Arbitration clauses perish upon novation by a subsequent agreement lacking an arbitration clause.

The Appellants and Respondents entered into a Partnership Deed on April 1, 2012, to carry on business as "M/s Srishaila and Co."

This deed contained an arbitration clause (Clause 18) for disputes arising during the continuance or after the firm's dissolution

Prior to this, Appellant No. 1 operated the entity as a proprietorship and had acquired "Schedule B" property (Plots 74 & 75) from KIADB via a lease-cum-sale agreement in 2010

Following disputes, the parties executed a "Settlement Deed" on September 10, 2012, which purported to divide properties allegedly purchased with firm funds

The Respondents initiated arbitration seeking the execution of registered documents for these properties based on the Settlement Deed

The Arbitral Tribunal awarded Respondent No. 1 a half-share in the subject property

The Appellants challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, but the District Court dismissed the petition on January 31, 2025

The Appellants subsequently filed this appeal under Section 37(1)(c)

1. Whether the claim regarding property acquired prior to the execution of the Partnership Deed fell within the scope of the arbitration agreement

2. Whether an arbitration clause in an original contract survives to govern disputes arising out of a subsequent Settlement Deed that novates the original agreement and lacks its own arbitration clause

The court applied Section 37 of the Arbitration and Conciliation Act, 1996, regarding the appealability of orders setting aside or refusing to set aside awards

It referenced Section 6 of the Partnership Act, 1932, regarding the determination of the existence of a partnership

The court relied heavily on the doctrine of novation under Section 62 of the Indian Contract Act, 1872, which states that if parties substitute a new contract for an old one, the original contract need not be performed

It followed the precedent in Young Achievers v. IMS Learning Resources Private Limited, holding that an arbitration clause perishes if the contract is superseded by a subsequent settlement that does not contain an arbitration clause

It further cited Damodar Valley Corporation v. K.K. Kar to affirm that an arbitrator's jurisdiction depends on the continued existence of the arbitration clause

The court observed that the Partnership Deed explicitly intended the firm to commence on April 1, 2012, and the recitals acknowledged Appellant No. 1’s prior sole proprietorship

Consequently, the arbitration clause was limited to disputes arising from the partnership formed on that date and did not extend to properties acquired by the proprietorship in 2010

The court found that the Respondents’ claims were essentially for the implementation of the Settlement Deed dated September 10, 2012

However, the Settlement Deed was an independent agreement that redistributed assets in a manner different from the Partnership Deed

Applying Young Achievers, the court reasoned that the Settlement Deed constituted a novation of the original contract; since the Settlement Deed lacked an arbitration clause, the Arbitral Tribunal lacked jurisdiction to adjudicate disputes arising from it

The court concluded that the arbitration clause from the superseded Partnership Deed could not be invoked to enforce the new settlement

The court held that the subject property was not a firm asset under the 2012 Partnership Deed as it was acquired prior to the firm's constitution

It further held that the Settlement Deed was a novation that did not include an arbitration agreement, rendering the dispute non-arbitrable

The Arbitral Tribunal's jurisdiction was confined to the 2012 Partnership, which did not cover the settlement of prior assets