Delhi High Court
Ansal Housing & Construction Ltd. vs Samyak Projects Pvt. Ltd. on 20 November, 2018
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
* IN THE HIGH COURT OF DELHI AT NEW DELHI % Date of decision: 20th November, 2018. + CS(OS) 479/2018, IA No.13144/2018 (u/O XXXVIII R-5 CPC), IA No.14031/2018 (u/S 8 of the Arbitration & Conciliation Act), IA No.15634/2018 (u/O XXXVII R-3(5) CPC) & 15635/2018 (u/O XXXVII R-5(7) of the CPC). ANSAL HOUSING & CONSTRUCTION LTD. ..... Plaintiff Through: Mr. Sachin Datta, Sr. Adv. with Mr. Vikas Tiwari, Mr. Aamir Jamal, Mr. Vaibhav Sharma & Ms. Dolly Sharma, Advs. Versus SAMYAK PROJECTS PVT. LTD. ..... Defendant Through: Mr. Vivek Kohli, Ms. Prerna Kohli & Ms. Neetika Bajaj, Advs. CORAM: HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW IA No.14031/2018 (of the defendant under Section 8 of the Arbitration & Conciliation Act, 1996). 1. The plaintiff has instituted this suit, under Order XXXVII of the CPC for recovery of Rs.11,79,83,525/-, pleading that (i) that the defendant was the agreement purchaser of land admeasuring 1.7 acres in Block-A of Integrated Residential Colony called "Esencia" in the revenue estate of Village Badshahpur, Tehsil and District Gurgaon, Haryana; (ii) that the defendant had entered into an agreement with Universal Buildwell Pvt. Ltd. (UBL) for UBL to undertake development and construction over the said land of which the defendant was the agreement purchaser, but UBL had failed to perform its part of the agreement; (iii) that the defendant had thus terminated its agreement with UBL and was in the process of finalising the termination agreement with UBL and was in need of funds, to pay off UBL CS(OS) 479/2018 Page 1 of 20 as well as to, in pursuance to the agreement to sell in its favour, have the sale deed of the land executed in favour of the defendant; (iv) that the defendant had entered into a Memorandum of Understanding (MoU) dated 12th July, 2012 with the plaintiff whereunder the plaintiff had advanced a sum of Rs.12 crores to the defendant to enable the defendant to pay off UBL and achieve termination of the agreement with UBL and to pay the balance sale consideration to the owners of the land to achieve execution of sale deed of the land in favour of the defendant; (v) that the defendant, under the aforesaid MoU had agreed with the plaintiff that the plaintiff will carry out the work of development and construction over the aforesaid land and the proceeds of sale of built up area / developed land shall be shared by the plaintiff and the defendant in the ratio of 55% and 45% respectively; (vi) that it was further a term of the MoU that if the defendant did not achieve termination of the earlier agreement with UBL within four months from the date of the MoU, the plaintiff will have the option, either to demand refund of the amount of Rs.12 crores with interest @ 24% per annum, or to extend the time for the defendant to achieve termination of the earlier agreement with UBL. (vii) the defendant failed to terminate the earlier agreement with UBL and on the contrary ratified the earlier agreement with UBL; (viii) a Deed of Cancellation dated 20th April, 2013 was entered into between the plaintiff and the defendant whereunder the parties cancelled the MoU dated 12th July, 2012 and it was agreed that the defendant shall refund the entire amount of Rs.12 crores with interest at the rate of 24% per annum to be calculated from the date of receipt of the said Rs.12 crores by the defendant, on or before 31st December, 2013; (ix) the defendant did not repay the said amount and sought extension from time to CS(OS) 479/2018 Page 2 of 20 time; (x) the defendant has been deducting tax at source at 10% on the interest accrued and has been depositing the same to the credit of the government; (xi) the defendant has made last on account payment of Rs.1 crore to the plaintiff on 27th March, 2015; and, (xii) as on the date of filing of the suit, a sum of Rs.11,79,83,525/- was due from the defendant to the plaintiff. 2. Summons for appearance and upon the defendant entering appearance, summons for judgment were ordered to be issued to the defendant. 3. The defendant, besides filing leave to defend application, has also filed this application under Section 8 of the Arbitration and Conciliation Act and to which a reply has been filed by the plaintiff. 4. The counsel for the applicant / defendant was heard yesterday and has been further heard today. The senior counsel for the plaintiff has been heard in response and the counsel for the applicant / defendant has rejoined. 5. MoU dated 12th July, 2012 between the parties contains the following arbitration and jurisdiction clauses: "8. That any dispute between the Parties arising out of this MOU shall be subject to provisions of Arbitration and Conciliation Act, 1996 and the venue for arbitration shall be New Delhi. 9. That this Agreement shall be subject to jurisdiction of Courts at Gurgaon." 6. The Deed of Cancellation dated 20th April, 2013 between the parties (and in which defendant is described as SPPL and the plaintiff is described as AHCL) contains the following Clauses: CS(OS) 479/2018 Page 3 of 20 "1. That the MOU dated 12th July, 2012 shall stand cancelled without any Party having any claim against each other except as agreed hereinafter. 2. That SPPL will refund the entire amount of Rs.12 Crores with interest calculated @24% p.a. The interest will be calculated from the date of receipt of advance of Rs.12 Crores and till the entire amount together with interest is refunded by SPPL to AHCL. 3. That the entire amount of Rs.12 Crores together with interest thereon would be refunded by SPPL to AHCL latest by 31st December, 2013 failing which AHCL shall be at liberty to adjust amount due to SPPL in any other account. 4. That AHCL shall not claim any right on the Said Land or the Project being developed on the Said Land. 5. That this Deed of Cancellation is subject to jurisdiction of Courts at New Delhi." and does not contain any arbitration clause. 7. The counsel for the applicant / defendant contends, that (i) under the Clause 6 of the MoU dated 12th July, 2012 (and in which the defendant is described as First Party and the plaintiff as Second Party) as under: "6. That in case the First Party fails to conclude termination of Samyak-UBL Agreement and make available the SAID LAND for development to the Second Party within a maximum period of 4 months from the date of this MOU, the Second Party will have the option to demand refund of the entire amount of Rs.12 Crores advanced by it to the First Party with interest @24% p.a. or extend the time for completion of the Termination of Samyak-UBL Agreement.", the plaintiff had an option to demand refund of the entire amount of Rs.12 crores advanced by the plaintiff to the defendant with interest as stipulated therein; (ii) the plaintiff, in terms of the MoU dated 12th July, 2012, CS(OS) 479/2018 Page 4 of 20 exercised the said option and which resulted in the execution of the Deed of Cancellation dated 20th April, 2013; (iii) the defendant no.1 has paid Rs.11,79,23,640/- to the plaintiff between 18th May, 2013 to 27th March, 2015 as admitted in para no.25 of the plaintiff also; (iv) the balance amount due under the MoU dated 12th July, 2012 aforesaid has been adjusted against other accounts under other agreements between the parties, in terms of Clause 3 of the Deed of Cancellation dated 20th April, 2013; (v) notwithstanding the Deed of Cancellation, the Arbitration Agreement contained in the MoU dated 12th July, 2012 survives; (vi) the obligation of the defendant to pay the amounts aforesaid to the plaintiff has its origin in the MoU dated 12th July, 2012 which contains an Arbitration Agreement; (vi) reliance is placed on Moschi Vs. Lep Air Services Ltd. 1973 Appeal Court 331 (House of Lords) and on dicta of the Division Bench of the High Court of Bombay in Mulheim Pipecoatings GmbH Vs. Welspun Fintrade Ltd. 2013 SCC OnLine Bom 1048 where the law has been summarised as under: "(i) The arbitration agreement constitutes a collateral term in the contract which relates to the resolution of disputes and not to the performance of the contract. Whereas the substantive terms of a contract define the rights and obligations of the parties, an arbitration agreement provides for modalities agreed upon by parties for the resolution of their disputes. Parties agree thereby to have their disputes resolved before an arbitral tribunal as distinct from the ordinary courts of law in the jurisdiction; (ii) Upon the termination of the main contract, the arbitration agreement does not ipso facto or necessarily come to an end; CS(OS) 479/2018 Page 5 of 20 (iii) The issue as to whether the arbitration agreement survives or perishes along with the main contract would depend upon the nature of the controversy and its effect upon the existence or survival of the contract itself; (iv) If the nature of the controversy is such that the main contract would itself be treated as non est in the sense that it never came into existence or was void, the arbitration clause cannot operate, for along with the original contract, the arbitration agreement is also void. Similarly, though the contract was validly executed, parties may put an end to it as if it had never existed and substitute a new contract solely governing their rights and liabilities thereunder. Even in such a case, since the original contract is extinguished or annihilated by another, the arbitration clause forming a part of the contract would perish with it; (v) There may, however, be cases where it is the future performance of the contract that has come to an end. Such an eventuality may arise due to a number of circumstances, in which one or both the parties may be discharged from further performance. Termination of the contract by one party, repudiation of the contract by one party and its acceptance by the other and frustration of the contract are some of the circumstances. The controversy in such matters arises upon or in relation to or in connection with the contract. In all such cases, the contract is not put an end to for all purposes because there may be rights and obligations which had arisen earlier when it had not come to an end. The contract subsists for those purposes and the arbitration clause would operate for those purposes; (vi) The doctrine of separability requires, for the arbitration agreement to be null and void, inoperative or incapable of performance, a direct CS(OS) 479/2018 Page 6 of 20 impeachment of the arbitration agreement and not simply a parasitical impeachment based on a challenge to the validity or enforceability of the main agreement. In other words, arguments for impeaching the arbitration agreement must be based on facts which are specific to the arbitration agreement. There may, of course, be facts which are specific to both the main agreement and the arbitration agreement, but there may well be facts which are specific to the main agreement, but not to the arbitration agreement. In the former case, the arbitration clause would perish with the main contract while in the latter case, it would not. Another way of considering the matter is whether it is the further performance of the contract that is brought to an end or it is the existence of the contract which is brought to an end. In the former case, where the further performance of the contract has been brought to an end, the arbitration clause would survive whereas when the existence of the contract is itself brought to an end, the arbitration clause would not survive." (emphasis added) 8. Per contra, the senior counsel for the plaintiff has contended that on the execution of the Deed of Cancellation dated 20th April, 2013, which admittedly does not contain any arbitration clause, in supersession of the MoU dated 12th July, 2012, the arbitration agreement in the MoU dated 12th July, 2012 disappears. Reliance is placed on the dicta of the Division Bench of this Court in Young Achievers Vs. IMS Learning Resources Pvt. Ltd. (2012) 191 DLT 378 (DB) holding as under: "8. We are unable to agree with the submissions of learned counsel for the appellant, though there can be no dispute about the legal proposition propounded aforesaid and the law laid down by the Hon‟ble Supreme Court. In fact, there is no quibble over the legal proposition that the arbitration CS(OS) 479/2018 Page 7 of 20 clause would survive the termination/cessation of an agreement and the disputes pertaining to the same would still be resolved by arbitration. In the present case it is not a case of unilateral termination by one of the parties which has occurred. Mutually, a fresh document has been drawn called the Exit Paper, an agreement containing comprehensive terms & conditions on which the parties continued with their association. Despite this Exit Paper setting out all the terms & conditions, the allegation of the respondent is that the appellant continued to infringe the trademark of the respondent by using the same, contrary to the said agreement. This Exit Paper undisputedly does not contain an arbitration clause. 9. The Supreme Court in Magma Leasing & Finance Limited (supra), which is a two-Judge bench decision, after referring to the judgment of the House of Lords in Heymen v. Darwins Ltd., 1942 AC 356 : 1942 1 All ER 337 (HL), referred to the following observations of Subba Rao, J (as his Lordship then was) in Union of India Vs. Kishorilal Gupta & Bros., AIR 1959 SC 1362: "8. Uninfluenced by authorities or case-law, the logical outcome of the earlier discussion would be that the arbitration clause perished with the original contract. 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. It was intended to cover all the disputes arising under the conditions of, or in connection with, the contracts. Though the phraseology was of the widest amplitude, it is inconceivable that the parties intended its survival even after the contract was mutually rescinded and substituted by a new agreement. The fact that the new contract not only did not provide for the survival of the arbitration clause but also the circumstance that it contained both substantive and procedural terms indicates that the parties gave up the terms of the old contracts, including the arbitration clause. The case-law referred to by the learned counsel in this connection does not, in our view, lend support to his broad CS(OS) 479/2018 Page 8 of 20 contention and indeed the principle on which the said decisions are based is a pointer to the contrary. 9...These observations throw considerable light on the question whether an arbitration clause can be invoked in the case of a dispute under a superseded contract. The principle is obvious; if the contract is superseded by another, the arbitration clause, being a component part of the earlier contract, falls with it... But where the dispute is whether the said contract is void ab initio, the arbitration clause cannot operate on those disputes, for its operative force depends upon the existence of the contract and its validity. So too, if the dispute is whether the contract is wholly superseded or not by a new contract between the parties, such a dispute must fall outside the arbitration clause, for, if it is superseded, the arbitration clause falls with it." (emphasis supplied) 10. We may note at this stage that the present is not a case involving the assertion by the respondent of accord and satisfaction in respect of the earlier contracts dated 01.04.2007 and 01.04.2010. In terms of the decision of the Supreme Court in Kishorilal Gupta (supra) (which is a three-Judge bench decision), if that had been the issue raised, the appellant may have been justified in claiming that the said dispute, i.e. whether there has been accord and satisfaction in respect of the two agreements should be referred to arbitration in terms of the arbitration agreement contained in the said two agreements. 11. Reliance placed on para 32 of the judgment in Kishorilal Gupta (supra) rendered by A.K. Sarkar, J in his concurring opinion appears to be misplaced. The Supreme Court in para 32 of the decision in Kishorilal Gupta (supra), after setting out section 62 of the Contract Act (which deals with the effect of novation, recession and alteration of contract) went on to observe that "the settlement cannot be said to have altered the original contract or even to have rescinded it. It only settled the dispute as to the breach of the contract and its CS(OS) 479/2018 Page 9 of 20 consequences. For the same reason, it cannot be said to substitute a new contract for the old one". (emphasis supplied) 12. It is important to note that the Supreme Court made the aforesaid observation in respect of a "settlement" of disputes arising under the original contract, including the dispute as to the breach of the contract and its consequences. In the present case, the parties have clearly entered into a fresh contract contained in the exit agreement, which, as noticed above, is not even in dispute. The exit agreement does not even whisper about any dispute arising under the original agreements or about settlement thereof. It is pure and simple novation of the original contract by mutual agreement of parties. 15. We are, thus, of the view that the learned single Judge was right in coming to the conclusion that both the agreements dated 1.4.2007 and 1.4.2010 have been superseded/novated by the Exit Paper, and in view of Exit Paper being a fresh agreement with no arbitration clause for adjudication of disputes, the application of the appellant was rightly rejected. 16. We may add that, even otherwise, suppose there was no dispute about any item relating to the Exit Paper, then can it really be said thereafter a number of years if the trademark is infringed that the respondent will still have to resort to the contract where there was an agreement inter se the parties for mutual business containing the arbitration clause? The answer to this obviously would be in the negative." (emphasis added) 9. The senior counsel for the plaintiff also contended that the aforesaid dicta of the Division Bench of this Court has been affirmed by the Supreme Court in Young Achievers Vs. IMS Learning Resources Pvt. Ltd. (2013) 10 SCC 535, holding as under: "7. Exit paper would clearly indicate that it is a mutually agreed document containing comprehensive terms and conditions which -admittedly does not contain an arbitration clause. We are of the view that the High Court is right in taking the view that in the case on hand, is not a case involving assertion by the CS(OS) 479/2018 Page 10 of 20 respondent of accord a satisfaction in respect of the earlier contracts dated 1-4- 2007 and 1-4-2010. If that be so, it could have referred to arbitrator in terms of those two agreements going by the dictum in Union of India v. Kishorilal Gupta and Bros. This Court in Kishorilal Gupta's case examined the question whether an arbitration clause can be invoked in the case of a dispute under a superseded contract. The principle laid down is that if the contract is superseded by another, the arbitration clause, being a component part of the earlier contract, falls with it. But where the dispute is whether such contract is void ab intio, the arbitration clause cannot operate on those disputes, for its operative force depends upon the existence of the contract and its validity. The various other observations were made by this Court in the above-mentioned judgment in respect of "settlement of disputes arising under the original contract, including the dispute as to the breach of the contract and its consequences". The principle laid down by the House of Lords in Heyman v. Darwins Limited was also relied on by this Court for its conclusion. The Collective bargaining principle laid down by the US Supreme Court in Nolde Bros. case would not apply to the facts of the present case. 8. We may indicate that so far as the present case is concerned, parties have entered into a fresh contract contained in the Exit paper which does not even indicate any disputes arising under the original contract or about the settlement thereof, it is nothing but a pure and simple novation of the original contract by mutual consent. Above being the factual and legal position, we find no error in the view taken by the High Court. The appeal, therefore, lacks merit and stands dismissed, with no order as to costs. 10. I have considered the rival contentions. 11. Even before the senior counsel for the plaintiff cited the judgments aforesaid, I was of the view that the defendant is not entitled to invoke arbitration because the defendant, by claiming adjustment of the balance amounts due from the defendant to the plaintiff under the MoU dated 12 th CS(OS) 479/2018 Page 11 of 20 July, 2012 read with Deed of Cancellation dated 20th April, 2013 in other accounts under other agreements between the plaintiff and defendant, is wanting adjudication of claims under other agreements between the parties, in accounts whereof monies according to the defendant have been adjusted. I was of the opinion that the claims/accounts subject matter of other agreements are not covered by the arbitration clause in the MoU dated 12 th July, 2012; though on enquiry, it was informed that the said other agreements also have an arbitration clause but it was felt that under an arbitration clause in one agreement, disputes found to arise on the plea of adjustment between the parties under another agreement, could not be gone into. In fact, at one stage, it was enquired from the counsel for the defendant, whether the defendant was willing to make a statement that in the event of the application being allowed and the parties being referred to arbitration, the defendant would not raise disputes of adjustment and the counsel for the applicant / defendant sought time to take instructions in this respect. 12. However, in my opinion, the dicta of the Division Bench of this Court by which I am bound, puts the matter beyond any pale of controversy and unequivocally applies to the present factual situation. 13. The counsel for the defendant however, with reference to para no.12 of the judgment of the Division Bench of this Court, contended that in the present case, the Cancellation Deed dated 20th April, 2013 is not a fresh contract, as was found to be the case with which the Division Bench of this Court was concerned. It is further pointed out that in that case the "Exit Agreement" was not found to even whisper about the dispute arising under CS(OS) 479/2018 Page 12 of 20 the original agreement or about the settlement thereof. It is contended that as distinct therefrom, the Deed of Cancellation dated 20 th April, 2013 in the present case is pursuant to the option which the plaintiff had under the MoU dated 12th July, 2012 and is in pursuance to the MoU and thus does not qualify as a fresh agreement as was the case before the Division Bench of this Court. It is argued that the Deed of Cancellation dated 20 th April, 2013 is not a separate agreement and is not disjointed from the MoU dated 12th July, 2012, if read in common business sense. It is further contended that there is nothing in the Deed of Cancellation dated 20 th April, 2013 to suggest that the parties had given up their agreement to arbitration. Attention is also drawn to paras no.7 and 8 of the notice got issued by the plaintiff preceding the suit and to para no.26 of the plaint to contend that the plaintiff itself is claiming under the MoU dated 12 th July, 2012 coupled with the Deed of Cancellation dated 20th April, 2013 and it is argued that the two in the present case are not separate, as in the case with which the Division Bench in Young Achievers supra was concerned. 14. I am unable to agree. It is the ratio of the judgment which constitutes a precedent and not the factual differences which have no bearing on the ratio. It has been held by the Supreme Court in Union of India Vs. Dhanwati Devi (1996) 6 SCC 44 that it is the principle upon which a case is decided which is binding on a party, and what is of essence in a decision is its ratio and not every observation found therein. It cannot be lost sight of that the Exit Agreement in Young Achievers supra also was to put an end to the earlier agreement between the parties in that case. CS(OS) 479/2018 Page 13 of 20 15. The ratio of Mulheim Pipecoatings GmbH and Young Achievers supra is (i) that an arbitration clause survives the termination / cessation of the agreement in which it is contained; and, (ii) whether the arbitration clause survives or perishes along with the main contract depends upon the nature of the controversy and its effect upon the survival of the arbitration clause. However, Young Achievers supra, in addition, relying on the earlier judgments cited therein, holds that where a contract containing an arbitration clause is substituted by another contract, the arbitration clause perishes with the original contract unless there is anything in the new contract to show that the parties intended the arbitration clause in the original contract to survive. 16. Russel on Arbitration (Twenty Fourth Edition) also in para 2-135 has authored (i) the parties can by agreement bring the agreement to arbitrate to an end; (ii) arbitration is consensual and there is no reason why the parties cannot agree to vary their arbitration agreement so as to bring about its termination; (iii) the parties might for example jointly agree that all future dispute should be dealt with by the Court rather than pursuant to the arbitration agreement contained in their contract; alternatively, the parties might by way of subsequent agreement which contains a clause conferring jurisdiction on the Courts, terminate the earlier agreement in which the arbitration clause is contained - the jurisdiction clause in the subsequent contract may be construed so as to supersede the earlier arbitration agreement in order to avoid fragmentation of disputes, although ultimately this will be a question of construction of the relevant agreements; and, (iv) where the subsequent agreement terminating the earlier contract contains no CS(OS) 479/2018 Page 14 of 20 competing jurisdiction clause, the original arbitration agreement is likely to survive on the basis of separability. 17. I have looked at the MoU dated 12th July, 2012 and the Deed of Cancellation dated 20th April, 2013 signed by the parties and find (i) the arbitration clause contained in the MoU dated 12th July, 2012 to be of arbitration only of "any dispute between the parties arising out of this MoU" and not all encompassing as is often found by use of the words "arising out of and in relation to"; (ii) the disputes which could arise out of the MoU dated 12th July, 2012 were in limited domain, considering that the MoU was not a complete agreement between the parties but envisaged execution of a "detailed agreement"; (iii) the Deed of Cancellation dated 20th April, 2013 in recitals thereof recorded that the plaintiff and the defendant had "agreed to mutually cancel the MoU dated 12th July, 2012" and in habendum / operative part thereof records that "the MoU dated 12th July, 2012 shall stand cancelled without any Party having any claim against each other except as agreed hereinafter". 18. The language used by the parties in the arbitration clause in the MoU dated 12th July, 2012 and in the Deed of Cancellation dated 20 th April, 2013 negates the survival of the arbitration clause in the MoU post the Deed of Cancellation. The disputes arising between the parties out of the Deed of Cancellation, which in supersession of the clause in the MoU of refund of the entire amount of Rs.12 crores advanced by the plaintiff to the defendant at the option of the plaintiff, also gives liberty to the plaintiff to adjust the amount in the amounts due from the plaintiff to the defendant in any other account, in the light of the defence of the defendant of such adjustment, CS(OS) 479/2018 Page 15 of 20 cannot be said to be arising out of the MoU, to be covered by the arbitration clause in the MoU. 19. The facts and circumstances of the present case thus do not make out a case of survival of the arbitration clause in the MoU. 20. In addition to the judgments referred to in Young Achievers, I find Supreme Court in Damodar Valley Corporation Vs. K.K. Kar (1974) 1 SCC 141 to have held (i) a contract is the creature of an agreement between the parties and where the parties under the terms of the contract agree to incorporate an arbitration clause, that clause stands apart from the rights and obligations under that contract, as it has been incorporated with the object of providing a machinery for the settlement of disputes arising in relation to or in connection with that contact; (ii) the question 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; (iii) a repudiation by one party alone does not terminate the contract and it takes two to end it; it follows that as the contract subsists for the termination of the rights and obligations of the parties, the arbitration clause also survives; (iv) as the contract is an outcome of the agreement between the parties, it is equally open to the parties thereto to agree to bring it to an end or to treat it as if it never existed; it is also 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; (v) in such cases, since the entire contract is put an end to, the arbitration clause, which is a part of it, also perishes along with it; (vi) CS(OS) 479/2018 Page 16 of 20 Section 62 of the Contract Act, 1872 incorporates this principle when it provides that if the parties to a contract agree to substitute a new contract or to rescind or alter it, the original contract need not to be performed; (vii) where therefore the dispute between the parties is that the contract itself does not subsist either as a result of it being substituted by a new contract or by rescission or alternation, that dispute cannot be referred to arbitration as the arbitration clause itself would perish if the averment is found to be valid; and, (viii) as the very jurisdiction of the arbitrator is dependent upon the existence of the arbitration clause under which he is appointed, the parties have no right to invoke a clause which perishes with the contract. 21. Mention may also be made of: (a) Chatterjee Petrochem Company Vs. Haldia Petrochemicals Ltd. (2014) 14 SCC 574 where, finding that the subsequent agreement reiterated that the earlier agreement remains the principal agreement and binding, subsisting, enforceable between the parties, it was held that there was no novation of principal agreement and the arbitration clause in the principal agreement remained valid and subsisting. (b) Hema Khattar Vs. Shiv Khera (2017) 7 SCC 716 where, holding that if subsequent to written agreement containing arbitration clause, parties enter into an oral agreement in continuation of previous one, without referring to any arbitration clause, the arbitration clause contained in previous agreement would continue to be operative. CS(OS) 479/2018 Page 17 of 20 (c) Nalini Singh Associates Vs. Prime Time - IP Media Services Ltd. 2008 (106) DRJ 734 holding that, (i) Section 62 of the Contract Act allows novation, rescission, modification and alteration of an earlier contract with a new agreement or even alteration to an earlier agreement; (ii) under the new agreement or upon amendment of an earlier contract, prior rights of the parties are extinguished and new rights and obligations come into existence; (iii) unless the new contract is void, unenforceable or the amended terms are unenforceable, a party cannot revert back to the original contract; (iv) original contract can be revived either when the contract is unenforceable or void or when the terms of novation itself provide that original contract can be revived and the said clause becomes applicable. Else, the original contract gets obliterated or wiped out. (d) C.E. Construction Ltd. Vs. Intertoll ICS Cecons O&M Company Pvt. Ltd. 2017 SCC OnLine Del 6401, in the facts of which also, it was held that an arbitration clause in an agreement cannot survive, if the agreement containing arbitration clause has been superseded / novated by a later agreement. (e) GSBA Builder Pvt. Ltd. Vs. Radha Soami Satsang Beas (2017) SCC OnLine Del 7386 where also, though the subject matter of the agreement containing arbitration clause and subsequent MoU recording settlement of disputes which had arisen under the agreement was the same but it was held that the arbitration clause in the agreement stood novated by the MoU. CS(OS) 479/2018 Page 18 of 20 (f) D. Muralidhar Rao Vs. Srinivasa Constructions 2018 SCC OnLine Hyd 145 (DB) where, finding the parties to have substituted the earlier development agreement with a new development agreement terms whereof were materially different from the original agreement, it was held that the arbitration clause in the earlier agreement did not survive as the agreement containing the arbitration clause stood novated and substituted. It was iterated that if the contract is superseded by another, the arbitration clause, being a component part of the earlier contract, falls with it. 22. I may in this regard highlight that while under the MoU dated 12th July, 2012, the parties, besides agreeing to arbitration with venue at Delhi, made the MoU subject to the jurisdiction of the Courts at Gurgaon, under the Deed of Cancellation dated 20th April, 2013, not only did the parties do away with the arbitration clause, but also made the Deed of Cancellation subject to jurisdiction of the Courts at Delhi. The same shows that the parties had consciously effected the change as to the dispute resolution mechanism from that under the MoU dated 12th July, 2012. 23. In fact, the senior counsel for the plaintiff has contended that the present case also falls in the exception carved out in sub-para (iv) of Para 31 of the judgment of the Division Bench of the High Court of Bombay in Mulheim Pipecoating GmbH supra holding that where the parties have mutually put an end to the contract as if it had never existed and substituted the same with a new contract solely governing their rights and liabilities, the original contract is extinguished and annihilated by the other and the arbitration clause forming part of the contract also perishes. CS(OS) 479/2018 Page 19 of 20 24. I am thus satisfied that the action brought by way of this suit is not the subject matter of arbitration agreement contained in the MoU dated 12th July, 2012. 25. Axiomatically, the application is dismissed. IA No.15634/2018 & IA No.15635/2018 (both of the defendant for leave to defend and for condonation of five days delay in filing thereof) 26. The counsel for the defendant seeks adjournment. 27. Though it was felt that since the facts are fresh, the disposal will be expeditious but allowed. 28. The counsels to, in reference to Prithipal Singh Vs. Satpal Singh (2010) 2 SCC 15, also address whether this Court is empowered to condone the delay. 29. List on 8th March, 2019. RAJIV SAHAI ENDLAW, J.
NOVEMBER 20, 2018 „gsr‟/bs..
(corrected and released on 8th December, 2018).
CS(OS) 479/2018 Page 20 of 20