Agreement to refer disputes to arbitration cannot be rendered void merely because of government rule – SC

Union of India Vs. Col. L.S.N. Murthy & ANR. (SC) –  An agreement to refer disputes to arbitration will not be void because a government instruction which makes the deal unprofitable. A contract in such cases will be valid unless it is unlawful. In this case, the government invited tenders for supply of fruits for the army. The successful bidder began the supply but stopped when the prices rose and the deal became unprofitable. This gave rise to disputes over payments which were referred to arbitration. The contractor argued that a government instruction on prices of goods rendered the contract unworkable and therefore void. The arbitration went in favour of the contractor. So the government appealed to the Supreme Court. It allowed the appeal and stated that a contract in such a case will not be rendered void merely because of the government rule. Unless a term of the contract is unlawful, the contract is valid. Therefore, the decision of the arbitrator that the contract was unenforceable and became void was wrong, the court said.

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

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