1959 (5) TMI 37 - SC - Indian Laws

Arbitration Clauses Superseded by Settlement Agreements: Impact on Jurisdiction and Award

The Union of India Versus Kishorilal Gupta And Bros.

The Union of India Versus Kishorilal Gupta And Bros. - 1959 AIR 1362, 1960 (1) SCR 493 Issues Involved:1. Survival of arbitration clause after contract supersession.2. Legal effect of substituted contracts on original contracts.3. Jurisdiction of arbitrator under the arbitration clause.4. Validity of award given by the arbitrator.5. Preliminary objection regarding special leave granted by the Supreme Court.Detailed Analysis:1. Survival of Arbitration Clause After Contract Supersession:The primary issue was whether the arbitration clause in the original contracts survived after those contracts were superseded by new settlement agreements. The judgment concluded that the arbitration clause did not survive. The court observed, '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.' The court reasoned that the comprehensive settlement agreements, which included both substantive and procedural terms, indicated that the parties intended to abandon the terms of the old contracts, including the arbitration clause.2. Legal Effect of Substituted Contracts on Original Contracts:The court examined the legal effect of the new settlement agreements on the original contracts. It was stated, '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 court found that the settlement agreements were intended to replace the original contracts, thereby extinguishing the original contracts and their arbitration clauses.3. Jurisdiction of Arbitrator Under the Arbitration Clause:The court also addressed whether the arbitrator had jurisdiction under the arbitration clause of the original contracts. It was held that, 'The arbitration clause perished with the original contract.' The court emphasized that the arbitration clause is an integral part of the contract and does not survive if the contract is superseded by a new agreement. Therefore, the arbitrator had no jurisdiction to arbitrate disputes under the original contracts once they were replaced by the settlement agreements.4. Validity of Award Given by the Arbitrator:The court examined the validity of the award given by the arbitrator. It was observed that the award was a lump sum and not severable. As the arbitrator had no jurisdiction over the disputes arising from the original contracts, the entire award was deemed invalid. The court stated, '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.'5. Preliminary Objection Regarding Special Leave Granted by the Supreme Court:The respondent's counsel raised a preliminary objection regarding the special leave granted by the Supreme Court, arguing that an appeal lay to the appellate bench of the Calcutta High Court. The court noted, '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.' However, due to the inordinate delay in raising this objection, the court decided not to entertain the application for revoking the special leave.Conclusion:The Supreme Court upheld the High Court's judgment, concluding that the arbitration clauses in the original contracts did not survive after the contracts were superseded by new settlement agreements. Consequently, the arbitrator had no jurisdiction to arbitrate disputes under the original contracts, rendering the award invalid. The appeal was dismissed with costs.