Sever Ability

Obhan &
Associates
SEVERABILITY
Jeetika Aggarwal
2
CONTENTS
o What is severability clause ?
o Indian Contract Act
o Need for severability clause in

contracts
o Jurisprudence
o Judicial Pronouncements
o Model clause
W H AT I S
SEVERABILITY
CLAUSE?
Severability or Separability clause is a boilerplate clause which
often finds its space in the last pages of a contract. It is a
drafting concept that allows the remainder of a contract’s terms
to remain effective, even if one or more of its clauses is found to
be unenforceable or illegal. Unenforceable clauses may be
severed from other parts of the contract, without rendering the
entire contract unenforceable.
The term ‘Severability Clause’ has been defined under Black’s
Law Dictionary 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.
P R O V I S I O N S I N I N D I A N C O N T R A C T A C T,
1872
Section 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.”
Section 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.”
NEED FOR SEVERABILITY CLAUSE
A severability clause tends to matter most when :
(i) the law does not provide a default rule; and
(ii) the invalidated or unenforceable term is essential to the transaction.
Certain provisions in an agreement are indispensable to the basic understanding
between the parties and cannot be simply severed. The question that arises is that -
Do parties really intend to leave otherwise intact a contract in which a provision
essential to its making can no longer be enforced? This why a severability clause
needs to be more explicit and it is essential that a severability clause not only ensure
the survival of the remaining contract; it should also address what else happens in
the event of severance. It should be drafted in a manner such that the severability
clause will not be used to deny either party a vital advantage agreed upon by the
provision in its original state.
6
JURISPRUDENCE
o 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. The word “blue pencil” itself
comes from the use of a blue pencil for editing or even censoring films or manuscripts etc. The
practice was to use a blue pencil while making corrections or performing editing work on the
necessary portions.
o Blue-Pencil Test has been defined under the Black’s Law Dictionary 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.
JUDICIAL
PRONOUNCEMENTS
1. Shin Satellite Public Co. Ltd vs. M/s Jain Studios Limited
[AIR 2006 SC 963]
2. B.O.I Finance Limited vs. Custodian and Ors. [(1997)10
SCC488]
8
The Hon’ble Supreme Court of India in the leading case of Shin Satellite Public Co. Ltd vs M/S Jain
Studios Limited 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.”
9
The Supreme Court in B.O.I Finance Limited Vs. Custodian and Ors. held that if pursuant to an agreement to do
an illegal act, a transaction, in part, takes place which would otherwise be valid if there was no such prior
agreement, then notwithstanding the illegality of the contract, the said completed transaction itself cannot be
regarded as invalid
“The first set of promises were fully executed, but the second set remained executory. Section 57 of the Contract
Act would thus be attracted to the present case, the effect of which would be that the first set of promises would
constitute a binding contract but the second or the forward leg would be void and unforceable. Neither the object
nor the consideration of the ready leg is illegal, unlawful or prohibited under section 23 of the Contract act. the
forward leg is neither the consideration nor the object for entering into the ready leg. At best it may be that the
forward leg provided the parties with the motive for entering into the contract but that would not affect the
severability of the forward leg. Which alone is declared illegal under the Securities Control Regulation Act.”
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MODEL CLAUSE
“If any term or provision of this Agreement is held by a court of competent

jurisdiction to be invalid, void or unenforceable, the remainder of the terms
and provisions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.”
T H A N K YO U

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Obhan &

o Indian Contract Act

o Need for severability clause in

The Hon’ble Court has held as follows:

“If any term or provision of this Agreement is held by a court of competent

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