# SASAN POWER LIMITED v. NORTH AMERICAN COAL CORPORATION INDIA PRIVATE LIMITED

- **Citation:** [2016] 6 S.C.R. 809
- **Court:** Supreme Court of India
- **Decided:** 2016-08-24
- **Case number:** Civil Appeal No. 8299 of2016
- **Bench:** J. Chelameswar, Abhay Manohar Sapre
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sasan-power-limited-v-north-american-coal-corporation-india-private-limited-31571
- **Pages:** 42

## Headnote

Arbitration and Conciliation Act, 1996 - s. 45 - Execution of
Agreement-I between appellant and American Company-NAC - Two
years later. execution of Agreement-II between the appe(lant,
respondent-NACC-lndia and American Company NAC - By the said
agreement, American company assigned all its rights and obligations
under Agreement I with the consent of the appellant to-respondentlndian company - Dispute between appellant and respondent -
· Request for arbitration before ICC in London, by respondent - Suit
by appellant - One of the prayer seeking declaration that
arbitration agreemen( was null and void being contrary to Indian_
Law - Order passed whereby ICC stayed from proceeding with the
arbitration - Applications by respondent seeking that dispute be
referred to arbitration and sought vacation of injunction order -
Applications were allowed @nd suit was dismissed - Thereafter,
appeal filed by the appellant - Dismissal by the High Court -
O~
appeal, held: Per J. Clte/ameswar, J: It can be se.,en from the tenor
. of ihe AGREEMENT-JI that it is a tripartite agteement - Consent
given by the appellant is qualified - Appellant retained its right
against the American company for the enforcement of obligations
and liabilities under AGREEMENT-I owed by the American company·
to the appellant ~ Thus, the rights and obligations flowing out of
AGREEMENT-II b_etween the three parties are interdependent - On
examinatiqn of the fights and obligations 6f the American company
under AGREEMENT-I and AGREEMENT-II, it is a dispute betWee1i
three parties of which one is an American company with a foreign
element i.e. rights a~d obligations ofihe American company-Hence,
the stipulation regarding the governing law cannot be said to be an
agreement between only two Indian companies - So long as the
obligations arising under the AGREEMENT-I subsists and the
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SUPREME COURT REPORTS
[2016] 6 S.C.R.
American company is not discharged of its obligations under the
AGREEMENT-L there is a foreign element' therein and the dispute
arising therefrom -Autonomy of the parties in such a case to choose
the governing law is well recognised in law - Further, in the
AGREEMENT-II there is no discharge of the original contracteeAmerican company s obligations - There are mutual obligations
(arising out of AGREEMENT-I) still to be enforced - Transaction
covered by AGREEMENT-JI is not an assignment-Also there cannot
be any novation between American company and respondent -
Further, for deciding whether the suit filed by appellant is
maintainable or impliedly barred by s.45, the Court is required to
examine only the validity of the arbitration agreement within the
parameters set out in s.45, but not the substantive-contract of which
the arbitration agreement is a part - Per Ahlwy Mwrolutr Sapre, J
(Supplementing): NAC is an American company and being a party
to Agreement-I as also to Agreement-II along with two Indian
companies (appellant and respondent), a fortiori. Agreement-I and
Agreement-II become an "'international commercial arbitration"
within the meaning of s. 2(j) - Execution of Agreement-II did not
result in substituting or rescinding or extinguishing Agreement-I -
It recognized the existence of Agreement-I and resulted in its
amendment by adding some nel;I' clauses and one party - It cannot
be said that as a result of execution of Agreement-JI, novation of
contract has come
4 in to be inter se parties - Further. s. 45 shows
that once it is found that the agreement is a legal and valid
agreement, which is capable of being performed by the parties to
the suit, the court has to pass an order by referring the parties to
t!J.e arbitration in terms of the agreement - Trial court though allowed
the application holding that the agreement was legal and proper
and capable of being performed but did not pass any consequential
order as required u/s. 45 by referring the parties to the arbitration
and instead simply dismissed the suit - Thus,

## Text

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[2016] 6 S.C.R. 809
SASAN POWER LIMITED
v.
NORTH AMERICAN COAL CORPORATION INDIA PRIVATE
LIMITED
(Civil Appeal No. 8299 of2016)
AUGUST 24, 2016
[J. CHELAMESWAR AND ABHAY MANOHAR SAPRE, JJ.]
Arbitration and Conciliation Act, 1996 - s. 45 - Execution of
Agreement-I between appellant and American Company-NAC - Two
years later. execution of Agreement-II between the appe(lant,
respondent-NACC-lndia and American Company NAC - By the said
agreement, American company assigned all its rights and obligations
under Agreement I with the consent of the appellant to-respondentlndian company - Dispute between appellant and respondent -
· Request for arbitration before ICC in London, by respondent - Suit
by appellant - One of the prayer seeking declaration that
arbitration agreemen( was null and void being contrary to Indian_
Law - Order passed whereby ICC stayed from proceeding with the
arbitration - Applications by respondent seeking that dispute be
referred to arbitration and sought vacation of injunction order -
Applications were allowed @nd suit was dismissed - Thereafter,
appeal filed by the appellant - Dismissal by the High Court -
O~
appeal, held: Per J. Clte/ameswar, J: It can be se.,en from the tenor
. of ihe AGREEMENT-JI that it is a tripartite agteement - Consent
given by the appellant is qualified - Appellant retained its right
against the American company for the enforcement of obligations
and liabilities under AGREEMENT-I owed by the American company·
to the appellant ~ Thus, the rights and obligations flowing out of
AGREEMENT-II b_etween the three parties are interdependent - On
examinatiqn of the fights and obligations 6f the American company
under AGREEMENT-I and AGREEMENT-II, it is a dispute betWee1i
three parties of which one is an American company with a foreign
element i.e. rights a~d obligations ofihe American company-Hence,
the stipulation regarding the governing law cannot be said to be an
agreement between only two Indian companies - So long as the
obligations arising under the AGREEMENT-I subsists and the
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SUPREME COURT REPORTS
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American company is not discharged of its obligations under the
AGREEMENT-L there is a foreign element' therein and the dispute
arising therefrom -Autonomy of the parties in such a case to choose
the governing law is well recognised in law - Further, in the
AGREEMENT-II there is no discharge of the original contracteeAmerican company s obligations - There are mutual obligations
(arising out of AGREEMENT-I) still to be enforced - Transaction
covered by AGREEMENT-JI is not an assignment-Also there cannot
be any novation between American company and respondent -
Further, for deciding whether the suit filed by appellant is
maintainable or impliedly barred by s.45, the Court is required to
examine only the validity of the arbitration agreement within the
parameters set out in s.45, but not the substantive-contract of which
the arbitration agreement is a part - Per Ahlwy Mwrolutr Sapre, J
(Supplementing): NAC is an American company and being a party
to Agreement-I as also to Agreement-II along with two Indian
companies (appellant and respondent), a fortiori. Agreement-I and
Agreement-II become an "'international commercial arbitration"
within the meaning of s. 2(j) - Execution of Agreement-II did not
result in substituting or rescinding or extinguishing Agreement-I -
It recognized the existence of Agreement-I and resulted in its
amendment by adding some nel;I' clauses and one party - It cannot
be said that as a result of execution of Agreement-JI, novation of
contract has come
4 in to be inter se parties - Further. s. 45 shows
that once it is found that the agreement is a legal and valid
agreement, which is capable of being performed by the parties to
the suit, the court has to pass an order by referring the parties to
t!J.e arbitration in terms of the agreement - Trial court though allowed
the application holding that the agreement was legal and proper
and capable of being performed but did not pass any consequential
order as required u/s. 45 by referring the parties to the arbitration
and instead simply dismissed the suit - Thus, the order is modified
to this extent.
Dismissing the appea~ the Court
Per Chelameswar, J.
HELD: 1.1 It can be seen from the tenor of the
AGREEMENT-II that it is a tripartite agreement. The consent
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given by the appellant is qualified. The appellant retained its right
SA SAN POWER LIMITED v. NORTH AMERICAN COAL
CORPORATION INDIA (P) LTD.
against the American company for the enforcement of obligations
and liabilities under AGREEMENT-I owed by the American
company to the appellant. Therefore, the rights and obligations
flowing out of AGREEMENT-II between the three parties are
interdependent. Further, the rights and obligations created under·
the agreement determine the legal character of an agreement.
[Para 17][828-C-F]
1.2 As regards, the AGREEMENT-II there is no discharge
of the original contractee i.e., the American company's
obligationi;. There are mutual obligations (arising out of
AGREEMENT-I) still to be enforced. The American company
legally cannot claim to have been discharged from the obligations
arising under AGREEMENT-I and infact has not been discharged.
On the other hand, the appellant by an express covenant under
AGREEMENT-II retained its rights to enforce obligations
(arising under AGREEMENT-I) against the American company.
AGREEMENT-II perhaps only creates an agency where the
American company is the principal and the respondent its agent
or what is described In some cases as sub-contracting or an
arrangement for "vicarious performance". The transaction
covered by AGREEMENT II is not an assignment. [Para 20](830A-p J
1.3 There cannot be any novation between the American
company and the respondent because prior to the AGREEMENT11, there was no agreement whatsoever between them; and the
respondent cannot be said to have stepped into the shoes of the
American company because the obligations under AGREEMENT-
! owed by the American company to the appellant were not
discharged by the AGREEMENT-II. [Para 23)(831-B-DJ
1.4 Adjudication of the dispute raised by the respondent in
the arbitration would necessarily involve examination of the rights
and obligations of the American company under AGREEMENT-
! and AGREEMENT-II. Therefore, it is a dispute betWeen three
parties (of which one is an American company) with a foreign
element i.e. rights and obligations of the American company.
Hence, the stipulation regarding the governing law cannot be
said to be an agreement between only two Indian companies.
[Para 24)(831-E-F]
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1.5 What is the number of parties to a document is a question
of fact. When a fact is in issue, the same is required to be proved
in accordance with the provisions of the Evidence Act. Disposition
of the property whether it be by way of a contract or grant or any
other, if reduced to writing, parties are prohibited from giving
any evidence regarding the terms of such disposition except the
document itself or 'secondary evidence' of thit document.
Provided that such secondary evidence is otherwise admissible
under the Evidence Act. Though oral evidence can be secondary
evidence under Section 63(5), Section 64 mandates that
documents must be proved by primary evidence except in
exceptional circumstances specified under the other provisions
of Evidence Act. Logically, a concessio~ at th'e bar regarding the
content of a written agreement including the fact as to who are
the parties to the document does not stand on any different footing
than the oral evidence of the parties. The concession made by
the counsel for the respondent is not secondary evidence
admissible under any of the clauses of Section 65 of the Evidence
Act. Therefore, the concession made at the bar by the counsel
(for the respondent) before the High Court does not preclude
the respondent from asserting that AGREEMENT-II is a tripalitite
agreement. The tenor and content and the fact that
representatives ofthe three companies signed the document
cannot be ignored simply on the basis of an uninformed
concession made at the bar. Therefore, the question whether two
Indian companies could enter into an agreement to be governed
by the laws of another country would not arise in this case. [Para
25)(832-A-E; 833-A)
1.6 So long as the obligations arising under the
AGREEMENT-I subsists and the American company is not
discharged of its obligations under the AGREEMENT-I, there is
a 'foreign element' therein and the dispute arising therefrom.
The autonomy of the parties in such a_ case to choose the
governing law is well recognised in law. In fact, Section 28(l)(b)
of the 1996 Act expressly recognizes such autonomy. [Para
2611833-B-C]
1.7 Part-II of the 1996 Act is headed ."Enforcement of
Certain Foreign Awards". It contains provisions (Section 44 to
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SASAN POWER LIMITEDv. NORTH AMERICAN COAL
CORPORATION INDIA (P) LTD.
60 divided into two Chapters I and II) dealing with the
enforcement of foreign awards falling under two categories i.e.
New York Convention Award and. Geneva Convention Awards.
Sections ~4 to 52 (falling under Chapter I) deal with the New
York Convention Awards, the remaining sections (falling under
Chapter-II) deal with Geneva Cqnvention Awards. Both the
classes of Awards are referred to as "foreign· awards"· in Chapters
I and II of Part-II. Section 44(a) and 53(a) define the expression
"foreign award" for the purposes of Chapters I and II. Var!ous
conditions which render a foreign award unenforceable are
specified in Sections 48 and 57 respectively. The other provisions
deal with matters incidental to the enforcement of foreign awards.
It is significant to note that Part II does not deal with any matter
pertaining t.o any step anterior to the making of an (foreign) arbitral
award. [Para 31][834-G; 835-A-D)
1.8 From a plain reading of Part I of the 1996 Act, having
regard to the scheme of the Act and language of Section 2(2),
Part I of the Act applies to all arbitrations which take place in
India. Itis irrelevant whether any one of the parties to such
arbitration agreement is an Indian entity (either a citizen or body
corporate incorporated in India etc.) or not, If two non-Indian
entities agree to have their disputes resolved through the process
of arbitration with seat of arbitration in India, such an arbitration
would obviously be governed by the provisions of Part I of the
Act. By virtue of the law declared by this Court in Bllatia
International case, even if the seat of arbitration is not in India, if
one of the parties to such arbitration is an Indian entity, Part I
would apply unless parties by an agreement in such a case choose
to exclude the application of all or some of the provisions of Part
I by an agreement. [Para 37)(837-D-F; 838-A]
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1.9 Whether an arbitration agreement is exclusively
governed by the provisions of either Pari-ror by Part-II of the
1996 Act or both, judicial authorities seized of an action in respect
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of which there exists an arbitration agreement are bound to refer
the dispute between the parties to arbitration and are precluded
under Sections 8 and 45 from adjudicating the dispute (of course)
subject to throther conditions stipulated in the two sections.
(Para 40][839-C)
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[2016] 6 S.C.R.
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1.10 The instant appeal arises out of an order In
·· ·· Interlocutory Application No.5 of 2015 filed by the respondent in
the suit filed by the appellant. In the Interlocutory Application,
the respondent made two prayers, to reject the plaint in the suit
filed by the appellant being barred by law; and to refer the dispute
B ·between the appellant and the respondent to arbitration as
contemplated under the AGREEMENT. In substance, the plea
is that the suit is barred by virtue of Section 45 of the 1996 Act
and, therefore, the plaint is liable to be rejected. It can be seen
from Section 45 that a judicial authority in this country when
seized of an action in a matter in respect of which the parties
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have made an agreement referred to in Section 44 "shall refer
the parties to arbitration" at the request of one of the parties to
the agreement. The agreement referred to in Section 45 is one
contemplated in Section 44. Section 44 contemplates an
arbitration agreement to which the New York Convention applies.
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Section 45, permits an enquiry into the question whether the
arbitration agreement is "null and void, inoperative and incapable
of being performed". [Paras 41, 42, 43)[839-D-F; 840-A-C]
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1.11 An arbitration agreement is an independent or "self
contained" agreement. In a given case, a written agreement for
arbitration could form part of another agreement, described as
the "substantive contract" by which parties create contractual
rights and obligations, The arbitration agreement is independent
and apart from the substantive contract. Notwithstanding the fact
that all such rights and obligations arising out of a substantive
contract and the agreement to have the disputes (if any, arising
out of such substantive contract) settled through the process of
arbitration are contained in the same document, the arbitration
agreement is an independent agreement. Arbitration agreement/
clause is not that governs rights and obligations arising out of
the substantive contract: It only governs the way of settling
disputes between the parties. The scope of enquiry under the
Section 45 is confined only to the question whether the arbitration
agreement is "null and void, inoperative or incapable of being
per(ormed!' but not the legality and validify of the substantive
contract. The language of the Section is plain and does not admit
of any other construction. For the purpose of deciding whether
SASAN POWER LIMITED v. NORTH AMERICAN COAL
CORPORATION INDIA (P) LTD.
the suit filed by the appellant is maintainable or impliedly barred
by Section 45 of the 1996 Act, the Court is required to examine
only the validity of the arbitration agreement within the
· parameters set out in Section 45, but not the substantive contract
of which the arbitration agreement is a part. [Paras 45, 46,
47)(840-F; 841-A-F)
1.12 If it is impermissible for a civil court to examine
whether a dispute is really covered by the arbitration agreement,
there is no reason to hold that a civil court exercising jurisdiction
under Section 45 could examine the question whether the
substantive agreement (of which the arbitration agreement is a
part) is a valid agreement. [Para 48](842-E)
.
1.13 The stipulation regarding the governing law contained
in Article XII Section 12.1 is an independent stipulation applicable
to both the substantive agreement and the arbitration agreement.
Either of the agreements can survive in an appropriate case
without the other. The judicial forum before which the dispute (if
any arises) falls for adjudication is normally obliged to apply such
chosen governing law - a principle of international law recognised
by this Court. Similarly, it is possible in a given case, parties to a
substantive contract in a cross border transaction agree for the
resolution of the disputes, if any, to arise. out of such contract
through arbitration without specifying the governing law. In such
case, it would be the duty of the arbitrator to ascertain the "proper
law" applicable to the case in terms of the established principles
of international law. It is also possible that in a given case parties
agree that the governing law of the substantive contract be that
of one country and the governing law of the arbitration agreement
be of another country. In all of the cases, the validity of either of
the clauses/agreements does not depend upon the existence of
the other. Therefore, the examination of the question of
consistency of Article X Section 10.2 (part of the substantive
contract) with Section 23 of the Contract Act are beyond the scope
of the enquiry while adjudicating the validity of the arbitration
agreement either under Section 45 or Section 8 (amended or
original) of the 1996 Act. [Para 49)(842-G-H; 843-A-D)
>
1.14 Relief No.(iv) claimed in the suit of the appellant, for
decree of declaration "against the defendant", respondent herein,
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SUPREME COURT REPORTS
(2016] 6 S.C.R.
that Article XII of AGREEMENT-I is "null and void, inoperative
and unenforceable", is also based on the assumption that the
dispute is exclusively between the appellant and the ·respondent,
and therefore, there could not be an agreement between them
for arbitration of their disputes arising out of the substantive·
agreement to be governed by the laws of the United Kingdom.
In view of the conclusion that the dispute is not exclusively
between two parties to the suit, such a relief could not be given
in the suit, because the prayer itself is misconceived. [Para
50][843-E-F; 844-AJ
Ja.ffer Meher Ali v. Budge-Budge Jute Mills Co. ILR
(33) Cal 702; Bharat Aluminium Company v. Kaiser
Aluminium Technica!Services Inc. etc. 2012 (12) SCR
327: (2012) 9 SCC 552; Bhatia International V: Bulk
Trading S.A. & Another 2002 (2) SCR 411: (2002) 4
SCC 105; Venture Global Engg. v. Satyam Computer
Services Ltd. 2008 (1) SCR 501: (2008) 4 SCC 190;
Union of India v. Reliance Industries Limited & Others
2015 (10) SCR 85: (2015) 10 SCC 213; Hindustan
Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums
(2003) 6 SCC 503; Reliance Industries Limited &
Another v. Union of India 2014 (6) SCR 456: (2014) 7
sec 603 - referred to.
Tolhurst v. The Associated Portland Cement
Manufadurers Limited (1903) AC 414; Scarf v. Jardine
(1882) 7 App. Cas. · 345; AuJ{hton Ltd. v. MF Kent
Services Ltd. (1991) 57 BLR 1 (CA); Bremer Vulkan v.
South India Shipping [1981 J AC 909; T. W. Thomas &
Co. Ltd. v. Portsea Steamship Co. Ltd. (1912) AC 1 -
referred to.
Law of Assignment by A.G Guest and Trng Kiwi Liew,
Guest, Sweet and Maxwell, UK 2nd edn. pp I - referred
to.
Per Abbay Manohar Sapre, J.: (Supplementing)
HELD: 1.1 Examination of the Agreements shows that
Agreement-I is a bi-party agreement between an Indian Company
(appellant) and American Company (NAC) whereas Agreement-
SA SAN POWER LIMITED v. NORTH AMERICAN COAL
817
CORPORATION INDrA (P) LTD.
II is a tri-partite agreement between the three companies viz.,
two Indian companies (appellant and the respondent-NACClndia) and third-an American company(NAC). The Agreement-II
recognizes transfer of the rights of the original contractee, i.e.,
American Company (NAC)·coupled with their obligations specified
in the Agreement-I. The obligations specified in the Agreement-
! are not fully performed much less to the satisfaction of the parties
concerned but are still to be performed. inter se qua each other. h.
By virtue of the terms of the Agreement-II, the parties are still
under obligation to perform and, if necessary, enforce their
respective rights and obligations arising out of Agreement-I
against each other depending upon the nature of breaches when
committed by any of the parties. Agreement-II appears to be in
the nature of amendment to the Agreement-I because while
recognizing the existence of Agreement-I parties have
incorporated some new clauses and added one new party to the
Agreement-II, i.e., the respondent (NACC-India. In view thereof,
the Agreement-II is not a "Deed of Assignment". It seeks to
transfer interest in the contract with burden, i.e., obligations of a
contracting party. [Paras 11, 12)(846-D-H; 847-A-B]
1.2 In view of the said, sections 1~.1 and 12.2(a) to ~t) of
Article XII of the Agreement-I become a part of Agreement-II.
A fortiori, all the three parties to the Agreement-II are then bound
. or/and become entitled to take recourse to Article XII and
Sections 12.1, 12.2(a) to (t) of the Agreement-I for enforcement
of their respective rights and obligations against each other in
terms of respective clauses of Agreement-I and Agreement-II.
[Paras 13, 14)(847-C-D]
1.3 Reading of Agreement-I and Agreement-II also does
not indicate that any novation of contract has emerged inter se
parties. It is for the reason that in order to constitute a "Novation
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of contract", it is necessary to prove, in the first place, that the
contract is in existence and second, such contract is substituted . G
by a new contract either by the sa~e parties or different parties
with a mutual consideration of discharge of the old contract. In
other words, the novation of cimtract comprises of two elements.
First is the discharge of one debt or debtor and the second is the
substitution of a new debt or debtor. The novation is not complete
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SUPREME COURT REPORTS
[2016] 6 S.C.R.
unless it results in substitution, recession or extinguishment of
the previous contract by the new contract. Mere variation of some
terms of a contract does not constitute a novation. [Paras 15,
16)(847-E-G)
Indian Contract and Specific Relief Acts by Pollock &
Mulla I 3'h Edn. pp. 1225-1226 - referred to.
1.4 Execution of Agreement-II has not resulted in
substituting or rescinding or extinguishing Agreement-I. On the
other hand, it recognized the existence of Agreement-I and
resulted in its amendment by adding some new clauses and one
party. In these circumstances, it cannot be held that as a result of
execution of Agreement-II, novation of contract has come in to
be inter se parties. [Paras 17, 18)(847-G-H; 848-A)
1.5 NAC is an American company and being a party to
Agreement-I as also to Agreement-JI along with two Indian
companies (appellant and the respondent), a fortiori, Agreement-
! and Agreement-II become an "international commercial
arbitration" within the meaning of Section 2(t) of the Act which,
in clear terms, provides that if one of the parties to the agreement
is a foreign company then such agreement would be regarded as
"international commercial arbitration". [Para 20)(848-B-D]
1.6 Article XII of Agreement-I deals with governing law
and dispute resolution. It consists of Sections l2.1 and 12.2(a) to
(t). Section 12.1 provides that the agreement shall be governed
by laws of U.K whereas Section 12.2(a) provides that firstly, all
the disputes shall be resolved by ICC as per ICC rules; that the
place of arbitration shall be London; and the provisions of part I
of the Act would not apply to the. arbitration in question. Sections
12.1 and 12.2(a) of Article XII arc in conformity with the law laid
down in * B/tafift International case and thus satisfy the test laid
down. These sections arc, therefore, capable of being given effect
to in the manner provided therein by the parties inter sc for
deciding their disputes, which have arisen between them in
relation to Agreement-I and Agreement-II. [Paras 22, 23)(848H; 849-A-C)
1.7 Mere reading of Section 45 would go to show that the
use of the words "shall" and "refer the parties to arbitration" in
SASAN POWER LIMITEDv. NORTH AMERICAN COAL
CORPORATION INDIA (P) LTD.
the Section makes it legally obligatory on the court to i:efer the
parties to the arbitration once it finds that the agreement in
question is neither null and void nor inoperative and nor incapable
of being performed. In other words, once it is found that the .
agreement in question is a legal and valid. agreement, which is
capable of being performed by the parties to the suit, the court
. has n.0 discretion but to pass an order by referring the parties to
the arbitration in terms of the agreement. [Para 26)(849-F-G)
1.8 The trial court though allowed the application filed by
the respondent under Section 45 of the Act by recording the
findings thatthe agreement in question is legal and proper and
capable of being performed butit did not pass any consequential
order as required under Section 45 by referring the parties to
the arbitration in terms of.Se~tion 12.2(a) and instead simply
dismissed the suit as not maintainable. Thus, the order is modified
to this extent only so as to make the order in conformity with the
requirement of Section 45 of the Act. [Paras 27, 28)(849-H; 85(1A-B)
Jaffer Meher Ali v. Budge-Budge Jute Mills Co. (1906)
ILR 33 (Calcutta) 702 - approved.
*Bhatia International v. Bulk Trading S.A. & Ors. 2002
(2) SCR 411: (2002) 4 SCC 105; Bharat Aluminimn
Company v. Kaiser Aluminium Technical Services Inc.
2012 (12) SCR 327: (2012) 9 sec 552; Pandit
Chunchun Jha v. Sheikh Ebadat Ali & Anr. AIR 1954
SC 345: 1955 SCR 174 - referred to.
Tramfer of Property Act, I 882 by Sri D.F. Muff a I J 1h
Edn. I 028 - referred to.
Case Law Reference
In the Judi:ment of Chelameswar2 J.
(1906) ILR 33 (Calcutta) 702 referred to
Para 19
2012 (12) SCR 327
referred to
Para28
2002 (2) SCR 411
referred to
Para33
2008 (1) SCR 501
referred to
Para 34
2015 (10 ) SCR 85
referred to
Para38
(2003) 6 sec 503
referred to
Para 48
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In the Judgment of Abbay Manoh@r Sapre, J.
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2002 (2) SCR 411
referred to
Para 4
2012 (12) SCR 327
referred to
Para 4
1955 SCR 174
referred to
Paras
(1906) ILR 33 (Calcutta) 702 approved
Para 9
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8299
· of2016.
From the Judgment and Order dated 11.09.2015 of the High Court
of Madhya Pradesh, Principal Seat at Jabalpur in First Appeal No. 310
of2015.
F. S. Nariman, Sr. Adv., Subhash Sharma, Mahesh Agarwal, Ms.
Megha Mehta Agrawal, Abhinav Agrawal, Rishabh Parikh, E. C.
Agrawal a, Advs. for the Appellant.
Gopal Subramaniam, Sr. Adv.,Anirudh Krishnan, Balaji Srinivasan,
AnkitAgrawal, MayankKshirsagar, Ms. Srishti Govil, Keerhikiran Murali,
Ms. Vaishnavi Subrahmanyam, Ankur Kashyup, Amith Krishnan, Ms.
Maithreyi C. Sharma, Sujay Prasanna, Pratek Chadha, Ms. Talha A.
Rahman, Rudra Pratap, Ms. Zulnoor Ahmed, Raghav Chadha, Advs.
for the Respondent.
The Judgments of the Court were delivered by
CHELAMESWAR, J. 1. Leave granted.
2. The Appellant herein 11 company registered under the laws of
India and an American company known as North American Coal
Corporation (A Delaware Corporation) hereinafter referred to as the
'American company' entered into an agreement dated I" January, 2009
for mine and development operations hereinafter referred to as
"AGREEMENT-I".
3. Under AGREEMENT-I, the American company agreed to
provide certain consultancy and other onsite services for a mine to be
operated by the appel !ant herein in India. Article XII 1 of AGREEMENT-
' Artide XII insofar as it is relevant for our purpose reads as follows:-
'"Section 12.1 Governing Law. This Agreement shall be governed by, and construed
and interpreted in accordance with the laws of the United Kingdom without regard
to its conflict of laws principles.
Section 12.2 Dispute Resolution: Arbitration.
(a) Any and all claims, disputes, questions or controversies involving Reliance
(i.e. SASAN) on the one hand and NAC on the other hand arising out of or
in connection with this Agreement (collectively, "Disputes") which cannot be finally
SASAN POWER LIMITED v. NORTH AMERICAN COAL
CORPORATION INDIA(P) LTD. [CHELAME;SWAR, J.]
I provides for two things-(!) the governing law of the agreement, and
(2) resolution of disputes, if any to arise between the palties, by
arbitration.
'·
4. Section 12. J stipulates thal (i) the governing law of the
agreement shall be the law of the United Kingdom, (ii) the conflict of
laws principles of England will have no application while interpreting
AGREEMENT-I in accordance with the laws of the United Kingdom.
Section 12.2 stipulates the arbitrator, seat of arbitration and the procedure
to be followed in the arbitration (i) the arbitration is "to be administered
by the International Chambers of Commerce (the ICC)", (ii) the place
of arbitration shall be London, (iii) such arbitration shall be conducted in
accordance with the commercial arbitration rules of the ICC, in effect
at the time of the arbitration.
5. Article XV Section 15.6 of the AGREEMENT-I provides for
assignment:
"Article XV Section 15.6. Successors and Assigns. This
Agreement may be assigned by NAC to any Affiliate
of NAC; with the previous written consent of
Reliance, which consent shall not be unreasonably withheld.
Without the written consent ofNAC, which consent shall
not be unreasonably withheld, Reliance shall not assign its
rights under this Agreement or cause its obligations under
this Agreement to be assumed by any other person. No
assignment or other transfer shall release the assignor from
its obligations or liabilities hereunder. Any assignment in
violation of the foregoing shall be null and void ab initio.
This agreement shall be binding upon and inure to the benefit
of the parties hereto and their successors and permitted
assigns."
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6. On 1.4.2011, the appellant, the American company and the
respondent herein, which is an Indian Company and a fully owned
subsidiari of the American company entered into an agreement
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(hereinafter AGREEMENT-II). By the said agreement, the American
resolved by such parties within 60 (sixty) days of arising by amicable negotiation
shall be resolved by final and binding arbitration to be administered by the International
Chamber of Commerce (the •·JCC') in accordance with its commercial arbitration rules
then in effect (the "Rules"). The place of arbitration shall be London, England.
2 Section 4 of the Companies Act.
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[2016] 6 S.C.R.
company purported to assign' all its rights and obligations with the consent
of the appellant to the Indian Company with effect from 1.4.2011. A
fact which is significant in the context of the questions argued in this
appeal is that all the three signatories to the AGREEMENT-II agree
thattheAmerican company is not relieved ofits obligations and liabilities.
7. Disputes arose between the appellant and the respondent. The
respondent by its letter dated 23.7.2014 purported to terminate the
AGREEMENT-I. Thereafter, the respondent made a request for
arbitration on 08.08.2014.
8. The appellant herein filed a suit (Suit No.4A of 2014 in the
Court of the District Judge, Singrauli, Madhya Pradesh) seeking various
reliefs. The reliefs insofar as they are relevant for our purpose are as
follows:-
(i) Pass a decree of declaration in favour of the Plaintiff
declaring Section 10.2 of the Agreement dated
01.01.2009 as null, void, inoperative and unenforceable.
(ii) Pass a decree of declaration declaring that the invoices
raised by the defendant upon the plaintiff dated
defendant's invoices dated 01.10.2013, 02.01.2014,
01.04.2014, 11.04.2014, 16.01.2014, 11.04.2014,and four
invoices dated 21.07.2014 as also Section I 0.2 of the
Agreement are illegal, null and void and unenforceable.
(iii)Pass a decree of declaration declaring that not even a
default having occurred as per Section 8.1, the letter of
tennination dated 23. 7.2014 is illegal, null and void and
inoperative and issuance of such a letter amounts to a
breach of the contract by the defenda,nt.
(iv)Pass a Decree of Declaration in favour of the Plaintiff
and against the Defendant, thereby declaring the
Governing Law and Arbitration Ag~eement being Article
' "ASSIGNMENT AND ASSUMPTION
(I) NAC hereby transfers and assigns all of NAC's rights and obligations under
the Agreement to NACC India. NAC hereby acknowledges that, as provide3d
in Section 15.6 of the Agreement, NA C's transfer and assignment of ·all of
NAC's rights and obligations under the Agreement to NACC India does
not release NAC, as assignor, from its obligations or liabilities under the
Agreement.
SASAN POWER LIMITEDv. NORTH AMERICAN COAL
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CORPORATION INDIA (P) LTD. [CHELAMESWAR, J.]
XII of the Agreement as null, void, inoperative and
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unenforceable; and that the Arbitration Agreement has
no legal and binding force in the eyes of Law;
(v)Pass a decree for Permanent Injunction, in favour of
the Plaintiff and against the Defendant, thereby
restraining the Defendant or any other person on its
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behalf in any manner proceeding or continuing with the
arbitration proceedings (bearing No.20432ff0) initiated
by Defendant before the ICC in London against the
Plaintiff.
(vi) Pass a decree of declaration that Request for Arbitration
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dated 8.8.2014 is null and void being contrary to Indian
law.
9. It is relevant to take n<_?te of two facts. There is no prayer with
respect to the AGREEMENT-II. The American company is not a party
to the suit, inspite of the fact that the I" relief sought in the suit is for a
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declaration of the illegality of one of the clauses of AGREEMENT-I to
which only the appellant and American company are parties
In the said suit, an ex-parte order came to be passed on 11.11.2014
injuncting the rec from proceeding with the arbitration.
10. Thereafter, the respondent filed two applications, one (I.A.
No.5115) under Order 7 Rule 11 ( d) CPC read with Section 45 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as" 1996
Act") praying that the dispute be referred to arbitration and the second
(I.A. No. 4115) under Order 39 Rule 4 CPC seeking vacation of the
injunction order. The applications were contested by the appellant
unsuccessfully. The suit was dismissed. The operative portion of the
judgment reads:
"On the basis of the above discussions, the application filed
(2) NACC India hereby accepts tlie transfer and assignment of all of NAC's
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rights and hereby assumes all of NAC's obligations under the Agreement.
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and hereby agrees to perform such obligations in accordance with the terms of
the Agreement.
CONSENT TO ASSIGNMENT AND ASSUMPTION
(3) Reliance hereby consents to NAC's transfer and assignment of all of NA C's
rights and obligations under the Agreement to NACC India, and agrees that
hereafter NACC India shall have the right to enforce all of NAC's rights
under the A2reement."
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[2016] 6 S.C.R.
by the defendant/applicant as I.A. No.5 under Order 7 Rule
11-D CPC read with Sec. 45 of the Arbitration and
Conciliation Act, 1996 is allowed, resultantly the present
plaint of the plaintiff is rejected. I.A. No.4 under Order
39 Rule 4 CPC is also allowed on the same ground on which ,_
I.A. No.5 has been allowed. Resultantly, the orders/
directions of this Court dated 11.11.2014 and 2.12.14, 7.1.15
and 11.3.15, restraining the defendant from proceeding
further with the arbitration proceeding No.20432/T.O.
before ICC, London are set aside."
Aggrieved by the same, the appellant carried the matter to the
High Court of Madhya Pradesh. The High Court dismissed the appeal
and held:
"71._Fiiially, we may observe that once it is found by us that
parties by mutual agreement have decided to resolve their
disputes by arbitratiotund when then on their own, chose
to have the seat of arbitration in a foreign country, then in
view of the provisions of Section 2(2) of the Act of 1996,
Patt I of the Act, will not apply in a case where the place
of arbitration is not India and if Patt I does not apply and if
the agreement in question fulfills the requirement of Section
44 then Part II will apply and when Part II applies and it is
found that agreement is not null or void or inoperative, the
bar created under Section 45 would come into play and if
bar created under Section 45 comes into play then it is a
case where the Cornt below had no option but to refer the
parties for arbitration as the bar under Section 45 would
also apply and the suit itself was not maintainable.
72. Accordingly, in the facts and circumstances, we find no
error in the order passed by the learned District Judge,
warranting record deration.
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73. Appeal is therefore, dismissed. No order on costs."
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Hence the present appeal.
11. One of the grounds of appeal is that the High Court has
erroneously rejected the contention of the appellant that two Indian
companies are prevented from entering into an agreement for arbitration
SA SAN POWER LIMITED v. NORTH AMERICAN COAL
CORPORATION INDJA (P) LTD. [CHELAMESWAR, J.]
of their dispute to be seated outside India. We do not find from the
impugned judgment anything to indicate that such a submission was made
before the High Court. On the other hand, learned counsel for the
appellant specifically submitted during the course of the argument before,
us that he is not making that submission before us.
12. The argument before us was confined only to the question
whether two Indian companies can enter into an agreement with a
stipulation that their agreement "be governed by, construed and interpreted
in accordance with the laws of the United Kingdom". Various
submissions incidental to that main submission were made and would be
taken note of at the appropriate place.
13. Parties have filed written submissions after the conclusion of
the arguments before this Court. In the written submissions filed by the
appellant, it is stated that three questions "of general importance arise
for the consideration and decision of this Court" and they are;
Q.( I) Whether it is permissible under the consolidated
Indian law of arbitration (now contained in the
Arbitration and Conciliation Act 1996) for two Indian
Companies (each incorporated and registered in
India) to agree to refer their commercial disputes
(that might arise between them) to a binding
arbitration, (ad hoc or institutional), with place of
arbitration outside India, and with governing law
being English law?
Q.(2) Whether two Indian companies, Sasan Power Ltd.
and NACC India Ltd., each qf whom have been
incorporated and registered in India could in law be
said to have "made an agreement referred to in
Section 44" of the 1996 Act, so as to confer
jurisdiction and authority on the competent Court
(District Court ofSingrauli, Madhya Pradesh) to refer
the parties to ICC arbitration irfLondon under Section
45 of the Arbitration and Conciliation Act 1996?
Q.(3) Whether the arbitration agreement in Clause XII was
invalid and void for being in breach of Clause (a) of
·· Section 28 of the Indian Contract Act 1872 (not being
saved by the Exception Clause), and also void
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because of the provisions of Section 23 of the Indian
Contract Act, 1872, and hence not referable to
arbitration under Section 45 of the Arbitration and
Conciliation Act, 1996?
14. We presume that Question No.I insofar as it pertains to the
"place of arbitration" found its ·way into the written submission by
oversight as the said submission was expressly given up at the time of
the argument. From the questions projected by the appellant, it can be
seen that the entire case of the ,appellant is built up on the assumption
that the parties to the arbitration agreement are only two Indian companies.
The substance _of the other two questions is that parties herein (two
Indian companies) could not enter into an agreement with a stipulation'
that the governing law for the construction and interpretation of the
AGREEMENT-I to be the law of United Kingdom. The appellant also
raise a further question that in view of the fact that both the parties to
the dispute in the arbitration• being companies registered in India whether
the respondent could have invoked Section 45 of the 1996 Act and the
courts below were justified in. referring the dispute to arbitration
purportedly in discharge of the statutory obligation under Section 45.
15. The basic prayer in the suit is.twofold i.e. for dec!aration that
Article X Section I 0.2 and Article XII of the AGREEMENT"! are null
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and void. The remaining prayers in the suit are either incidental or ancillary
to these two prayers. The appellant's grievance regarding the Article X,
Section I 0.2 is to be found in paragraphs 39-41.5 According to the
copies df the plaint supplied to us by the appellant, Section I 0.2 of
'Admi(tedly.