Arbitration Clause in a contract is an agreement independent of other terms of the contract

While considering any objection with regard to the existence or validity of the arbitration agreement, the arbitration clause forming part of the contract, has to be treated as an agreement independent of other terms of the contract

While considering any objection with regard to the existence or validity of the arbitration agreement, the arbitration clause forming part of the contract, has to be treated as an agreement independent of other terms of the contract

Today Homes and Infrastructure Pvt. Ltd. vs. Ludhiana Improvement Trust and Anr.
Case No. 16 of 2013, decided on 10th May 2013 by Supreme Court of India

In a matter disputing the appointment of arbitrator, it was contended that since the main agreement containing the arbitration agreement, since was itself void, the arbitration agreement could not survive independent of the main agreement. The impugned finding by Punjab & Haryana High Court had held that the agreement in question was not legal and valid and, therefore, the disputes between the parties arising out of the said agreement could not be referred to an arbitrator and consequently the application under Section 11(6) of the Arbitration and Conciliation Act, 1996 was dismissed.

While deciding the petition challenging impugned finding of High Court, the law laid down by the 7-Judge Bench in SBP & Co. matter was reaffirmed wherein it was held that an arbitration agreement could stand independent of the main agreement and did not necessarily become otiose, even if the main agreement, of which it is a part, is declared void.

Under Section 16(1) of the Arbitration and Conciliation Act, 1996, the legislature makes it clear that while considering any objection with regard to the existence or validity of the arbitration agreement, the arbitration clause, which formed part of the contract, had to be treated as an agreement independent of the other terms of the contract. Section 16(1)(b) provides that even if the arbitral tribunal concludes that the contract is null and void, it should not result, as a matter of law, in an automatic invalidation of the arbitration clause. 16(1)(a) of the 1996 Act presumes the existence of a valid arbitration clause and mandates the same to be treated as an agreement independent of the other terms of the contract. By virtue of Section 16(1)(b) of the 1996 Act, the arbitration clause continues to be enforceable, notwithstanding a declaration that the contract was null and void.

The impugned finding in the present matter accordingly was held incorrect that once the main agreement between the parties is declared void, the entire contents thereof, including any arbitration clause that may have been incorporated in the main agreement is rendered invalid.

The Chief Justice has to decide:

• His own jurisdiction;
• Whether the party concerned has approached the right High Court;
• Whether there is an arbitration agreement; and
• Whether the person who has made the request before him, is a party to such agreement.

The power exercised by the Chief Justice of the High Court or the Chief Justice of India under section 11(6) of the 1996 Act is not an administrative power but a judicial one and the Chief Justice or the designated Judge would have the right to decide the preliminary aspects involved.