Arbitration Case No. 265 of 2006 (1) IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Arbitration Case No. 265 of 2006 Date of Decision: 17.4.2009 M/s P.M. Electronics ......Petitioner Versus Punjab State Electricity Board .......Respondent CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA. 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Present: Shri Anish Jain, Advocate, for the petitioner. Shri B.S. Wasu, Advocate, for the respondent. HEMANT GUPTA, J (Oral). The petitioner has sought appointment of an Arbitrator by filing the present application under Section 11 of the Arbitration and Conciliation Act, 1996 (for short `the Act'). It is the case of the petitioner that a purchase order dated 8.8.2000 was placed by the respondent for supply of 75 transformers @ Rs.86,355.20 per transformer (total Rs.43,17,760/-). The petitioner has supplied 19 transformers to the respondent and bill was raised, but the payment was delayed by the respondents. In respect of the 56 transformers, the petitioner gave inspection call on 16.1.2002, but the petitioner was informed on 18.1.2002 that the order for the balance transformers has been cancelled. It is alleged by the petitioner that the transformers were manufactured and on account of illegal and erroneous cancellation of the order, the petitioner has suffered loss. The grievance is also in respect of Arbitration Case No. 265 of 2006 (2) forfeiture of security amount i.e., Rs.1,28,540/-. The petitioner has, thus, sought a sum of Rs.21,76,152/- on account of price of 56 transformers and a sum of Rs.1,28,548/- as security. It is also alleged that the petitioner has served a notice calling upon the respondents to appoint an Arbitrator vide notice dated 13.9.2004, but the respondents have failed to appoint an Arbitrator. Thus, the jurisdiction of the Court was invoked vide the present application filed on 18.1.2005. In reply, it is asserted that the petitioner has failed to supply transformers within the time prescribed and, therefore, the cancellation order is justified. It is also pleaded that after such purchase order stands cancelled, all obligations, including arbitration clause of the purchase order- cum-contract agreement also stands automatically terminated. In Damodar Valley Corporation v. K.K. Kar, AIR 1974 Supreme Court 158, the question whether the Arbitration Clause survives despite the termination of contract, has been examined. It has been held that a contract is the creature of an agreement between the parties and where the parties under the terms of the contract agree to 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 the disputes arising or in connection with the contract. It was held to the following effect:- “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 contract. Arbitration Case No. 265 of 2006 (3) The questions of unilateral repudiation of the rights and obligations under the contract or of a full and final settlement of the contract relate to the performance or discharges of the contract. Far from putting an end to the arbitration clause, they fall within the purview of it. A repudiation by the party alone does not terminate the contract. It takes two to end it, and hence it follows that as the contract subsists for the termination of the rights and obligations of the parties, the arbitration clause also survives.” It was further held to the following effect:- “In these circumstances, the question whether the termination was valid or not and whether damages are recoverable for such wrongful termination does not affect the arbitration clause, or the right of the respondent to invoke it for appointment of an arbitrator.” In Tata Industries Limited and another v. Grasim Industries Limited,(2008) 10 Supreme Court Cases 187, it was held that even if whole agreement is terminated, the arbitration agreement would still remain. In view of the above, the argument raised by the learned counsel for the respondent that the agreement stands terminated and, therefore, the arbitration clause stands superceded, is not tenable. The contract has been terminated on account of the alleged failure of the petitioner to supply the transformers within the time prescribed. Whether there is default on the part of the petitioner to supply the transformers or not is a matter arising out of the agreement and therefore, the same is required to be decided by the Arbitrator in terms of the Arbitration Clause agreed between the parties. Consequently, the present petition is allowed. All the disputes between the parties are ordered to be referred for adjudication to the sole Arbitration Case No. 265 of 2006 (4) arbitration of Shri R.P. Bhasin, former District Judge, resident of House No. 538, Sector-7, Panchkula. The Arbitrator shall be free to fix his fee in consultation with the parties. Parties are directed to appear before the Arbitrator on 28.5.2009, for further proceedings. (HEMANT GUPTA) JUDGE 17.4.2009 ds