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TMI Blog1993 (11) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... the Civil Mscellaneous Petition. - C.A. 851 OF 1972 - - - Dated:- 12-11-1973 - P. JAGANMOHAN REDDY AND S.N. DWIVEDI, JJ JUDGMENT The Judgment of the Court was delivered by JAGANMOHAN REDDY, J.-on an application under SS. 9(b) and 33 of the Arbitration Act 10 of 1940-hereinafter called 'the Act challenging the propriety of a reference to the arbitration of the sole arbitrator, the Subordinate Judge, Alipore permitted the appellant to adduce evidence to establish whether the contract was put an end to by final payment, and if it was whether the arbitration clause con- tained in the contract will perish with it. Against this order the respondent filed a revision in the High Court of Calcutta which while setting aside the order of the Subordinate Judge dismissed the application filed by the appellant. This appeal is by certificate against that decision. In order to appreciate the significance of the question which has, to be determined, a few relevant facts may be stated. The respondent entered into a contract with the appellant to supply certain quantities of coal at certain price but as he failed to do so in accordance with the terms of the contract, the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) Whether the arbitration clause between the parties would cease to exist with the termination of the agreement; and (3) Whether oral evidence touching the dispute in respect of the alleged final settlement of the claim would be admissible in the proceedings. The Subordinate Judge answered these questions in the affirmative and held that the appellant could adduce evidence to establish that the contract had come to an end and that as a consequence the arbitration clause perished with it. On these facts the short question for determination is : where one of the parties refers a dispute or disputes to arbitration and the other party takes a plea that there was a final settlement of all claims, is the Court, on an application under ss. 9(b) and 33 of the, Act, entitled to enquire into the truth and validity of the averment as to whether there was or was not a final settlement on the ground that if that was proved, it would bar a reference to the arbitration inasmuch as the arbitration clause itself would perish. The respondent purported to refer the dispute to arbitration under the following clause of the agreement ........if at any time any question, dispute or dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of providing a machinery for the settlement of disputes arising in relation to or in connection with that contract. The questions 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. A repudiation by one party alone does not terminate the contract. It takes two to end it, and hence 'it follows that as the contract subsists for the determination of the rights and obligations of the parties, the arbitration clause also survives. This is not a case where the plea is that the contract is void, illegal or fraudulent etc., in which case, the entire contract along with the arbitration clause is non est, or voidable. As the contract is an outcome of the agre nent between the parties it is equally upon to the parties thereto to agree, to bring: it to an end or to treat it as if it never existed. It may also be 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or falls according to the determination of the question in dispute. It may be stated that the Privy. Council had in Hirji Mulji v. Cheong yue Stewnship Company ( [1926] A.C. 407) held that as the authority of a person claiming arbitral jurisdiction depends on the existence of some submission to him by the parties of the subject-matter of the complaint, a contract that has determined is in the same position as one that has never been concluded at all. The observations of Lord Sumner in that case as to the effect of frustration of the contract before its performance on the arbitration clause inasmuch as frustration operates automatically and the contract to exist for all purposes save for the enforcement of claims vested before that date of which there were none, were dissented from in Heyman and another v. Darwins Ltd.(1), though Lord Macmillan did not want to express any opinion on this question. Be that it may, in Heyman's case(3) Lord Macmillan pointed out at pp. 370-371 : If it appears that the dispute is whether there has ever been a binding contract between the parties, such a dispute, cannot be covered by an arbitration clause in the challenged contract. If there has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end it provided as follows: The contracts stand finally concluded in terms of the settlement and no party will have any further or other claim against the other. On a question whether the arbitration clauses in the original contracts had ceased to have any effect and the contracts stood finally deter mined as a result of the settlement contracts, the Calcutta B Court held that the first contract had not been abrog by the settlement in respect of it, but the third original contract the arbitration clause contained in it had ceased to exist as a result of the last settlement, as such the arbitrator had no jurisdiction to arbitrate under that arbitration clause. Imam and Subba Rao, JJ., (Sarkar, J., dissenting) confirmed the High Court's decision, They held that the three, contracts were settled and the third settlement contract was in substitution of the three contracts; and, after its execution, all the earlier contracts were extinguished and the arbitration clause contained therein also perished along with them. They further held that the new contract was not a conditional one and after its execution the parties should work out their rights only under its terms. Sarkar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erishes with it; and (6) between the two falls many categories of disputes in connection with a contract, such as the question of repudiation, frustration, breach etc. In those cases it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or inconnection with it. As the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes. In those cases, as we have stated earlier, it is the performance of the con-, tract that has come to an end but the contract is still in existence for certain purposes in respect of disputes arising under it or in, connection with it. We think as the contract subsists for certain purposes, the arbitration clause operates in respect of those purposes. Sarkar, J., did not dissent from the propositions enunciated by Subba Rao, J., but only disagreed with the majority' on the effect of the settlement on the arbitration clause. He also referred to the observations of Lord Macmillan in Hayman's case([1942]. A. C. 356.) and observed at P. 519 : An arbitration agreement, of course, is the creature of an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged one of which was that the appointment of J. N. Mullick as the sole arbitrator should be set aside for nonconformity with the provisions of S. 9(b) of the Act. It may also be observed that under the proviso to that section the Court is empowered to set aside any appointment as a sole arbitrator made under cause (b) and either on sufficient cause being shown allow further time to the defaulting party to appoint an arbitrator or pass such other order as it thinks fit. The Subordinate Judge did not decide any of the aforesaid matters, which he should have, been allowed to do. The learned Advocate for the respondent also frankly conceded that the High Court was not justified in dismissing the petition altogether. 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. After this judgment was prepared the respondent filed Civil Miscellaneous Petition No. 9566-of 1973 seeking directions on the ground that the le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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