Sasan Power Limited v. North American Coal Corporation India Private Limited

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 8299 of 2016)Decided 24 Aug 2016
Civil Appeal No. 8299 of 2016
Justice J. Chelameswar · Justice Abhay Manohar Sapre

Background

Sasan Power Limited (an Indian company) and North American Coal Corporation (an American company) entered into an agreement for mine development consultancy services, which provided for disputes to be resolved by ICC arbitration seated in London under English/UK law, and excluded Part I of India's Arbitration Act. A related agreement later assigned the American company's rights to its Indian subsidiary, North American Coal Corporation India Pvt. Ltd. (the respondent). When a dispute arose, Sasan filed a civil suit in India seeking a declaration that the arbitration clause was void, while the respondent sought to have the suit referred to arbitration under Section 45 of the Arbitration Act; the trial court agreed the arbitration agreement was valid but simply dismissed the suit instead of formally referring the parties to arbitration.

Decision Breakdown

The Supreme Court held that the arbitration clause (Article XII) was valid, legally binding, and satisfied the test laid down in Bhatia International for excluding Part I of the Indian Arbitration Act in international commercial contracts governed by foreign law. It rejected Sasan's argument that the clause was void under Indian contract law, holding that validity of the arbitration agreement is assessed independently of the substantive contract and that the dispute was not exclusively a two-party matter, making the sought declaration misconceived. The appeal was dismissed with costs, but the Court clarified that the trial court's order needed a technical modification: Section 45 obligates a court, once it finds an arbitration agreement valid and operative, to affirmatively refer the parties to arbitration rather than merely dismissing the suit, so the order was corrected to that limited extent while otherwise being upheld.

Lesson Learnt

When Indian and foreign parties agree to resolve disputes through foreign-seated international arbitration under foreign law, Indian courts will generally uphold and enforce that choice rather than entertain a parallel domestic lawsuit; and when a court finds such an arbitration clause valid, the law requires it to formally refer the parties to arbitration, not just dismiss the case.

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