Referred to Larger Bench XXV: Doctrine of Separability of Arbitration Agreement

It is well settled, an Arbitration Agreement is distinct and separate; independent from the substantive commercial contract in which it is embedded. The autonomy of the Arbitration Agreement is based on the twin concepts of separability and kompetenz – kompetenz; which, though inter-related, are distinct.

The Doctrine of Separability of Arbitration Agreement connotes, the invalidity, ineffectiveness or termination of the substantive commercial contract would not affect the validity of the Arbitration Agreement. Except, if the Arbitration Agreement itself is void ab initio. The Doctrine of Separability was expounded in Heyman v. Darwins Ltd., [1942] AC 356; Bremer Vulkan Schiffbau und Maschinefabrik v. South India Shipping Corporation, [1981] AC 909; Harbour Assurance v. Kansa General International Insurance, [1993] 1 Lloyd’s Rep. 455 (CA); Lesotho Highlands Development Authority v. Impregilo SpA, [2005] UKHL 43; Gosset v. Caparelli, Cass. Civ. Lere, 7 May 1963 (Dalloz, 1963), 545.

In our view, there is no legal impediment to the enforceability of the Arbitration Agreement, pending payment of stamp duty on the substantive contract. Since, Arbitration Agreement is an independent agreement between the parties and is not chargeable to payment of stamp duty, the non-payment of stamp duty on the commercial contract would not invalidate the Arbitration Clause or render it un-enforceable. It has an independent existence of its own.

Refer, Paragraphs 22 and 29 of Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Limited, (2019) 9 SCC 209 affirmed in Paragraph 92 of Vidya Drolia v. Durga Trading Corporation, Civil Appeal No. 2402 of 2019, to Constitution Bench of Five Judges.

Hon’ble Justice Indu Malhotra, M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd., [Civil Appeal Nos. 3802-3803 of 2020].

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Vidya Drolia has now read the ‘prima facie test’ into Section 11(6A) so as to bring the provisions of Sections 8(1) and 11(6) r/w 11(6A) on par. Section 11(7) and Section 37 have not been amended. An anomaly thus arises. Whereas in cases decided under Section 8 a refusal to refer parties to Arbitration is appealable under Section 37(1)(a), a similar refusal to refer parties to Arbitration under Section 11(6) read with Sections 6(A) and 7 is not appealable. In the light of what has been decided in Vidya Drolia, Parliament may need to have a re-look at Section 11(7) and Section 37 so that orders made under Sections 8 and 11 are brought on par qua appealability as well.

Hon’ble Justice R.F. Nariman, Pravin Electricals Pvt. Ltd., [Civil Appeal No. 825 of 2021] decided on 08.03.2021.

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Pravin Electricals Pvt. Ltd., 2021 SCC OnLine SC 190 referred in detail to Vidya Drolia.

Hon’ble Justice R.F. Nariman, Sanjiv Prakash v. Seema Kukreja, [Civil Appeal No. 975 of 2021] decided on 06.04.2021.