Recently the Hon’ble Supreme Court of India ruled in a case that the arbitration clause was in existence even after the termination of the agreement, and so it did merit appointment of arbitrators.
The recent judgment by the Hon’ble Supreme Court in M/s. Reva Electric Car Co. P. Ltd v. M/s. Green Mobil delivered on November 25, upheld that an arbitration clause which forms part of the contract shall be treated as an agreement independent of the other terms of the contract. This proposition is being examined in the light of ratio of the judgment.
The petitioner in the case had entered into a Memorandum of Understanding (“MoU”) with respondent for marketing of cars by the petitioner. The term of the MoU was from September 25, 2007 until December 2007, but it was extendable at the sole discretion of the petitioner in terms of clause 2 of the MoU, and, according to the petitioner, was in fact extended by the acts of the parties. These acts were various requests made in 2008 and 2009 by the respondent for the supply of cars in terms of the MoU. In September 2009, according to the petitioner, disputes arose between the parties, with the petitioner claiming that the respondent did not have necessary resources to build the petitioner’s brand, since enough cars were not sold in the Belgium region.
For appointment of a sole arbitrator by the petitioner, for confirmation by the respondent, under the terms of the MoU, the respondent denied existence of a contractual relation between parties on September 25 2009. A Section-9application was thus filed by the petitioner in Bangalore, attempting to restrain legal proceedings in Brussels. On this being granted, the present section-11 application was filed, in terms of clause 11 of the MoU.
The respondent claimed that the MoU expired on December 31, 2007, and claims made by the petitioner related to the commercial distribution of the cars, commencing in 2008 and the distribution agreement, entered into after expiry of the MoU in 2007. Respondent also contended that the petitioner had invoked arbitration proceedings only to avoid legal proceedings in Brussels, as evident from the arbitration clause being invoked after the petitioner was intimated of the proceedings in Brussels.
The petitioner, on the other hand, stated that it was the respondent’s intention to avoid arbitration by starting legal proceedings in Brussels. Moreover, the petitioner submitted that irrespective of the continued existence of the MoU, the arbitration clause would survive. Further, the Court, when acting under section 11 of the Act, is required to refer disputes without in-depth examination. It must only be satisfied that the disputes fall within the ambit of the arbitration clause.
The respondent contended that the arbitration clause in the MoU related only to the test and trial period when the MoU was subsisting. Thus, disputes pertaining to a period after thiswere outside the ambit of the arbitration clause and could not be referred for arbitration by court.
The Supreme Court while delivering the judgment took reference of M/S. Everest Holding Ltd. vsShyam Kumar Shrivastava, where the same court held “If there is any dispute between the parties to the agreement arising out of or in relation to the subject matter of a JVA containing an arbitration clause, all such disputes and differences have to be adjudicated upon and decided through process of arbitration by appointing a mutually agreed arbitrator , though the JVA may have been terminated and cancelled.”
Also in the case of Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, while discussing the power of arbitrator to adjudicate with regard to equity contribution towards constitution of company which may be a matter relating to winding up of the company, the Court held “Though arbitrator would have no power to order for winding up of the company since such power is conferred on and vested with the Court as envisaged under the Companies Act, but in terms of the arbitration agreement, the arbitrator can always find out and adjudicate as to whether or not a company is functional and if it was not functional in that event he could always find out the nature and status of its assets and can also issue directions and pass orders regarding dues and liabilities and also for taking recourse to appropriate remedy.”
The Court, relying on Patel Engineering, National Insurance Co. Ltd. v. BogharaPolyfabPvt. Ltd., A. P. Tourism Development Corporation Ltd. v. Pampa Hotels Ltd. [(2010) 5 SCC 425], and Alva Aluminium Ltd., Bangkok v. Gabriel IndiaLtd., stated that while entertaining a section 11 application, the CJI was bound to decide on: a) The existence of an arbitration agreement; and b) Whether the party applying under such an agreement was a party to that agreement.
The issues which the CJI had the option of deciding is:
Issues which are to be left for decision by the tribunal are:
Therefore, the existence of the arbitration agreement itself is a question which must be decided by the CJI in the first instance, since without the existence of an arbitration agreement, a reference under Section 11 of the Act cannot be made. The Court, in light of the material on record already stated above, ruled in the favour of the petitioner that the MoU had been extended by actions of the parties. Therefore, the arbitration clause was in existence, and did merit appointment of arbitrators under Section 11 of the Act. The Supreme Court further observed, relying on Everest Holding Ltd. v. Shyam Kumar Shrivastava and Ors., that irrespective of the continued existence of the MoU, the arbitration clause would survive. This is in view of Section 16(1) (a) of the Act, which reiterates the independent existence of an arbitration clause in a contract, separate from the main contract. Invalidation of the parent contract does not automatically entail invalidation of the
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