Permissive arbitration clause held enabling only; existence of arbitration agreement can be examined at the appointment stage.

A section 11 court may examine whether an arbitration agreement exists at all, because section 16's kompetenz-kompetenz power does not exclude threshold scrutiny of the foundational agreement. The Court also treated a clause stating that disputes "may be referred to arbitration" as permissive rather than mandatory, especially when read with a clause conferring civil court jurisdiction. On that wording, the clause was only an enabling arrangement and did not create a binding obligation to arbitrate without fresh consent. The result was that no arbitrator could be appointed on the basis of clause 5 as drafted.

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Issues: (i) Whether the question whether clause 5 amounted to an arbitration clause and whether such question related to the existence of the arbitration agreement could be decided only by the arbitral tribunal under section 16 of the Arbitration and Conciliation Act, 1996, or could also be decided in proceedings under section 11. (ii) Whether clause 5, using the words "may be referred to arbitration", constituted a mandatory arbitration agreement or required fresh consent of the parties before arbitration could be invoked.

Issue (i): Whether the question whether clause 5 amounted to an arbitration clause and whether such question related to the existence of the arbitration agreement could be decided only by the arbitral tribunal under section 16 of the Arbitration and Conciliation Act, 1996, or could also be decided in proceedings under section 11.

Analysis: Section 16 empowers the arbitral tribunal to rule on its own jurisdiction, including objections as to the existence or validity of the arbitration agreement, but the provision is enabling and does not exclude the jurisdiction of the Chief Justice or designate at the stage of section 11 where the respondent specifically contends that no arbitration agreement exists at all. A reference under section 11 necessarily presupposes the existence of an arbitration agreement as defined in section 7, and where that foundational issue is raised at the threshold, it must be decided before any appointment is made. The scheme of sections 11 and 7 supports such scrutiny at the appointment stage.

Conclusion: The question whether clause 5 amounted to an arbitration agreement could be examined in section 11 proceedings, and the objection that only the arbitral tribunal could decide it was rejected.

Issue (ii): Whether clause 5, using the words "may be referred to arbitration", constituted a mandatory arbitration agreement or required fresh consent of the parties before arbitration could be invoked.

Analysis: Reading clause 4 and clause 5 together, the agreement showed that the parties first contemplated civil court jurisdiction in Bombay and only thereafter provided that disputes "may" be referred to arbitration. The use of "may" was treated as deliberate and permissive, not mandatory, and therefore clause 5 was an enabling clause rather than a firm arbitration clause. Since arbitration was not shown to be the sole or compulsory remedy, a fresh consensus to arbitrate was necessary before reference could be made.

Conclusion: Clause 5 was not a mandatory arbitration clause and did not, by itself, compel reference to arbitration without fresh consent; this issue was decided against the petitioner.

Final Conclusion: The petition did not disclose a binding arbitration agreement enforceable at the appointment stage, so no arbitrator could be appointed on the basis of clause 5 as drafted.

Ratio Decidendi: A permissive clause stating that disputes "may be referred to arbitration", especially when read with a court-jurisdiction clause, is only an enabling arrangement and not a compulsory arbitration agreement; where the existence of an arbitration agreement itself is disputed at the section 11 stage, that foundational question may be examined before making any appointment.

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