Full Judgment Text
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PETITIONER:
R.N. KUMAR
Vs.
RESPONDENT:
R.K. SORAL
DATE OF JUDGMENT13/04/1988
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
RANGNATHAN, S.
CITATION:
1988 AIR 1205 1988 SCR (3) 527
1988 SCC (2) 508 JT 1988 (2) 204
1988 SCALE (1)788
ACT:
Arbitration Act, 1940. Section 20-Arbitration
agreement-Duty of Court to direct filing of-Whether
obligatory.
Indian Contract Act, 1872. Section 10-Contract-Whether
there is complete novation of a contract in a particular
case-Held, it depends on facts and circumstances of the
case.
HEADNOTE:
An agreement for distribution of the film "Savere Wali
Gadi" was entered into on 19th March, 1983 between the
petitioner as the distributor and the respondent as the
producer. The agreement contained an arbitration clause. A
sum of Rs.3.40 lakhs paid to the respondent and acknowledged
by him earlier to the agreement was deemed to have been
adjusted against the first instalment. In or about 1984
about Rs. 3 lakhs were further advanced to the respondent.
As per the agreement the respondent was to hand over the
prints of the film by 10th August, 1983, but it was not
done.
On 11th March, 1985 a further agreement was entered
into between the parties whereby the respondent agreed to
pay a total sum of Rs.6.50 lakhs to the petitioner for
giving up his distribution rights in the first agreement.
The first agreement was accordingly irrevocably cancelled
and superseded by the subsequent agreement.
The respondent took up the matter with Motion Pictures
Association to de-register the film in the name of the
petitioner. The Motion Picture Association stated that de-
registration would be allowed only when the respondent pays
Rs.6.50 lakhs to the petitioner or deposits the amount with
the Association. The petitioner’s claim before the
Association was that the respondent committed breach of the
subsequent agreement.
A civil suit was filed in the High Court for recovery
of Rs.6.50 lakhs with interest, by the petitioner against
the respondent. Later, an application under section 20 of
the Arbitration Act was made. The Single Judge held that the
first agreement had revived and directed the
528
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filing of the agreement. On appeal, the Division Bench
confirmed the order. This special leave petition is against
the order of the Division Bench of the High Court.
Dismissing the special leave petition, this Court,
^
HELD: 1.1 Whether in any particular case there was a
complete novation of a contract in the sense that the new
contract replaced or substituted the old contract, could
depend upon the facts and circumstances of the case.
[531B-C]
1.2 When the agreement of 1985 was entered into, it was
the intention of the parties that the earlier agreement
would be superseded and a new arrangement was sought to be
brought about whereby the rights of the petitioner under the
earlier agreement were to be yielded for a sum of Rs.6.50
lakhs. This amount of Rs.6.50 lakhs was never paid by the
respondent, and it was the case of the petitioner that the
earlier agreement stood cancelled. The petitioner who
claimed rights under the earlier agreement, sought the
continuation of his registration of distributorship. This
registration could continue only by virtue of the earlier
agreement which had revived. [530G-HG; 531B]
Babulal Marwari and others v. Tulsi Singh and others,
A.I.R. 1940 Patna 121, refered to.
2.1 Sub-section (1) of Section 20 of the Arbitration
Act gives an option to the parties by the use of the
expression ’may’, but the other sub-sections, if the
conditions are fulfilled, make it obligatory for the Court
to direct filing of an arbitration agreement. [532G]
2.2 Indubitably, there was an arbitration clause in the
agreement. The parties have applied for reference. The
Division Bench has reiterated that the original agreement
dated 19th March, 1983 which ceased to have effect and came
to an end by the agreement dated 11th March, 1985 stood
revived by virtue of the two letters dated 15th July, 1985
and 11th September, 1985 by the appellant. It is clear that
the petitioner in the above letters fell back on the
original contract of 19th March, 1983. This was accepted by
the respondent. Hence there was at all relevant times a
valid and binding contract between the parties. That
contract contained an arbitration clause. There was nothing
to disentitle the parties to have their rights adjudicated
in terms of an arbitration clause. The civil suit filed does
not by itself preclude filing of proper arbitration
agreement between the parties. There being no impediment
529
in filing the arbitration agreement which was subsisting at
the relevant time when the High Court directed that the
arbitration agreement be filed, that discretion should not
be interfered with. [532G-H; 531F-G]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) No. 4221 of 1988.
From the Judgment and Order dated 3.12.1987 of the
Delhi High Court in FAO (OS) No. 120 of 1987.
Mukul Rohtagi and Miss Bina Gupta for the petitioner.
Soli J. Sorabji, D.K. Sorab, P. Jain, Sushil Kr. Jain
and Sudhanshu Atreya for the Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This is an application for
leave to appeal under Article 136 of the Constitution from
the order of the Division Bench of the Delhi High Court
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affirming the order of the learned single Judge of that High
Court. It appears that on 19th March, 1983, there was an
agreement for distribution of the film "Savere Wali Gadi"
entered into between the parties, the petitioner as the
distributor and the respondent as the producer. The
agreement contained an arbitration clause. It is stated that
a sum of Rs.3 lakhs was paid by the petitioner and
acknowledged by the respondent earlier to the execution of
the said agreement and therefore, the first instalment
payable under the agreement to the respondent of Rs.3.40
lakhs was deemed to be adjusted. Under the aforesaid
distribution agreement by 30th August, 1983, the respondent
was to hand over the prints of the film by this date which
he never did. In or about 1984 certain other moneys of about
Rs.3 lakhs were further advanced to the respondent. On 11th
March, 1985 a further agreement was entered into between the
parties whereby the respondent agreed to pay a total amount
of Rs.6.50 lakhs to the petitioner and the petitioner to
give up his distribution rights in the first agreement of
19th March, 1983. The first agreement was accordingly
irrevocably cancelled and superseded by this subsequent
agreement. On or about 2nd June, 1985 respondent wrote to
the Motion Pictures Association, Delhi to de-register the
film in the name of the petitioner in view of the petitioner
having given up the distribution rights by virtue of
Annexure P/2 dated 11.3.85 where under the petitioner had
agreed to receive Rs.6.50 lakhs and finished the deal within
six months of 11.3.85. It is the case of the petitioner.
530
however, that the sum of Rs.6.50 lakhs was never paid by the
respondent to the petitioner. On 3rd July, 1985 the Motion
Picture Association wrote to the respondent acknowledging
receipt of respondent’s letter dated 22nd June 1985 whereby
he had asked for de-registration of the film in view of
Annexure P/2. The Motion Picture Association stated that de-
registration would be allowed only when the respondent pays
Rs.6.50 lakhs to the petitioner or deposits the amount with
the Motion Picture Association. It is stated that between
July 1985 and September 1985, the petitioner wrote two
letters to the Motion Picture Association stating that the
respondent had committed a breach of the subsequent
agreement dated 11th March, 1985 executed between the
parties whereunder the respondent was to make payment of
Rs.6.50 lakhs and it was clear that the respondent had no
desire to make payment and the respondent wrongly wanted to
deal with the film and sell the distribution rights to
somebody else thereby enjoying benefit of the same and also
to deprive the petitioner of the amount of Rs.6.50 lakhs.
Civil suit was filed in February, 1986 for recovery of
Rs.6.50 lakhs with interest by the petitioner against the
respondent. The written statement was submitted. An
application was made under section 20 in June, 1986. This
application had been made later than the institution of the
civil suit in the same High Court. The learned single Judge
directed that the arbitration agreement to be filed and
reference was directed according to the agreement. There was
an order passed by the learned single Judge to that effect.
There was an appeal to the Division Bench of the High Court
and the Division Bench confirmed the order of the learned
single Judge. Hence this petition.
It appears that there were two agreements one dated
11th March, 1985 and the other dated 19th March, 1983. The
learned Judge found that there could be little doubt that
the intention of the parties when agreement dated 11th
March, 1985 was entered into was that the earlier contract
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dated 19th March, 1983 should be superseded. But it appears
that the agreement fell through because when the agreement
of 1985 was entered into, it was the intention of the
parties to the earlier agreement would be superseded and a
new arrangement was sought to be brought about whereby the
rights of the petitioner herein under agreement dated 19th
March, 1983 were to be yielded for a sum of Rs.6.50 lakhs.
This amount of Rs.6.50 lakhs was never paid by the
respondent. It was the case of the petitioner herein that
thereby the agreement of 11th March, 1985 stood cancelled.
The petitioner who claimed rights under the earlier
agreement dated 19th March, 1983 and sought the continuation
of his registration of distributorship. The learned single
Judge found that it was at the instance of petitioner
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herein that respondent No. 2 confirmed vide its letter dated
19th September, 1985 that as the petitioner, before the
learned single Judge, had failed to pay Rs.6,50,000 the
aforesaid picture stood registered in the name of the
petitioner herein. This registration could continue only by
virtue of the earlier agreement dated March 19, 1983. The
learned single Judge further found that the agreement dated
11th March, 1985 had come to an end and the earlier
agreement dated 19th March, 1983 had revived. In this
connection reference may be made to the observations of the
Patna High Court in Babulal Marwari and others v. Tulsi
Singh and others, A.I.R. 1940 Patna 121. Whether in any
particular case there was a complete novation of a contract
in the sense that the new contract replaced or substituted
the old contract, could depend upon the facts and
circumstances of the case.
In that view of the matter, the single Judge of the
High Court, in our opinion, rightly directed that the first
agreement be filed.
The Division Bench of the High Court pointed out after
referring to the letter dated 19/21st September, 1985 the
Motion Pictures Association confirmed that in view of the
failure of the producer to comply with his earlier letter
regarding payment of Rs. 6.50 lakhs plus interest, the
picture in question stood registered in the name of M/s.
Raja Movies in the Motion Pictures Association. This
position was accepted by Suyog Films in the letter dated 5th
November, 1985 and the subsequent letter by them. The non-
performance of the terms of the contract dated 11th March,
1985 may not by itself revive the earlier contract of 19th
March, 1983, but the petitioner in his letters dated 15th
July, 1985 and 19th September, 1985 fell back on the
original contract of 19th March, 1983. This was accepted by
M/s. Suyog Films and thus a binding contract came into
existence. In this case the Division Bench came to the
conclusion on the construction of the letters and the
conduct of the party that the contract dated 19th March,
1983 continued. The contract dated 19th March, 1983
contained an arbitration clause. There is no reason why that
arbitration agreement should not be filed. A civil suit had
been filed but that by itself unlike under section 34 of the
Arbitration Act, 1940 does not preclude filing of proper
arbitration agreement between the parties. There being no
impediment in filing the arbitration agreement which
indubitably was subsisting at the relevant time when the
High Court directed that the arbitration agreement be filed,
that discretion should not be interfered with. Section 20 of
the Arbitration Act provides as follows:
"20. Application to file in Court arbitration
agreement-
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532
(1) Where any persons have entered into an
arbitration agreement before the institution of
any suit with respect to the subject-matter of the
agreement or any part of it, and where a
difference has arisen to which the agreement
applies, they or any of them, instead of
proceeding under Chapter II, may apply to a Court
having jurisdiction in the matter to which the
agreement relates, that the agreement he filed in
Court.
(2) The application shall be in writing and shall
be numbered and registered as a suit between one
or more of the parties interested or claiming to
be interested as plaintiff or plaintiffs and the
remainder is defendant or - defendants, if the
application has been presented by all the parties,
or if otherwise, between the applicant as
plaintiff and the other parties as defendants.
(3) on such application being made, the Court
shall direct notice thereof to be given to all
parties to the agreement other than the
applicants, requiring them to show cause within
the time specified in the notice why the agreement
should not be filed.
(4) Where no sufficient cause is shown, the Court
shall order the agreement to be filed, and shall
make an order of reference to the arbitrator
appointed by the parties, whether in the agreement
or otherwise, or, where the parties cannot agree
upon an arbitrator, to an arbitrator appointed by
the Court.
(5) Thereafter the arbitration shall proceed in
accordance with, and shall be governed by, the
other provisions of this Act so far as they can be
made applicable."
It is significant to note that the sub-section (1)
gives an option to the parties by the use of expression
’may’ but the other sub-section if the conditions are
fulfilled, makes it obligatory for the Court to direct
filing of an arbitration agreement. Indubitably, in this
case there was an arbitration clause in the agreement. The
parties have applied for reference. The Division Bench has
reiterated that the original agreement dated 19th March,
1983 which ceased to have effect and came to an end by the
agreement dated 11th March, 1985, stood revived by virtue of
the two letters dated 15th July, 1985 and 11th September,
533
1985 by the appellant. The High Court has confirmed that the
said two letters were acted upon by the Motion Pictures
Association. By letter dated 19/21 September, 1985 the
Motion Pictures Association confirmed that in view of the
failure of the producer to comply with his earlier letter
regarding payment of Rs.6,50,000 plus interest, the picture
"Savere Wali Gadi" stood registered in the name of M/s. Raja
Movies in the Motion Pictures Association. This position was
accepted by Suyog Films in letter dated 5th November, 1985
and the subsequent letter by them. It is clear that the
petitioner in his letters dated 15th July, 1985 and 11th
September, 1985 fell back on the original contract of 19th
March, 1983. This was accepted by the respondent. Hence,
there was at all relevant times a valid and binding contract
between the parties. That contract contained an arbitration
clause. There was nothing, in view of the reasons indicated
above, to disentitle the parties to have their rights
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adjudicated in terms of an arbitration clause.
In the premises the High Court was right in the view it
took. This petition fails and is accordingly dismissed.
G.N. Petition dismissed.
534