'Absence Of Arbitration Clause In Agreement Does Not Render Dispute Non-Arbitrable': Bombay High Court

The Bombay High Court has held that the absence of an independent arbitration clause in a supplemental agreement, when the principal agreement contains an arbitration clause, does not render the dispute non-arbitrable. The Court ruled that a supplemental agreement, merely ancillary to the principal agreement, which seeks to record that the consideration under the Development Agreement stands discharged, is an adjectival element of the substance of the Development Agreement.Justice Somasekhar Sundaresan was hearing an appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996, challenging the order of the District Court, which had rejected the appellant's application under Section 8 of the Act. The District Court had refused to refer the parties to arbitration on the ground that the Supplemental Agreement between them did not contain a distinct arbitration clause. The appellant contended that the Supplemental Agreement was executed in continuation of the Development Agreement, which contained a valid and wide arbitration clause covering all disputes arising out of the development project.The Court noted that Section 8(1) of the Arbitration Act indicates that the judicial authority before whom a proceeding is brought is required to refer the parties to arbitration, unless such authority comes to a prima facie finding that no valid arbitration agreement exists. It observed:“… Section 8 Court must only restrict its examination to examining the subject matter of the proceedings before it and compare it with the subject matter of the arbitration agreement. Once subject matter commonality is established, if the Section 8 Court is prima facie of the view that a valid arbitration agreement exists, it is obliged to refer the parties to arbitration.”The Court observed that the Learned Judge conceded that an arbitration agreement existed in the Development Agreement, but focused on the absence of an arbitration clause in the Supplemental Agreement. The Court refused to accept the argument that the supplemental agreement needed a separate arbitration clause.“Since that instrument purported to record the discharge of consideration under the Development Agreement, arguably, it did not need a separate arbitration clause, when Clause 30 of the Development Agreement squarely deals with disputes relating to that instrument and discharge of consideration would fall within its scope,” the Court observed. The Court also rejected the respondents' contention that allegations of fraud in the execution of the Supplemental Agreement rendered the matter non-arbitrable. The Court reiterated that merely because a party claims that there are “public overtones”, the dispute would not become non-arbitrable.Accordingly, the Court set aside the impugned order of the District Court and referred the parties to arbitration in accordance with the arbitration clause contained in the Development Agreement. The parties were granted four weeks to mutually agree upon the appointment of an arbitrator.Case Title: Om Swayambhu Siddhivinayak v. Harischandra Dinkar Gaikwad & Ors. [Arbitration Appeal No. 21 of 2025]Click Here To Read/Download Order

'Absence Of Arbitration Clause In Agreement Does Not Render Dispute Non-Arbitrable': Bombay High Court

Saksham Vaishya

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