News By/Courtesy: PRINCE KUMAR SONI | 27 Apr 2022 12:53pm IST


  • Madras HC observed that arbitration survives even after the termination of an agreement entered into by the parties.
  • Poor drafting of an arbitration clause shall not deprive any party of its right to refer its dispute to arbitration.
  • An arbitration clause in a commercial contract is an agreement inside an agreement.

Arbitration clauses survive termination of the main agreement

Madras HC A single-judge bench comprising J. Dinesh Maheswari, while hearing a civil writ petition for the appointment of an arbitrator observed that the arbitration agreement survives even after the termination of an agreement entered into between the parties. The doctrine of separability states that the arbitration agreement has a separate life from the contract for which it provides the means of resolving the disputes; this enables the arbitration agreement to survive breach of contract of which it is a clause. The Madras High Court held that section 11 of the A&C act does not permit elaborate pleading on the claim. The Madras High Court held that the arbitration clause contained in a partnership deed survives the termination of the deed and the court also held that the clause is an independent agreement and outlives the main contract in which it is incorporated.

All the matters shall be decided by the arbitral tribunal which is related to the arbitrability of the claims unless it is a case of deadwood. The background of the case was that the respondent had entered into an MoU with one Sandip foundation. After a certain period, the same foundation passed a resolution under which all its activities under the same MoU were transferred to the petitioner institution which specializes in the development and distribution of course material for various technical and non-technical courses. The respondent university issued a notification withdrawing certain courses from the academic collaborative institutions and despite assuring that the students already admitted would not be affected and could continue their courses, it failed to conduct examinations which led to issuing of notice by the petitioner upon the respondent to commence the arbitration proceeding in the terms of MoU. The respondent replied by terminating the MoU and did not respond to the petitioner's multiple requests and notices for arbitrating their disputes.

The respondent objected to the maintainability of the petition on a few grounds. The agreement between the parties terminated on account of ‘Samantha pathname or a letter of consent executed between the parties. The claim of the petitioner is an assertion of a right in rem i.e, right to title qua properties and therefore is not arbitrable. there is no valid arbitration clause between the parties referring to Arbitration Act, 1940 which is a repealed legislation. The only question before the court was whether there was an arbitration agreement between the parties. The court analysed going through the MoU entered into by the parties and observed that clause 14 of the MoU points that disputes between the parties referred to arbitration. The court also held that the petitioner is only claiming a right arising out of a partnership deed, therefore the same can not be called an action in rem. The court indicating the earlier faults said that poor drafting of an arbitration clause shall not deprive a party of its right to refer its disputes to arbitration.

Section Editor: KADAM HANS | 27 Apr 2022 15:53pm IST

Tags : #arbitration #commercial #contract #agreement #madras #highcourt #partnership #deed #disputes #draftsman

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