1. This petition raises the question whether the Courts below were justified in staying. We proceedings of the suit under the provisions of section 34 of the Arbitration Act.
2. On the 24th March 1944 five persons executed a deed of partnership containing an arbitration clause according to which all differences arising amongst the partners with regard to the partnership business were to be referred to an arbitrator nominated by the majority of the partners. On the 7th August 1945 they are alleged to have entered into another agreement in super session of the earlier agreement and to have dissolved the partnership.
On the 13th August 1943 Mehr singh who is one of the five partners brought a suit for dissolution of partnership arid rendition of accounts against the remaining partners. Kartar singh defendant pleaded that the partnership between the parties had already been dissolved by mutual agreement, that the original agreement containing the arbitration clause has been superseded by the agreement dated the 7th August 1945, that the partnership accounts had been gone into and settled, that the partnership had come to an end and that there was in existence no dispute which needed to be settled either by an arbitrator or by a Court of law.
The trial Court came to the conclusion that a dispute had arisen in regard to the partnership business and directed that this dispute be referred to an arbitrator nominated by a majority of the partners before any action could be taken in a Court of law. This decision was upheld by the lower appellate Court and Kartar Singh has come to this Court in revision.
3. An agreement to submit an existing or prospective dispute to arbitration rests upon the consent of parties and may like any other agreement be amended, modified, rescinded or revoked by mutual consent or by acts or conduct of the parties. An arbitration agreement may, for example, be superseded by a new agreement which has the effect of extinguishing the existing agreement or by the performance of the terms of the new agreement entered into in satisfaction of the prior agreement.
The question whether the parties did in fact enter into a new agreement in substitution of the original agreement or whether the terms of the new agreement have been performed as satisfaction must be determined by the Court before it proceeds to enforce the arbitration clause. If accord and satisfaction is by substituted agreement it is a question of construction of that agreement Whether it also extinguishes all pre-existing rights and obligations and totally discharges the original contract Union of India v. Kishorilal Gupta & Bros., AIR 1953 Cal 642 (A).
4. The position as I see is simply this. If the parties did in fact come to an agreement on the 7th August 1945 by virtue of which the original agreement was extinguished or if the parties came to an agreement which required the performance of certain acts in satisfaction of the original agreement and the terms of the said agreement were fully performed, it is obvious that the later agreement superseded the agreement containing the arbitration clause.
If on the other hand no agreement was entered into on the 7th August 1945 or if the agreement which was entered into on that date did not supersede the earlier agreement or did not result in accord and satisfaction then it is equally clear that the arbitration clause contained in the earlier agreement would remain alive and continue to operate.
5. For these reasons I would accept the petition, set aside the orders of the Courts below and remand the case to the trial Court with the direction that it should decide (l) whether the parties to this litigation entered into an agreement on the 7th August 1945; and if so (2) whether this agreement extinguished the agreement dated the 24th March, 1944 or constitutes a bar to the enforcement of the arbitration clause contained in the earlier agreement. If the answers to both the questions are in the affirmative, the matter cannot be referred to an arbitrator and must be decided by a Court of Law.
6. There will be no order as to costs. The parties have been directed to appear before the trial Court on the 19th November, 1956.