In the present case, the Delhi Supreme Court has clearly set out the legal implications of novation of a contract on the arbitration clause contained therein. However, the Court cautiously noted that this is a trivial law according to which, in order to attract the novation theory under section 62 of the Contracts Act, the previous contract and its terms should be completely replaced and all the terms of the previous contract (including the arbitration clause) should perish with it. Through a series of four novation agreements, the parties settled their dispute. The terms of the agreements provided, inter alia, that the novation would take effect only after the completion of the construction of the ship on a handover date. The applicant should be replaced on the date of the transfer and with effect from the date of the transfer instead of the RHS as the contracting party, and contracts should then be interpreted and treated in all respects as if the applicant were named in the contract instead of ERS. The contract also provided that, from the date of the transfer, the claimant “shall properly and punctually perform and perform all responsibilities and obligations to be performed or performed by it from time to time or under the shipbuilding contract in all respects, as if the claimant were named in the shipbuilding contract in place of [ERS]”. The novation agreements did not explicitly specify what was to be done with regard to the French procedure. In particular, the Court of Appeal rejected the view that severability may be invoked to separate the arbitration agreement from the main agreement for interpretation. It also concluded that, in view of the express choice of English law as the law applicable to the arbitration agreement, it was not necessary to consider the alternative case of an implied choice of English law. If the Paris Court of Appeal follows this path and decides to apply the substantive French rules, there is a risk of inconsistency between the two judgments. French jurisprudence suggests that an arbitration agreement can extend to all companies in a group, including those that are not signatories.12 In Larsen and Toubro Ltd.c. Mohan Lal Harbans Lal Bhayana, there was a novelty in the contract that resulted in the arbitration clause of the original agreement not continuing when that clause was modified by subsequent agreements. The court held that if the arbitration clause and the procedure for appointing an arbitrator in the original agreement are renewed and the parties have acted accordingly, the clause in the original agreement on the appointment of arbitration cannot be invoked.
The court assessed the scope of section 8 of the Arbitration Act and cited the Supreme Court`s decision in Vidya Drolia v. Durga Trading Corpn. , where the Commission noted that in order not to accept a claim under Article 8, a party must prepare prima facie evidence of the non-existence of a valid arbitration agreement by immediately establishing a strong case. The tribunal considered that it should refer the case further if the validity of the arbitration agreement cannot be assessed prima facie. It therefore remains to be seen whether the French Court of Appeal will be receptive to the argument that the arbitration agreement is void and that a reasoned award maintaining the arbitration agreement is also null and void. In Sasan Power Ltd.c. North American Coal Corporation (India) Pvt. Ltd., the court held that novation would not be completed unless it resulted in the replacement, cancellation or cancellation of the previous contract by the new contract. The mere modification of certain contractual conditions does not explain the novation. Accordingly, the claimant filed a motion for arbitration under section 11 of the Arbitration and Conciliation Act, 1996 (“Act”) requesting the appointment of a single arbitrator in accordance with the arbitration clause contained in the Memorandum of Understanding for the purpose of settling disputes between the parties. The English Court of Appeal had to rule on the applicable law of an arbitration agreement which provides for arbitration in Paris but which is contained in a main agreement expressly governed by English law and whether KFG has become a party to the main agreement and/or arbitration agreement, regardless of the existence of provisions on no oral amendment in the main contract. KJS argued that there is no express choice of English law as the applicable law of the arbitration agreement for a number of reasons, including: An example of a novation agreement is when “B” is obliged to distribute the sound recordings through the distribution channel provided by “A” in the presence of a distribution agreement for the sound recordings and “B”`s liability can be replaced by “C”.
Well, in the agreement, instead of “B” being likely to “A”, “C” is likely to “A” by novation of an agreement. Novation may be recognized as an act by which the Parties mutually agree to replace the terms of the obligation with a new set of conditions, or when the Parties are reinstated with a new Party. The cardinal principle of novation is that it is an act carried out in mutual harmony between the Contracting Parties concerned; this includes new parties where the new party has replaced the previous one. The Court considered in detail the legislation established in the recent decision in Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1, which held that the tribunal does not have the power under section 11 to determine whether or not an arbitration agreement exists. That judgment stated that “the existence of an arbitration agreement” is absolutely necessary for a court to rule under Article 11. Whether or not an arbitration agreement exists is a matter for the decision of the arbitral tribunal. In Young Achievers v. IMS Learning Resources (P) Limited, the Supreme Court ruled in that case that if the contract is replaced by another contract, the arbitration clause, which is an integral part of the previous contract, coincides with the previous contract. If the parties entered into a new contract by novation/replacement of the original agreement and the new agreement did not contain any provision relating to disputes arising from the original agreement, nor an arbitration clause to resolve the disputes, then the new agreement was an outright novation of the original contract. Therefore, the tribunal held that the dispute could not be submitted to arbitration.
The Supreme Court in Lata Construction v. Dr. Ramesh Chandra Ramnikalal Shah ruled that a novation only takes place when a new contract is absolutely replaced instead of the old contract. The Chamber also considered the scope of section 8 of the Arbitration Act and referred to the Supreme Court`s decision in Vidha Drolia v. Durga Trading Corpn. where the tribunal has reiterated that in order to dismiss a claim under Article 8, a party must identify prima facie the non-existence of a valid arbitration agreement by presenting a strong argument and the tribunal should refer the case if the validity of the arbitration agreement cannot be assessed prima facie. Subsequently, the Claimant relied on the arbitration clause in the Memorandum of Understanding and sent a Notice of Appeal to the Respondents for Arbitration dated November 23, 2019 (“Notice of Arbitration”). While the respondent n°. 3 In agreement with the arbitrator appointed by the applicant, Respondents Nos. 1 and 2 asserted that the Memorandum of Understanding would have been replaced by the terms of the SHA and declared invalid.
Supreme Court: In an important decision on arbitration, the 3-judge bank of RF Nariman, BR Gavai and Hrishikesh Roy, JJ, ruled that under section 11 of the Arbitration and Conciliation Act 1996, a court cannot rule on factual and legal issues related to the novation of a contract containing an arbitration clause and must refer them to an arbitral tribunal. . . .