Disputes Between The Parties After Compromise Is Not Arbitrable: Supreme Court

Must Read

India’s International ‘Retrospective Taxation’ Regime Vis-a-Vis PCA Rulings in Vodafone and Cairn in 2020

The imposition of retrospective taxation of foreign companies doing business in India has been at the helm of controversy...

What is the Real Estate (Regulation and Development) Act, 2016?

The Real Estate (Regulation and Development) Act, 2016 (“RERA”) is an Act of the Parliament. It seeks to protect...

Should the Exorbitant Amounts Charged for RT-PCR Tests be Refunded?

Introduction A plea has been filed in the Honourable Supreme Court of India seeking a refund of exorbitant amounts charged...

Should CCTV’s be Installed in the Police Station?

Introduction In a recent judgment, the bench led by Justice Nariman issued directions to both the state and Union Territory...

A Legal Analysis of the West Bengal Political Crisis on IPS Deputation

The Ministry of Home Affairs (MHA) has recently summoned three IPS officers of West Bengal (WB). The decision was...

Explained: Postal Ballot for NRIs

At the end of November 2020, Election Commission sent a proposal to the law ministry to amend the Representation...

Follow us

Introduction

Supreme Court of India cleared the law on arbitrability of the disputes after a compromise recently by declaring that disputes arisen between the parties after entering into a compromise deed are not arbitral in absence of an arbitration clause in the compromise deed.

Case Name

Zenith Drugs and Allied Agencies Pvt. Ltd. v. Nicholas Piramal India Ltd. (Full Case Document is here)

Facts And Issues

Parties had entered into an agreement, which allowed the Appellant to be appointed as clearing and forwarding agent for M/s Rhone Poulene India Limited (RPIL). This agreement had a valid arbitration clause. While the agreement was continuing and subsisting, RPIL merged into the Respondent Company and ceased to exist. Due to this merger, Appellant’s agreement with RPIL was terminated. Appellant to stop the termination filed a Title suit in the trial court. Parties after plenty of negotiation reached a compromise and compromise deed was drafted. According to this compromise deed, Respondent paid Rs.23.50,000/- to the Appellant and appointed it as its stockiest for their products in two cities. Thereafter, new disputes arose between the parties and both sides brought legal action against each other. Respondent invoked arbitration and applied for the appointment of an arbitrator under section 8 of the Arbitration and Conciliation Act, 1996. Trial Court dismissed this application. Respondent appealed against this order in the High Court, where the parties were referred to arbitration. Aggrieved by this outcome, the Appellant appealed to the Supreme Court of India. Following two issues came up for consideration before the Supreme Court:

  • Whether High Court erred in sending the matter to arbitration just because Appellant admitted the existence of Arbitration Clause?
  • Could the Appellant argue that the Arbitration Clause does not hit Compromise Deed?

Arguments Advanced

Counsel for the Appellant submitted that dispute could only be tried by a civil court and High Court erred in not considering the fact that Respondent had challenged the Compromise Deed because of fraud and inducement.

Counsel for Respondent argued the matter on two fronts first one being that Appellant admitted the existence of arbitration clause and was seeking compensation because of illegal termination of clearing and forwarding agent, which continues to be arbitrable. The second one was that the Appellant through fraud and inducement obtained Compromise Deed.

Decision Of The Case

Division Bench of Supreme Court consisting of Justice R. Bhanumati and Justice AS Bopanna after listening to both the sides and examining the evidence tendered came to the conclusion that dispute which arose between the parties after compromise deed was not arbitrable because original agreement between the parties was substituted by the compromise deed which was clear after examining the compromise deed. The Supreme Court bench also clarified that High Court erred in sending the parties for arbitration just because Appellant admitted the existence of arbitration clause. Furthermore, Bench observed that Respondent had challenged the compromise deed because of fraud and inducement such allegation could only be tried before a civil court and parties under no circumstances could be referred to arbitration.

Siding with the Appellant Supreme Court set aside the order passed by High Court sending the parties to the arbitration and restored the matter before Senior Civil Judge for the matter to have proceeded in accordance with Law.

Author’s Opinion

It should be appreciated that the Supreme Court took notice of the fact that the language of compromise deed substituted the original agreement between the parties. This observation automatically cleared that disputes will be arbitrable only if a valid clause exists in the compromise deed.

 

Check out our coverage of the latest Supreme Court decisions as well as the High Court Decisions

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Latest News

SC: Under-21 Convicts Can Be Given Less Than Minimum Sentence, Resorts To Probation of Offenders Act

The Supreme Court resorted to the Probation of Offenders Act to sidestep the mandate under Section 397 of the Indian Penal Code that mentions a sentence of not less than 7 years to those convicted of armed robbery, to give a chance to two young convicts to reform their lives.

Environment Protection Act Passed at the Instance of Foreign Powers: NHAI in Karnataka HC

The National Highways Authority of India (NHAI) claimed in a submission that the Environment Protection Act 1986 was passed not only for the protection of the environment by the parliament but also at the instance of foreign powers. This statement was made while referring to a UN conference and got the NHAI into great trouble in the Karnataka High Court.

Delhi High Court To Implement a Hybrid System Through Virtual and Physical Hearing

On Friday the Delhi High Court said that they have initiated steps to implement a mode wherein hearing can be done by virtual as well as physical mode. The Delhi High Court is aiming to implement the Hybrid mode. It stated that when the particular bench is conducting a virtual hearing the lawyer may opt for this mode after giving prior intimation about the same.

Mercy Plea of Rajiv Gandhi Assassination Case To Be Decided in Four Weeks, TN Governor To Supreme Court

Tamil Nadu Governor Banwarilal Purohit on Thursday told the Supreme Court that a decision on the mercy petition of one of the convicts serving a life sentence for the assassination of former Prime Minister Rajiv Gandhi, AG Perarivalan will be taken within four weeks. The petition has been pending with the Governor since December 30, 2015.

Bombay High Court Questions FIR Over Journalist Alleged of Communist Comment on WhatsApp

An FIR lodged against the editor of Marathi newspaper, Rajkumar Chhajed has been questioned by the Bombay High Court. The Maharashtra Police has accused Chhajed of creating a rift between the two communities based on a WhatsApp message.

Allahabad High Court Expresses Dissatisfaction on Counsels Seeking Unnecessary Adjournments

The petition had been filed by Smt. Radha prayed to issue directions to Judicial Magistrate-I in Faizabad. The petition sought a speedy decision in...

[Delhi Riots] When the IT Ministry Calls Us, We Will Go Says Harish Salve To Delhi High Court

The Vice President and Managing Director of Facebook, Ajit Mohan told the Supreme Court that when the representatives of the company are called by the Information Technology Ministry they will come and record their statements.

Allahabad High Court Seeks Response on Compensation of Cutting Trees From National Highways Authority of India (Nhai) 

The Order had come in the form of a Public Interest Litigation (PIL) filed by a bunch of law students in Uttar Pradesh. The...

Doctrine of Proportionality Must Adhere to Reasonableness Principal Test: Madras High Court

Young Men's Christian Association built a commercial complex and leased it without having due permission. The District Collector & Tahsildar issued a show-cause notice...

Delhi High Court Refuses To Stay Release of ‘The White Tiger’ on the OTT Platform Netflix

A plea requesting a stay on the release of the film ‘The White Tiger’ by the American producer, John Hart Jr. alleging copyright violation was rejected by the Delhi High Court on Thursday.

More Articles Like This

- Advertisement -