2016 Supreme(SC) 659

SUPREME COURT OF INDIA
ABHAY MANOHAR SAPRE, J. CHELAMESWAR, JJ.
Sasan Power Limited – Appellant
Versus
North American Coal Corporation India Private Limited – Respondent
Civil Appeal No. 8299 of 2016 (Arising out of SLP (C) No. 33227 of 2015)
Decided On : 24-08-2016

MAIN POINTS
Assignment and novation discussed.
Agreement signed by at least one foreign company becomes international commercial agreement.
Cases between Bhatia International and BALCO have to be decided if it falls in Part I or II of the Act.
Scope of enquiry u/s 45 is confined only to whether the arbitration agreement is "null and void, inoperative and incapable of being performed". Section 45 does not permit adjudication on legality and validity of the substantive contract.

Headnote:Per Chelameswar, J.

       (a) Words and phrases – Assignment – Means transfer from one person to another the whole or part of an existing right or interest in intangible property presently owned by the assignor – Right or interest itself is not extinguished – Assignment of benefit of the contract is permissible where the consideration has been executed – Contracts where mutual obligations remain unenforced and whole consideration is not executed cannot be assigned – In such case original contractee cannot be discharged and he cannot create privity or quasi privity with a substituted person – Instantly, mutual obligations arising out of AGREEMENT-I remain to be enforced – Original contractee, i.e., American company cannot claim to have been discharged from obligations under Agreement I – Appellant, by Agreement II, creating only an agency retaining its rights to enforce obligations under Agreement I – Agreement II not an assignment. (Para 19, 20)

       1902 2 K.B. 660; (1903) AC 414 – Relied upon

       (b) Agreement – Novation – No agreement between American company and respondent company prior to Agreement II – There cannot be any novation of Agreement I by American company – Obligations under Agreement I owed by American company to appellant not discharged by Agreement II – Hence, respondent not stepping into shoes of American company. (Para 21, 23)

       (1882) 7 App. Cas. 345, 351 – Relied upon

       © Arbitration law – Governing law – Instantly, adjudication necessarily involving examination of Agreement I and II – Dispute, thus between three parties, one being American – Agreement II signed by three companies, one being American – Agreement cannot be said to be between only two Indian companies – Question whether two Indian companies could enter into an agreement to be governed by the laws of another country would not arise. (Para 24, 26)

       (d) Indian Evidence Act, 87 – Section 65 – Fact in issue – Representatives of three companies signing Agreement II – Counsel for respondent making concession before High Court that the Agreement II is by parte agreement – Concession at bar cannot partake nature of secondary evidence – Not admissible – Tenor and content of agreement cannot be ignored on basis of concession made at the bar. (Para 25)

       (e) Arbitration and Conciliation Act, 996 – Section 28(1)(b) – Recognises autonomy of parties to chose then governing law – Parties agreeing to be governed by law of UK – Obligations arising under the Agreement I subsisting – American company not discharged of its obligations under the Agreement I – `Foreign element' present in agreement and dispute arising therefrom – No infirmity in choosing governing law. (Para 26)

       (f) Arbitration and Conciliation Act, 1996 – Part I and II – Whether award can be considered domestic or foreign or both – Bhatia International laving the question open – BALCO settling the issue but it making it prospective – Cases in the interregnum have to be decided if it falls in Part I or II. (Para 38)

       (2012) 9 SCC 552; (2002) 4 SCC 105; (2015) 10 SCC 213 – Relied upon

       (g) Arbitration and Conciliation Act, 1996 – Part I and II – Factors for determining whether a case falls in Part I or II – whether parties are domestic or foreign – Venue of arbitration – Whether, in a foreign seated arbitration, exclusion of Part I was agreed upon – However, judicial authorities precluded u/s 8 and 45 from adjudicating the dispute. (Para 39, 40)

       (h) Arbitration and Conciliation Act, 1996 – Section 45 – Scope of enquiry – Confined only whether the arbitration agreement is "null and void, inoperative and incapable of being performed" – Arbitration agreement an independent agreement – May form part of another agreement – It only governs the way of settling disputes between the parties – Section 45 does not permit adjudication on legality and validity of the substantive contract. (Para 43, 45, 46, 48)

       (2003) 6 SCC 503 – Relied upon

       (1991) 57 BLR 1 (CA); [1981] AC 909; (1912) AC 1 – Referred

       (i) Section 45 – Governing law of substantive contract and arbitration – Both can survive without the other – Scope of section 45 confined to arbitration agreement only – Contention that Article X Section 10.2 (part of the substantive contract) is hit by Section 23 of the Contract Act – appellant thus raising issue of legality of substantive contract – Such determination beyond scope of section 45 – Contention rejected. (Para 47, 49)

       (2014) 7 SCC 603; (2015) 10 SCC 213 – Relied upon

       Per Abhay Manohar Sapre, J. (Concurring)

       (j) Interpretation – Deed – Intention of parties – To be gathered from document itself – Enquiry into surrounding circumstances permissible only when language of document is ambiguous. (Para 55)

       AIR 1954 SC 345 – Relied upon

       (k) Interpretation – Agreement – Agreement I between appellant-Indian company and an American company NAC – Agreement II between appellant, respondent-Indian company and NAC – Agreement II styled as "Assignment and Assumption Agreement" – What can be assigned – Benefits of the contract but not the burden – Agreement II transferring rights with obligations – Not an assignment – Agreement adding some clauses to Agreement I with addition of one more party – It is an amendment of Agreement I. (Para 56, 61, 62)

       AIR 1954 SC 345 – Relied upon

       (1906) ILR 33 (Calcutta) 702 – Cited with approval

       (l) Interpretation – Agreement – Agreement II a tri-partite agreement – In the nature of amendment of Agreement I – Sections 12.1 and 12.2(a) to (f) of Article XII of the Agreement-I become a part of Agreement-II. (Para 63)

       (m) Words and Phrases – Novation – Elements – Existence of a contract – And, substitution of that contract by a new contract either by the same parties or different parties with a mutual consideration of discharge of the old contract – Novation not complete 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. (Para 65, 66)

       (n) Arbitration and Conciliation Act, 1996 – Section 2(f) – Agreement I between one Indian and one American company – Agreement II between parties to Agreement I and one more Indian company – Article XII, Section 12.1 providing for the agreement to be governed by laws of U.K – Section 12.2(a) providing for resolution of all disputes by ICC as per ICC rules; place of arbitration to be at London; and the exclusion of provisions of part I of the Act – Agreement I and II become international commercial arbitration. (Para 70, 72)

       (o) Arbitration and Conciliation Act, 1996 – Section 45 – In case of a legal and valid agreement, capable of being performed by the parties to the suit, Court has no discretion but to refer the parties to arbitration in terms of the agreement – Trial court recording a finding that agreement is legal and proper and capable of being performed – Not referring parties to arbitration, instead simply dismissing the suit as not maintainable – Ought to have referred parties to arbitration – Order modified accordingly. (Para 76, 77, 78)

       Facts of the case:

       The respondent American company entered into an agreement to provide certain consultancy and other onsite services for a mine to be operated by the appellant herein in India.

       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.

       The appellant herein filed a suit in the Court of the District Judge, Singrauli, Madhya Pradesh seeking various reliefs.

       In the said suit, an ex-parte order was passed injuncting the ICC from proceeding with the arbitration.

       Thereafter, the respondent filed two applications, one (I.A. No.5/15) under Order 7 Rule 11(d) CPC read with Section 45 of the Arbitration and Conciliation Act, 1996 praying that the dispute be referred to arbitration and the second (I.A. No. 4/15) under Order 39 Rule 4 CPC seeking vacation of the injunction order. The suit was dismissed.

       The High Court dismissed the appeal.

       Finding of the Court:

       Agreement I and II are international commercial arbitration agreement.

       Agreement II is neither an assignment nor novation.

       Result: Appeal dismissed