Arbitration clause
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This article is written by Anish Lakhanpal, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.

Introduction

The inclusion of an arbitral clause within the agreement becomes a fundamental factor in finalizing the dispute redressal mechanism and limiting the court’s role for intervention. If looked at within this context, the arbitration clause becomes a ‘contract within a contract’ which means that an arbitration clause carries with itself an obligation to be deferred to in the event of a dispute between the parties. 

The courts have given several rulings in which it has been clearly pronounced that even in the event of termination of agreement, the arbitration clause by itself is to be considered fundamentally severable at all times which further goes on to demonstrate the survivability of an arbitration clause despite any circumstance. 

However, there may be certain unforeseeable factors which may or may not impinge on the survivability of an arbitration clause. Although, the arbitration clause is at times understood to be a ‘separable’ contract of its own, it is also the case that just like any other contract it can be repudiated, terminated or brought to an end by any direct or indirect action. The death of a contracting party may be one such circumstance where the survivability and invocation of an arbitration clause may be brought into question. In such a scenario it is inevitable that the survivability of an arbitration clause would have to be analyzed depending on the facts and circumstances of a particular case whereby the possibility of involving the concerned party’s estate would sometimes become moot. This article shall analyze the effects of the death of a contracting party to an arbitration agreement as well as the relevant provisions and decisions which can shed light on the issue.

Arbitration Act: Section 40 

Section 40 of the Arbitration and Conciliation Act 1996 Acts states:

‘Arbitration agreement not to be discharged by death of party thereto.

  1. (1) An arbitration agreement shall not be discharged by the death of any party thereto either as respects the deceased or as respects any other party but shall in such event be enforceable by or against the legal representative of the deceased.

(2) The mandate of an arbitrator shall not be terminated by the death of any party by whom he was appointed.

(3) Nothing in this section shall affect the operation of any law by virtue of which any right of action is extinguished by the death of a person.’

Therefore, it has been laid out in a straight-forward manner that in the event of death of a contracting party it is not to be followed that the arbitration agreement shall not stand to be enforceable ‘by or against’ any legal representatives. 

Consequently, the definition of legal representatives may be reproduced as follows:

‘Legal representative’ means a person who in law represents the estate of a deceased person, and includes any person who interferes with the estate of the deceased, and, where a party acts in a representative character, the person on whom the estate devolves on the death of the party so acting.’

Effect of death of party

The incident section which has been reproduced above explains the effect that the death of a party has on the continuance of the arbitration proceedings. It is thereby important to understand that the subsection (1) of the provision is declaratory in nature which explains that the obligations arising out of the arbitration agreement shall not stand to be discharged/discontinued because of the death of any of the parties involved in the agreement. Subsequently, subsection (2) of the provision builds on the earlier proposition and goes on to clarify that the death of a party to an arbitration agreement does not in any way impinge on the authority of an Arbitrator. 

There is a certain principle of law encapsulated by the Latin maxim ‘actio personalis moritur cum persona’ which means that certain rights of action die with the man. However, the principle stands to be limited to rights which are of personal nature, for example, contract to marry, performance contracts etc. However, wherever a certain right has the capability to survive beyond the life of an individual, such a right has the capability of being enforced by or against the legal representatives of the individual. 

arbitration

Judicial Precedent

The importance of judicial precedents to shed further clarity on its nuances cannot be negated. For instance, in a judgement delivered by the Delhi High Court in Jyoti Gupta v. Kewalsons & Ors, it was held that whenever arbitration agreement is pertaining to a dispute between ‘partners’, the right to get any legal remedy enforced is a vested legal right which cannot be taken away from the legal heirs of the deceased partner. In other words, the right to get a remedy enforced is an unimpeachable right which shall always be available to the legal heirs and representatives. Facts and circumstances could always be ascertained from the agreements and the legal jurisprudence of the arbitration legislation could always be relied on to reach a logical end. 

In the aforementioned case, Kewalsons and Shyam Gupta were operating in the partnership business arrangement. After the death of Shyam Gupta, his daughter, Jyoti Gupta, filed an application u/s 11 of the Arbitration and Conciliation Act, 1996, for appointment of a sole arbitrator for adjudicating disputes arising from the partnership deed. 

The Section 11 application was subsequently opposed by the opposite party. The arguments used by the respondents relied on a limited interpretation of the term ‘partners’ which was used in clause 15 of the agreement and consequently the dispute settlement could only be carried between the contracting parties and cannot be extended to legal representatives. In this way, the invocation of the arbitration agreement had become a moot point within the dispute. 

The Delhi High Court adjudicated the dispute and settled the position of law by focusing on the interpretation of Section 40 of the Arbitration and Conciliation Act, 1996 which provides that an arbitration agreement will not be discharged by the death of any party and can be enforced by or against the legal representatives of the deceased.

The court reiterated the same principle that merely the death of a contracting partner does not signify an end to the provision pertaining to dispute settlement/arbitration, and the legal heirs are well within their rights to invoke the arbitration clause and avail any remedy which may be available to them within the purview of legality. One of the arguments raised against the invocation of arbitration clause relied on the fact that after the death of the contracting partner, the legal heirs of the deceased partner cannot be inducted as partners of the business. However, the court made a distinction between the two situations. Carrying on and discharging the obligations within the partnership agreement does not come within the prerogative of the legal heirs/representatives of the deceased partner, however availing relief from the dispute arising out of the agreement may very well be within their prerogative.

Therefore, the legal heirs and representatives of the deceased partner may not be entitled to be inducted as a partner, however, the right to pursue a remedy by invoking the arbitral clause would never cease to exist. Likewise, the court did not dismiss the application and went on to appoint an arbitrator to adjudicate the disputes between the parties as sought by the application. 

Simply put, the court instituted that there shall be no hesitation in holding that in respect of a person on the death of a partner, his/her legal heirs would be entitled to invoke the arbitration clause and the respondents cannot refuse the appointment of an arbitrator.

Lastly, it was in Perumalla Satyanarayana v. Venkata Rangayya and Chander Nath Ojha v. Suresh Jhalani that the court observed that contracts which contain an arbitration clause should not be treated as standing on a special and unique footing or to hold that such contracts are revocable at the mere will of a party.  This would warrant the view that every such contract is essentially of a personal nature which is not the case as explained by the above mentioned case. The true position would be that any such matter would depend on the nature of rights which are being dealt with and whether they are survivable enough for the relief to be passed to the legal heirs/representatives.  

Conclusion

Therefore, as has been expounded in the above mentioned case laws and principles. The survivability of the arbitration clause is a fundamentally important feature of any agreement with a referral to arbitration. It not only indicates the separability of the clause as a ‘contract within a contract’ but also indicates that the remedies are survivable and can be passed down to the legal representatives. 

Furthermore, Section 40 of the Arbitration and Conciliation Act makes it abundantly that the death of a contracting party does in any way impinge on the authority of an arbitrator and consequently has no bearing on the relief arising out of the dispute to be sought by or against the legal representatives of the deceased party.


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