J. K. Agarwala v. Union Of India — 1980 DIGILAW 155 (PAT)

Judgment 1. In both these appeals under clause (6) of Sec. 39 of the Arbitration Act, 1940 , identical question of law is involved. The facts are also more or less similar. The parties are the same. Hence this common judgment, 2. Both these appeals are directed against the order of the Court below passing decrees in terms of two separate Awards made by two different arbitrators. The two appeals arise out of two different orders passed on the same date, viz., 7th August, 1973, M. A. No. 276 arises out of Miscellaneous Case No. 10 of 1969, whereas M. A. No. 277 arises out of Misc. Case No. 25 of 1969. Both the miscellaneous cases were initiated by proceedings u/s. 14(1) of the Arbitration Act, 1940 (hereinafter to be referred to as the Act), and Awards of the two arbitrators were filed in the two cases in the Court below. The respondent Union of India in both the cases, made a prayer in the Court below for passing decrees on the basis of the two Awards. The appellant, who is the same in both the appeals, filed objection resisting the claim of the respondent to have a decree passed in terms of the Awards. 3. The only question which has been raised in these appeals is as to whether, on the facts and in the circumstances of the case, there was any existing arbitration agreement between the parties on the basis of which the arbitrators in the two cases could assume jurisdiction and give an Award. The relevant dates relating to the two cases may first be set out for appreciating the question that has been raised. On 19th June, 1965, a contract was entered into between the parties bearing No. CWE/KAT/6 of 1965-66 containing an arbitration clause under which the appellant was given a contract for constructing certain buildings at Katihar. The period stipulated for the completion of the works was 4 months from the date of the contract. The appellant failed to perform his part of the contract within the period of 4 months. The period stipulated for the completion of the works was 4 months from the date of the contract. The appellant failed to perform his part of the contract within the period of 4 months. On 2nd December, 1965, a letter was written on behalf of the respondent, the relevant portion of which runs as follows:- "Please therefore take notice that under the powers vested in me in terms of condition 54 of General Conditions of Contract, IAFW-2249 forming part of your contract, I, as Accepting Officer, hereby cancel the contract without prejudice to any other right and remedy which shall have accrued or shall accrue hereafter to the Government. The work will now be got completed through another agency at your risk and cost............" On receipt of this letter, the appellant wrote to the respondent by a letter dated 7th January, 1966, not to cancel the contract. It will be useful to reproduce the relevant portion of the letter dated 7th January, 1966, written by the appellant: "In view of above it may be appreciated that I have already incurred heavy expenditure for procurement of above stores and if at this stage my contract is cancelled I shall be put to undue hardship and will have to incur a great loss. Thus I am requesting you not to cancel the contract and allow me to start the work. I assure you that I shall complete the work within three months from the date I am allowed to start the work." This letter of the 7th January, 1966, was followed by another letter dated 22nd January, 1966, written by the appellant to the respondent, the relevant portion of which reads thus:- "In continuation to my letter No. JK/ 11 of 66 dated 7 January, 1966, I beg to state that I have collected some more materials than what (?) stated in my above quoted letter and I assure you that I will be able to complete the job within 3 months. I will execute the work under full penalty and as per terms and conditions of IAFW-2249. I will execute the work under full penalty and as per terms and conditions of IAFW-2249. In view of the above it is requested to please review the case and give me a chance to execute the work." After these repeated requests made by the appellant for not cancelling the original contract but for extending the period of work by three months from the date that he was allowed to resume the work, the respondent ultimately wrote back to the appellant on 7-2-1966 saying- "In view of the specific undertaking now given by you in your above quoted letters that you would complete the work mentioned above within 3 months and also of your expressed willingness to execute this work under the full penalty or compensation already accrued to the Government on account of your failure to complete the work within the original date of completion......... you are hereby authorised to resume work under this contract from the date of receipt of this letter. This HQrs letter No. 8251/41/E8 dated 2 December. 1965 is also hereby cancelled." The only difference between the pieces of correspondence in the two appeals is that in M.A. No. 276 the contract was first repudiated on 1-12-1965, whereas the date of initial cancellation of the contract by the respondent in M. A. No. 277 was 2nd December, 1965, 4 The net result of these pieces at correspondence is, in my view, only this. By the letter dated 1-12-1965 in one case and by the letter dated 2-12-1965 in another, the original contract was cancelled by the respondent unilaterally in both the cases. Two letters were written by the appellant, one dated 7-1-1966 and the other dated 22-1-1966, by which the appellant requested that the contract should not be cancelled on sympathetic grounds and all that he requested for was that three months time should be given to him for completing his part of the contract. In both the cases, by letter dated 7th February, 1966, the respondent at the request of the appellant cancelled the letter of cancellation itself, thereby reviving the original contract with only this modification that the time for execution of the contract on the part of the appellant was extended by three months from the date of resumption by him in each of the cases. 5. 5. As I have already indicated earlier, the only question which has been raised in these two appeals by Shri Ashwini Kumar Roy, learned counsel for the appellant, is that when the original contract was once repudiated or cancelled unilaterally by the respondent, in one case on 1-12-1965 and in the other on 2-12-1965, whether the cancellation of this revocation of contract by letter dated 7th February, 1966, did not revive the arbitration agreement contained in the original contract, It is worthwhile in passing to mention that before the arbitrators both the respondent as well as the appellant made claims and counter-claims arising out of the contract as they originally stood, and in the Award out of which M. A. 276 arises a sum of Rs. 500.00 was even awarded to the appellant out of his counter-claim of Rs. 40,310/-, and in the Award out of which M. A. 277 arises no sum was awarded to the appellant although he had put forth a counter-claim of Rupees 41,475/-. In the former Award a sum of Rs. 19,000.00 has been awarded in favour of the respondent whereas in the Award in the latter case a sum of Rs. 19,223.93 P. has been awarded to the respondent. In the view that I have taken that the original contract as entered into between the parties remained in tact by revocation of the cancellation order with only the time factor in the contract being substituted, it cannot be said that the arbitration agreement became non est. 6. Shri Ashwini Kumar Roy, learned counsel for the appellant, invited my attention to a number of decisions, to wit, AIR 1959 SC 1362 (The Union of India V/s. Kishorilal Gupta and Bros.); AIR 1974 SC 158 (Damodar Valley Corporation V/s. K.K. Kar) and AIR 1974 Delhi 223 (Dadri Cement Co. V/s. Bird and Co. Pvt. Ltd.). As I shall presently show, these decisions have not been rightly pressed into service in support of the appellants case. All that has been said by the Supreme Court in the case of Kishorilal (supra) is that the arbitration clause is a collateral term of contract as distinguishable from its substantive terms, but none-the-less it is an integral part of it. All that has been said by the Supreme Court in the case of Kishorilal (supra) is that the arbitration clause is a collateral term of contract as distinguishable from its substantive terms, but none-the-less it is an integral part of it. Though the contract is validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it solely governing their rights and liabilities thereunder. In the instant case, there is no substitution of a new contract as a whole but merely a modification in the time clause for the execution of the contract which had not the effect of obliterating the arbitration clause in the original contract. If it were a case of substituting the old contract by a new contract wholly and treating the original contract as if it never existed, this decision could have come to the aid of the appellant but, on the facts as I have already narrated above, the original arbitration agreement cannot be said to have been superseded by any fresh contract so as to make it non-existent in the eye of law. In the case of Damodar Valley Corporation (supra), the Supreme Court held that the question whether the termination was valid or not and whether damage was recoverable for such termination did not affect the arbitration clause or the right of a party to invoke it for the appointment of an arbitrator. The repudiation by one party does not terminate the contract. As the contract subsists for determination of the rights and obligations of the parties, the arbitration clause also survives. This decision is rather contrary to what is contended for by Shri Roy. So also the Delhi decision relied upon by learned counsel for the appellant is of no avail in the instant appeal. That was also a case where the parties had entered into a new arrangement intended to substitute the original contract by a substituted arrangement consisting of the agreement, the deed of guarantee, the deed of pledge and the irrevocable power of attorney. That is not the case here. 7. That was also a case where the parties had entered into a new arrangement intended to substitute the original contract by a substituted arrangement consisting of the agreement, the deed of guarantee, the deed of pledge and the irrevocable power of attorney. That is not the case here. 7. It is well settled that arbitration clause is quite distinct from other clauses set out in the contract and an arbitration agreement cannot be amended by consent of the parties and an amendment of an arbitration agreement can only be said to set out a fresh agreement to refer the dispute to arbitration. Reference in this connection may be made to the cases of Haymen v, Darwins Ltd., (1942 AC 356), Smurthwaite V/s. Richardson, (1863) 15 CBNS 463) and Greig V/s. Talbot, (1823) 2 B and C 179). 8. I, therefore, do not find any merit in the point raised by learned counsel for the appellant in support of the two cases. Both the appeals are accordingly dismissed but in the circumstances of the case I shall make no order as to costs.