TaxTMI 
TaxTMI 
1995 (11) TMI 435
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....n the second half of 1985, it called upon the respondent, by its letter of 10.11.1987, to reimburse the loss which was stated to be a sum of Rs.161.82 lacs. The respondent disputed the claim by its letter 27.11.1987, whereupon by invoking clause 19 of the agreement, the appellant referred the dispute to respondent No.3 who had been appointed by the Chairman and Managing Director of the appellant in exercise of power conferred by clause 19. The appointment was challenged by respondent No.2 by filing an application under s.33 of the Arbitration Act, 1940, read with certain provisions of the code of Civil Procedure, before the Court of Sub-ordinate Judge, Coimbatore, stating, inter alia, that clause 19 of the agreement could not be invoked to refer the matter to arbitration. In any case clause 19 did not permit resolution of the dispute of the type raised by the appellant. The Sub- ordinate Judge decided main issues in favour of the respondent, which order was challenged by the appellant in the High Court of Judicature at Madras. The High Court upheld the order of Sub-ordinate Judge. Hence this appeal under Article 136 of the Constitution. 3. The following questions arise for determi....
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....nce of the following principles in this regard : "(1) An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but nonetheless it is an integral part of it; (2) however comprehensive an arbitration clause may be, the existence of the contract is a necessary condition for its operation, it perishes with the contract; (3) the contract may be non est in the sense that it never came legally into existence or it was void ab initio; (4) though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it solely governing their rights and liabilities thereunder; (5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operation, for along with the original contract, it is also void, in the case, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it, and (6) between the two fall many categories of disputes in connection with a contract, such as the question of repudiation, frustration, breach etc. In these cases it is the performance of the contr....
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....t is found to be valid. As the very jurisdiction of the arbitrator is dependent upon the existence of the arbitration clause under which he is appointed, the parties have no right to invoke a clause which perishes with the contract." 10. This shows that the arbitration clause would perish in case where either there is substitution of a new contract, or rescission or alteration of the original contract. The present is apparently and admittedly not such a case. Therefore, what has been stated in this decision cannot assist the respondents. On the other hand, the ratio of Kishorilal Gupta squarely applies. We, therefore, hold that clause 19 dealing with arbitration did survive despite the contract having come to an end with effect from 1.4.1984. 11. Whether the arbitration clause, if held to be operative, could be invoked for the purpose at hand ? On this, the contention of the respondent is that the clause 19 visualises arbitration on "any difference about the quality of the material", whereas in the present case the dispute is about the vials as filled up containing less quantity and not as per specification. As to this, the stand of the appellant is that if the quantity would be ....
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.... General brings to our notice the averments finding place in the Rejoinder of the appellant. We are referred to the Rejoinder because the plea of limitation was raised for the first time in the counter- affidavit of the respondent in its para 14. The relevant reply in the Rejoinder is as below : "It is stated that the respondents were informed of the rejection of the frugs supplied by them as early as in 1985 on account of short filling of vials by reference to the complaints received from the customers particularly Defence Department. Following this, Shri Chander Sekharan of the Respondent Company visited the petitioner's office at Madras on 3.5.1985 and 10.7.1985 for discussions in the matter. It is mutually agreed that a joint inspection of samples from all the batches should be conducted in the laboratory of IDPL at Madras. Accordingly, the reference samples from the respondent's factory were brought for the purpose of joint inspection to the petitioner's factory at Madras. However, the respondent did not sent any representative for participation in the joint inspection and ultimately after waiting for considerable time, the petitioner had to undertake inspection a....