Jivaji Jedeja and ors. Vs. State of Maharashtra and ors. - Court Judgment

Excerpt:
- [a.k. sarkar,; k. subba rao and; jafer imam, jj.] the respondents entered into three several contracts with the appellant, for the fabrication and supply of diverse military stores, each of which contracts contained an arbitration clause. before the contracts had been fully executed disputes arose between the parties, one alleging that the other was committing a breach of the contract. the parties then entered into three fresh contracts on successive dates purporting to settle these disputes on the terms therein contained. by the first two of these settlement contracts the respondents agreed to pay to the appellant certain moneys in settlement respectively of the disputes relating to the first two original contracts. by the last of these settlement contracts the respondents agreed to pay to the appellant in specified instalments certain moneys in settlement of the disputes relating to the third original contract as also the moneys which had then become due on the first two settlement contracts and had not been paid and further undertook to hypothecate certain properties to secure the due repayment of these moneys. the third settlement contract provided: "the contracts stand finally concluded in terms of the settlement and no party will have any further or other claim against the other." the respondents paid some of the instalments but failed to pay the rest. they also failed to create the hypothecation. the appellant then referred its claims for breach of the three original contracts to arbitration under the arbitration clauses contained in them. on this reference an award for a total sum of rs. 1,i6,446-ii-5 was made against the respondents in respect of the appellant's claim on the first and the third original contracts, the claim in respect of the second original contract having been abandoned by the appellant, and this award was filed in the high court at calcutta. the respondents applied to the high court for a declaration that the arbitration clauses in the original contracts had ceased to have any effect and the contracts stood finally determined as a result of the settlement contracts and for an order setting aside the award as void and nullity. the high court held that the first original contract had not been abrogated by the settlement in respect of it, but the third original contract and the arbitration clause contained in it had ceased to exist as a result of the last settlement and, the arbitrator had no jurisdiction to arbitrate under that arbitration clause. it further held that as the award was a single and inseverable award the whole of it was null and void. in this view the high court set aside the award. held (per imam and subba rao, jj., sarkar j., dissenting), that the third settlement, properly construed, left no manner of doubt that it was for valid consideration and represented the common intention of the parties to substitute it for the earlier contracts between them. it gave rise to a new cause of action by obliterating the earlier contracts and the parties could look to it alone for the enforcement of their claims. there could, therefore, be no question that the arbitration clause which, whether a substantive or a collateral term, was nevertheless an integral part of the said contracts, must be deemed to exist along with them as a result of the said settlement. hirji mulji v. cheong yue steamship company, [1926] a.c. 502 and heyman v. darwin ltd., [1942] 1 all e.r. 337, referred to. tolaram nathmull v. birla jute manufacturing co. ltd., i.l.r. (1948) 2 cal. 171, distinguished. held, further, that it was well settled that the parties to an original contract could by mutual agreement enter into a new contract in substitution of the old one. payana reena saminathan v. pana lana palaniappa, [19i4] a.c. 618: norris v. baron and company, [1918] a.c. i and british russian gazette and trade outlook ltd. v. associated newspaper, limited, [1933] 2 k.b. 616, referred to. per sarkar, j.-the award was valid and could not be set aside as the third settlement neither expressly put an end to the arbitration clause nor, considered as an accord and satisfaction, did it have that effect. an accord and satisfaction is only a method of discharge of a contract. it does not annihilate the contract but only makes the obligation arising from it unenforceable. an arbitration clause stands apart from the rest of the contract in which it is contained. it does not impose on the one party an obligation in favour of the other; it only embodies an agreement that if any dispute arises with regard to any obligation which one party has undertaken to the other, such dispute shall be settled by arbitration. an accord and satisfaction, which is concerned with the obligations arising from the contract, does not affect an arbitration clause contained in it. heyman v. darwins [1942] a.c. 356 and british russian gazette and trade outlook ltd. v. associated newspapers ltd. [1933] 2 k.b. 616, referred to. the settlement of february 22, 1949, did not, in the circum- stances of the case, amount to an accord and satisfaction.order1. the special leave petitions arc allowed to be withdrawn since the petitioners would be making a fresh application for bail to the hish court, in view of the fact that the high court proceeded on erroneous basis that the order granting or refusing bail must be a speaking order the petitioners are given time to surrender by 4 p.m on 24 10 86 unless in the meanwhille, the high court in the exercise of its discretion, thinks it fit to grant bail or extend the time for surrender

Judgment:
ORDER

1. The Special Leave Petitions arc allowed to be withdrawn since the petitioners would be making a fresh application for bail to the Hish Court, in view of the fact that the High Court proceeded on erroneous basis that the order granting or refusing bail must be a speaking order The petitioners are given time to surrender by 4 p.m on 24 10 86 unless in the meanwhille, the High Court in the exercise of its discretion, thinks it fit to grant bail or extend the time for surrender