Arbitration clause to be treated independent of main agreement

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2086 OF 2014
(Arising out of SLP (C) No. 10924 of 2013)

Enercon (India) Ltd. & Ors. …
Appellants
VERSUS
Enercon GMBH & Anr.
...Respondents
Dated;14-2-2014
Read original judgment here;click here
The concept of separability of the arbitration
clause/agreement from the underlying contract is a
necessity to ensure that the intention of the parties to
resolve the disputes by arbitration does not evaporate
into thin air with every challenge to the legality,
validity, finality or breach of the underlying contract.
The Indian Arbitration Act, 1996, as noticed above,
under Section 16 accepts the concept that the main
contract and the arbitration agreement form two
independent contracts. Commercial rights and
obligations are contained in the underlying,
substantive, or the main contract. It is followed by a
second contract, which expresses the agreement and
the intention of the parties to resolve the disputes

relating to the underlying contract through arbitration.
A remedy is elected by parties outside the normal civil
court remedy. It is true that support of the National
Courts would be required to ensure the success of
arbitration, but this would not detract from the

legitimacy or independence of the collateral
arbitration agreement, even if it is contained in a
contract, which is claimed to be void or voidable or
unconcluded by one of the parties.
81. The scope and ambit of provision contained in
Section 16 of the Indian Contract Act has been clearly
explained in Reva Electric Car (supra), wherein it
was inter alia observed as follows:
“54. Under Section 16(1), the legislature makes it
clear that while considering any objection with
respect to the existence or validity of the arbitration
agreement, the arbitration clause which formed part
of the contract, has to be treated as an agreement
independent of the other terms of the contract. To
ensure that there is no misunderstanding, Section
16(1)(b) further provides that even if the Arbitral
Tribunal concludes that the contract is null and void,
it should not result, as a matter of law, in an
automatic invalidation of the arbitration clause.
Section 16(1)(a) presumes the existence of a valid
arbitration clause and mandates the same to be
treated as an agreement independent of the other
terms of the contract. By virtue of Section 16(1)(b), it
continues to be enforceable notwithstanding a
declaration of the contract being null and void. In
view of the provisions contained in Section 16(1) of
the Arbitration and Conciliation Act, 1996, it would
not be possible to accept the submission of Mr.
Ahmadi that with the termination of the MoU on 31-
12-2007, the arbitration clause would also cease to
exist.”

The aforesaid reasoning has also been approved by a
two Judge bench of this Court in T oday Homes and
Infrastructure Pvt. Ltd. vs. Ludhiana Improvement
Trust and Anr.,30 wherein it was inter alia held as under:
“14. The same reasoning was adopted by a member
of this Bench (S.S. Nijjar, J.), while deciding the case
of Reva Electric Car Company Private Limited Vs.
Green Mobil [(2012) 2 SCC 93], wherein the
provisions of Section 16(1) in the backdrop of the
doctrine of kompetenz kompetenz were considered
and it was inter alia held that under Section 16(1),
the legislature makes it clear that while considering
any objection with regard to the existence or validity
of the arbitration agreement, the arbitration clause,
which formed part of the contract, had to be treated
as an agreement independent of the other terms of
the contract. Reference was made in the said
judgment to the provisions of Section 16(1)(b) of the
1996 Act, which provides that even if the arbitral
tribunal concludes that the contract is null and void,
it should not result, as a matter of law, in an
automatic invalidation of the arbitration clause. It
was also held that Section 16(1)(a) of the 1996 Act
presumes the existence of a valid arbitration clause
and mandates the same to be treated as an
agreement independent of the other terms of the
contract. By virtue of Section 16(1)(b) of the 1996
Act, the arbitration clause continues to be
enforceable, notwithstanding a declaration that the
contract was null and void.”
In view of the aforesaid, we are not inclined to accept the
submission of Mr. Nariman that Arbitration Agreement will
perish as the IPLA has not been finalised.

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