1965 (3) TMI 74 - SC - Indian Laws

Supreme Court affirms arbitration clauses post transfer of rights under Tramways Act, emphasizing rent payment connection.

The Supreme Court of India upheld the High Court's decision in a case involving the interpretation of arbitration clauses in agreements post transfer of ... Statutory substitution of parties by enactment - saving proviso preserving sums payable to pre-existing party - survival of arbitration clause upon legislative substitution - inseparability of substantive right and procedural remedy - construction of statutory fiction in favour of contractual termsSurvival of arbitration clause upon legislative substitution - saving proviso preserving sums payable to pre-existing party - inseparability of substantive right and procedural remedy - Whether, as a result of section 5 of the Calcutta Tramways Act, 1951, the Corporation of Calcutta retained the right to refer disputes about sums payable under the pre-existing agreements to arbitration. - HELD THAT: - Section 5 substituted the Government in place of the municipal bodies in the listed agreements by statutory fiction, but its proviso preserved any sums payable under those agreements as continuing to be payable 'as if this Act had not been passed.' The substantive right to receive the sums and the procedural right to enforce that right by arbitration under the agreements are interconnected and not severable; to preserve the former while denying the latter would nullify the agreed remedy and amount to judicially rewriting the contract. The proviso must therefore be read to save both the right to the sums and the arbitration procedure for disputes concerning those sums. Reading the proviso in this manner avoids the anomaly of the Corporation remaining a party only for the substantive claim while a different party (the Government) alone could invoke arbitration, and it accords with the statutory direction that the fiction yields where the subject-matter or context otherwise requires. Consequently, the arbitration clauses in the agreements survive in respect of sums payable to the Corporation and the Corporation retained the right to refer disputes on those sums to arbitration.The arbitration clauses in the pre-existing agreements survive in respect of sums payable to the Corporation; the Corporation could validly refer disputes as to those sums to arbitration.Final Conclusion: The appeal is dismissed: the Calcutta Tramways Act, 1951, by virtue of section 5 and its proviso, preserved both the substantive right to sums payable to the Corporation and the contractual arbitration remedy for disputes concerning those sums, and the High Court was right to hold the reference to arbitration valid. Issues:Interpretation of arbitration clauses in agreements post transfer of rights under the Tramways Act, 1951.Analysis:The judgment delivered by the Supreme Court of India involved a dispute regarding the interpretation of arbitration clauses in agreements following the transfer of rights under the Tramways Act, 1951. The case originated from an agreement dated October 2, 1879, between the Corporation of Calcutta and certain grantees for the construction and use of tramways in Calcutta. Subsequent agreements confirmed by Acts were made between the successors of the Corporation and the grantees, including an arbitration clause for resolving disputes. The appellant, Calcutta Tramways Co. Ltd., became the assignee of the grantees.The State of West Bengal entered into an agreement with the appellant in 1951 for the purchase of the tramway undertaking, subject to the Tramways Act, 1951. The Act confirmed the transfer agreement and vested powers and duties in the government, while also statutorily substituting the government for the Corporation in the agreements. However, the proviso in Section 5 of the Act preserved the sums payable under the agreements to the Corporation, allowing them to continue as if the Act had not been passed.The Court held that the government's substitution did not affect the arbitration clauses in the agreements regarding rent payments. The substantive right to payment and the procedural right to arbitration were deemed interconnected and inseparable. Enforcing the arbitration clauses against the appellant was necessary to preserve the Corporation's agreed remedy. The Court emphasized that the proviso to Section 5 of the Act saved both the right to sums payable and the arbitration procedure, ensuring the Corporation's rights were not compromised. Consequently, the Court upheld the High Court's decision and dismissed the appeal, affirming that the arbitration clauses remained valid and enforceable in resolving disputes over rent payments.