Whether Mere variation of some terms of a contract constitute a novation?

In other words, the novation of contract
comprises of two elements. First is the discharge of
one debt or debtor and the second is the substitution
of a new debt or debtor. The novation is 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. (See Pollock & Mulla
Indian Contract and Specific Relief Acts, 13th
Edition, pages 1225-1226).
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8299 OF 2016
(Arising out of SLP (C) No.33227 of 2015)
Sasan Power Limited 
V
North American Coal Corporation
India Private Limited 
Citation: (2016) 10 SCC813

2. The Appellant herein a company registered under the
laws of India and an American company known as North
American Coal Corporation (A Delaware Corporation)
hereinafter referred to as the ‘American company’ entered into
an agreement dated 1st January, 2009 for mine andPage 2
development 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
XII1
 of AGREEMENT-I provides for two things – (1) the
governing law of the agreement, and (2) resolution of disputes,
if any to arise between the parties, by arbitration.
4. Section 12.1 stipulates that (i) the governing law of the
agreement shall be the law of the United Kingdom, (ii) the
conflict of laws principles of England will have no application
while interpreting AGREEMENT-I in accordance with the laws
of the United Kingdom. Section 12.2 stipulates the arbitrator,
seat of arbitration and the procedure to be followed in the
arbitration (i) the arbitration is “to be administered by the
1
 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.
2Page 3
International Chambers of Commerce (the ICC)”, (ii) the place
of arbitration shall be London, (iii) such arbitration shall be
conducted in accordance with the commercial arbitration rules
of the ICC, in effect at the time of the arbitration.
5. Article XV Section 15.6 of the AGREEMENT-I provides for
assignment:
“Article XV Section 15.6. Successors and Assigns. This
Agreement may be assigned by NAC to any Affiliate of
NAC; with the previous written consent of Reliance,
which consent shall not be unreasonably withheld. Without
the written consent of NAC, which consent shall not be
unreasonably withheld, Reliance shall not assign its rights
under this Agreement or cause its obligations under this
Agreement to be assumed by any other person. No
assignment or other transfer shall release the assignor from
its obligations or liabilities hereunder. Any assignment in
violation of the foregoing shall be null and void ab initio.
This agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors and
permitted assigns.”
6. On 1.4.2011, the appellant, the American company and
the respondent herein, which is an Indian Company and a
fully owned subsidiary2
 of the American company entered into
an agreement (hereinafter AGREEMENT-II). By the said
agreement, the American company purported to assign3
 all its
2
 Section 4 of the Companies Act.
3
 “ASSIGNMENT AND ASSUMPTION
(1) NAC hereby transfers and assigns all of NAC’s rights and obligations under the Agreement to
NACC India. NAC hereby acknowledges that, as provide3d 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.
(2) NACC India hereby accepts the transfer and assignment of all of 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.
3Page 4
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 insofar as they are relevant
for our purpose are as follows:-
(i) Pass a decree of declaration in favour of the Plaintiff
declaring Section 10.2 of the Agreement dated
01.01.2009 as null, void, inoperative and
unenforceable.
(ii) Pass a decree of declaration declaring that the invoices
raised by the defendant upon the plaintiff dated
defendant’s invoices dated 01.10.2013, 02.01.2014,
01.04.2014, 11.04.2014, 16.01.2014, 11.04.2014, and
four invoices dated 21.07.2014 as also Section 10.2 of
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.”

the Agreement are illegal, null and void and
unenforceable.
(iii) Pass a decree of declaration declaring that not even a
default having occurred as per Section 8.1, the letter of
termination dated 23.7.2014 is illegal, null and void
and inoperative and issuance of such a letter amounts
to a breach of the contract by the defendant.
(iv) Pass a Decree of Declaration in favour of the Plaintiff
and against the Defendant, thereby declaring the
Governing Law and Arbitration Agreement being
Article XII of the Agreement as null, void, inoperative
and unenforceable; and that the Arbitration Agreement
has no legal and binding force in the eyes of Law;
(v) Pass a decree for Permanent Injunction, in favour of
the Plaintiff and against the Defendant, thereby
restraining the Defendant or any other person on its
behalf in any manner proceeding or continuing with
the arbitration proceedings (bearing No.20432/TO)
initiated by Defendant before the ICC in London
against the Plaintiff.
(vi) Pass a decree of declaration that Request for
Arbitration dated 8.8.2014 is null and void being
contrary to Indian law.
9. It is relevant to take note of two facts. There is no prayer
with respect to the AGREEMENT-II. The American company is
not a party to the suit, inspite of the fact that the 1st relief
sought in the suit is for a declaration of the illegality of one of
the clauses of AGREEMENT-I to which only the appellant and
American company are parties
In the said suit, an ex-parte order came to be passed on
11.11.2014 injuncting the ICC from proceeding with the
arbitration.
5Page 6
10. 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 (hereinafter
referred to as “1996 Act”) 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
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 CPC read with Sec. 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 CPC 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 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
6Page 7
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.
72. Accordingly, in the facts and circumstances, we find
no error in the order passed by the learned District Judge,
warranting record deration.
73. Appeal is therefore, dismissed. No order on costs.”
Hence the present appeal.
11. One of the grounds of appeal is that the High Court has
erroneously rejected the contention of the appellant that two
Indian companies are prevented from entering into an
agreement for arbitration of their dispute to be seated outside
India. We do not find from the impugned judgment anything
to indicate that such a submission was made before the High
Court. On the other hand, learned counsel for the appellant
specifically submitted during the course of the argument
before us that he is not making that submission before us.
12. The argument before us was confined only to the
question whether two Indian companies can enter into an
agreement with a stipulation that their agreement “be
governed by, construed and interpreted in accordance with the
laws of the United Kingdom”. Various submissions incidental
7Page 8
to that main submission were made and would be taken note
of at the appropriate place.
13. Parties have filed written submissions after the
conclusion of the arguments before this Court. In the written
submissions filed by the appellant, it is stated that three
questions “of general importance arise for the consideration
and decision of this Court” and they are;
Q.(1) Whether it is permissible under the consolidated
Indian law of arbitration (now contained in the
Arbitration and Conciliation Act 1996) for two Indian
Companies (each incorporated and registered in India)
to agree to refer their commercial disputes (that might
arise between 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?
8Page 9
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 argument. From the questions
projected by the appellant, it can be seen that the entire case
of the appellant is built up on the assumption that the parties
to the arbitration agreement are only two Indian companies.
The substance of the other two questions is that parties herein
(two Indian companies) could not enter into an agreement with
a stipulation that the governing law for the construction and
interpretation of the AGREEMENT-I to be the law of United
Kingdom. The appellant also raise a further question that in
view of the fact that both the parties to the dispute in the
arbitration4
 being companies registered in India whether the
respondent could have invoked Section 45 of the 1996 Act and
the courts below were justified in referring the dispute to
arbitration purportedly in discharge of the statutory obligation
under Section 45.
15. The basic prayer in the suit is twofold i.e. for declaration
that Article X Section 10.2 and Article XII of the
4
 Admittedly, already initiated on a request of the Respondent on 8.8.2014 – Admitted, See prayers V and
VI of the plaint.
9Page 10
AGREEMENT-I are null and void. The remaining prayers in the
suit are either incidental or ancillary to these two prayers. The
appellant’s grievance regarding the Article X, Section 10.2 is to
be found in paragraphs 39-41.5
 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 rights and obligations of the American company
(under AGREEMENT-I) were purported to have been
assigned in favour of the respondent by
AGREEMENT-II.
5
 Para 39- “The Plaintiff submits that Section 10.2 of the Association Agreement reproduced hereinafter
“Limitation on Damages in no event shall either party be liable to the other for any consequential,
incidental, special punitive or indirect damages, including loss of profits, revenue or business opportunities.
Reliance acknowledges and agrees that its exclusive remedies against NAC and its direct and indirect
owners and Affiliates for any breach or other violation of this Agreement are set forth in Sections 6.3(b)
and 8.2 and that in no event shall any damages recoverable against NAC and its direct and indirect owners
and Affiliates exceed U.S. $1,000,000” which sets a cap on the damages that may be recovered by the
Plaintiff is contrary to the principle that when a contract has been broken, the party who suffers by such
breach is entitled to receive, from the party who has broken the contract, compensation for any loss or
damage caused to him thereby, which naturally arose in the usual course of things from such breach, or
which the parties knew, when they made the 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 Civil Procedure Code and would file proceedings once a aforesaid
declaration is made by this Hon’ble Court.”
10Page 11
2) From a copy of the AGREEMENT-II filed along with
the appeal it is clear that the representatives of all
the 3 companies, i.e., the AMERICAN and the two
INDIAN companies (parties herein) signed the
AGREEMENT-II.
3) Under the AGREEMENT-II it is agreed that such an
assignment does not release the American company
from its obligations or liabilities under
AGREEMENT-I.
4) Apart from that, it was agreed between the parties
that certain clauses of AGREEMENT-I would be
substituted with new clauses6
.
Another important feature of AGREEMENT-II is that
the parties agreed – “except as amended by this
amendment, the agreement shall remain in effect as
written”. The expression ‘agreement’ is defined in
AGREEMENT-II as follows:-
“WHEREAS, Reliance and NAC are parties to that certain
Association Agreement for Mine Development and
Operations, dated as of January 1, 2009, as amended by
that certain First Amendment, dated as of September 30,
2009 (as amended, the “AGREEMENT”).” – i.e.
AGREEMENT as amended by 30.09.2009 agreement.
6
 Section 5.3 and 5.6 of Article V came to be substituted.
* See para 6 of the agreement
11Page 12
In other words, the appellant never raised any objection
regarding the consistency of Section 10.2 of Article X and
Article XII of AGREEMENT-I with the Indian Contract Act
either when the appellant entered into AGREEMENT-II or
when the parties acted upon it.
17. At the outset we would like to examine the legal nature of
the transaction covered by the AGREEMENT-II. It can be seen
from the tenor7
 of the AGREEMENT-II that it is a tripartite
agreement. The assignment to be effective between the
American company and the respondent requires the consent of
the appellant in view of Section 15.6 of AGREEMENT-I8
. 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
7
“This Assignment and Assumption Agreement, Consent and Second Amendment to Association
Agreement for Mine Development and Operations (this “Amendment”) is made and entered
into effective as of April 1, 2011 by and between Sasan Power Limited, an Indian company
(“Reliance”), The North American Coal Corporation, a Delaware corporation (“NAC”), and
North American Coal Corporation India Private Limited, an Indian company (“NACC India”)
that is 99% owned by NAC and 1% owned by TRU Global Energy Services, L.L.C., a
wholly-owned subsidiary of NAC.”
8
 “NAC hereby acknowledges that, as provide3d 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.”
12Page 13
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 the agreement determine
the legal character of an agreement.
18. An assignment is understood to be the transfer from one
person to another (referred to in law as the assignor and
assignee respectively) the whole or part of an existing right or
interest in intangible property presently owned by the
assignor. The right or interest itself is not extinguished.9
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”.10 In Tolhurst v. The Associated Portland Cement
9
 See A.G. Guest and Ting Khai Liew, Guest on the Law of Assignment, 2nd ed. Pg. 1 (Sweet and Maxwell,
UK).
10 Jaffer Meher Ali v. Budge-Budge Jute Mills Co., ILR (33) Cal 702 at page 707- “…the rule as regards
the assignability of contracts in this country is that the benefit of a contract…as distinguished from the
liability thereunder may be assigned…This rule is however subject to two qualifications: first that the
13Page 14
Manufacturers Limited, [1902] 2 K.B. 660, Collins MR held
as follows-
“It is, I think, quite clear that neither at law nor in equity
could the burden of a contract be shifted off the shoulders of
a contractor on to those of another without the consent of
the contractee … this can only be brought about by the
consent of all three, and involves the release of the original
debtor … it is equally clear that the benefit of a contract can
be assigned”
The Court of Appeal further laid down-
(i) Assignment of the benefit of the contract IS
PERMISSIBLE where the consideration has been
executed and nothing remains but to enforce the
obligation against the party who has received the
consideration; and
(ii) “There is, however, another class of contracts, where there are
mutual obligations still to be enforced and where it is impossible to
say that the whole consideration has been executed. Contracts of
this class cannot be assigned at all in the sense of discharging the
original contractee and creating privity or quasi privity with a
substituted person.”
The decision of the Court of Appeal was affirmed by the House
of Lords11
.
benefit sought to be assigned is not coupled with any liability or obligation that the assignor is bound to
fulfil…that the contract is not one which has been induced by the personal qualifications or considerations
as regards the parties to it”
11 Tolhurst v. The Associated Portland Cement Manufacturers Limited, (1903) AC 414
14Page 15
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 agency12 where
the American company is the principal and the respondent its
agent or what is described in some cases as sub-contracting or
an arrangement for “vicarious performance”. We hasten to add
that we are not expressing any conclusive opinion on this
question as no arguments in this behalf are advanced by
12 The Indian Contract Act though does not define the expression agency defines agent and principal under
Sec. 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’.”
15Page 16
either side before us. We only conclude that the transaction
covered by AGREEMENT II is not an assignment.
21. However, the appellant’s suit is based on its
understanding that the respondent stepped into the shoes of
the American company. Therefore, both “in fact and law” the
AGREEMENT-II is between the parties to this appeal! (two
Indian companies).
“15. … The Assignment agreement was signed in India.
Hence, NACC US novated the Association Agreement in favour
of the Defendant. The Defendant stepped in to the shoes of
NACC US and, in fact and law, the Assignment agreement13 is
one between the Plaintiff and the Defendant. A reference to
the Association Agreement hereafter, shall, unless the context
otherwise requires, mean the Association Agreement or
between the Plaintiff and the Defendant.”14
22. In law, novation means-
“… there being a contract in existence, some new contract is
substituted for it, either between the same parties (for that
might be) or between different parties, the consideration
mutually being the discharge of the old contract”15
.
23. The pleading is wholly untenable in law for the following
reasons
(i) There cannot be any novation between the American
company and the respondent because prior to the
13 Perhaps it is “association agreement”. Whether it is a typographical error in the copy supplied to us or in
the original plaint itself or the draftsman’s error – god only knows. If read as ‘assignment agreement’ the
pleading in our opinion makes no sense
14 Paragraph 15 of Plaint RCS No. 4A of 2014.
15 Lord Selborne L.C. in Scarf v. Jardine (1882) 7 App. Cas. 345, 351.
16Page 17
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 the AGREEMENT-II.
It is 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.
17Page 18
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 agreement16
.
What is the number of parties to a document is a
question of fact. When a fact is in issue17, the same is required
to be proved in accordance with the provisions of the Evidence
Act. Disposition of the property whether it be by way of a
contract or grant or any other, if reduced to writing, parties
are prohibited from giving any evidence regarding the terms of
such disposition18 except the document itself or ‘secondary
evidence’19 of that document. Provided that such secondary
16 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.
17 The Indian Evidence Act, 1872 – Section 3. Facts in issue.– The expression “facts in issue” means and
includes – any fact from which, either by itself or in connection with other facts, the existence,
non-existence, nature, or extent of any right, liability, or disability, asserted or denied in any suit or
proceeding, necessarily follows.
18 Section 91 – Evidence of terms of contracts, grants and other dispositions of property reduced to
form of documents – When the terms of a contract, or of a grant, or of any other disposition of property,
have been reduced to the form of a document, and in all cases in which any matter is required by law to be
reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant
or other disposition of property, or of such matter, except the document itself, or secondary evidence of its
contents in cases in which secondary evidence is admissible under the provisions hereinbefore contained.
19 Section 63 – Secondary evidence. Secondary evidence means and includes.— (1) certified copies given
under the provisions hereinafter contained;
 (2) Copies made from the original by mechanical processes which in themselves ensure the
accuracy of the copy, and copies compared with such copies;
 (3) Copies made from or compared with the original;
 (4) Counterparts of documents as against the parties who did not execute them;
 (5) Oral accounts of the contents of a documents given by some person who has himself seen
it.
18Page 19
evidence is otherwise admissible under the Evidence Act.
Though oral evidence can be secondary evidence under
Section 63(5), Section 64 mandates that documents must be
proved by primary evidence except in exceptional
circumstances specified under the other provisions of
Evidence Act. Logically, a concession at the bar regarding the
content of a written agreement including the fact as to who are
the parties to the document, in our opinion, does not stand on
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.
19Page 20
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)20 of the 1996 Act expressly recognises such autonomy.
27. We then proceed to examine the question whether the
suit filed by the appellant is maintainable or barred by Section
45 of the 1996 Act as contended by the respondents or any
20 Section 28. Rules applicable to substance of dispute.— (1) Where the place of arbitration is situate in
India,—
(a) in an arbitration other than an international commercial arbitration, the
arbitral tribunal shall decide the dispute submitted to arbitration in accordance
with the substantive law for the time being in force in India;
(b) in international commercial arbitration,—
(i) the arbitral tribunal shall decide the dispute in accordance with
the rules of law designated by the parties as applicable to the
substance of the dispute;
(ii) any designation by the parties of the law or legal system of a
given country shall be construed, unless otherwise expressed, as
directly referring to the substantive law of that country and not to its
conflict of laws rules;
(i i i i failing any designation of the law under clause (a) by
the parties, the arbitral tribunal shall apply the rules of law it considers
to be appropriate given all the circumstances surrounding the dispute.
(2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur
only if the parties have expressly authorised it do so.
(3) While deciding and making an award, the arbitral tribunal shall, in all cases, take
into account the terms of the contract and trade usages applicable to the transaction.
20Page 21
other provisions of the 1996 Act or any other law, because if a
suit is barred by law the Court is bound to take note of the bar
whether such a question is raised by the parties or not. To
begin with a survey of the history and background of the 1996
Act and its scheme would be helpful in answering the various
questions that arise in this appeal.
28. The history and development of the law of arbitration in
this country was very succinctly captured by this Court in
Bharat Aluminium Company v. Kaiser Aluminium
Technical Services Inc. etc., (2012) 9 SCC 55221 (for short
“BALCO”). It traced out the origin and development of not only
the domestic law of arbitration in India but also the
international arrangements regarding arbitration agreements
and awards made in one country but sought recognition or
enforcement 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
21 See para 32 to 38 of Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. etc. (2012)
9 SCC 552
21Page 22
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 dealt22 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 International Trade Law
adopted a model law on international arbitration popularly
known as UNCITRAL. The General Assembly of the United
Nations by a resolution dated 11.12.1985 recommended that
“"all States give due consideration to the Model Law on an international
22 Repealed by Section 85 of the 1996 Act.
22Page 23
commercial arbitration, in view of the desirability of uniformity of the law
of arbitral procedures and the specific needs of international commercial
arbitration practice". Pursuant to the said recommendation, the
1996 Act came to be made by the Parliament. It is in four
parts. Relevant for enquiry are only Parts I and II.
31. Part-II of the 1996 Act is headed “Enforcement of Certain
Foreign Awards”. It contains provisions (Section 44 to 60
divided into two Chapters I and II) dealing with the
enforcement of foreign awards falling under two categories i.e.
New York Convention Award and Geneva Convention Awards.
Sections 44 to 52 (falling under Chapter I) deal with the New
York Convention Awards, the remaining sections (falling under
Chapter-II) deal with Geneva Convention Awards. Both the
classes of Awards are referred to as “foreign awards” in
Chapters I and II of Part-II. Section 44(a)23 and 53(a)24 define
the expression “foreign award” for the purposes of Chapters I
and II respectively to mean an arbitral award in pursuance of
an agreement for arbitration to which the convention set forth
in Ist or protocol and convention set forth in the IInd Schedule
of the Act respectively applies. Such foreign awards are
23 “Section 44 … in pursuance of an agreement in writing for arbitration to which the Convention set forth
in the First Schedule applies,”
24 “Section 53(a) in pursuance of an agreement for arbitration to which the Protocol set forth in the Second
Schedule applies,”
23Page 24
deemed to be a decree of a Court25. Various conditions which
render a foreign award unenforceable are specified in Sections
48 and 57 respectively. The other provisions deal with matters
incidental to the enforcement of foreign awards. It is
significant to note that Part II does not deal with any matter
pertaining to any step anterior to the making of an (foreign)
arbitral award.
32. We now deal with the scheme of Part I of the 1996 Act. It
contains provisions which defines an arbitration agreement,
its form and content, the procedure for appointment of
arbitrators, jurisdiction of arbitral tribunals, the procedure 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. & Another, (2002) 4 SCC 105 considered the question
whether Part 1 of 1996 Act would apply to an arbitration
25 See Sections 49 and 68
24Page 25
where the place of arbitration is outside India.26 On
consideration of the matter, this Court held as follows:
“32. To conclude, we hold that the provisions of Part 1 would
apply to all arbitrations and to all proceedings relating thereto.
Where such arbitration is held in India the provisions of Part 1
would completely apply and parties are free to deviate only to the
extent permitted by the derogable provisions of Part 1. In cases of
international commercial arbitrations held out of India provisions
of Part 1 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 1, which is contrary to or excluded by that law or rules will
not apply.”
34. However, in a subsequent judgment in BALCO, a larger
bench of this Court disagreed27 with the conclusions recorded
in Bhatia International and held as follows:
“194. … We are of the considered opinion that Part I of the
Arbitration Act, 1996 would have no application to
international commercial arbitration held outside India.
Therefore, such awards would only be subject to the
jurisdiction of the Indian courts when the same are sought
to be enforced in India in accordance with the provisions
contained in Part II of the Arbitration Act, 1996. In our
opinion, the provisions contained in the Arbitration Act,
1996 make it crystal clear that there can be no overlapping
26
 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 appeal to this Court.
27 Para 195. With utmost respect, we are unable to agree with the conclusions recorded in the judgments of
this Court in Bhatia International v. Bulk Trading S.A., (2002) 4 SCC 105 and Venture Global Engg. v.
Satyam Computer Services Ltd. (2008) 4 SCC 190. In our opinion, the provision contained in Section 2(2)
of the Arbitration Act, 1996 is not in conflict with any of the provisions either in Part I or in Part II of the
Arbitration Act, 1996. In a foreign-seated international commercial arbitration, no application for interim
relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the
Arbitration Act, 1996 is limited to all arbitrations which take place in India. Similarly, no suit for interim
injunction simpliciter would be maintainable in India, on the basis of an international commercial
arbitration with a seat outside India.”
25Page 26
or intermingling of the provisions contained in Part I with the
provisions 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.28

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 that in view of the
assignment under AGREEMENT-II, the dispute becomes
purely a dispute between two Indian companies (parties to this
appeal). Therefore, any arbitration agreement between such
companies cannot be an agreement to which the (New York)
Convention set forth in the First Schedule of the 1996 Act
applies. If such Convention does not apply, the question of
application of Section 45 does not arise. In view of the
28 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.”
26Page 27
judgment of this Court in Bhatia International, only Part-I of
the 1996 Act applies and, therefore, Interlocutory Application
No.5 of 2015 is liable to be rejected.
37. From a plain reading of Part I of the 1996 Act, having
regard to the scheme of the Act and language of Section 2(2),
Part I of the Act applies to all arbitrations which take place in
India. It is irrelevant whether any one of the parties to such
arbitration agreement is an Indian entity (either a citizen or
body corporate incorporated in India etc.) or not. If two
non-Indian entities agree to have their disputes resolved
through the process of arbitration with seat of arbitration in
India, such an arbitration would obviously be governed by the
provisions of Part I of the Act. By virtue of the law declared
by this Court in the case of Bhatia International (supra),
even if the seat of arbitration is not in India, if one of the
parties to such arbitration is an Indian entity29, Part I would
apply unless parties by an agreement in such a case choose to
29 Though Bhatia’s case did not make it express, the requirement of some legal connection between the
arbitration and India either the territory or sovereignty is essential and therefore necessarily implicit in the
declaration made in the judgment. Hence the requirement of at least one of the parties to be an Indian
entity.
27Page 28
exclude the application of all or some of the provisions of Part I
by an agreement.
30

38. The question, therefore, is whether the arbitration
agreement in question is one falling exclusively under Part-I of
the 1996 Act or falling under 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.31 A
recent judgment of this Court32 clearly recorded that Bhatia
International judgment leads to such a possibility. However,
with reference to the agreements entered into subsequent to
BALCO, this question does not arise. It is only for the
30 Parties to the AGREEMENT I agreed to exclude the application of Part I of the Arbitration Act except
Sec. 9 thereof. The relevant part of Art. XII Sec. 12.2 (a) reads as follows: “Save and except the provision
under Section 9, the provisions of the Part I of (Indian) Arbitration and Conciliation Act, 1996, as amended
(the “Arbitration Act”) shall not apply to the arbitration.
31 See paras 26 and 32 of Bhatia International
32 Union of India v. Reliance Industries Limited & Others (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 doctrine of concurrent jurisdiction
came to be felt in a most poignant form in the judgment of Venture Global Engg v. Satyam
Computer Services Ltd., (2008) 4 SCC 190, by which this Court held that a foreign award would
also be considered as a domestic award and the challenge procedure provided in Section 34 of Part
I of the 1996 Act would therefore apply. This led to a situation where the foreign award could be
challenged in the country in which it is made; it could also be challenged under Part-I of the 1996
Act in India; and could be refused to be recognised and enforced under Section 48 contained in
Part II of the 1996 Act.”
28Page 29
interregnum between the date of the 1996 Act and the date of
the judgment, in BALCO such a question arises.
39. To determine the question, whether an arbitration
agreement governed by the law laid down by Bhatia
International is one which falls exclusively within the
operation of Part-I or one which falls within the operation of
both Part-I and Part-II of the 1996 Act, depends on three
factors
i. who are the parties to the arbitration agreement;
ii. the venue of the arbitration; and
iii. in a foreign seated arbitration where one of the parties is
not an Indian entity whether parties agreed to exclude
the application of Part I.
40. 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.
29Page 30

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
prayers33, (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.”
33 “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 justice.”
30Page 31
It can 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. Section
4434 contemplates an arbitration agreement to which the New
York Convention applies.
43. Section 45, permits an enquiry into the question whether
the arbitration agreement is “null and void, inoperative and
incapable of being performed”.
44. The appellant’s 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 appellant’s understanding) the
parties to AGREEMENT-II are only two companies
incorporated in India. They could not have agreed that the
34
 Relevant portion of Section 44 reads as follows:
“44. Definition.— In this Chapter, unless the context otherwise requires, “foreign
award” means an arbitral award on differences between persons arising out of legal relationships,
whether contractual or not, considered as commercial under the law in force in India, made on or
after the 11th day of October, 1960—
(a) in pursuance of an agreement in writing for arbitration to which the Convention
set forth in the First Schedule applies,
(b) x x x .”
31Page 32
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 a given case, a
written agreement for arbitration could form part of another
agreement, described by Lord Diplock as the “substantive
contract”35 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
35 Aughton Ltd. v. MF Kent Services Ltd. (1991) 57 BLR 1 (CA)
“the status of a so-called ‘arbitration clause’ included in a contract of any nature is different
from other types of clauses because it constitutes a ‘self contained contract collateral or
ancillary to’ ‘the 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. .
32Page 33
arising out of the substantive contract: It only governs the way
of settling disputes between the parties.36
46. 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
36 See T.W. Thomas & Co. Ltd. v. Portsea Steamship Co. Ltd. (1912) AC 1
33Page 34
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
34Page 35
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
35Page 36
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 Court37. 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 country38. The
principles of law in this regard are well settled. In all of the
37 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.
38 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.
36Page 37
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
37Page 38
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.
….………………………….J.
 (J. Chelameswar)
…….……………………….J.
 (Abhay Manohar Sapre)
New Delhi;
August 24, 2016
38Page 39
REPORTABLE
 IN THE SUPREME COURT OF INDIA
 CIVIL APPELLATE JURISDICTION
 CIVIL APPEAL No. 8299 OF 2016
 (ARISING OUT OF SLP (C) No. 33227/2015)
Sasan Power Limited …….Appellant(s)
VERSUS
North American Coal Corporation
India Private Limited ……Respondent(s)

J U D G M E N T
Abhay Manohar Sapre, J.
1) 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 reasoning. However, having regard to the

issues involved, which were ably argued by learned
counsel appearing in the case, I wish to add few lines
of concurrence.
2) The question that arises for consideration in this
appeal is whether the Courts below were justified in
allowing the application filed by the respondent
(defendant) under Section 45 of the Arbitration and
Conciliation Act, 1996 (for short "The Act”) read with
Order VII Rule 11 of the Code of Civil Procedure 1908
(in short “the Code”) in a civil suit filed by the
appellant (plaintiff) for declaration and, in
consequence, were justified in dismissing the
appellant's civil suit?
3) The aforementioned question arose in the context
of the facts, which are succinctly stated by my learned
Brother in his judgment. I need not, therefore, repeat
the same facts again in my judgment.
4) Though both the learned senior counsel
appearing for the parties argued several issues
elaborately in support of their respective contentions
but in my view, the aforesaid question including three

questions posed by the appellant in their written
submissions (quoted in Para 13 by my learned Brother
in his judgment) need to be examined in the first
instance by finding out the true nature and import of
the two agreements referred to as (Agreement-I and
Agreement-II) and relied on by the parties and also
after taking into consideration the law laid down by
this Court in the case of Bhatia International vs.
Bulk Trading S.A. & Ors., (2002) 4 SCC 105 and
Bharat Aluminium Company vs. Kaiser Aluminium
Technical Services Inc. (in short “Balco”), (2012) 9
SCC 552.
5) At the outset, I may take note of the rule of
interpretation, which is applicable while construing
any Deed. The learned Judge Vivian Bose, J. speaking
for the Bench in his inimitable style of writing
succinctly laid down the rule in a leading decision of
this Court in Pandit Chunchun Jha vs. Sheikh
Ebadat Ali & Anr., AIR 1954 SC 345 in following
words:
“Deed – Construction – (T.P. Act, 1882, S. 8)

Where a document has to be construed, the
intention must be gathered, in the first place,
from the document itself. If the words are
express and clear, effect must be given to them
and any extraneous enquiry into what was
thought or intended is ruled out. The real
question in such a case is not what the parties
intended or meant but what is the legal effect of
the words 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.”
6) 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".
7) 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.
8) 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."
9) The learned author quoted a passage from an old
case of Calcutta High Court authored by J Sale, J. in
Jaffer Meher Ali vs. Budge-Budge Jute Mills Co.,
(1906) ILR 33 (Calcutta) 702 which reads as under:
“The rule as regards the assignability of
contracts in this country is that the benefit of a
contract for the purchase of goods as
distinguished from the liability thereunder may
be assigned, understanding by the term benefit,
the beneficial right or interest of a party under
the contract and the right to sue to recover the
benefits created thereby. This rule is, however,
subject to two qualifications; first, that the
benefit sought to be assigned is not coupled
with any liability or obligation that the assignor
is bound to fulfil, and next that the contract is
not one which has been induced by personal
qualifications or considerations as regards the
parties to it.”
10) In my view, the law laid down by the Calcutta
High Court in the case of Jaffer Meher Ali (supra) is
the correct principle of law on the subject.

11) As mentioned above, examination of the
Agreement-I would go to show that firstly, Agreement-I
is executed between the appellant and the American
Company (NAC) whereas the Agreement-II is executed
between the appellant, respondent (NACC-India) and
American Company (NAC). In other words,
Agreement-I is a bi-party agreement between an
Indian Company (appellant) and American Company
(NAC) whereas Agreement-II is a tri-partite agreement
between the three companies viz., two Indian
companies (appellant and the respondent) and
third-an American company(NAC); Secondly, the
Agreement-II recognizes transfer of the rights of the
original contractee, i.e., American Company (NAC)
coupled with their obligations specified in the
Agreement-I; Thirdly, the obligations specified in the
Agreement-I are not fully performed much less to the
satisfaction of the parties concerned but are still to be
performed inter se qua each other; Fourthly, by virtue
of the terms of the Agreement-II, the parties are still
under obligation to perform and, if necessary, enforce

their respective rights and obligations arising out of
Agreement-I against each other depending upon the
nature of breaches when committed by any of the
parties; Fifthly, Agreement-II appears to be in the
nature of amendment to the Agreement-I because
while recognizing the existence of Agreement-I parties
have incorporated some new clauses and added one
new party to the Agreement-II, i.e., the respondent
(NACC-India) herein.
12) 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.
13) 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.
14) 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 other in terms of
respective clauses of Agreement-I and Agreement-II.
15) That apart, in my view, reading of Agreement-I
and Agreement-II also does not indicate that any
novation of contract has emerged inter se parties. It is
for the reason that in order to constitute a “Novation of
contract", it is necessary to prove, in the first place,
that the contract is in existence and second, such
contract is substituted by a new contract either by the
same parties or different parties with a mutual
consideration of discharge of the old contract.

16) In other words, the novation of contract
comprises of two elements. First is the discharge of
one debt or debtor and the second is the substitution
of a new debt or debtor. The novation is 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. (See Pollock & Mulla
Indian Contract and Specific Relief Acts, 13th
Edition, pages 1225-1226).
17) As observed supra, execution of Agreement-II has
not resulted in substituting or rescinding or
extinguishing Agreement-I. On the other hand, it
recognized the existence of Agreement-I and resulted
in its amendment by adding some new clauses and
one party.
18) In these circumstances, it is not possible to hold
that as a result of execution of Agreement-II, novation
of contract has come in to be inter se parties.
19) This takes me to examine the legal position
arising in the case, namely, that if one party to the

arbitration agreement is a foreign company then
whether such agreement becomes an "international
commercial arbitration” within the meaning of Section
2(f) of the Act.
20) In this case, I find that 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".
21) One can not dispute the legal position arising in
the light of law laid down by this Court in Balco’s
case (supra) (See Para 197 at page 648 of the decision)
that the case at hand 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)
22) 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
shall be resolved by ICC as per ICC rules; Secondly,
the place of arbitration shall be London; and thirdly,
the provisions of part I of the Act will not apply to the
arbitration in question.
23) In my opinion, Sections 12.1 and 12.2(a) of
Article XII are in conformity with the law laid down in

Bhatia International (supra) and thus satisfy the test
laid down therein. These sections are, therefore,
capable of being given effect to in the manner provided
therein by the parties inter se for deciding their
disputes, which have arisen between them in relation
to Agreement-I and Agreement-II.
24) In the light of foregoing discussion, we need not
consider any other argument of learned counsel for
the parties.
25) Before parting with the case, we consider it
apposite to deal with one issue relating to the exercise
of jurisdiction by the Court under Section 45 of the
Act which reads as under:
“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.”
26) Mere reading of Section 45 would go to show that
the use of the words "shall" and "refer the parties to

arbitration" in the section makes it legally obligatory
on the Court to refer the parties to the arbitration once
it finds that the agreement in question is neither null
and void nor inoperative and nor incapable of being
performed. In other words, once it is found that the
agreement in question is a legal and valid agreement,
which is capable of being performed by the parties to
the suit, the Court has no discretion but to pass an
order by referring the parties to the arbitration in
terms of the agreement.
27) In this case, I find that the Trial Court though
allowed the application filed by the respondent
(defendant) under Section 45 of the Act by recording
the findings that the agreement in question is legal
and proper and capable of being performed but it did
not pass any consequential order as required under
Section 45 by referring the parties to the arbitration in
terms of Section 12.2(a) and instead simply dismissed
the suit as not maintainable.
28) In our view, the order thus needs a modification
to this extent only so as to make the order in

conformity with the requirement of Section 45 of the
Act.
29) In the light of foregoing discussion and subject
to aforesaid modification of the impugned order, I
entirely agree with the reasoning and the conclusion
arrived at by my learned Brother.



 …...……..................................J.
 [ABHAY MANOHAR SAPRE]
New Delhi;
August 24, 2016

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