For an arbitration clause to be legally binding it has to be in consonance with the “operation of law” which includes the Grundnorm (Kelson’s Pure Theory) – Lombardi Engineering Ltd. Vs. Uttarakhand Jal Vidyut Nigam Ltd. – Supreme Court
November 9, 2023
In this case u/s 11(6) of the Arbitration Act, there are two pre-conditions, one relating to 7% deposit of the total amount claimed and the second one relating to the stipulation empowering the Principal Secretary to appoint a sole arbitrator.
Hon’ble Supreme Court held that:
(i) There is no conflict between S.K. Jain (2017) ibclaw.in 770 SC and ICOMM Tele Ltd. (2019) ibclaw.in 149 SC.
(ii) Court referred Kelson’s Pure Theory of Law on the basic norm that called “Grundnorm”.
(iii) In the context of the Arbitration Agreement, the layers of the Grundnorm as per Kelsen’s theory would be in the following hierarchy: (1) Constitution of India, 1950; (2) Arbitration and Conciliation Act, 1996 & any other Central/State Law; (3) Arbitration Agreement entered into by the parties in light of s. 7 of the Arbitration and Conciliation Act, 1996.
(iv) The Arbitration Agreement, has to comply with the requirements of the following and cannot fall foul of: (1) Section 7 of the Arbitration and Conciliation Act; (2) any other provisions of the Arbitration and Conciliation Act, 1996 & Central/State Law; (3) Constitution of India, 1950.
(v) For an arbitration clause to be legally binding it has to be in consonance with the “operation of law” which includes the Grundnorm i.e. the Constitution. It is the rule of law which is supreme and forms parts of the basic structure.
(vi) ignored the two conditions.
