AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2009 (9) TMI 592
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..... As per the terms of hire purchase agreement, the hirer was required to pay hire purchase price in 46 installments. It appears that the hirer committed default in payment of few installments and as a result thereof, MAGMA seized the said vehicle from the hirer on 6 August, 2005. MAGMA also sent a notice to the hirer intimating her that hire purchase agreement has been terminated. Thereafter some correspondence seems to have ensued between the parties. 4. The hirer then filed a suit against MAGMA in the Court of Senior Civil Judge, Vijayawada, seeking recovery of possession of the aforesaid vehicle and for restraining MAGMA from transferring the said vehicle. 5. MAGMA, upon receipt of notice of the aforesaid proceedings, made an application (IA No. 490 of 2006) before the trial court under section 8 of the Arbitration and Conciliation Act, 1996 (for short, 'Act, 1996') read with section 151 of the Code of Civil Procedure praying therein that the dispute raised in the suit be referred to an arbitrator and the proceedings in the suit be stayed. 6. The hirer contested the aforesaid application on the ground that the hire purchase agreement having been terminated, the arbitration ag....
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....estion of repudiation of a contract. That was a case where the contract was repudiated by one party and accepted as such by another. The contract between the parties contained an arbitration clause providing for that any dispute between the parties in respect of the agreement or any of the provisions contained therein or anything arising thereout should be referred to arbitration. Viscount Simon, L.C., summarised the legal position with regard to scope of an arbitration clause in a contract as follows : "An arbitration clause is a written submission, agreed to by the parties to the contract, and, like other written submissions to arbitration must be construed according to its language and in the light of the circumstances in which it is made. If the dispute is as to whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission. Similarly, if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), th....
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....f Lords in Heyman [1942] 1 All ER 337 (HL) exhaustively and held : "Uninfluenced by authorities or case-law, the logical outcome of the earlier discussion would be that the arbitration clause perished with the original contract. 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. It was intended to cover all the disputes arising under the conditions of, or in connection with, the contracts. Though the phraseology was of the widest amplitude, it is inconceivable that the parties intended its survival even after the contract was mutually rescinded and substituted by a new agreement. The fact that the new contract not only did not provide for the survival of the arbitration clause but also the circumstance that it contained both substantive and procedural terms indicates that the parties gave up the terms of the old contracts, including the arbitration clause. The case-law referred to by the learned counsel in this connection does not, in our view, lend support to his broad contention and indeed the principle on which the said decisions are based is a pointer to the contr....
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....ated. Viscount Simon, L.C. observed at p. 343 thus: 'An arbitration clause is a written submission, agreed to by the parties to the contract, and, like other written submissions to arbitration, must be construed according to its language and in the light of the circumstances in which it is made. If the dispute is as to whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission. Similarly, if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate, for on this view the clause itself is also void. If, however, the parties are at one in asserting that they entered into a binding contract, but a difference has arisen between them as to whether there has been a breach by one side or the other, or as to whether circumstances have arisen which have discharged one or both parties from further performance, such differences should be regarded as differences which have ....
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....l intents and purposes and to treat it as if it had never existed. In such a case, if there be an arbitration clause in the contract, it perishes with the contract. If the parties substitute a new contract for the contract which they have abrogated, the arbitration clause in the abrogated contract cannot be invoked for the determination of questions under the new agreement. All this is more or less elementary.' These observations throw considerable light on the question whether an arbitration clause can be invoked in the case of a dispute under a superseded contract. The principle is obvious; if the contract is superseded by another, the arbitration clause, being a component part of the earlier contract, falls with it. The learned Law Lord pinpoints the principle underlying his conclusion at p. 347, [1942] 1 All ER 337 (HL): 'I am accordingly of opinion that what is commonly called repudiation or total breach of a contract, whether acquiesced in by the other party or not, does not abrogate a contract, though it may relieve the injured party of the duty of further fulfilling the obligations which he has by a contract undertaken to the repudiating party. The contract is not put out....
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.... [1942] 1 All ER 337 (HL) that an arbitration clause 'is collateral to the substantial stipulations of the contract. It is merely procedural and ancillary, it is a mode of settling disputes, .... All this may be said of every agreement to arbitrate, even though not a separate bargain, but one incorporated in the general contract'. Lord Macmillan also made some very revealing observations on the nature of an arbitration clause in the same case. He said at pp. 373-4: 'I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract. It is quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards each other hinc inde, but the arbitration clause does not impose on one of the parties an obligation in favour of the other. It embodies the agreement of both the parties that, if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution. And there is this very material difference, that whereas in an ordinary contract the obligations of the parties to each ....
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....to annihilate the contract or the arbitration clause in it. I feel no doubt therefore that the arbitration clause subsisted and the arbitrator was competent to arbitrate. The award was not in my view, a nullity. The position is no different if the matter is looked at from the point of view of section 62 of the Contract Act. That section is in these terms: '62. If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.' The settlement cannot be said to have altered the original contract or even to have rescinded it. It only settled the dispute as to the breach of the contract and its consequences. For the same reason it cannot be said to substitute a new contract for the old one. As I have earlier stated it postulates the existence of the contract and only decides the incidence of its breach." 16. In the case of National Agricultural Coop. Marketing Federation India Ltd. v Gains Trading Ltd. [2008] 2 Comp LJ 344 (SC) : [2007] 5 SCC 692, this court held thus: "6. The respondent contends that the contract was abrogated by mutual agreement; and when the contract came to an end, the arbitration agre....
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....ns with respect to the existence or validity of the arbitration agreement, and for that purpose, - (a)an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b)a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.' (Emphasis supplied) Modern laws on arbitration confirm the concept. The United States Supreme Court in a recent judgment in Buckeye Check Cashing Inc. v Cardegna 546 US 460 [2005] acknowledged that the separability rule permits a court 'to enforce an arbitration agreement in a contract that the arbitrator later finds to be void'. The court, referring to its earlier judgments in Prima Paint Corpn. v Flood & Conklin Mfg. Co. 18 L. Ed. 2d 1270 and Southland Corpn. v Keating 465 US 1 (1984), inter alia, held: 'Prima Paint and Southland answer the question presented here by establishing three propositions. First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.; But this must be distinguished from the situation where the claim it....