Arbitration and Conciliation Act, 1996 – s.8 – Power to refer parties to arbitration where there is an arbitration agreement – RPIL appointed the appellant company as its clearing and forwarding agent for period of 3 years by agreement dated 01.05.1997 – The said agreement contained arbitration clause – RPIL informed appellant that it was getting merged with respondent Company-NPIL and therefore, the subsisting agreement between them stood terminated – Appellant filed suit contending that agreement with RPIL was valid, subsisting, legal and continuing – In the said suit, parties compromised the matter – In terms of the said compromise, respondent made payment of Rs. 23,50,000/- to the appellant and also as a part of compensation package appointed the appellant as its stockist for their products – Again, dispute arose between the parties – Respondent filed criminal complaint u/ss.420, 406, 409 and 403 r/w. 34 IPC against the appellant – Appellant filed money suit against the respondent claiming compensation for rupees twenty crores alleging financial loss and loss of goodwill – Respondent filed application u/s.8 of the Act for referring the parties to arbitration in money suit, relying upon the Arbitration clause in agreement dated 01.05.1997 – Trial Court dismissed the application u/s. 8 of the Act – In revision, High Court referred the dispute to arbitration – On appeal, held: On perusal of the compromise deed, it is clear that the parties have substituted a new agreement by way of compromise – When parties have settled their differences and compromised the matter, in the dispute subsequently arising between the parties, arbitration clause in the prior agreement cannot be invoked – Since, the agreement dated 01.05.1997 and compromise are different, the arbitration clause in agreement dated 01.05.1997 cannot be read into the terms of the compromise as per which the parties have entered into a new arrangement – Further, since respondent has also challenged the compromise decree alleging it was obtained by inducement and fraud, in view of the same, the parties cannot be referred to arbitration – The High Court erred in proceeding under the footing that dispute falls within the ambit of agreement dated 01.05.1997 – Thus, impugned judgment of the High Court set aside.
Allowing the appeal, the Court
HELD: 1. From a reading of the terms of the compromise deed dated 11.12.2001, it is clear that the parties have substituted a new agreement by way of compromise. As per the agreement dated 01.05.1997, the appellant was the clearing and forwarding agent for the entire north-eastern region; whereas under the terms of the compromise, the appellant has been appointed as stockist of the company only for Guwahati and Agartala and not as clearing and forwarding agent for north-eastern region. The clauses in the compromise memo also clearly state that the appellant handed over all the stocks of goods to the respondentCompany. The appellant had also handed over the entire documents in their possession both used and unused as well as sales tax documents, road permit, ‘C’ forms from stockists and other documents. When the parties have settled their differences and compromised the matter, in the dispute subsequently arising between the parties, arbitration clause in the prior agreement cannot be invoked. Since the agreement dated 01.05.1997 (agreement for appointing the appellant as clearing and forwarding agent) and the compromise (appointing the appellant as stockist) are different, the arbitration clause in the agreement dated 01.05.1997 cannot be read into the terms of the compromise as per which the parties have entered into a new arrangement and this has not been kept in view by the High Court. The High Court erred in holding that the existence of the arbitration clause has been admitted by the appellant-Company and it is for the arbitrator to decide under Section 16 of the Arbitration and Conciliation Act, 1996 whether the arbitration clause applied to the subject matter of the suit or not. [Para 13] [369-E-H; 370-A-B]
2. The parties can be referred to arbitration in an application filed under Section 8 of the Act only if the subject matter of the action before the judicial authority relates to dispute which is the subject matter of the arbitration agreement. An application under Section 8 of the Act can be made only if the subject matter of the suit is also the same as the subject matter of arbitration. In other words, only those disputes which are specifically agreed to be resolved through arbitration can be the subject matter of arbitration; and upon satisfaction of the same, the Court can refer the parties to arbitration. [Para 14] [370-B, E]
3. In the present case, the compromise decree does not contain any arbitration clause. The subsequent money suit No.73 of 2003 has been filed by the appellant due to failure of the respondent Company to appoint the appellant as stockist of their products in Guwahati and Agartala and the same has caused substantial loss to the appellant. In the said suit, the appellant also alleged that due to illegal act of the respondent, the appellant has to face the criminal trial unnecessarily due to which the appellant has sustained heavy loss both financially and mentally and also it resulted in loss of goodwill and reputation of the appellant and therefore, the appellant claimed compensation of rupees twenty crores from the respondent. The suit claim is not covered by the arbitration. [Para 16] [371-B-D]
4. As discussed earlier, by the agreement dated 01.05.1997, the appellant was appointed as clearing and forwarding agent of RPIL for the entire north-eastern region; whereas under the compromise memo, the appellant has been appointed as stockist of the respondent Company at Guwahati and Agartala which is entirely a different appointment though, as part of compensation package. Clause 17 of the agreement dated 01.05.1997 cannot be invoked regarding the agreement of the parties to appoint the appellant as stockist for Guwahati and Agartala pursuant to the compromise. [Para 20] [373-B]
5. It is also pertinent to note that the respondent has challenged the compromise decree alleging that it has been obtained by inducement and fraud. In view of the allegations of fraud levelled by the respondent that the compromise decree is vitiated by fraud, the parties cannot be referred to arbitration. Observing that where there are allegations of fraud which are so complicated that it becomes absolutely essential that such complex issues can be decided only by the Civil Court on apprehension of the evidence adduced by the parties. [Para 21] [373-C-D]
6. As discussed earlier, there is no arbitration clause relating to the dispute between the parties in not appointing the appellant as stockist and the claim of compensation towards loss of goodwill and reputation. The High Court erred in proceeding under the footing that the dispute falls within the ambit of the agreement dated 01.05.1997 and that the appellant-plaintiff admits the existence of the arbitration clause and the impugned judgment is liable to be set aside. [Para 22] [374-B-C]
Nathani Steels Ltd. v. Associated Constructions (1995)
3 Suppl. SCC 324 ; Konkan Railway Corporation Ltd. and Another v. Rani Construction Pvt. Ltd. (2002) 2 SCC 388 : [2002] 1 SCR 728; Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Another (2003) 5 SCC 531: [2003] 3 SCR 558 ; Deccan Merchants
Cooperative Bank Ltd. v. Dalichand Jugraj Jain and Others AIR 1969 SC 1320 : [1969] 1 SCR 887 ; World Sport Group (Mauritius) Limited v. MSM Satellite (Singapore) PTE Limited (2014) 11 SCC 639 : [2014] 1 SCR 796 ; Swiss Timing v. Commonwealth Games 2010 (2014) 6 SCC 677 : [2014] 6 SCR 514 – referred to. Yogi Agarwal v. Inspiration Clothes & U and Others (2009) 1 SCC 372 : [2008] 16 SCR 895 ;
A. Ayyasamy v. A. Paramasivam and Others (2016) 10 SCC 386 : [2016] 11 SCR 521 – relied on.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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