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1961 Supreme(Cal) 26
HIGH COURT OF CALCUTTA
P. C. Mallick
UNION OF INDIA (UOI) - Appellant
Versus
B. C. NAWN (BROS) PR. LTD. - Respondent
. 8 Of 1960
Decided On : FEBRUARY 15, 1961
A.C.BHABRA, SOMNATH CHATTERJEE, SUBIMAL ROY
A settlement agreement that is a full and complete settlement of all disputes arising from the cancellation of a contract extinguishes the original contract and the arbitration clause contained therein.
Headnote:
ARBITRATION - Existence of Arbitration Agreement - Cancellation of Contract - Settlement of Disputes - Whether Arbitration Clause Survives - Interpretation of Settlement Agreement - Scope of Arbitration Clause.
Fact of the Case:
A contract between the Government and a contractor for the fabrication and supply of tents was cancelled by mutual agreement. A settlement agreement was entered into to resolve disputes arising from the cancellation. The contractor claimed rent for keeping the Government's materials in its custody after the cancellation. The Government denied liability and appointed an arbitrator to adjudicate the dispute. The contractor challenged the existence of an arbitration agreement.
Finding of the Court:
The court held that the settlement agreement was a full and complete settlement of all disputes arising from the cancellation of the contract. The original contract, including the arbitration clause, was extinguished by the settlement agreement. The arbitration clause was only kept alive for the limited purpose of resolving disputes relating to the bank guarantee, which was reduced under the settlement agreement. The dispute over rent was not covered by the arbitration clause as it arose from the settlement agreement and not the original contract.
Issues: 1. Whether the settlement agreement was a full and complete settlement of all disputes arising from the cancellation of the contract. 2. Whether the arbitration clause in the original contract survived the settlement agreement. 3. Whether the dispute over rent was covered by the arbitration clause.
Ratio Decidendi: 1. The court applied the principles laid down by the Supreme Court in Union of India v. Kishorilal Gupta, which held that if a settlement agreement is a full and complete settlement, the original contract and the arbitration clause are extinguished. 2. The court held that the settlement agreement in the instant case was a full and complete settlement, as it resolved all disputes arising from the cancellation of the contract, including the issue of compensation and the custody of the Government's materials. 3. The court held that the arbitration clause was only kept alive for the limited purpose of resolving disputes relating to the bank guarantee, which was reduced under the settlement agreement. The dispute over rent was not covered by the arbitration clause as it arose from the settlement agreement and not the original contract.
Final Decision: The court held that there was no arbitration agreement in existence to adjudicate the dispute over rent. The application under Section 33 of the Indian Arbitration Act was allowed, and the parties were directed to bear their own costs.
( 1 ) THIS is an application under Section 33 of the Indian Arbitration Act disputing the existence of an arbitration agreement whereunder certain disputes between the parties can be adjudicated.
( 2 ) THERE is a contract between the parties whereby the contractor being the above respondent is to fabricate and supply 11000 tents to the Government. The Government was to supply the stores or materials to be used by the contractor for the fabrication of these tents. The contract is evidenced by a tender submitted by the contractor and accepted by an officer of the Government for and on behalf of the Governor-General-in-Council. It will be necessary to refer later to some of the terms of the contract. In terms of the contract the Government supplied materials of considerable value to the contractor and the contractor gave a bank guarantee which at the material time stood at Rs. 30 lacs. This bank guarantee was given in terms of the contract. The contractor was to be responsible for loss of materials on account of theft, pilferage and civil commotion and was to remain accountable for the materials supplied by the Government The bank guarantee was given by the contractor to cover this liability of the contractor. The Government it appears, was no longer in need of the tents and cancelled the contract. The contractor contended that by reason of the cancellation it has suffered loss. Heavy expenses amounting to over Rupees one lac have been incurred by the contractor for the purpose of the contract and the contractor claimed that it was entitled to compensation. The contractor further requested that in adjusting compensation payable to it it should be allowed to retain the stores supplied by the Government and then in the custody of the contractor. There was a meeting on November 27, 1946 at New Delhi in which the parties purported to settle the disputes arising out of the cancellation of the contract. What transpire^ in the meeting will appear from the Memorandum kept by G. T. Thandani, the then Deputy Director General (Supply ). A copy of this memorandum is annexed to the petition. The correctness of this memorandum is not disputed by either party. The memorandum is set out here-under. "at a meeting held in D. D. G. (S)'s room on 27th November, 1946, the following were present: mr. G. T. Thandhani, Deputy Director General (Supplies)Mr. P. C Bhattacharyya, Joint Financial Adviser (I and S)Mr. K. B. Rao, Director of Supplies, mr. Ganguly -- Representing M/s B. C. Nawn and Bros. An order had Been placed with M/s B. C. Nawn and Bros, for the fabrication of 11,000 tents. It has been decided to cancel this contract and it has been agreed that in part payment of the actual expenditure incurred by M/s B. S. Nawn and Bros. , they will be paid Rs. 49,000 by the Government in full and final settlement of the contract. It has also been agreed that guarantee for Rs. 17 lakhs out of the Rs. 30 lakhs given by the firm will be released immediately. The firm will keep all the material lying in their custody until such time as final disposal instructions are sent to them. The firm will be allowed to insure the material now in their possession at Government costs till the period when they have got disposal instructions. They will however not insure against civil commotion and riots and Government will not hold the firm responsible for any loss due to civil commotion and riots. Sd. G. T. Thandhani 27-11-46. "
( 3 ) ON January 15, 1947 the Deputy Director (Supply) wrote a letter to the respondent which reads as follows:--"to Messrs. B. C. Nawn and Bros. Ltd. 7, Bowbazar Street, Calcutta. Sub: This office A/tender No. Cai/ds/6588/ X/69 Dt. 20-6-46, for fabrication of 11,000 Nos. Tents I. P. Private MK. III. * * * * * dear Sir, as per mutually agreement, (sic) the above order is hereby cancelled in toto. The amount of Rs. 49,000/- will be paid to you towards the expenses incurred by you for making preliminary arrangements vide Govt. of
