THE ARBITRATION CLAUSE IS NULL, VOID AND INOPERATIVE

It is humbly submitted that the arbitration clause is not legally valid because of the following
reasons

DOMESTIC PARTIES CANNOT CHOOSE TO SEAT THEIR ARBITRATION IN A FOREIGN COUNTRY

In TDM Infrastructure case1, the Court directed the arbitrating Indian parties to conduct

their arbitration in India with Indian law as the substantive law of the contract even

though the parties had contractually agreed to an " arbitration in India or

Singapore" with English law as the substantive law because the parties were Indian

companies. Therefore, it is an accepted approach that Domestic parties to agreement

cannot be relegated to arbitrate in the foreign court excluding their domestic laws altogether.2

When the parties choose a foreign substantive law to govern them, they derogate from Indian

laws.3

In the present case, by choosing to be governed by rules of Arbitration under the ICC, Paris, the

parties abstain from abiding by the domestic rules. Even the agreement says thats all matters

shall be governed by the Laws of Modus.

PART I OF THE ACT CANNOT BE EXCLUDED.

Supreme Court has held that the when both the parties to the arbitration agreement are registered

as companies in Modus, it is a case of domestic arbitration and the provisions of

1
TDM Infrastructure Pvt. Ltd. vs. UE Development India Private Ltd, (2008) 2 UJ SC 0721.
2
Videocon Industries Limited vs. Union of India, (2011) 6 SCC 161.
3
Bharat Aluminium Co. vs. Kaiser Aluminium Technical Services Inc, (2012) 9 SCC 552.
section 2(1)(f) of the Arbitration and Conciliation Act 1996 cannot be invoked in such a case.
4
This judgment was relied upon in order to support the plea that two Modus parties cannot fall

within the ambit of the international commercial arbitration and thus cannot exclude the

applicability of the part I of the arbitration and Conciliation Act.5

Due to the novation of the agreement, the agreement between the parties have become an

agreement between two Indian parties and thus such an exclusion of the jurisdiction and

contracting out part I of the Act, when the said part is applicable to the Indian parties is clearly

against the public policy which is impermissible in law and the same is required to be held

unenforceable. In the present case, it is no longer a matter under International Arbitration, hence,

part I is essential for dispute resolution. The redressal of the dispute through the arbitration has

become impossible in as much as the essence of the arbitration tribunal does not exist anymore.

The said arbitration clause in the present form also violates the provisions of Section 28 of the

Indian Contract Act as it restrains the parties from exercising their legal rights under the laws of

India.

THE ARBITRATION AGREEMENT IS NULL, VOID AND INOPERATIVE

Section 45 of the Indian arbitration and conciliation act, which deals specifically with foreign

arbitrations requires a court to refer a party to arbitration unless the court finds that the

arbitration agreement is null and void, inoperative or incapable of being performed. This

provision is in line with Article II (iii) of the NYC which deals with the validity of an arbitration

4
TDM Infrastructure Pvt. Ltd. vs. UE Development India Private Ltd, (2008) 2 UJ SC 0721.

5
Ibid
agreement. Clause 7 of the JVA signed is null and void because it is contrary to public policy

[A],and it is inoperative because Arbitration clause is separate from the original agreement[B].

THE AGREEMENT IS CONTRARY TO PUBLIC POLICY

An agreement which purports to oust the jurisdiction of the Court absolutely is contrary to public

policy and hence void.6 Two Indian parties cannot by agreement or otherwise derogate from

Indian law.7This amounts to an unlawful object and agreements/contracts entered into by any

Indian party of which the object is unlawful, are prohibited.8 Since the Arbitration Clause would

circumvent the laws of India and defeat the provisions of law, and also denude the Courts of this

country of their jurisdiction, the objective of the Arbitration Clause is unlawful and therefore is

liable to be declared null and void.9 An agreement contrary to the provisions of law would be

unenforceable and that it would not be permissible to any person to rely upon the contract the

making of which the law prohibits. A contract forbidden by law cannot become valid even if the

parties act according to the contract. It is further submitted that the Arbitration Clause is also

contrary to the provisions of Section 28 of the Indian Contract Act, as it restrains the parties from

exercising their legal rights under the laws of India.

Further, considering that the JVA is between two Domestic parties of Modus, the Contract was

signed in Modus and the performance of the contract was in Modus, adjudication proceedings,

including arbitration can only be held in Modus and in no other country, and to be governed by

the laws of Modus not by any foreign laws.

6
A.B.C. Laminart Pvt. Ltd. & Anr vs A.P. Agencies, Salem, 1989 AIR 1239.
7
TDM Infrastructure Pvt. Ltd. vs. UE Development India Private Ltd, (2008) 2 UJ SC 0721.
8
Section 23, The Indian Contract Act, 1872.
9
Videocon Industries Limited vs. Union of India, (2011) 6 SCC 161.
Thus, the present agreement is null and void.

ARBITRATION CLAUSE IS SEPARATE FROM THE AGREEMENT

Arbitration clause in a contract has a unique distinction from that of the other clauses.10 While

the other clauses set out the obligations which the respective parties have to carry out, arbitration

clause is a neutral clause wherein both the parties consent for the same and unanimously agree to

refer the dispute to the arbitrator and settled the same through the tribunal of their own choice.11

DOCTRINE OF SEPARABILITY IS APPLICABLE

According to this doctrine, the invalidity of an underlying agreement does not have an impact on

the arbitration clause. The arbitration agreement and the underlying agreement have different

qualities. The arbitration agreement is jurisdictionally autonomous and shall not be affected

when the main contract is rendered invalid.

In the present case, when Naarushi novated its rights, liabilities and obligations under the JVA to

its wholly owned subsidiary Modus Naarushi Pvt. Ltd. [Naarushi Modus] and exited from

all its investments in Modus, the agreement stood novated.12 Applying the doctrine of

severability, the Arbitration Agreement was not novated as it is different from the JVA.

Therefore, the agreement is inoperative and so the Domestic courts have the power to adjudicate

in the matter of disputes.

10
Damodar Valley Corporation vs. K.K. Kar, (1974) SCR (2) 240.
11
Heyman V. Darwins Ltd., [1942] 1 All ER 337.
12
Paragraph 23 and 24 of the compromise.
CONSENT OF THE PARTIES

In Reliance Industries v Union of India, the court allowed the Indian parties to deviate from

domestic curial law by choosing to arbitrate in London since arbitration is a private process and

the parties should indeed have the right to choose the law that they desire to be bound by.

However, the court did not say that the domestic laws of India could be violated or were not to

be adhered to. The important element is the presence of consent of the parties. 13 The parties

should be willing to arbitrate. Courts should always strive to give effect to the free will of the

parties to arbitrate.

In the present case, there was a clause to resolve disputes through arbitration in the original JVA

between Thakurtravel and Narushi. However, post-novation, the arbitration clause being a

separate agreement was no longer functional. There was no consent by Narushi Modus to resolve

disputes through arbitration under rules by the ICC. Two parties cannot resolve to arbitration for

dispute resolution without mutually agreeing to it. There wasnt even a new arbitration clause

when Narushi Modus became a party to the JVA. Thus, the agreement is inoperative.

13
Atlas Exports v Kotak Company, (1999) 7 SCC 61.