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PETITIONER: THE UNION OF INDIA

       Vs.

RESPONDENT: KISHORILAL GUPTA AND BROS.

DATE OF JUDGMENT: 21/05/1959

BENCH: SUBBARAO, K. BENCH: SUBBARAO, K. IMAM, SYED JAFFER SARKAR, A.K.

CITATION:  1959 AIR 1362            1960 SCR  (1) 493

ACT:        Contract--Arbitration   clause-Cancellation   of   contract-        Settlement  of  disputes  by  mutual   agreement-Arbitration        clause, if survives-Award based on such clause-Validity.

HEADNOTE: The  respondents entered into three several  contracts  with the  appellant,  for the fabrication and supply  of  diverse military  stores,  each  of  which  contracts  contained  an arbitration  clause.   Before the contracts had  been  fully executed  disputes arose between the parties,  one  alleging that the other was committing a breach of the contract.  The parties   then  entered  into  three  fresh   contracts   on successive dates purporting to settle these disputes on  the terms  therein  contained.   By  the  first  two  of   these settlement  contracts the respondents agreed to pay  to  the appellant  certain moneys in settlement respectively of  the disputes  relating to the first two original contracts.   By the  last  of  these settlement  contracts  the  respondents agreed  to  pay to the appellant  in  specified  instalments certain moneys in settlement of the disputes relating to the third  original contract as also the moneys which  had  then become due on the first two settlement contracts and had not been  paid  and  further undertook  to  hypothecate  certain properties to secure the due repayment of these moneys.  The third  settlement contract provided: " The  contracts  stand finally  concluded in terms of the settlement and  no  party will have any further or other claim against the other." The  respondents paid some of the instalments but failed  to pay the rest.  They also failed to create the hypothecation. The  appellant  then referred its claims for breach  of  the three   original   contracts  to   arbitration   under   the arbitration clauses contained in them.  On this reference an award for a total sum of Rs. 1,i6,446-iI-5 was made  against the  respondents in respect of the appellant’s claim on  the first and the third original contracts, the claim in respect of the second original contract having been abandoned by the appellant,  and  this award was filed in the High  Court  at Calcutta.   The respondents applied to the High Court for  a declaration  that  the arbitration clauses in  the  original contracts  had ceased to have any effect and  the  contracts

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stood  finally  determined  as a result  of  the  settlement contracts  and for an order setting aside the award as  void and  nullity.  The High Court held that the  first  original contract had not been abrogated by the settlement in respect of  it, but the third original contract and the  arbitration clause  contained in it had ceased to exist as a  result  of the last settlement and, the arbitrator had no  jurisdiction to arbitrate under that arbitration clause.  It further 63 494 held  that as the award was a single and  inseverable  award the  whole of it was null and void.  In this view  the  High Court set aside the award. Held  (per Imam and Subba Rao, JJ., Sarkar J.,  dissenting), that  the  third  settlement, properly  construed,  left  no manner  of  doubt that it was for  valid  consideration  and represented   the  common  intention  of  the   parties   to substitute  it for the earlier contracts between  them.   It gave  rise  to  a new cause of action  by  obliterating  the earlier contracts and the parties could look to it alone for the enforcement of their claims.  There could, therefore, be no  question  that the arbitration clause which,  whether  a substantive  or  a  collateral  term,  was  nevertheless  an integral part of the said contracts, must be deemed to exist along with them as a result of the said settlement. Hirji Mulji v. Cheong Yue Steamship Company, [1926] A.C. 502 and  Heyman v. Darwin Ltd., [1942] 1 All E.R. 337,  referred to. Tolaram  Nathmull  v.  Birla Jute  Manufacturing  Co.  Ltd., I.L.R. (1948) 2 Cal. 171, distinguished. Held, further, that it was well settled that the parties  to an original contract could by mutual agreement enter into  a new contract In substitution of the old one. Payana Reena Saminathan v. Pana Lana Palaniappa, [19I4] A.C. 618: Norris v. Baron and Company, [1918] A.C. i and  British Russian  Gazette  and  Trade  Outlook  Ltd.  v.   Associated Newspaper, Limited, [1933] 2 K.B. 616, referred to. Per  Sarkar,  J.-The award was valid and could  not  be  set aside  as the third settlement neither expressly put an  end to  the arbitration clause nor, considered as an accord  and satisfaction, did it have that effect. An accord and satisfaction is only a method of discharge  of a  contract.  It does not annihilate the contract  but  only makes the obligation arising from it unenforceable. An  arbitration  clause stands apart from the  rest  of  the contract  in which it is contained.  It does not  impose  on the one party an obligation in favour of the other; it  only embodies an agreement that if any dispute arises with regard to  any  obligation which one party has  undertaken  to  the other,  such  dispute shall be settled by  arbitration.   An accord  and  satisfaction,  which  is  concerned  with   the obligations  arising from the contract, does not  affect  an arbitration clause contained in it. Heyman  v.  Darwins  [1942] A.C.  356  and  British  Russian Gazette and Trade Outlook Ltd. v. Associated Newspapers Ltd. [1933] 2 K.B. 616, referred to. The settlement of February 22, 1949, did not, in the circum- stances of the case, amount to an accord and satisfaction.

JUDGMENT:        CIVIL APPELLATE JURISDICTION: Civil Appeal No. 250 of 1955.        495        Appeal  by special leave from the judgment and  order  dated

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      February 11, 1953, of the Calcutta High Court, in Award  No.        254 of 1949.        H.   N. Sanyal, Additional Solicitor-General of India,B.   Sen,        R. H. Dhebar and T. M. Sen, for the appellant.        C.   B. Aggarwala and Sukumar Ghose, for the respondent.        1959.   May 21.  The judgment of Jafer Imam and  Subba  Rao,        JJ., was delivered by Subba Rao, J. Sarkar, J., delivered  a        separate judgment.        SUBBA  RAO  J.-This  appeal  by  special  leave  raises  the        question of survival of an arbitration clause in a  contract        after  the said contract is superseded by a fresh one.   The        respondent’-firm, styled as " Kishorilal Gupta & Brothers ",        entered   into  the  following  three  contracts  with   the        Governor-General-in-Council through the Director General  of        Industries and Supplies, hereinafter called the  Government:        (i)  contract dated April 2, 1943, for the supply of  43,000        "Ladles  Cook"; (ii) contract dated September 15, 1944,  for        the supply of 15,500 "Bath Ovals"; and (iii) contract  dated        September 22, 1944, for the supply of 1,00,000 "Kettles Camp        "  Each  of  the said  contracts  contained  an  arbitration        clause, the material part of which was as follows :        "  In  the event of any question of  dispute  arising  under        these conditions or any special conditions of contract or in        connection with this contract (except as to any matters  the        decision  of  which  is  specially  provided  for  by  these        conditions)  the same shall be referred to the award  of  an        arbitrator   to  be  nominated  by  the  purchaser  and   an        arbitrator to be nominated by the contractor..........        Under the terms of the said three contracts, the  Government        supplied  certain raw-materials to the respondents  and  the        latter  also delivered some of the goods to the former.   On        May 21, 1945, the contract dated April 2, 1943,  hereinafter        called the first contract, was cancelled by the  Government.        The Government        496        also  demanded  certain  sums  towards  the  price  of   the        ;materials supplied by them to the respondents.  On the same        day,  the Government cancelled the contract dated  September        15, 1944, hereinafter called the second contract, and made a        claim on the respondents for the price of the  raw-materials        supplied  to  them.  The respondents  made  a  counter-claim        against  the Government for compensation for breach  of  the        contract.   On March 9, 1946, the Government  cancelled  the        contract  dated September 22, 1944, hereinafter  called  the        third  contract.   Under that contract  there  were  mutual.        claims-by  the Government for’ the raw-material supplied  to        the  contractors  and  by the latter  for  compensation  for        breach of contract.  The disputes under the three  contracts        were amicably settled.  ’The outstanding disputes under  the        first and the second contracts were settled on September  6,        1948,  and two separate documents were executed to  evidence        the said settlement.  As the decision, to some extent, turns        upon  the  comparative  study of the recitals  in  the  said        documents  of settlement, it will be convenient to read  the        material  part  of  the  recitals  contained  therein.   The        settlement  in respect of the first contract  contained  the        following recitals:        " (1) The contractor expressly agrees to pay the  Government        the sum of Rs. 3,164-8 as. only on this contract.        (2)  The  contract  on payment of the  amount  mentioned  in        clause (1) shall stand finally determined." The recitals  in        the settlement of the second contract are as follows:        "  (1)  The  contractor  expressly  agrees  to  pay  to  the        Government  the  sum of Rs. 36,276.  If D. G. 1.  &  S.  has        recovered  any amount under the contract out of the sum  due

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      credit will be given to the contractor.        (2)  The  contract  stands finally determined and  no  party        will have any further claim against the other."        One prominent difference in the phraseology used in the  two        settlements may be noticed at this stage.        497        While  under  the  settlement of the  first  contract,  ’the        contract should stand finally determined Only payment of the        amount   agreed  to  be  paid  to  the  Government  by   the        contractor, under the settlement of the second contract, the        contract  stood  finally  determined  on  the  date  of  the        settlement  itself.   The  third  contract  was  settled  on        February  22,  1949, and the material part of  the  recitals        therein is as follows:        "  (1)  The firm will pay a sum of Rs. 45,000  in  full  and        final  settlement  of the amount due to  the  Government  in        respect  of raw materials received against the contract  and        their  claims for compensation for cancellation of the  same        contract.        (2)  The firm will retain all surplus partly fabricated  and        fully fabricated stores lying with them.        (3)  The  firm agrees to pay the abovementioned sum  of  Rs.        45,000  only  together with the sums owing by  them  to  the        Government under the settlements reached in two other  cases        A/T  Nos.  MP/75762/R-61/ 78 dated 15th September  1944  and        MP/50730/8/R-I/   90  dated  2nd  April  1943   in   monthly        instalments  for Rs. 5,000 only for the first three  months,        first  instalment  being payable on 10th  March,  1949,  and        further  instalments of Rs. 9,000 per month till the  entire        dues payable to Government are paid.        (4)  In  the  event of default of  any  monthly  instalments        interest  will  be charged by Government on  the  amount  as        defaulted at the rate of 6% per annum from the first day  of        the  month  in which the instalment shall be  due.   If  the        instalments  defaulted exceed two in number  the  Government        will  have  the right to demand the entire  balance  of  the        money payable by the firm together with interest thereon  at        the rate abovementioned on that balance and take such  steps        to recover from them from the security to be offered.        (5)  In  order to provide cover for the money pay.  able  to        the  Government  the firm undertakes  to  hypothecate  their        moveable  and immoveable property in Bamangachi  Engineering        Works  together  with  all  machinery  sheds  and  leasehold        interest in        498        land  measuring  about  5.75 acres in  Mouja  Bamungachi  in        Howrah.    The  firm  further  undertakes  to  execute   the        necessary  stamped documents for the purpose as  drafted  by        the Government Solicitor at Calcutta.,        (6)  The  contracts stand finally concluded in terms of  the        settlement  and  no party will have further or  other  claim        against the other."        Broadly  speaking, this settlement was a  comprehensive  one        including therein the earlier settlements and providing  for        the recovery of the amounts agreed to be paid under the said        two  earlier settlements.  The concluding paragraph is  more        analogous  to that of the settlement of the second  contract        rather than that of the first.  Under the final  settlement,        between October 28, 1948, and January 17, 1949, the respond-        ents paid a, total sum of Rs. 9,000 to the Government  under        the  first two settlements of the contracts.  Between  March        10, 1949, and October 31, 1949, the respondents paid a total        sum of Rs.  1 1,000 in instalments to the Government, though        the  amounts  paid  were less than  the  amount  payable  in        accordance with the agreed instalments.  Some correspondence

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      passed  between  the  Government and  the  respondents,  the        former demanding the balance of the amount payable under the        instalments  and the latter putting it off on one ground  or        other.   Finally on August 10, 1949, the Government wrote  a        letter  to  the  respondents demanding the  payment  of  Rs.        1,51,723 payable to them under the three original contracts,        ignoring  the  three settlements.  The  Government  followed        that letter with another one of the same date informing  the        respondents that they had appointed Bakshi Shiv Charan Singh        as  their  arbitrator and calling upon  the  respondents  to        nominate  their  arbitrator.  The respondents  did  not  co-        operate  ’in the scheme of arbitration and  instead  Kishori        Lal Gupta as sole proprietor of the respondent-firm made  an        application under s. 33 of the Arbitration Act, 1940, in the        Original  Side of the High Court of Calcutta for a  declara-        tion  that  the  arbitration  agreement  was  no  longer  in        existence.  That application was dismissed by        499        Banerjee,  J., of the said High Court on the ground that  it        was  not  maintainable  as the two  other  partners  of  the        respondent-firm   were   not  made  parties  to   the   said        proceeding.  But in the course of the judgment, the  learned        Judge  made  some  observation on the merits  of  the  case.        Thereafter  the  Government filed their statement  of  facts        before  the arbitrator and the respondents filed a  counter-        affidavit challenging the arbitrator’s jurisdiction and also        the  correctness of the claims made by the  Government.   On        July 31, 1951, the arbitrator made an award in favour of the        Government  for a total sum of Rs. 1,16,446-11-5 in  respect        of the first and the third contracts and gave liberty to the        Government  to  recover  the amount due to  them  under  the        second contract in a suit.  The award was duly filed in  the        High  Court, and, on receiving the notice,  the  respondents        filed an application in the High Court for setting aside the        award  and  in  the alternative for’  declaration  that  the        arbitration clause in the three contracts ceased to have any        effect and stood finally determined by the settlement of the        disputes  between the parties.  Bachawat, J., held that  the        first contract was to be finally determined only on  payment        in  terms  of the settlement, and, as such payment  was  not        made,  the  original  contract and  its  arbitration  clause        continued  to  exist.  As regards the  third  contract,  the        learned  Judge  came  to the conclusion that  by  the  third        settlement,  there  was  accord  and  satisfaction  of   the        original  contract and the substituted agreement  discharged        the  existing cause of action and therefore  the  arbitrator        had  no jurisdiction to entertain any claim with  regard  to        that  contract.  As the award on the face of it was  a  lump        sum award, the learned Judge held that it was not  severable        and  therefore the whole award was bad.  In the  result,  he        gave  the declaration that the arbitration clause  contained        in the contract dated September 22,1944, for "Kettles  Camp"        had  ceased  to exist since the  settlement  contract  dated        February  22, 1949, and that the entire award was  void  and        invalid.   The present appeal by special leave was filed  by        the Government against the said order of the High Court.        500        At  the  outset,  a  preliminary  objection  taken  by  Shri        Aggarwal,  the learned Counsel for the respondents,  may  be        disposed  of The learned Counsel contends that  the  special        leave granted by this Court should be revoked on the  ground        that an appeal lay against the order of the learned Judge to        an appellate bench of the same High Court both under cl.  15        of the Letters Patent and s. 39 of the Arbitration Act.   It        is  not,  and cannot be, contended that this  Court  has  no

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      jurisdiction  to entertain an appeal against the order of  a        Court when an appeal lies from that order to another  Court.        The  provisions  of Art. 136 of the  Constitution  are  not’        circumscribed  by any such limitation.  But what is  argued,        in our view legitimately, is that when an appeal lay to  the        appellate  bench  of  the Calcutta High  Court,  this  Court        should  not  have  given special leave  and  thereby  short-        circuited  the  legal procedure prescribed.  There  is  much        force in this argument.  If the application for revoking the        special  leave had been taken at the earliest point of  time        and  if  this Court was satisfied that an appeal lay  to  an        appellate  bench  of  the Calcutta  High  Court,  the  leave        obtained  without  mentioning  that  fact  would  have  been        revoked.   But  in the present case, the special  leave  was        granted  on March 29, 1954, and the present application  for        revoking  the leave was made five years after the  grant  of        special  leave  and the learned Counsel could not  give  any        valid  reason  to  explain this inordinate  delay.   In  the        circumstances,   if  we  revoked  the  special  leave,   the        appellant  would  be prejudiced, for if this  objection  had        been  taken  at the earliest point of  time,  the  appellant        would  have had the opportunity to prefer a  Letters  Patent        appeal  to the appellate bench of the Calcutta  High  Court.        The  appellant cannot be made to suffer for the  default  of        the respondents.  In the circumstances, we did not entertain        that application for revoking the special leave and did  not        express our opinion on the merits of the question raised  by        the learned Counsel.        Now  coming  to  the merits, the  main  contentions  of  the        parties  may be stated at the outset.  The argument  of  the        Additional Solicitor-General for the        501        appellant  may be summarized in the following  propositions:        (1)  The  jurisdiction of the arbitrator  depends  upon  the        scope  of the arbitration agreement or submission;  (2)  its        scope  would  depend upon the language  of  the  arbitration        clause;  (3)  if the arbitration agreement  in  question  is        examined, it indicates that the dispute whether the original        contracts  have come to an end or not is within  its  scope;        (4) on the facts of the case, there had been no novation  or        substitution of the original contracts; and (5) if there had        been a novation of the original contracts, the  non-perform-        ance  of the terms of the new contract revived the  original        contracts    and    therefore    the    parties    to    the        original  contracts could enforce their terms including  the        arbitration  clause.   The  submission  of  Shri   Aggarwal,        Counsel  for the respondents,may be stated thus :  (1)  Upon        the facts of the case, there had been a recession of the old        contracts and substitution of a new, legally enforceable and        unconditional  contract, which came into  immediate  effect;        (2)  the new contract can be legally supported either  under        s.  62  or  s. 63 of the Indian Contract Act  or  under  the        general  law  of contracts; (3) the non-performance  of  the        terms  of  the  new  contract did not  have  the  effect  of        reviving the rights and obligations under the old  contracts        as  they did not remain alive for any purpose; and (6)  even        if the arbitration clause did not remain alive after the new        contract,  the  arbitrator was bound to decide the  case  in        terms  of the new contract, and he having not done  so,  the        error  is apparent on the face of the record  and  therefore        the award is liable to be set aside.        So  stated  the controversy covers a much wider  field  than        that necessary to solve the problem presented in this  case.        It  would, therefore’ be convenient at this stage  to  clear        the  ground.  Subtle distinctions sought to be made  between

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      the provisions of s. 62 and s. 63 of the Indian Contract Act        need  not  detain  us; nor need  we  consider  the  question        whether  the settlement contract in question falls under  s.        62 or is covered by s. 63 of the Indian Contract Act, or  is        governed by the general principles of the law of  contracts,        for the validity of the said contract is not questioned.  by        either        64        502        party  and indeed both rely upon it one to contend ,that  it        wholly  superseded  the earlier ones and the other  to  rely        upon  its terms to bring out its contingent  character.   If        so, the only two outstanding questions are: (i) what is  the        legal effect of the contract dated February 22, 1949, on the        earlier  contracts ? ; and (ii) does the arbitration  clause        in  the  earlier  contracts  survive  after  the  settlement        contract ?        The  law  on the first point is well-settled.   One  of  the        modes  by which a contract can be discharged is by the  same        process  which  created it, i.e., by mutual  agreement;  the        parties  to  the  original contract may  enter  into  a  new        contract in substitution of the old one.  The legal position        was   clarified  by  the  Privy  Council  in  Payana   Reena        Saminathan  v.  Pana  Lana  Palaniappa  (1).   Lord  Moulton        defined the legal incidents of a substituted contract in the        following terms at p. 622:        " 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 plea ding 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.        "  The House of Lords in Norris v. Baron and Company (2)  in        the  context  of a contract for sale of  goods  brought  out        clearly the distinction between a contract which varies  the        terms of the earlier contract and a contract which  rescinds        the earlier one, in the following passage at p. 26:        "In  the first case there are no such executory  clauses  in        the second arrangement as would enable        (1) [1914] A.C. 618 622.         (2) [1918] A.C. 1. 26.        503        you  to sue upon that alone if the first did not  exist;  in        the  second you could sue on the second  arrangement  alone,        and  the  first contract is got rid of either 2  by  express        words  to that effect, or because, the second  dealing  with        the same subject-matter as the first but in a different way,        it is impossible that the two should be both performed.  "        Scrutton, L.J., in British Russian Gazette and Trade Outlook        Limited   v.  Associated  Newspaper,  Limited   (1),   after        referring  to the authoritative text-books on  the  subject,        describes  the concept of 11 accord and satisfaction "  thus        at p. 643:        " Accord and satisfaction is the purchase of a ,release from        an  obligation  whether arising under contract  or  tort  by        means  of any valuable consideration, not being  the  actual        performance  of  the obligation itself.  The accord  is  the        agreement  by  which  the  obligation  is  discharged.   The

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      satisfaction is the consideration which makes the  agreement        operative.  Formerly it was necessary that the consideration        should  be  executed      Later it  was  conceded  that  the        consideration might be executory  The consideration on  each        side  might be an executory promise, the two mutual  promise        making  an agreement enforceable in law, a contract    I  An        accord,  with  mutual promises to perform, is  good,  though        ’the  thing be not performed at the time of action; for  the        party  has a remedy to compel the performance’, that  is  to        say,  a cross action on the contract of accord if,  however,        it can be shown that what a creditor accepts in satisfaction        is  merely his debtor’s promise and not the  performance  of        that  promise,  the original cause of action  is  discharged        from the date when the promise is made.  "        The  said  observations indicate that an original  cause  of        action  can be discharged by an executory agreement  if  the        intention  to  that  effect is clear.  The  modern  rule  is        stated by Cheshire and Fifoot in their Law of Contract,  3rd        Edn., at p. 453:        "The  modern  rule is, then, that if what the  creditor  has        accepted in satisfaction is merely his        (1)  [1933] 2 K.B. 6i6, 643, 644.        504        debtor’s   promise  to  give  consideration,  and  not   the        performance of that promise, the original cause of action is        discharged from the date when the agreement is made.        This,  therefore, raises a question of construction in  each        case, for it has to be decided as a fact whether it was  the        making  of  the  promise itself or the  performance  of  the        promise  that  the  creditor consented to  take  by  way  of        satisfaction.  "        So  too, Chitty in his book on Contracts, 31st Edn.,  states        at p. 286:        "  The  plaintiff may agree to accept the performance  of  a        substituted  consideration in satisfaction, or he may  agree        to  accept the promise of such performance.  In  the  former        there  is no satisfaction until performance, and the  debtor        remains   liable   upon  the  original   claim   until   the        satisfaction is executed.  In the latter, if the promise  be        not  performed, the plaintiff’s remedy is by action for  the        breach of the substituted agreement, and he has no right  of        resort to the original claim.  "        From  the  aforesaid  authorities  it  is  manifest  that  a        contract  may  be  discharged by the parties  thereto  by  a        substituted  agreement and thereafter the original cause  of        action arising under the earlier contract is discharged  and        the   parties  are  governed  only  by  the  terms  of   the        substituted contract.  The ascertainment of the intention of        the parties is essentially a question of fact to be  decided        on the facts and circumstances of each case.        We have already given the sequence of events that led to the        making  of  the  contract  dated  February  22,  1949.    To        recapitulate  briefly,  the original  three  contracts  were        cancelled. by the Government on May 21, 1945, May 21,  1945,        and March 9, 1946, respectively.  Under the first  contract,        the  Government  made  a claim for the  price  of  the  raw-        materials  supplied  and there was no counter-claim  by  the        respondents.   Under the second and third  contracts,  there        were counter-claims-the Government claiming amounts for  the        raw-materials supplied and the respondents claiming  damages        for the breach thereof.        505        The  disputes under the first two contracts were settled  on        the  same  day.  As the claim was only on the  part  of  the        Government,  the amount due to them was ascertained  at  Rs.

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      3,164-8-0 and the first contract was expressly agreed to  be        finally  determined on payment of that amount.  The  express        terms  of  the settlement leave no room to  doubt  that  the        contract was to be determined only after the payment of  the        ascertained amount.  But under the second settlement,  which        was a compromise of disputed claims, a sum of Rs. 36,276 was        fixed  as  the  amount  due  from  the  respondents  to  the        Government,  presumably  on taking  into  consideration  the        conflicting  claims  and  on  adjusting  all  the,   amounts        ascertained to be due from one to the other.  The parties in        express terms agreed that the earlier contract stood finally        determined and that no party would have any claim thereunder        against the other.  A comparative study of the terms of  the        said two settlement contracts indicates that under the first        settlement  the  original contract continued to  govern  the        rights  of the parties till payment, while under the  second        settlement  contract, the original contract  was  determined        and  the  rights  and liabilities of  the  parties  depended        thereafter on the substituted contract.  Coming to the third        settlement, it was in the pattern of the second  settlement.        On  the  breach  of the third contract,  there  were  mutual        claims,  the  Government claiming a large  amount  for  raw-        materials  supplied  to the respondents, and the  latter  on        their side setting up a claim for damages.  Further,  though        the earlier two contracts were settled on September 6, 1948,        the amounts payable under the said two settlements were  not        paid.    A  comprehensive  settlement,  therefore,  of   the        outstanding  claims was arrived at between the parties,  and        the rights and liabilities were attempted to be crystallized        and a suitable procedure designed for realising the amounts.        In  full  and  final settlement of the amounts  due  to  the        Government in respect of the raw-materials received  against        the  contracts and the respondents’ claim  for  compensation        for  cancellation of the contracts, it was agreed  that  the        respondents should pay a sum of Rs. 45,000 to the Government        506        and  that  the respondents should retain all  the  material,        partly  fabricated  and fully fabricated stores  lying  with        them.  Clauses 3, 4 and 5 provide for the realisation of the        entire amounts covered by the three settlements.  Under  cl.        3  the  respondents agreed to pay the total  amount  payable        under  the three settlements in monthly instalments for  the        first three months commencing from March 10, 1949, at a  sum        of Rs. 5,000 and thereafter at a sum of Rs. 9,000 per  month        till  the entire amount was paid.  Clause 4 prescribed  that        in case of default of any monthly instalment interest  would        be  charged  at  the  rate  of  6%  per  annum  and  if  the        instalments defaulted exceeded two in number the  Government        was  given  the right to realise the entire  amount  payable        under  the three contracts with interest not only  from  the        security but also otherwise.  Under cl. 5 it was  stipulated        that  the respondents should hypothecate their moveable  and        immoveable properties described thereunder to provide  cover        for  the  moneys  payable to the Government.   Clause  6  in        express terms declared that the contracts should be  finally        concluded in terms of the settlement and no party would have        any claim against the other.  Is there any justification for        the  contention that the substituted contract should  either        come into force after the hypothecation bond was executed or        that  it should cease to be effective if the said  bond  was        not’ executed within a reasonable time from the date of  the        settlement?   We  do  not find any  justification  for  this        contention either in the express terms of the contract or in        the  surrounding circumstances whereunder the document  came        to  be executed.  It was a self-contained document;  it  did

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      not  depend upon the earlier contracts for its existence  or        enforcement.  The liability was ascertained and the mode  of        recovery  was  provided  for.  The  earlier  contracts  were        superseded  and  the rights and liabilities of  the  parties        were regulated thereunder.  No condition either precedent or        subsequent  was expressly provided; nor was there any  scope        for  necessarily implying one or either.  The only  argument        in this direction,        507        namely, that it is impossible to attribute any intention  to        the  Government to take a mere promise on. the part  of  the        respondents   to   hypothecate  their   properties   "’   as        satisfaction  "  and therefore it should be  held  that  the        intention  of  the  parties  was  that  there  would  be  no        satisfaction  till  such a document was executed,  does  not        appeal to us.  We are concerned with the expressed intention        of the parties and when the words are clear and unambiguous-        they  are undoubtedly clear in this case-there is  no  scope        for  drawing  upon hypothetical considerations  or  supposed        intentions  of  the  parties; nor are we  attracted  by  the        argument that the description of the properties intended  to        be  hypothecated  was  not  made  clear  and  therefore  the        presumed  intention was to suspend the rights under the  new        contract till a valid document in respect of a definite  and        specified  property was executed.  Apart from the fact  that        we are not satisfied with the argument that the  description        was  indefinite,  we do not think that such  a  flaw  either        invalidates  a document or suspends its operation  till  the        defect  is  rectified  or  the  ambiguity  clarified.    The        substituted  agreement  gave  a  new  cause  of  action  and        obliterated  the  earlier  ones and if  there  was  a  valid        defence against the enforcement of the new contract in whole        or  in part, the party affected must take the  consequences.        We  have,  therefore,  no  doubt  that  the  contract  dated        February  22,  1949,  was for valid  consideration  and  the        common  intention  of the parties was that it should  be  in        substitution  of  the earlier ones and the  parties  thereto        should thereafter look to it alone for enforcement of  their        claims.  As the document does not disclose any ambiguity, no        scrutiny of the subsequent conduct of the parties is  called        for to ascertain their intention.        If  so, the next question is whether the arbitration  clause        of  the original contracts survived after the  execution  of        the  settlement  contract  dated  February  22,  1949.   The        learned Counsel for the appellant contends that the terms of        the  arbitration clause are wide and comprehensive, and  any        dispute  on  the  question whether  the  said  contract  was        discharged  by any of the ways known to law came within  its        fold.        508        Uninfluenced by authorities or case-law, the logical outcome        of  the  earlier discussion would be  that  the  arbitration        clause  perished  with the original contract.   Whether  the        said  clause was a substantive term or a collateral one,  it        was  none the less an integral part of the  contract,  which        had  no existence de hors the contract.  It was intended  to        cover  all the disputes arising under the conditions of,  or        in  connection with, the contracts.  Though the  phraseology        was  of the widest amplitude, it is inconceivable  that  the        parties  intended its survival even after the  contract  was        mutually rescinded and substituted by a new agreement.   The        fact that the new contract not only did not provide for  the        survival of the arbitration clause but also the circumstance        that  it  contained both substantive  and  procedural  terms        indicates  that  the parties gave up the terms  of  the  old

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      contracts,  including the arbitration clause.  The  case-law        referred  to by the learned Counsel in this connection  does        not,  in our view, lend support to his broad contention  and        indeed  the principle on which the said decisions are  based        is a pointer to the contrary.        We shall now notice some of the authoritative statements  in        the  text-books  and  a  few of the  cases  bearing  on  the        question raised: In Chitty on Contract, 21st Edn., the scope        of an arbitration clause is stated thus, at p. 322:        "  So  that  the law must be now taken to be  that  when  an        arbitration  clause is unqualified such a clause will  apply        even if the dispute involve an assertion that  circumstances        had  arisen  whether before or after the contract  had  been        partly performed which have the effect of discharging one or        both parties from liability, e.g., repudiation by one  party        accepted by the other, or frustration."        In  "  Russel  on  Arbitration ",  16th  Edn.,  p.  63,  the        following  test  is  laid  down  to  ascertain  whether   an        arbitration clause survives after the contract is deter-        mined:        "  The  test in such cases has been said to be  whether  the        contract is determined by something outside itself, in which        case the arbitration clause        509        is  determined with it, or by something arising out  of  the        contract,  in  which case the  arbitration  clause.  remains        effective and can be enforced."        The  Judicial  Committee  in  Hirji  Mulji  v.  Cheong   Yue        Steamship Company (1) gives another test at p. 502:        "That  a  person before whom a complaint is  brought  cannot        invest  himself with arbitral jurisdiction to decide  it  is        plain.   His  authority  depends on the  existence  of  some        submission  to him by the parties of the subject  matter  of        the  complaint.   For  this  purpose  a  contract  that  has        determined  is  in the same position as one that  has  never        been concluded at all.  It founds no jurisdiction."        A very interesting discussion on the scope of an arbitration        clause  in the context of a dispute arising on the  question        of repudiation of a contract is found in the decision of the        House  of  Lords  in Heyman v. Darwine Ltd  .(2  )  There  a        contract was repudiated by one party and accepted as such by        the  other.  The dispute arose in regard to damages under  a        number  of heads covered by the contract.   The  arbitration        clause  provided  that any dispute between  the  parties  in        respect of the agreement or any of the provisions  contained        therein  or anything arising thereout should be referred  to        arbitration.   The House of Lords held that the dispute  was        one  within the arbitration clause.  In the speeches of  the        Law  Lords  a wider question is discussed and  some  of  the        relevant  principles have been succinctly stated.   Viscount        Simon L.C. observed at p. 343 thus:        "  An arbitration clause is a written submission, agreed  to        by  the  parties to the contract, and,  like  other  written        submissions  to arbitration, must be construed according  to        its language and in the light of the circumstances in  which        it  is made.  If the dispute is as to whether  the  contract        which contains the clause has ever been entered into at all,        that  issue cannot go to arbitration under the  clause,  for        the  party  who  denies that he has ever  entered  into  the        contract  is thereby denying that he has ever joined in  the        submission.  Similarly, if one party to        (1)  [1926] A.C. 497,502.        65        (2) [1942] 1 All E.R. 337, 343-345, 347, 350.        510

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      the alleged contract is contending that it is void ab initio        (because,  for  example, the making of such  a  contract  is        illegal), the arbitration clause cannot operate, for on this        view the clause itself is also void.        If,  however, the parties are at one in asserting that  they        entered into a binding contract, but a difference has arisen        between  them as to whether there has been a breach  by  one        side  or  the  other, or as to  whether  circumstances  have        arisen  which  have  discharged one  or  both  parties  from        further performance, such differences should be regarded  as        differences  which have arisen " in respect of ", or "  with        regard  to ", or " under " the contract, and an  arbitration        clause which uses these, or similar, expressions, should  be        construed  accordingly.  By the law of England (though  not,        as I understand, by the law of Scotland) such an arbitration        clause  would  also confer authority to assess  damages  for        breach even though it does not confer upon the arbitral body        express power to do so.        I do not agree that an arbitration clause expressed in  such        terms  as  above  ceases to have  any  possible  application        merely  because the contract has "come to an end",  as,  for        example,   by  frustration.   In  such  cases  it   is   the        performance of the contract that has come to an end."        The learned Law Lord commented on the view expressed by Lord        Dunedin at p. 344 thus:        "  The  reasoning of Lord Dunedin applies  equally  to  both        cases.   It  is,  in my opinion,  fallacious  to  say  that,        because  the  contract  has  "  come  to  an  end  "  before        performance begins, the situation, so far as the arbitration        clause is concerned, is the same as though the contract  had        never  been  made.   In such case  a  binding  contract  was        entered  into,  with  a  valid  submission  to   arbitration        contained  in  its  arbitration  clause,  and,  unless  -the        language of the arbitration clause is such as to exclude its        application  until  performance has begun,  there  seems  no        reason  why the arbitrator’s jurisdiction should  not  cover        the one case as much as the other."        511        Lord Macmillan made similar observations at p. 345:        " If it appears that the dispute is as to whether, there has        ever  been  a binding contract between the parties,  such  a        dispute  cannot be covered by an arbitration clause  in  the        challenged contract.  If there has, never been a contract at        all,  there  has never been as part of it  an  agreement  to        arbitrate; the greater includes the less.  Further, a  claim        to set aside a contract on such grounds as fraud, duress  or        essential error cannot be the subject matter of a  reference        under an arbitration clause in the contract sought to be set        aside.   Again, an admittedly binding contract containing  a        general  arbitration  clause may stipulate that  in  certain        events  the  contract shall come to an end.  If  a  question        arises whether the contract has for any such reason come  to        an  end, I can see no reason why the arbitrator  should  not        decide that question.  It is clear, too, that the parties to        a  contract may agree to bring it to an end to  all  intents        and purposes and to treat it as if it had never existed.  In        such  a  case,  if there be an  arbitration  clause  in  the        contract,  it  perishes with the contract.  If  the  parties        substitute  a new contract for the contract which they  have        abrogated, the arbitration clause in the abrogated  contract        cannot  be invoked for the determination of questions  under        the new agreement.  All this is more or less elementary.  "        These observations throw considerable light on the  question        whether an arbitration clause can be invoked in the case  of        a  dispute  under a superseded contract.  The  principle  is

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      obvious;  if  the  contract is superseded  by  another,  the        arbitration  clause, being a component part of  the  earlier        contract,  falls with it.  The learned Law  Lord  pin-points        the principle underlying his conclusion at p. 347:        "  I am accordingly of opinion that what is commonly  called        repudiation   or  total  breach  of  a   contract,   whether        acquiesced in by the other party or not, does not abrogate a        contract,  though  it may relieve the injured party  of  the        duty of further fulfilling the obligations which he has by a        contract undertaken        512        to  the repudiating party.  The contract is not put  out  of        existence, though all further performance of the obligations        undertaken  by each party in favour of the other may  cease.        It survives for the purpose of measuring the claims  arising        out  of the breach, and the arbitration clause survives  for        determining  the mode of their settlement.  The purposes  of        the contract have failed, but the arbitration clause is  not        one of the purposes of the contract."        Lord  Wright,  after  explaining the scope  of  the  word  "        repudiation   "  and  the  different  meanings  its   bears,        proceeded to state at p. 350:        "  In  such a case, if the repudiation is wrongful  and  the        rescission  is  rightful,  the  contract  is  ended  by  the        rescission; but only as far as concerns future  performance.        It  remains  alive for the awarding of damages,  either  for        previous  breaches, or for the breach which constitutes  the        repudiation.   That  is only a particular form  of  contract        breaking and would generally, under an ordinary  arbitration        clause, involve a dispute under the contract like any  other        breach of contract."        This  decision is not directly in point; but the  principles        laid  down therein are of wider application than the  actual        decision  involved.  If an arbitration clause is couched  in        widest  terms as in the present case, the  dispute,  whether        there is frustration or repudiation of the contract, will be        covered  by  it.  It is not because the  arbitration  clause        survives,  but  because, though such  repudiation  ends  the        liability  of the parties to perform the contract,  it  does        not  put  an end to their liability to pay damages  for  any        breach of the contract.  The contract is still in  existence        for certain purposes.  But where the dispute is whether  the        said  contract  is void ab initio,  the  arbitration  clause        cannot  operate on those disputes, for its  operative  force        depends upon the existence of the contract and its validity.        So  too,  if the dispute is whether the contract  is  wholly        superseded  or  not by a new contract between  the  parties,        such  a  dispute must fall outside the  arbitration  clause,        for, if it is superseded, the arbitration clause falls  with        it. The argument, therefore, that the legal position is        513        the same whether the dispute is in respect of repudiation or        frustration or novation is not borne out by these decisions.        An equally illuminating judgment of Das, J., as he then was,        in Tolaram Nathmull v. Birla Jute Manufacturing Co.  Ltd.(1)        is  strongly  relied  upon by the learned  Counsel  for  the        appellant.   There the question was whether  an  arbitration        clause  which  was expressed in wide terms would take  in  a        dispute  raised in that case.  It was contended on one  side        that  the contract was void ab intio and on the  other  side        that,  even on the allegations in the plaint,  the  contract        was not ab initio void.  The learned Judge, on the facts  of        that  case, held that no case had been made out for  staying        the  suit and therefore dismissed the application  filed  by        the  defendant  for  stay of the suit.   The  learned  Judge

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      exhaustively  considered  the case-law oil the  subject  and        deduced  the principles and enumerated them at p. 187.   The        learned  Judge  was not called upon to  decide  the  present        question, namely, whether an arbitration clause survived  in        spite of substitution of the earlier contract containing the        arbitration  clause by a fresh one, and therefore we do  not        think  that  it is necessary to express our opinion  on  the        principles culled out and enumerated in that decision.        The following principles relevant to the present case emerge        from the aforesaid discussion: (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        (1)  I.L.R. [1948] 2 Cal.  171.        514        original  contract is extinguished by the  substituted  one,        the  arbitration  clause of the original  contract  perishes        with  it; and (6) between the two falls 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.        We  have held that the three contracts were settled and  the        third  settlement contract was in substitution of the  three        contracts;  and,  after  its  execution,  all  the   earlier        contracts  were  extinguished  and  the  arbitration  clause        contained  therein also perished along with them.   We  have        also  held that the new contract was not a  conditional  one        and  after its execution the parties should work  out  their        rights only under its terms.  In this view, the judgment  of        the  High  Court  is  correct.  This  appeal  fails  and  is        dismissed with costs.        SARKAR  J.-On  different dates in 1943 and 1944, a  firm  of        contractors  of  the  name of Kishorilal  Gupta  &  Brothers        entered into three contracts with the appellant to fabricate        and supply certain military stores.  The first contract  was        for 43,000 ladles cook, the second for 15,500 bath ovals and        the  third  for  1,00,000  kettles  camp.   Each  of   these        contracts   contained  an  arbitration  clause.   The   last        mentioned contract provided that the appellant would  supply        materials  for  the  fabrication  of  the  articles  to   be        delivered under it.        Before  the  contracts had been finally  executed,  disputes        arose  between the parties.  These disputes were settled  by        mutual  agreements  which were contained in  three  separate        documents.   The  settlement in respect of the  ladles  cook        contract which was made on September 6, 1948, provided  that        the  contractors  would pay to the appellant a  sum  of  Rs.        3,164-8-0  and  on such payment that  contract  would  stand        finally determined.  Under the settlement in respect of the,        bath ovals contract which also was made on

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      515        September  6,  1948, the contractors agreed to  pay  to  the        appellant  Rs.  36,276 and it provided that "  the  contract        stands  finally  determined  and no  party  shall  have  any        further  claim  against  the  other  ".  The  terms  of  the        settlement of the kettles camp contract are set out below in        full, for, this case depends on them:        Dated the 22nd February 1949.        Messrs.  Kishorilal Gupta & Bros., Calcutta.        Subs:-A.T.  No.  MP/75442/R-11397 dated the  22nd  September        1944.        Dear Sir,        Reference discussion held on 5th February 1949 between  your        Proprietor  Mr. Kishorilal Gupta and General Manager  J.  B.        Breiter and the Claims Committee of the Directorate General.        I  hereby confirm the following terms of settlement  arrived        at in the meeting.  The settlement has received the approval        of Director General of Industries and Supplies, New Delhi.        1.   The firm will pay a sum of Rs. 45,000 in full and final        settlement of the amount due to the Government in respect of        raw materials received against the contract and their claims        for compensation for cancellation for the same contract.        2.   The firm will retain all surplus partly fabricated and        fully fabricated stores, lying with them.        3.   The  firm agree to pay the above-mentioned sum  of  Rs.        45,000  only  together with the sums owing by  them  to  the        Government under the settlements reached in two other  cases        A/T  Nos.   MP/75762/R-61/78 dated 15th September  1944  and        MP/50730/8/R-1/90   dated   2nd  April   1943   in   monthly        instalments  for Rs. 5,000 only for the first three  months,        first  instalment  being  payable on  10th  March  1949  and        further  instalments of Rs. 9,000 per month till the  entire        dues payable to Government are paid.        4.   In  the  event of default of  any  monthly  instalments        interest  will  be charged by Government on  the  amount  as        defaulted at the rate of 6% per annum from the first day  of        the  month  in  which  the instalment  shall  due.   If  the        instalments defaulted        516        exceed two in number, the Government will have the right  to        demand  the entire balance of the money payable by the  firm        together with interest thereon at the rate abovementioned on        that  balance  and  take  such steps  to  recover  from  the        Security  to  be  offered  by the  firm,  in  terms  of  the        settlement or otherwise.        5.   In order to provide cover for the monies payable to the        Government the firm undertakes to hypothecate their  movable        and  immoveable  property in Bamangachi  Engineering  Works,        together with all machinery sheds and lease-hold interest in        land  measuring  about  5.75 acres at  Mouja  Bamangachi  in        Howrah.    The  firm  further  undertakes  to  execute   the        necessary  stamped documents for the purpose as  drafted  by        the Government Solicitor at Calcutta.        6.   The  contracts stand finally concluded in terms of  the        settlement and no party will have any further or other claim        against the other.        Please acknowledge receipt.        Yours faithfully,        Sd. R. B. L. Mathur        Director of Supplies (Claims)        for and on behalf of the Governor General."        The contract  referred to in cl. (1) of this document is the        contract  No. MP/75442/R-1/397 mentioned at the top  of  the        letter  and  concerned  the  kettles  camp.   The  contracts        referred  to in cl. (3) are the contracts concerning  ladles

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      cook  and bath ovals which had been settled earlier but  the        amounts  due in respect of the settlements  concerning  them        had not been paid in full.        After  the settlement of February 22, 1949, the  contractors        made  certain  payments aggregating Rs.  1 1,000,  the  last        payment made being on October 31, 1949.  These payments  had        not been made as provided in el. (3).  The contractors  also        failed  to execute the hypothecation deed mentioned  in  el.        (5).  Certain correspondence appears to have taken place but        with no tangible result.  The appellant was unable to obtain        payments   or  the  hypothecation  deed  in  terms  of   the        settlement.        517        In  these circumstances the appellant made a  claim  against        the  contractors  under  the  three  original  con-,  tracts        amounting  to Rs. 1,52,723 and referred it  to’  arbitration        under  the  arbitration  clauses  contained  in  them.   The        appellant  nominated  an  arbitrator  and  called  upon  the        contractors  to nominate the other, the  arbitration  clause        providing that the arbitration shall be by two  arbitrators,        one to be nominated by each party.  The contractors did  not        nominate  any arbitrator, contending that the matter  had  "        already  been  negotiated to a settlement " and  that  there        were " no outstanding disputes to be referred to arbitration        ".  The appellant then appointed the person nominated by  it        as   the  sole  arbitrator  under  the  provisions  of   the        Arbitration Act and an arbitration was held by him in  which        the contractors joined.  In the arbitration proceedings, for        reasons  with  which  we are not  concerned,  the  appellant        abandoned  its claim in respect of the bath ovals  contract.        On July 31, 1951, the arbitrator made an award in favour  of        the appellant in the sum of Rs. 1,16,446-11-5 in respect  of        its claim on the ladles cook and kettles camp contracts.        Being  aggrieved  by the award,  the  respondent  Kishorilal        Gupta,  who is a partner of the contractors’ firm,  made  an        application  to the High Court at Calcutta in  its  Original        Jurisdiction for a declaration that the arbitration  clauses        in the original contracts had ceased to have any effect  and        the  contracts stood finally determined as a result  of  the        settlements  earlier  referred to and for an  order  setting        aside the award as void and a nullity.        I  wish  to  draw  attention  here  to  the  fact  that  the        application  was  really concerned with  the  contracts  for        ladles cook and kettles camp.  It had nothing to do with the        bath  ovals’ contract for the appellant withdrew  its  claim        under  it from arbitration and no award was made in  respect        of  it.  So in this appeal we are not really concerned  with        that contract.        Bachawat,  J.,  who  heard the  application  held  that  the        contract  for  ladles  cook had not been  abrogated  by  the        settlement  in  respect  of  it for  -reasons  which  it  is        unnecessary to state here as this part of the decision        518        of the learned Judge has not been challenged before us. a We        have therefore to proceed on the basis that the  arbitration        clause  contained in the ladles cook contract  continued  in        force in spite of the settlement in respect of it.        The learned Judge however held that the contract for kettles        camp  including the arbitration clause contained in  it  had        ceased  to exist as a result of the settlement  of  February        22,   1949,   and  the  arbitrator   had   consequently   no        jurisdiction to make any award purporting to act under  that        arbitration  clause.  He then proceeded to hold that as  the        award  was a single and inseverable award in respect of  the        claims  under  the ladles cook as well as the  kettles  camp

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      contracts,  the whole award became invalid.  In  the  result        the  learned  Judge made an order declaring that  the  arbi-        tration  clause contained in the kettles camp  contract  had        ceased to exist and setting aside the award as a whole.        It is against this judgment that the present appeal has been        filed with leave granted by this Court.  It was contended on        behalf of the respondent that the leave should not have been        granted  as the appellant had a right of appeal to the  High        Court  itself.   We were on this basis asked to  revoke  the        leave.  It appears that there are some cases of the Calcutta        High  Court which create a good deal of doubt as to  whether        an  appeal lay to that High Court from an order of the  kind        made   in   this  case.   The  appellants   therefore   were        legitimately in difficulty in deciding whether an appeal lay        to  the High Court.  Again, leave was granted by this  Court        as  far  back as March 29, 1954, and the  respondent  at  no        stage earlier than the hearing of the appeal before us  took        any  objection to that leave.  It is too late now  to  allow        him to do that.  So to do would leave the appellant entirely        without  remedy as an appeal to the High Court would in  any        event  be now barred.  I feel therefore that no question  of        revoking the leave should be allowed to be raised.        It  is useful to remind ourselves before proceeding  further        that  what  was referred to arbitration in this case  was  a        claim by the appellant for damages for        519        breach  of the contracts said to have been committed by  the        contractors.   That indeed is the respondent’s, case.   With        regard  to  the  merits  of this claim  the’  Court  has  no        concern.  But it is important to note that those claims were        clearly  within  the arbitration clause  in  the  contracts;        about  this  there does not appear to be  any  dispute.   No        question  therefore  arises in this appeal that  the  claims        referred  to  arbitration were not  within  the  arbitration        clauses.        What is in dispute in this case is whether the  ’arbitration        clause  had ceased to exist as a result of  settlement.   In        considering  the  question it is not  necessary  however  to        concern ourselves with the settlements regarding the  ladles        cook  contract or the bath ovals contract.  The  bath  ovals        contract is not the subject matter of the award.  As regards        the  ladles  cook contract, the Court below  has  held  that        settlement  did not affect the relative  arbitration  clause        and that decision has not been challenged before us.        The  real question that we have to consider is  whether  the        settlement  of  February  22, 1949, altogether  put  out  of        existence  the  arbitration  clause  in  the  kettles   camp        contract.   If  it  did, the arbitration in  this  case  was        clearly without jurisdiction and the award resulting from it        a  nullity, for on that basis there would be no  arbitration        agreement  under  which an arbitration could  be  held.   An        arbitration  agreement,  of course, is the  creature  of  an        agreement and what is created by agreement may be  destroyed        by  agreement.   Lord Macmillan considered it  elementary  "        that  the parties to a contract may agree to bring it to  an        end’  to all intents and purposes and to treat it as  if  it        had never existed " and that " In such a case if there be an        arbitration  clause  in the contract it  perishes  with  the        contract "-: Heyman v. Darwins (1).        Now  it is clear that the settlement of February  22,  1949,        does not expressly make the arbitration clause  nonexistent.        It is however said that the settlement of February 22, 1949,        operated  as  an accord and satisfaction and  therefore  the        arbitration  clause  in the relative original  contract  was        brought to an end by it.

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      (1)  [1942] A.C. 356, 371.        520        It if; said that such a settlement amounts to a  substituted        agreement  which  abrogated the original  contract  and  the        arbitration clause contained in it perished with it.        I  venture to think that this view is wrong  and  originates        from  a  misapprehension of the real nature  of  accord  and        satisfaction  and an arbitration clause in a  contract.   It        must  here  be stated that the appellant disputes  that  the        settlement  of February 22, 1949, amounted to an accord  and        satisfaction.   I  will examine the  appellant’s  contention        later  and shall for the present assume that the  settlement        constituted an accord and satisfaction.        Now what is an accord and satisfaction ? It is only a method        of discharge of a contract.  It only means that the  parties        are freed from their mutual obligations under the contract :        see  Cheshire and Fifoot on Contracts, 3rd edn., p. 433.   "        It  is  a good defence to an action for the  breach  of  any        contract, whether made by parol or specialty, that the cause        of  action has been discharged by accord  and  satisfaction,        that  is to say, by an agreement after breach  whereby  some        consideration other than his legal remedy is to be  accepted        by the party not in fault ": Chitty on Contracts, 21st edn.,        p. 286. In British Russian Gazette and Trade Outlook.   Ltd.        v.  Associated Newspapers Ltd. (1) Scrutton, L.J.,  said,  "        Accord and satisfaction is the purchase of the release  from        an  obligation  whether arising under contract  or  tort  by        means  of any valuable consideration, not being  the  actual        performance  of  the obligation itself.  The accord  is  the        agreement  by  which  the  obligation  is  discharged.   The        satisfaction is the consideration which makes the  agreement        operative."        The  effect  of an accord and satisfaction is  therefore  to        secure  a  release  from  an  obligation  arising  under   a        contract.  Now it is difficult to conceive of an  obligation        arising  from  a contract unles the  contract  existed.   An        accord and satisfaction which secures a release from such an        obligation is really based on the existence of the  contract        instead of treating it as non-existent.        (1)  [1933] 2 K.B. 616, 643-4.        521        The contract is not annihilated but the obligations under it        cease  to  be  enforceable.  Therefore it is  that  when  an        action   is   brought  for  the   appropriate   remedy   for        nonperformance  of  these obligations, that  an  accord  and        satisfaction  furnishes a good defence.  The defence is  not        that the contract has come to an end but that its breach has        been satisfied by accord and satisfaction and therefore  the        plaintiff in the action is not entitled to the usual  remedy        for the breach.        It  would  clearly appear from the terms of  the  settlement        that  it dealt with remedies for the breach of  the  kettles        camp  contract.   Clause  (1) shows that  the  parties  were        making  cross-claims against each other for breach  of  that        contract and these were settled by mutual agreement upon the        term  that  the contractors would pay to the  appellant  Rs.        45,000.  Clauses (3), (4) and (5) state how this sum was  to        be paid and how the payment of it was to be secured.  Clause        (6)  provides that the contract stands finally concluded  in        terms  of the settlement.  The parties therefore  were  only        intending  to decide the dispute as to cross-claims made  on        the  basis  of  the breach of the contract.   So  they  were        assuming  the existence of the contract, for there could  be        no breach of it unless it existed.        Now  I come to the nature of an arbitration clause.   It  is

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      well  settled that such a clause in a contract stands  apart        from the rest of the contract.  Lord Wright said in Heyman’s        case  (1) that an arbitration clause " is collateral to  the        substantial  stipulations  of the contract.   It  is  merely        procedural  and  ancillary,  -it  is  a  mode  of   settling        disputes....................  All this may be said of  every        agreement to arbitrate, even though not a separate  bargain,        but   one  incorporated  in  the  general  contract."   Lord        Macmillan also made some very revealing observations on  the        nature  of an arbitration clause in the same case.  He  said        at pp. 373-4:        "  I  venture to think that not enough  attention  has  been        directed  to the true nature and function of an  arbitration        clause  in a contract.  It is quite distinct from the  other        clauses.  The other clauses        (1)  [1942] A.C. 356, 371.        522        set out the obligations which the parties undertake  towards        each  other hinc inde, but the arbitration clause  does  not        impose on one of the parties an obligation in favour of  the        other.  It embodies the agreement of both -the parties that,        if  any dispute arises with regard to the obligations  which        the  one  party has undertaken to the  other,  such  dispute        shall  be settled by a tribunal of their  own  constitution.        And there is this very material difference, that whereas  in        an ordinary contract the obligations of the parties to  each        other cannot in general be specifically enforced and  breach        of them results only in damages, the arbitration clause  can        be specifically enforced by the machinery of the Arbitration        Act.The  appropriate remedy for breach of the  agreement  to        arbitrate is not damages, but its enforcement."        It  seems  to me that the respective nature  of  accord  and        satisfaction and arbitration clause makes it impossible  for        the   former   to  destroy  the  latter.   An   accord   and        satisfaction only releases the parties from the  obligations        under a contract but does not affect the arbitration  clause        in  it, for as Lord Macmillan said, the  arbitration  clause        does  riot  impose on one of the parties  an  obligation  in        favour  of the other but embodies an agreement that  if  any        dispute arises with regard to the obligations which the  one        party  has  undertaken to the other, such dispute  shall  be        settled  by arbitration.  A dispute whether the  obligations        under  a  contract  have been discharged by  an  accord  and        satisfaction is no less a dispute regarding the  obligations        under  the  contract.  Such a dispute has to be  settled  by        arbitration if it is within the scope of arbitration  clause        and  either  party wants that to be done.   That  cannot  be        unless  the’  arbitration  clause survives  the  accord  and        satisfaction.  If that dispute is not within the arbitration        clause,  there  can  of course be no  arbitration,  but  the        reason for that would not be that the arbitration clause has        ceased  to exist but that the dispute is outside its  scope.        I  am  not saying that it is for the  arbitrator  to  decide        whether  the arbitration clause is surviving ; that  may  in        many cases have to be decided by the Court.  That would        523        depend on the form of the arbitration agreement and on  that        aspect of the matter it is not necessary to say anything now        for the question does not arise.        In  my  view therefore an accord and satisfaction  does  not        destroy the arbitration clause.  An examination of what  has        been  called the accord and satisfaction in this case  shows        this clearly.  From what I have earlier said about the terms        of the settlement of February 22, 1949, it is manifest  that        it  settled the disputes between the parties concerning  the

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      breach   of   the  contract  for  kettles   camp   and   its        consequences.   All that it said was that the  contract  had        been broken causing damage and the claim to the damages  was        to  be satisfied " in terms of the settlement ". It did  not        purport to annihilate the contract or the arbitration clause        in  it.   I  feel no doubt therefore  that  the  arbitration        clause  subsisted  and  the  arbitrator  was  competent   to        arbitrate.  The award was not, in my view, a nullity.        The position is no different if the matter is looked at from        the  point  of  view of s. 62 of  the  Contract  Act.   That        section is in these terms:        "  Section  62.   If  the parties to  a  contract  agree  to        substitute a new contract for it, or to rescind or alter it,        the original contract need not be performed."        The  settlement cannot be said to have altered the  original        contract or even to have rescinded it.  It only settled  the        dispute   as  to  the  breach  of  the  contract   and   its        consequences.   For  the same reason it cannot  be  said  to        substitute  a  new  contract for the old  one.   As  1  have        earlier  stated it postulates the existence of the  contract        and only decides the incidence of its breach.        It  remains now to express my views on the question  whether        the  settlement of February 22,1949, amounted to  an  accord        and  satisfaction.   I have earlier stated  that  an  accord        and  satisfaction  is  the purchase of  a  release  from  an        obligation  under a contract.  This release is purchased  by        an  agreement which is the accord.  But this agreement  like        all  other  agreements must be supported  by  consideration.        The satisfaction        524        is  that  consideration.  It was formerly thought  that  the        consideration  had  to  be executed.  In  other  words,  the        consideration  for which the release was granted had  to  be        received  by  the releaser before the release  could  become        effective.  The later view is that the consideration may  be        executory; that the release may become effective before  the        consideration  has been received by the releaser if  he  has        agreed  to  accept the promise of the release  to  give  the        consideration.   Whether it is the one or the other  depends        on  the  agreement  of the parties.  It  is  a  question  of        intention.  And where, as in the present case, the agreement        is expressed in writing, the question is one of construction        of a document.  So much is well settled.        The  question then is, Is it the proper construction of  the        settlement  of February 22, 1949, that the appellant  agreed        to  accept the promise of the contractors to pay the  moneys        and create the security in discharge of their obligations  ?        Or  is it the proper construction that the contractors  were        not  to  be  discharged  till they  had  carried  out  their        promises contained in the settlement.  The High Court  held,        accepting  the respondent’s contention, that el. (6) of  the        settlement  showed  that  the  appellant  had  accepted  the        promise of the contractors to pay the moneys and to  execute        a hypothecation bond in full discharge of their  obligations        under the contract.  That clause states that " The contracts        stand  finally concluded in terms of the settlement." It  is        said  that these words show that it was intended  to  accept        the promise of the contractors and thereupon to give them  a        discharge from their obligations under the contract.        Now it seems to me that the words " stands finally concluded        in  terms  of  the  settlement "  do  not  necessarily  mean        concluded by the promise of the contractors contained in the        settlement.   It appears to me to be capable of the  meaning        that the contract is to stand concluded when its terms  have        been  carried  out.   The words are  not,  "  stand  finally

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      concluded  by  the terms of the settlement"  but  they  are,        "stand  finally  concluded in terms of settlement  ".  These        terms are that the contractors would pay certain        525        moneys  by  certain  instalments  and  would  secure   these        payments  by a hypothecation bond.  So it would appear  that        the contract was not to be concluded till the terms had been        carried out, for otherwise it would not be a conclusion " in        terms of the settlement."        That seems to me to be also the reasonable interpretation to        put  on  the document in view of the  circumstances  of  the        case.  The appellant was to receive a substantial sum  under        the  settlement.  It gave the contractors quite a long  time        in  which  to  pay it. It bargained for  a  security  to  be        furnished  to  be  sure  of  receiving  the  payments.   The        discharge  was to be by the payments.  The promise  to  make        these  payments  may conceivably  in  proper  circumstances,        itself amount to a discharge.  But I wholly fail to see that        when  there is an additional promise to secure the  payments        by  a  hypothecation, the parties could have  intended  that        there would be a discharge before the hypothecation had been        made.  It does not seem reasonable to hold that the  parties        so intended.  Nor do I think that the words " stand  finally        concluded  in terms of the settlement " are so strong as  to        impute  such an intention to the parties.  These  words  are        capable  of  the  meaning that the  contract  was  to  stand        concluded upon the terms of the settlement being carried out        and,  for  the reasons just mentioned, that  is  the  proper        meaning to give to those words.  In my view, therefore,  the        settlement  did  not amount to an accord  and  satisfaction.        Till  the  terms of it had been carried out,  the  appellant        retained all its rights under the contract.        There was one other point argued on behalf of the respondent        which  I think I should notice.  It was said that the  award        was  in  any  event liable to be set aside  inasmuch  as  it        disclosed  an error on the face of it.  This error,  it  was        said, consisted in awarding damages larger than those  which        the  appellant  had agreed to take by the  settlement.   Now        this depends on whether the settlement amounted to an accord        and  satisfaction; if it did not, the appellant’s claim  for        damages could not be confined to the amount mentioned in the        settlement,        67        526        I have already said that in my opinion it did not amount  to        an accord and satisfaction.  So there was no error  apparent        on the face of the award.  It further seems to me that it is        not  open  to the respondent to contend that  the  award  is        liable  to  be set aside as disclosing the  error  mentioned        above on the face of it.  I do not find that such a case was        made in the application out of which this appeal arises.  It        was said that the case had been made in paragraphs 34 and 35        of  the respondent’s petition to the High Court.  I  do  not        think  it  was there made.  These paragraphs  refer  to  the        arbitrator’s decision that he had jurisdiction to  arbitrate        as  the settlement had not destroyed the arbitration  clause        and  the  contention there made was that this  decision  was        erroneous  on the face of it.  This has nothing to  do  with        the  question that the award was wrong on the face of it  as        it  awarded  a  sum in excess of the  amount  fixed  by  the        settlement.  Whether the arbitrator was right or not in  his        decision that the arbitration clause had not been superseded        is  irrelevant for that is the question that the  Court  was        called upon to decide in the application.        In my view therefore the appeal should succeed and the order

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      of the High Court set aside.  I would order accordingly  and        award the costs here and below to the appellant.        ORDER        In  accordance with the opinion of the majority this  appeal        fails and is dismissed with costs.        527