Arbitration clause survives later contractual modification and covers disputes over balance goods, damages and substituted arrangements.

A later arrangement did not abrogate the original arbitration clause, because implied rescission was not established and the alleged oral rescission was not proved. The court also held that an arbitration agreement is not necessarily required to be in writing for every purpose, so the Evidence Act objection did not succeed. Disputes over balance goods, substituted arrangements and damages were treated as arising out of the contract and therefore within the arbitration clause, making them stayable under the Arbitration Act. The discretion to stay the suit was properly exercised because no sufficient reason was shown to depart from the parties' agreement to arbitrate.

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Issues: (i) Whether the arbitration agreement contained in the original contract was abrogated or rescinded by the later arrangement of 6-8-1957. (ii) Whether the disputes relating to the balance goods and damages were disputes arising out of the contract and therefore liable to be stayed under Section 34 of the Indian Arbitration Act. (iii) Whether the discretion to stay the suit was properly exercised.

Issue (i): Whether the arbitration agreement contained in the original contract was abrogated or rescinded by the later arrangement of 6-8-1957.

Analysis: The later arrangement, as pleaded, was not inconsistent with the continuance of the original arbitration clause. The materials did not establish an implied rescission, and the allegation of an express oral rescission was not satisfactorily made out. The Court also held that an arbitration agreement is not, apart from the special requirements of the Arbitration Act, one which must necessarily be in writing for all purposes, so the plea based on Section 92 of the Evidence Act did not assist the respondents.

Conclusion: The arbitration agreement was not rescinded, and it continued to bind the parties.

Issue (ii): Whether the disputes relating to the balance goods and damages were disputes arising out of the contract and therefore liable to be stayed under Section 34 of the Indian Arbitration Act.

Analysis: The expression "arising out of" was treated as of wide import. The disputes about the balance quantity, the alleged substituted arrangement, and the claims for damages all sprang from the contractual relationship and the working out of rights and obligations under the original contract. Even if the later arrangement amounted only to a modification, the modified arrangement remained part of the same contractual framework, so the arbitration clause covered the controversy.

Conclusion: The disputes were covered by the arbitration agreement and were liable to be stayed.

Issue (iii): Whether the discretion to stay the suit was properly exercised.

Analysis: No sufficient reason was shown for refusing to hold the parties to their bargain as to arbitration and venue. The difficulties suggested as to witnesses, arbitrators, and costs were not enough to displace the prima facie approach in favour of stay where the disputes are arbitrable.

Conclusion: The discretion to stay the suit was properly exercised.

Final Conclusion: The suit was rightly stayed and the challenge to the stay order failed.

Ratio Decidendi: A subsequent arrangement that merely modifies the original contract does not displace an existing arbitration clause unless rescission of that clause is clearly established, and disputes springing from the modified contract remain referable under a clause covering disputes arising out of the contract.

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