Arbitration clause in MoU not valid post cancellation; parties intent prevails.

The court held that the arbitration clause in the Memorandum of Understanding (MoU) did not survive post the Deed of Cancellation. The Deed of Cancellation explicitly stated the cancellation of the MoU without any claims against each other. The court found that disputes arising from the Deed of Cancellation were not covered by the arbitration clause in the MoU. Despite arguments that the arbitration clause was a separate agreement, the court determined that the intent of the parties was to cancel the MoU entirely, leading to the dismissal of the appeal and upholding of the impugned order.

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Issues Involved:
1. Whether the Deed of Cancellation dated April 20, 2013, contains an arbitration clause.
2. Whether the arbitration clause in the MoU dated July 12, 2012, survives post the Deed of Cancellation.

Issue-wise Detailed Analysis:

1. Whether the Deed of Cancellation dated April 20, 2013, contains an arbitration clause:

The primary issue before the court was whether the Deed of Cancellation dated April 20, 2013, included an arbitration clause. The appellant argued that despite the Deed of Cancellation, the arbitration agreement in the MoU dated July 12, 2012, survives. The appellant's counsel contended that the obligation to pay the amounts to the respondent originated from the MoU, which contained an arbitration agreement. The appellant relied on the judgment of the House of Lords in Moschi Vs. Lep Air Services Ltd. and the Division Bench of the High Court of Bombay in Mulheim Pipecoatings GmbH Vs. Welspun Fintrade Ltd.

The relevant arbitration clauses in the MoU dated July 12, 2012, were:
- Clause 8: "That any dispute between the Parties arising out of this MOU shall be subject to provisions of Arbitration and Conciliation Act, 1996 and the venue for arbitration shall be New Delhi."
- Clause 9: "That this Agreement shall be subject to jurisdiction of Courts at Gurgaon."

The Deed of Cancellation, however, did not contain any arbitration clause. The respondent argued that the Deed of Cancellation superseded the MoU, and thus, the arbitration agreement in the MoU disappeared. The learned Single Judge, relying on the judgment in Young Achievers Vs. IMS Learning Resources Pvt. Ltd., which was upheld by the Supreme Court, distinguished the judgment relied upon by the appellant and held that the arbitration clause in the MoU did not survive post the Deed of Cancellation.

2. Whether the arbitration clause in the MoU dated July 12, 2012, survives post the Deed of Cancellation:

The learned Single Judge examined the language used in the arbitration clause in the MoU and the Deed of Cancellation and concluded that the arbitration clause did not survive. The Deed of Cancellation explicitly stated that the MoU stood canceled without any party having any claim against each other except as agreed therein. The learned Single Judge noted that the disputes arising from the Deed of Cancellation could not be said to arise out of the MoU and thus were not covered by the arbitration clause in the MoU.

The appellant's counsel argued that the arbitration clause is a separate agreement that does not perish with the main contract. They contended that the MoU and the Deed of Cancellation were inextricably linked and that the Deed of Cancellation owed its existence to the MoU. The learned Single Judge, however, found that the intent of the parties was to cancel the MoU from its existence, as indicated by the very nomenclature "Deed of Cancellation," and the absence of an arbitration clause in the Deed of Cancellation.

The court also considered the judgment of the Bombay High Court in Mulheim Pipecoatings GmbH, which summarized the law on the survival of arbitration agreements post the termination of the main contract. The court noted that the arbitration agreement constitutes a collateral term in the contract related to the resolution of disputes and not to the performance of the contract. The termination of the main contract does not necessarily end the arbitration agreement, but it depends on the nature of the controversy and its effect on the existence or survival of the contract.

The court distinguished this case from Young Achievers, where it was held that a new contract without an arbitration clause, which supersedes the original contract, results in the arbitration clause perishing with the original contract. The Supreme Court had upheld this view, stating that if a contract is superseded by another, the arbitration clause, being a component part of the earlier contract, falls with it.

The court concluded that the Deed of Cancellation was a fresh agreement without an arbitration clause, and thus, the arbitration clause in the MoU did not survive. The appeal was dismissed, and the impugned order was upheld.

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