2007 (5) TMI 560 - SC - Companies Law

Whether an arbitration clause comes to an end, if the contract containing such arbitration agreement, was abrogated? Whether section 11 of the Act is inapplicable in regard to the arbitrations which are to take place outside India? Whether the appointment of the Arbitrator, and the reference arbitration are governed by the laws in force in Hong Kong and not by the Arbitration and Conciliation Act, 1996? Held that - Appeal allowed. Sub-section (1) of section 16 of the Act makes it clear that while considering any objection with respect to the existence or validity of the arbitration agreement, an arbitration clause which forms part of the contract, has to be treated as an agreement independent of the other terms of the contract; and a decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. The first contention is, therefore, liable to be rejected. Merely because the parties have agreed that the venue of arbitration shall be Hong Kong, it does not follow that Laws in force in Hong Kong will apply. The arbitration clause states that the Arbitration and Conciliation Act, 1996 (an Indian Statute) will apply. Therefore, the said Act will govern the appointment of arbitrator, the reference of disputes and the entire process and procedure of arbitration from the stage of appointment of arbitrator till the award is made and executed/given effect to.

Summary

Issues:
1. Interpretation of arbitration clause in a contract.
2. Applicability of the Arbitration and Conciliation Act, 1996 to arbitrations outside India.

Analysis:

Issue 1: Interpretation of arbitration clause in a contract

The petitioner filed a petition under section 11(5) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a sole arbitrator to resolve disputes arising from a contract. The respondent argued that the contract, including the arbitration agreement, was abrogated by mutual agreement. However, the court held that an arbitration clause survives even if the contract is terminated, as it is a separate term related to dispute resolution, not performance. The court cited legal precedents and statutory provisions to support this position. The respondent's contention that the arbitration clause ceased to exist was rejected.

Issue 2: Applicability of the Arbitration and Conciliation Act, 1996 to arbitrations outside India

The respondent argued that since the place of arbitration was in Hong Kong, not India, the provisions of Part I of the Act, including section 11 dealing with the appointment of arbitrators, were inapplicable. However, the court referred to a previous judgment to establish that Part I of the Act applies to international commercial arbitrations held outside India unless the parties expressly exclude its provisions. The court emphasized that the Act governs the arbitration procedure, appointment of arbitrators, and the resolution of disputes, even if the arbitration venue is outside India. The court interpreted the arbitration clause in the contract to confirm that the Act, not Hong Kong laws, would apply to the arbitration process.

Conclusion:

The court dismissed the respondent's objections and allowed the petition for the appointment of a sole arbitrator. The court directed the parties to suggest a mutually acceptable arbitrator, considering the nationalities involved. The judgment clarified the legal principles regarding the survival of arbitration clauses, the applicability of the Arbitration and Conciliation Act, 1996 to international arbitrations, and the interpretation of arbitration clauses in contracts.