Reference to repealed act does not invalidate agreement

The Supreme Court recently addressed the issue of whether, in an agreement signed after the Arbitration and Conciliation Act, 1996, came into force, a reference to arbitration under the Arbitration Act, 1940, is a fundamental mistake that could invalidate an entire arbitration clause such that there could not be any reference to arbitration at all.

In Purushottam s/o Tulsiram Badwaik v Anil and Ors, Anil and Purushottam had entered into a partnership agreement dated 9 November 2005. Clause 15 of the agreement provided that any dispute would be referred to arbitration in accordance with the provisions of the Arbitration Act, 1940. When Anil filed a civil suit against Purushottam in a trial court seeking a declaration, damages, accounts and a permanent injunction, an application under section 8 of Arbitration and Conciliation Act, 1996, was filed by Anil to refer the dispute to arbitration in light of clause 15 of the agreement. The trial court rejected the application and held that clause 15 was vague because there was no reference as to who should be the arbitrator nor any information about how the arbitrator should be selected. In addition, the dispute did not form the subject matter of agreement within the meaning of section 8 of the 1996 act. On appeal, Bombay High Court upheld the trial court’s findings.

The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.