Severability Clause, or Separability Clause, a boilerplate clause often finds its little space in the last pages of a contract. This clause, since bearing considerable implications, is never overlooked by the parties to a contract. The Severability Clause is based on the ‘Doctrine of Severability’ or ‘Doctrine of Separability’, in according to which, in the event, any provision of a contract is rendered illegal or void, and therefore, not enforceable, the remaining provisions shall be severed and enforced independent of the unenforceable provision, provided such severance does not adversely affect the effectuation of the intention of parties to such contract.

 

The term ‘Severability Clause’ has been defined under Black’s Law Dictionary1 to mean a provision that keeps the remaining provisions of a contract or statute in force if any portion of that contract or statute is judicially declared void, unenforceable, or unconstitutional.

 

The Severability Clause finds its basis from the Blue-Pencil Doctrine, or Blue-Pencil Test, which means to delete the invalid (unenforceable) words of a part of a contractual provision to keep the other parts of such provisions validated, and thus, enforceable. Resultingly, the valid part of a provision is enforced without the need to invalidate the complete provision solely owing to a certain invalid part. The term ‘blue-pencil’ popularly means to censor or to make cuts such as in a manuscript, film, or other works.

 

Blue-Pencil Test has been defined under the Black’s Law Dictionary2 to mean a judicial standard for deciding whether to invalidate the whole contract or only the offending words. Under this standard, only the offending words are invalidated if it would be possible to delete them simply by running a blue pencil through them, as opposed to changing, adding, or rearranging words.

 

The rationale behind the application of the Doctrine of Severability or Blue-Pencil Test is to check whether a contractual provision can be severed into several parts with independent enforceability and implication of each severed part. The severed parts are saved for its validity and enforceability, and the parts that are illegal and void, and thus, unenforceable, are nullified, while others are enforced. Consequently, rather than invalidating the complete contract, only the invalid provisions are nullified and not enforced. However, any such severance shall not adversely affect the intention of the parties to the contract.

 

SEVERABILITY UNDER INDIAN CONTRACT ACT

Under the Indian Contract Act, 1872 (“ICA”), reasoning to the Doctrine of Severability can be found under section 57 and 58 thereof. Section 57 of ICA provides contractual recognition to only those promises in an agreement that are legal while other promises under the same agreements that are illegal are rendered void and therefore, not a contract within the meaning of ICA.

“57. Reciprocal promise to do things legal, and also other things illegal.—Where persons reciprocally promise, firstly, to do certain things which are legal, and, secondly, under specified circumstances, to do certain other things which are illegal, the first set of promises is a contract, but the second is a void agreement.

 

Illustration
A and B agree that A shall sell B a house for 10,000 rupees, but that, if B uses it as a gambling house, he shall pay A 50,000 rupees for it.

The first set of reciprocal promises, namely, to sell the house and to pay 10,000 rupees for it, is a contract.

The second set is for an unlawful object, namely, that B may use the house as a gambling house, and is a void agreement.”   

 

Section 58 of the ICA provides enforceability to those promises in a contract that are legal whereas illegal promises are not enforceable.

 

“58. Alternative promise, one branch being illegal.—In the case of an alternative promise, one branch of which is legal and the other illegal, the legal branch alone can be enforced.


Illustration
A and B agree that A shall pay B 1,000 rupees, for which B shall afterward deliver to A either rice or smuggled opium.
This is a valid contract to deliver rice, and a void agreement as to the opium.”

 

Evidently, section 57 and section 58 of the ICA renders only the illegal part of an agreement void and non-enforceable while accepts the validity and enforceability of the legal part of such agreement. Nowhere section 57 or 58, owing to a specific illegal portion, renders the complete agreement void. However, section 57 and 58 is applicable on reciprocal promises and alternative promises respectively, that is to say, Severability applies only where the agreement can stay operative even after rendering void a specified illegal part, however, if voiding any specified part renders the agreement inoperative, the entire agreement shall stand void and thus, not enforceable.

SEVERABILITY UNDER JUDICIAL PRONOUNCEMENTS

The Hon’ble Supreme Court of India in the leading case of Shin Satellite Public Co. Ltd vs M/S Jain Studios Limited3 (“Shin Satellite Case”) has considered and relied upon the doctrine of severability to adjudicate the matter. The Hon’ble Court, inter alia, pondered over the principles for application of the said doctrine.

The Hon’ble Court has held ‘substantial severability’ and not ‘textual divisibility’ to be proper as regards to deciding the validity of an agreement. Importance is conferred to the intention of parties to an agreement with respect to valid part of the provision that is proposed to be severed from invalid part and thus, to be enforced. Any severance shall neither defeat underlying object of the provision, nor shall bestow undue advantage to any specific party.       

 

The Hon’ble Court has held as follows:

 

“The proper test for deciding validity or otherwise of an agreement or order is 'substantial severability' and not 'textual divisibility'. It is the duty of the court to severe and separate trivial or technical part by retaining the main or substantial part and by giving effect to the latter if it is legal, lawful and otherwise enforceable. In such cases, the Court must consider the question whether the parties could have agreed on the valid terms of the agreement had they known that the other terms
were invalid or unlawful. If the answer to the said question is in the affirmative, the doctrine of severability would apply and the valid terms of the agreement could be enforced, ignoring invalid terms.”

 

 

Further, the Hon’ble Court in Shin Satellite Case has considered the view taken in Babasaheb Rahimsaheb v. Rajaram Raghunath4 wherein it was held that if different clauses in an agreement are separable, the fact that one clause is void does not necessarily cause the other clauses to fail.

 

The Hon’ble Court has also referred to the principles of severability for statutory provisions in R.M.D.Chamarbaugwalla & Anr. v. Union of India & Anr.5 Nonetheless, such principles should provide reference and aid in forming the basis of severability of contractual provisions. The following principles are summarized by the Hon’ble Court, albeit for severability of statutory provisions:

 

  1. The intention of the legislature is the determining factor; It is to be tested whether the legislature would have enacted the valid part if it would have known that the rest of the part was invalid;

 

  1. If different provisions are mixed-up and cannot be separated, the entire Act (statute) shall be rendered invalid. However, in case a provision can be separated in the independence of the others, the separated provision that is valid shall be enforced;

 

  1. In the case where all the provisions are intended to be operative under a single scheme, the whole statute is invalidated even if different provisions are distinct and has independent validity;

 

  1. The whole statute may be invalidated in the event the separation of any invalid provision, having distinct and has independent validity, results in a depiction of different object and substance of the statute which is not intended;

 

  1. It is not the form, but the substance of the matter that is material, and that has to be ascertained on an examination of the Act as a whole and of the setting of the relevant provisions therein;

 

  1. The remaining valid part of the statute, after having severed from the invalid part, shall be enforceable in its severed form without the need to make alterations or modifications;

 

  1. The legislative history, its object, title, and preamble shall be accounted for to determine the applicability of severability.

 

The principles summarizes above may well form the basis for the application of doctrine of severability for a contractual provision. Basis the same, the blue-pencil may be run over the invalid portion, and the severed valid portion may be enforced.  Where a contractual provision fails test under any of the above-mentioned principles, the entire provision may be rendered invalid, and thus, non-enforceable.

 

Absence of explicit Severability Clause

The insertion of an express severability provision in a contract aids in expressly stating the intention of the parties, vis-a-vis, the enforceability of contractual provisions. The same aids in eliminating any doubts with respect to the enforceability of any valid part of a provision while any other parts are rendered invalid and non-enforceable. However, in the absence of any such provision, the principles and tests laid down under various judicial pronouncements, some of which are stated hereof, shall be reported to and decisions be made accordingly.

CONCLUSION

Basis the statutory provisions under ICA and various judicial pronouncements, a conclusion could be drawn that doctrine of severability shall be rendered applicable where any valid part of a contractual provision can be enforced independently of any other part of such contractual part that is invalid and non-enforceable. The presence of an express severability clause aids in the elimination of any doubts with respect to the enforceability of any valid part, however, in the absence of the same, the principles and tests laid down under judicial pronouncements shall be resorted to. Notwithstanding, the intention of the parties to a contract with respect to a contractual provision holds utmost importance, and the application of the doctrine of severability shall not render such intention redundant.

[1] Black’s Law Dictionary (9th edition)

[2] Black’s Law Dictionary (9th edition)

[3] Arbitration Petition No.1 of 2005, in Shin Satellite Public Co. Ltd v. M/s Jain Studios Ltd., (2006) 2 SCC 628, dated January 31 2006

[4] Babasaheb Rahimsaheb v. Rajaram Raghunath, AIR 1931 Bom 264

[5] (1957) SCR 930 : AIR 1957 SC 628

Authors: I Abhishek Bansal, Partner (abhishek.bansal@corpacumen.com) I Pavish Singhla, Senior Associate (pavish.singhla@corpacumen.com) I ACUMEN JURIS I

Practice Areas: I Corporate & Commercial I Acquisitions & Investments I Arbitration & Dispute Resolution I

 

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