Indian Parties Agreeing on Foreign Seat: Sasan Power v North American Coal: Part II

In the previous post on this topic, we had given an introduction to Sasan Power Ltd. v. North American Coal Corporation India Private Limited, a recent ruling of the Supreme Court on an interesting issue. Readers not familiar with the facts are advised to have a look at the previous post. For those who don't want to do so, we'll try to touch upon facts as and when they become relevant for the discussion.

In this post, we provide a descriptive comment of the decision of the Madhya Pradesh High Court:

Proceedings before the District Court, Singrauli:

Readers would recollect that an Indian Company ("Sasan Power Ltd." or "Sasan") and an American company ("North American Coal Corp." or "NACC" or "American Coal") entered into an Agreement in January 2009 for mine development ("Agreement I"). Article XII of the Agreement provided that the Governing Law would be the laws of the United Kingdom" (whatever it meant!- England & Wales, North Ireland or Scotland?) and that dispute resolution would be by ICC Arbitration in London as seat. American Coal established a full owned Indian subsidiary which, for the sake of convenience can be referred to as "American Indian". Sasan, American Coal and American Indian entered into an Agreement ("Agreement II") whereby North American purported to assign all its rights and obligations with the consent of Sasan to American Indian. Agreement II also provided that American Coal was not relieved of its obligations and liabilities although Sason agreed to the transfer and assignment of the rights of American Coal to American Indian. These facts were noted in the previous post itself. 

When disputes arose, American Coal wrote to Sasan terminating Agreement I (July 2014) and made a request to the ICC for arbitration (August 2014). Sasan approached the District Court seeking several reliefs against American Indian (not American Coal). Sasan sought the relief of declaration holding Article XII of the Agreement as null, void, inoperative and unenforceable. There was absolutely no relief claimed in respect of Agreement II. The District Court passed an ex-parte order in November 2014 injuncting the ICC from proceeding with the arbitration. This was intimated by Sasan to ICC. Interestingly, American Coal wrote to the ICC in December 2014 requesting arbitration and stating that Sasan's letter about the ex pare injunction should be seen as a reply to the request for arbitration.

Subsequently, the District Court extended the injunction. American Indian filed two interlocutory applications, one for rejection of plaint on the ground that the suit was barred by law, and the other for vacating the interim injunction. Meanwhile American Indian filed an appeal to the High Court against the grant of injunction. The High Court directed (January 2015) the District Court to dispose of the applications within a month. 

The District Court passed an order (March 2015) allowing the Interlocutory applications of American Indian. As can be deciphered from the judgement of the Supreme Court and the High Court of MP, it appears that the District Court held that the court was bound by a decision of a two-judge Bench of the Supreme Court in Atlas Exports Industries v. Kotak & Company and not by the decision of a Single Judge of the Supreme Court in TDM Infrastructure (P) Ltd. Vs. UE Development India (P) Limited. The District Court relied on Section 45 of the Arbitration and Conciliation Act, 1996 and held that it was bound to refer the dispute to arbitration and therefore rejected the Plaint. It appears that the District Court also held that Agreement II was a tripartite agreement and that therefore the arbitration was an international commercial arbitration. It also appears that the District Judge held that the decision of the Supreme Court in Enercon and Chloro Controls bound the court to refer the dispute to arbitration.

Proceedings before the High Court: 

Against the decision of the District Court, Sasan appealed to the High Court. 

Contentions of behalf of Sasan: Sasan, the appellant contended:

• Once under the Assignment Agreement all the rights and liabilities were transferred from American Coal to American Indian, the agreement was between two Indian parties. Therefore, there was no question of agreeing to have their dispute seated abroad and that therefore, the arbitration agreement was null and void.
• The District Court could not have rejected the plaint under Order VII Rule 11(d) since Section 45 was not a bar for maintainability of the suit. Section 45 did not bar a suit as such and a court if it finds the conditions in Section 45 satisfied can only refer the parties to arbitration.
• Section 45 was applicable only in case of a foreign award or agreement and did not concern a case where there was an agreement between two Indian parties.
• Agreement II was not a tripartite agreement but only a bipartite agreement, between Sasan and American Indian. 
• Further, Section 12  of Agreement I was null and void as it provided for foreign arbitration between two Indian parties and allowed two Indian parties to agree on a foreign substantive law. 

On behalf of American Indian the following were argued:

• The Appeal was not maintainable in view of Section 50 of the 1996 Act against the decision under Section 45 of the said Act.
• Since the matter came under Part II of the 1996 Act, Section 45 created a bar against a suit.
• Atlas Export will apply since there is not much of difference between the relevant provisions of the 1996 Act and the law as it stood before.
• Section 28 of the Act is in Part I and is not applicable where Part II is applicable.
• TDM Infrastructure was decided by a Single Judge while Atlas Export was a two-judge Bench decision. Therefore, Atlas Export will prevail over TDM infrastructure.
• An order passed under Section 11 is not an order of the Court and therefore is not law declared by the Supreme Court for the purposes of Article 141 of the Constitution of India.
• The District Court has correctly rejected the Plaint.
• However, Agreement II is not a tripartite agreement but is a bipartite agreement. However, even if it is a bipartite agreement, the same will not affect the end result of the District Court.
• The arbitration agreement under Agreement II imports the arbitration agreement found in Agreement I and therefore it is an agreement between two Indian Companies agreeing to resolve all their disputes though arbitration with London as the seat of arbitration.

(certain other contentions were made by American Indian which are either referred to subsequently whenever relevant or not referred to)

Decision of the Madhya Pradesh High Court

The High Court's decision is summarised below:

• The decision of the Supreme Court in Bharat Aluminium v. Kaiser Aluminium (as contained in Para 118 thereof) that if the arbitration is not an International Commercial Arbitration as per Section 2(1)(f), the court does not have any choice but to decide the dispute as per Indian substantive law is not applicable in case of arbitrations seated outside India. In such a case, the conflict of laws rules of the seat will apply. The converse interpretation would amount to extra-territorial operation of Part I of the 1996 Act.  In fact, Supreme Court in the same paragraph has said that Section 28 r/w 2(1)(f) modifies the conflict of laws rule as applicable when the place (seat) of arbitration is in India.
• TDM Infrastructure, although contains observations contra to the eventual decision of the Court, is a proceeding under Section 11 of the 1996 Act and also provides that the observations contained therein pertained only to determining the jurisdiction of the court and not for any other purpose. However, in Atlas Exports case, the Supreme Court held that an agreement providing for arbitration between two Indian parties by foreign arbitrators is valid. Thus, from the case, it appears that an agreement providing for arbitration between two Indian companies in a foreign seat is valid. Given that the provisions of the 1940 Act and 1996 Act are similar, there is no reason why Atlas Exports, a decision by a Bench larger than TDM Infrastructure, and under the 1940 Act, should apply. Besides, a corrigendum was added in TDM Infrastructure subsequent to its pronouncement that the observations in the decision would apply only for the determining the court's jurisdiction. Therefore, the decision is not law declared by the Supreme Court for the purpose purposes of Article 141 of the Constitution.
• Atlas Exports has held valid a contract between Indian parties agreeing to a foreign seat. Such an arbitration is governed by Section 44 of the 1996 Act. For such an arbitration, it has to be established under Section 45 that the arbitration agreement is null & void or inoperable or incapable of being performed. The question on nationality of the parties is to be considered only for the purposes of Part I and not for the purposes of Part II as applicability of Part II is determined based solely on the seat of arbitration.
• Once it is determined that Section 45 is applicable, the judicial authority has no other choice but to refer the matter to arbitration.
• The contention that a plaint cannot be rejected under Order VII Rule 11 CPC on the ground of Section 45 of the 1996 Act is not correct. Once Section 45 is attracted, the suit is not maintainable. Under Section 9 CPC, the suit is not maintainable if it is expressly or impliedly barred. The suit in such a case has to be dismissed even as per the Madras High Court in Adam & Coal Resources case. An appeal from such a decision would be hit by Section 50 of the 1996 Act. 
• The crucial test as per Enercon case is whether the parties intended to arbitrate. If the parties intended to arbitrate, then it is the "bounden duty" of the judicial authority to refer the parties to arbitration.
• As regards the two agreements, although Agreement II permitted American Indian to step into the shoes of American Coal, Agreement I between Sasan and American Coal still subsisted. Therefore, the contention that the entire Agreement I stood novated by Agreement II is incorrect. The nature of the transaction itself is akin to Section 43 which contemplates two joint promisors making a promise. In such a case, any of the parties can compel performance of the agreement.
• Once parties themselves have chosen a foreign seat, Section 2(2) of the 1996 Act is inapplicable. In such a case, Part I of the 1996 Act will not apply. Part II will come into play since the agreement complies with Section 44 of the 1996 Act and therefore Section 45 will bar the suit.

On the basis of the aforesaid reasoning, the High Court dismissed the appeal by Sasan. The decision of the High Court can be accessed from here.

In the next posts, we will look at the decision of the Supreme Court and our take on the entire case. 

Soumya Murder Case: Awaiting the debate between Justice Katju and the Supreme Court Bench (Guest Post)

Ms. Prerana Saraf, who writes at Legal Parley, has contributed this guest post on the Sowmya murder case and the recent order of the Supreme Court pertaining to Justice Katju. The guest post is reproduced below (with a few formatting changes).

Govindswamy v. State of Kerala came into the limelight after Markandey Katju, retired Supreme Court judge blamed the judges of making a grave error by acquitting the accused of murder on the basis of hearsay evidence in his personal blog, Satyam Bruyat.

In his blog post dated 17^th September, 2016, Markandey Katju questions how Supreme Court could rely on hearsay evidence which is inadmissible as evidence. He also mentions Section 300 of IPC, which reads that an accused is guilty of murder even if he had no intention to kill, if he has caused grievous wound that is sufficient to cause death.

On the basis of what has been observed in paragraph 398 of the judgment, he says that the Court has erred in its judgment and requests the court to review the same.

Facts:

On 1^st February, 2011, the deceased boarded the Ernakulam-Shornur Passenger Train at 5:30 PM to go to her home at Shornur. She boarded the ladies division of the last compartment. However, when the train reached Mulloorkara, all other lady passengers alighted the bus. Therefore, the deceased also got down with them and entered the ladies coach just in front of the last compartment. The accused saw that the deceased was alone and entered the ladies compartment as soon as the train left the Vallathol Nagar Railway station. The prosecution alleged that the accused assaulted the deceased and repeatedly hit her head against the walls of the compartment.

It is then alleged that the victim was dropped/pushed by the accused from the running train to the track. The accused also jumped from the other side, after which he lifted the victim to another place by the side of the track and sexually assaulted her.

The prosecution in support of their case had examined 83 witnesses. Among them Witness No. 4 and 40 were travelling in the general compartment and had heard the woman crying and wailing. Even though witness No. 4 wanted to pull the chain, he was told by a middle aged man that the woman had jumped off the train and made good her escape and that he should not take the matter any further as they would all then be dragged to the court. The witnesses brought the incident to the attention of the guard as soon as they reached Shornur, which triggered the search for both the victim and accused. The victim was then found in badly injured condition by the side of the track.

Analysis:

On the basis of the forensic evidence, the court found the accused guilty of rape under Section 376 of IPC and confirmed the imposition of life sentence as awarded by Trial Court and confirmed by High Court. With respect to the charge of murder against the accused under Section 302 of IPC, it was observed that the death was a result of two sets of injury. 

The court was of the opinion that the fact that first set of injury was caused by the accused did not need reconsideration, as it was already clear with the witnesses’ statement and the forensic report. 

However, the second set of injury was caused due to the victim’s fall from the train. The court was of the opinion that unless the fall from the train can be ascribed to the accused on the basis of reliable evidence as against the possibility of deceased herself jumping out, the liability of the accused for the victim’s death cannot be determined. 

In this connection, it was the state’s contention that owing to the first set of injury that had impaired her mental reflexes, the deceased could not have been in a position to jump off the train.

However, the court observed that the circumstances against the accused had to be weighed against the oral evidence of the witnesses. The statement wherein it is said that a middle-aged man told them that the girl had jumped off the train and made her escape.

Also, according to the forensic report, the death was caused due to the supine position (head and torso facing upwards) that the victim laid in. Here again, the court observed that the victim was kept in supine position only for the purpose of sexual assault and the fact that the victim was alive for a few days after the incident goes on to establish that the accused had no intention of killing the deceased.

Judgment:

The court, therefore held that the accused cannot be convicted of murder under Section 302 of IPC. The bench instead held him guilty under Section 325 of IPC, which provides punishment for voluntarily causing grievous hurt.

Suo motu notice by Supreme Court:

A three judge bench consisting of Justices Ranjan Gogoi, P.C. Pant and U.U. Lalit took suo motu judicial notice of Justice Katju's blog criticising the order and called for a debate on the case.

The order was passed after a review petition was filed by the state. The bench observed that it was not appropriate to take a decision until the debate with Justice Katju was over.

Justice Katju posted on his Facebook page that he has not received any official letter from the court. He has however, been informed by the Kerala State Advocate on record and he would be delighted to appear and discuss the case in the open court provided the Court feels that Article 124(7) does not debar him on account of him being a former Supreme Court judge.

Well, this would be one hearing to look forward to and hopefully the discussion would provide the victim and her family the justice she deserves.  

The Debate on the Law Commission's Questionnaire on the Uniform Civil Code: Some Comments

This post pertains to Questionnaire published by the Law Commission of India about reforming personal laws and the uniform civil code. The post is in two parts (both published in this post). The first part of the post attempts to answer the questionnaire. The second part of the post discusses a more serious aspect about the role of the Law Commission of India.

I: Responses to Law Commission's Questionnaire

[Disclaimer: This post represents the author's, and not the blog's view, on the questionnaire. The lead co-author, who is an expert in constitutional law (and this author is neither an expert on constitutional law nor on personal laws), we're sure, has a more nuanced perspective to the entire issue.]

The questions in the Commission's questionnaire are in italics.

1. Are you aware that Article 44 of the Constitution of India provides that “the State shall endeavour to secure for the citizens a Uniform Civil Code throughout the territory of India”? 

Yes. This matter requires further initiatives for the following reason:

The Directive Principles of State Policy (hereinafter “Directive Principles”) have been enshrined in the Indian Constitution primarily in order to promote social and economic justice. As per Article 37, these Principles shall be “fundamental in the governance of the country” and the Constitution of India has mandated “the State to apply these principles in making laws.” In the course of the Constituent Assembly debates, several members opposed to the idea of a uniform civil code, it was observed that a uniform law applicable to all would promote national unity and, at the same time, no legislature would forcibly amend personal law if people were opposed to it. 

At this juncture in Indian polity, considering the opposition to a complete disregard to personal laws and bringing in a uniform civil code it its stead, a civil code on aspects hitherto covered by personal laws may be a drastic move and may lack legitimacy. As noted by the Constituent Assembly, ultimately, the citizens should be subjected to one civil code. Hence, introduction of a Uniform Civil Code should be a gradual process. At the same time, personal laws are being regarded as biased, especially against gender. Many a time, personal laws operate harshly against a particular gender, which is against the Constitution of India. These realities must be kept in mind in a debate on the subject. 

Broadly, the reforms towards a Uniform Civil Code should be a two-step process. The first step should be bring about comprehensive reforms to personal laws thereby eliminating all aspects which discriminate against a particular gender and bringing them in line with the fundamental rights and the Constitution of India. The first step includes codification of customary practices in each personal laws and ensuring a uniform code under each personal law. Once sufficient reforms are achieved, the second step is to introduce a Uniform Civil Code.

Q. No. 2 regarding the ambit of a Uniform Civil Code does not arise in view of Answer to Q. No. 1. However, if introduced it should cover all aspects presently covered by personal laws. 

3. Do you think the existing personal laws and customary practices need codification? 

Personal laws and customary practices should be codified to bring clarity in them and prevent uncertainty in application. Codification will be very helpful in bringing such practices in line with the Constitution.

4. Will the Uniform Civil Code or the codification of personal laws and customary practices bring about gender equality?

Yes. Both per se cannot strictly bring about gender equality. But a UCC or codification will help bring certainty to these laws and practices and will enable ease of testing them for constitutional consonance. 

5. Should the Uniform Civil Code be optional?

As stated in answer to Q. No.1, in the two-step process, neither should be optional. The first step in codifying and reforming personal laws and the second step in bringing about a Uniform Civil Code. 

6. Polygamy, polyandry and similar customary practices should be banned as they are not in tune with the current circumstances. 

Reforming personal laws should include these aspects as well.

7. Triple talaq operates harshly against women and should be abolished in toto.

8. Do you think that steps should be taken to ensure that Hindu women are better able to exercise their right to property, which is often bequeathed to sons under customary practices?

None of the three options suggested by the Commission are appropriate. Following are the measures that could be adopted:

It is true that in many families, the testator bequeaths immovable property to sons rather than daughters. This author had the opportunity to deal with a similar case. While it is acknowledged that this is predominantly a social issue, a few safeguards in law could be taken: A provision should be introduced in the Indian Succession Act, 1925 to the effect that any bequest denied to a female heir but made to a male heir on the ground that the testator spent money and resources in getting her married or such similar reason should be void.

Another measure that could be adopted is that wills which deny benefit to a female heir but which grant the benefit to a male heir should be viewed as a suspicious circumstance per se. This would be rule of evidence than a substantive legal rule. This principle should be statutorily recognized so that the burden lies on the propounder to establish that there were sufficient reasons to deny the female heir of the bequest. 

9. Do you think that a two-year wait period for Christians violates Christian women’s right to equality?

Yes, it does. The wait period should be made uniform across all religions. The present two-year wait period operates as a source of corruption. Judges at their option apply decisions of certain High Courts (Kerala, the Karnataka and Bombay [Nagpur Bench] High courts) reading the two year waiting period as one year. 

10. Do you think that there should be a uniform consent age for marriage across all personal laws?

Yes. Consent is a matter of body and mind and has very little to do with which religion a person belongs to.

11. Do you agree that all religious denominations should have common grounds for divorce?

c. Not necessarily, However, the grounds should be the same for men and women. 

12. Would a uniform civil code address the problems of insufficient maintenance?

Yes it would. Even if the (suggested) first step to codify and reform personal laws is implemented as a first step, the law on maintenance should be able to adequately address the problem of insufficient maintenance. This is because maintenance is more a matter of economic security to ensure that the woman leads a dignified life and is not at all a matter of religion. 

13. How can compulsory registration of marriages be implemented better?

a. Temples, churches, mosques and other religious places which conduct marriages should be obligated to counsel the parties to the marriage to get their marriage registered.

b. Before issuing identity cards such as Aadhar Card, licence, ration card or documents such as passports, etc., the husband or the wife or the parent, as the case may be, applying for the said document, should furnish proof of marriage registration irrespective of the religion. 

14. What measures should be taken to protect couples who enter into inter-religious and inter-case marriages?

a. Special Marriage Act should be made simpler. Registration offices should not insist on producing marriage cards or receipts of proof of marriage, which they do in case of such marriages, even though the Act does not strictly mandate it. The Registration offices should, instead be offices where marriage is conducted in the presence of sufficient witnesses.

b. Where such marriages take place or registrations take place, the same should be adequately videographed and documented.

c. Special Protection Homes should be introduced in such cases where the bride and the groom fear their safety. Suitable counselors should be appointed. Special training should be given in trades and crafts to them and suitable economic opportunities such as jobs in self-help groups, etc. should be facilitated. 

15. Would a uniform civil code infringe an individual’s right to freedom of religion?

No, it would not. If a uniform criminal law does not infringe an individual right’s to freedom, a uniform code will not infringe on an individual right to freedom of religion. Further, Constitution of India is supreme and anything that conflicts with the Constitution cannot remain above the Constitution. However, as stated in response to question no. 1, this is not the appopriate time for bringing about a uniform civil code. 

16. What measures should be taken to sensitise the society towards a common code or a codification of personal law?

Firstly, the codification and reforms to be brought out should be from the specific communities themselves. Such codes should come from the communities themselves. Secondly, Law Commission should assess each such code for their constitutional compatibility with jurists and experts well-versed with each personal law and thrash out all outstanding issues and thereby reform and codify personal laws. 

Once these reformed and codified personal laws are implemented and their success gauged, introduction of a Uniform Civil Code will become a legitimate exercise.

Part II: Shouldn't Law Commission be Made an Independent Statutory Body?

The recent attack by certain sections of certain religions vehemently attacked the Law Commission's questionnaire. Among other allegations, the prominent one was that the questionnaire was an attempt by the Government-in-power to target certain religious communities. Irrespective of the validity of such a criticism, such comments reflect poorly on the Law Commission. The Commission is supposed to be a prestigitous body instrumental in initiating, discussing and suggesting reforms in law. Such allegations lower the image of the Commission. Another aspect is that the task of the Commission inherently involves the possibility of criticising the Government-in-power's laws and testing their effectiveness. Often the views of the Commission can (and at times, should) be in contradiction with the Government's views. For these reasons, the Law Commission must be an independent statutory body. It is time for a suitable legislation for making the Law Commission a statutory body and ensuring its independence and competence by a suitable process constituting it and laying down its framework. 

(P.S. Forgive us readers for not posting Part II of Sasan Power. We are in the process of completing the second part (Part II will deal with the MP High Court decision) and we will also post the concluding part hopefully by next week. Lots to post on, especially the recent decision of the Supreme Court on arbitrability of disputes involving allegations of fraud. )

Reforms on Court Fee to Set Aside Arbitral Award in Tamil Nadu

A recent Report by the Court Fee Rationalisation Committee in Tamil Nadu has recommended that the court fee for setting aside arbitral awards be made ad valorem.  Court Fee for setting aside an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 is currently on Rs. 5,000/- irrespective of the quantum of the award.

The Court Fee Rationalisation Committee (CFRC) was constituted by a Division Bench of the Madras High Court vide order dt.  18.12.2015 pursuant to several writ petitions. The fundamental reason why the Committee was constituted was to address the anomaly in court fee in plaints in the original side of the High Court and that of other courts ("[C]ourt fees is levied on plaints filed in the original jurisdiction of the High Court at 1% ad valorem on a tapering scale while court fees is levied on plaints filed in courts subordinate to the High Court at 7.5% ad valorem on a flat scale."). The Committee's primary recommendation was to reduce the court fee from 7.5% to 2-3%. On arbitration, the Committee noted that the court fee for challenging arbitral awards should be made ad valorem and the percentage to be charged should be same as that of suit, that is, 2-3%. The Committee further noted that the maximum court fee to be charged in such actions should be Rs. 1,00,000. The Committee was of the view that the same recommendations should apply to petitions under Section 48 as well.

It is intuitive that a party would be willing to take file a petition to set aside arbitral awards so as to postpone payment even if the grounds of challenge of the arbitral awards are frivolous, especially in a legal environment where indemnity costs are not imposed for frivolous challenges and the rate of interest awarded is less. It is also intuitive that the court fee payable for setting aside an arbitral award will have a lot of bearing on a party deciding whether to challenge an arbitral award issued against it.

The existing fee regime in Tamil Nadu, however, provided for Rs. 5,000 as the court fee for setting aside arbitral awards. This neither has the potential to deter frivolous challenges to awards nor reflects the considerable court time in hearing these matters, especially when the dispute forming the subject of the award is complicated. Therefore, the recommendation of the Committee to make the court fee ad valorem is welcome. In fact, we had previously advocated the same in several forums [See, for instance, Developing India as a Hub of International Arbitration: A Misplaced Dream? (page 107)( July 2016)and this Letter to the Government].
 .  

However, it is doubtable if the cap would make the increase in court fee effective at all. In case of large disputes, the proposed cap on maximum court will will prove ineffective as the cap will eliminate the effect of court fee as one of the methods of reducing frivolous challenges in case of disputes with larger stakes.

Considering the policy of law towards a general deference to arbitral awards, it is suggested that the court fee for challenging awards be around 7.5% to 8%. But a provision could be made that in case of arbitral awards against individuals or other "persons" (such as Micro, Small undertakings, individuals, etc.) who establish their inability to pay the court fee, appropriate security such as bank guarantee or any other mode of security could be sought to ensure that such parties are not denied access to justice merely because of their inability to cough up court fee.

The Report can be downloaded from here.