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High Court Of Delhi|10 July, 2012


CM No.11407/2012 (Exemption) Allowed subject to just exceptions.
FAO (OS) No.290/2012 The respondent filed a suit for permanent injunction seeking a restraint against infringement of a registered trademark, infringement of copyright, passing off of damages, rendition of accounts of profits, delivery up, etc. qua the trademark/words IMS of the respondent. The respondent claims to be a leading player in management entrance test coaching with specific focus on Common Admission Test (CAT). In the course of business, the respondent entered into arrangements to carry out its business through its business partners and franchisees, making available its proprietary and copyrighted course material and the benefit of its trademark „IMS‟. One such arrangement was arrived at with the appellant under an agreement dated 1.4.2007, which was valid for a period of three (3) years. On expiry of the said agreement by efflux of time a fresh agreement was executed on 1.4.2010 on similar terms & conditions. This agreement was to be valid till 31.3.2013. However, this agreement was mutually terminated prematurely in terms of a document called Exit Paper. This Exit Paper dated 1.2.2011 records the mutually agreed terms bringing the arrangement inter se the parties to an end.
It appears that prior to institution of the suit, the respondent complained about the appellant‟s breach of the contractual obligations contained in the Exit Paper dated 1.2.2011 including the use of the trademark IMS but to no avail, resulting in institution of the suit.
The appellant filed IA No.818/2012 under Section 8 of the Arbitration & Conciliation Act, 1996 predicated on clause 20, an arbitration clause, incorporated in both the agreements dated 1.4.2007 and 1.4.2010. This application has been dismissed by the impugned order dated 16.4.2012 of the learned single Judge.
We have heard learned counsels for the parties. It is the say of learned counsel for the appellant that in view of wide arbitration clause, the dispute inter se the parties was liable to be referred to arbitration. Learned counsel contends that the Exit Paper dated 1.2.2011 does not bring to an end the arbitration clause but only terminates the agreement inter se the parties by mutual consent (we may notice that no challenge is laid to the Exit Paper dated 1.2.2011).
Learned counsel in this behalf relies upon the judgment of the Supreme Court in The Branch Manager, M/s. Magma Leasing & Finance Limited and Anr. Vs. Potluri Madhavilata & Anr. (2009) 10 SCC 103. Learned counsel contends that the Supreme Court has held that the mere termination of the agreement on account of alleged breach, does not bring the agreement qua resolution of disputes by arbitration to an end.
The question for adjudication as framed in para 1 by the Supreme Court itself of the said judgment reads as under:
“1. The core question that falls to be determined in this appeal by special leave is : does the arbitration agreement survive for the purpose of resolution of disputes arising under or in connection with the contract even if its performance has come to an end on account of termination due to breach?”
Learned counsel also specifically draws strength from the observations made in para 12, wherein the Supreme Court referred to its earlier decision in the case of National Agriculcural Cooperative Marketing Federation India Ltd. Vs.Gains Trading Ltd., (2007) 5 SCC 692, wherein it was held that qua a contract which was abrogated by mutual agreement, that in such eventuality, the arbitration clause does not come to an end.
We are unable to agree with the submissions of learned counsel for the appellant, though there can be no dispute about the legal proposition propounded aforesaid and the law laid down by the Hon‟ble Supreme Court. In fact, there is no quibble over the legal proposition that the arbitration clause would survive the termination/cessation of an agreement and the disputes pertaining to the same would still be resolved by arbitration. In the present case it is not a case of unilateral termination by one of the parties which has occurred. Mutually, a fresh document has been drawn called the Exit Paper, an agreement containing comprehensive terms & conditions on which the parties continued with their association. Despite this Exit Paper setting out all the terms & conditions, the allegation of the respondent is that the appellant continued to infringe the trademark of the respondent by using the same, contrary to the said agreement. This Exit Paper undisputedly does not contain an arbitration clause.
The Supreme Court in Magma Leasing & Finance Limited (supra), which is a two-Judge bench decision, after referring to the judgment of the House of Lords in Heymen v. Darwins Ltd., 1942 AC 356 : 1942 1 All ER 337 (HL), referred to the following observations of Subba Rao, J (as his Lordship then was) in Union of India v. Kishorilal Gupta & Bros., AIR 1959 SC 1362:
“8. 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 nonetheless 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 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.
9…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 obvious; if the contract is superseded by another, the arbitration clause, being a component part of the earlier contract, falls with it… But where the dispute is whether 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.” (emphasis supplied) We may note at this stage that the present is not a case involving the assertion by the respondent of accord and satisfaction in respect of the earlier contracts dated 01.04.2007 and 01.04.2010. In terms of the decision of the Supreme Court in Kishorilal Gupta (supra) (which is a three-Judge bench decision), if that had been the issue raised, the appellant may have been justified in claiming that the said dispute, i.e. whether there has been accord and satisfaction in respect of the two agreements should be referred to arbitration in terms of the arbitration agreement contained in the said two agreements.
Reliance placed on para 32 of the judgment in Kishorilal Gupta (supra) rendered by A.K. Sarkar, J in his concurring opinion appears to be misplaced. The Supreme Court in para 32 of the decision in Kishorilal Gupta (supra), after setting out section 62 of the Contract Act (which deals with the effect of novation, recession and alteration of contract) went on to observe that “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”. (emphasis supplied) It is important to note that the Supreme Court made the aforesaid observation in respect of a “settlement” of disputes arising under the original contract, including the dispute as to the breach of the contract and its consequences. In the present case, the parties have clearly entered into a fresh contract contained in the exit agreement, which, as noticed above, is not even in dispute. The exit agreement does not even whisper about any dispute arising under the original agreements or about settlement thereof. It is pure and simple novation of the original contract by mutual agreement of parties.
The decision in Magma Leasing & Finance Limited (supra), did not concern the issue arising in the present case and therefore, in our view, does not support the case of the appellant.
In our view, the decision in National Agricultural Cooperative Marketing Federation India Limited (supra) (an order passed on a petition under Section 11(5) of the Act by R.V. Raveendran, J) also does not advance the appellant‟s submission. That was a case where there had been alleged breach of the contract and the parties had agreed to cancel the contract. They had also agreed to enter into a fresh contract. In this background, the Supreme Court observed that even if performance of the contract comes to an end on account of repatriation, frustration or breach of the contract the arbitration agreement would survive for the purpose of resolution of disputes arising out of under or in connection with the contract. A reference was made, inter alia, to the decisions in Heymen (supra) and Kishorilal Gupta (supra). This decision, therefore, has no relevance in the present context.
We are, thus, of the view that the learned single Judge was right in coming to the conclusion that both the agreements dated 1.4.2007 and 1.4.2010 have been superseded/novated by the Exit Paper, and in view of Exit Paper being a fresh agreement with no arbitration clause for adjudication of disputes, the application of the appellant was rightly rejected.
We may add that, even otherwise, suppose there was no dispute about any item relating to the Exit Paper, then can it really be said thereafter a number of years if the trademark is infringed that the respondent will still have to resort to the contract where there was an agreement inter se the parties for mutual business containing the arbitration clause? The answer to this obviously would be in the negative.
We see no reason to interfere with the impugned order. Dismissed with costs of `5,000.00.
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High Court Of Delhi

10 July, 2012
  • Sanjay Kishan Kaul
  • Vipin Sanghi Sanjay Kishan Kaul