Mar, 26 2024

Parties to an arbitration agreement commit to using an impartial arbitrator to resolve disagreements outside of court. An essential clause frequently included in these agreements is "severability." The ‘Doctrine of severability’ is also known as the ‘autonomy of the arbitration clause’. It means that the arbitration clause in a contract is considered separate from the main contract of which it is a part of and hence on account of invalidity, breach or termination of the contract, the arbitration clause still survives. This doctrine in its essence states the independence of an arbitration clause from the underlying contract. It ensures that in the event that one party claims that there has been a complete breach of the contract by the other, the contract is not dissolved for all purposes and rather it survives for the purpose of measuring the claims arising out of the breach and in determining the mode of settlement. 

In alternative dispute resolution systems, severability is a condition in an arbitration agreement that states that if a specific component of the agreement is determined to be unenforceable, the remaining sections will remain legal and binding. For example, consider a contract with several terms, similar to a train with various bogies. If one bogie derails, the severability provision serves as a decoupling device, allowing the remainder of the train (the other enforceable clauses) to continue on their voyage (the arbitration process).

The doctrine of severability in arbitration and the judicial application by the various courts have been different and it is fair to say that it has a tumultuous history. Prior to the enactment of the Arbitration and Conciliation Act, 1996 the Supreme court in cases like ‘Union of India vs Kishorilal Gupta and Bros’,1959 held that ‘an arbitration agreement was an integral part of the underlying contract and that it would cease to exist in the eventuality of the main contract perishing for either not being concluded or being void ab initio.’ 

The ‘principle of severability’ came into existence after the 1996 Act under Section 16 after which issues relating to this principle were determined by the courts. 

Section 16(1) of the Arbitration and Conciliation Act,1996 talks about the concept of ‘severability’ and states, an arbitration clause which forms part of the larger contract shall be treated as an agreement independent of the other terms of the contract; and a decision by the arbitral tribunal that the contract is null and void shall not by operation of law entail the arbitration clause invalid. 

Reasons for keeping the severability clause in arbitration agreements: 

• Maintains the motive/aim of the contract: Even if a minor phrase is declared unenforceable (for example, a particular rule for selecting arbitrators or the criteria for selection of the jurisdiction), the underlying commitment to arbitrate remains unaffected. This keeps the whole agreement from collapsing due to an inconsistency or minor breach of the contract. 
• Ensures independence for the party:  Severability maintains the parties' initial desire to settle disputes through arbitration. It prevents unwanted repercussions when an insignificant issue disrupts the preferred method of conflict settlement.
• Severability promotes efficiency by isolating unenforceable sections, allowing the arbitration to progress smoothly. Parties are not required to rework the whole agreement or engage in litigation. This at the end suffices the whole motive of arbitration and out of court settlement of disputes. 

To guarantee the arbitration clause's efficacy, it must be drafted clearly and comprehensively. It is critical to properly construct the severability clause to include a broad range of potentially unenforceable terms. A clear definition of terms can help in better interpretation of clauses that may be invoked in certain disputes. It is vital to clarify crucial phrases like "unenforceable" to avoid misunderstanding. 

To guarantee that the arbitration agreement is successful, it is important to have an expert lawyer evaluate and prepare it, including the severability clause. Severability is a valuable instrument in arbitration agreements, encouraging efficiency, party autonomy, and the sanctity of the agreed-upon conflict settlement procedure. Parties may ensure that their agreements remain on track for efficient dispute resolution by recognising their importance, possible problems, and best practices for enhancing them.