2006 (1) TMI 552 - SC - Companies Law

Whether the arbitration agreement is legal, valid and enforceable? Held that - The intention of the parties is abundantly clear that in case of dispute, the matter must be referred to arbitrator. To that extent, therefore, the agreement is legal, valid, in accordance with law and enforceable. In the instant case, such an agreement can be enforced even on an additional ground and that is clause 20 (severability). The said clause expressly states that if any provision of the agreement is held invalid, illegal or unenforceable, it would not prejudice the remainder. In my judgment, therefore, the intense of the parties is abundantly clear that in case of dispute the matter was to be referred to arbitrator and to that extent, no objection can be raised by the respondent. In fact, on behalf of the respondent also, it was submitted that if the matter is referred to arbitration in foreign country, it had no objection but as the Arbitration Agreement in question provides Delhi as the venue and as such a provision is enforceable, the prayer of the respondent cannot be accepted. Finally, it was submitted that if this Court is not upholding the objection of the respondent and inclined to grant the prayer of the petitioner, some time may be granted to make an appointment of an arbitrator which was not done earlier because according to the respondent, there was no provision in the agreement for arbitration and clause 23 was not enforceable. The learned counsel for the petitioner has objected to such a prayer, according to him, a letter/notice was issued and in spite of a request has been made, the respondent had failed to exercise his right to appoint an arbitrator and at this belated stage, no such prayer deserves to be granted. In my opinion, since there is failure on the part of the respondent in making of appointment in accordance with the agreement, the prayer cannot be granted. Thus the arbitration petition stands allowed

Issues Involved:
1. Legality and validity of the arbitration agreement.
2. Enforceability of the arbitration clause.
3. Severability of invalid provisions within the arbitration clause.
4. Appropriate venue for arbitration proceedings.

Detailed Analysis:

1. Legality and Validity of the Arbitration Agreement:
The petitioner, a company registered in Thailand, entered into an agreement with the respondent, a company registered in India, on August 10, 1999, which included an arbitration clause (Clause 23) for resolving disputes. The respondent contended that the arbitration clause was not legal and valid, arguing that it restrained the parties from appealing or objecting to the arbitrator's determination in any jurisdiction, which was against public policy and Section 28 of the Contract Act, 1872. The court acknowledged this contention but noted that the agreement was duly signed by both parties and contained provisions for arbitration under UNCITRAL rules.

2. Enforceability of the Arbitration Clause:
The petitioner sought to enforce the arbitration clause by appointing Hon'ble Mr. Justice M.L. Pendse (Retired) as the arbitrator. The respondent argued that the clause was unenforceable due to its restrictive nature. The court examined Clause 23, which mandated arbitration in New Delhi under UNCITRAL rules and declared the arbitrator's determination as final and binding, with parties waiving all rights of appeal or objection. The court found that the restrictive part of the clause was inconsistent with the law but could be severed from the rest of the clause.

3. Severability of Invalid Provisions:
The court referred to legal principles on severability, noting that if a contract contains legal and illegal parts, the illegal parts can be severed, allowing the legal parts to be enforced. Clause 20 of the agreement supported this by stating that if any provision was held invalid, it would not affect the remainder of the agreement. The court concluded that the objectionable part of Clause 23, which restrained legal proceedings, was severable. The remaining parts, which provided for arbitration, were legal and enforceable.

4. Appropriate Venue for Arbitration Proceedings:
The respondent suggested that arbitration be held in London or Singapore, where other arbitration proceedings between the parties were ongoing. However, the agreement specified New Delhi as the venue. The court upheld the agreement's provision for arbitration in New Delhi, noting that the venue clause was enforceable. The respondent's request to change the venue was denied.

Conclusion:
The court allowed the arbitration petition, appointed Hon'ble Mr. Justice M.L. Pendse (Retired) as the sole arbitrator, and ruled that the valid parts of the arbitration clause could be enforced. The objectionable part of the clause, which restrained legal proceedings, was severed. The court emphasized the importance of upholding the parties' intention to resolve disputes through arbitration and maintained the specified venue of New Delhi for the proceedings. There was no order as to costs.

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