M/S Reva Electric Car Co. P. Ltd Vs M/S Green Mobil: Clarification Of Validity Of Arbitration Agreements In MoUs By SC


Court :
Supreme Court of India

Brief :
This judgment deals with the decision of the Supreme Court which said that the arbitration agreement in the MoU was valid as it establishes an independent agreement autonomous from its basic contract.

Citation :
REFERENCE: Arbitration Petition No. 18 of 2010

DATE OF JUDGMENT:
25th November 2011

JUDGES:
Justice Surinder Singh Nijjar

PARTIES:
M/s. Reva Electric Car Co. P. Ltd. (Petitioner)
M/s. Green Mobil (Respondent)

SUMMARY

In the following Judgment, Supreme Court held that an arbitration provision is a different and autonomous agreement. The arbitration agreement endures and doesn't conclude regardless of whether the MoU doesn't emerge into an undeniable agreement. Parties will undoubtedly allude to debates emerging out of and according to the MoU to arbitration whenever gave in the dispute resolution provision.

AN OVERVIEW

1. The parties went into an MoU in 2007 for setting up an alumina plant in Gujarat via a Joint Venture with a Chinese organization. The MoU accommodated an arbitration agreement in case of parties' inability to settle disputes genially. The pertinent clause gave that

(a) the arbitration procedures would be held at Ahmedabad; and
(b) It would be administered and understood as per the laws of India.

2. Ensuing the marking of the MoU, the Respondent chose to endorse the MoU subject to specific changes. After extensive trade of correspondence, the Respondent looked for revisions to the first MoU because of significant change in State strategy. Nonetheless, in the end, the Respondent dropped the MoU on the pretext that Appellant had neglected to consent to the terms and conditions contained in that.

3. The parties failed to solve their disputes agreeably and no agreement could be reached on the arrangement of Arbitration between them. The Appellant documented an application under Section 11 of the Indian Arbitration and Conciliation Act, 1996 for the arrangement of Sole Arbitrator.

4. The Gujarat High Court excused the application for the arrangement of Arbitrator on the ground that the MoU never brought about a total contract, and appropriately held that no authority could be looked for the equivalent. The Gujarat HC held that the MoU was "stillborn" as it didn't fructify into a joint endeavor. The current decision emerges out of an allure from the choice of the Gujarat HC.

ISSUES

The issue analyzed by the court – Whether the MoU was a finished up contract, if not, then whether the arbitration clause endures and keeps on restricting the parties being an independent arrangement?

IMPORTANT PROVISIONS

1. Section 11 of Arbitration & Conciliation Act, 1996 –defines the appointment of arbitrators

2. Section 9 of Arbitration & Conciliation Act, 1996 – defines the interim measures taken by the Court

ANALYSIS OF THE JUDGEMENT

1. The Appellant presented that regardless of whether the MoU didn't decisively fructify, the dispute resolution clauses, by explicit terms contained in that, worked as an independent agreement for arbitration concerning the details of the MoU.

2. The Respondent presented that because of the complete shortfall of agreement between the parties, even concerning the MoU, there was no extension for referring to arbitration according to specific clauses contained in that.

3. The situation regarding whether an arbitration agreement contained in a contract is divisible is settled law and the distinctness convention is regarded by all courts. However, there continue to be instances where the court discovers special cases. Such special cases are regularly brought up with regards to MoUs or agreements professed to be unconcluded by one of the parties. The conflict is basically that MoU is a contract that has not appeared.

4. Survivability and detachability of arbitration clauses contained in agreements that are novated or supplanted by resulting agreements have likewise been tried to find out their validity. In Mulheim Pipecoatings v. Welspun Fintrade, the Bombay HC while managing this issue held that the detachability assumption cherished in the Act requires the upbraided arbitration agreement to be straightforwardly reprimanded to be considered irrelevant. Thusly an overriding agreement not containing an arbitration clause would not invalidate the arbitration clause in the past one.

5. However, the Supreme Court in M/S Young Achievers v. IMS Learning Resources gave a conflicting perspective that "an arbitration clause in an agreement that can't endure if the agreement containing arbitration clause has been supplanted/novated by a later agreement." The thinking of the Supreme Court was that supplanted agreements are void ab-initio or non-est. The choice in Ashapura may lead the route concerning the issue of severability of arbitration clauses and give clearness on implementation of such clauses in MoUs.

CONCLUSION

The Supreme Court depending on a few judgments including Reva Electric Car Co. Pvt Ltd. v. Green Mobil and Today Homes and Infrastructure Pvt. Ltd. v. Ludhiana Improvement Trust and Enercon v Enercon4 reasoned that notwithstanding the fundamental nature of the distinctness assumption, the dispute between the parties identifies with the relationship made via the MoU thus the arbitration agreement contained in that would tie the parties.

The Supreme Court tracked down that irrespective of whether the MoU fructified into an undeniable agreement, the parties had consented to subject all disputes, emerging out of and in association with the MoU, to arbitration. Such an agreement would establish a different and free agreement in itself. Since no agreement was reached on the arrangement of a Sole Arbitrator, it is available to the parties to conjure Section 11 of the Act. In light of this ground alone, the Supreme Court put away the request for the Gujarat HC and selected a Sole Arbitrator because of the presence of a valid arbitration agreement.

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Preksha Goyal
on 13 May 2021
Published in Others
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