The second issue in SMS Tea Estates that a voidable contract would not be arbitrable as it affects the validity of the arbitration agreement, is in our view not the correct position in law. The allegations made by a party that the substantive contract has been obtained by coercion, fraud, or misrepresentation has to be proved by leading evidence on the issue. These issues can certainly be adjudicated through arbitration.
We overrule the judgment in SMS Tea Estates with respect to the aforesaid two issues as not laying down the correct position in law.[Para No.6.9]
The Garware judgment has followed the judgment in SMS Tea Estates. The Counsel for the Appellant has placed reliance on paragraph 22 of the judgment to contend that the arbitration clause would be non- existent in law, and unenforceable, till Stamp Duty is adjudicated and paid on the substantive contract.
We hold that this finding is erroneous, and does not lay down the correct position in law. We have already held that an arbitration agreement is
distinct and independent from the underlying substantive commercial contract. Once the arbitration agreement is held to have an independent existence, it can be acted upon, irrespective of the alleged invalidity of the commercial contract. [Para No.6.10]
Supreme Court of India
M/S N.N. Global Mercantile Pvt. Ltd.
Vs.
M/S Indo Unique Flame Ltd.
Decided on 11/01/2021