Interbulk Trading SA vs Adam and Coal Resources Pvt. Ltd.

R.S. Ramanathan, J.—The Defendant in C.S. No. 244 of 2013 filed the Application to reject the Plaint in C.S. No. 244 of 2013. The Respondent/Plaintiff filed a Suit C.S. No. 244 of 2013 seeking for the following reliefs:

"(a) Directing the Defendant to pay to the Plaintiff, a sum of Rs. 42,75,280.00 [Rupees Forty Two lakhs Seventy Five thousand Two hundred and Eighty only] together with interest at the rate of 12% per annum from the date of suit till date of actual payment thereof;

(b) Declaring that the award recorded in Arbitration No. 075 of 2011 (ARB/075/11/NAB), dated 14.1.2013 is null and void for want of mandate in the light of the fulfillment of the conditions set out in the Settlement Agreement, dated 21.9.2011;

(c) Granting a perpetual permanent injunction against the Defendant restraining it from continuing with proceedings under Arbitration No. 075 of 2011 (ARB/075/11/NAB) before the Singapore International Arbitration Centre;

(d) Granting a perpetual permanent injunction against the Defendant restraining it from initiating any proceedings to enforce the award rendered in Arbitration No. 075 of 2011 (ARB/075/11/NAB); and

(e) Granting the costs of the Suit."

The case of the Respondent/Plaintiff is that they entered into a Contract, dated 16.9.2010 with the Applicant/Defendant for the supply of coal to the Applicant/Defendant. The Respondent/Plaintiff for various reasons was not able to act according to the terms of the contract and therefore, there were negotiations with the Applicant/Defendant and finally both parties arrived at a settlement, by which the Respondent/Plaintiff agreed to pay US$ 337,500.00 subject to certain conditions stated in the Agreement. The Applicant/Defendant was not agreeable to certain condition and filed notice of Arbitration and commenced Arbitration proceedings under Arbitration No. 075 of 2011(ARB/075/11/NAB). Thereafter, a fresh set of negotiation took place and finally the parties arrived at a Settlement Agreement, dated 21.9.2011 and as per the said Settlement Agreement, the Respondent/Plaintiff will pay US$ 337,500.00 to the Applicant/Defendant by swift transfer on or before 30th September 2011. The said payment will be in full and final settlement of the subject matter and claim in the Arbitration Proceedings and on receipt of the said sum, the Applicant/Defendant shall discontinue the Arbitration proceedings initiated by them and if the amount stated above were not paid by the Respondent/Plaintiff on or before 30.9.2011, the Settlement Agreement shall automatically become null and void.

It is further stated that the Settlement Agreement was silent on whether the sum of US$ 337,500.00 was inclusive or exclusive of taxes and according to the Respondent/Plaintiff, the understanding was that the said sum was inclusive of taxes. The Respondent was informed by their Bankers that the proposed remittance of US$ 337,500.00 must be in the prescribed Form 15-CA provided by the Indian Income Tax Authorities and Certificate by an Auditor in Form 15-CB as to whether the applicable tax on a foreign remittance had to be deducted at source or not. Therefore, the Respondent addressed an email, dated 23.9.2011 to the Applicant bringing to their notice the new Regulations framed by RBI, all foreign remittances from India has to be certified by an Auditor in the prescribed form and the Auditors have to certify whether the applicable taxes will have to be deducted at source on such remittances or not. The Respondent also informed that their Auditor was not sure of the position whether taxes ought to have been deducted at source in India or not and the Auditor would consult with the International Taxation Department and would inform his opinion later. It was further stated in the said email that if any applicable taxes had to be deducted on the above remittance, the same would be deducted and remitted to the Defendant/Applicant and the Applicant can also claim the benefit of such tax from their country by virtue of Double Taxation Avoidance Agreement between two countries. There was no response from the Applicant to this email. Therefore, on 27.9.2011, another email was sent by the Respondent communicating the opinion of that auditor and even to that email, there was no responsible from the Applicant. Therefore, on 29.9.2011, the Respondent informed the Applicant that their Bank had debited their account towards remittance of US$ 270,000 [US$ 337,500 less withholding tax US$ 67,500] as per the Settlement Agreement, dated 21.9.2011. The Applicant did not object to such transfer and according to the Respondent, the Applicant received a sum of US$ 270,000 without a demur and was fully aware that US$ 67,500 would be recovered by them by producing TDS Certificate before their Tax Officials as per the Double Taxation Avoidance Agreement.

It is further stated that the Respondent remitted US$ 67,500 to the Indian Tax Authorities, on the basis of the advice given by their Auditor and therefore, the Respondent had fulfilled its obligations as per the Settlement Agreement, dated 21.9.2011 and therefore, the Applicant has to fulfill its obligation by withholding the Arbitration proceedings initiated earlier.

Surprisingly, the Applicant sent a Legal Notice on 3.10.2011 stating that they had not received the amount as agreed under the Settlement Agreement and therefore, the agreement has become null and void and also revived the Arbitration proceedings and proceeded to claim a sum of US$ 575,000. The Respondent contested the said claim before the Tribunal. Nevertheless, the Tribunal decreed the claim as prayed for and passed an award for US$ 305,000 by deducting US$ 270,000 from the claim of US$ 575,000. The Applicant also issued a letter, dated 4th February 2013 to the Respondent that costs of SD 32,105.67 was also liable to be paid towards Arbitration expenses in addition to the award.

According to the Respondent, the revival of Arbitration proceedings by the Applicant is not legal, as the earlier contract between the parties entered into on 16.9.2010 came to an end by the execution of the Settlement Agreement, dated 21.9.2011 and therefore, the Arbitration Clause in the First Agreement, dated 16.9.2010 cannot be invoked and the parties are governed by the terms of the Settlement Agreement, dated 21.9.2011, which has no Arbitration Clause and therefore, the award passed in Arbitration No. 075 of 2011 (ARB/075/NAB), dated 14.1.2013 is null and void and by reason of the breach committed by the Applicant, the Respondent suffered enormous loss and the same was quantified at Rs. 42,75,280/- and claimed that amount and for permanent injunction restraining the Applicant from continuing with the proceedings in Arbitration No. 075 of 2011 (ARB/075/11/NAB), dated 14.1.2013 and also from initiating any proceedings to enforce the award rendered in Arbitration No. 075 of 2011.

In that Suit, the Applicant filed three Applications to refer the parties to Arbitration in terms of Article 13 of the Agreement, dated 16.9.2010 in accordance with Section 45 of the Arbitration and Conciliation Act, 1996 to revoke the leave granted in Application No. 1573 of 2013, dated 3.4.2013 and to reject the Plaint in C.S. No. 244 of 2013. By consent, the Application No. 2842 of 2013 filed for rejection of the Plaint was taken.

Mr. P. Giridharan, the learned Counsel appearing for the Applicant submitted that after an award was passed by the Arbitral Tribunal at Singapore, it attained finality and the Indian Courts have no jurisdiction to entertain any Suit or to pass an order of injunction and the Award, dated 14.1.2014 passed by Singapore International Arbitration Centre under the Rules of SIAC, can be challenged by filing an Appeal and as per the Arbitration and Conciliation Act, 1996, this Court has no jurisdiction to entertain such Suit and therefore, the Plaint is liable to be rejected.

He further contended that though the parties entered into an Settlement Agreement, dated 21.9.2011 and though there is no Arbitration Clause in the agreement, the said Settlement Agreement, dated 21.9.2011 has no independent existence and it has to be read along with earlier contract, dated 16.9.2010, which contains an Arbitration Clause and therefore, under Section 45 of the Arbitration and Conciliation Act, 1996, the matter has to be referred to Arbitration.

He also relied upon the unreported Judgment rendered in Appeal No. 206 of 2013 in Arbitration Petition No. 1070 of 2011 in Suit No. 2287 of 2011, dated 16.8.2013, Mulheim Pipecoatings GmbH v. Welspun Fintrade Limited & another, rendered by the Hon''ble Division Bench of Bombay High Court; in the case of PPN Power Generating Company Limited Vs. PPN (Mauritius) Company and Others, ; in the case of Devinder Kumar Gupta Vs. Realogy Corporation and Another, ; in the case of Bhushan Steel Ltd. Vs. Singapore International Arbitration Centre and Another, , in support of his contention that even though, the Settlement Agreement entered into, does not contain any Arbitration Clause, having regard to the Arbitration Clause in the original contract, dated 16.9.2010 by reason of the Doctrine of Separability, the Arbitration Agreement in the Contract, dated 16.9.2010 has to be incorporated into the Settlement Agreement, dated 21.9.2011 and therefore, the parties have to refer the dispute to Arbitration under section 45 of the Arbitration and Conciliation Act, 1996.

Mr. Anirudh Krishnan, the learned Counsel appearing for the Respondent submitted that after the parties entered into a Settlement Agreement, the earlier Agreement, dated 16.9.2010 has to be treated as infructuous and the parties are governed by the terms of the Settlement Agreement, which admittedly has no Arbitration Clause and therefore, the provisions of the Arbitration and Conciliation Act, 1996 cannot be invoked and there is no necessity to refer the dispute to Arbitration.

He further submitted that having regard to the provisions of the Income Tax Act, the Respondent deducted the tax and by virtue of the Double Taxation Avoidance Agreement entered into between the parties, the said sum, which was remitted as tax, can be claimed by the Applicant and the Applicant is also deemed to have received the entire sum of US$ 337,500 as the tax deducted shall be deemed to be the income received for the purpose of computing the income of the assessee. He further submitted that the Respondent fulfilled its agreement as per the Settlement Agreement and therefore, the dispute between the parties was fully and finally settled, which can not be reopened in the Arbitration proceedings initiated by the Applicant and therefore, the provisions of Arbitration and Conciliation Act, 1996 cannot be invoked by the Applicant.

He further submitted that the Application filed under Order 4, Rule 11 of the Code of Civil Procedure, to reject the Plaint is not maintainable and while dealing with such Application for rejection of the Plaint, the averments made in the Plaint have to be seen and if as per the averments made in the Plaint, the Suit is not barred by any law, the Plaint cannot be rejected and the averments in the Written Statement cannot be looked into for the purpose of arriving at a decision that the Suit is barred by any law and relied upon the Judgment reported in the case of Ramesh B. Desai and Others Vs. Bipin Vadilal Mehta and Others, .

He also submitted that a part of cause of action arose at Chennai and as per Clause 12 of the Letters Patent Act, this Court has got jurisdiction if part of the cause of action arises within the jurisdiction of this Court and Settlement Agreement was concluded at Chennai and the Settlement Agreement was signed by the Applicant at Chennai and therefore, this Court has got jurisdiction and relied upon the following Judgments:

"1. In the case of Bhagwandas Goverdhandas Kedia Vs. Girdharilal Parshottamdas and Co. and Others, ;

In the case of Manilal and Others Vs. M.P. Venkatachalapathi Iyer (deceased) and Others, ;

In the case of G. Venkatesha Bhat and Others Vs. Kamlapat Motilal and Others, ; and

In the case of A.B.C. Laminart Pvt. Ltd. and Another Vs. A.P. Agencies, Salem, ."

He also relied upon the of the Hon''ble Supreme Court reported in the case of Laxman Prasad Vs. Prodigy Electronics Ltd. and Another, , for the proposition that though the Settlement Agreement is governed by Singaporean law, the jurisdiction of this Court is not taken away by reason of that.

He also contended that the jurisdiction of this Court has not been taken away by the Arbitration and Conciliation Act, 1996 by referring to Sections 5, 45 & Section 2(2) of the Arbitration and Conciliation Act, 1995. He also relied upon the Judgment reported in the case of BEFESA AGUA and Another Vs. IVRCL Infrastructure and Projects Ltd. and Others, , for the proposition that when there is no Arbitration Agreement in the Settlement Agreement dated, 21.9.2011, the question of reference to Arbitration does not arise. He further submitted that the main question to be decided is whether full and final settlement was made, as per the Settlement Agreement, dated 21.9.2011 and that can be decided by this Court and relied upon the Judgment of the Supreme Court of New South Wales in Shangai Ford Trade Corporation (China) v. Sigma Metallurgical Co. Pty. Ltd., 1996 133 FLR 147.

He further submitted that though the Respondent has not challenged the award in Singapore and did not raise any objection before the Tribunal at Singapore, once the matter is fully and finally settled, the same cannot be reopened and re-agitated and therefore, the proceedings before the Arbitral Tribunal at Singapore inherently lacks jurisdiction and nullity and therefore, the same cannot be enforced in India and relied upon the following Judgments:

In the case of Behari Lal Vs. Radhye Shyam, ;

In the case of Sunder Lal Vs. Ram Krishan and Another, ;

In the case of Amrit Banaspati Co Ltd. v. Union of India, AIR 1996 All 104; and

In the case of Bharat Sanchar Nigam Ltd. and Another Vs. BPL Mobile Cellular Ltd. and Others, .

He, therefore, submitted that the Suit is maintainable and the same cannot be rejected.

The admitted facts are as follows:

"On 16.9.2010, Sale and Purchase of Coal Agreement was entered into between the parties and that Agreement contains Arbitration Clause in Article 13. Thereafter, on 21.9.2011, the Settlement Agreement was entered into between the parties, whereby it was agreed that the Respondent would pay US$ 337,500 on or before 30.9.2011 by swift transfer to the account given in that settlement and that payment would be considered as full and final settlement of the subject matter and the claim in the Arbitration proceedings and on receipt of the said sum of US$ 337,500, the Applicant would apply to SIAC for discontinuance of the Arbitration proceedings within 3 days from the date of receipt of the said sum and if the agreed amount were not paid by the Respondent on or before 30.9.2011, the Settlement Agreement would become null and void."

It is also admitted that earlier to that, Arbitration proceedings were initiated by the Applicant against the Respondent before the Singapore International Arbitration Centre in Arbitration No. 075 of 2011 (ARB/075/11/NAB) for the breach of the contract, dated 16.9.2010. Thereafter, emails were sent by the Respondent stating that as per RBI Regulations, taxes have to be deducted and informed the Applicant that the Respondent remitted US$ 270,000.00 in full discharge of their obligations under the Settlement Agreement after remitting US$ 67,500.00 towards tax and so forwarded the Tax Remittance Certificate and till such time, there was no action on the part of the Applicant and after receiving US$ 270,000 from the Respondent, the Applicant proceeded with the Arbitration proceedings already initiated claiming that the amount mentioned in the Settlement Agreement was not fully paid and therefore, the Settlement Agreement become null and void and claimed US$ 575,000 and the Tribunal, after taking into consideration of the payment of US$ 270,000 by the Respondent, passed an award for a sum of US$ 305,000 with simple interest on that amount at the rate of 5.33% per annum and in that Arbitration proceedings, the Respondent also participated and after hearing both parties, the award was passed.

As stated supra, the second prayer in the Suit C.S. No. 244 of 2013 filed by the Respondent is to declare that the Award rendered in Arbitration No. 075 of 2011 (ARB/075/11/NAB), dated 14.1.2013 as null and void and for permanent injunction restraining the Applicant from continuing with the proceedings under the Arbitration No. 075 of 2011 (ARB/075/11/NAB) and also from initiating any proceedings to enforce the said Award. The first prayer is for recovery of a sum of Rs. 42,72,280.00/- as damages with interest.

It is the contention of the learned Counsel for the Respondent that a Plaint cannot be rejected in part and having regard to the prayer (A), namely the prayer for recovery of Rs. 42,75,280.00 as damages cannot be said to be barred under the provision of Arbitration and Conciliation Act, 1996 even assuming that other prayers are barred as contented by the Applicant and as per Clause 12 of the Letters Patent, the Suit is maintainable when a part of contract arises at Chennai. Admittedly, the Settlement Agreement was entered into at Chennai and finally concluded at Chennai and payments were made at Chennai, pursuant to the agreement and therefore, the Plaint cannot be rejected. He also contended that there is no question of applicability of Arbitration and Conciliation Act, 1996 as there is no Arbitration Clause in the Settlement Agreement, dated 21.9.2011 and after the execution of the Settlement Agreement, dated 21.9.2011, the earlier Contract, dated 16.9.2010 has become infructuous and therefore, the Arbitration Clause in the earlier Contract, dated 16.9.2010 cannot be invoked to proceed with the Arbitration proceedings before SIAC. He, therefore, submitted that the proceedings before SIAC lacks inherit jurisdiction and it is void and therefore, the same can be challenged before this Court and there is no bar under the provisions of the Arbitration and Conciliation Act, 1996.

We shall take the later contention of the learned Counsel Mr. Anidudh Krishnan first. Admittedly, the Arbitration proceedings were initiated at Singapore, as per Clause 13 of the Agreement, dated 16.9.2010 and during the pendency of the said Arbitration proceedings, settlement was arrived at between the parties and the Applicant agreed to receive US$ 337,500 in full and final settlement of the claim made by them before the Arbitral Tribunal. There is a dispute between the parties whether the amount arrived at, namely US$ 337,500 was inclusive of tax or not. According to the Respondent, it was inclusive of taxes and even otherwise as per the provisions of Double Taxation Avoidance Agreement between two countries, the amount paid towards taxes shall be treated as money received by the Applicant and the Applicant is also entitled to get the amount on production of the Certificate and therefore, as per the Agreement, the agreed amount was paid by the Respondent and therefore, the entire claim of the Applicant was satisfied and in the absence of any Arbitration Clause in the Settlement Agreement, the Applicant has no right to proceed with the Arbitration and the Arbitral Tribunal has no jurisdiction to entertain such a dispute.

To appreciate the above contention of the learned Counsel Mr. Anirudh Krishnan, appearing for the Respondent, we will have to look at the decision of Hon''ble Supreme Court reported in the case of The Union of India Vs. Kishorilal Gupta and Bros., . In that case, the Hon''ble Supreme Court considered the question whether the Arbitration Clause in the contract will cease to have effect, when the contract stood discharged as a result of settlement. The Hon''ble Supreme Court answered the question in the affirmative and culled out the principles as to when Arbitration Agreements operate and when they do not operate. In the Judgment reported in the case of National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd., , the said principles were incorporated and they are as follows:

"(i) An Arbitration Clause is a collateral term of a contract distinguished from its substantive terms; but none the less it is an integral part of it.

(ii) Howsoever comprehensive the terms of an Arbitration Clause may be, the existence of the contract is a necessary condition for its operation; and the Arbitration Clause perishes with the contract.

(iii) A contract may be non est in the sense that it never came legally into existence or it was void ab initio. In that event, as the original contract has no legal existence, the Arbitration Clause also cannot operate, for along with the original contract, it is also void.

(iv) Though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it, solely governing their rights and liabilities. In such an event, as the original contract is extinguished by the substituted one, the Arbitration Clause of the original contract perishes with it.

(v) Between the two extremes referred to in Paras (c) & (d), are the cases where the contract may come to an end, on account of repudiation, frustration, breach, etc. In these cases, it is the performance of the contract that has come to an end, but the contract is still in existence for certain limited purposes, in respect of disputes arising under it or in connection with it. When the contracts subsist for certain purposes, the Arbitration Clauses in those contracts operate in respect of those purposes."

The said principle was considered by the Hon''ble Supreme Court in the Judgment reported in the case of Damodar Valley Corporation Vs. K.K. Kar, , wherein, the Hon''ble Supreme Court held as follows:

"7...A contract is the creature of an agreement between the parties and where the parties under the terms of the contract agree to incorporate an Arbitration Clause, that clause stands apart from the rights and obligations under that contract, as it has been incorporated with the object of providing a machinery for the settlement of disputes arising in relation to or in connection with that contract. The questions of unilateral repudiation of the rights and obligations under the contract or of a full and final settlement of the contract relate to the performance or discharge of the contract. Far from putting an end to the Arbitration Clause, they fall within the purview of it. A repudiation by one party alone does not terminate the contract. It takes two to end it, and hence, it follows that as the contract subsists for the determination of the rights and obligations of the parties, the Arbitration Clause also survives. This is not a case where the plea is that the contract is void, illegal or fraudulent, etc., in which case, the entire contract along with the Arbitration Clause is non est, or voidable. As the contract is an outcome of the agreement between the parties it is equally open to the parties thereto to agree to bring it to an end or to treat it us if it never existed. It may also be open to the parties to terminate the previous contract and substitute in its place a new contract or alter the original contract in such a way that it cannot subsist. In all these cases, since the entire contract is put an end to the Arbitration Clause, which is a part of it, also perishes along with it."

In the same Judgment, the Hon''ble Supreme Court has also held as follows:

"We have adverted to these several aspects merely to show that contracts being consensual, the question whether the Arbitration Clause survives or perishes would depend upon the nature of the controversy and its effect upon the existence or survival of the contract itself. In other words, where the binding nature of the contract is not disputed, but a difference has arisen between the parties thereto as to whether there has been a breach by one side or the other or whether one or both the parties have been discharged from further performance such differences are "upon", "in relation to" or "in connection with" the contract. That a contract has come to an end by frustration does not put an end to the contract for all purposes, because there may be rights and obligations which had arisen earlier when it had not come to an end, as it is only the future performance of the contract that has come to an end."

In the said Judgment, it is further held that as follows:

"Where, however, as in this case, there was a termination of the contract due to non-performance, the existence of the contract has been assumed for the purposes of such termination. Similarly the question whether there has been a settlement of all the claims arising in connection with the contract also postulates the existence of the contract. The principle laid down by Sarkar, J., in Kishorilal Gupta Bros''s case (supra) that accord and satisfaction does not put an end to the Arbitration Clause was not dissented to by the majority. On the other hand proposition (6) seems to lend weight to the views of Sarkar, J. in these circumstances, the question whether the termination was valid or not and whether damages are recoverable for such wrongful termination does not affect the Arbitration Clause, or the right of the Respondent to invoke it for appointment of an Arbitrator."

In the Judgment reported in the case of National Agricultural Co-op. Marketing Federation India Ltd. Vs. Gains Trading Ltd., , the same question was considered and it was held that the Arbitration Agreement survives and the reason was given as under:

"The Respondent contends that the contract was abrogated by mutual agreement; and when the contract came to an end, the Arbitration Agreement which forms part of the contract, also came to an end. Such a contention has never been accepted in law. An Arbitration Clause is a collateral term in the contract, which relates to resolution disputes, and not performance. Even if the performance of the contract comes to an end on account of repudiation, frustration or breach of contract, the Arbitration Agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract (Vide Heyman v. Darwins Ltd., 1942 AC 356 : 1942 (1) All ER 337(HL); The Union of India Vs. Kishorilal Gupta and Bros., ; and The Naihati Jute Mills Ltd. Vs. Khyaliram Jagannath, .

In the Judgment reported in the case of National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd., , the Hon''ble Supreme Court also considered the term ''accord and satisfaction'' in relation to the subsequent agreement, by which the parties agreed on certain terms in full and final settlement of the earlier same, as per the earlier contract and categorized the cases in three categories as follows:

"(22.1) The issues (first category) which Chief Justice/his designate will have to decide are:

(a) Whether the party making the Application has approached the appropriate High Court.

(b) Whether there is an Arbitration Agreement and whether the party, who has applied under Section 11 of the Act, is a party to such an agreement.

(22.2) The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long barred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

(22.3) The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the Arbitration Clause (as for example, a matter which is reserved for final decision of a Departmental Authority and excepted or excluded from Arbitration).

(ii) Merits or any claim involved in the arbitration."

The National Insurance Company''s case was also considered by the Hon''ble Supreme Court in the Judgment reported in the case of Chloro Controls (I) P. Ltd. Vs. Severn Trent Water Purification Inc. and Others, , and the classifications of cases into three categories stated in the National Insurance Company''s case has been upheld by the Hon''ble Supreme Court in the Judgment reported in the case of Chloro Controls (I) P. Ltd. Vs. Severn Trent Water Purification Inc. and Others, .

Bearing these principles in mind, if we look at the Contract, dated 16.9.2010 and the subsequent Settlement Agreement, dated 21.9.2011, in my opinion, Clause 6 of the Guideline laid down by the Hon''ble Supreme Court in the Judgment reported in the case of The Union of India Vs. Kishorilal Gupta and Bros., , alone will apply and Clause 4 or 5 of the principles stated in that case will not apply.

Similarly, the case was dealt with by the Hon''ble Division Bench of Bombay High Court in Appeal (L) No. 206 of 2013 in Arbitration Petition No. 1070 of 2011 in Suit No. 2287 of 2011, dated 16.8.2013 Mulheim Pipecoatings GmbH v. Welspun Fintrade Limited and another, and the learned Judges discussed the Doctrine of Separability, considered the The Union of India Vs. Kishorilal Gupta and Bros., ; and Damodar Valley Corporation Vs. K.K. Kar, ; National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd., , and also the Judgment reported in the case of The Branch Manager, Magma Leasing and Finance Limited and Another Vs. Potluri Madhavilata and Another, , and formulated the essential features of the Doctrine of Separability as follows:

"(i) The Arbitration Agreement constitutes a collateral term in the contract which relates to the resolution of disputes and not to the performance of the contract. Whereas the substantive terms of a contract define the rights and obligations of the parties, an Arbitration Agreement provides for modalities agreed upon by parties for the resolution of their disputes. Parties agree thereby to have their disputes resolved before an Arbitral Tribunal as distinct from the ordinary Courts of law in the jurisdiction;

(ii) Upon the termination of the main contract, the Arbitration Agreement does not ipso facto or necessarily come to an end;

(iii) The issue as to whether the Arbitration Agreement survives or perishes along with the main contract would depend upon the nature of the controversy and its effect upon the existence or survival of the contract itself;

(iv) If the nature of the controversy is such that the main contract would itself be treated as non est in the sense that it never came into existence or was void, the Arbitration Clause cannot operate, for along with the original contract, the Arbitration Agreement is also void. Similarly, though the contract was validly executed, parties may put an end to it as if it had never existed and substitute a new contract solely governing their rights and liabilities thereunder. Even in such a case, since the original Contract is extinguished or annihilated by another, the Arbitration Clause forming a part of the contract would perish with it;

(v) There may, however, be cases where it is the future performance of the contract that has come to an end. Such an eventuality may arise due to a number of circumstances, in which one or both the parties may be discharged from further performance. Termination of the contract by one party, repudiation of the contract by one party and its acceptance by the other and frustration of the contract are some of the circumstances. The controversy in such matters arises upon or in relation to or in connection with the contract. In all such cases, the contract is not put an end to for all purposes because there may be rights and obligations which had arisen earlier when it had not come to an end. The contract subsists for those purposes and the Arbitration Clause would operate for those purposes;

(vi) The Doctrine of Separability requires, for the Arbitration Agreement to be null and void, inoperative or incapable of performance, a direct impeachment of the Arbitration Agreement and not simply a parasitical impeachment based on a challenge to the validity or enforceability of the main Agreement. In other words, arguments for impeaching the Arbitration Agreement must be based on facts which are specific to the Arbitration Agreement. There may, of course, be facts which are specific to both the main Agreement and the Arbitration Agreement, but there may well be facts which are specific to the main Agreement, but not to the Arbitration Agreement. In the former case, the Arbitration Clause would perish with the main contract while in the latter case, it would not. Another way of considering the matter is whether it is the further performance of the contract that is brought to an end or it is the existence of the contract which is brought to an end. In the former case, where the further performance of the contract has been brought to an end, the Arbitration Clause would survive whereas when the existence of the contract is itself brought to an end, the Arbitration Clause would not survive."

In that case also, the parties entered into a Share Purchase Agreement, which contains an Arbitration Clause and later, they entered into MoU, which does not contain any Arbitration Clause and the question was whether the Arbitration Clause found in SPA could be invoked when there was a dispute regarding the interpretation of MoU and the Division Bench held that the controversy as to whether the rights and liabilities as per SPA continue to hold good or are discharged by reason of the MoU, can only be decided by resorting to the Arbitration Agreement under the SPA and the Arbitration Clause is wide enough to cover the same. According to me, the Judgment of the Hon''ble Division Bench of Bombay High Court squarely applies to the facts of this case and therefore, having regard to the principles laid down in The Union of India Vs. Kishorilal Gupta and Bros., ; Damodar Valley Corporation Vs. K.K. Kar, , and by applying the Doctrine of Separability, I am of the view that the Arbitration Clause in the earlier Contract, dated 16.9.2010 can be invoked for the purpose of deciding whether the settlement was effected as per the Settlement Agreement.

My aforesaid view is further confirmed by the conduct of the parties. Admittedly, even prior to the Settlement Agreement, the Applicant initiated Arbitration proceedings and after the dispute arose between the parties whether the payment of US$ 270,000 by the Respondent after deducting the tax amounts to full settlement or not, was considered by the Arbitral Tribunal and the Respondent also participated and finally an award was passed. Though, it was contended by the learned Counsel Mr. Anirudh Krishnan that by mere participation before the Tribunal will not amount to submitting to the jurisdiction of the Arbitration Tribunal, as the Tribunal inherently lacks jurisdiction on the ground that the Settlement Agreement has no Arbitration Clause, having regard to the discussions made above, it cannot be accepted that arbitration inherently lacks jurisdiction by reason of the absence of any Arbitration Clause in the Settlement Agreement and the Arbitration Clause in the main Agreement, dated 16.9.2010 can be incorporated into the Settlement Agreement and therefore, the Respondent is bound by the award and cannot challenge the same in India by filing a Suit.

The Hon''ble Supreme Court considered the question whether the Indian Courts can annul a Foreign Award falling within the Part II by taking recourse to Section 48(1)(e) of the Arbitration and Conciliation Act, 1996 and held that Indian Courts have no jurisdiction to set aside the Foreign Award, by taking recourse to Section 48 of the Arbitration and Conciliation Act, 1996, after overruling the Judgment reported in the case of Bhatia International Vs. Bulk Trading S.A. and Another, , and the Judgment reported in the case of Venture Global Engineering Vs. Satyam Computer Services Ltd. and Another, .

Admittedly, having regard to the final award passed by the Tribunal at Singapore, Part II of Arbitration and Conciliation Act, 1996 applies and having regard to the provisions of Section 48 of the said Act, the final award cannot be challenged and no Interim Orders be given by the Courts in India and the Foreign Award can be set aside in the manner known to law and even according to the terms of the Settlement, dated 21.9.2011, the parties agreed to be governed by the Singaporean law and therefore, the prayer (B), (C) & (D) in the Suit cannot be agitated in the Suit and therefore, the Suit is bared by law, in so far as reliefs (B), (C) & (D) are concerned. Hence, those reliefs cannot be entertained by the Indian Courts.

In so far as the contention of the learned Counsel Mr. Anirudh Krishnan, having regard to the prayer (A), the Suit is maintainable and the Suit cannot be rejected in part and therefore, the Application to reject the Plaint is liable to be dismissed cannot also be sustained. No doubt, it is true that a Suit cannot be rejected in part and when a Suit is maintained in respect of certain reliefs, that can be considered only during trial and the Suit cannot be rejected in part. However, in my opinion, the 1st relief cannot also be considered by the Indian Courts, as the same is also covered by Arbitration Clause contained in the Agreement, dated 16.9.2010.

Further, a reading of the Plaint would make it clear that a sum of Rs. 42,75,280/- was claimed as damages by reason of the breach committed by the Applicant in terms of Settlement Deed and having regard to the findings given earlier that the Arbitration Clause in the Agreement, dated 16.9.2010 will also cover the dispute arising under the Agreement, dated 29.9.2011, the same also cannot be considered in the Suit, having regard to the final award passed by the Tribunal at Singapore, wherein all aspects were considered by the Tribunal. Therefore, the final awarded passed by the Arbitral Tribunal at Singapore can be challenged by initiating proceedings before the forums at Singapore and the same cannot be challenged in India and therefore, the prayer in column (A) cannot also be agitated in India and that is also barred by law and as per the provision of Arbitration and Conciliation Act, 1996. As the Suit is barred by the provisions of Arbitration and Conciliation Act, 1996, the Plaint is liable to be rejected and it is herein rejected and the Application is allowed. No costs.