Skip to content


Century Spinning and Manufacturing Co. Ltd. Vs. Motilal Dhariwal S/O Dulichand - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. (First) Appeal No. 20 of 1964
Judge
Reported inAIR1966MP313
ActsContract Act, 1872 - Sections 62 and 63
AppellantCentury Spinning and Manufacturing Co. Ltd.
RespondentMotilal Dhariwal S/O Dulichand
Appellant AdvocateA.P. Sen, Adv.
Respondent AdvocateR.S. Dabir, Adv.
DispositionAppeal dismissed
Cases ReferredIn Payana Reena Layana Saminathan Chetty v. Pana Lana Palaniappa Chetty
Excerpt:
.....failed and neglected to take delivery of the contracted goods within the time stipulated by the earlier contracts. he, therefore, by his letter dated 22-7-1957, requested for an extension of time for the performance of his contractual obligations and the defendant by its letter dated 25-7-1957 agreed to an extension of time for the performance of the contracts till 30-9-1957. he further urged that as by the end of the month of september 1957 the plaintiff had failed and neglected to take delivery of 134 bales of cloth and it was evident that the plaintiff was not in a position to perform his part of the contract, he approached the defendant at bombay on or about 24/ 25-9-1957 and requested for a further extension of time on an allegation that the quality of part of the goods supplied..........the defendant agreed to supply cloth to the plaintiff. both the contracts contained an arbitration clause (clause 21) to the following effect:--'all disputes and questions whatsoever which shall arise between the parties hereto out of or in connection with this agreement or as to the construction or application thereof or the respective rights and obligations of the parties hereunder or as to any clause or things herein contained, or any amount or valuation to be made hereunder or as to any other matter in any way relating to these presents, shall be referred to arbitration in accordance with the rules of the millowners' association, bombay, for the time being in force regulating arbitration with respect to piece goods.'the defendant denies that the said contracts were replaced by a new.....
Judgment:

Bhargava, J.

1. This is an appeal by the defendant in civil suit No. 2-B of 1958 against the order made by the First Additional District Judge, Raipur on 30-1-1964 dismissing its application for staying the trial of the suit under Section 34 of the Arbitration Act.

2. The principal question in the appeal is whether the document dated 26-9-1957 establishes a new contract between the parties superseding the previous contracts dated 28-5-1957 between them.

3. The plaintiff averred in the plaint that the two previous contracts between the parties were settled on 26-9-1957 and replaced by a new contract, and the defendant agreed to supply cloth on the terms contained in the new contract. The plaintiff also urged in the plaint that the defendant agreed to pay compensation in respect of 54 bales of cloth which were not supplied under the previous contracts. The suit is for the recovery of damages for breach of the contract dated 26-9-1957.

4. The contention of the defendant is that on 28-5-1957 the parties had entered into two contracts under which the defendant agreed to supply cloth to the plaintiff. Both the contracts contained an arbitration Clause (clause 21) to the following effect:--

'All disputes and questions whatsoever which shall arise between the parties hereto out of or in connection with this agreement or as to the construction or application thereof or the respective rights and obligations of the parties hereunder or as to any clause or things herein contained, or any amount or valuation to be made hereunder or as to any other matter in any way relating to these presents, shall be referred to arbitration in accordance with the rules of the Millowners' Association, Bombay, for the time being in force regulating arbitration with respect to piece goods.'

The defendant denies that the said contracts were replaced by a new contract. He has explained that all that took place was to alter the time and mode of delivery leaving the original contracts intact in all other respects. The defendant claimed that the plaintiff was bound to have recourse to the arbitration under Clause 21, referred to above, and therefore prayed for stay of the suit.

5. The plaintiff, in his reply, admitted the earlier contracts pleaded by the defendant, but urged that those contracts have been completely substituted by the new contract dated 26-9-1957. He urged that as the new contract did not contain any arbitration clause, the dispute between the parties could not be referred to arbitration under Clause 21 of the previous contracts and therefore there was no question of the plaintiff's suit being stayed under Section 34 of the Arbitration Act.

6. The trial Court rejected the application under Section 34 on 25-3-1960. The defendant came up in appeal to this Court. The appeal was allowed on 14-12-1960 and the order of the trial Court refusing stay was set aside and the case was sent back to the trial Court to decide whether the original contracts were discharged by substitution of a new contract as alleged by the plaintiff. It was further directed that for deciding this question, the Court may take into account the allegations in the plaint, the application for stay and its reply, the documents filed by the parties and any affidavits that may be filed by the parties in support of their respective claims and the said order finally directed that if the Court found that the original contracts have not been discharged, the suit shall be stayed under Section 34 of the Act, Otherwise the suit shall be allowed to proceed. The order passed by the Division Bench is reported in Mathura Prasad v. Permanand, 1960 MPLJ 421 (Sic--Reference to Century Spg. & Mfg. Co. Ltd. v. Motilal, 1961 M P L T 421: (AIR 1961 Madh-Pra. 333 is intended-Ed.)

7. When the case went back to the trial Court, it permitted certain amendments in the plaint and framed certain additional issues in relation to them. The defendant felt aggrieved by the said amendments and objected to the framing of the additional issues. It filed civil revision No. 422 of 1962 in this Court which was heard and allowed by the Honourable the Chief Justice by his order dated 7-12-1962. The plaintiff's application for amendment was rejected and on the rejection of that application the additional issues framed by the trial Court were struck off. The learned Chief Justice indicated the scope of enquiry on remand in the following words:--

'It follows, therefore, that fundamental to the remand order made by the Division Bench was the finding that the two original contracts containing the arbitration clause were valid. It was on this basis that the remand order directing the lower Court to decide the question of substitution of the old contracts by a new one was made. The decision that the two contracts were valid being thus implied in the remand order, it is not now open to the plaintiff on the principle of res judicata to raise any question as to the validity of the original contracts containing the arbitration clause.'

8. The trial Court in its order dated 30-1-1964 found that it could not be held that the plaintiff ever agreed to the arbitration clause printed in small type on the back of the earlier contracts and that there was a clear understanding between the parties that the printed terms on the back of this contract shall be ignored. It, therefore, held that in the previous contracts also there was no arbitration clause for dealing with the disputes which arose between the parties. It further found that on 26-9-1957 the old contracts were substituted completely by a new contract, that the previous contracts were cancelled by mutual agreement and the new contract was substituted in their place and as the new contract did not between any term about any matter in dispute ween the parties being referred to arbitration, Section 34 of the Arbitration Act had no application. In this view, the trial Court refused to stay the suit under Section 34 of the Act.

9. Shri A.P. Sen, learned counsel for the appellant, contended that the correspondence between the parties shows that the plaintiff had failed and neglected to take delivery of the contracted goods within the time stipulated by the earlier contracts. He, therefore, by his letter dated 22-7-1957, requested for an extension of time for the performance of his contractual obligations and the defendant by its letter dated 25-7-1957 agreed to an extension of time for the performance of the contracts till 30-9-1957. He further urged that as by the end of the month of September 1957 the plaintiff had failed and neglected to take delivery of 134 bales of cloth and it was evident that the plaintiff was not in a position to perform his part of the contract, he approached the defendant at Bombay on or about 24/ 25-9-1957 and requested for a further extension of time on an allegation that the quality of part of the goods supplied did not conform to the good? contracted for. The defendant therefore, allowed a further extension of time till 30-10-1957 and agreed to give some rebate to the plaintiff. It is urged by the learned counsel for the appellant that the contract initially entered between the parties subsisted with the necessary modifications regarding time for performance and the quality of the goods to be supplied. It was lastly urged that in any event on failure of the plaintiff to perform the last contract the earlier contracts revived and the defendant was entitled to insist on compliance of the arbitration clause.

10. On the other hand, it is contended by Shri R.S. Dabir that the very contents of the contract dated 26-9-1957 indicate that a totally new and different contract was made between the parties and that the parties had agreed to cancel the earlier contracts between them and the liability which arose on breach of the earlier contracts had been settled by the parties to their satisfaction by making the new contract. It is contended by him that it was open to the aggrieved party to accept the promise of the party in default in satisfaction of the existing cause of action and it was so done in this case. He very strongly relied on the last term of the contract dated 26-9-1957 which reads as follows:

'Further, it is absolutely agreed that you will fulfil this agreement as stated above and shall have no claim or any other objection whatsoever with regard to the outstanding contracts till date.'

11. In our opinion, the learned trial Judge went beyond the scope of enquiry and was in error in holding that the earlier contracts did not contain any arbitration clause. In doing so, the Additional District Judge completely disregarded the order made by the learned Chief Justice in civil revision No. 422 of 1962 where it was clearly pointed out that the previous decision of the Division Bench dated 14-12-1960 implied that the two earlier contracts were valid and it was not open to the plaintiff on the principle of res judicata to raise any question as to the validity of the original contracts containing the arbitration clause. The learned counsel for the respondent very fairly argued the case before us on the basis that the earlier contracts contained a valid arbitration clause.

12. The only point, therefore, for consideration is as to whether the written contract dated 26-9-1957 between the parties establishes a new contract between them or has the effect of keeping the earlier contracts between the parties alive by merely altering the time of performance and the quality of goods to be supplied.

13. It would be convenient to state here the principles on which the question in issue has to be decided. It is not necessary for us to repeat and re-state the points which were considered in detail in the previous appeal between the parties decided on 14-12-1960. In that appeal, the Division Bench referred to various decisions in which the principles on which the application under Section 34 of the Arbitration Act for stay of the suit has to be decided, have been considered. However, a reference to the principles stated by their Lordships in Union of India v. Kishorilal Gupta and Bros., AIR 1959 SC 1362 would bear repetition. This appeal was taken to the Supreme Court against the judgment of the Calcutta High Court reported in Union of India v. Kishorilal Gupta & Bros., AIR 1953 Cal. 642. Their Lordships confirmed the view of the Calcutta High Court and laid down: '(1) An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but none the less it is an integral part of it; (2) however comprehensive the terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation, it perishes with the contract; (3) the contract may be non est in the sense that it never came legally into existence or it was void ab initio; (4) though the contract was 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; (5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void; in the latter case, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it; and (6) between the two fall many categories of disputes in connection with a contract, such as the question of repudiation, frustration, breach etc. In those cases it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain purposes the arbitration clause operates in respect of these purposes.'

14. It cannot be disputed that the arbitration clause is distinct from the other substantive clauses in the contract. Total breach of the substantive stipulations, even when it is accepted by the other party, does not abrogate the arbitration clause, and even the party in default may invoke that clause, but the parties are not bound to have recourse to arbitration. They may settle the disputes directly and agree not to invoke the arbitration clause for that purpose. The arbitration clause ceases to exist with reference to the disputes which are thus settled. They may also enter into a substituted agreement in complete supersession of the original contract and thereby abrogate the contract and the arbitration clause contained in it (see AIR 1953 Cal. 642 and Heyman v. Darwins Ltd., 1942 AC 356 at P. 377). This is also well settled that mere alterations or modifications of the terms of a contract do not amount to its rescission. The modifications are read into and become part and parcel of the original contract. The original terms also continue to be part of the contract and are not rescinded and/or superseded except in so far as they are inconsistent with the modifications (see Juggilal Kamlapat v. N.V. Internationale Crediet-En-Handels Vereeninging Rotterdam, (S) AIR 1955 Cal. 65 para 15). Rescission of a contract, whether written or parole, need not be express. It may be implied, and it will be implied legitimately, where the parties have entered into a new contract entirely or to an extent going to the very root of the first inconsistent with it (see Morris v. Baron and Co. 1918 AC 1). In the same case, Lord Parmoor observed at page 38:

'It is clear that these terms are an alteration of the September contract, but this in itself would not be sufficient to support the plea of rescission. It is necessary further to enquire whether the conditions have been so changed in their essential character that there is a substantial inconsistency such as to lead to the inference that the parties did intend to rescind the earlier contract of September. It is not possible to lay down any general principle, but where the alteration is such that the conditions of the earlier contract cannot be restored without placing one of the parties under a permanent and substantial disability there is a strong prima facie probability of an intention to rescind.'

When the subsequent contract deals with the same subject-matter as the original contract and contains terms and conditions which enable the parties to sue upon the second arrangement alone even if the original contract did not exist, rescission of the original contract may be properly inferred. This test was applied in Morris's case by Lord Dunedin (see pp. 25 and 26). Lord Atkinson followed the view taken in 1918 AC 1 in British and Bennington Ltd. v. North Western Cachar Tea Co. Ltd., 1923 AC 48. The facts of the last case were that the original contract made a provision for delivery to be made in Bonded Warehouse in London and by a subsequent arrangement the buyer agreed to accept delivery of the goods at another place with an allowance. This variation was held not to have rescinded the earlier contract.

15. In Ramdas Dwarkadas v. Orient Pictures, AIR 1942 Bom. 332, the first contract made between the parties contained the arbitration clause. The parties then entered into an arrangement giving rise to new rights and obligations independently of the old contract. It was held that the disputes under the subsequent arrangement could not be dealt with under the arbitration clause of the first contract. In the subsequent arrangement there was no arbitration clause. It was also held in that case that the arbitration clause in the first contract was not broad enough to cover the disputes which arose under the subsequent arrangement.

16. The question of the suit being stayed or not will have to be judged on the aforesaid principles.

17. The terms of the contract made between the parties on 26-9-1957 have been reduced to writing. Under Section 92 of the Evidence Act, no evidence of any oral agreement or statement can be admitted as between the parties to the contract for the purpose of contradicting, varying, adding to, or subtracting from its terms. The parties are clearly bound by the recorded terms. The rate specified for 28 bales of grey coarse patka cloth in the contract dated 26-5-1957 is different from the rate specified for the supply of the bales of this cloth according to the subsequent contract. In the earlier contracts the rate was Rs. 1/12/6 besides excise duty. In the subsequent contract the excise duty is included in the price fixed, namely, the same price of Rs. 1/12/6. On 26-9-1957 the plaintiff agreed to purchase 63 bales of bleached saris instead of 54 bales of grey coarse dhotis, and the defendant also agreed to give him rebate or compensation at the rate of 6 pies per yard on 54 bales of dhoties and the amount of rebate or compensation was agreed to be deducted from the price of bleached saris.

If the matter rested there and only a change was agreed upon between the parties in the quality of cloth, the price thereof and the date of performance, and nothing further had been agreed upon between them Eo indicate that the original had been superseded or cancelled, possibly there would be room to urge that the modifications of the earlier contracts did not go to the root of the matter and did not change its essential character and therefore it could not be inferred that the parties had rescinded the original contracts. However, the last term in the contract of 26-9-1957 is very significant. The said term makes it clear that the parties, by their consent, deprived themselves completely of the right to fall back on the earlier contracts. They absolutely agreed that the contract made on 26-9-1957 shall be fulfilled and the parties will have no claim or any other objection whatsoever with regard to the outstanding contracts. The language employed in stating this term is of a very wide amplitude and does not admit of being interpreted in this narrow manner that though all other terms of the said contract had been modified, the term or clause about arbitration as contained in the earlier contracts was left intact.

The suit of the plaintiff is based on the terms contained in the contract dated 26-9-1957. It has been urged by the learned counsel for me respondent that the fate of the suit would depend only on the terms of the subsequent contract and nothing can possibly turn on any of the terms of the earlier contracts. It appears to us plain on reading the terms that the rights and liabilities of the parties after 26-9-1957 could only be governed by the new contract.

18. Shri Sen further urged that after the breach of the initial contracts the liabilities under them could be discharged only by accord and satisfaction. In the present case there was merely an accord but no satisfaction with regard to the earlier contracts and consequently it should be held that those contracts were not abrogated.

19. For considering this argument, it would be necessary to refer to the provisions of sections 62 and 63 of the Contract Act. These provisions are as follows:

'Section 62: If the parties to a contract agree to substitute a new contract for them or to rescind or to alter it the original contract need not be performed.

Section 63: Every promisee may dispense with or remit whole or any part of the performance of the promise made to him or may extend the time for such performance or may accept, instead of it, any satisfaction which he thinks fit.'

Section 62 requires an agreement for rescission. The necessity of an agreement necessarily implies that there should be consideration. Under Section 63, for dispensing with or remitting whole or any part of the performance of the promise made to a promisee, it is not necessary that consideration should be there. The promisee may before breach gratuitously release the promisor from the obligation to perform the promise (see Jitendra Chandra v. S.N. Banerjee, AIR 1943 Cal. 181 and AIR 1953 Cal. 642). It is a question of construction in each case as to whether the new contract rescinds the original contract ot not (see 1918 AC I at pp. 26, 35 & 38). Mere accord without satisfaction does not discharge, the liability arising on breach of contract but it: can always be shown that the accord itself is also the satisfaction. It is open to the injured party to accept the promise of the party in default in satisfaction of the existing cause of action (see paragraph 27 and 29 of the cases referred to at pages 644 and 645 in AIR 1953 Cal. 642).

20. The same view has been taken by this High Court in Jamunabai v. Murlidhar, ILR 1946 Nag. 36: (AIR 1946 Nag. 48). In that case it was held:

'By Section 63 a promisee may accept instead of performance of the promise made to him any satisfaction which he thinks fit. It is no doubt true that the original cause of action is not discharged so long as the satisfaction agreed upon remains executory but if it can be shown that what the creditor accepted in satisfaction was the debtor's promise and not the performance of that promise, the original cause of action is discharged from the time when the promise was made.

Where an agreement has beer; made between the parties after the breach of a contract, it may be enforced under Section 63: Kalumal Devandas v. Kessumal Naraindas, AIR 1929 Sind. 153'.

21. In Payana Reena Layana Saminathan Chetty v. Pana Lana Palaniappa Chetty, (1913) 18 Cal. WN 617 (PC), Lord Moulton observed:

'The 'receipt' given by the appellants, and accepted by the Respondent, and acted on by both parties proves conclusively that all the parties agreed to a settlement of all their existing disputes by the arrangement formulated in the 'receipt'. It is a clear example of what used to be well known in Common Law Pleading as 'Accord and satisfaction by a Substituted Agreement'. No matter what were the respective rights of the parties inter se, they are abandoned in consideration of the acceptance by all of a new agreement. The consequence is that when such an accord and satisfaction takes place the prior rights of the parties are extinguished. They have in fact been exchanged for the new rights; and the new agreement becomes a new departure, and the rights of all the parties are fully represented by it.'

22. Breach of the substituted agreement does not revive the original contract which has been discharged. Further rights of the parties can only be worked out on the basis of the substituted agreement and not on the original contract. The previous disputes about the earlier contracts were settled by the parties on 26-9-1957 by entering into a new contract. We have already held that the words used in the document dated 26-9-1957 are wide enough to indicate that the parties intended to wipe out the pre-existing claims once for all in exchange of the mutual promises made by the parties when they made the subsequent contract. There is nothing in the subsequent contract which can be read so as to revive the old rights and obligations between the parties. In our opinion, there was accord and satisfaction by substituted agreement between the parties and this discharged and extinguished the original contracts between them including the arbitration clause contained in the original contracts. The disputed claims which could have been enforced by law formed good consideration to sustain the agreement made between the parties on 26-9-1957. Forbearance to sue is a good consideration according to the definition of that term in Clause 2(d) of the Contract Act.

23. Shri Sen vehemently contended that the arbitration clause in agreement is different from the other clauses which define and regulate the rights and liabilities of the parties. He based his contention on the principles enunciated in 1942-1 All ER 337 at p. 346. The contention is correct but it could help the appellant only if it were found that the contract made between the parties on 26-9-1957 was not a new and independent contract and left the previous contracts alive and therefore the arbitration clause which applied to the earlier contracts also governed the subsequent contract.

24. In the result, we agree with the trialCourt in holding that the agreement made between the parties on 26-9-1957 was a new andindependent contract and it completely discharged the earlier contracts between them. As thenew contract did not contain any agreement between the parties to refer the dispute to arbitration, in our opinion the plaintiff's suit could notbe stayed under Section 34. The appeal, therefore, fails and is dismissed with costs. Counsel'sfee Rs. 100/-.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //