Case: Sasan Power Limited Vs. North American Coal Corporation India Private Limited

not extend to the examination of the legality 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 the suit filed by the appellant herein 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. 48. This Court in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503 , which was a case where there was a dealership agreement between the parties for supply of petroleum products to the respondents before this Court. On the ground that the dealer committed certain irregularities in business, supply of petroleum products was suspended by the appellant for a period of 30 days and along with the penalty of Rs. 15,000/-. The dealer filed a civil suit seeking a declaration that the action of the HPCL was illegal and arbitrary. In the said suit, HPCL filed an application praying that the dispute be referred to arbitration in view of the arbitration agreement between the parties. The said application was dismissed by the civil court holding that the dispute between the parties was not covered by the arbitration agreement which finding came to be confirmed by the High Court in a Revision. Dealing with the question, this Court held: "16. It is clear from the language of the section, as interpreted by the Constitution Bench judgment in Konkan Rly. that if there is any objection as to the applicability of the arbitration 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 dispute through arbitration, it would not make any legal difference to the governing law clause (if otherwise valid) and bind the parties. 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 (Reliance Industries Limited & Another v. Union of India, (2014) 7 SCC 603. "76.4 ...Therefore, the remedy against the award will have to be sought in England, where the juridical seat is located. However, we accept the submission of the appellant that since the substantive law governing the contract is Indian law, even the courts in England, in case the arbitrability is challenged, will have to decide the issue by applying Indian law viz. the principle of public policy, etc., as it prevails in Indian law.]). 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 fact, the transaction which was the subject matter of dispute in Union of India v. Reliance Industries Limited & Others, (2015) 10 SCC 213 is one such. The substantive agreement is governed by the Indian law and the arbitration agreement by the law of England. See Para 2 of the said judgment.]). The principles of law in this regard are well settled. 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. Therefore, the submissions of the appellant in this regard are required to be rejected. 50. We are left with only one question. Relief 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.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]19. It is settled law that there can only be an assignment of rights arising under a contract but not the "burden of a contract".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 companys 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 Sec. 182.The pleading is wholly untenable in law for the followingThere cannot be any novation between the American company and the respondent because prior to the AGREEMENT-II, there was no agreement whatsoever between them.(ii) The respondent cannot be said to have stepped into the shoes of the American company because the obligations under AGREEMENT-I owed by the American company to the appellant were not discharged by theis on the basis of such a flawed understanding of law regarding the nature of the AGREEMENT-II the appellant raises the esoteric proposition whether two Indian Companies could have stipulated that their agreement be governed by the laws 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.In any case, whether an arbitration agreement is exclusively governed by the provisions of either Part-I or by Part-II of the 1996 Act or both (as discussed earlier), judicial authorities seized of an action in respect 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 the other conditions stipulated in the two sections.41. The instant appeal as already noticed arises out of an order in Interlocutory Application No.5 of 2015 filed by the respondent herein in the suit filed by the appellant herein. In the Interlocutory Application, the respondent made two prayers("i.. Refer the disputes between the Applicant and the Respondent to Arbitration (bearing ICC No.20432/TO as contemplated under the Agreement;ii. Reject the Plaint in C.S. (O.S.) 4A of 2014 as being barred by law and pass any other Orders that this Court may deem fit in the interest of) 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 applicants/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 asPower 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 beingcan 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 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 44.44. The appellants case as evidenced by the plaint in its suit is that parts of the AGREEMENT-I though created valid rights and obligations between the (original) parties thereto ceased to be valid subsequent to the assignment under AGREEMENT-II. Because (according to the appellants understanding) the parties to AGREEMENT-II are only two companies incorporated in India. They could not have agreed that the governing law of the agreement should be the law of the United Kingdom. According to the appellant, such a stipulation in the agreement would be contrary to the public policy and hit by Sections 23 of the Indian Contract Act, 1872. Therefore, the arbitration agreement initiated by the respondent cannot be proceeded with.45. It is settled law that an arbitration agreement is an independent or "self contained" agreement.In our opinion, the scope of enquiry (even) under the Section 45 is confined only to the question whether the arbitration agreement is "null and void, inoperative or incapable of being performed" but not the legality and validity of the substantive contract.47. The case of the appellant as disclosed from the plaint is that Article X, Section 10.2 is inconsistent with some provisions of the Indian Contract Act, 1872, and hit by Section 23 of the Indian Contract Act (as being contrary to public policy). It is a submission regarding the legality of the substantive contract. Even if the said submission is to be accepted, it does not invalidate the arbitration agreement because the arbitration agreement is independent and apart from the substantive contract. All that we hold is that the scope of enquiry under the Section 45 does not extend to the examination of the legality 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 the suit filed by the appellant herein 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.We are left with only one question. Relief 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