Many initial news reports about Sasan Power Ltd. v. North American Coal Corporation India Private Limited said that Supreme Court allowed Indian parties to contract out Indian law or that Indian parties could agree to a foreign seat. Later reports make a little more sense in reporting what the judgement actually meant. Had there not been much publicity about the Madhya Pradesh judgement which preceded the Supreme Court decision, we do not think that the Supreme Court's decision would have surprised (disappointed?) many. There are two judgements in the case- the lead judgement by Chemaleswar, J. and the concurring judgement by AM Sapre, J.  

 

A crucial question was involved in the case: whether two Indian parties could contract out Indian law? Note that Section 28 of the Arbitration and Conciliation Act, 1996 provides that "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..." Note also that Section 28 is in the context of arbitration law. Before this, the facts.

 

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. Let's call this agreement "Agreement I" (as the Supreme Court did). 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".

 

Now, 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.

 

Disputes arose. American Coal wrote to Sasan terminating Agreement I and sought to refer the dispute to arbitration. Sasan, interestingly, approached the relevant District Court seeking several reliefs against American Indian (not American Coal, it may be noted). Sasan sought the relief of declaration holding Article XII of the Agreement as null, void, inoperative and unenforceable. Again, interestingly, there was absolutely no relief claimed in respect of Agreement II. 

 

Eventually, the suit was dismissed. On appeal, the Madhya Pradesh High Court held that where parties decided to resolve their disputes by arbitration in a seat outside India, Part I of the Act would not apply. On this basis, the MP HC held that if the agreement satisfied the requirements of Part II, Part II would apply, in which case the parties have to be referred to arbitration as per Section 45. The Court therefore dismissed the appeal. 

 

While summarising the MP HC decision, the Supreme Court made an interesting observation (See, para 11 of the SC judgement). The SC acknowledged that one of the grounds of appeal to the SC was that the HC erroneously rejected the contention that two Indian parties could not agree to have their arbitration seated outside India. But the SC stated: "We do not find from the impugned judgement anything to indicate that such a submission was made before the High Court." In other words, the Supreme Court clarified that although the MP HC held valid and enforceable an agreement whereby two Indian parties could agree to a foreign arbitral seat, such a submission was seemingly never made by the parties before the HC (at least from the decision of the HC)! It appears that the counsel of American Coal clarified before the Supreme Court that he was not making that submission. 

 

Wow! What was happening? Did the Madhya Pradesh High Court draw a rabbit out of the hat?!

 

In any case, the Supreme Court in Sasan did not decide on whether two Indian parties could agree to a foreign seat, in opposition to the Supreme Court's judgement in TDM Infrastructure. As the Supreme Court clarified in para 12 of its judgement in Sasan, the court confined itself to deciding whether two Indian companies could contract out Indian substantive law.

 

More on the interesting case in the next post.