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Sasan Power Limited v. North American Coal Corporation India Private Limited - (Supreme Court) (24 Aug 2016)

Two Indian firms may conduct arbitration outside Country and under a foreign law, if there was an agreement to that effect



Disputes arose between Appellant and Respondent. Respondent by its letter purported to terminate AGREEMENT-I. Thereafter, Respondent made a request for arbitration. Appellant filed a suit in Court of District Judge. In said suit, an ex-parte order passed injuncting ICC from proceeding with arbitration. Thereafter, Respondent filed applications, praying that dispute be referred to arbitration and seeking vacation of injunction order. Suit was dismissed. Aggrieved by same, Appellant carried matter to High Court of Madhya Pradesh. High Court dismissed appeal and held that once it is found that parties by mutual agreement have decided to resolve their disputes by arbitration and 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, Part 1 of the Act, will not apply in a case where the place of arbitration is not India and if Part 1 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 Court 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.

Adjudication of dispute raised by Respondent in arbitration would necessarily involve examination of rights and obligations of 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 American company. Hence, stipulation regarding the governing law cannot be said to be an agreement between only two Indian companies.

Supreme Court opined that, Concession made at the bar by learned counsel (for 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.

It is settled law that an arbitration agreement is an independent or “self contained” agreement. Scope of enquiry (even) under Section 45 is confined only to question whether arbitration agreement is “null and void, inoperative or incapable of being performed” but not legality and validity of substantive contract. Once it is found that agreement in question is a legal and valid agreement, which is capable of being performed by parties to the suit, Court has no discretion but to pass an order by referring parties to arbitration in terms of agreement. In all of the cases, the validity of either of the clauses/agreements does not depend upon the existence of the other.

NAC is an American company and being a party to Agreement-I as also to Agreement-II along with two Indian companies (appellant and the respondent), a fortiori, Agreement-I and Agreement-II become an "international commercial arbitration" within the meaning of Section 2(f) 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.

Relevant : Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. etc., Bhatia International v. Bulk Trading S.A. & Another, (2002) 4 SCC 105


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