K.K. Kar vs Damodar Valley Corporation

P.N. Mookerjee and Amiya Kumar Mookerji, JJ.—This Rule is directed against an order of the learned Subordinate Judge, First Court, Alipore, allowing the opposite party''s application for adducing evidence on certain points raised in para. 16 of its petition, dated November 14, 1969, after overruling- the Petitioner''s objection that the Court had no jurisdiction to go into the said questions. The matter arises out of a proceeding under Sections 9(b) and 33 of the Arbitration Act. The material facts lie within a short compass and may be stated as follows:

The Petitioner (successful tenderer), as sole proprietor of the business M/s. Isis Coal Co., entered into a contract with the opposite party (Corporation) for supply of certain quantities of coal at their Chandrapura Thermal Power Station. According to the opposite party, the Petitioner failed to supply the contractual quantity of coal and committed a breach of the above contract. The opposite party thereupon repudiated the contract. In the meantime, there has been some payments made by the opposite party to the Petitioner. In view of the above breach the opposite party imposed a penalty on the Petitioner purporting to do so under the terms of the above contract and also forfeited his security deposit. Thereafter, on a representation made by the Petitioner, the opposite party remitted a large part of the above penalty and also released a portion of the security deposit. This was followed by long correspondence between the parties and eventually, according to the opposite party, all claims and differences between the parties concerned were settled and the Petitioner submitted a supplementary bill for the balance found due. The Petitioner had also been asked to endorse a receipt on the bill signifying full and final settlement of all claims. The Petitioner, however, although he submitted the bill, did not furnish the receipt as desired by the opposite party. The opposite party overlooked the above defect and made payments upon the bill. Thereafter the Petitioner demanded further amount, including damage for repudiation of the contract, from the opposite party and then a dispute arose between them which was eventually referred by the Petitioner to the arbitration of the sole arbitrator Mr. J. N. Mallick. The Petitioner purported to do this under the relevant arbitration clause contained in the above agreement between the parties, which in its relevant part runs as follows:

...if at any time any question, dispute or difference whatsoever shall arise between the Corporation and the successful tenderer upon, or in relation to, or in connection with the contract, either party may forthwith give to the- other notice in writing of the existence of such question, dispute or difference, and the same shall be referred to the adjudication of two arbitrators, one to be nominated by the Corporation and the other to be nominated by the successful tenderer...and the award of the arbitrators,...shall be final and binding on the parties and the provisions of the Indian Arbitration Act, 1940, and of the rules thereunder and any statutory modification thereof shall be deemed to apply to and be incorporated in this contract....

Thereupon the opposite party applied before the learned Subordinate Judge under Sections 9(b) and 33 of the Arbitration Act challenging the. propriety of the reference. Upon this application the present proceeding was started.

At the hearing, the opposite party desired to adduce oral evidence, touching the points, raised in para. 16 of its petition dated November 14, 1969, which reads as follows:

That all claims and demands as between the Petitioner and the contractor, standing fully paid and adjusted, there was no dispute, in the absence whereof the entire proceedings in the above case do not lie and the instant case is not maintainable under the Arbitration Act being outside its fold.

The opposite party''s above prayer was opposed by the Petitioner and he submitted that the Court had no jurisdiction to go into the question whether or not there was any final settlement by payment. He further submitted that the remedy by way of arbitration was the only remedy available, under the circumstances, to the parties for determination of their disputes under the above contract. He, accordingly, contended that there was no scope for adducing any oral evidence on the point or points before the learned Subordinate Judge.

On the above submissions of the parties the learned Subordinate Judge heard the matter on the following questions: (i) Has the Court jurisdiction to decide the points raised in para. 16 of the opposite party''s petition dated November 14, 1969, on evidence; (ii) whether the arbitration clause contained in the agreement between the parties would cease to exist with the termination of the agreement and (iii) whether oral evidence touching the dispute over the alleged final settlement of the claim would be admissible in the proceeding?

The learned Subordinate Judge answered the above question in the affirmative and, against the said decision, the present Rule was obtained by the Petitioner.

In support of this Rule the Petitioner''s learned Counsel, Mr. A. K. Sen, made the following submissions: (i) That the question whether there was accord and satisfaction of the contract in question would be a matter for the arbitrator for decision and not for the Court in view of the arbitration clause contained in the said agreement, (ii) That, even though there might have been accord and satisfaction in respect of the disputed contract, the arbitration clause contained in it would still subsist.

Reliance was placed by Mr. Sen in support of his above submissions on the decision of the House of Lords in Heyman v. Darwins Ltd. (1942) A.C. 356 and also on Balabux Agarwala v. Lachminarain Jute Mfg. Co. Ltd. (1947) 51 C.W.N. 863, Firm Karam Narain Daulat Ram v. Volkart Bros. AIR 1016 Lali. 116 and Radhakishin C. Ghdwla v. General Construction Co. AIR 1947 Sind 57. Reference was also made by him to Union of India v. V.G. Chawada P, Ltd. Unreported decision of the Calcutta High Court in appeal from Original Order No. 284 of 1963. Mr. Sen also agrued that neither in the Petitioner''s original application u/s 33 of the Arbitration Act nor in their application dated November 14, 1969, was there any. specific or sufficient averment of a final settlement between the parties by accord and satisfaction and,'' accordingly, on that ground too, the opposite party would not be entitled to adduce evidence for showing that the contract had been extinguished by final settlement, that is, by accord and satisfaction. On this part of the case, Mr. Sen relied on Bharat Construction Co. Ltd. Vs. Union of India (UOI), .

Mr. Mitter, learned Counsel of the opposite party, relied principally upon the decision of the Supreme Court in the Union of India v. Kishorilal Gupta and Bros. (1960) 2 S.C.A. 343 and submitted that the instant case would be covered by that decision, which limits the application of the rule, laid down in Heyman v. Darwins Ltd. (1942) A.C. 356 and excludes cases like the present from its scope. Mr. Mitter further submitted that the instant case would be governed by the decision of the Privy Council in Hirij Mulji and Ors. v. Cheong Yue Steamship Co. Ltd. (1926) A.C. 497 which stated the general rule, which would apply to all cases of termination of contract, be it by frustration or repudiation or accord and satisfaction. He distinguished Heyman v. Darwins Ltd. (1942) A.C. 356 on the ground that it was not a case of termination of the main contract by accord and satisfaction. He relied further on the decision of this Court in Union of India (UOI) Vs. B.C. Nawn (Bros) Pr. Ltd., in support of the proposition that, when the main agreement was extinguished by settlement contract, that is; by accord and satisfaction, the arbitration clause contained in it would also perish.

In our opinion, this Rule ought to succeed. The question whether there has been accord and satisfaction of the main contract is a dispute between the parties arising under and out of the same or in relation to it or in connection therewith and, accordingly, in view of the arbitration clause contained in the said contract, as quoted hereinbefore, this matter has to be decided by the arbitrator. Indeed, the question of accord and satisfaction, as alleged to the instant case, was satisfaction of the rights and liabilities of the parties under the main contract which rests upon the said contract itself and cannot be considered apart from the same and cannot have the effect of putting an end to the said contract or, in other words, the instant case would not be a case of termination of contract as distinguished from its satisfaction, so as to bring to an end the arbitration clause and make it non-existent. It is thus not a question touching the existence or non-existence of the arbitration agreement and, accordingly, not entertainable by the Court u/s 33 of the Arbitration Act. The opposite party''s application under that section would, accordingly, fail and there would be no scope or occasion for adducing any evidence before the Court on the opposite party''s allegations contained in para. 16 of its petition dated November 14, 1969.

The view we have taken above would not be opposed to the decision of the Supreme Court in the Union of India v. Kishorilal Gupta & Bros (Supra) cited by Mr. Mitter, as it is not a case of a substituted contract; On the other hand, it would be substantially supported on principle by that decision inasmuch as to the proposition laid down by Sarker J. in his minority judgment in that case, no demur is to be found in the judgment in that case, no demur is to, be found in the majority judgment of Imam and Subba Rao JJ., and the two judgments really differred only on the question whether the relevant settlement contract before their Lordships was a substituted contract, cancelling and extinguishing the original contract, or merely a discharge of the same by accord and satisfaction whereby all claims arising under the said original contract or from its breach became, satisfied. The instant case is not one of an arrangement extinguishing or cancelling the original contract but only a case of discharge of the original contract and of all claims thereunder or for its breach by a particular mode, that is, by accord and satisfaction. There is no question, therefore, of the arbitration clause dying or becoming non-existent and the dispute being whether the main contract has been discharged by accord and satisfaction, it would be a dispute under or in relation to or in connection with the same so as to attract the said clause on its own express terms.

The case (Supra) was also a case of cancellation of the original contract by the settlement contract, which was in "the nature of a substituted contract, extinguishing and replacing the main contract and not providing merely a mode of its satisfaction. That case also is, therefore, distinguishable, but if it intended to lay down any different rule from what we have stated above or to take any different view of the above Supreme Court decision, we cannot agree with the same.

We would, accordingly, make this absolute, set aside the impugned order of the learned Subordinate Judge and dismiss the opposite party''s application under Sections 9(b) and 33 of the Arbitration Act.

There will, however, be no order for costs.