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holding that that earlier agreements dated 01.04.2007 and 01.04.2010, which contained arbitration clause stood superseded by a new contract dated 01.02.2011 arrived at between the parties by mutual consent.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