Survival of arbitration agreement governs reference: later full and final settlement can extinguish the clause and bar referral.

A reference to arbitration under section 20 of the Indian Arbitration Act, 1940 requires a subsisting arbitration agreement covering the dispute. Where a later settlement records full and final satisfaction and expressly discharges the earlier arbitration clause, the original clause ceases to survive. The court must first decide whether the arbitration agreement still exists before directing a reference, and it cannot leave that foundational to the arbitrator. On these facts, the settlement extinguished the arbitration clause, so the direction to refer the dispute to arbitration was without jurisdiction and liable to be set aside.

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Issues: Whether a court can refer a dispute to arbitration under section 20 of the Indian Arbitration Act, 1940 when the parties' subsequent settlement agreement expressly discharges the earlier arbitration clause.

Analysis: A reference under section 20 of the Indian Arbitration Act, 1940 depends on the existence of a subsisting arbitration agreement and a dispute covered by it. Where the parties, by a later agreement, settle the account in full and final satisfaction and expressly state that the arbitration clause stands discharged, the original arbitration clause ceases to exist. In such a situation, the court must determine the existence and survival of the arbitration agreement before making a reference, and it cannot leave that foundational question to the arbitrator. The subsequent agreement here expressly recorded complete settlement and discharge of the arbitration clause, so the court below acted without jurisdiction in directing reference under the earlier contract.

Conclusion: The reference to arbitration was invalid because the arbitration clause had been extinguished by the subsequent settlement agreement; the order directing reference was liable to be set aside.

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