2002 (11) TMI 661 - HC - Companies Law

Issues Involved:
1. Validity of arbitration clause post-discharge by subsequent agreement.
2. Jurisdiction of the civil court to refer the matter to arbitration.
3. Interpretation of the term "discharge" in the context of arbitration agreements.
4. Determination of whether disputes should be referred to arbitration or decided by the court.

Detailed Analysis:

1. Validity of Arbitration Clause Post-Discharge by Subsequent Agreement:
The primary issue in this case is whether the arbitration clause in the original agreement dated 15-2-1988 remains valid after a subsequent agreement dated 21-5-1991, which purportedly discharged the arbitration clause. The court examined the facts and circumstances, noting that the parties had entered into a new agreement on 21-5-1991, which explicitly stated that the arbitration clause under Article 9.2.1 of the original agreement was "totally discharged." The court concluded that the arbitration clause was indeed extinguished by the subsequent agreement, rendering the civil court's reference to arbitration under the original agreement invalid.

2. Jurisdiction of the Civil Court to Refer the Matter to Arbitration:
The court discussed the jurisdiction of civil courts under Section 20 of the Indian Arbitration Act, 1940, and Section 89 of the Code of Civil Procedure, 1908. It emphasized that for a court to refer a matter to arbitration, there must be an existing arbitration clause. Since the arbitration clause in the original agreement was discharged by the subsequent agreement, the court held that it had no jurisdiction to refer the matter to arbitration. The court highlighted that the civil court's jurisdiction is not ousted by private contracts, but parties can agree to refer disputes to arbitration, which takes precedence over civil court jurisdiction.

3. Interpretation of the Term "Discharge" in the Context of Arbitration Agreements:
The court provided an in-depth analysis of the term "discharge," citing various legal definitions and precedents. It referred to Black's Law Dictionary and The Oxford English Dictionary, which define "discharge" as to release, liberate, annul, or extinguish an obligation. The court also cited several Supreme Court judgments, including Sarda Prasad v. Lala Jumna Prasad and State of Kerala v. Mother Anasthasia, which interpreted "discharge" in different legal contexts. The court concluded that "discharge" in this case meant the annulment and extinguishment of the arbitration clause.

4. Determination of Whether Disputes Should Be Referred to Arbitration or Decided by the Court:
The court examined whether the disputes between the parties should be referred to arbitration or decided by the court. It noted that the existence of an arbitration clause is a prerequisite for referring disputes to arbitration under Section 20 of the Act. Since the arbitration clause was discharged by the subsequent agreement, the court held that the disputes could not be referred to arbitration. The court also discussed various precedents, including Union of India v. L.K. Ahuja and Dhanrajamal Gobindram v. Shamji Kalidas & Co., emphasizing that the court must first determine the existence and validity of the arbitration agreement before making a reference.

Conclusion:
The court concluded that the arbitration clause in the original agreement dated 15-2-1988 was discharged by the subsequent agreement dated 21-5-1991. Therefore, the civil court had no jurisdiction to refer the matter to arbitration under the original agreement. The revision petition was allowed, and the impugned order dated 7-5-1994 was set aside. The court emphasized that the intention of the parties and the context of the agreements are crucial in determining the validity of arbitration clauses.

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