The Case of SPML Infra Ltd v. NTPC Limited
Businesses may engage in agreements that they subsequently have to break due to internal restructuring or an asset purchase. Termination may not always be the best or only option in certain situations. They may, however, be able to transfer both their rights and responsibilities to a third party.
What is Novation
Novation is the process of replacing an existing contract with a new one in which a third party assumes the rights and duties of one of the original contract's parties.
This implies the contract's advantages and obligations are transferred from the original party.
SPML Infra Ltd. (hereafter referred to as "SPML") is a civil engineering firm formed under the Companies Act of 1956.
The respondent (from now on referred to as ‘NTPC') is a government-owned company specialising in the commissioning and operation of thermal power facilities.
SPML has filed this petition under Section 11 of the Arbitration and Conciliation Act, 1996, requesting, among other things, that an Arbitral Tribunal be established to adjudicate the conflicts that have emerged between the parties about the Contract Agreement "01/CS-3530-131-2R-FC-COA-5288 & 5299" dated 22.06.2009 in regard of a Project for “Installation Services for Station Piping Package for Simhadri Super Thermal Power Project Stage II (2X500 MS) at NTPC Simhadri, Vishakapatnam” (hereafter the ‘Contract Agreement’).
Question that arises
Whether the dispute relating to the novation of Contract is required to be examined by the Arbitral Tribunal or by the Court u/s 11?
The main issue that this Court must resolve is the extent of examination under Section 11 of the A&C Act at the pre-referral stage. The Settlement Agreement signed by the parties, according to NTPC, novated the Contract Agreement. With the novation mentioned above, the Arbitration Clause in the Contract Agreement vanished, and because the Settlement Agreement lacks an Arbitration Clause, the parties cannot be directed to arbitration. According to NTPC, the Arbitration Agreement, as stated in the Contract Agreement's Arbitration Clause, no longer exists.
The Court ruled that once it is determined that the parties are engaged in an arbitration agreement, the courts must refer the parties to arbitration to resolve the issue. SPML had requested that the NTPC appoint an adjudicator, but the NTPC had refused. As a result, the argument that the current petition is premature because the parties have not addressed their disagreements to an adjudicator is unjustified.
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