TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 1508
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....nt 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 Appellant herein in India. Article XII Article 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 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 "ICC") in accordance with its commercial arbitration Rules then in effect (the "Rules"). The place of arbitration shall be London, England. of AGREEMENT-I provides for two things - (1) the governing....
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.... NAC's rights and hereby assumes all of NAC's obligations under the Agreement, 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 NAC'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 Agreement. 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 that the American company is not relieved of its 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 in....
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....under Order 39 Rule 4 Code of Civil Procedure 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 by the Defendant/applicant as I.A. No. 5 under Order 7 Rule 11-D Code of Civil Procedure read with Section 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 Code of Civil Procedure 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. Finally, we may observe that once it is found by us that parties by mutual agreement have decided to resolve their disputes by arbitration and when then on their own, chose to have....
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....tween 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 of 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 of Singrauli, Madhya Pradesh) to refer the parties to ICC arbitration in London 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 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....
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.... contract, to be likely to result from the breach of it. Section 10.2 of the Association Agreement is consequently liable to be declared null and void and set aside as being contrary to 5.7.3 of the Contract Act." Para 40- "It is submitted that the Section 10.2 should be construed as a Clause merely to prevent breach of contract, and is not a measure of damages accrued to the Plaintiff. The Section 10.2 since it puts a cap on the liquidated damages is unenforceable, illegal and liable to be declared as null and void." Para 41 "Upon a declaration by this Hon'ble Court that Section 10.2 of the said Agreement is null and void, the Plaintiff is entitled to the aforesaid damages. The Plaintiff reserves it remedy of seeking damages under Order II Rule 2 of Code of Civil Procedure and would file proceedings once a aforesaid declaration is made by this Hon'ble Court. According to the copies of the plaint supplied to us by the Appellant, Section 10.2 of AGREEMENT-I is "contrary to 5.7.3 of the Contract Act". We presume 5.7.3 refers Section 73 of the Indian Contract Act, 1872! 16. Before we examine this question of law, certain indisputable facts are to be noted: 1) The....
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....ellant in view of Section 15.6 of AGREEMENT-I. NAC hereby acknowledges that, as provided in Section 15.6 of the Agreement, NAC'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. The consent given by the Appellant herein is qualified. The 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. Therefore, the rights and obligations flowing out of AGREEMENT-II between the three parties are interdependent. What exactly are such rights and obligations and their legal implications require an elaborate enquiry and no argument in this behalf has been advanced before us. The Appellant's case that the transaction covered by the AGREEMENT-II is an assignment is a question which requires examination. Because it is neither the nomenclature adopted by the parties to an agreement nor their understanding of law that determines the true nature and the legal character of the agreement. The rights and obligations created under....
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....Manufacturers Limited (1903) AC 414 20. In the facts and circumstances of the case on hand as indicated by the record, the AGREEMENT-II appears to be falling under the 2nd of the above mentioned two classes of the contracts. There is no discharge of the original contractee i.e., the American company's obligations. 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 (See Footnote 3). AGREEMENT-II perhaps only creates an agency The Indian Contract Act though does not define the expression agency defines agent and principal Under Section 182. Section 182: An 'agent' is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the 'principal'. where the American company is the principal and the....
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....s of the United Kingdom. 24. 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-I 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. 25. At this stage, we must deal with the submission made on behalf of the Appellant that there was a concession by the Respondent before the High Court that AGREEMENT-II is not a tripartite agreement but a bipartite agreement. 20. That apart, Shri A. Krishnan, learned Counsel for the Respondent, at the very outset had admitted that the findings recorded by the learned District Judge to say that the Assignment Agreement is a tripartite agreement is not correct and the objection in this regard raised by Shri V.K. Tankha, learned Senior Advocate, may be accepted, he agrees that the same is a Bi parte agreement. What is the number of parties to a document is a question of fact. ....
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.... 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, in our opinion, the concession made at the bar by the learned Counsel (for the Respondent herein) before the High Court does not preclude the Respondent from asserting that AGREEMENT-II is a tripartite agreement. The tenor and content and the fact that representatives of the three companies signed the document cannot be ignored simply on the basis of an uninformed concession made at the bar. 26. 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. 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(1)(b) Section 28. Rules applicable to substance of dispute.- (1) ....
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....orcement in another country-the Geneva Protocol on Arbitration Clauses, 1923 and the Geneva Convention on Execution of Foreign Arbitral Awards, 1927 and the New York Convention, 1958. It also indicated how two consequential enactments known as the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 came to be made by the Parliament to give effect to the above international arrangements. 29. All the three international legal instruments dealt with the various aspects of problems which could arise out of an international commercial arbitration, such as the recognition of arbitration agreements entered into and enforcement of arbitral awards made in countries other than the one in which the arbitration agreement is entered into or award is sought to be enforced. Whereas the two enactments dealt Repealed by Section 85 of the 1996 Act. with the enforcement of "foreign awards" and matters incidental thereto in this country. 30. With the increase of international trade and commerce in the second half of the 20th Century, all the abovementioned assignments were considered inadequate and, therefore, the United Nation Commission on....
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....re to be followed by the arbitral tribunals, form and content of the arbitral awards, the forum before which and the procedure by which the arbitral award can be challenged and all matters incidental and ancillary to the above-mentioned aspect of the arbitration. 33. This Court in Bhatia International v. Bulk Trading S.A. and Anr. (2002) 4 SCC 105 considered the question whether Part 1 of 1996 Act would apply to an arbitration where the place of arbitration is outside India. The parties had a contractual relationship and the contract contained an arbitration Clause which provided that in the event of any dispute the matter would be resolved by arbitration as per the International Chamber of Commerce. Eventually, the dispute arose and the Respondent before this Court filed a request for arbitration under ICC. ICC appointed the sole arbitrator and parties agreed that the arbitration be held in Paris. The first Respondent thereafter moved an application Under Section 9 of the 1996 Act in the Court of Addl. District Judge, Indore against the Appellant. Such an application was resisted on the ground of maintainability successfully by the Appellant upto the High Court. Therefore, the ....
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....isions contained in Part II of the Arbitration Act, 1996. 196. We conclude that Part I of the Arbitration Act, 1996 is applicable only to all the arbitrations which take place within the territory of India. However, such a declaration of law was directed to operate only prospectively. Para 197 of the BALCO case reads- The judgment in Bhatia International [ (2002) 4 SCC 105] was rendered by this Court on 13-3-2002. Since then, the aforesaid judgment has been followed by all the High Courts as well as by this Court on numerous occasions. In fact, the judgment in Venture Global Engg. [(2008) 4 SCC 190] has been rendered on 10-1-2008 in terms of the ratio of the decision in Bhatia International [(2002) 4 SCC 105]. Thus, in order to do complete justice, we hereby order, that the law now declared by this Court shall apply prospectively, to all the arbitration agreements executed hereafter. 35. In view of the law laid down in BALCO, it is the submission of the Appellant that since the AGREEMENT-I and AGREEMENT-II are anterior to BALCO judgment, the case on hand is governed by the law declared by this Court in Bhatia International (supra). 36. The case of the Appellant has been th....
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....der both parts of the 1996 Act. Bhatia International never declared that the arbitration agreement falling under the scope of Part-I of the 1996 Act would automatically cease to fall under Part-II of the 1996 Act. On the other hand there are observations to the contra.See paras 26 and 32 of Bhatia International A recent judgment of this Court Union of India v. Reliance Industries Limited and Ors. (2015) 10 SCC 213 15. However, this Court in Bhatia International v. Bulk Trading S.A. (2002) 4 SCC 105, resurrected this doctrine of concurrent jurisdiction by holding, in para 32, that even where arbitrations are held outside India, unless the parties agree to exclude the application of Part-I of the Arbitration Act, 1996, either expressly or by necessary implication, the courts in India will exercise concurrent jurisdiction with the court in the country in which the foreign award was made. Bhatia International was in the context of a Section 9 application made under Part I of the 1996 Act by the Respondent in that case for interim orders to safeguard the assets of the Indian company in case a foreign award was to be executed in India against it. The reductio ad absurdum of this doct....
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....4A of 2014 as being barred by law and pass any other Orders that this Court may deem fit in the interest of justice. (i) to reject the plaint in the suit filed by the Appellant being barred by law; and (ii) to refer the dispute between the Appellant and the Respondent to arbitration as contemplated under the AGREEMENT. 42. Insofar as the first of the abovementioned two prayers is concerned, the applicant's/Respondent case is to be found at para Nos. 16 and 17 of the application. 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. Section 45 reads as follows: 45. Power of judicial authority to refer parties to arbitration.- Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. It ....
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....e substantive contract'. These are the words of Lord Diplock in Bremer Vulkan v. South India Shipping [1981] AC 909. It is a self-contained contract, even though it is, by common usage, described as an "arbitration clause". It can, for example, have a different proper law from the proper law of the contract to which it is collateral. This status of "self-contained contract" exists irrespective of the type of substantive contract to which it is collateral. by which parties create contractual rights and obligations. 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. See T.W. Thomas and Co. Ltd. v. Portsea Steamship Co. Ltd. (1912) AC 1 46. In our opinion, the scope of enquiry (even) under the Section 45 is confined only to the q....
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....bitration Clause to the facts of the case, the same will have to be raised before the Arbitral Tribunal concerned. ... the courts below ought not to have proceeded to examine the applicability of the arbitration Clause to the facts of the case... If it is impermissible for a civil court to examine whether a dispute is really covered by the arbitration agreement, we see 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. No doubt that HPCL case was in the context of the bar contained in Section 8 of the 1996 Act. But the same principles of interpretation apply even for the interpretation of Section 45. 49. 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. For example, if in a given case, (of a across border contract) parties can agree upon for the governing law but do not have any agreement for settlement of dispu....
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....ef No. (iv) claimed in the suit of the Appellant is for decree of declaration "against the Defendant", Respondent herein, that Article XII of AGREEMENT-I is "null and void, inoperative and unenforceable". Obviously Prayer No. (iv) 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 our 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. 51. In view of the above, we see no reason to interfere with the conclusions recorded by the courts below. The appeal is, therefore, dismissed with costs. Abhay Manohar Sapre, J. 52. I have had the advantage of going through the elaborate, well considered and scholarly draft judgment proposed by my esteemed Brother Jasti Chelameswar, J. I entirely agree with the reasoning and the conclusion, which my erudite Brother has drawn, which are based on remarkably articulate process of reasoni....
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.... which they used. If, however, there is ambiguity in the language employed, then it is permissible to look to the surrounding circumstances to determine what was intended. 57. Perusal of Agreement-I indicates that it is executed between the Appellant (an Indian company) and the American Company (NAC) whereas Agreement-II indicates that it is executed between the Appellant, Respondent (NACC-an Indian Company) and an American Company (NAC). Secondly, the Agreement-II is styled as "Assignment and Assumption Agreement". 58. The question that arises for consideration is whether Agreement-II is a "Deed of Assignment"? While dealing with the principles relating to transfer of actionable claims Under Section 130 of the Transfer of Property Act, 1882, the learned author Sir D.F. Mulla in his celebrated commentary on Transfer of Property Act (11th Edition page 1028) dealt with the issue of "Assignment of Contracts" and explained its meaning and further explained as to what can be assigned by the contract. 59. The learned author said, "The benefit of a contract can be assigned but not the burden, for the promisor cannot shift the burden of his obligation without a novation." 60. The learn....
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....ed some new clauses and added one new party to the Agreement-II, i.e., the Respondent (NACC-India) herein. 63. Keeping in view the aforementioned facts which, in my view, emerge from the reading of two agreements and applying the aforementioned principle of law, I am of the considered opinion that the Agreement-II is not a "Deed of Assignment". It is, inter alia, for the reason that it seeks to transfer interest in the contract with burden, i.e., obligations of a contracting party. 64. In my considered opinion, once it is noticed that firstly, the Agreement-II is a tri-partite agreement between the Appellant-an Indian company, the Respondent-an Indian company (NACC-India) and the original contractee party, i.e., an American Company (NAC) and secondly, the Agreement-II is essentially in the nature of an amendment to the Agreement-I, Sections 12.1 and 12.2(a) to (f) of Article XII of the Agreement-I become a part of Agreement-II. 65. 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 (f) of the Agreement-I for enforcement of their respective rights and obligations against each ot....
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....and would be governed by the law laid down in the case of Bhatia International (supra) because the case at hand arose prior to Balco regime. The law laid down in Bhatia International is contained in para 32, which reads as under: 32. To conclude, we hold that the provisions of Part I would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I. In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case the laws or Rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or Rules will not apply. (Emphasis supplied) 73. Article XII of Agreement-I deals with governing law and dispute resolution. It consists of Sections 12.1 and 12.2(a) to (f). 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 sha....