An arbitration agreement remains binding and enforceable even when part of a non-binding agreement, affirming the principle of separability and limited judicial interference under the Arbitration and Conciliation Act.

JUDGMENT

Navin Chawla, J.

1. This petition has been filed by the petitioner under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the `Act') seeking appointment of an Arbitrator for adjudicating the disputes that have arisen between the parties in relation to the `Non-Binding Term Sheet' dated 26.11.2021 (hereinafter referred to as the `Term Sheet') executed between the parties.

2. The Arbitration Agreement between the parties is contained in Clause 12 of the Term Sheet, and is reproduced hereinbelow:

"12) Governing Law and Jurisdiction This Term Sheet and any other documentation with respect to any transaction contemplated herein shall be governed by Indian law.

All disputes arising out of and/ or due to this Term Sheet shall be resolved by arbitration in accordance with the Arbitration and Conciliation Act, 1996 through a sole arbitrator to be mutually appointed by the parties with seat and venue in Delhi."

3. Though the agreement is titled as `Non-Binding Term Sheet', it further provides as under:

"Notwithstanding the usage of "Non-Binding" as a suffix to the Term Sheet at certain places above, it is agreed that the Term Sheet shall be binding upon the parties to the following extent and clause only during the Term:

(i) During the Term, the Sellers and the Buyer shall abide by the terms of this Term Sheet. Also, the Seller shall maintain exclusivity for Lands-A, Govt Lands/ Lease Lands for the Buyer and shall not support or cause the transfer of Lands-B to any third party.

(ii) Further, during the Term, both Parties shall act in good earnest and work towards closure of the transaction, including discussions and finalizations of the transaction documents.

(iii) The Clauses pertaining to Confidentiality, Expenses and Dispute Resolution, shall be binding upon the Parties."

(Emphasis supplied)

4. Disputes having arisen between the parties, the petitioner invoked the Arbitration Agreement vide notice dated 06.06.2022. The same was replied to by the respondents, through their counsel, vide notice dated 05.07.2022, refusing the appointment of an Arbitrator.

5. The learned senior counsel for the respondents submits that the present petition is not maintainable inasmuch as the agreement being relied upon itself states that it is a `Non-Binding Term Sheet'. He submits that even though the agreement further states that the Dispute Resolution Clause in the said agreement would bind the parties, the same can be of no consequence inasmuch as the other terms of the agreement remain non-binding. He submits that a dispute cannot, therefore, be referred in a vacuum.

6. The learned senior counsel for the respondents further submits that the said Term Sheet is for the transfer of land in favour of the petitioner. Placing reliance on the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (hereinafter referred to as the `Regulations'), he submits that in terms of Clause 17 of the Regulations, a Category II Alternative Investment Fund is permitted to invest only in un-listed investee companies or in the units of Category I or other Category II Alternative Investment Funds as may be disclosed in the placement memorandum; the fund cannot invest directly in the purchase of land. He submits that, therefore, the consideration under the subject Term Sheet is itself illegal and the Term Sheet is not enforceable in law. The agreement being unenforceable, the Arbitration Agreement contained therein would be equally void and unenforceable in law.

7. He submits that this Court, while exercising its jurisdiction under Section 11 of the Act, would also, at least prima facie, consider the invalidity of the underlying agreement and in case, it finds the same to be void, refuse reference of the parties to arbitration. In support, he places reliance on the judgment of the Supreme Court in Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 and N.N. Global Mercantile