Valid arbitration agreement requires binding mutual intention; permissive future reference to arbitration is insufficient for a stay.

A clause in a company letter was held not to constitute a valid arbitration agreement because it used permissive language and contemplated arbitration only if mutually agreed and acceptable to both parties. An effective arbitration agreement requires a written, binding intention to submit present or future disputes to arbitration, with both parties ad idem; an agreement to agree in future is insufficient. The deletion of Section 389 of the Companies Act, 1956 did not remove a company's capacity to enter into arbitration, but no enforceable arbitration agreement was shown on the wording relied upon. The stay application under Section 34 of the Arbitration Act, 1940 was therefore not maintainable.

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Issues: Whether the clause in the respondent company's letter constituted a valid arbitration agreement so as to justify stay of the winding-up proceedings under Section 34 of the Arbitration Act, 1940.

Analysis: A valid arbitration agreement requires a written agreement showing an intention to submit present or future disputes to arbitration, and the parties must be ad idem on that submission. The clause relied upon used the word "may" and contemplated reference to arbitration mutually agreed upon and acceptable to both sides; it did not create a binding obligation to refer disputes to arbitration, nor did it show that either party had an enforceable unilateral right to compel arbitration. The clause was therefore no more than an agreement to agree in future and was ineffective as an arbitration agreement. The earlier deletion of Section 389 of the Companies Act, 1956 did not affect the ordinary contractual capacity of a company to enter into an arbitration agreement, but no such agreement was found on the wording relied upon.

Conclusion: No arbitration agreement existed between the parties, and the application for stay under Section 34 of the Arbitration Act, 1940 was not maintainable. The application was rejected.

Ratio Decidendi: A clause amounts to an arbitration agreement only if it evinces a present and binding intention of both parties to submit disputes to arbitration; a merely permissive or future mutually agreeable reference is insufficient.

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