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2018 SCC OnLine Del 12866

In the High Court of Delhi at New Delhi

(BEFORE RAJIV SAHAI ENDLAW, J.)

Ansal Housing & Construction Ltd. .…. Plaintiff;

Mr. Sachin Datta, Sr. Adv. with Mr. Vikas Tiwari, Mr. Aamir Jamal, Mr. Vaibhav
Sharma & Ms. Dolly Sharma, Advs.
v.
Samyak Projects Pvt. Ltd. .…. Defendant.
Mr. Vivek Kohli, Ms. Prerna Kohli & Ms. Neetika Bajaj, Advs.
CS(OS) 479/2018, IA No. 13144/2018 (u/O XXXVIII R-5 CPC), IA No.
14031/2018 (u/S 8 of the Arbitration & Conciliation Act), IA No. 15634/2018 (u/O
XXXVII R-3(5) CPC) & 15635/2018 (u/O XXXVII R-5(7) of the CPC)
Decided on December 8, 2018
The Judgment of the Court was delivered by
RAJIV SAHAI ENDLAW, J.
IA No. 14031/2018 (of the defendant under Section 8 of the Arbitration &
Conciliation Act, 1996).
1. The plaintiff has instituted this suit, under Order XXXVII of the CPC for recovery
of Rs. 11,79,83,525/-, pleading that (i) that the defendant was the agreement
purchaser of land admeasuring 1.7 acres in Block-A of Integrated Residential Colony
called “Esencia” in the revenue estate of Village Badshahpur, Tehsil and District
Gurgaon, Haryana; (ii) that the defendant had entered into an agreement with
Universal Buildwell Pvt. Ltd. (UBL) for UBL to undertake development and construction
over the said land of which the defendant was the agreement purchaser, but UBL had
failed to perform its part of the agreement; (iii) that the defendant had thus
terminated its agreement with UBL and was in the process of finalising the termination
agreement with UBL and was in need of funds, to pay off UBL as well as to, in
pursuance to the agreement to sell in its favour, have the sale deed of the land
executed in favour of the defendant; (iv) that the defendant had entered into a
Memorandum of Understanding (MoU) dated 12th July, 2012 with the plaintiff
whereunder the plaintiff had advanced a sum of Rs. 12 crores to the defendant to
enable the defendant to pay off UBL and achieve termination of the agreement with
UBL and to pay the balance sale consideration to the owners of the land to achieve
execution of sale deed of the land in favour of the defendant; (v) that the defendant,
under the aforesaid MoU had agreed with the plaintiff that the plaintiff will carry out
the work of development and construction over the aforesaid land and the proceeds of
sale of built up area/developed land shall be shared by the plaintiff and the defendant
in the ratio of 55% and 45% respectively; (vi) that it was further a term of the MoU
that if the defendant did not achieve termination of the earlier agreement with UBL
within four months from the date of the MoU, the plaintiff will have the option, either
to demand refund of the amount of Rs. 12 crores with interest @ 24% per annum, or
to extend the time for the defendant to achieve termination of the earlier agreement
with UBL. (vii) the defendant failed to terminate the earlier agreement with UBL and
on the contrary ratified the earlier agreement with UBL; (viii) a Deed of Cancellation
dated 20th April, 2013 was entered into between the plaintiff and the defendant
whereunder the parties cancelled the MoU dated 12th July, 2012 and it was agreed that
the defendant shall refund the entire amount of Rs. 12 crores with interest at the rate
of 24% per annum to be calculated from the date of receipt of the said Rs. 12 crores
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by the defendant, on or before 31st December, 2013; (ix) the defendant did not repay
the said amount and sought extension from time to time; (x) the defendant has been
deducting tax at source at 10% on the interest accrued and has been depositing the
same to the credit of the government; (xi) the defendant has made last on account
payment of Rs. 1 crore to the plaintiff on 27th March, 2015; and, (xii) as on the date of
filing of the suit, a sum of Rs. 11,79,83,525/- was due from the defendant to the
plaintiff.
2. Summons for appearance and upon the defendant entering appearance,
summons for judgment were ordered to be issued to the defendant.
3. The defendant, besides filing leave to defend application, has also filed this
application under Section 8 of the Arbitration and Conciliation Act and to which a reply
has been filed by the plaintiff.
4. The counsel for the applicant/defendant was heard yesterday and has been
further heard today. The senior counsel for the plaintiff has been heard in response
and the counsel for the applicant/defendant has rejoined.
5. MoU dated 12th July, 2012 between the parties contains the following arbitration
and jurisdiction clauses:
“8. That any dispute between the Parties arising out of this MOU shall be subject
to provisions of Arbitration and Conciliation Act, 1996 and the venue for arbitration
shall be New Delhi.
9. That this Agreement shall be subject to jurisdiction of Courts at Gurgaon.”
6. The Deed of Cancellation dated 20th April, 2013 between the parties (and in
which defendant is described as SPPL and the plaintiff is described as AHCL) contains
the following Clauses:
“1. That the MOU dated 12th July, 2012 shall stand cancelled without any Party
having any claim against each other except as agreed hereinafter.
2. That SPPL will refund the entire amount of Rs. 12 Crores with interest calculated
@24% p.a. The interest will be calculated from the date of receipt of advance of
Rs. 12 Crores and till the entire amount together with interest is refunded by
SPPL to AHCL.
3. That the entire amount of Rs. 12 Crores together with interest thereon would be
refunded by SPPL to AHCL latest by 31st December, 2013 failing which AHCL shall
be at liberty to adjust amount due to SPPL in any other account.
4. That AHCL shall not claim any right on the Said Land or the Project being
developed on the Said Land.
5. That this Deed of Cancellation is subject to jurisdiction of Courts at New Delhi.”
7. And does not contain any arbitration clause.
8. The counsel for the applicant/defendant contends, that (i) under the Clause 6 of
the MoU dated 12th July, 2012 (and in which the defendant is described as First Party
and the plaintiff as Second Party) as under:
“6. That in case the First Party fails to conclude termination of Samyak-UBL
Agreement and make available the SAID LAND for development to the Second
Party within a maximum period of 4 months from the date of this MOU, the Second
Party will have the option to demand refund of the entire amount of Rs. 12 Crores
advanced by it to the First Party with interest @24% p.a. or extend the time for
completion of the Termination of Samyak-UBL Agreement.”
9. The plaintiff had an option to demand refund of the entire amount of Rs. 12
crores advanced by the plaintiff to the defendant with interest as stipulated therein;
(ii) the plaintiff, in terms of the MoU dated 12th July, 2012, exercised the said option
and which resulted in the execution of the Deed of Cancellation dated 20th April, 2013;
(iii) the defendant no. 1 has paid Rs. 11,79,23,640/- to the plaintiff between 18th May,
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2013 to 27th March, 2015 as admitted in para no. 25 of the plaintiff also; (iv) the
balance amount due under the MoU dated 12th July, 2012 aforesaid has been adjusted
against other accounts under other agreements between the parties, in terms of
Clause 3 of the Deed of Cancellation dated 20th April, 2013; (v) notwithstanding the
Deed of Cancellation, the Arbitration Agreement contained in the MoU dated 12th July,
2012 survives; (vi) the obligation of the defendant to pay the amounts aforesaid to
the plaintiff has its origin in the MoU dated 12th July, 2012 which contains an
Arbitration Agreement; (vi) reliance is placed on Moschi v. Lep Air Services Ltd., 1973
Appeal Court 331 (House of Lords) and on dicta of the Division Bench of the High
Court of Bombay in Mulheim Pipecoatings GmbH v. Welspun Fintrade Ltd., 2013 SCC
OnLine Bom 1048 where the law has been summarised as under:
“(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
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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.”
(emphasis added)
10. Per contra, the senior counsel for the plaintiff has contended that on the
execution of the Deed of Cancellation dated 20th April, 2013, which admittedly does
not contain any arbitration clause, in supersession of the MoU dated 12th July, 2012,
the arbitration agreement in the MoU dated 12th July, 2012 disappears. Reliance is
placed on the dicta of the Division Bench of this Court in Young Achievers v. IMS
Learning Resources Pvt. Ltd., (2012) 191 DLT 378 (DB) holding as under:
“8. We are unable to agree with the submissions of learned counsel for the
appellant, though there can be no dispute about the legal proposition propounded
aforesaid and the law laid down by the Hon'ble Supreme Court. In fact, there is
no quibble over the legal proposition that the arbitration clause would
survive the termination/cessation of an agreement and the disputes
pertaining to the same would still be resolved by arbitration. In the present
case it is not a case of unilateral termination by one of the parties which
has occurred. Mutually, a fresh document has been drawn called the Exit
Paper, an agreement containing comprehensive terms & conditions on
which the parties continued with their association. Despite this Exit Paper
setting out all the terms & conditions, the allegation of the respondent is
that the appellant continued to infringe the trademark of the respondent by
using the same, contrary to the said agreement. This Exit Paper
undisputedly does not contain an arbitration clause.
9. The Supreme Court in Magma Leasing & Finance Limited (supra), which is a
two-Judge bench decision, after referring to the judgment of the House of Lords in
Heymen v. Darwins Ltd., 1942 AC 356 : 1942 1 All ER 337 (HL), referred to the
following observations of Subba Rao, J (as his Lordship then was) in Union of India
v. Kishorilal Gupta & Bros., AIR 1959 SC 1362:
“8. Uninfluenced by authorities or case-law, the logical outcome of the earlier
discussion would be that the arbitration clause perished with the original
contract. Whether the said clause was a substantive term or a collateral one, it
was nonetheless an integral part of the contract, which had no existence de hors
the contract. It was intended to cover all the disputes arising under the
conditions of, or in connection with, the contracts. Though the phraseology was
of the widest amplitude, it is inconceivable that the parties intended its survival
even after the contract was mutually rescinded and substituted by a new
agreement. The fact that the new contract not only did not provide for the
survival of the arbitration clause but also the circumstance that it contained both
substantive and procedural terms indicates that the parties gave up the terms of
the old contracts, including the arbitration clause. The case-law referred to by
the learned counsel in this connection does not, in our view, lend support to his
broad contention and indeed the principle on which the said decisions are based
is a pointer to the contrary.
9…These observations throw considerable light on the question whether an
arbitration clause can be invoked in the case of a dispute under a superseded
contract. The principle is obvious; if the contract is superseded by another, the
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arbitration clause, being a component part of the earlier contract, falls with it…
But where the dispute is whether the said contract is void ab initio, the
arbitration clause cannot operate on those disputes, for its operative force
depends upon the existence of the contract and its validity. So too, if the dispute
is whether the contract is wholly superseded or not by a new contract between
the parties, such a dispute must fall outside the arbitration clause, for, if it is
superseded, the arbitration clause falls with it.”
(emphasis supplied)
10. We may note at this stage that the present is not a case involving the
assertion by the respondent of accord and satisfaction in respect of the earlier
contracts dated 01.04.2007 and 01.04.2010. In terms of the decision of the
Supreme Court in Kishorilal Gupta (supra) (which is a three-Judge bench decision),
if that had been the issue raised, the appellant may have been justified in claiming
that the said dispute, i.e. whether there has been accord and satisfaction in respect
of the two agreements should be referred to arbitration in terms of the arbitration
agreement contained in the said two agreements.
11. Reliance placed on para 32 of the judgment in Kishorilal Gupta (supra)
rendered by A.K. Sarkar, J in his concurring opinion appears to be misplaced. The
Supreme Court in para 32 of the decision in Kishorilal Gupta (supra), after setting
out section 62 of the Contract Act (which deals with the effect of novation,
recession and alteration of contract) went on to observe that “the settlement cannot
be said to have altered the original contract or even to have rescinded it. It only
settled the dispute as to the breach of the contract and its consequences. For the
same reason, it cannot be said to substitute a new contract for the old one”.
(emphasis supplied)
12. It is important to note that the Supreme Court made the aforesaid
observation in respect of a “settlement” of disputes arising under the original
contract, including the dispute as to the breach of the contract and its
consequences. In the present case, the parties have clearly entered into a fresh
contract contained in the exit agreement, which, as noticed above, is not even in
dispute. The exit agreement does not even whisper about any dispute arising under
the original agreements or about settlement thereof. It is pure and simple novation
of the original contract by mutual agreement of parties.
15. We are, thus, of the view that the learned single Judge was right in coming
to the conclusion that both the agreements dated 1.4.2007 and 1.4.2010 have been
superseded/novated by the Exit Paper, and in view of Exit Paper being a fresh
agreement with no arbitration clause for adjudication of disputes, the application of
the appellant was rightly rejected.
16. We may add that, even otherwise, suppose there was no dispute about any
item relating to the Exit Paper, then can it really be said thereafter a number of
years if the trademark is infringed that the respondent will still have to resort to the
contract where there was an agreement inter se the parties for mutual business
containing the arbitration clause? The answer to this obviously would be in the
negative.”
(emphasis added)
11. The senior counsel for the plaintiff also contended that the aforesaid dicta of the
Division Bench of this Court has been affirmed by the Supreme Court in Young
Achievers v. IMS Learning Resources Pvt. Ltd., (2013) 10 SCC 535, holding as under:
“7. Exit paper would clearly indicate that it is a mutually agreed document
containing comprehensive terms and conditions which-admittedly does not contain
an arbitration clause. We are of the view that the High Court is right in taking the
view that in the case on hand, is not a case involving assertion by the respondent of
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accord a satisfaction in respect of the earlier contracts dated 1-4-2007 and 1-4-
2010. If that be so, it could have referred to arbitrator in terms of those two
agreements going by the dictum in Union of India v. Kishorilal Gupta and Bros. This
Court in Kishorilal Gupta's case examined the question whether an arbitration
clause can be invoked in the case of a dispute under a superseded contract. The
principle laid down is that if the contract is superseded by another, the arbitration
clause, being a component part of the earlier contract, falls with it. But where the
dispute is whether such contract is void ab intio, the arbitration clause cannot
operate on those disputes, for its operative force depends upon the existence of the
contract and its validity. The various other observations were made by this Court in
the above-mentioned judgment in respect of “settlement of disputes arising under
the original contract, including the dispute as to the breach of the contract and its
consequences”. The principle laid down by the House of Lords in Heyman v. Darwins
Limited was also relied on by this Court for its conclusion. The Collective bargaining
principle laid down by the US Supreme Court in Nolde Bros. case would not apply to
the facts of the present case.
8. We may indicate that so far as the present case is concerned, parties
have entered into a fresh contract contained in the Exit paper which does
not even indicate any disputes arising under the original contract or about
the settlement thereof, it is nothing but a pure and simple novation of the
original contract by mutual consent. Above being the factual and legal
position, we find no error in the view taken by the High Court. The appeal,
therefore, lacks merit and stands dismissed, with no order as to costs.
12. I have considered the rival contentions.
13. Even before the senior counsel for the plaintiff cited the judgments aforesaid, I
was of the view that the defendant is not entitled to invoke arbitration because the
defendant, by claiming adjustment of the balance amounts due from the defendant to
the plaintiff under the MoU dated 12th July, 2012 read with Deed of Cancellation dated
20th April, 2013 in other accounts under other agreements between the plaintiff and
defendant, is wanting adjudication of claims under other agreements between the
parties, in accounts whereof monies according to the defendant have been adjusted. I
was of the opinion that the claims/accounts subject matter of other agreements are
not covered by the arbitration clause in the MoU dated 12th July, 2012; though on
enquiry, it was informed that the said other agreements also have an arbitration
clause but it was felt that under an arbitration clause in one agreement, disputes
found to arise on the plea of adjustment between the parties under another
agreement, could not be gone into. In fact, at one stage, it was enquired from the
counsel for the defendant, whether the defendant was willing to make a statement
that in the event of the application being allowed and the parties being referred to
arbitration, the defendant would not raise disputes of adjustment and the counsel for
the applicant/defendant sought time to take instructions in this respect.
14. However, in my opinion, the dicta of the Division Bench of this Court by which I
am bound, puts the matter beyond any pale of controversy and unequivocally applies
to the present factual situation.
15. The counsel for the defendant however, with reference to para no. 12 of the
judgment of the Division Bench of this Court, contended that in the present case, the
Cancellation Deed dated 20th April, 2013 is not a fresh contract, as was found to be the
case with which the Division Bench of this Court was concerned. It is further pointed
out that in that case the “Exit Agreement” was not found to even whisper about the
dispute arising under the original agreement or about the settlement thereof. It is
contended that as distinct therefrom, the Deed of Cancellation dated 20th April, 2013
in the present case is pursuant to the option which the plaintiff had under the MoU
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dated 12th July, 2012 and is in pursuance to the MoU and thus does not qualify as a
fresh agreement as was the case before the Division Bench of this Court. It is argued
that the Deed of Cancellation dated 20th April, 2013 is not a separate agreement and is
not disjointed from the MoU dated 12th July, 2012, if read in common business sense.
It is further contended that there is nothing in the Deed of Cancellation dated 20th
April, 2013 to suggest that the parties had given up their agreement to arbitration.
Attention is also drawn to paras no. 7 and 8 of the notice got issued by the plaintiff
preceding the suit and to para no. 26 of the plaint to contend that the plaintiff itself is
claiming under the MoU dated 12th July, 2012 coupled with the Deed of Cancellation
dated 20th April, 2013 and it is argued that the two in the present case are not
separate, as in the case with which the Division Bench in Young Achievers supra was
concerned.
16. I am unable to agree. It is the ratio of the judgment which constitutes a
precedent and not the factual differences which have no bearing on the ratio. It has
been held by the Supreme Court in Union of India v. Dhanwati Devi, (1996) 6 SCC 44
that it is the principle upon which a case is decided which is binding on a party, and
what is of essence in a decision is its ratio and not every observation found therein. It
cannot be lost sight of that the Exit Agreement in Young Achievers supra also was to
put an end to the earlier agreement between the parties in that case.
17. The ratio of Mulheim Pipecoatings GmbH and Young Achievers supra is (i) that
an arbitration clause survives the termination/cessation of the agreement in which it is
contained; and, (ii) whether the arbitration clause survives or perishes along with the
main contract depends upon the nature of the controversy and its effect upon the
survival of the arbitration clause. However, Young Achievers supra, in addition, relying
on the earlier judgments cited therein, holds that where a contract containing an
arbitration clause is substituted by another contract, the arbitration clause perishes
with the original contract unless there is anything in the new contract to show that the
parties intended the arbitration clause in the original contract to survive.
18. Russel on Arbitration (Twenty Fourth Edition) also in para 2-135 has authored
(i) the parties can by agreement bring the agreement to arbitrate to an end; (ii)
arbitration is consensual and there is no reason why the parties cannot agree to vary
their arbitration agreement so as to bring about its termination; (iii) the parties might
for example jointly agree that all future dispute should be dealt with by the Court
rather than pursuant to the arbitration agreement contained in their contract;
alternatively, the parties might by way of subsequent agreement which contains a
clause conferring jurisdiction on the Courts, terminate the earlier agreement in which
the arbitration clause is contained - the jurisdiction clause in the subsequent contract
may be construed so as to supersede the earlier arbitration agreement in order to
avoid fragmentation of disputes, although ultimately this will be a question of
construction of the relevant agreements; and, (iv) where the subsequent agreement
terminating the earlier contract contains no competing jurisdiction clause, the original
arbitration agreement is likely to survive on the basis of separability.
19. I have looked at the MoU dated 12th July, 2012 and the Deed of Cancellation
dated 20th April, 2013 signed by the parties and find (i) the arbitration clause
contained in the MoU dated 12th July, 2012 to be of arbitration only of “any dispute
between the parties arising out of this MoU” and not all encompassing as is often
found by use of the words “arising out of and in relation to”; (ii) the disputes which
could arise out of the MoU dated 12th July, 2012 were in limited domain, considering
that the MoU was not a complete agreement between the parties but envisaged
execution of a “detailed agreement”; (iii) the Deed of Cancellation dated 20th April,
2013 in recitals thereof recorded that the plaintiff and the defendant had “agreed to
mutually cancel the MoU dated 12th July, 2012” and in habendum/operative part
thereof records that “the MoU dated 12th July, 2012 shall stand cancelled without any
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Party having any claim against each other except as agreed hereinafter”.
20. The language used by the parties in the arbitration clause in the MoU dated 12th
July, 2012 and in the Deed of Cancellation dated 20th April, 2013 negates the survival
of the arbitration clause in the MoU post the Deed of Cancellation. The disputes arising
between the parties out of the Deed of Cancellation, which in supersession of the
clause in the MoU of refund of the entire amount of Rs. 12 crores advanced by the
plaintiff to the defendant at the option of the plaintiff, also gives liberty to the plaintiff
to adjust the amount in the amounts due from the plaintiff to the defendant in any
other account, in the light of the defence of the defendant of such adjustment, cannot
be said to be arising out of the MoU, to be covered by the arbitration clause in the
MoU.
21. The facts and circumstances of the present case thus do not make out a case of
survival of the arbitration clause in the MoU.
22. In addition to the judgments referred to in Young Achievers, I find Supreme
Court in Damodar Valley Corporation v. K.K. Kar, (1974) 1 SCC 141 to have held (i) 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 contact; (ii) the question 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; (iii) a
repudiation by one party alone does not terminate the contract and it takes two to end
it; it follows that as the contract subsists for the termination of the rights and
obligations of the parties, the arbitration clause also survives; (iv) 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 as if it never existed; it is also 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; (v) in such
cases, since the entire contract is put an end to, the arbitration clause, which is a part
of it, also perishes along with it; (vi) Section 62 of the Contract Act, 1872 incorporates
this principle when it provides that if the parties to a contract agree to substitute a
new contract or to rescind or alter it, the original contract need not to be performed;
(vii) where therefore the dispute between the parties is that the contract itself does
not subsist either as a result of it being substituted by a new contract or by rescission
or alternation, that dispute cannot be referred to arbitration as the arbitration clause
itself would perish if the averment is found to be valid; and, (viii) as the very
jurisdiction of the arbitrator is dependent upon the existence of the arbitration clause
under which he is appointed, the parties have no right to invoke a clause which
perishes with the contract.
23. Mention may also be made of:
(a) Chatterjee Petrochem Company v. Haldia Petrochemicals Ltd., (2014) 14 SCC
574 where, finding that the subsequent agreement reiterated that the earlier
agreement remains the principal agreement and binding, subsisting, enforceable
between the parties, it was held that there was no novation of principal
agreement and the arbitration clause in the principal agreement remained valid
and subsisting.
(b) Hema Khattar v. Shiv Khera, (2017) 7 SCC 716 where, holding that if
subsequent to written agreement containing arbitration clause, parties enter into
an oral agreement in continuation of previous one, without referring to any
arbitration clause, the arbitration clause contained in previous agreement would
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continue to be operative.
(c) Nalini Singh Associates v. Prime Time - IP Media Services Ltd., 2008 (106) DRJ
734 holding that, (i) Section 62 of the Contract Act allows novation, rescission,
modification and alteration of an earlier contract with a new agreement or even
alteration to an earlier agreement; (ii) under the new agreement or upon
amendment of an earlier contract, prior rights of the parties are extinguished and
new rights and obligations come into existence; (iii) unless the new contract is
void, unenforceable or the amended terms are unenforceable, a party cannot
revert back to the original contract; (iv) original contract can be revived either
when the contract is unenforceable or void or when the terms of novation itself
provide that original contract can be revived and the said clause becomes
applicable. Else, the original contract gets obliterated or wiped out.
(d) C.E. Construction Ltd. v. Intertoll ICS Cecons O&M Company Pvt. Ltd., 2017 SCC
OnLine Del 6401, in the facts of which also, it was held that an arbitration clause
in an agreement cannot survive, if the agreement containing arbitration clause
has been superseded/novated by a later agreement.
(e) GSBA Builder Pvt. Ltd. v. Radha Soami Satsang Beas, (2017) SCC OnLine Del
7386 where also, though the subject matter of the agreement containing
arbitration clause and subsequent MoU recording settlement of disputes which
had arisen under the agreement was the same but it was held that the
arbitration clause in the agreement stood novated by the MoU.
(f) D. Muralidhar Rao v. Srinivasa Constructions, 2018 SCC OnLine Hyd 145 (DB)
where, finding the parties to have substituted the earlier development
agreement with a new development agreement terms whereof were materially
different from the original agreement, it was held that the arbitration clause in
the earlier agreement did not survive as the agreement containing the arbitration
clause stood novated and substituted. It was iterated that if the contract is
superseded by another, the arbitration clause, being a component part of the
earlier contract, falls with it.
24. I may in this regard highlight that while under the MoU dated 12th July, 2012,
the parties, besides agreeing to arbitration with venue at Delhi, made the MoU subject
to the jurisdiction of the Courts at Gurgaon, under the Deed of Cancellation dated 20th
April, 2013, not only did the parties do away with the arbitration clause, but also made
the Deed of Cancellation subject to jurisdiction of the Courts at Delhi. The same shows
that the parties had consciously effected the change as to the dispute resolution
mechanism from that under the MoU dated 12th July, 2012.
25. In fact, the senior counsel for the plaintiff has contended that the present case
also falls in the exception carved out in sub-para (iv) of Para 31 of the judgment of the
Division Bench of the High Court of Bombay in Mulheim Pipecoating GmbH supra
holding that where the parties have mutually put an end to the contract as if it had
never existed and substituted the same with a new contract solely governing their
rights and liabilities, the original contract is extinguished and annihilated by the other
and the arbitration clause forming part of the contract also perishes.
26. I am thus satisfied that the action brought by way of this suit is not the subject
matter of arbitration agreement contained in the MoU dated 12th July, 2012.
27. Axiomatically, the application is dismissed.
IA No. 15634/2018 & IA No. 15635/2018 (both of the defendant for leave to
defend and for condonation of five days delay in filing thereof)
28. The counsel for the defendant seeks adjournment.
29. Though it was felt that since the facts are fresh, the disposal will be expeditious
but allowed.
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30. The counsels to, in reference to Prithipal Singh v. Satpal Singh, (2010) 2 SCC
15, also address whether this Court is empowered to condone the delay.
31. List on 8th March, 2019.
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