Arbitration and Conciliation Act, 1996 - Section 8 read with Section 5--Suit for permanent injunction restraining infringement of registered trade mark, infringement of copyright, passing off of damages, rendition of accounts of profits and also for other consequential reliefs against appellant-defendant--Appellant-defendant preferred application under Section 8 read with Section 5 for rejecting plaint and referring dispute to arbitration and also for other consequential reliefs--Respondent-plaintiff raised objection to said application stating that suit perfectly maintainable--Agreement containing arbitration clause superseded/novated by later agreement--Survival of arbitration clause sought by appellant--Subsequent agreement titled "Exit paper" entered into between parties by mutual consent does not contain any arbitration clause--Whether arbitration clause can be invoked in case of dispute under superseded contract? Held, "no"--Parties have entered into fresh contract contained in "Exit paper" does not indicate any disputes arising under original contract or about settlement thereof--High Court rightly rejected application of appellant-defendant holding that earlier agreements which contained arbitration clause stood superseded by new contract arrived at between parties by mutual consent--In view of factual and legal position, no error in view taken by High Court.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6997 OF 2013
(Arising out of SLP(C) No.33459 of 2012)
M/s Young Achievers ..... Appellant
Versus
IMS Learning Resources Pvt. Ltd. ....Respondent
K.S. Radhakrishnan, J.
Citation;2013(5)ALLMR931,(2013)10SCC535
Leave granted.
2. IMS Learning Resources Private Limited, the respondent
herein, filed CS (OS) No.2316 of 2011 in the High Court of Delhi
at New Delhi for a permanent injunction restraining
infringement of a registered trademark, infringement of
copyright, passing off of damages, rendition of accounts of
profits and also for other consequential reliefs against the
appellant herein. Appellant preferred IA No.18 of 2012 under
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Section 8, read with Section 5 -of the Arbitration and
Conciliation Act, 1996 for rejecting the plaint and referring the
dispute to arbitration and also for other consequential reliefs.
Respondent-plaintiff raised objection to the said application
stating that the suit is perfectly maintainable. The High Court
rejected the application vide its order dated 16.04.2012 holding
that that earlier agreements dated 01.04.2007 and 01.04.2010,
which contained arbitration clause stood superseded by a new
contract dated 01.02.2011 arrived at between the parties by
mutual consent. Defendant aggrieved by the said order filed
FAO (OS) No.290 of 2012 before the Division Bench of the Delhi
High Court, which confirmed the order of the learned Single
Judge and dismissed the appeal against which this appeal has
been preferred by special leave.
3. Mr. Manu T. Ramachandran, learned counsel appearing for
the appellant raised the following question of law:
“a) Whether an arbitration clause is a collateral term
in the contract, which relates to resolution of
disputes, and not performance and even if the
performance of the contract comes to an end on
account of repudiation, frustration of breach of
contract, the arbitration agreement would survive for
the purpose of resolution of disputes arising under or
in connection with the contract?
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b) Whether the impugned judgment is contrary to
the law settled by this Hon’ble Court in Branch -
Manager, /s Magma Leasing & Finance Limited
and another v. Potluri Madhavilata and another
(2009) 10 SCC 103 and National Agricultural
Cooperative Marketing Federation India Ltd. V.
Gains Trading Ltd. (2007) 5 SCC 692?
c) Whether the Hon’ble High Court is correct in
holding that the law settled by this Hon’ble Court in
The Branch Manager, M/s Magma Leasing &
Finance Limited and another v. Potluri
Madhavilata and another (2009) 10 SCC 103 and
National Agricultural Cooperative Marketing
Federation India Ltd. V. Gains Trading Ltd. (2007)
5 SCC 692 is applicable in case of unilateral
termination of agreement by one of the parties and
not in mutual termination for accord and satisfaction
of the earlier contract?”
4. Learned counsel also submitted that arbitration clause is a
collateral term in the contract, which relates to resolution of
disputes and not performance and even if the performance of
the contract comes to an end on account of repudiation,
frustration of breach of contract, the arbitration agreement
would survive for the purpose of resolution of disputes arising
under or in connection with the contract. Learned counsel also
submitted that the court has erroneously held that the case of
the appellant is not a case involving the assertion by the
respondent of accord and satisfaction in respect of earlier
contracts, especially when the sole purpose of the Exit paper
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dated 01.02.2011 was to put an end to the contractual
relationship between them under the -aforesaid earlier
contracts. Apart from the decisions referred hereinbefore,
reliance was also placed on the judgment of the U.S. Court in
Nolde Bros., Inc. v. Bakery Workers 430 US 243.
5. Mr. Sai Krishna Rajgopal, learned counsel appearing for the
respondent placing reliance on the detailed counter affidavit
filed on behalf of the respondent submitted that the arbitration
clause in the agreements dated 01.04.2007 and 01.04.2010
cannot be invoked since both the above-mentioned agreements
were superseded and abrogated by the new agreement dated
01.02.2011. Learned counsel also submitted that in the new
agreement it was mutually decided by the parties that any
violation of the respondent’s trade mark IMS would entitle the
respondent to take legal recourse against the appellant.
Reference was made to clause 4 of the penultimate paragraph
of the new agreement dated 01.02.2011. Learned counsel also
submitted that Suit No. CS (OS) 2316 of 2011 was based on
prior trade mark rights and not on the agreements dated
01.04.2007 and 01.04.2010. Further it was also pointed out
that the new agreement dated 01.02.2011 records the mutual
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agreement between the parties that the appellant shall not be
eligible to use -the trade mark IMS in any form and any breach
thereof entitles respondent to seek legal recourse on violation
of trade mark IMS.
6. We are of the view that survival of the arbitration clause,
as sought by the appellant in the agreements dated 01.04.2007
and 01.04.2010 has to be seen in the light of the terms and
conditions of the new agreement dated 01.02.2011. An
arbitration clause in an agreement cannot survive if the
agreement containing arbitration clause has been
superseded/novated by a later agreement. The agreement
dated 01.04.2010 contained the following arbitration clause:
“20. Arbitration
All disputes and questions whatsoever which may
arise, either during the substance of this agreement
or afterwards, between the parties shall be referred
to the arbitration of trhe managing director of IMS
Learning Resources Pvt. Ltd. Or his nominee and
such arbitration shall be in the English language at
Mumbai. The arbitration shall be governed by the
provisions of the Arbitration and Conciliation Act,
1996 or any other statutory modification or reenactment
thereof for the time being in force and
award or awards of such arbitrator shall be binding
on all the parties to the said dispute.”
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7. We have now to examine terms of the subsequent
agreement titled “Exit paper” dated 01.02.2011. It is the
common case of the parties that the Exit paper/agreement
entered into -between the parties does not contain any
arbitration clause. It is useful to extract the relevant portion of
the Exit paper, which is as follow:
“With reference to your mail/letter dated 1st
February, 2011 on closing the center, from the
aforesaid date with mutual consent we have agreed
on the following:
“1. Enrolled students
All enrolled students of IMS with you will be serviced
by you with respect to their classes, workshops and
conduct of test series, GD/PI and any other servicing
required as per the product manual.
2. Premises
IMS will reserve the first right of utilization to occupy
the premises. In an eventuality of IMS exercising the
right to use the premises, then IMS will reimburse the
monthly rent for the corresponding months before
changing the rental agreement onto IMS name.
3. Marketing
From the above-mentioned date you are not eligible
to do any marketing and promotional activities in the
name of IMS.
4. Brand
“From the above-mentioned date you are not eligible
to use IMS brand in any form.
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5. Monthly claims
The partner abides to deposit all the course fees
collected for any of IMS programs till now as per the
deposit policy of IMS. All monthly claims will be
settled till 31st January, 2011 and the claims would be
-
released after the date of termination of the partner
agreement.
6. Security Deposit
The security deposit amount will be refunded back to
you after the completion of servicing of all enrolled
IMS students. In case of any due on partner to the
company (unsettled fees, loan or advance for centre
activities etc.), same amount will be deducted from
the security deposit.
7. Non Compete Clause
The partner has averred that neither he, nor his
family members are directly or indirectly interested
in any business in direct competition with that of IMS
and the partner agrees and undertakes to ensure
that neither he nor his family members shall be
involved in or connected to any business in direct
competition with that of IMS at any time during the
currency of this agreement and for a further period of
six months therafter.
8. Full and final settlement
I/We accept all the above-mentioned points and
confirm that upon receipt of the sum stated
hereinafter in full and final settlement of all my/our
claims, neither me/we nor any person claiming by or
through me/us shall have any further claims against
IMS whatsoever.
Any violation of points 1,3,4,5 & 7 from the partner’s
end will attract legal course of action and penalties
from IMS ranging from forfeiture of the security
deposit & pending claims.
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I hereby accept above terms and conditions.”
8. Exit paper would clearly indicate that it is a mutually
agreed document containing comprehensive terms and
conditions which -admittedly does not contain an arbitration
clause. We are of the view that the High Court is right in taking
the view that in the case on hand, is not a case involving
assertion by the respondent of accord a satisfaction in respect
of the earlier contracts dated 01.04.2007 and 01.04.2010. If
that be so, it could have referred to arbitrator in terms of those
two agreements going by the dictum in Union of India v.
Kishorilal Gupta and Bros. AIR 1959 SC 1362. This Court in
Kishorilal Gupta’s case (supra) examined the question
whether an arbitration clause can be invoked in the case of a
dispute under a superseded contract. The principle laid down is
that if the contract is superseded by another, the arbitration
clause, being a component part of the earlier contract, falls
with it. But where the dispute is whether such contract is void
ab intio, the arbitration clause cannot operate on those
disputes, for its operative force depends upon the existence of
the contract and its validity. The various other observations
were made by this Court in the above-mentioned judgment in
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respect of “settlement of disputes arising under the original
contract, including the dispute as to the breach of the contract
and its consequences”. Principle laid down by the House of
Lords in Heyman v. Darwins Limited 1942 (1) All. E.R. -337
was also relied on by this Court for its conclusion. The
Collective bargaining principle laid down by the US Supreme
Court in Nolde Bros. case (supra) would not apply to the facts
of the present case.
9. We may indicate that so far as the present case is
concerned, parties have entered into a fresh contract contained
in the Exit paper which does not even indicate any disputes
arising under the original contract or about the settlement
thereof, it is nothing but a pure and simple novation of the
original contract by mutual consent. Above being the factual
and legal position, we find no error in the view taken by the
High Court. The appeal, therefore, lacks merit and stands
dismissed, with no order as to costs.
……………………..…J.
(K.S. Radhakrishnan)
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………………………….J.
(A.K. Sikri)
New Delhi,
August 22, 2013
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