Impleadment of Non-Signatories: Assessing the Arbitral Tribunal’s Authority

This article attempts to break down the issues surrounding the impleadment of non-signatories in arbitration proceedings. The same can be better explained by examining the recent decision rendered by the Delhi High Court in the case of M/s. Arupri Logistics Pvt. Ltd. v. Shri Vilas Gupta & Ors.[1] wherein the Court set aside the order of the Sole Arbitrator dated December 23, 2021, impleading the appellants, non-signatories to the agreement, in the arbitration proceedings. The issue at hand that many have found perplexing was simple – whether the arbitrator is vested with the power to implead a non-signatory into the proceedings in the post-referral stage.

Brief Facts

The respondents were engaged in a family business conducted through the agency of three companies, Taurus India Limited, Taurus Polymers Pvt. Ltd., and Taurus Englobe Ltd. The Memorandum of Family Settlement entered into by the respondents on April 28, 2007, provided for an arbitration clause. In light of the execution of this memorandum, the case pending before the Company Law Board regarding the alleged mismanagement and oppression in the affairs of Taurus India was disposed of.

When the Company Law Board was approached again, a facilitator was appointed for the due implementation of the memorandum’s terms, who came up with an interim arrangement. In the meantime, an agreement for the sale of an industrial plot in Mayapuri was executed for a consideration of Rs. 6.35 Cr., between the appellants, Taurus India Limited and M/s. Arupri Logistics Pvt. Ltd. on October 21, 2010. Later, a conveyance deed was executed on May 23, 2012. The same was done disregarding the terms of the memorandum which provided for the division of the said industrial plot between the respondents (who were categorised into Group I and Group II). However, the validity of the sale was confirmed by the facilitator in May 2013.

These events led to a petition being filed under Section 11 of the Arbitration and Conciliation Act, 1996, before the Delhi High Court following which a Sole Arbitrator was appointed. The said Sole Arbitrator entered upon reference on February 12, 2021. Subsequently, respondent no.1 filed an application for impleading the appellants in November 2021, and the Sole Arbitrator allowed this application on December 23, 2021. Aggrieved by this decision, the appellants approached the Delhi High Court.

Arbitral Tribunal Owes its Origin to Agreement, Institutional Rules and National Statutes

After hearing the parties, the Court expressed that through agreement, the parties cannot confer powers upon the arbitral tribunal “which are otherwise reserved to be exercised by Courts and judicial institutions created by the State”.

Further, the Single Judge Bench of Justice Yashwant Varma clarified that the power to rule on its jurisdiction under Section 16, the power to issue interim measures under Section 17, or the procedural flexibility accorded under Section 19 to not be bound by the provisions of the Civil Procedure Code, 1908, or the Indian Evidence Act, 1872 do not empower the arbitral tribunal to implead parties.

Court’s Power of Impleadment under the Civil Procedure Code

As per Order I Rule 10(2) of the Civil Procedure Code, 1908, the Court may strike out or add parties at any stage of the proceedings. Such an express provision is not contained in the Arbitration and Conciliation Act, 1996. In this context, the Court observed that the Sole Arbitrator overlooked the absence of a provision in the Act that expressly conferred the power to implead parties. Moreover, the hallmark of arbitration, or for that matter, any Alternative Dispute Resolution (ADR) mechanism, lies in the consent of the parties to the dispute. Therefore, the Arbitral Tribunal cannot act against the consent of the parties by impleading them against their will and forcefully subjecting them to its jurisdiction as it would defeat the purpose of arbitration.

Group of Companies and Alter Ego Doctrines

The Court expressed that if the arbitral tribunals had the authority to invoke the doctrines of alter ego or group of companies to implead non-signatories in the proceedings, the same would “not only result in the AT travelling far beyond the contours of the arbitration agreement but negate against the fundamental tenet of arbitration which is founded on consensus and agreement”.

Pertaining to the reliance placed by the respondents on the Court’s decision in GMR Energy Limited vs. Doosan Power Systems India Private Limited & Ors.[2] wherein it was held that the arbitral tribunal could rule on the issue of alter ego, the Court pointed out that the arbitration in the GMR Energy case was covered under Part II of the Act and was being conducted under the Singapore International Arbitration Centre (SIAC) Rules which expressly provided for the joinder of parties.

Analysis

The cyclical nature of proceedings that would arise from this decision of the Delhi High Court remains unaddressed; the aggrieved parties would have to continuously run from pillar to post to seek those remedies which have not been enshrined explicitly. The decision diminishes the power exercised by the arbitral tribunals as the Claimant would have to knock on the doors of the Court in pursuit of such remedies, which ultimately defeats the whole point of arbitration and access to speedier modes of justice. One hopes that the growing effectiveness of arbitration as the preferred mode of dispute resolution would not be affected by the Court’s ruling.

References:

[1] 2023 SCC OnLine Del 4297.

[2] 2017 SCC Online Del 1162.

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Photo by DG-Studio: Arbitration agreement. Legal resolution conflict – Photos by Canva 

The Court expressed that if the arbitral tribunals had the authority to invoke the doctrines of alter ego or group of companies to implead non-signatories in the proceedings, the same would “not only result in the AT travelling far beyond the contours of the arbitration agreement but negate against the fundamental tenet of arbitration which is founded on consensus and agreement”.

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Validity of Unstamped Arbitration Agreements: A Scrutiny of Dissenting Opinions

A five-judge Bench of the Supreme Court comprising Justice K.M. Joseph, Justice Aniruddha Bose, Justice C.T. Ravikumar, Justice Hrishikesh Roy, and Justice Ajay Rastogi while deciding an appeal on 25th April 2023, held that an arbitration agreement in an unstamped contract which is liable to be stamped will not be considered valid in law. Until now, arbitration clauses were considered as separate agreements and this pronouncement will have a deep-rooted effect on the law of the land.

Introduction

Settling the long-standing debate around the validity and enforceability of an unstamped arbitration agreement and putting an end to contradictory judicial pronouncements surrounding the issue, the Apex Court delivered the judgment in N.N. Global Mercantile v. Indo Unique Ltd.[1] by a 3:2 majority, while Justice Ajay Rastogi and Justice Hrishikesh Roy dissented and were of the view that arbitration agreements are valid till the pre-referral stage. In this article, we analyse the majority and minority views while referring to the concepts of separability and Kompetenz-Kompetenz.

Background

The Petitioner and Respondent had entered into a subcontract which contained an arbitration clause. The case began when the Respondent approached the Commercial Court invoking arbitration proceedings against the Petitioner under Section 8 of the Arbitration and Conciliation Act, 1996 (the Act) when certain disputes arose between the two pertaining to the invocation of a bank guarantee furnished by the Petitioner. On rejection of the application by the Commercial Court, the Respondent filed a revision application before the Bombay High Court. Consequently, the Bombay High Court allowed the Respondent to withdraw the revision application and approach the Court by way of a writ petition[2], wherein the Court held that the Section 8 application was maintainable before it and the issue of unenforceability of the arbitration clause owing to the unstamped and unregistered subcontract can be raised before the Arbitral Tribunal under Section 11 of the Act. Aggrieved by the decision of the Bombay High Court, the Petitioner filed a Special Leave Petition before the Supreme Court which was heard by a three-judge Bench. When faced with this issue, the court, overturning the decision laid down in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co.[3] and Garware Wall Ropes Ltd. v. Coastal Marine Constructions and Engg. Ltd. held that the independence of the arbitration clause will be deemed supreme and will not be vitiated owing to the insufficient stamping and thus cannot be a ground for refusing the arbitrator’s appointment[4].

The bone of contention, however, persisted regarding the enforceability of the arbitration clause in the unstamped subcontract and the Supreme Court referred the matter to a five-judge bench for the very reason that in the case of Vidya Drolia v. Durga Trading Corpn[5], a co-ordinate bench held differently.

The Majority View

Fast forward to 2023, the five-judge Bench held arbitration agreements in unstamped contracts as invalid by a majority. The Supreme Court held that an instrument containing an arbitration clause which is bound to be stamped and registered but is not, does not fit within the definition of a contract under Section 2(h) of the Indian Contract Act, 1872 and hence cannot be enforceable in law. The majority view reasoned that the doctrine of arbitration will be followed and that in case of an original agreement being produced which is unstamped, the Court under a Section 11 application is bound by law to proceed as per Sections 33 and 35 of the Indian Stamp Act, 1899 and impound such an agreement and the Courts must follow the law as per due procedure to ultimately remove the defect.

Prior to NN Global, the Supreme Court while examining the same issue in SMS Tea Estates, held that an arbitration clause in an unstamped arbitration agreement cannot be acted upon for the appointment of an arbitrator owing to the rationale that an instrument which mandatorily needs to be registered and is chargeable under the Stamp Act cannot be admitted into evidence and loses credibility.

A two-judge bench in Garware Wall Ropes also upheld the rationale in SMS Tea Estates while adding that the introduction of Section 11 (6-A) does not alter the position of law and the existence of the arbitration clause will survive only if the contract is stamped and registered, being duly valid in law as the arbitration clause cannot be culled out of the main contract and be considered a separate entity[6]. Recently in 2021, a three-judge bench in Vidya Drolia also affirmed the findings in SMS tea estates and Garware wall ropes.

Merit in Dissent

The objective of the Indian Stamp Act, 1899 is primarily to generate revenue for the State. In this regard, Section 33 of the Act empowers the Authority to examine and ascertain whether the stamp duty on an instrument presented before them has been duly paid. In case of a situation to the contrary, the Authority is to impound the document and direct the parties to pay the stamp duty with or without levying a penalty.

A perusal of Section 35 further reveals that no instrument can be admitted in evidence which does not carry the requisite stamp duty the instrument is liable for. However, the proviso to said Section further provides a cure in case of this defect by allowing its admission into evidence after payment of the requisite stamp duty and the penalty. Thereby revealing that such a defect can be cured even at a later stage and that an unstamped or insufficiently stamped instrument can be turned valid in law by fulfilling the criteria laid out in the proviso to Section 35. Justice Rastogi, on similar lines, noted his dissent by opining that the Stamp Act is not rigid in making the instrument invalid in law and provides for a mechanism to rectify and fulfil the criteria prescribed under Section 35 even at a later stage. Following this scheme, Section 42 of the Stamp Act further envisages that in case of an impoundment under Section 33, such an instrument can be endorsed by the Collector so authorized and then be admitted in evidence. Hence, the law clearly provides for the admissibility of such instruments which may lack or suffer from insufficient stamp duty and nowhere envisions their complete invalidity in law.

Moving on to the Arbitration and Conciliation Act, 1996, he further held that the legislative intent behind the enactment of the Act was to avoid arduous litigation procedures and hasten the dispute resolution processes. A harmonious interpretation of the Indian Stamp Act, 1899 and the Arbitration and Conciliation Act, 1996 needs to be adopted to provide an interplay between the two to meet the ends of justice. The applicability of Section 33 and 35 of the Indian Stamp Act, 1899 to a Section 11 application under the Arbitration and Conciliation Act, 1996 which deals with the appointment of an arbitrator essentially defeats the purpose of speedy disposal of cases by focusing on procedural irregularities which can be cured. Section 11, following the doctrine of Kompetenz-Kompetenz, provides that the Court may restrict its interference only to the “existence” of an arbitration agreement and leave subsequent issues such as validity and scope for the tribunal to adjudicate. It can be inferred that impounding and invalidity of the arbitration agreement at the pre-referral stage will only create more roadblocks and increase interference by courts thereby defeating even the purpose of the Arbitration and Conciliation Act, 1996 and will have no effect on the existence of the arbitration agreement.

Justice Roy in his dissenting opinion was also of the view that a non-stamped or an insufficiently stamped instrument would still be enforceable for the appointment of arbitrators under Section 11 and courts should restrict their scrutiny only to the existence of the agreement to keep judicial interference in check in order to meet the objective of the 2015 amendment.

The Gordian Knot

While arriving at the decision in N.N. Global, the well-established principle of separability[7] in arbitration jurisprudence has not been considered which puts India in a precarious position in its quest to become a hub for Commercial Arbitration. The principle of separability acknowledges that an arbitration agreement is autonomous from the commercial contract it forms a part of[8]. This autonomy is based on the concepts of separability and kompetenz-kompetenz. This doctrine further implies that the invalidity or ineffectiveness of the underlying commercial contract will not vitiate the arbitration agreement. This has also been embodied in Section 16 of the UNICITRAL Model Law which allows the Arbitral Tribunal to rule upon its own jurisdiction including matters regarding existence and validity[9].

Conclusion

The authors believe that this landmark ruling will have far-fetched consequences. The principle of separability of the arbitration agreement will have to see a complete metamorphosis to align itself with the ruling. The question of stamping is not related to the jurisdiction of the Arbitral Tribunal, but it relates to the issue of admissibility. At the pre-arbitral stage, the dissent of N.N Global intrigues the way in which the discourse of arbitration “should be”. It would be axiomatic to state that the majority has set the law of the land by laying down a parameter to be checked in a Section 11 petition.

References:

[1] N.N. Global Mercantile v. Indo Unique ltd, 2023 SCC OnLine SC 495.

[2] Article 226, The Indian Constitution, 1950.

[3] SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (2011) 14 SCC 66.

[4] N.N. Global Mercantile v. Indo Unique ltd, 2021 SCC OnLine SC 13

[5] Vidya Drolia v. Durga Trading Corpn, (2021) 2 SCC 1.

[6] Garware Wall Ropes Ltd. v. Coastal Marine Constructions and Engg. Ltd, (2019) 9 SCC 209.

[7] Heyman v. Darwins Ltd. 1942 AC 356 (HL).

[8] Ibid.

[9] §16(1), United Nations Commission on International Trade Law, UNCITRAL Model Law on International Commercial Arbitration 1985: with amendments as adopted in 2006 (Vienna: United Nations, 2008), available at www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf.

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Photo by Motortion: https://www.canva.com/photos/MADqQhzGreg-arbitration-agreement-table-gavel-lying-on-sound-block-conflict-settlement/

While arriving at the decision in N.N. Global, the well-established principle of separability[7] in arbitration jurisprudence has not been considered which puts India in a precarious position in its quest to become a hub for Commercial Arbitration. The principle of separability acknowledges that an arbitration agreement is autonomous from the commercial contract it forms a part of[8]. This autonomy is based on the concepts of separability and kompetenz-kompetenz. This doctrine further implies that the invalidity or ineffectiveness of the underlying commercial contract will not vitiate the arbitration agreement. This has also been embodied in Section 16 of the UNICITRAL Model Law which allows the Arbitral Tribunal to rule upon its own jurisdiction including matters regarding existence and validity[9].

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Scope of Enquiry Under Section 11 of the Arbitration and Conciliation Act, 1996

In the recent case of M/S. Emaar India Ltd v. Tarun Aggarwal Projects LLP & Anr[1]., the Hon’ble Supreme Court has held and reaffirmed its earlier view that under a Section 11 petition in the Arbitration and Conciliation Act, 1996, the Court can determine whether or not a dispute is arbitrable by conducting a preliminary inquiry.

Brief Facts

 

The case concerns Tarun Aggarwal Projects LLP & ANR (Respondents) who entered into a collaboration agreement with Emaar India Ltd. (Appellant) for the development of residential colonies located in Gurugram, Sector 62 and 65. Both parties entered into an agreement on May 7, 2009. After this, both parties signed an Addendum Agreement on April 19, 2011. Soon a dispute arose between the parties and the Respondents stated that the Appellant had not followed the obligation specified under the Addendum Agreement. Thereafter, a legal notice was issued on behalf of the Respondents on December 11, 2019, demanding the physical possession of 5 plots measuring 2160 sq. yds. and claiming a sum of Rs. 10 crores for the losses/damages suffered by them. The Respondents contended that the dispute is arbitrable in nature as mentioned under clause 37 of the Addendum Agreement. Hence, they appointed an arbitrator who was a former judge of the Hon’ble High Court. The Appellant refused the appointment of the arbitrator following which a petition under Section 11 was filed by the Respondents before the Hon’ble High Court of Delhi.

At this stage, it would be important to refer to Clauses 36 and 37 of the Addendum Agreement, which read as follows:

Dispute Resolution & Jurisdiction

  1. “In case of any conflict or difference arising between the parties or in case the either party refused or neglects to perform its part of the obligations under this Addendum Collaboration Agreement, inter­alia as mentioned in Clauses 3, 6 & 9 hereinabove, then the other party shall have every right to get this agreement specifically enforced through the appropriate court of law”.
  2. Save & except clause 36 hereinabove mentioned, all or any dispute arising out of or touching upon or in relation to the terms of this Agreement including the interpretation and validity thereof, and the respective rights and obligations of the parties, shall be settled through under the provisions of Arbitration & Conciliation Act, 1996 wherein both the parties shall be entitled to appoint one Arbitrator each and the Arbitrators so appoint shall appoint a third Arbitrator or rank of Retired Judge of any High Court. The arbitration proceedings shall be governed by the provisions of Arbitration and Conciliation Act, 1996 or any statutory amendments/modification thereto for the time being in force. The arbitration proceedings shall be held at Delhi.”

Before the Hon’ble High Court, it was contended by the Appellant that the dispute relates to the breach of clauses 3, 6 and 9.  Therefore, it is only the Court which has the jurisdiction to entertain the dispute as per the terms of Clause 36 of the Addendum Agreement. The invocation of arbitration by the Respondents which was contended by the Appellant was thus not in alignment with the agreed terms. Alternatively, in the prayer, the Appellant suggested the nomination of their arbitrator. The Hon’ble High Court examined clauses 36 and 37 of the Addendum Agreement and held that conjoint reading of both the Clauses makes it clear that a party does have a right to seek enforcement of agreement before the Court of law, but it does not bar settlement of disputes through Arbitration and Conciliation Act, 1996. Moreover, Clause 37 also suggests how arbitration proceedings shall be conducted. On this ground, the Hon’ble High Court proceeded with the appointment of the third arbitrator. Aggrieved by the order of the Hon’ble High Court, the Appellant approached the Hon’ble Supreme Court.

 

Observations of the Supreme Court 

 

The seminal issue before the Hon’ble Supreme Court was whether the Hon’ble High Court has made a justified decision to appoint an arbitrator under Sec. 11(5) and 11(6) of the Arbitration Act without having a preliminary inquiry under Sec. 11 to decide the arbitrability of the dispute.

The Hon’ble Supreme Court looked at both clauses and determined that on a bare reading of Clause 36 of the Agreement, it is apparent that in the event of any dispute as mentioned in Clauses 3, 6 and 9, the other party shall have a right to get the Agreement specifically enforced through the appropriate court of law. As per Clause 37, save and except Clause 36, all or any dispute arising out of or touching upon or in relation to the terms of the addendum agreement shall be settled under the provisions of the Arbitration and Conciliation Act, 1996. Thus, with respect to any dispute as mentioned in Clauses 3, 6 & 9, such disputes are not arbitrable at all.

The Hon’ble Supreme court also cited Vidya Drolia and Ors. v. Durga Trading Corporation[2] and held that it is incumbent upon Courts to hold a preliminary enquiry under a Section 11 petition filed under the Arbitration and Conciliation Act, 1996. The Hon’ble Supreme Court noted that the Hon’ble High Court had erred in its decision and the matter was remitted back to the Hon’ble High Court to decide the petition and pass an appropriate order after having the preliminary inquiry on arbitrability of the dispute. The Hon’ble Supreme Court held that the objective of prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straightforward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage.

 

Conclusion

 

It is important to note that under Section 11 of the Arbitration and Conciliation Act, 1996, the Courts will do a preliminary enquiry as to the arbitrability of the disputes. The law in this regard has been settled by the Hon’ble Supreme Court. The purpose of such an enquiry is limited to pruning of matters which would not fall in the category of arbitrable matters. The Supreme Court had in the case of Vidya Drolia and Others v Durga Trading Corporation  laid down a four-pronged test to determine when the subject matter of a dispute in an arbitration agreement is not arbitrable:

  • When the cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam arising from rights in rem.
  • When the cause of action and subject matter of the dispute affects third party rights; has erga omnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable;
  • When the cause of action and subject matter of the dispute relates to an inalienable sovereign and public interest functions of the State, hence mutual adjudication would be unenforceable;
  • When the subject matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s)

References:

[1] 2022 SCC OnLine SC 1328.

[2] (2021) 2 SCC 1.

Image Credit: Photo by EKATERINA BOLOVTSOVA

The Hon’ble Supreme Court held that the objective of prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straightforward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage.

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Validity of an Arbitration Clause: No Strait-Jacket Formula

On September 7, 2022, the Hon’ble Supreme Court issued a significant ruling in the case of Babanrao Rajaram Pund v. Samarth Builders & Developers[1], holding that no strait jacket formula can be made under the Arbitration and Conciliation Act, 1996, to determine the particulars of an arbitration clause. It further held that an arbitration clause must be treated as final and binding even if specific words like “final” or “binding” are not used in such a clause.

Babanrao Rajaram Pund v. Samarth Builders & Developers

The case related to one Babanrao (the Appellant), who was the owner of a property situated in Aurangabad. The Appellant intended to build residential and commercial complexes on this property. Samarth Builders & Developers (Respondent No. 1), a company specialising in the building of homes and commercial buildings, learned of the Appellant’s intention to build such a residential and commercial complex and approached him. A “Development Agreement” (DA) was subsequently signed by the Appellant and Respondent No.1. The Appellant, thereafter, signed a General Power of Attorney (GPA) in favour of Respondent No. 1.  Respondent No. 2, in the civil appeal was the partner of Respondent No. 1.

According to the DA, Respondent No.1 had to build “Amay Apartments” on the property within 15 months. However, this deadline could have been extended with the payment of a penalty. Respondent No. 1 accepted the conditions of the DA and stated that he would build 45 percent of the constructed space before or on the deadline of the 15-month period, retaining the other 55 percent of the developed section for himself.

Respondent No.1 was, however, unable to finish the work within the allotted time. Aggrieved by this act, the Appellant gave notice to terminate the DA and to cancel the GPA. On 11.07.2016 the cancellation of the agreement and GPA were also publicised in a newspaper by the Appellant. Since, Respondent No.1 did not respond to the notice of the Appellant issued under Clause 18 of the DA, which carried an arbitration clause, the Appellant was constrained to approach the High Court.

Clause 18 of the DA reads as follows:

“18. All the disputes or differences arising between the parties hereto as to the interpretation of this Agreement or any covenants or conditions thereof or as to the rights, duties, or liabilities of any part hereunder or as to any act, matter, or thing arising out of or relating to or under this Agreement (even though the Agreement may have been terminated), the same shall be referred to arbitration by a sole arbitrator mutually appointed, failing which, two arbitrators, one to be appointed by each party to the dispute or difference, and these two Arbitrators will appoint a third Arbitrator and the Arbitration shall be governed by the Arbitration and Conciliation Act, 1996 or any re-enactment thereof.”

The Arbitration Clause

Before the Hon’ble High Court of Bombay, the Appellant had filed an application pursuant to Section 11 of the Arbitration Act, 1996, after receiving no response from the Respondents. The Respondents claimed that clause 18 of the DA could not be enforced because it lacked the precise phrase “to be bound by the decision of the Arbitral Tribunal.” The Hon’ble High Court ruled in favour of the Respondents and determined that the clause lacked necessary components of a legitimate arbitration agreement and did not expressly specify that the arbitrator’s ruling would be binding. Aggrieved by the order of the High Court, a Special Leave Petition was filed by the Appellant before the Hon’ble Supreme Court.

The Issue Before the Hon’ble Supreme Court

If an arbitration clause lacks specific language like “binding” or “final,” should it still be considered a valid agreement for the purpose of invoking powers under Sec. 11 of the Arbitration and Conciliation Act, 1996?

While analysing the issue, the Hon’ble Supreme Court made it clear that there is no precise form of an arbitration clause, and that Section 7 of the Arbitration Act of 1996 does not provide a specific form of arbitration agreement. The Hon’ble Supreme Court critically analysed Clause 18 of the DA and concluded that the terms of the agreement were clear. It made it clear that the term “disputes shall be” referred to arbitration, meant that the reference to arbitration was clear in the DA. Additionally, it was also observed that the contract contained clear instructions for choosing a third arbitrator and that the parties would be subject to the Arbitration and Conciliation Act, 1996. The Hon’ble Supreme Court further opined that the requirement and purpose of the parties to be bound by the arbitral tribunal are mandated by Clause 18 of the DA. The arbitral clause was held to be not invalidated by the omission of the phrases “final” and “binding.” The decision of the Hon’ble High Court of Judicature of Bombay was thus set aside by the Hon’ble Supreme Court and a sole arbitrator was appointed to resolve the dispute.

Key Takeaway

Though, the decision by the Hon’ble Supreme Court gives considerable breathing room for an arbitration clause, it is imperative to consider that an insufficiently written arbitration clause does hinder the process of arbitration. The only solution in such a scenario is to fix the deficiency in the arbitral clause. The parties must ensure that the arbitration agreement is well drafted so that there are no errors and the intention of the parties to refer the dispute to arbitration can be easily inferred. This will also ensure that the parties will not be forced to approach the courts to determine the validity of the clause.

References: 

[1] 2022 SCC OnLine SC 1165.

The only solution in such a scenario is to fix the deficiency in the arbitral clause. The parties must ensure that the arbitration agreement is well drafted so that there are no errors and the intention of the parties to refer the dispute to arbitration can be easily inferred. 

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