Rule Of Severability In Arbitration Agreement

An arbitration agreement may take the form of a separate agreement or in the form of a clause in the contract between the parties. In general, almost all arbitration agreements are in the form of arbitration clauses. Since the normative position in this area is to put an end to absceptibility even if the underlying contract is null and void from initio, this section will consider the most appropriate mechanism for adopting this modified position. A legislative amendment to the Arbitration Act to make its paragraph 16, paragraph 1, analogous to Article 7 of the English Act, is the most appropriate means, as it creates binding legal obligations without discretion and thus provides greater security for all parties concerned. In addition, legislation allows for consultation with relevant stakeholders, while anticipating issues such as retroactive application and identifiable exceptions. The separation of a compromise clause, if the underlying contract is null and fore from the outset, is an issue that has been raised in numbers in India`s higher courts. Although the position since Kishorilal Gupta is still very fair with regard to the value of the precedent, it is normatively untenable, as it is based on erroneous legal argument and is incompatible with the policy of cross-sectional arbitration. The House of Lords indicated in Fiona Trust that there may be cases where the reasons why the underlying agreement is not valid are identical to the reasons why the arbitration clause is invalid. Hyundai is consistent with this reasoning, stating that a complete lack of consensus will prevent the existence of the compromise clause, in the same way that it will prevent the main agreement from existing. Hyundai clarifies the limits of the doctrine of separation from an arbitration agreement.

It also assures the parties that they will not be required to arbitrate solely through the undertaking of commercial negotiations for the conclusion of a contract with a compromise clause. As mentioned above, this issue first appeared before the Supreme Court of Kishorilal Gupta.