section 7 of the Act.

  • The commercially viable approach of the west: England and Wales

English law reflects a stronger commitment to flexibility, consistently upholding unilateral, asymmetric, and hybrid clauses under the principle of broad party autonomy. Unlike India’s Section 7, which requires fixed and immediate consent, the English Arbitration Act, 1996 permits consent to crystallise at the time the option is exercised, even where one party holds a greater degree of choice.

The Commercial Court in England recently reaffirmed this position in Aiteo Eastern E&P Company Ltd v. Shell Western Supply & Trading Ltd.[6], where it upheld a unilateral option clause and rejected arguments that asymmetry undermines validity. The Court reasoned that party autonomy accommodates such asymmetry and that consent becomes binding the moment the election is made, a view directly at odds with the Indian courts’ dismissal of similar permissive language in BGM & M‑RPL‑JMCT (supra).

This ruling builds on a robust lineage, including NB Three Shipping Ltd v. Harebell Shipping Ltd.[7], which upheld an optional clause by comparing it to contractual variations that crystallize upon notice, holding that such optionality does not render an arbitration agreement uncertain or unenforceable. This was reinforced by Privy Council’s decision in Hermes One Ltd v. Everbread Holdings Ltd.[8], which extended this reasoning to hybrid clauses, concluding that the availability of multiple forums does not undermine validity so long as the party’s election ultimately creates an exclusive path. These decisions together form a coherent doctrinal trajectory grounded in commercial realism.

English courts view optional clauses as tools that streamline dispute resolution by allowing parties to select the most efficient forum, in direct contrast to the Indian judiciary’s concern that such clauses reflect only a ‘desire or hope’, thereby inviting disputes over enforceability. Broadly speaking, the English approach reverses the Indian hierarchy of priorities, treating flexibility as a virtue rather than a vulnerability.

These international insights underscore the potential for greater flexibility, yet Indian law continues to maintain its rigorous standards, even in cross border contexts, as explored next.

  • Foreign law, foreign seat, and the quirks of Indian party autonomy

While Indian courts take a strict view of optional clauses in domestic arbitration, they adopt a far more autonomy‑oriented approach in the context of international arbitration. In Reliance Industries Ltd. v. Union of India[9], the Supreme Court held that although Indian substantive law may govern the underlying contract, curial aspects may still be governed by English law. Similarly, in NTPC v. Singer Company[10], the Court upheld the parties’ freedom to choose the applicable law in international arbitrations.

However, these rulings do not dilute Section 7’s core requirement that a valid arbitration agreement must exist ab initio. Thus, even in cross‑border transactions, optional clauses must satisfy Indian thresholds if the seat of arbitration is in India. By contrast, where the seat is outside India, more permissive foreign standards may apply, as reflected in these precedents.

  • Optionality at invocation stage: a narrow exception

Amidst this rigour, Indian courts carve out a limited exception for clauses in which arbitration becomes mandatory once invoked, even if the invocation itself is optional. In Zhejiang Bonly Elevator Guide Rail Manufacture Co. Ltd. v. Jade Elevator Components[11], the Supreme Court upheld such a clause and, distinguishing it from Jagdish Chander, observed that optionality limited to the initiation of proceedings, and not to the existence of the obligation to arbitrate, is compatible with Section 7 of the Act, provided the clause does not depend on any further consensual act between the parties. This exception remains narrowly confined and functions as a bridge rather than a substantive departure, further reinforcing the judiciary’s preference for certainty while still accommodating minimal flexibility.

  • Conclusion

The Indian approach to optional arbitration clauses reflects a jurisprudence firmly anchored in the sanctity of a clear, unequivocal consent and the need for certainty, often at the cost of commercial flexibility. From Wellington Associates (supra) and Jagdish Chander (supra) through BGM & MRPLJMCT (supra), and with only a narrow relaxation in Zhejiang Bonly (supra), the courts have consistently maintained that arbitration clauses must embody a clear and binding obligation. This insistence promotes predictability but may discourage parties seeking adaptable dispute resolution mechanisms, nudging them instead toward litigation or foreign seated arbitrations.

By contrast, jurisdictions such as Malaysia, following Setia Awan (supra), alongside Australia’s influence from Manningham (supra), and England through decisions ranging from NB Three Shipping (supra) to Aiteo (supra), adopt an evolutionary understanding of consent, treating it as crystallising upon election. These systems prioritise party autonomy and view hybrid clauses as commercially efficient rather than inherently uncertain. India’s narrowly drawn exception in Zhejiang Bonly (supra) gestures toward this flexibility but remains too limited to meaningfully narrow the doctrinal gap.

This divergence carries implications for India’s attractiveness as a preferred arbitration seat. As seen in Reliance Industries (supra) and NTPC (supra), parties can opt for foreign seats and foreign curial laws, choices that may become increasingly appealing if Indian law continues to rigidly enforce Section 7’s requirement of upfront consent.

Accordingly, drafters operating under Indian law must prioritise precision and mandatory language, avoiding permissive terms such as ‘may’ and ensuring that any optionality is confined solely to the mechanism of invocation rather than the underlying obligation to arbitrate. The Indian position remains clear: certainty prevails over contingency, and consent must be firmly established from the outset.

Authors:

Disclaimer:    

This article is intended for informational purposes only and does not constitute a legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This article is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial / quasi-judicial authorities may not take a position contrary to the views mentioned herein

[1] (2007) 5 SCC 719.

[2] (2000) 4 SCC 272.

[3] 2025 SCC OnLine SC 1471.

[4] [2025] 4 MLRA 619.

[5] [1999] VSC 63 (11 March 1999)

[6] [2024] EWHC 1993 (Comm).

[7] [2004] EWHC 2001 (Comm).

[8] Claim No. BVI HC (COM) 2014/001

[9] (2014) 7 SCC 603.

[10] (1992) 3 SCC 551.

[11] (2018) 9 SCC 774 .