Date: 1 December, 2020
by Upamanyu Ganguly, ILS Law College, Pune
A unilateral option clause refers to a dispute resolution agreement where a single party to an agreement is given the sole right to refer to dispute towards resolution proceedings.
Generally, a dispute resolution agreement requires some degree of mutuality in terms of referring disputes, however, in unilateral clauses, this does not exist.
Currently, there are no legislative provisions that recognise unilateral option clauses, however, the judiciary of India has laid down precedents, albeit, conflicting ones. The validity of such clauses still remains in question.
CASE LAWS IN INDIA
Cases that invalidate the Unilateral Option Clause
Bhartia Cutler Hammer v. AVN Tubes (1995 (33) DRJ 672), the High Court of Delhi held that a single party could not hold the power to initiate arbitration proceedings as such a clause goes against the principle of “mutuality”, which the Arbitration and Conciliation Act, 1996 presupposes.
Emmsons International Ltd. v. Metal Distributors (2005 (80) DRJ 256), the Delhi High Court held that a unilateral clause is invalid as such a clause goes against Section 28 of the Indian Contract Act, 1872 (Restraint against legal proceedings), as a party to an agreement is restrained against invoking the arbitration clause
Lucent Technology v. ICICI Bank (2009 SCC OnLine Del 3213), the Delhi High Court referred to the judgments of the above-mentioned cases and invalidated the unilateral option clause.
Cases that recognise the validity of Unilateral Option Clauses
Castrol India v. Apex Tooling Solutions ((2015) 1 LW 961 (DB)), the High court of Madras held that unilateral arbitration clauses are valid as arbitration agreements need not necessarily have mutuality in terms of initiating resolution proceedings, but the Court did mention that the party with the sole right to initiate such proceedings could not do so if they had participated in court proceedings before objecting and bringing up the arbitration clause.
Fuerest Day Lawson Ltd. v. Jindal Exports Ltd. (MANU/DE/3204/2009), the Delhi High Court held that unilateral clauses were valid, but in this case, the clause was valid under English Law and not under Indian Law.
In the global scenario, the unilateral option clauses are seen in a different manner in countries following a common law system and the ones following a civil law system.
Common law countries such as the United Kingdom, United States of America and Singapore consider unilateral option clauses as valid and a part of the agreement as long as both the parties were aware of the existence of such a clause.
On the other hand, Civil law countries such as France and Russia invalidate unilateral clauses on the principle of “mutuality” and “unconscionability”.
India is considered to be a hybrid system of law, and there exist judgments in favour of both sides, nothing conclusive can be said as of yet.