IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision : 10.05.2011 Arb. Case No.74 of 2007 M/s Megh Raj Bansal ...Petitioner Versus Guru Nanak Mission Medical & Education ...Respondents Turst & another CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA Present : Mr. D.K.Singal, Advocate, for the petitioner. Mr. Alok Jain, Advocate, for the respondents. HEMANT GUPTA, J. The present is a petition for appointment of an Arbitrator to adjudicate upon the disputes between the parties arising out of an Agreement dated 20.01.2005. Vide the aforesaid Agreement, the petitioner was awarded contract for construction of Trauma Centre for Guru Nanak Mission Hospital at Village Dhahan Kalan, Nawanshahar. The said Agreement has an arbitration clause. The disputes arose between the parties and such disputes were resolved when another agreement dated 23.08.2005 was entered between the parties. The said Agreement recites that the circumstances have compelled both the parties to cancel the contract for construction of Trauma Centre and it has been unanimously resolved that a sum of Rs.26,50,000/- is to be given to the petitioner. A sum of Rs.20,00,000/- was given vide cheque dated 23.08.2005 to the petitioner, whereas remaining sum of Rs.6,50,000/- was to be given within two weeks Arb. Case No.74 of 2007 during which period, the petitioner was to lift all material, whereas respondent was to lift its concrete mixing plant within three weeks. The payment of Rs.26,50,000/- was said to be full and final payment. The agreement dated 23.08.2005 recites to the following effect: “…After doing aforesaid, a cheque of Rs.6,50,000/- of SBI will be given by first party to the second party i.e. Megh Raj Bansal. This will be the full and final payment. Now onwards, both the parties do not have any dispute or give and take. No party will file a case in the court against each other.” Even though the parties have tried to resolve their disputes, but certain disputes arose between the parties in respect of the implementation of the subsequent agreement. The petitioner served a notice on 12.11.2005, wherein, inter alia, the petitioner conveyed that on account of default on the part of the respondents, the Agreement dated 23.08.2005 has become null & void. The petitioner requested the respondents to release the payments, failing which the petitioner sought to initiate action before an appropriate Forum. The said claim of the petitioner was denied vide communication dated 19.11.2005. After exchange of certain communications, it was on 09.05.2006, the petitioner sought appointment of an Adjudicator in terms of the Agreement contemplating pre-arbitration adjudication. Such request was reiterated on 27.06.2006. It was on 12.09.2006, the petitioner conveyed that since the respondents have not reacted to communication for adjudication of the disputes by an Adjudicator in terms of Clause 8 of the Conditions of the Contract, therefore, the petitioner sought appointment of an Arbitrator. Another request was made on 11.10.2006. Since Arbitrator was not appointed, the petitioner invoked the jurisdiction of this Court by way of present petition on 24.05.2007. 2 Arb. Case No.74 of 2007 In reply, the stand of the respondents, inter alia, is that disputes inter se between the parties were mutually settled and recorded in the subsequent Agreement dated 23.08.2005 and that the contract as originally entered between the parties stands modified by subsequent Agreement, therefore, the arbitration clause contained in the original Agreement dated 20.01.2005 stands discharged and cannot be invoked by the petitioner. It is stated that with the execution of the agreement dated 23.08.2005, all mutual obligations including arbitration clause stand superseded and the rights of the parties have to be regulated by Agreement dated 23.08.2005 alone. Learned counsel for the petitioner relies upon National Agricultural Co-op. Marketing Federation India Ltd. Vs. Gains Trading Ltd. 2007 (5) SCC 692 to contend that the arbitration clause in the original Agreement dated 20.01.2005 (for short ‘the Original Agreement’) is not abrogated even if the parties entered into a subsequent Agreement on 23.08.2005. It is contended that the arbitration clause is an independent agreement and such arbitration clause cannot be ignored to determine the disputes between the parties, which arise out of the original Agreement. Reliance is placed upon following observations: “6. Respondent contends that the contract was abrogated by mutual agreement; and when the contract came to an end, the arbitration agreement which forms part of the contract, also came to an end. Such a contention has never been accepted in law. An arbitration clause is a collateral term in the contract, which relates to resolution disputes, and not performance. Even if the performance of the contract comes to an end on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract. [vide: Heymen V. Darwins Ltd. 1942 (1) All ER 337, Union of India V. Kishore Lal gupta & Bros. AIR 1959 SC 1362 and The Naihati Jute Mills Ltd. V. Khyaliram Jagannath AIR 3 Arb. Case No.74 of 2007 1968 SC 522]. This position is now statutorily recognized, sub- Section (1) of Section 16 of the Act makes it clear that while considering any objection with respect to the existence or validity of the arbitration agreement, an arbitration clause which forms part of the contract, has to be treated as an agreement independent of the other terms of the contract; and a decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. The first contention is, therefore, liable to be rejected.” On the other hand, learned counsel for the respondents contended that the Hon’ble Supreme Court in Kishore Lal Gupta’s case (supra), to which reference has been made in the aforesaid case, has culled down the principles in respect of the validity of an agreement and the questions of repudiation, frustration, breach of contract as well as substitution of a new contract. In the aforesaid case, the following principles were culled down by the Hon’ble Supreme Court: “(1) An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but nonetheless 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 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 4 Arb. Case No.74 of 2007 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.” Considering the aforesaid judgment, Hon’ble Supreme Court in National Insurance Co. ltd. Vs. Boghara Polyfab (P) Ltd. (2009) 1 SCC 267, has held that principle No.(1) is now given statutory recognition in Section 16(1)(a) of the Act, whereas principle No.(3) has to be read subject to Section 16(1)(b) of the Act, whereas principle Nos.(4) & (5) are clear and continue to be applicable. The Court proceeded to consider principle No.(6) i.e. discharge of contract by performance or accord and satisfaction. It is contended that principle No. 4 is in issue in the present case and that the said principle culled down in Kishore Lal Gupta’s case (supra) is not affected by the enactment of Arbitration & Conciliation Act, 1996. It is contended that though the original contract was validly executed, but the parties have put an end to such contract and substituted a new contract, wherein the respondents agreed to pay Rs.26,50,000/- to the petitioner. The said Agreement now solely governs the rights and liabilities inter se parties. I have heard learned counsel for the parties and found that the disputes between the parties are not referable to an Arbitrator in terms of Arbitration clause contained in the Original Agreement in view of the subsequent Agreement executed between the parties in super-session of the Original Agreement. As mentioned above, the agreement dated 23.08.2005 determines the final amount payable to the petitioner, which was said to be full and final payment. With the execution of subsequent Agreement on 23.08.2005, the Original Agreement stands superseded including arbitration clause. If the disputes between the parties were arising out of accord or 5 Arb. Case No.74 of 2007 satisfaction of the first Agreement, the arbitration clause would subsist in terms of Section 16 (1)(a) of the Act. But once the parties have resolved to cancel the contract of construction of Trauma Centra, all inter se obligations stand cancelled. In the aforesaid case, the Hon’ble Supreme Court on the basis of earlier judgment in State Bank of Patiala Vs. Patel Engineering Ltd. (2005) 8 SCC 618, identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act. Such categories and the scope of the issues, which are required to be decided by a Chief Justice/his designate are as under: Category No.(i) – issues which the Chief Justice or his designate is bound to decide. (a) Whether the party making the application has approached the appropriate High Court. (b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement. Category No.(ii) - issues which he can also decide, that is, issues which he may choose to decide: (a) Whether the claim is a dead (long-barred) claim or a live claim. (b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection. Category No.(iii) – issues which should be left to the Arbitral Tribunal to decide: (a) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration). (b) Merits or any claim involved in the arbitration. 6 Arb. Case No.74 of 2007 The Hon’ble Supreme Court has further discussed that the cases referred for consideration fall under two categories. One category is where there full and final settlement results in accord and satisfaction, and there was no substance in the allegations of coercion/undue influence. The Court held that there could not be any reference to dispute the arbitration. The other category of cases is where the Court found substance in the contention of the claimants that “no due/claim certificates”, or “full and final settlement discharge vouchers” were insisted and taken as a condition precedent for release of the admitted dues. The Court held that mere execution of full and final settlement receipt or a discharge voucher is not a bar to arbitration, when the validity there of is challenged by the claimant on the ground of fraud, coercion or undue influence. In the present case, the petitioner is not disputing Agreement dated 23.08.2005, as an agreement actuated by fraud, coercion or undue influence. The said agreement records full and final settlement on payment of certain amount. If the said payment has not been made, it raises an independent dispute, which is not referable to an Arbitrator, as there is no arbitration clause in the subsequent agreement. With the execution of the aforesaid Agreement, the original agreement stands superseded including arbitration clause. Such super-session is recognized in principle No.4 by the Larger Bench decision in Kishori Lal Gupta’s case (supra). It was held that the parties may put an end to a contract, as it never existed and substitute a new contract, solely governing their rights and liabilities. In Gains Trading Ltd. case (supra), the petitioner therein has invoked the arbitration clause and thereafter the parties agreed to cancel the contract containing arbitration clause. The petition for appointment of an Arbitrator was resisted on account of abrogation of the original agreement 7 Arb. Case No.74 of 2007 containing arbitration clause. It was, in these circumstances, that while considering any objection with respect to the existence or validity of the arbitration agreement, an arbitration clause which forms part of the contract has to be treated as an agreement independent of the other terms of the contract was returned. In any case, the findings recorded therein run counter to the later judgment in Boghara Polyfab (P) Ltd. case (supra). In view of the above, the agreement dated 23.08.2005 has put an end to the original Agreement and substituted a new contract, in which there is not arbitration clause. Consequently, the present petition for appointment of an Arbitrator in respect of disputes arising out of subsequent agreement is not maintainable. The same is dismissed. However, it is open to the petitioner to seek its remedy in accordance with law. 10.05.2011 (HEMANT GUPTA) Vimal JUDGE 8