R.M. Lodha, J.

Leave granted.

2. The core question that falls to be determined in this appeal by special leave is : does the arbitration agreement survive for the purpose of resolution of disputes arising under or in connection with the contract even if its performance has come to an end on account of termination due to breach ?

3. MAGMA Leasing Limited Public United Company (for short, `MAGMA') is a financial institution engaged in the business of providing funds for purchase of plant and machinery and other assets by way of hire purchase. Smt. Potluri Madhavilata-respondent no. 1 (hereinafter referred to as `hirer) entered into an agreement of hire purchase with MAGMA for purchase of a motor vehicle (Bolero Camper-AP 16 TV 1263) on January 31, 2005. As per the terms of hire purchase agreement, the hirer was required to pay hire purchase price in 46 installments. It appears that the hirer committed default in payment of few installments and as a result thereof, MAGMA seized the said vehicle from the hirer on August 6, 2005. MEGMA also sent a notice to the hirer intimating her that hire purchase agreement has been terminated. Thereafter some correspondence seems to have ensued between the parties.

4. The hirer then filed a suit against MAGMA in the Court of Senior Civil Judge, Vijayawada seeking recovery of possession of the aforesaid vehicle and for restraining MAGMA from transferring the said vehicle.

5. MAGMA, upon receipt of notice of the aforesaid proceedings, made an application (I.A. No. 490 of 2006) before 2 the trial court under Section 8 of the Arbitration and Conciliation Act, 1996 (for short , `Act, 1996') read with Section 151 of the Code of Civil Procedure praying therein that the dispute raised in the suit be referred to an arbitrator and the proceedings in the suit be stayed.

6. The hirer contested the aforesaid application on the ground that the hire purchase agreement having been terminated, the arbitration agreement does not survive and the matter need not be referred to the arbitration.

7. The First Additional Senior Civil Judge, Vijayawada vide order dated December 4, 2006 dismissed the application made by MAGMA under Section 8 of the Act, 1996.

8. Not satisfied with the order of the trial court, MAGMA filed a civil revision petition before the High Court of Andhra Pradesh.

9. The Division Bench dismissed the revision petition on April 30, 2007 holding that upon termination of the hire purchase agreement, the arbitration agreement does not survive. The present appeal by special leave arises from this order.

10. Despite service, hirer has not chosen to appear before this court.

11. The hire purchase agreement contains the following clause for arbitration :

12. The House of Lords in Heyman and Another v. Darwins Ltd.1 had discussed elaborately on the scope of arbitration clause in the context of a dispute arising on the question of repudiation of a contract. That was a case where 1 (1942) 1 ALL ER 337 4 the contract was repudiated by one party and accepted as such by another. The contract between the parties contained an arbitration clause providing for 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. Viscount Simon, L.C., summarised the legal position with regard to scope of an arbitration clause in a contract as follows :

Viscount Simon, L.C. concurred with the view expressed by Lord Dunedin in Scott & Sons v. Del Sel, (1923) S.C.(H.L.) 37 and observed:

13. Lord Macmillan, Lord Wright and Lord Porter though expressed their views separately but all of them agreed with the statement of law summarised by Viscount Simon, L.C..

14. In Union of India v. Kishorilal Gupta and Bros.2, Subba Rao, J. (as His Lordship then was) while dealing with the question whether the arbitration clause of the original contract survived after the execution of settlement of the contract referred to the judgment of House of Lords in Heyman exhaustively and held :

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 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 textbooks 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:

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 determined:

The Judicial Committee in Hirji Mulji v. Cheong Yue Steamship Company {(1926) A.C. 497} gives another test at p. 502:

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 v. Darwine Ltd.{(1942) All.E.R. 337}. 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, L.C. observed at p. 343 thus:

The learned Law Lord commented on the view expressed by Lord Dunedin at p. 344 thus:

Lord Macmillan made similar observations at p. 345:

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:

Lord Wright, after explaining the scope of the word "repudiation" and the different meanings it bears, proceeded to state at p. 350:

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."

15. In his separate but concurring judgment, A.K. Sarkar, J. (as His Lordship then was) exposited the legal position thus :

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 not 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 1 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 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:

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 I have earlier stated it postulates the existence of the contract and only decides the incidence of its breach."

16. In the case of National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Ltd.3 , this Court held thus:

17. Recently, in the case of P.Manohar Reddy & Bros. vs. Maharashtra Krishna Valley Development Corporation And Ors4., while dealing with the argument of the respondent therein that in terms of the contract the claim for extra work or additional work should have been raised during the pendency of the contract itself and not after it came to an end, this Court 3 (2007) 5 SCC 692 4 (2009) 2 SCC 494 1 considered the concept of separability of the arbitration clause from the contract and made the following observations :

(emphasis supplied) Modern laws on arbitration confirm the concept.

28. The United States Supreme Court in a recent judgment in Buckeye Check Cashing Inc. v. Cardegna [546 US 460 (2005)] acknowledged that the separability rule permits a court "to enforce an arbitration agreement in a contract that the arbitrator later finds to be void". The Court, referring to its earlier judgments in Prima Paint Corpn. v. Flood & Conklin Mfg. Co.[18 L.Ed. 2d 1270] and Southland Corpn. v. Keating [465 US 1 (1984)], inter alia, held:

But this must be distinguished from the situation where the claim itself was to be raised during the 1 subsistence of a contract so as to invoke the arbitration agreement would not apply."

18. The statement of law expounded by Viscount Simon, L.C. in the case of Heyman as noticed above, in our view, equally applies to situation where the contract is terminated by one party on account of the breach committed by the other particularly in a case where the clause is framed in wide and general terms. Merely because the contract has come to an end by its termination due to breach, the arbitration clause does not get perished nor rendered inoperative; rather it survives for resolution of disputes arising "in respect of" or "with regard to" or "under" the contract. This is in line with the earlier decisions of this Court, particularly as laid down in Kishori Lal Gupta & Bros.

19. In the instant case, clause 22 of the hire purchase agreement that provides for arbitration has been couched in widest possible terms as can well be imagined. It embraces all disputes, differences, claims and questions between the parties arising out of the said agreement or in any way relating thereto. The hire purchase agreement having been admittedly 1 entered into between the parties and the disputes and differences have since arisen between them, we hold, as it must be, that the arbitration clause 22 survives for the purpose of their resolution although the contract has come to an end on account of its termination.

20. The next question, an incidental one, that arises for consideration is whether the trial court must refer the parties to arbitration under Section 8 of the Act, 1996.

21. Section 8 reads thus:

22. An analysis of Section 8 would show that for its applicability, the following conditions must be satisfied: (a) that there exists an arbitration agreement; (b) that action has been brought to the court by one party to the arbitration agreement 1 against the other party; (c) that the subject matter of the suit is same as the subject matter of the arbitration agreement; (d) that the other party before he submits his first statement of the substance of the dispute, moves the court for referring the parties to arbitration; and (e) that along with the application the other party tenders the original arbitration agreement or duly certified copy thereof.

23. Section 8 is in the form of legislative command to the court and once the pre-requisite conditions as aforestated are satisfied, the court must refer the parties to arbitration. As a matter of fact, on fulfillment of conditions of Section 8 , no option is left to the court and the court has to refer the parties to arbitration.

24. There is nothing on record that the pre-requisite conditions of Section 8 are not fully satisfied in the present case. The trial court, in the circumstances, ought to have referred the parties to arbitration as per arbitration clause 22.

25. In the result, appeal must succeed and is allowed. The impugned order dated April 30, 2007 passed by the High Court affirming the order dated December 4, 2006 passed by 1 the First Additional Senior Civil Judge, Vijayawada is set aside. I.A.No.490/2006 in O.S.No.19/2006 is restored to the file of the First Additional Senior Civil Judge, Vijayawada for passing an appropriate order in the light of the observations made hereinabove. Since the respondent has not chosen to appear, no order as to costs.

........................J (Tarun Chatterjee) ........................J (R. M. Lodha) New Delhi September 18, 2009.