Arbitration and Doctrine of Separability

Arbitration is a form of alternate dispute resolution, where the parties to a dispute refer it to one or more persons, by whose decision they agree to be bound. It is a settlement technique in which a third party reviews the case and imposes a decision that is legally binding for both sides.  Arbitration can be either Voluntary or Mandatory (although mandatory arbitration can only come from a statute or from a contract that is voluntarily entered into, where the parties agree to hold all disputes to arbitration, without knowing, specifically, what disputes will ever occur). Non-binding arbitration is, on the surface, similar to mediation. However, the principal distinction is that a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.

ARBITRATION AGREEMENT

Arbitration agreement is an  agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not. The arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. The terms of the arbitration agreement must be placed in writing and it must be stated in writing that the parties agreed to the settlement of disputes by arbitration. However, it shall be presumed to be in writing if an arbitration agreement contains a document signed by the parties. Thus, an arbitration agreement is not required to be in any form. What it is required to be ascertained is whether the parties have agreed that if dispute arise between them in respect of subject matter of the contract, such dispute shall be referred to arbitration. Then such agreement would spell out an arbitration agreement. Besides, the arbitration agreement may be established by-an exchange of letters, telex, telegram or other means of telecommunication; or an exchange of statements of claim and defence in which the agreement is alleged by one party and is not denied by the other.

JURISDICTION  

The arbitration tribunal can rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement. An arbitration clause which forms part of a contract will be treated as an agreement independent of the other terms of the contract and a decision by the arbitral tribunal that the contract is null and void will not entail, ipso jure, the invalidity of the arbitration clause. 

A plea that the arbitral tribunal does not have jurisdiction will, however, have to be raised not later than the submission of the statement of defence. However, a party shall not be precluded from raising such a plea merely because he has appointed, or participated in the appointment of an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority has to be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either of the cases referred to above, admit later a plea if it considers the delay justified.

The arbitral tribunal has to decide on a plea about lack of jurisdiction or about the tribunal exceeding the scope of its authority and where the arbitral tribunal takes a decision rejecting the plea, it shall continue with the arbitral proceedings and make the arbitral award.

A party aggrieved by such an arbitral award is free to make an application for setting aside the award before the Court of Law

DOCTRINE OF SEPARABILITY 

The separability doctrine states that the arbitration clause is an agreement separate and apart from the contract in which it appears. The doctrine of separability has had varied acceptance. The courts recognize the principle of separability and allow the arbitrator to decide any issue so long as the arbitration clause is valid and broad enough to cover the issue. The issue, which remains to be determined, is whether the arbitration clause stands valid if the contract is no longer valid.

An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but nonetheless it is an integral part of it. However comprehensive the terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation, it perishes with contract.

The contract may be non-est  or void abinitio. Though the contract was validly executed, the parties may put an end to it as if it had never existed any substitute a new contract for solely governing their rights and liabilities there under. In the former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void, in the case, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it, and between the two falls many categories of disputes in connection with a contract, such as the question of repudiation, frustration, breach etc. In these cases it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract act subsists for certain purposes, the arbitration clause operates in respect of these purposes. So, an arbitration clause, however comprehensive in terms, can be operative only if the contract is in existence. The arbitration clause would perish in case where either there is substitution of a new contract, or rescission or alteration of the original contract.

 If a contract is illegal and void, the arbitration clause which is one of the terms of the contract thereof must also perish along with it. Where the arbitration clause is a term of the particular contract whose validity is in question it has no existence apart from the impugned contract and must perish with it. Similarly, where the contract itself is repudiated in the sense that its original existence or its binding force is challenged, the parties are not bound by any contract and decamp the obligation to perform any of its terms, including the arbitration clause, unless the provisions of that clause are wide enough to included the question of jurisdiction as well.

In cases which include the issue of fraudulent inducement of the contract, a dispute regarding the validity of the main contract is to be determined by the arbitrator, while such issues involving the arbitration clause must be determined by the court.

REFERENCE 

  1. 1959 AIR 1362.
  2. 1963 AIR (SC) 90.
  3. AIR 1953 Cal 450. 
  4. Arbitration and Conciliation Act 1996. 
  5. FICCI- Arbitration. 
  6. India-Corporate  Laws.
  7. Legal-Sutra. 
  8. Indian Kanoon. 

 

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