JURISDICTION OF ARBITRAL TRIBUNAL WHEN CONTRACT CONTAINING ARBITRATION CLAUSE DECLARED VOID
There might be examples when the arbitration agreement may not be settled on as a separate agreement. Rather, it might be inserted, or embedded, as a clause, in the agreement between the parties. Furthermore, it might happen that the agreement or the contract between the parties is announced void or illegal. What happens to the agreement in such cases? Will the arbitration provision in such cases become void?
It is likewise hypothetically possible that the arbitration agreement might be void but the contact might be valid; and in that sense, there is a distinction between the arbitration agreement and the contract of which it forms a part; Now in the current case, a challenge to the contract itself involves a challenge to the arbitration agreement; if there is a concluded contract the arbitration agreement is valid. In the event that there is not a concluded contract the arbitration agreement is invalid. In fact, we apprehend that in a very large majority of cases where the arbitration agreement is a piece of the primary agreement itself, the challenge to the existence or validity of one contract would mean a challenge to the existence or validity of the other." The arbitration clause is an integral part of the agreement can't stand if the agreement itself is held to be illegal."
However, the position has changed at this point. The Arbitration and Conciliation Act was authorized in 1996. And, Section 16 (1) of this Act expresses that the arbitration clause if embedded in a contract will be considered as a free from the rest of the contract and a choice by the Arbitral Tribunal that the agreement is invalid and void will not involve ipso jure the invalidity of the arbitration clause.
In the case of Olympus Superstructures vs. Meena Vijay Khaitan it was held: - "It will be noticed that under the Act of 1996 the arbitral tribunal is presently invested with power under sub-section (1) of section 16 to rule on its own jurisdiction including ruling on any objection concerning the presence or validity of the arbitration agreement and for that reason, the arbitration clause which forms some portion of the contract and any decision by the arbitral tribunal that the contract is invalid and void will not involve ipso jure influence the validity of the arbitration clause. This is obvious from clause (b) of section 16(1) which expresses that a decision by the arbitral tribunal that the primary contract is invalid and void will not involve ipso jure the invalidity of the arbitration clause.”
Also, in the case of National Agricultural Coop. Marketing Federation India Ltd. vs. Gains Trading Ltd. it was held that a decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
Hence we see that however, the invalidity of the main clause affected the validity of the arbitration clause inserted in it earlier, presently the law has changed after insertion of Section 16(1) into the Arbitration and Conciliation Act, 1996. And, presently the invalidity of the primary contract does not result in the invalidity of the arbitration clause inserted in it, ipso jure due to the application of the doctrine of separability, which results in the arbitration clause being treated as autonomous from the primary