TMI Blog2009 (9) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... nds for purchase of plant and machinery and other assets by way of hire purchase. Smt. Potluri Madhavilata, respondent No. 1 (hereinafter referred to as 'hirer') entered into an agreement of hire purchase with MAGMA for purchase of a motor vehicle (Bolero Camper-AP 16 TV 1263), on 31 January, 2005. 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... costs and expenses of the arbitration proceedings shall be borne by the hirer/s/guarantor/s. The arbitrator shall hold his sittings at Kolkata." 12. The House of Lords in Heyman v Darwins Ltd. [1942] 1 All ER 337 (HL) had discussed elaborately on the scope of arbitration clause in the context of a dispute arising on the question 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 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement of law summarised by Viscount Simon, LC. 14. In Union of India v Kishorilal Gupta and Bros. [1960] 1 SCR 493, Subba Rao, J. (as His Lordship then was) while dealing with the question whether the arbitration clause of the original contract survived after the execution of settlement of the contract referred to the judgment of House of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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. The House of Lords held that the dispute was one within the arbitration clause. In the speeches of the Law Lords a wider question is discussed and some of the relevant principles have been succinctly stated. 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmittedly binding contract containing a general arbitration clause may stipulate that in certain events the contract shall come to an end. If a question arises whether the contract has for any such reason come to an end, I can see no reason why the arbitrator should not decide that question. It is clear, too, that the parties to a contract may agree to bring it to an end to all 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration clause, for, if it is superseded, the arbitration clause falls with it." 15. In his separate but concurring judgment, A.K. Sarkar, J. (as His Lordship then was) exposited the legal position thus: "Now I come to the nature of an arbitration clause. It is well settled that such a clause in a contract stands apart from the rest of the contract. Lord Wright said in Herman's case [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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom what I have earlier said about the terms of the settlement of 22 February, 1949, it is manifest that it settled the disputes between the parties concerning the breach of the contract for kettles camp and its consequences. All that it said was that the contract had been broken causing damage and the claim to the damages was to be satisfied 'in terms of the settlement'. It did not purport 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Commercial Arbitration incorporates the doctrine of separability in Article 16(1). The Indian law the Arbitration and Conciliation Act, 1996, which is based on the UNCITRAL Model Law, also explicitly adopts this approach in section 16(l)(b), which reads as under: '16. Competence of Arbitral Tribunal to rule on its jurisdiction (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections 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 jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. (2)The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. (3)Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made." 22. An analysis of section 8 would show that for its applicability, the following conditions must be satisfied: ( a )that there exists an arbitration agreement; ( b )that action has been brought to the court by one party to the arbitration agreement against the other party; ( c )that the subject matter of the suit is same as the subject matter of the arbitration agreement; ( d )that the other party before he submits his first statement of the substance of the dispute, moves the court for referring the parties to arbitration; and ( e )that along with the application the other party tenders the original arbitration agreement or duly certified copy thereof. 23. Section 8 is i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
