Recently, the Bombay High Court held that the appointment procedure's illegality does not make the entire arbitration agreement invalid.
A single-judge bench of this Court, comprising Justice Avinash G. Gharote, held that even if the procedure for appointing the arbitrator under the arbitration agreement is deemed invalid due to the inclusion of Section 12(5) and the Supreme Court's decision in Perkins Eastman, this does not make the entire arbitration agreement unenforceable.
Brief Facts:
In 2017-18, the parties made three agreements that all included a dispute resolution clause. This clause stated that the arbitrator would be unilaterally appointed and that only the respondent's nominated person could act as the arbitrator. Disputes arose between the parties regarding all three agreements. As a result, the petitioner submitted an application under Section 11(6) of the A&C Act to appoint the arbitrator.
Contentions of the Petitioner:
The petitioner contended that the appointment procedure was invalid because it violated Section 12(5). However, they argued that this invalidity should not make the entire arbitration process invalid and that the court could remove the illegal portion of the agreement since the intention to arbitrate was clear.
Contentions of the Respondent:
The respondent raised an objection about the petition's maintainability on the basis that the arbitration clause had a condition for the arbitration reference, and since the condition was that the arbitrator would be appointed by the respondent and this has become invalid, the entire arbitration mechanism is now invalid. As a result, the court is unable to appoint an arbitrator.
Observations of the Court:
The court noted that all three agreements' arbitration clauses allowed for the unilateral appointment of the arbitrator, but this became invalid with the insertion of Section 12(5) to the Act, as established by the Supreme Court judgment in Perkins Eastman.
The court stated that choosing to resolve a dispute through arbitration is one thing while selecting a particular arbitrator is another. Both are distinct and separable. The court ruled that when an arbitration clause partially becomes invalid, the court can separate the illegal portion while retaining the remainder if the intention to arbitrate is clear.
The court added that the mere illegality of the appointment procedure would not render the entire arbitration agreement invalid. The impact of Section 12(5) is limited to the selection of the arbitrator, and not the parties' intention to arbitrate the dispute. Therefore, this intention must be respected.
The decision of the Court:
The Bombay High Court allowed the petition and held that in instances where an arbitration clause has become partially invalid, the court has the authority to remove the illegal portion of the clause while retaining the rest, provided that the intention to engage in arbitration is clear.
Case Title: Sunil Kumar Jindal v. Union of India
Coram: Justice Avinash G. Gharote
Case No.: Misc. Civil Application No. 543 of 2022
Advocate for the Petitioner: Shri Y.D.Shukla
Advocate for the Respondent: Shri N.G.Moharir
Read Judgment @LatestLaws.com
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