2014 Supreme(Del) 1911

High Court of Delhi
MANMOHAN SINGH, J.
Delhi Airport Metro Express Pvt Ltd.
Versus
CAF India Pvt Ltd. & Another
I.A. No. 10776 of 2014 in CS(OS) 1678 of 2014
Decided on : 14-08-2014

The Arbitration Clause in the Maintenance Contract was valid and enforceable as it was not illegal or unenforceable under the laws of India or against the public policy of India, and the nature of the arbitration proceedings remained the same, i.e., international commercial arbitration.

Headnote:

ARBITRATION - INTERNATIONAL COMMERCIAL ARBITRATION - ARBITRATION CLAUSE - VALIDITY - PUBLIC POLICY - SECTION 5 OF THE ARBITRATION AND CONCILIATION ACT, 1996 - SECTION 14(2) OF THE SPECIFIC RELIEF ACT, 1963 - SECTION 23 AND 28 OF THE INDIAN CONTRACT ACT, 1872 - ASSIGNMENT AGREEMENT - NOVATION - JOINT PROMISSORS - SECTION 43 OF THE INDIAN CONTRACT ACT, 1872.

Fact of the Case:

Plaintiff, a Special Purpose Vehicle incorporated for operating the Delhi Airport Metro Express Line, entered into a Rolling Stock Supply Contract and a Maintenance Services Agreement with Defendant No.2, a Spanish company. The Maintenance Contract contained an Arbitration Clause providing for arbitration under the rules of the International Chamber of Commerce, Paris (ICC), with the seat of arbitration in London and excluding the application of Part I of the Arbitration and Conciliation Act, 1996 (the Act). Defendant No.2 assigned the Maintenance Contract to Defendant No.1, its wholly owned subsidiary. Plaintiff terminated the Concession Agreement and the Maintenance Contract. Disputes arose between the parties. Defendant No.1 commenced arbitration proceedings against Plaintiff at ICC, London, jointly with Defendant No.2. Plaintiff filed a suit seeking a declaration that the Arbitration Agreement was illegal, null and void, and unenforceable, and a permanent injunction restraining the defendants from pursuing the arbitration proceedings. Defendants contended that the suit was barred by Section 5 of the Act and Section 14(2) of the Specific Relief Act, 1963, and that the Arbitration Clause was valid and enforceable.

Finding of the Court:

The Court held that the assignment agreement did not novate the Maintenance Contract and that Defendant No.2 continued to be a participant in the agreement. The Court found that the nature of the arbitration proceedings remained the same, i.e., international commercial arbitration, and that the parties could not be faulted for excluding Part I of the Act. The Court also held that the Arbitration Clause was not illegal or unenforceable under the laws of India or against the public policy of India. The Court dismissed the Plaintiff's application for an interim injunction and clarified that the parties could continue with the arbitral proceedings in accordance with the law.

Issues: 1. Whether the assignment agreement novated the Maintenance Contract and discharged the obligations of Defendant No.2 under the Maintenance Contract? 2. Whether the nature of the arbitration proceedings changed from international commercial arbitration to domestic or local arbitration? 3. Whether the Arbitration Clause was illegal or unenforceable under the laws of India or against the public policy of India? 4. Whether the suit was barred by Section 5 of the Act and Section 14(2) of the Specific Relief Act?

Ratio Decidendi: 1. The assignment agreement did not novate the Maintenance Contract and Defendant No.2 continued to be a participant in the agreement. The assignment agreement was executed in furtherance of the Maintenance Agreement and not to novate or alter the same so as to discharge the obligations contained in the Maintenance Agreement. 2. The nature of the arbitration proceedings remained the same, i.e., international commercial arbitration, as Defendant No.2 continued to be a party to the Maintenance Agreement. The parties could not be faulted for excluding Part I of the Act as the proceedings were in the nature of international commercial arbitration only and not domestic or local arbitration. 3. The Arbitration Clause was not illegal or unenforceable under the laws of India or against the public policy of India. The parties had agreed to the ICC Arbitration Rules, which provided that the arbitral tribunal was empowered in all respects to decide the question related to its jurisdiction and other preliminary matters. 4. The suit was barred by Section 5 of the Act, which limits the extent of judicial interference in arbitration proceedings. The Arbitration Clause was not against the public policy of India and the parties could not be relegated to arbitrate in a foreign court excluding Indian laws altogether.

Final Decision: The Court dismissed the Plaintiff's application for an interim injunction and clarified that the parties could continue with the arbitral proceedings in accordance with the law.