Indian Kanoon - Search engine for Indian Law

Thus the view taken by the Division Bench supports the view taken by R.Jayasimha Babu,J., though the same has not specifically been referred to. Even a Division Bench of the Karnataka High Court took a similar view in Lexicon Finance Limited -vs- Union of India and others {2002(3) Arb.LR 60 (Karnataka) (DB). It is as follows:-

"A perusal of the aforesaid provision makes it clear that an arbitration clause in an agreement shall be treated an agreement independent of other terms of the contract and even if the Arbitral Tribunal were to hold that the contract is null and void it shall not entail ipso jure the invalidity of the arbitration clause. In other words even if the contract is held to be void the clause regarding arbitration found in a void contract would not become void. It exists independently of the said contract and it could be enforced."

"6. Now, there can be no doubt that if a contract is illegal and void, an arbitration clause, which is one of the terms thereof, must also perish along with it. As pointed out by Viscount Simon, L.C. In Heyman vs. Darwins Ltd., .. if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate, for on this view the clause itself also is void". The arbitration clause being an integral part of the contract cannot stand, if the contract itself is held to be illegal."

50. In ITC Ltd., -vs- G.J.Fernandes, AIR 1989 SC 839, the Supreme court considered the effect of a contract assailed as being void, on the agreement to submit to arbitration, with particular reference to section 34 of the old Act. Relying upon the decision in Joe Lee Ltd., -vs- Lord Dalmeny (1927) 1 Ch.300, the Supreme court held therein as follows:-

"Where the objection is that the arbitration is a nullity, it amounts to an objection of want of jurisdiction. The term "Arbitration Agreement" includes "agreement to refer" and "submission" to arbitrator. A submission forming part of a void contract is itself void and cannot be enforced. Where a firm of book makers had engaged in betting transactions with the defendants on the terms that any dispute which might arise should be referred to arbitration it was held that the whole contract was void and unenforceable and that the defendants could not be compelled to submit to arbitration"

57. Similarly, Section 16 of the Nepal Arbitration Act, 1999, makes it clear that the Arbitrator shall take a decision, before commencing proceedings on the matter referred to him, as to whether the contract because of which the dispute has emerged, is itself illegal or null and void. It is interesting to note that the Nepal Act provides for an appeal to an Appellate Court against such a decision. Sub-section (3) of Section 16 declares that even though an arbitration clause is found to be an integral part of one single contract, the arbitration clause will not be taken to be null and void even if the arbitrator finds that the contract by itself is null and void. Section 16 reads as follows:-