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Friday, August 23, 2013

Novation of Contract = 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 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. 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holding that that earlier agreements dated 01.04.2007 and 01.04.2010, which contained arbitration clause stood superseded by a new contract dated 01.02.2011 arrived at between the parties by mutual consent. = 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 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.

published in http://judis.nic.in/supremecourt/imgst.aspx?filename=40682
                                                                  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



                               J U D G M E N T


K.S. Radhakrishnan, J.


      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  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?


      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 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  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 re-enactment 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.”

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.


      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.
      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  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)



                                                               ………………………….J.
                                                (A.K. Sikri)


New Delhi,
August  22, 2013


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