Civil Appeal No 250 of 1955
495 Appeal by special leave from the judgment and order dated February 11 1953 of the Calcutta High Court in Award No 254 of 1949
H N Sanyal Additional Solicitor General of IndiaB Sen R H Dhebar and T M Sen for the appellant
C B Aggarwala and Sukumar Ghose for the respondent
May 21
The judgment of Jafer Imam and Subba Rao JJ was delivered by Subba Rao J Sarkar J delivered a separate judgment
SUBBA RAO J
This appeal by special leave raises the question of survival of an arbitration clause in a contract after the said contract is superseded by a fresh one
The respondent  firm styled as  Kishorilal Gupta  Brothers  entered into the following three contracts with the Governor General in Council through the Director General of Industries and Supplies hereinafter called the Government i contract dated April 2 1943 for the supply of 43000 Ladles Cook ii contract dated September 15 1944 for the supply of 15500 Bath Ovals and iii contract dated September 22 1944 for the supply of 100000 Kettles Camp  Each of the said contracts contained an arbitration clause the material part of which was as follows   In the event of any question of dispute arising under these conditions or any special conditions of contract or in connection with this contract except as to any matters the decision of which is specially provided for by these conditions the same shall be referred to the award of an arbitrator to be nominated by the purchaser and an arbitrator to be nominated by the contractor 
Under the terms of the said three contracts the Government supplied certain raw materials to the respondents and the latter also delivered some of the goods to the former
On May 21 1945 the contract dated April 2 1943 hereinafter called the first contract was cancelled by the Government
The Government 496 also demanded certain sums towards the price of the materials supplied by them to the respondents
On the same day the Government cancelled the contract dated September 15 1944 hereinafter called the second contract and made a claim on the respondents for the price of the raw materials supplied to them
The respondents made a counter claim against the Government for compensation for breach of the contract
On March 9 1946 the Government cancelled the contract dated September 22 1944 hereinafter called the third contract
Under that contract there were mutual
claims by the Government for  the raw material supplied to the contractors and by the latter for compensation for breach of contract
The disputes under the three contracts were amicably settled The outstanding disputes under the first and the second contracts were settled on September 6 1948 and two separate documents were executed to evidence the said settlement
As the decision to some extent turns upon the comparative study of the recitals in the said documents of settlement it will be convenient to read the material part of the recitals contained therein
The settlement in respect of the first contract contained the following recitals  1 The contractor expressly agrees to pay the Government the sum of Rs 3164 8 as
only on this contract
2 The contract on payment of the amount mentioned in clause 1 shall stand finally determined
 The recitals in the settlement of the second contract are as follows  1 The contractor expressly agrees to pay to the Government the sum of Rs 36276
If D G 1  section has recovered any amount under the contract out of the sum due credit will be given to the contractor
2 The contract stands finally determined and no party will have any further claim against the other
 One prominent difference in the phraseology used in the two settlements may be noticed at this stage
497 While under the settlement of the first contract the contract should stand finally determined Only payment of the amount agreed to be paid to the Government by the contractor under the settlement of the second contract the contract stood finally determined on the date of the settlement itself
The third contract was settled on February 22 1949 and the material part of the recitals therein is as follows  1 The firm will pay a sum of Rs 45000 in full and final settlement of the amount due to the Government in respect of raw materials received against the contract and their claims for compensation for cancellation of the same contract
2 The firm will retain all surplus partly fabricated and fully fabricated stores lying with them
3 The firm agrees to pay the abovementioned sum of Rs 45000 only together with the sums owing by them to the Government under the settlements reached in two other cases AT Nos
MP75762R 61 78 dated 15th September 1944 and MP507308R I 90 dated 2nd April 1943 in monthly instalments for Rs 5000 only for the first three months first instalment being payable on 10th March 1949 and further instalments of Rs 9000 per month till the entire dues payable to Government are paid
4 In the event of default of any monthly instalments interest will be charged by Government on the amount as defaulted at the rate of 6 per annum from the first day of the month in which the instalment shall be due
If the instalments defaulted exceed two in number the Government will have the right to demand the entire balance of the money payable by the firm together with interest thereon at the rate abovementioned on that balance and take such steps to recover from them from the security to be offered
5 In order to provide cover for the money pay
able to the Government the firm undertakes to hypothecate their moveable and immoveable property in Bamangachi Engineering Works together with all machinery sheds and leasehold interest in 498 land measuring about 575 acres in Mouja Bamungachi in Howrah
The firm further undertakes to execute the necessary stamped documents for the purpose as drafted by the Government Solicitor at Calcutta 6 The contracts stand finally concluded in terms of the settlement and no party will have further or other claim against the other
 Broadly speaking this settlement was a comprehensive one including therein the earlier settlements and providing for the recovery of the amounts agreed to be paid under the said two earlier settlements
The concluding paragraph is more analogous to that of the settlement of the second contract rather than that of the first
Under the final settlement between October 28 1948 and January 17 1949 the respond ents paid a total sum of Rs 9000 to the Government under the first two settlements of the contracts
Between March 10 1949 and October 31 1949 the respondents paid a total sum of Rs 1 1000 in instalments to the Government though the amounts paid were less than the amount payable in accordance with the agreed instalments
Some correspondence passed between the Government and the respondents the former demanding the balance of the amount payable under the instalments and the latter putting it off on one ground or other
Finally on August 10 1949 the Government wrote a letter to the respondents demanding the payment of Rs 151723 payable to them under the three original contracts ignoring the three settlements
The Government followed that letter with another one of the same date informing the respondents that they had appointed Bakshi Shiv Charan Singh as their arbitrator and calling upon the respondents to nominate their arbitrator
The respondents did not co operate in the scheme of arbitration and instead Kishori Lal Gupta as sole proprietor of the respondent firm made an application under section 33 of the  in the Original Side of the High Court of Calcutta for a declara tion that the arbitration agreement was no longer in existence
That application was dismissed by 499 Banerjee J of the said High Court on the ground that it was not maintainable as the two other partners of the respondent firm were not made parties to the said proceeding
But in the course of the judgment the learned Judge made some observation on the merits of the case
Thereafter the Government filed their statement of facts before the arbitrator and the respondents filed a counter affidavit challenging the arbitrator s jurisdiction and also the correctness of the claims made by the Government
On July 31 1951 the arbitrator made an award in favour of the Government for a total sum of Rs 116446 11 5 in respect of the first and the third contracts and gave liberty to the Government to recover the amount due to them under the second contract in a suit
The award was duly filed in the High Court and on receiving the notice the respondents filed an application in the High Court for setting aside the award and in the alternative for  declaration that the arbitration clause in the three contracts ceased to have any effect and stood finally determined by the settlement of the disputes between the parties
Bachawat J held that the first contract was to be finally determined only on payment in terms of the settlement and as such payment was not made the original contract and its arbitration clause continued to exist
As regards the third contract the learned Judge came to the conclusion that by the third settlement there was accord and satisfaction of the original contract and the substituted agreement discharged the existing cause of action and therefore the arbitrator had no jurisdiction to entertain any claim with regard to that contract
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
In the result he gave the declaration that the arbitration clause contained in the contract dated September 221944 for Kettles Camp had ceased to exist since the settlement contract dated February 22 1949 and that the entire award was void and invalid
The present appeal by special leave was filed by the Government against the said order of the High Court
500 At the outset a preliminary objection taken by Shri Aggarwal the learned Counsel for the respondents may be disposed of The learned Counsel contends that the special leave granted by this Court should be revoked on the ground that an appeal lay against the order of the learned Judge to an appellate bench of the same High Court both under cl 15 of the Letters Patent and section 39 of the 
It is not and cannot be contended that this Court has no jurisdiction to entertain an appeal against the order of a Court when an appeal lies from that order to another Court
The provisions of article 136 of the Constitution are not  circumscribed by any such limitation
But what is argued in our view legitimately is that when an appeal lay to the appellate bench of the Calcutta High Court this Court should not have given special leave and thereby short circuited the legal procedure prescribed
There is much force in this argument
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
But in the present case the special leave was granted on March 29 1954 and the present application for revoking the leave was made five years after the grant of special leave and the learned Counsel could not give any valid reason to explain this inordinate delay
In the circumstances if we revoked the special leave the appellant would be prejudiced for if this objection had been taken at the earliest point of time the appellant would have had the opportunity to prefer a Letters Patent appeal to the appellate bench of the Calcutta High Court
The appellant cannot be made to suffer for the default of the respondents
In the circumstances we did not entertain that application for revoking the special leave and did not express our opinion on the merits of the question raised by the learned Counsel
Now coming to the merits the main contentions of the parties may be stated at the outset
The argument of the Additional Solicitor General for the 501 appellant may be summarized in the following propositions 1 The jurisdiction of the arbitrator depends upon the scope of the arbitration agreement or submission 2 its scope would depend upon the language of the arbitration clause 3 if the arbitration agreement in question is examined it indicates that the dispute whether the original contracts have come to an end or not is within its scope 4 on the facts of the case there had been no novation or substitution of the original contracts and 5 if there had been a novation of the original contracts the non perform ance of the terms of the new contract revived the original contracts and therefore the parties to the original contracts could enforce their terms including the arbitration clause
The submission of Shri Aggarwal Counsel for the respondentsmay be stated thus  1 Upon the facts of the case there had been a recession of the old contracts and substitution of a new legally enforceable and unconditional contract which came into immediate effect 2 the new contract can be legally supported either under section 62 or section 63 of the Indian Contract Act or under the general law of contracts 3 the non performance of the terms of the new contract did not have the effect of reviving the rights and obligations under the old contracts as they did not remain alive for any purpose and 6 even if the arbitration clause did not remain alive after the new contract the arbitrator was bound to decide the case in terms of the new contract and he having not done so the error is apparent on the face of the record and therefore the award is liable to be set aside
So stated the controversy covers a much wider field than that necessary to solve the problem presented in this case
It would therefore  be convenient at this stage to clear the ground
Subtle distinctions sought to be made between the provisions of section 62 and section 63 of the Indian Contract Act need not detain us nor need we consider the question whether the settlement contract in question falls under section 62 or is covered by section 63 of the Indian Contract Act or is governed by the general principles of the law of contracts for the validity of the said contract is not questioned
by either 64 502 party and indeed both rely upon it one to contend that it wholly superseded the earlier ones and the other to rely upon its terms to bring out its contingent character
If so the only two outstanding questions are i what is the legal effect of the contract dated February 22 1949 on the earlier contracts   and ii does the arbitration clause in the earlier contracts survive after the settlement contract  The law on the first point is well settled
One of the modes by which a contract can be discharged is by the same process which created it ie by mutual agreement the parties to the original contract may enter into a new contract in substitution of the old one
The legal position was clarified by the Privy Council in Payana Reena Saminathan vs Pana Lana Palaniappa 1
Lord Moulton defined the legal incidents of a substituted contract in the following terms at p 622  The receipt  given by the appellants and accepted by the respondent and acted on by both parties proves conclusively that all the parties agreed to a settlement of all their existing disputes by the arrangement formulated in the receipt 
It is a clear example of what used to be well known in common law plea ding as  accord and satisfaction by a substituted agreement 
No matter what were the respective rights of the parties inter se they are abandoned in consideration of the acceptance by all of a new agreement
The consequence is that when such an accord and satisfaction takes place the prior rights of the parties are extinguished
They have in fact been exchanged for the new rights and the new agreement becomes a new departure and the rights of all the parties are fully represented by it
 The House of Lords in Norris vs Baron and Company 2 in the context of a contract for sale of goods brought out clearly the distinction between a contract which varies the terms of the earlier contract and a contract which rescinds the earlier one in the following passage at p 26 In the first case there are no such executory clauses in the second arrangement as would enable 1 622
2 26
503 you to sue upon that alone if the first did not exist in the second you could sue on the second arrangement alone and the first contract is got rid of either 2 by express words to that effect or because the second dealing with the same subject matter as the first but in a different way it is impossible that the two should be both performed  Scrutton LJ in British Russian Gazette and Trade Outlook Limited vs Associated Newspaper Limited 1 after referring to the authoritative text books on the subject describes the concept of 11 accord and satisfaction  thus at p 643  Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration not being the actual performance of the obligation itself
The accord is the agreement by which the obligation is discharged
The satisfaction is the consideration which makes the agreement operative
Formerly it was necessary that the consideration should be executed Later it was conceded that the consideration might be executory The consideration on each side might be an executory promise the two mutual promise making an agreement enforceable in law a contract I An accord with mutual promises to perform is good though the thing be not performed at the time of action for the party has a remedy to compel the performance  that is to say a cross action on the contract of accord if however it can be shown that what a creditor accepts in satisfaction is merely his debtor s promise and not the performance of that promise the original cause of action is discharged from the date when the promise is made
 The said observations indicate that an original cause of action can be discharged by an executory agreement if the intention to that effect is clear
The modern rule is stated by Cheshire and Fifoot in their Law of Contract 3rd Edn at p 453 The modern rule is then that if what the creditor has accepted in satisfaction is merely his 1  643 644
504 debtor s promise to give consideration and not the performance of that promise the original cause of action is discharged from the date when the agreement is made
This therefore raises a question of construction in each case for it has to be decided as a fact whether it was the making of the promise itself or the performance of the promise that the creditor consented to take by way of satisfaction  So too Chitty in his book on Contracts 31st Edn states at p 286  The plaintiff may agree to accept the performance of a substituted consideration in satisfaction or he may agree to accept the promise of such performance
In the former there is no satisfaction until performance and the debtor remains liable upon the original claim until the satisfaction is executed
In the latter if the promise be not performed the plaintiff s remedy is by action for the breach of the substituted agreement and he has no right of resort to the original claim
 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 ascertainment of the intention of the parties is essentially a question of fact to be decided on the facts and circumstances of each case
We have already given the sequence of events that led to the making of the contract dated February 22 1949
To recapitulate briefly the original three contracts were cancelled
by the Government on May 21 1945 May 21 1945 and March 9 1946 respectively
Under the first contract the Government made a claim for the price of the raw materials supplied and there was no counter claim by the respondents
Under the second and third contracts there were counter claims the Government claiming amounts for the raw materials supplied and the respondents claiming damages for the breach thereof
505 The disputes under the first two contracts were settled on the same day
As the claim was only on the part of the Government the amount due to them was ascertained at Rs 3164 8 0 and the first contract was expressly agreed to be finally determined on payment of that amount
The express terms of the settlement leave no room to doubt that the contract was to be determined only after the payment of the ascertained amount
But under the second settlement which was a compromise of disputed claims a sum of Rs 36276 was fixed as the amount due from the respondents to the Government presumably on taking into consideration the conflicting claims and on adjusting all the amounts ascertained to be due from one to the other
The parties in express terms agreed that the earlier contract stood finally determined and that no party would have any claim thereunder against the other
A comparative study of the terms of the said two settlement contracts indicates that under the first settlement the original contract continued to govern the rights of the parties till payment while under the second settlement contract the original contract was determined and the rights and liabilities of the parties depended thereafter on the substituted contract
Coming to the third settlement it was in the pattern of the second settlement
On the breach of the third contract there were mutual claims the Government claiming a large amount for raw materials supplied to the respondents and the latter on their side setting up a claim for damages
Further though the earlier two contracts were settled on September 6 1948 the amounts payable under the said two settlements were not paid
A comprehensive settlement therefore of the outstanding claims was arrived at between the parties and the rights and liabilities were attempted to be crystallized and a suitable procedure designed for realising the amounts
In full and final settlement of the amounts due to the Government in respect of the raw materials received against the contracts and the respondents  claim for compensation for cancellation of the contracts it was agreed that the respondents should pay a sum of Rs 45000 to the Government 506 and that the respondents should retain all the material partly fabricated and fully fabricated stores lying with them
Clauses 3 4 and 5 provide for the realisation of the entire amounts covered by the three settlements
Under cl 3 the respondents agreed to pay the total amount payable under the three settlements in monthly instalments for the first three months commencing from March 10 1949 at a sum of Rs 5000 and thereafter at a sum of Rs 9000 per month till the entire amount was paid
Clause 4 prescribed that in case of default of any monthly instalment interest would be charged at the rate of 6 per annum and if the instalments defaulted exceeded two in number the Government was given the right to realise the entire amount payable under the three contracts with interest not only from the security but also otherwise
Under cl 5 it was stipulated that the respondents should hypothecate their moveable and immoveable properties described thereunder to provide cover for the moneys payable to the Government
Clause 6 in express terms declared that the contracts should be finally concluded in terms of the settlement and no party would have any claim against the other
Is there any justification for the contention that the substituted contract should either come into force after the hypothecation bond was executed or that it should cease to be effective if the said bond was not  executed within a reasonable time from the date of the settlement We do not find any justification for this contention either in the express terms of the contract or in the surrounding circumstances whereunder the document came to be executed
It was a self contained document it did not depend upon the earlier contracts for its existence or enforcement
The liability was ascertained and the mode of recovery was provided for
The earlier contracts were superseded and the rights and liabilities of the parties were regulated thereunder
No condition either precedent or subsequent was expressly provided nor was there any scope for necessarily implying one or either
The only argument in this direction 507 namely that it is impossible to attribute any intention to the Government to take a mere promise on
the part of the respondents to hypothecate their properties   as satisfaction  and therefore it should be held that the intention of the parties was that there would be no satisfaction till such a document was executed does not appeal to us
We are concerned with the expressed intention of the parties and when the words are clear and unambiguous they are undoubtedly clear in this case there is no scope for drawing upon hypothetical considerations or supposed intentions of the parties nor are we attracted by the argument that the description of the properties intended to be hypothecated was not made clear and therefore the presumed intention was to suspend the rights under the new contract till a valid document in respect of a definite and specified property was executed
Apart from the fact that we are not satisfied with the argument that the description was indefinite we do not think that such a flaw either invalidates a document or suspends its operation till the defect is rectified or the ambiguity clarified
The substituted agreement gave a new cause of action and obliterated the earlier ones and if there was a valid defence against the enforcement of the new contract in whole or in part the party affected must take the consequences
We have therefore no doubt that the contract dated February 22 1949 was for valid consideration and the common intention of the parties was that it should be in substitution of the earlier ones and the parties thereto should thereafter look to it alone for enforcement of their claims
As the document does not disclose any ambiguity no scrutiny of the subsequent conduct of the parties is called for to ascertain their intention
If so the next question is whether the arbitration clause of the original contracts survived after the execution of the settlement contract dated February 22 1949
The learned Counsel for the appellant contends that the terms of the arbitration clause are wide and comprehensive and any dispute on the question whether the said contract was discharged by any of the ways known to law came within its fold
508 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 none the less 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 contention and indeed the principle on which the said decisions are based is a pointer to the contrary
We shall now notice some of the authoritative statements in the text books and a few of the cases bearing on the question raised In Chitty on Contract 21st Edn the scope of an arbitration clause is stated thus at p 322  So that the law must be now taken to be that when an arbitration clause is unqualified such a clause will apply even if the dispute involve an assertion that circumstances had arisen whether before or after the contract had been partly performed which have the effect of discharging one or both parties from liability eg repudiation by one party accepted by the other or frustration
 In  Russel on Arbitration  16th Edn p 63 the following test is laid down to ascertain whether an arbitration clause survives after the contract is deter mined  The test in such cases has been said to be whether the contract is determined by something outside itself in which case the arbitration clause 509 is determined with it or by something arising out of the contract in which case the arbitration clause
remains effective and can be enforced
 The Judicial Committee in Hirji Mulji vs Cheong Yue Steamship Company 1 gives another test at p 502 That a person before whom a complaint is brought cannot invest himself with arbitral jurisdiction to decide it is plain
His authority depends on the existence of some submission to him by the parties of the subject matter of the complaint
For this purpose a contract that has determined is in the same position as one that has never been concluded at all
It founds no jurisdiction
 A very interesting discussion on the scope of an arbitration clause in the context of a dispute arising on the question of repudiation of a contract is found in the decision of the House of Lords in Heyman vs Darwine Ltd 2  There a contract was repudiated by one party and accepted as such by the other
The dispute arose in regard to damages under a number of heads covered by the contract
The arbitration clause provided that any dispute between the parties in respect of the agreement or any of the provisions contained therein or anything arising thereout should be referred to arbitration
The House of Lords held that the dispute was one within the arbitration clause
In the speeches of the Law Lords a wider question is discussed and some of the relevant principles have been succinctly stated
Viscount Simon LC observed at p 343 thus  An arbitration clause is a written submission agreed to by the parties to the contract and like other written submissions to arbitration must be construed according to its language and in the light of the circumstances in which it is made
If the dispute is as to whether the contract which contains the clause has ever been entered into at all that issue cannot go to arbitration under the clause for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission
Similarly if one party to 1 502
65 2  343 345 347 350
510 the alleged contract is contending that it is void ab initio because for example the making of such a contract is illegal the arbitration clause cannot operate for on this view the clause itself is also void
If however the parties are at one in asserting that they entered into a binding contract but a difference has arisen between them as to whether there has been a breach by one side or the other or as to whether circumstances have arisen which have discharged one or both parties from further performance such differences should be regarded as differences which have arisen  in respect of  or  with regard to  or  under  the contract and an arbitration clause which uses these or similar expressions should be construed accordingly
By the law of England though not as I understand by the law of Scotland such an arbitration clause would also confer authority to assess damages for breach even though it does not confer upon the arbitral body express power to do so
I do not agree that an arbitration clause expressed in such terms as above ceases to have any possible application merely because the contract has come to an end as for example by frustration
In such cases it is the performance of the contract that has come to an end The learned Law Lord commented on the view expressed by Lord Dunedin at p 344 thus  The reasoning of Lord Dunedin applies equally to both cases
It is in my opinion fallacious to say that because the contract has  come to an end  before performance begins the situation so far as the arbitration clause is concerned is the same as though the contract had never been made
In such case a binding contract was entered into with a valid submission to arbitration contained in its arbitration clause and unless the language of the arbitration clause is such as to exclude its application until performance has begun there seems no reason why the arbitrator s jurisdiction should not cover the one case as much as the other
 511 Lord Macmillan made similar observations at p 345  If it appears that the dispute is as to 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 never been a contract at all there has never been as part of it an agreement to arbitrate the greater includes the less
Further a claim to set aside a contract on such grounds as fraud duress or essential error cannot be the subject matter of a reference under an arbitration clause in the contract sought to be set aside
Again an admittedly binding contract containing a general arbitration clause may stipulate that in certain events the contract shall come to an end
If a question arises whether the contract has for any such reason come to an end I can see no reason why the arbitrator should not decide that question
It is clear too that the parties to a contract may agree to bring it to an end to all intents and purposes and to treat it as if it had never existed
In such a case if there be an arbitration clause in the contract it perishes with the contract
If the parties substitute a new contract for the contract which they have abrogated the arbitration clause in the abrogated contract cannot be invoked for the determination of questions under the new agreement
All this is more or less elementary
 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
The learned Law Lord pin points the principle underlying his conclusion at p 347  I am accordingly of opinion that what is commonly called repudiation or total breach of a contract whether acquiesced in by the other party or not does not abrogate a contract though it may relieve the injured party of the duty of further fulfilling the obligations which he has by a contract undertaken 512 to the repudiating party
The contract is not put out of existence though all further performance of the obligations undertaken by each party in favour of the other may cease
It survives for the purpose of measuring the claims arising out of the breach and the arbitration clause survives for determining the mode of their settlement
The purposes of the contract have failed but the arbitration clause is not one of the purposes of the contract Lord Wright after explaining the scope of the word  repudiation  and the different meanings its bears proceeded to state at p 350  In such a case if the repudiation is wrongful and the rescission is rightful the contract is ended by the rescission but only as far as concerns future performance
It remains alive for the awarding of damages either for previous breaches or for the breach which constitutes the repudiation
That is only a particular form of contract breaking and would generally under an ordinary arbitration clause involve a dispute under the contract like any other breach of contract
 This decision is not directly in point but the principles laid down therein are of wider application than the actual decision involved
If an arbitration clause is couched in widest terms as in the present case the dispute whether there is frustration or repudiation of the contract will be covered by it
It is not because the arbitration clause survives but because though such repudiation ends the liability of the parties to perform the contract it does not put an end to their liability to pay damages for any breach of the contract
The contract is still in existence for certain purposes
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
The argument therefore that the legal position is 513 the same whether the dispute is in respect of repudiation or frustration or novation is not borne out by these decisions
An equally illuminating judgment of Das J as he then was in Tolaram Nathmull vs Birla Jute Manufacturing Co Ltd1 is strongly relied upon by the learned Counsel for the appellant
There the question was whether an arbitration clause which was expressed in wide terms would take in a dispute raised in that case
It was contended on one side that the contract was void ab intio and on the other side that even on the allegations in the plaint the contract was not ab initio void
The learned Judge on the facts of that case held that no case had been made out for staying the suit and therefore dismissed the application filed by the defendant for stay of the suit
The learned Judge exhaustively considered the case law oil the subject and deduced the principles and enumerated them at p 187
The learned Judge was not called upon to decide the present question namely whether an arbitration clause survived in spite of substitution of the earlier contract containing the arbitration clause by a fresh one and therefore we do not think that it is necessary to express our opinion on the principles culled out and enumerated in that decision
The following principles relevant to the present case emerge from the aforesaid discussion 1 An arbitration clause is a collateral term of a contract as distinguished from its substantive terms but none the less it is an integral part of it 2 however comprehensive the terms of an arbitration clause may be the existence of the contract is a necessary condition for its operation it perishes with the contract 3 the contract may be non est in the sense that it never came legally into existence or it was void ab initio 4 though the contract was validly executed the parties may put an end to it as if it had never existed and substitute a new contract for it solely governing their rights and liabilities thereunder 5 in the former case if the original contract has no legal existence the arbitration clause also cannot operate for along with the original contract it is also void  in the latter case as the 1 ILR 514 original contract is extinguished by the substituted one the arbitration clause of the original contract perishes 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 in connection with it
As the contract subsists for certain purposes the arbitration clause operates in respect of these purposes
We have 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
We have also 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
In this view the judgment of the High Court is correct
This appeal fails and is dismissed with costs
SARKAR J
On different dates in 1943 and 1944 a firm of contractors of the name of Kishorilal Gupta  Brothers entered into three contracts with the appellant to fabricate and supply certain military stores
The first contract was for 43000 ladles cook the second for 15500 bath ovals and the third for 100000 kettles camp
Each of these contracts contained an arbitration clause
The last mentioned contract provided that the appellant would supply materials for the fabrication of the articles to be delivered under it
Before the contracts had been finally executed disputes arose between the parties
These disputes were settled by mutual agreements which were contained in three separate documents
The settlement in respect of the ladles cook contract which was made on September 6 1948 provided that the contractors would pay to the appellant a sum of Rs 3164 8 0 and on such payment that contract would stand finally determined
Under the settlement in respect of the bath ovals contract which also was made on 515 September 6 1948 the contractors agreed to pay to the appellant Rs 36276 and it provided that  the contract stands finally determined and no party shall have any further claim against the other 
The terms of the settlement of the kettles camp contract are set out below in full for this case depends on them Dated the 22nd February 1949
Messrs Kishorilal Gupta  Bros Calcutta
Subs AT No MP75442R 11397 dated the 22nd September 1944
Dear Sir Reference discussion held on 5th February 1949 between your Proprietor Mr Kishorilal Gupta and General Manager J B Breiter and the Claims Committee of the Directorate General
I hereby confirm the following terms of settlement arrived at in the meeting
The settlement has received the approval of Director General of Industries and Supplies New Delhi
The firm will pay a sum of Rs 45000 in full and final settlement of the amount due to the Government in respect of raw materials received against the contract and their claims for compensation for cancellation for the same contract
The firm will retain all surplus partly fabricated and fully fabricated stores lying with them
The firm agree to pay the above mentioned sum of Rs 45000 only together with the sums owing by them to the Government under the settlements reached in two other cases AT Nos
MP75762R 6178 dated 15th September 1944 and MP507308R 190 dated 2nd April 1943 in monthly instalments for Rs 5000 only for the first three months first instalment being payable on 10th March 1949 and further instalments of Rs 9000 per month till the entire dues payable to Government are paid
In the event of default of any monthly instalments interest will be charged by Government on the amount as defaulted at the rate of 6 per annum from the first day of the month in which the instalment shall due
If the instalments defaulted 516 exceed two in number the Government will have the right to demand the entire balance of the money payable by the firm together with interest thereon at the rate abovementioned on that balance and take such steps to recover from the Security to be offered by the firm in terms of the settlement or otherwise
In order to provide cover for the monies payable to the Government the firm undertakes to hypothecate their movable and immoveable property in Bamangachi Engineering Works together with all machinery sheds and lease hold interest in land measuring about 575 acres at Mouja Bamangachi in Howrah
The firm further undertakes to execute the necessary stamped documents for the purpose as drafted by the Government Solicitor at Calcutta
The contracts stand finally concluded in terms of the settlement and no party will have any further or other claim against the other
Please acknowledge receipt
Yours faithfully Sd
R B L Mathur Director of Supplies Claims for and on behalf of the Governor General
 The contract referred to in cl
1 of this document is the contract No MP75442R 1397 mentioned at the top of the letter and concerned the kettles camp
The contracts referred to in cl
3 are the contracts concerning ladles cook and bath ovals which had been settled earlier but the amounts due in respect of the settlements concerning them had not been paid in full
After the settlement of February 22 1949 the contractors made certain payments aggregating Rs 1 1000 the last payment made being on October 31 1949
These payments had not been made as provided in el
The contractors also failed to execute the hypothecation deed mentioned in el
Certain correspondence appears to have taken place but with no tangible result
The appellant was unable to obtain payments or the hypothecation deed in terms of the settlement
517 In these circumstances the appellant made a claim against the contractors under the three original con  tracts amounting to Rs 152723 and referred it to  arbitration under the arbitration clauses contained in them
The appellant nominated an arbitrator and called upon the contractors to nominate the other the arbitration clause providing that the arbitration shall be by two arbitrators one to be nominated by each party
The contractors did not nominate any arbitrator contending that the matter had  already been negotiated to a settlement  and that there were  no outstanding disputes to be referred to arbitration 
The appellant then appointed the person nominated by it as the sole arbitrator under the provisions of the and an arbitration was held by him in which the contractors joined
In the arbitration proceedings for reasons with which we are not concerned the appellant abandoned its claim in respect of the bath ovals contract
On July 31 1951 the arbitrator made an award in favour of the appellant in the sum of Rs 116446 11 5 in respect of its claim on the ladles cook and kettles camp contracts
Being aggrieved by the award the respondent Kishorilal Gupta who is a partner of the contractors  firm made an application to the High Court at Calcutta in its Original Jurisdiction for a declaration that the arbitration clauses in the original contracts had ceased to have any effect and the contracts stood finally determined as a result of the settlements earlier referred to and for an order setting aside the award as void and a nullity
I wish to draw attention here to the fact that the application was really concerned with the contracts for ladles cook and kettles camp
It had nothing to do with the bath ovals  contract for the appellant withdrew its claim under it from arbitration and no award was made in respect of it
So in this appeal we are not really concerned with that contract
Bachawat J who heard the application held that the contract for ladles cook had not been abrogated by the settlement in respect of it for reasons which it is unnecessary to state here as this part of the decision 518 of the learned Judge has not been challenged before us
a We have therefore to proceed on the basis that the arbitration clause contained in the ladles cook contract continued in force in spite of the settlement in respect of it
The learned Judge however held that the contract for kettles camp including the arbitration clause contained in it had ceased to exist as a result of the settlement of February 22 1949 and the arbitrator had consequently no jurisdiction to make any award purporting to act under that arbitration clause
He then proceeded to hold that as the award was a single and inseverable award in respect of the claims under the ladles cook as well as the kettles camp contracts the whole award became invalid
In the result the learned Judge made an order declaring that the arbi tration clause contained in the kettles camp contract had ceased to exist and setting aside the award as a whole
It is against this judgment that the present appeal has been filed with leave granted by this Court
It was contended on behalf of the respondent that the leave should not have been granted as the appellant had a right of appeal to the High Court itself
We were on this basis asked to revoke the leave
It appears that there are some cases of the Calcutta High Court which create a good deal of doubt as to whether an appeal lay to that High Court from an order of the kind made in this case
The appellants therefore were legitimately in difficulty in deciding whether an appeal lay to the High Court
Again leave was granted by this Court as far back as March 29 1954 and the respondent at no stage earlier than the hearing of the appeal before us took any objection to that leave
It is too late now to allow him to do that
So to do would leave the appellant entirely without remedy as an appeal to the High Court would in any event be now barred
I feel therefore that no question of revoking the leave should be allowed to be raised
It is useful to remind ourselves before proceeding further that what was referred to arbitration in this case was a claim by the appellant for damages for 519 breach of the contracts said to have been committed by the contractors
That indeed is the respondent s case
With regard to the merits of this claim the  Court has no concern
But it is important to note that those claims were clearly within the arbitration clause in the contracts about this there does not appear to be any dispute
No question therefore arises in this appeal that the claims referred to arbitration were not within the arbitration clauses
What is in dispute in this case is whether the arbitration clause had ceased to exist as a result of settlement
In considering the question it is not necessary however to concern ourselves with the settlements regarding the ladles cook contract or the bath ovals contract
The bath ovals contract is not the subject matter of the award
As regards the ladles cook contract the Court below has held that settlement did not affect the relative arbitration clause and that decision has not been challenged before us
The real question that we have to consider is whether the settlement of February 22 1949 altogether put out of existence the arbitration clause in the kettles camp contract
If it did the arbitration in this case was clearly without jurisdiction and the award resulting from it a nullity for on that basis there would be no arbitration agreement under which an arbitration could be held
An arbitration agreement of course is the creature of an agreement and what is created by agreement may be destroyed by agreement
Lord Macmillan considered it elementary  that the parties to a contract may agree to bring it to an end  to all intents and purposes and to treat it as if it had never existed  and that  In such a case if there be an arbitration clause in the contract it perishes with the contract   Heyman vs Darwins 1
Now it is clear that the settlement of February 22 1949 does not expressly make the arbitration clause nonexistent
It is however said that the settlement of February 22 1949 operated as an accord and satisfaction and therefore the arbitration clause in the relative original contract was brought to an end by it
1  371
520 It if said that such a settlement amounts to a substituted agreement which abrogated the original contract and the arbitration clause contained in it perished with it
I venture to think that this view is wrong and originates from a misapprehension of the real nature of accord and satisfaction and an arbitration clause in a contract
It must here be stated that the appellant disputes that the settlement of February 22 1949 amounted to an accord and satisfaction
I will examine the appellant s contention later and shall for the present assume that the settlement constituted an accord and satisfaction
Now what is an accord and satisfaction  It is only a method of discharge of a contract
It only means that the parties are freed from their mutual obligations under the contract  see Cheshire and Fifoot on Contracts 3rd edn p 433
 It is a good defence to an action for the breach of any contract whether made by parol or specialty that the cause of action has been discharged by accord and satisfaction that is to say by an agreement after breach whereby some consideration other than his legal remedy is to be accepted by the party not in fault  Chitty on Contracts 21st edn p 286
In British Russian Gazette and Trade Outlook
Ltd vs Associated Newspapers Ltd 1 Scrutton LJ said  Accord and satisfaction is the purchase of the release from an obligation whether arising under contract or tort by means of any valuable consideration not being the actual performance of the obligation itself
The accord is the agreement by which the obligation is discharged
The satisfaction is the consideration which makes the agreement operative
 The effect of an accord and satisfaction is therefore to secure a release from an obligation arising under a contract
Now it is difficult to conceive of an obligation arising from a contract unles the contract existed
An accord and satisfaction which secures a release from such an obligation is really based on the existence of the contract instead of treating it as non existent
1  643 4 521 The contract is not annihilated but the obligations under it cease to be enforceable
Therefore it is that when an action is brought for the appropriate remedy for nonperformance of these obligations that an accord and satisfaction furnishes a good defence
The defence is not that the contract has come to an end but that its breach has been satisfied by accord and satisfaction and therefore the plaintiff in the action is not entitled to the usual remedy for the breach
It would clearly appear from the terms of the settlement that it dealt with remedies for the breach of the kettles camp contract
Clause 1 shows that the parties were making cross claims against each other for breach of that contract and these were settled by mutual agreement upon the term that the contractors would pay to the appellant Rs 45000
Clauses 3 4 and 5 state how this sum was to be paid and how the payment of it was to be secured
Clause 6 provides that the contract stands finally concluded in terms of the settlement
The parties therefore were only intending to decide the dispute as to cross claims made on the basis of the breach of the contract
So they were assuming the existence of the contract for there could be no breach of it unless it existed
Now I come to the nature of an arbitration clause
It is well settled that such a clause in a contract stands apart from the rest of the contract
Lord Wright said in Heyman s case 1 that an arbitration clause  is collateral to the substantial stipulations of the contract
It is merely procedural and ancillary it is a mode of settling disputes   
All this may be said of every agreement to arbitrate even though not a separate bargain but one incorporated in the general contract Lord Macmillan also made some very revealing observations on the nature of an arbitration clause in the same case
He said at pp
373 4  I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract
It is quite distinct from the other clauses
The other clauses 1  371 522 set out the obligations which the parties undertake towards each other hinc inde but the arbitration clause does not impose on one of the parties an obligation in favour of the other
It embodies the agreement of both the parties that if any dispute arises with regard to the obligations which the one party has undertaken to the other such dispute shall be settled by a tribunal of their own constitution
And there is this very material difference that whereas in an ordinary contract the obligations of the parties to each other cannot in general be specifically enforced and breach of them results only in damages the arbitration clause can be specifically enforced by the machinery of the Arbitration Act
The appropriate remedy for breach of the agreement to arbitrate is not damages but its enforcement
 It seems to me that the respective nature of accord and satisfaction and arbitration clause makes it impossible for the former to destroy the latter
An accord and satisfaction only releases the parties from the obligations under a contract but does not affect the arbitration clause in it for as Lord Macmillan said the arbitration clause does riot impose on one of the parties an obligation in favour of the other but embodies an agreement that if any dispute arises with regard to the obligations which the one party has undertaken to the other such dispute shall be settled by arbitration
A dispute whether the obligations under a contract have been discharged by an accord and satisfaction is no less a dispute regarding the obligations under the contract
Such a dispute has to be settled by arbitration if it is within the scope of arbitration clause and either party wants that to be done
That cannot be unless the  arbitration clause survives the accord and satisfaction
If that dispute is not within the arbitration clause there can of course be no arbitration but the reason for that would not be that the arbitration clause has ceased to exist but that the dispute is outside its scope
I am not saying that it is for the arbitrator to decide whether the arbitration clause is surviving  that may in many cases have to be decided by the Court
That would 523 depend on the form of the arbitration agreement and on that aspect of the matter it is not necessary to say anything now for the question does not arise
In my view therefore an accord and satisfaction does not destroy the arbitration clause
An examination of what has been called the accord and satisfaction in this case shows this clearly
From what I have earlier said about the terms of the settlement of February 22 1949 it is manifest that it settled the disputes between the parties concerning the breach of the contract for kettles camp and its consequences
All that it said was that the contract had been broken causing damage and the claim to the damages was to be satisfied  in terms of the settlement 
It did not purport to annihilate the contract or the arbitration clause in it
I feel no doubt therefore that the arbitration clause subsisted and the arbitrator was competent to arbitrate
The award was not in my view a nullity
The position is no different if the matter is looked at from the point of view of section 62 of the Contract Act
That section is in these terms  Section 62
If the parties to a contract agree to substitute a new contract for it or to rescind or alter it the original contract need not be performed
 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 consequences
For the same reason it cannot be said to substitute a new contract for the old one
As 1 have earlier stated it postulates the existence of the contract and only decides the incidence of its breach
It remains now to express my views on the question whether the settlement of February 221949 amounted to an accord and satisfaction
I have earlier stated that an accord and satisfaction is the purchase of a release from an obligation under a contract
This release is purchased by an agreement which is the accord
But this agreement like all other agreements must be supported by consideration
The satisfaction 524 is that consideration
It was formerly thought that the consideration had to be executed
In other words the consideration for which the release was granted had to be received by the releaser before the release could become effective
The later view is that the consideration may be executory that the release may become effective before the consideration has been received by the releaser if he has agreed to accept the promise of the release to give the consideration
Whether it is the one or the other depends on the agreement of the parties
It is a question of intention
And where as in the present case the agreement is expressed in writing the question is one of construction of a document
So much is well settled
The question then is Is it the proper construction of the settlement of February 22 1949 that the appellant agreed to accept the promise of the contractors to pay the moneys and create the security in discharge of their obligations  Or is it the proper construction that the contractors were not to be discharged till they had carried out their promises contained in the settlement
The High Court held accepting the respondent s contention that el
6 of the settlement showed that the appellant had accepted the promise of the contractors to pay the moneys and to execute a hypothecation bond in full discharge of their obligations under the contract
That clause states that  The contracts stand finally concluded in terms of the settlement
 It is said that these words show that it was intended to accept the promise of the contractors and thereupon to give them a discharge from their obligations under the contract
Now it seems to me that the words  stands finally concluded in terms of the settlement  do not necessarily mean concluded by the promise of the contractors contained in the settlement
It appears to me to be capable of the meaning that the contract is to stand concluded when its terms have been carried out
The words are not  stand finally concluded by the terms of the settlement but they are stand finally concluded in terms of settlement 
These terms are that the contractors would pay certain 525 moneys by certain instalments and would secure these payments by a hypothecation bond
So it would appear that the contract was not to be concluded till the terms had been carried out for otherwise it would not be a conclusion  in terms of the settlement
 That seems to me to be also the reasonable interpretation to put on the document in view of the circumstances of the case
The appellant was to receive a substantial sum under the settlement
It gave the contractors quite a long time in which to pay it
It bargained for a security to be furnished to be sure of receiving the payments
The discharge was to be by the payments
The promise to make these payments may conceivably in proper circumstances itself amount to a discharge
But I wholly fail to see that when there is an additional promise to secure the payments by a hypothecation the parties could have intended that there would be a discharge before the hypothecation had been made
It does not seem reasonable to hold that the parties so intended
Nor do I think that the words  stand finally concluded in terms of the settlement  are so strong as to impute such an intention to the parties
These words are capable of the meaning that the contract was to stand concluded upon the terms of the settlement being carried out and for the reasons just mentioned that is the proper meaning to give to those words
In my view therefore 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
There was one other point argued on behalf of the respondent which I think I should notice
It was said that the award was in any event liable to be set aside inasmuch as it disclosed an error on the face of it
This error it was said consisted in awarding damages larger than those which the appellant had agreed to take by the settlement
Now this depends on whether the settlement amounted to an accord and satisfaction if it did not the appellant s claim for damages could not be confined to the amount mentioned in the settlement 67 526 I have already said that in my opinion it did not amount to an accord and satisfaction
So there was no error apparent on the face of the award
It further seems to me that it is not open to the respondent to contend that the award is liable to be set aside as disclosing the error mentioned above on the face of it
I do not find that such a case was made in the application out of which this appeal arises
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
In my view therefore the appeal should succeed and the order of the High Court set aside
I would order accordingly and award the costs here and below to the appellant
ORDER In accordance with the opinion of the majority this appeal fails and is dismissed with costs


Summary:
The appellants who were the managements of the three hotels decided to dismiss some of their workmen who were found guilty of misconduct as a result of enquiries held by them and suspended them without pay pending the receipt of the permission of the Industrial Tribunal under section 33 Of the 
The workmen applied to the Industrial Tribunal for the grant of interim relief pending disposal of the applications and the Tribunal granted the relief prayed for amounting to full wages and a sum of Rs 25 per head per month in lieu of food
The managements appealed against such grant but the Labour Appellate Tribunal dismissed the appeal 
The appellants came up to this court by special leave
The two questions for decision in the appeals were 1 whether any wages were at all payable to the suspended workmen pending permission being sought under section 33 to dismiss them and the decision of the applications under section 33 Of the Act and 2 whether the Industrial Tribunal was competent to grant interim relief except by an interim award that was published
Held that it was well settled that under the ordinary law of master and servant the power to suspend the servant without 477 pay could not be implied as a term in an ordinary contract of service between the master and the servant but must arise either from an express term in the contract itself or a statutory provision governing such contract
Hanley vs Pease  Partners Limited  Wallwork vs Fielding and Ors
  Secretary of State for India in Council vs
Surendra Nath Goswami ILR and Rura Ram vs Divisional Superintendent N W R ILR VII 1954 Punj 415 referred to
But section 33 of the  which took away the right of the employer to dismiss the employee except with the permission of the Industrial Tribunal introduced a fundamental change in industrial law in modification of the common law by empowering the employer by implication to suspend the contract of employment and thus relieve himself of the obligation to pay the wages and the employee of rendering service where as a result of a proper enquiry he came to the conclusion that an employee should be dismissed
In the peculiar circumstances created by the enactment of section 33 Of the Act it was just and fair that Industrial Tribunals which had the power to go beyond the ordinary law of master and servant should imply such a term in the contract of employment
The result therefore would be that if the Tribunal granted the permission the suspended contract would come to an end and there would be no further obligation on the part of the employer to pay any wages after the date of suspension
If on the other hand the permission was refused
the workmen would be entitled to all their wages from the date of suspension
Western India Automobile Association vs The Industrial Tribunal Bombay and Rohtas Industries Ltd vs Brijnandan Pandey   referred to
Lakshmi Devi Sugar Mills Ltd vs Pt
Ram Sarup   The Management of Ranipur Colliery vs Dhuban Singh CA 76857 decided on 20 4 59 Ms Sasa Musa Sugar Works P Ltd vs Shobrati Khan C As
746 and 74757 decided on 29 4 59 and Phulbari Tea Estate vs Its Workmen 1960 1 SCR 32 explained and relied on
But the employer s power of suspension could not take away the power of the Tribunal to grant interim relief to the workmen under the Act the words  incidental thereto  occurring in section 104 of the Act made it clear that interim relief where admissible could be granted as a matter incidental to the main question under reference although it might not be expressly mentioned in the terms of the reference
It is not necessary to decide whether an interim relief of this nature amounted to an interim award
Even assuming that the Industrial Tribunal could not grant interim relief except by an interim award which required publication that could not preclude 478 this Court from granting interim relief in the same manner as the Industrial Tribunal could and sections 15 17 or 17A could have no of application to such an order passed by this Court
Ordinarily interim relief could not be the whole relief the workmen would get in case of final success and the appellants should not be made to pay more than half the amount adjudged by the Industrial Tribunal as interim relief in these cases