1993 (11) TMI 229 - SC - Companies Law

Whether the contract was put an end to by final payment? Whether the arbitration clause contained in the contract will perish with it? Held that - In this case, there was a termination of the contract due to non- performance, the existence of the contract has been assumed for the purposes of such termination. In the circumstances, as we have held that where in a contract there is an arbitration clause, notwithstanding the plea that there was a full and final settlement between the parties, that dispute can be referred to the arbitration, the Subordinate Judge. is directed to dispose. of the petition of the appellant according to law. The reasons for further consideration on this aspect were fully set out in the petition which was placed before us on November 6, 1973. After hearing the learned counsel for the respondent we found no justification for giving any directions or for changing our view that the High Court was in error in dismissing the petition under s. 9(b) read with s. 33 of the Act. We accordingly dismissed the Civil Mscellaneous Petition.

Summary

Issues Involved:
1. Jurisdiction of the Court to decide the points raised in paragraph-16 of the appellant's petition.
2. Whether the arbitration clause between the parties would cease to exist with the termination of the agreement.
3. Admissibility of oral evidence touching the dispute in respect of the alleged final settlement of the claim.

Detailed Analysis:

1. Jurisdiction of the Court to Decide Points Raised in Paragraph-16 of the Appellant's Petition:
The court examined whether it had the jurisdiction to determine if the contract had ended by final payment, thereby nullifying the arbitration clause. The Subordinate Judge initially allowed the appellant to present evidence to establish that the contract had ended, which would mean the arbitration clause also ended. However, the High Court set aside this order, dismissing the appellant's application. The Supreme Court found that the question of whether there was a final settlement is itself a dispute arising "upon" or "in relation to" or "in connection with" the contract, and thus falls within the purview of the arbitration clause.

2. Whether the Arbitration Clause Would Cease to Exist with the Termination of the Agreement:
The Supreme Court held that a contract's arbitration clause stands apart from the substantive terms of the contract and survives the termination of the contract for the purpose of resolving disputes arising out of it. The court clarified that unilateral repudiation does not terminate the contract; it requires mutual agreement. Therefore, the arbitration clause remains operative unless the contract is void or has been substituted by a new contract, rescinded, or altered to such an extent that it cannot subsist. The court cited several precedents, including Heyman v. Darwins Ltd. and The Union of India v. Kishorilal Gupta and Bros., to support the principle that an arbitration clause survives for resolving disputes related to the contract.

3. Admissibility of Oral Evidence Touching the Dispute in Respect of the Alleged Final Settlement of the Claim:
The Subordinate Judge initially allowed the appellant to present oral evidence to establish the final settlement, which would nullify the arbitration clause. The Supreme Court, however, emphasized that the existence of the arbitration clause is a necessary condition for its operation, and it perishes with the contract only if the contract itself is void or has been substituted by a new one. The court concluded that disputes regarding whether there was a final settlement fall within the scope of the arbitration clause and should be resolved through arbitration rather than court proceedings.

Conclusion:
The Supreme Court concluded that the High Court erred in dismissing the appellant's petition entirely. The Subordinate Judge should have been allowed to decide on the validity of the appointment of the sole arbitrator and other contentions raised by the appellant. The court directed the Subordinate Judge to dispose of the appellant's petition according to law. The appeal was partly allowed without costs, and the respondent's Civil Miscellaneous Petition seeking further directions was dismissed.