Point of Law: Arbitration - Arbitration clause – Supplementary agreement - Master Facility Agreement and Memorandum of Understanding for settlement between parties - Whether or not there was an operative arbitration clause requires an examination of transaction between parties and execution of agreements between them - An arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but nonetheless it is an integral part of it; however comprehensive terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation; it perishes with the contract; contract may be non est in sense that it never came legally into existence or it was void ab initiothough contract was validly executed, 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; in former case, if the original contract has no legal existence, arbitration clause also cannot operate, for along with original contract, it is also void ; in latter case, as original contract is extinguished by substituted one, arbitration clause of original contract perishes with it; and between two falls many categories of disputes in connection with a contract, such as question of repudiation, frustration, breach etc. In those cases it is performance of contract that has come to an end, but 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, arbitration clause operates in respect of these purposes.

JUDGMENT :

I. P. MUKERJI, J.

1. Only one point was urged in this appeal: there is no arbitration agreement between the parties. Hence, the respondent could not have invoked Section 9 of the Arbitration and Conciliation Act, 1996 in this court or anywhere else seeking the protective measure of appointment of a Receiver over the equipments in question.

2. On 7th January, 2021 in a Section 9 application a learned single judge of this court appointed a Receiver over the assets under Sl. Nos. 3 to 6 of Annexure IV of the Memorandum of Understanding for settlement dated 30th June, 2020 between the parties with a direction to take their actual physical possession. It was held by the learned judge that as “lessee” of equipments the appellant had failed and neglected to pay the agreed amount of “lease rent” under the said memorandum and that these assets needed protection.

3. On 20th January, 2021 the appeal from this order was admitted and expedited with a modification in the impugned interim order to the effect that the Receiver could take possession of the assets but would not remove them from the site. The appellant would not use the equipments in any manner whatsoever.

4. Whether or not there was an operative arbitration clause requires an examination of the transaction between the parties and the execution of agreements between them.

5. On 26th June, 2017 an agreement described as the “Master Facility Agreement” was executed between them. Under this agreement the respondent was to provide financial assistance to the appellant to purchase equipments. The loan was to be repaid in instalments. These assets were charged in favour of the respondent. It appears that as and when the instalments were paid, the hypothecation in favour of the respondent would be partly released.

6. Clause 9.11 of the agreement provided for dispute resolution by arbitration. The clause is inserted below:

“9.11 Dispute Resolution

Any disputes or differences arising out of or in connection with the Contract during its subsistence or thereafter between the parties including any disputes and differences relating to the interpretation of the agreement or any clause thereof shall be settled by arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and rules framed there under and any amendment, modification, statutory enactment thereto from time to time and shall be referred to the Arbitration of a sole Arbitrator appointed by the Company upon intimation to all parties to this Agreement. The proceedings shall be held at Kolkata. The cost of the proceedings shall be borne by the parties to this Agreement. The award of the arbitrator shall be final, conclusive and binding on all the parties.”

7. In or about the end of June, 2020 it so happened that the appellant’s dues climbed up to about Rs.82.43 crores. The parties sat down to settle their disputes. This ended up with the execution of a document described as “a Memorandum of Understanding for Settlement” on 30th June, 2020. The parties settled their outstanding at Rs.72 crores to be paid according to the Repayment Schedule mentioned in Annexure IV of the Memorandum. The equipments would continue to remain hypothecated till the entire settled amount was repaid. However, a part of the assets would be released by the respondent on timely repayment by the appellant.

8. Now, this subsequent agreement between the parties did not contain an arbitration agreement as a clause of that agreement.

9. The contentions raised by Mr. Mainak Bose, learned Counsel appearing for the appellant are broadly as follows:-

10. The agreement of 30th June, 2020 was an entirely new agreement between the parties in supersession of the Master Facility Agreement of 2017. It did not, according to learned counsel, contain an arbitration clause. Neither was the arbitration clause in the original agreement incorporated or deemed to be incorporated in the memorandum of understanding. He said that mere reference to the arbit