http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: R.N. KUMAR

       Vs.

RESPONDENT: R.K. SORAL

DATE OF JUDGMENT13/04/1988

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1988 AIR 1205            1988 SCR  (3) 527  1988 SCC  (2) 508        JT 1988 (2)   204  1988 SCALE  (1)788

ACT:      Arbitration   Act,    1940.   Section    20-Arbitration agreement-Duty  of   Court  to   direct  filing   of-Whether obligatory.      Indian Contract  Act, 1872. Section 10-Contract-Whether there is  complete novation  of a  contract in  a particular case-Held, it  depends on  facts and  circumstances  of  the case.

HEADNOTE:      An agreement  for distribution of the film "Savere Wali Gadi" was  entered into  on 19th  March,  1983  between  the petitioner as  the distributor  and the  respondent  as  the producer. The  agreement contained  an arbitration clause. A sum of Rs.3.40 lakhs paid to the respondent and acknowledged by him  earlier to  the agreement  was deemed  to have  been adjusted against  the first  instalment. In  or  about  1984 about Rs.  3 lakhs  were further advanced to the respondent. As per  the agreement  the respondent  was to  hand over the prints of  the film  by 10th  August, 1983,  but it  was not done.      On 11th  March, 1985  a further  agreement was  entered into between  the parties  whereby the  respondent agreed to pay a  total sum  of Rs.6.50  lakhs to  the  petitioner  for giving up  his distribution  rights in  the first agreement. The first  agreement was  accordingly irrevocably  cancelled and superseded by the subsequent agreement.      The respondent  took up the matter with Motion Pictures Association to  de-register the  film in  the  name  of  the petitioner. The  Motion Picture  Association stated that de- registration would  be allowed only when the respondent pays Rs.6.50 lakhs  to the petitioner or deposits the amount with the  Association.   The  petitioner’s   claim   before   the Association was  that the respondent committed breach of the subsequent agreement.      A civil  suit was  filed in the High Court for recovery of Rs.6.50  lakhs with  interest, by  the petitioner against the respondent.  Later, an  application under  section 20 of the Arbitration Act was made. The Single Judge held that the first agreement had revived and directed the 528

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

filing of  the agreement.  On  appeal,  the  Division  Bench confirmed the  order. This special leave petition is against the order of the Division Bench of the High Court.      Dismissing the special leave petition, this Court, ^      HELD: 1.1  Whether in  any particular  case there was a complete novation  of a  contract in  the sense that the new contract replaced  or substituted  the old  contract,  could depend  upon  the  facts  and  circumstances  of  the  case. [531B-C]      1.2 When the agreement of 1985 was entered into, it was the intention  of the  parties that  the  earlier  agreement would be  superseded and  a new arrangement was sought to be brought about whereby the rights of the petitioner under the earlier agreement  were to  be yielded  for a sum of Rs.6.50 lakhs. This  amount of  Rs.6.50 lakhs  was never paid by the respondent, and  it was  the case of the petitioner that the earlier  agreement   stood  cancelled.  The  petitioner  who claimed rights  under  the  earlier  agreement,  sought  the continuation of  his registration  of distributorship.  This registration could  continue only  by virtue  of the earlier agreement which had revived. [530G-HG; 531B]      Babulal Marwari  and others  v. Tulsi Singh and others, A.I.R. 1940 Patna 121, refered to.      2.1 Sub-section  (1) of  Section 20  of the Arbitration Act gives  an option  to the  parties  by  the  use  of  the expression  ’may’,   but  the  other  sub-sections,  if  the conditions are  fulfilled, make  it obligatory for the Court to direct filing of an arbitration agreement. [532G]      2.2 Indubitably, there was an arbitration clause in the agreement. The  parties  have  applied  for  reference.  The Division Bench  has reiterated  that the  original agreement dated 19th  March, 1983 which ceased to have effect and came to an  end by  the agreement  dated 11th  March, 1985  stood revived by  virtue of  the two letters dated 15th July, 1985 and 11th  September, 1985 by the appellant. It is clear that the petitioner  in  the  above  letters  fell  back  on  the original contract  of 19th March, 1983. This was accepted by the respondent.  Hence there  was at  all relevant  times  a valid  and   binding  contract  between  the  parties.  That contract contained  an arbitration clause. There was nothing to disentitle  the parties  to have their rights adjudicated in terms of an arbitration clause. The civil suit filed does not  by   itself  preclude   filing  of  proper  arbitration agreement between the parties. There being no impediment 529 in filing  the arbitration agreement which was subsisting at the relevant  time when  the High  Court directed  that  the arbitration agreement  be filed,  that discretion should not be interfered with. [532G-H; 531F-G]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Special  Leave  Petition (Civil) No. 4221 of 1988.      From the  Judgment and  Order dated  3.12.1987  of  the Delhi High Court in FAO (OS) No. 120 of 1987.      Mukul Rohtagi and Miss Bina Gupta for the petitioner.      Soli J.  Sorabji, D.K.  Sorab, P. Jain, Sushil Kr. Jain and Sudhanshu Atreya for the Respondent.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI,  J. This  is  an  application  for leave to  appeal under  Article 136 of the Constitution from the order  of the  Division Bench  of the  Delhi High  Court

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

affirming the order of the learned single Judge of that High Court. It  appears that  on 19th  March, 1983,  there was an agreement for  distribution of  the film  "Savere Wali Gadi" entered into  between the  parties, the  petitioner  as  the distributor  and   the  respondent   as  the  producer.  The agreement contained an arbitration clause. It is stated that a  sum  of  Rs.3  lakhs  was  paid  by  the  petitioner  and acknowledged by  the respondent  earlier to the execution of the said  agreement  and  therefore,  the  first  instalment payable under  the agreement  to the  respondent of  Rs.3.40 lakhs  was  deemed  to  be  adjusted.  Under  the  aforesaid distribution agreement  by 30th August, 1983, the respondent was to  hand over  the prints of the film by this date which he never did. In or about 1984 certain other moneys of about Rs.3 lakhs  were further advanced to the respondent. On 11th March, 1985 a further agreement was entered into between the parties whereby  the respondent agreed to pay a total amount of Rs.6.50  lakhs to  the petitioner  and the  petitioner to give up  his distribution  rights in  the first agreement of 19th  March,  1983.  The  first  agreement  was  accordingly irrevocably cancelled  and  superseded  by  this  subsequent agreement. On  or about  2nd June,  1985 respondent wrote to the Motion  Pictures Association,  Delhi to  de-register the film in the name of the petitioner in view of the petitioner having  given  up  the  distribution  rights  by  virtue  of Annexure P/2  dated 11.3.85  where under  the petitioner had agreed to receive Rs.6.50 lakhs and finished the deal within six months of 11.3.85. It is the case of the petitioner. 530 however, that the sum of Rs.6.50 lakhs was never paid by the respondent to  the petitioner.  On 3rd July, 1985 the Motion Picture Association  wrote to  the respondent  acknowledging receipt of  respondent’s letter dated 22nd June 1985 whereby he had  asked for  de-registration of  the film  in view  of Annexure P/2. The Motion Picture Association stated that de- registration would  be allowed only when the respondent pays Rs.6.50 lakhs  to the petitioner or deposits the amount with the Motion  Picture Association.  It is  stated that between July 1985  and September  1985,  the  petitioner  wrote  two letters to  the Motion  Picture Association stating that the respondent  had   committed  a   breach  of  the  subsequent agreement  dated  11th  March,  1985  executed  between  the parties whereunder  the respondent  was to  make payment  of Rs.6.50 lakhs  and it  was clear  that the respondent had no desire to  make payment and the respondent wrongly wanted to deal with  the film  and sell  the  distribution  rights  to somebody else  thereby enjoying benefit of the same and also to deprive  the petitioner  of the  amount of Rs.6.50 lakhs. Civil suit  was filed  in February,  1986  for  recovery  of Rs.6.50 lakhs  with interest  by the  petitioner against the respondent.  The   written  statement   was  submitted.   An application was  made under  section 20  in June, 1986. This application had  been made later than the institution of the civil suit  in the same High Court. The learned single Judge directed that  the arbitration  agreement to  be  filed  and reference was directed according to the agreement. There was an order  passed by the learned single Judge to that effect. There was  an appeal to the Division Bench of the High Court and the  Division Bench  confirmed the  order of the learned single Judge. Hence this petition.      It appears  that there  were two  agreements one  dated 11th March,  1985 and  the other dated 19th March, 1983. The learned Judge  found that  there could  be little doubt that the intention  of the  parties  when  agreement  dated  11th March, 1985  was entered  into was that the earlier contract

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

dated 19th  March, 1983 should be superseded. But it appears that the  agreement fell  through because when the agreement of 1985  was entered  into, it  was  the  intention  of  the parties to  the earlier  agreement would be superseded and a new arrangement  was sought  to be brought about whereby the rights of  the petitioner  herein under agreement dated 19th March, 1983  were to  be yielded for a sum of Rs.6.50 lakhs. This  amount   of  Rs.6.50  lakhs  was  never  paid  by  the respondent. It  was the  case of  the petitioner herein that thereby the  agreement of  11th March, 1985 stood cancelled. The  petitioner   who  claimed   rights  under  the  earlier agreement dated 19th March, 1983 and sought the continuation of his  registration of  distributorship. The learned single Judge found that it was at the instance of petitioner 531 herein that respondent No. 2 confirmed vide its letter dated 19th September,  1985 that  as the  petitioner,  before  the learned single  Judge, had  failed to  pay  Rs.6,50,000  the aforesaid picture  stood  registered  in  the  name  of  the petitioner herein.  This registration could continue only by virtue of  the earlier  agreement dated  March 19, 1983. The learned single  Judge further found that the agreement dated 11th March,  1985  had  come  to  an  end  and  the  earlier agreement dated  19th  March,  1983  had  revived.  In  this connection reference  may be made to the observations of the Patna High  Court in  Babulal Marwari  and others  v.  Tulsi Singh and  others, A.I.R.  1940 Patna  121. Whether  in  any particular case  there was a complete novation of a contract in the  sense that  the new contract replaced or substituted the  old   contract,  could   depend  upon   the  facts  and circumstances of the case.      In that  view of  the matter,  the single  Judge of the High Court,  in our opinion, rightly directed that the first agreement be filed.      The Division  Bench of the High Court pointed out after referring to  the letter  dated 19/21st  September, 1985 the Motion Pictures  Association confirmed  that in  view of the failure of  the producer  to comply  with his earlier letter regarding payment  of Rs.  6.50  lakhs  plus  interest,  the picture in  question stood  registered in  the name  of M/s. Raja  Movies   in  the  Motion  Pictures  Association.  This position was accepted by Suyog Films in the letter dated 5th November, 1985  and the  subsequent letter by them. The non- performance of  the terms  of the contract dated 11th March, 1985 may  not by  itself revive the earlier contract of 19th March, 1983,  but the  petitioner in  his letters dated 15th July, 1985  and  19th  September,  1985  fell  back  on  the original contract  of 19th March, 1983. This was accepted by M/s. Suyog  Films and  thus a  binding  contract  came  into existence. In  this case  the Division  Bench  came  to  the conclusion on  the  construction  of  the  letters  and  the conduct of  the party  that the  contract dated  19th March, 1983  continued.   The  contract   dated  19th  March,  1983 contained an arbitration clause. There is no reason why that arbitration agreement  should not be filed. A civil suit had been filed but that by itself unlike under section 34 of the Arbitration Act,  1940 does  not preclude  filing of  proper arbitration agreement  between the  parties. There  being no impediment  in   filing  the   arbitration  agreement  which indubitably was  subsisting at  the relevant  time when  the High Court directed that the arbitration agreement be filed, that discretion should not be interfered with. Section 20 of the Arbitration Act provides as follows:      "20.  Application   to  file   in   Court   arbitration           agreement-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

532           (1)  Where   any  persons  have  entered  into  an           arbitration agreement  before the  institution  of           any suit with respect to the subject-matter of the           agreement  or   any  part   of  it,  and  where  a           difference  has  arisen  to  which  the  agreement           applies,  they   or  any   of  them,   instead  of           proceeding under  Chapter II, may apply to a Court           having jurisdiction  in the  matter to  which  the           agreement relates,  that the agreement he filed in           Court.           (2) The  application shall be in writing and shall           be numbered  and registered  as a suit between one           or more  of the  parties interested or claiming to           be interested  as plaintiff  or plaintiffs and the           remainder is  defendant or  - defendants,  if  the           application has been presented by all the parties,           or  if   otherwise,  between   the  applicant   as           plaintiff and the other parties as defendants.           (3) on  such application  being  made,  the  Court           shall direct  notice thereof  to be  given to  all           parties  to   the   agreement   other   than   the           applicants, requiring  them to  show cause  within           the time specified in the notice why the agreement           should not be filed.           (4) Where  no sufficient cause is shown, the Court           shall order  the agreement  to be filed, and shall           make an  order  of  reference  to  the  arbitrator           appointed by the parties, whether in the agreement           or otherwise,  or, where  the parties cannot agree           upon an  arbitrator, to an arbitrator appointed by           the Court.           (5) Thereafter  the arbitration  shall proceed  in           accordance with,  and shall  be governed  by,  the           other provisions of this Act so far as they can be           made applicable."      It is  significant to  note that  the  sub-section  (1) gives an  option to  the parties  by the  use of  expression ’may’ but  the  other  sub-section  if  the  conditions  are fulfilled, makes  it obligatory  for  the  Court  to  direct filing of  an arbitration  agreement. Indubitably,  in  this case there  was an  arbitration clause in the agreement. The parties have  applied for  reference. The Division Bench has reiterated that  the original  agreement dated  19th  March, 1983 which  ceased to  have effect and came to an end by the agreement dated 11th March, 1985, stood revived by virtue of the two letters dated 15th July, 1985 and 11th September, 533 1985 by the appellant. The High Court has confirmed that the said two  letters were  acted upon  by the  Motion  Pictures Association. By  letter  dated  19/21  September,  1985  the Motion Pictures  Association confirmed  that in  view of the failure of  the producer  to comply  with his earlier letter regarding payment  of Rs.6,50,000 plus interest, the picture "Savere Wali Gadi" stood registered in the name of M/s. Raja Movies in the Motion Pictures Association. This position was accepted by  Suyog Films  in letter dated 5th November, 1985 and the  subsequent letter  by them.  It is  clear that  the petitioner in  his letters  dated 15th  July, 1985  and 11th September, 1985  fell back  on the original contract of 19th March, 1983.  This was  accepted by  the respondent.  Hence, there was at all relevant times a valid and binding contract between the  parties. That contract contained an arbitration clause. There  was nothing, in view of the reasons indicated above, to  disentitle  the  parties  to  have  their  rights

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

adjudicated in terms of an arbitration clause.      In the premises the High Court was right in the view it took. This petition fails and is accordingly dismissed. G.N.                               Petition dismissed. 534