ENFORCEABILITY OF ARBITRATION CLAUSE IN A MOU WHEN THE FINAL CONTRACT IS NOT ENTERED BETWEEN THE PARTIES
The supreme court in the case of Ashapura Mine-Chem Ltd Vs Gujarat Mineral development Corporation 2015 SCC online SCC 356, pronounced that the arbitration clause will stand enforceable even though the final contract between the parties was not entered into, reversing the judgment of Gujarat High Court refusing to appoint the arbitration while exercising his jurisdiction under Section.11 of the Arbitration and Conciliation Act, 1996. The said judgment has again defined that an arbitration clause will sustain even if the contract was never initiated and the parties can go for arbitration in case of a dispute. The judgment has attracted the doctrine of separability.
BRIEF OF THE CASE
The Respondent a Government-owned company signed an MOU with a Chinese company named M/s. Qing TongXia Aluminium Group Co. Ltd. The purpose of the companies was to start a Joint Venture Company (Petitioner) for setting up an Aluminium Company in Gujrat. The said MOU included an arbitration clause. The MOU provided for an arbitration agreement in case of a dispute and. The arbitration clause in the agreement provided that:
- The arbitration proceedings between the parties in case of a dispute would be held in Ahemdabad.
- The said clause would be governed by the laws of India.
The provision of MOU required the parties to enter into contract i.e. there shall be a detailed contract between the parties. The said condition was not followed. Now, dispute aroused between the parties. The Respondent by a letter dated 25.04.2011 alleging various breaches of the MOU, terminated the above said MOU dated 17.08.2007. the petitioner in response to the said letter suggested that an arbitrator should be appointed if accepted by the other party to resolve the dispute. The petitioner suggested the name of an arbitrator as well, but the respondent refused the proposal and filed an application under section 11 of the Arbitration and Conciliation Act,1996 before the High Court of Gujrat. The High Court of Gujarat passed an erroneous order by dismissing the said application, which is the subject matter of appeal before the Supreme Court of India.
CONTENTIONS OF THE PARTIES
The main argument presented by the appellant was regarding the independency of arbitration clause i.e. the doctrine of separability and the capability of the arbitration agreement in the contract to solve the dispute. The Respondent contended that the MOU signed by both parties was terminated and was never formed into a contract and therefore there was no arbitration agreement between the parties.
The Supreme Court of India allowed the appeal setting aside the order of the Gujrat High Court, and held that the MOU dated 17.08.2007 had an enforceable arbitration clause which will sustain even if the MOU was terminated and a contract was formed between the parties and appointed an arbitrator.