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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6997 OF 2013

(Arising out of SLP(C) No.33459 of 2012)

M/s Young Achievers ..... Appellant

Versus

IMS Learning Resources Pvt. Ltd. ....Respondent

J U D G M E N T

K.S. Radhakrishnan, J.

Leave granted.

2.IMS Learning Resources Private Limited, the respondent

herein, filed CS (OS) No.2316 of 2011 in the High Court of Delhi

at New Delhi for a permanent injunction restraining

infringement of a registered trademark, infringement of

copyright, passing off of damages, rendition of accounts of

profits and also for other consequential reliefs against the

appellant herein. Appellant preferred IA No.18 of 2012 under

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Section 8, read with Section 5 -of the Arbitration and

Conciliation Act, 1996 for rejecting the plaint and referring the

dispute to arbitration and also for other consequential reliefs.

Respondent-plaintiff raised objection to the said application

stating that the suit is perfectly maintainable. The High Court

rejected the application vide its order dated 16.04.2012 holding

that that earlier agreements dated 01.04.2007 and 01.04.2010,

which contained arbitration clause stood superseded by a new

contract dated 01.02.2011 arrived at between the parties by

mutual consent. Defendant aggrieved by the said order filed

FAO (OS) No.290 of 2012 before the Division Bench of the Delhi

High Court, which confirmed the order of the learned Single

Judge and dismissed the appeal against which this appeal has

been preferred by special leave.

3.Mr. Manu T. Ramachandran, learned counsel appearing for

the appellant raised the following question of law:

“a)Whether an arbitration clause is a collateral term

in the contract, which relates to resolution of

disputes, and not performance and even if the

performance of the contract comes to an end on

account of repudiation, frustration of breach of

contract, the arbitration agreement would survive for

the purpose of resolution of disputes arising under or

in connection with the contract?

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b)Whether the impugned judgment is contrary to

the law settled by this Hon’ble Court in Branch -

Manager, /s Magma Leasing & Finance Limited

and another v. Potluri Madhavilata and another

(2009) 10 SCC 103 and National Agricultural

Cooperative Marketing Federation India Ltd. V.

Gains Trading Ltd. (2007) 5 SCC 692?

c)Whether the Hon’ble High Court is correct in

holding that the law settled by this Hon’ble Court in

The Branch Manager, M/s Magma Leasing &

Finance Limited and another v. Potluri

Madhavilata and another (2009) 10 SCC 103 and

National Agricultural Cooperative Marketing

Federation India Ltd. V. Gains Trading Ltd. (2007)

5 SCC 692 is applicable in case of unilateral

termination of agreement by one of the parties and

not in mutual termination for accord and satisfaction

of the earlier contract?”

4.Learned counsel also submitted that arbitration clause is a

collateral term in the contract, which relates to resolution of

disputes and not performance and even if the performance of

the contract comes to an end on account of repudiation,

frustration of breach of contract, the arbitration agreement

would survive for the purpose of resolution of disputes arising

under or in connection with the contract. Learned counsel also

submitted that the court has erroneously held that the case of

the appellant is not a case involving the assertion by the

respondent of accord and satisfaction in respect of earlier

contracts, especially when the sole purpose of the Exit paper

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dated 01.02.2011 was to put an end to the contractual

relationship between them under the -aforesaid earlier

contracts. Apart from the decisions referred hereinbefore,

reliance was also placed on the judgment of the U.S. Court in

Nolde Bros., Inc. v. Bakery Workers 430 US 243.

5.Mr. Sai Krishna Rajgopal, learned counsel appearing for the

respondent placing reliance on the detailed counter affidavit

filed on behalf of the respondent submitted that the arbitration

clause in the agreements dated 01.04.2007 and 01.04.2010

cannot be invoked since both the above-mentioned agreements

were superseded and abrogated by the new agreement dated

01.02.2011. Learned counsel also submitted that in the new

agreement it was mutually decided by the parties that any

violation of the respondent’s trade mark IMS would entitle the

respondent to take legal recourse against the appellant.

Reference was made to clause 4 of the penultimate paragraph

of the new agreement dated 01.02.2011. Learned counsel also

submitted that Suit No. CS (OS) 2316 of 2011 was based on

prior trade mark rights and not on the agreements dated

01.04.2007 and 01.04.2010. Further it was also pointed out

that the new agreement dated 01.02.2011 records the mutual

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agreement between the parties that the appellant shall not be

eligible to use -the trade mark IMS in any form and any breach

thereof entitles respondent to seek legal recourse on violation

of trade mark IMS.

6.We are of the view that survival of the arbitration clause,

as sought by the appellant in the agreements dated 01.04.2007

and 01.04.2010 has to be seen in the light of the terms and

conditions of the new agreement dated 01.02.2011. An

arbitration clause in an agreement cannot survive if the

agreement containing arbitration clause has been

superseded/novated by a later agreement. The agreement

dated 01.04.2010 contained the following arbitration clause:

“20. Arbitration

All disputes and questions whatsoever which may

arise, either during the substance of this agreement

or afterwards, between the parties shall be referred

to the arbitration of trhe managing director of IMS

Learning Resources Pvt. Ltd. Or his nominee and

such arbitration shall be in the English language at

Mumbai. The arbitration shall be governed by the

provisions of the Arbitration and Conciliation Act,

1996 or any other statutory modification or re-

enactment thereof for the time being in force and

award or awards of such arbitrator shall be binding

on all the parties to the said dispute.”

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7.We have now to examine terms of the subsequent

agreement titled “Exit paper” dated 01.02.2011. It is the

common case of the parties that the Exit paper/agreement

entered into -between the parties does not contain any

arbitration clause. It is useful to extract the relevant portion of

the Exit paper, which is as follow:

“With reference to your mail/letter dated 1

st

February, 2011 on closing the center, from the

aforesaid date with mutual consent we have agreed

on the following:

“1. Enrolled students

All enrolled students of IMS with you will be serviced

by you with respect to their classes, workshops and

conduct of test series, GD/PI and any other servicing

required as per the product manual.

2.Premises

IMS will reserve the first right of utilization to occupy

the premises. In an eventuality of IMS exercising the

right to use the premises, then IMS will reimburse the

monthly rent for the corresponding months before

changing the rental agreement onto IMS name.

3.Marketing

From the above-mentioned date you are not eligible

to do any marketing and promotional activities in the

name of IMS.

4.Brand

“From the above-mentioned date you are not eligible

to use IMS brand in any form.

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5.Monthly claims

The partner abides to deposit all the course fees

collected for any of IMS programs till now as per the

deposit policy of IMS. All monthly claims will be

settled till 31

st

January, 2011 and the claims would be

-

released after the date of termination of the partner

agreement.

6.Security Deposit

The security deposit amount will be refunded back to

you after the completion of servicing of all enrolled

IMS students. In case of any due on partner to the

company (unsettled fees, loan or advance for centre

activities etc.), same amount will be deducted from

the security deposit.

7.Non Compete Clause

The partner has averred that neither he, nor his

family members are directly or indirectly interested

in any business in direct competition with that of IMS

and the partner agrees and undertakes to ensure

that neither he nor his family members shall be

involved in or connected to any business in direct

competition with that of IMS at any time during the

currency of this agreement and for a further period of

six months therafter.

8.Full and final settlement

I/We accept all the above-mentioned points and

confirm that upon receipt of the sum stated

hereinafter in full and final settlement of all my/our

claims, neither me/we nor any person claiming by or

through me/us shall have any further claims against

IMS whatsoever.

Any violation of points 1,3,4,5 & 7 from the partner’s

end will attract legal course of action and penalties

from IMS ranging from forfeiture of the security

deposit & pending claims.

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I hereby accept above terms and conditions.”

8.Exit paper would clearly indicate that it is a mutually

agreed document containing comprehensive terms and

conditions which -admittedly does not contain an arbitration

clause. We are of the view that the High Court is right in taking

the view that in the case on hand, is not a case involving

assertion by the respondent of accord a satisfaction in respect

of the earlier contracts dated 01.04.2007 and 01.04.2010. If

that be so, it could have referred to arbitrator in terms of those

two agreements going by the dictum in Union of India v.

Kishorilal Gupta and Bros . AIR 1959 SC 1362. This Court in

Kishorilal Gupta’s case (supra) examined the question

whether an arbitration clause can be invoked in the case of a

dispute under a superseded contract. The principle laid down is

that 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 such contract is void

ab intio, the arbitration clause cannot operate on those

disputes, for its operative force depends upon the existence of

the contract and its validity. The various other observations

were made by this Court in the above-mentioned judgment in

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respect of “settlement of disputes arising under the original

contract, including the dispute as to the breach of the contract

and its consequences”. Principle laid down by the House of

Lords in Heyman v. Darwins Limited 1942 (1) All. E.R. -337

was also relied on by this Court for its conclusion. The

Collective bargaining principle laid down by the US Supreme

Court in Nolde Bros. case (supra) would not apply to the facts

of the present case.

9.We may indicate that so far as the present case is

concerned, parties have entered into a fresh contract contained

in the Exit paper which does not even indicate any disputes

arising under the original contract or about the settlement

thereof, it is nothing but a pure and simple novation of the

original contract by mutual consent. Above being the factual

and legal position, we find no error in the view taken by the

High Court. The appeal, therefore, lacks merit and stands

dismissed, with no order as to costs.

…………………… ..…J.

(K.S. Radhakrishnan)

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………………………… .J.

(A.K. Sikri)

New Delhi,

August 22, 2013