1959 (5) TMI 37 - SC - Indian Laws

Arbitration award Held that - Appeal allowed. The settlement did not amount to an accord and satisfaction. Till the terms of it had been carried out, the appellant retained all its rights under the contract. It was said that the case had been made in paragraphs 34 and 35 of the respondent s petition to the High Court. I do not think it was there made. These paragraphs refer to the arbitrator s decision that he had jurisdiction to arbitrate as the settlement had not destroyed the arbitration clause and the contention there made was that this decision was erroneous on the face of it. This has nothing to do with the question that the award was wrong on the face of it as it awarded a sum in excess of the amount fixed by the settlement. Whether the arbitrator was right or not in his decision that the arbitration clause had not been superseded is irrelevant for that is the question that the Court was called upon to decide in the application. Thus order of the High Court set aside

Summary

Issues Involved:
1. Survival of arbitration clause after contract supersession.
2. Legal effect of substituted contracts on original contracts.
3. Jurisdiction of arbitrator under the arbitration clause.
4. Validity of award given by the arbitrator.
5. Preliminary objection regarding special leave granted by the Supreme Court.

Detailed Analysis:

1. Survival of Arbitration Clause After Contract Supersession:

The primary issue was whether the arbitration clause in the original contracts survived after those contracts were superseded by new settlement agreements. The judgment concluded that the arbitration clause did not survive. The court observed, "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." The court reasoned that the comprehensive settlement agreements, which included both substantive and procedural terms, indicated that the parties intended to abandon the terms of the old contracts, including the arbitration clause.

2. Legal Effect of Substituted Contracts on Original Contracts:

The court examined the legal effect of the new settlement agreements on the original contracts. It was stated, "From the aforesaid authorities, it is manifest that a contract may be discharged by the parties thereto by a substituted agreement and thereafter the original cause of action arising under the earlier contract is discharged and the parties are governed only by the terms of the substituted contract." The court found that the settlement agreements were intended to replace the original contracts, thereby extinguishing the original contracts and their arbitration clauses.

3. Jurisdiction of Arbitrator Under the Arbitration Clause:

The court also addressed whether the arbitrator had jurisdiction under the arbitration clause of the original contracts. It was held that, "The arbitration clause perished with the original contract." The court emphasized that the arbitration clause is an integral part of the contract and does not survive if the contract is superseded by a new agreement. Therefore, the arbitrator had no jurisdiction to arbitrate disputes under the original contracts once they were replaced by the settlement agreements.

4. Validity of Award Given by the Arbitrator:

The court examined the validity of the award given by the arbitrator. It was observed that the award was a lump sum and not severable. As the arbitrator had no jurisdiction over the disputes arising from the original contracts, the entire award was deemed invalid. The court stated, "As the award on the face of it was a lump sum award, the learned Judge held that it was not severable and therefore the whole award was bad."

5. Preliminary Objection Regarding Special Leave Granted by the Supreme Court:

The respondent's counsel raised a preliminary objection regarding the special leave granted by the Supreme Court, arguing that an appeal lay to the appellate bench of the Calcutta High Court. The court noted, "If the application for revoking the special leave had been taken at the earliest point of time and if this Court was satisfied that an appeal lay to an appellate bench of the Calcutta High Court, the leave obtained without mentioning that fact would have been revoked." However, due to the inordinate delay in raising this objection, the court decided not to entertain the application for revoking the special leave.

Conclusion:

The Supreme Court upheld the High Court's judgment, concluding that the arbitration clauses in the original contracts did not survive after the contracts were superseded by new settlement agreements. Consequently, the arbitrator had no jurisdiction to arbitrate disputes under the original contracts, rendering the award invalid. The appeal was dismissed with costs.