Arbitration clause survives even if MoU bears no fruit

In a recent decision, the Supreme Court has reiterated the independence of an arbitration clause from the underlying contract and the principle of separability, by ruling that regardless of whether a memorandum of understanding (MoU) results in a contract, as envisaged by parties, the arbitration agreement will survive.

Ashapura Mine-Chem and Gujarat Mineral Development Corporation (GMDC) had entered into a MoU in 2007 for the purpose of establishing an alumina plant in Gujarat through a joint venture with a Chinese company. The MoU envisaged referring disputes to arbitration if amicable settlement through mutual consultation failed.

GMDC terminated the MoU, claiming that Ashapura failed to fulfil its conditions and also on account of significant proposed amendments to the MoU, precipitated by policy changes. The parties attempted, and failed, to amicably resolve their disputes. Consequently, they reached no consensus on the appointment of a sole arbitrator.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Shreya Ramesh is an associate.