One of the fundamental and internationally recognised concept in arbitration is separability of an arbitration agreement from the original contract. Even in the cases where the arbitration agreement is a clause or part of the main contract, the arbitration agreement does not become invalid even if the main contract is terminated. The doctrine of separability of the arbitration Agreement connotes that the invalidity, in-effectiveness, termination of the substantive commercial contract would not affect the validity of the arbitration agreement, except if the arbitration agreement itself is impeached on the ground that the arbitration agreement is void abinitio.

The Doctrine of separability was expounded in the Judgment of Heyman Vs Daewins2 by House of Lords in UK, wherein it was held that the English common law had been evolving towards the recognition of an arbitration clause, is a separate contract which survives the termination of the main contract. Lord Wright in his opinion stated that, “it Survives for the purpose of measuring the claims arising out of the breach, under the arbitration clause survives for determining the mode of their settlement. The purpose of the contract have failed, but the arbitration clause is not the one of the purpose of the contract”. The above said understanding on the concept of separability was upheld globally by all the Courts.

The Indian procedural law Arbitration and Conciliation Act,1996, is similar to UNCITRAL Model law and it gives statutory recognition to the to the Doctrine of separability and Kompetenz Vs Kompetenz by incorporating S.16 of the Act. The said Section states as follows:

“16. Competence of arbitral tribunal to rule on its jurisdiction:

1) The arbitral tribunal may Rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for the purpose,-

(a) An arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) A decision by the arbitral tribunal that the contract is null and void shall not entail ispo jure invalidity of the arbitration clause.”

Ignoring the said separability concept, the Supreme Court of India, in the case of SMS Tea estates held that “it is not possible To bifurcate the arbitration clause contained in such agreement or conveyance so as to give it an independent existence, as has been contended for by the respondent”. It was a clear departure from the concept of separability of an arbitration agreement. At that time the law as it prevailed, as expounded in the Constitution Bench decision in SPB Co4 and other cases National Insurance Co Ltd Vs Boghara Polyfab limited5 , Master Construction Company Vs Union of India6 etc., held that at the pre reference stage in an application filed under section 11 of the arbitration and conciliation act 1996, the court may determine certain threshold issues, such as whether the claim was time barred, a stale claim or whether there had been an accord and satisfaction which would preclude the necessity of reference to arbitration. By providing such powers to the courts in the pre-reference stage the concept of separability of arbitration agreement as well as competenz- competenz concepts were diluted.

But in the year 2016 by way of an amendment act section 6A was introduced and the examination of the court at the time of pre reference was limited only to the existence of an arbitration agreement. The said amendment of 2016 legislatively overruled the position with respect to jurisdiction under section 11 of the Arbitration Act and confined the examination only to the existence of an arbitration agreement. In Duro Felguera Vs Gangavaram Port Limited , it was held that the legislative intent was clear that at the pre reference stage there must be minimal judicial intervention and the only issue to be decided would be the existence of an arbitration agreement and nothing more. The said position was affirmed buy a three judge bench of Supreme Court of India in the Judgment of Mayawati trading private limited Vs Pradyuat Deb Burman . These Judgments settled law that only existence of an arbitration agreement has to be seen at the pre-reference stage.

Ignoring the above said judgments, the Supreme Court again followed SMS tea estates (Supra) judgment in Garware Wall Ropes Limited Vs Coastral Marine Construction & Engineering Limited case9 and held that It is not possible to bifurcate the arbitration clause contained in such agreement or conveyance to give it an independent existence. Again in the case of United India Insurance Co Ltd Vs Hyundai Engineering co Limited10 held that the arbitration clause that is contained in the subcontract would not exist as a matter of law until subcontract is duly stamped.

Finally, a three Judge Bench of the Supreme Court of India in its recent Judgment in the case of NM Global Mercantile Pvt Limited Vs Indo Unique Flame Limited held that the decision in SMS tea Estates (SMS) does not lay down the correct position in law by holding that the arbitration agreement is an independent agreement between the parties and is not chargeable 2 payment of stamp duty. It further held that the non-payment of stamp duty on the commercial contract would not invalidate the arbitration class or render it unenforceable, since it has independent existence of its own.