Opt-Out Clauses – Indian Courts Continue To Shun Unilateral Arbitration Agreements: ELP Analysis

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ELP Update

Recently, in Tata Capital Housing Finance Ltd v Shri Chand Construction and Apartment Pvt Ltd., the Delhi High Court has held that unilateral opt-out clauses (clauses that grant unilateral right to one party to give a go-bye to arbitration) cannot amount to a valid arbitration agreement since the clause lacks an essential element of an arbitration agreement, i.e., 'mutuality,' in as much as, the clause only gives one party, the right to walk out of arbitration.

The Delhi High Court has further held that under section 7 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), the parties are not at liberty to split the claims which arise out of the same defined legal relationship, i.e., there cannot be a valid arbitration clause providing for arbitration of claims of one party and providing for the remedy of the court/any other fora for the claim of the other party.

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