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Judgment
Subhro Kamal Mukherjee, J.—This is an appeal against judgment and order dated May 11, 2011 passed by the learned Civil Judge (Senior Division), Fourth Court at Alipore, District - South 24 Paraganas, in Title Suit No. 1317 of 2011. By the order impugned, the learned trial judge declined to pass an ad-interim order of injunction ex parte against the defendants.
This appeal arises out of a suit, inter alia, for declaration and injunction.
The plaintiff alleged that the plaintiff and the defendant No. 5 had entered into a memorandum of understanding on September 15, 2005, by which the defendant No. 5 was to execute several civil works on the Birahi Ganga Hydro Power Project being set up by the plaintiff. In pursuance of the said memorandum of understanding, a formal agreement was executed between the plaintiff and the defendant No. 1 on October 18, 2005. The defendant No. 5 delayed execution of works. It engaged a sub-contractor for execution of the works and the defendant No. 5 did not maintain minimum supervision over the works of the sub-contractor. The plaintiff, therefore, suffered substantial loss for delayed execution of the work by the defendant No. 1. Still, the defendant No. 1 claimed some amount for the works allegedly executed by it. Negotiations followed between the plaintiff and the defendant No. 5. The defendant No. 5 represented that certain claims on account of risk insurance policy taken by the defendant No. 5 would be released by the National Insurance Company Limited. The amount that would be received from the National Insurance Company would be made over by the defendant No. 5 to the plaintiff towards compensation of the plaintiff for the loss and damages, which the plaintiff suffered from the breach of the said agreement dated October 18, 2005. The negotiations resulted in a fresh contract. The parties entered into a new agreement in the form of a settlement deed on March 25, 2009 in supersession and novation of the said earlier agreement. The plaintiff claimed that the said agreement dated October 18, 2005 stood finally concluded in terms of the said settlement deed. There was complete and immediate abrogation of the said agreement. Because of execution of the fresh agreement in the nature of deed of settlement, the plaintiff withdrew the notice of invocation of the bank guarantee. However, the National Insurance Company rejected the claim of the defendant No. 5 against the said risk insurance policy. In those circumstances, the defendant No. 5 was liable to pay Rs. 2,68,03,762/- (Rupees two crores sixty eight lakh three thousand seven hundred sixty two only) to the plaintiff. Although, the said agreement dated October 18, 2005 contained an arbitration clause, but the said agreement was superseded by the settlement deed executed on March 25, 2009. Therefore, the defendant No. 5 was not entitled to invoke the arbitration clause in the said agreement dated October 18, 2005. Nevertheless, on December 8, 2010 the defendant No. 5 purportedly invoked the arbitration clause by nominating an arbitrator. The defendant No. 1 was the appointing authority as per the extinguished arbitration clause. The plaintiff objected to such constitution of arbitration tribunal. The plaintiff contended that the arbitral tribunal had no jurisdiction to act upon any claim made by the defendant No. 5 against the plaintiff under the said agreement on October 18, 2005.
Thus, the plaintiff in the said suit claimed a decree for Rs. 2,20,35,697/- (Rupees two crores twenty lakhs thirty five thousand six hundred ninety seven only) as against the defendant No. 5 with interim interest and interest on judgment and, also, claimed for an injunction, restraining the defendants from taking any step or further steps on the basis of the superseded arbitration clause contained in the agreement dated October 18, 2005.
In connection with the said suit, an application of injunction under Order 39, rules 1 and 2 read with Section 151 of the CPC was moved by the plaintiff, inter alia, seeking a temporary order of injunction restraining the defendants from taking any step or further steps or giving any effect or further effects to the extinguished arbitration clause contained in the agreement dated October 18, 2005; injunction restraining the defendant Nos. 1 to 4 from commencing with the functioning of the arbitral tribunal arising out of the said agreement dated October 18, 2005 on a reference by the defendant No. 5 as the arbitration agreement stood extinguished.
As we have indicated hereinabove, the learned trial judge, by the order impugned, declined to pass an ex parte ad-interim order of injunction.
Being aggrieved by and dissatisfied with the said order, the plaintiff has come up with this appeal before this Court.
Mr. Pratap Chatterjee, learned senior advocate, strenuously, argued that the learned trial judge did not exercise his discretion judicially in refusing to pass an ad interim order of injunction inasmuch as the plaintiff, undoubtedly, made out a case for an ad interim order of injunction till the disposal of the application for temporary injunction.
Mr. Sakya Sen, learned advocate for the respondent No. 5, on the contrary, argued that the suit was not maintainable. He submits that merely on the assertion that there has been a settlement, a party cannot avoid arbitration and only on the ground of fraud a suit is maintainable avoiding arbitration.
Mr. Sen cites the decision in the cases of National Insurance Co. Ltd. Vs. Boghara Polyfab Pvt. Ltd., Atul Singh and Others Vs. Sunil Kumar Singh and Others, Union of India (UOI) Vs. Kishorilal Gupta and Bros., and Ghanshyamdas Baheti Vs. Jamuna Transport Corporation,
The point for consideration in this appeal is whether the learned trial judge was justified in refusing to pass an ex parte ad-interim order of injunction in respect of an arbitration proceeding. Since the application for temporary injunction is pending in the court below, we need not, at this stage, enter into any debatable issues, which are required to be decided in the suit upon evidence.
The only question we are concerned is whether the plaintiff has been able to make out a case for obtaining an ex parte ad-interim order of injunction in a suit avoiding arbitration proceeding.
The plaintiff alleged that with the execution of the said deed of settlement, the earlier agreement containing the arbitration clause was superseded and the arbitration clause came to an end.
It appears from the uncontroverted averments in the plaint and in the application for temporary injunction that the parties had arrived at a settlement of their disputes and the settlement was embodied in a separate agreement superseding the earlier agreement. It is alleged that the contract stood, finally, concluded in terms of such settlement. The conclusion or termination was immediate. There was complete and immediate abrogation of the contract.
A Division Bench of this Court in Kishorilal Gupta (supra) held that on supersession of a contract containing the arbitration clause by a new contract, the arbitration clause in the superseded contract, also, comes to an end.
The Supreme Court of The Union of India Vs. Kishorilal Gupta and Bros., by majority, held that where the clause in a settlement in expressed terms declared that the earlier contracts would be finally concluded in terms of the settlement and no party would have any claim against the other, the substituted agreement gave a new cause of action and obliterated the earlier ones.
In Ghyanshyamdas Baheti (supra) a Division Bench of this Court held that when a challenge to the arbitration agreement was made on the ground of fraud, such plea could only be decided by a civil court and not by an arbitrator.
Thus, when the existence of the arbitration agreement is itself in dispute then the suit lies. There is no dispute as to execution of deed of settlement. Whether such deed of settlement was executed under commercial duress or not is to be decided at the appropriate stage, if raised at all, in the written objection to the application for injunction.
The decision cited by Mr. Sen in the case of Boghara Polyfab Private Limited (supra) has no application in the facts and circumstances of the case inasmuch as the execution of the settlement deed is not in dispute in the arbitration proceeding.
Moreover, it is settled law that where a case of fraud is made out, the issue as to fraud cannot be decided by the arbitral tribunal. It is the civil court, which can, only, decide such issue.
Atul Singh (supra) is of no help to the respondent No. 5. In the said case there was an arbitration clause in a partnership deed dated January 13, 1989. The predecessor-in-interest of the plaintiff in the said case, namely, Rajendra Prasad Singh, was a party. Rajendra Prasad Singh was not a party to the subsequent partnership deed. The plaintiff filed a suit challenging the subsequent deed. The defendant applied under Sections 5 and 8 of the Arbitration and Conciliation Act, 1996, on the basis of the arbitration clause contained in the deed dated January 13, 1989. The Supreme Court of India held that as Rajendra Prasad Singh, the predecessor-in-interest of the plaintiff, was not a party in the subsequent deed, the subsequent deed could, only, be avoided in a civil suit when the subsequent deed did not contain an arbitration agreement.
Mr. Sen, further, cites a decision in the case of Shree Subhlaxmi Fabrics Pvt. Ltd. Vs. Chand Mal Baradia and Others, . The decision in that case is distinguishable. The plaintiff participated in the appointment of arbitral tribunal in response to the notice of the appointing authority asking it to nominate an arbitrator.
Thus, we are of the opinion that the learned trial judge did not apply proper legal tests in rejecting the prayer for ad interim order of injunction.
The order impugned is, therefore, set aside. There shall be an order of stay of further proceedings in the arbitral proceedings till the disposal of the application for temporary injunction.
The learned trial judge is requested to decide the application for temporary injunction as expeditiously as possible.
By way of an abundant caution, we make it clear that all our observations in this order are limited for the purpose of consideration of the prayer for ad interim order of injunction. We have not finally decided upon any points for consideration in the application for temporary injunction and, thus, all points are left open. The learned trial judge shall decide the application for injunction independently and uninfluenced by our observations in this order as it is well known that the scope of passing an ad interim order of injunction and scope to consider the prayer for temporary injunction upon exchange of affidavits are different.
In view of the disposal of this appeal, the connected application filed under C.A.N. No. 5170 of 2011 is, also, disposed of accordingly. We make no order as to costs.
Tarun Kumar Gupta, J.
I agree.