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Issues Involved:
1. Whether the original contract of sale containing an arbitration clause was superseded by a subsequent arrangement. 2. Whether the appellants participated in the suit proceedings, thereby disentitling them to relief under Section 34 of the Arbitration Act, 1940. Detailed Analysis: Issue 1: Supersession of the Original Contract The primary question was whether the original contract containing an arbitration clause was superseded by a subsequent arrangement. The court examined the original contract and the subsequent agreement dated September 13, 1969. The original contract was governed by the Sale of Goods Act, 1930, which required the seller to deliver goods and the buyer to pay for them. The defendants breached this contract by failing to honor the bills of exchange. They then proposed a new arrangement to secure the plaintiff's forbearance, which was accepted and formalized in the agreement dated September 13, 1969. The court noted that the new agreement included an unconditional acknowledgment of debt, a schedule of payments, a deed of guarantee, a pledge of shares and debentures, and an irrevocable power of attorney. This new arrangement was considered a valid contract enforceable at law and constituted accord and satisfaction of the original contract. The court held that the original contract, including its arbitration clause, was superseded by the new arrangement. It cited precedents like British Russian Gazette and Trade Outlook, Limited v. Associated Newspapers, Limited and Union of India v. Kishorilal Gupta and Bros., which supported the view that a new agreement could extinguish prior rights and obligations, including arbitration clauses. The court concluded that the arbitration clause in the original contract did not survive the new arrangement, as the latter was a self-contained document that introduced new rights and obligations, making the original contract inoperative and unenforceable. Issue 2: Participation in Suit Proceedings The second issue was whether the appellants had taken steps in the suit proceedings, thereby disentitling them to relief under Section 34 of the Arbitration Act. The court observed that the defendants had filed a reply to the plaintiff's application for an interim injunction and requested that the application be taken up after filing the written statement. This indicated their intention to contest the injunction based on the merits of the case to be detailed in the written statement. The court noted that the defendants had also filed an application under Order 39 Rule 4 for setting aside the ex-parte temporary injunction, further demonstrating their submission to the court's jurisdiction. The court referenced State of Uttar Pradesh v. M/s. Janki Saran Kailash Chandra and Ford's Hotel Co., Ltd. v. Barlett, which held that actions like seeking adjournments or filing replies amounted to taking steps in the proceedings. The court distinguished the present case from Sansarchand Deshraj v. State of M.P., where the defendants had explicitly mentioned the subsistence of an arbitration agreement in their reply. In the present case, the defendants did not make such a mention, and their actions were deemed to have submitted to the court's jurisdiction. The court concluded that the defendants had taken steps in the suit proceedings, thereby disentitling them to relief under Section 34 of the Arbitration Act. Conclusion: The court dismissed the appeal, holding that the original contract containing the arbitration clause was superseded by a subsequent arrangement, and the defendants had taken steps in the suit proceedings, making them ineligible for a stay under Section 34 of the Arbitration Act. The appeal was dismissed with costs, and counsel's fee was set at Rs. 200.
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