ZENITH DRUGS & ALLIED AGENCIES PVT. LTD. REPRESENTED BY ITS MANAGING DIRECTOR, SHRI UDAY KRISHNA PAUL versus M/S. NICHOLAS PIRAMAL INDIA LTD. on 30 July 2019

SUPREME COURT REPORTS

[2019] 10 S.C.R.

AZENITH DRUGS & ALLIED AGENCIES PVT. LTD.REPRESENTED BY ITS MANAGING DIRECTOR,SHRI UDAY KRISHNA PAUL

v.

M/S. NICHOLAS PIRAMAL INDIA LTD.B

(Civil Appeal No. 4430 of 2009)

JULY 30, 2019

[R. BANUMATHI AND A.S. BOPANNA, JJ.]

Arbitration and Conciliation Act, 1996 – s.8 – Power to referCparties to arbitration where there is an arbitration agreement – RPILappointed the appellant company as its clearing and forwardingagent for period of 3 years by agreement dated 01.05.1997 – Thesaid agreement contained arbitration clause – RPIL informedappellant that it was getting merged with respondent Company-NPILDand therefore, the subsisting agreement between them stoodterminated – Appellant filed suit contending that agreement withRPIL was valid, subsisting, legal and continuing – In the said suit,parties compromised the matter – In terms of the said compromise,respondent made payment of Rs. 23,50,000/- to the appellant andalso as a part of compensation package appointed the appellant asEits stockist for their products – Again, dispute arose between theparties – Respondent filed criminal complaint u/ss.420, 406, 409and 403 r/w. 34 IPC against the appellant – Appellant filed moneysuit against the respondent claiming compensation for rupees twentycrores alleging financial loss and loss of goodwill – RespondentFfiled application u/s.8 of the Act for referring the parties toarbitration in money suit, relying upon the Arbitration clause inagreement dated 01.05.1997 – Trial Court dismissed the applicationu/s. 8 of the Act – In revision, High Court referred the dispute toarbitration – On appeal, held: On perusal of the compromise deed,it is clear that the parties have substituted a new agreement by wayGof compromise – When parties have settled their differences andcompromised the matter, in the dispute subsequently arising betweenthe parties, arbitration clause in the prior agreement cannot beinvoked – Since, the agreement dated 01.05.1997 and compromiseare different, the arbitration clause in agreement dated 01.05.1997

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cannot be read into the terms of the compromise as per which theparties have entered into a new arrangement – Further, sincerespondent has also challenged the compromise decree alleging itwas obtained by inducement and fraud, in view of the same, theparties cannot be referred to arbitration – The High Court erred inproceeding under the footing that dispute falls within the ambit ofagreement dated 01.05.1997 – Thus, impugned judgment of the HighCourt set aside.

Allowing the appeal, the Court

Conclusion

HELD: 1. From a reading of the terms of the compromisedeed dated 11.12.2001, it is clear that the parties have substituteda new agreement by way of compromise. As per the agreementdated 01.05.1997, the appellant was the clearing and forwardingagent for the entire north-eastern region; whereas under theterms of the compromise, the appellant has been appointed asstockist of the company only for Guwahati and Agartala and notas clearing and forwarding agent for north-eastern region. Theclauses in the compromise memo also clearly state that theappellant handed over all the stocks of goods to the respondent-Company. The appellant had also handed over the entiredocuments in their possession both used and unused as well assales tax documents, road permit, ‘C’ forms from stockists andother documents. When the parties have settled their differencesand compromised the matter, in the dispute subsequently arisingbetween the parties, arbitration clause in the prior agreementcannot be invoked. Since the agreement dated 01.05.1997(agreement for appointing the appellant as clearing and forwardingagent) and the compromise (appointing the appellant as stockist)are different, the arbitration clause in the agreement dated01.05.1997 cannot be read into the terms of the compromise asper which the parties have entered into a new arrangement andthis has not been kept in view by the High Court. The HighCourt erred in holding that the existence of the arbitration clausehas been admitted by the appellant-Company and it is for thearbitrator to decide under Section 16 of the Arbitration andConciliation Act, 1996 whether the arbitration clause applied tothe subject matter of the suit or not. [Para 13] [369-E-H;370-A-B]

AB

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DEF

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A2. The parties can be referred to arbitration in an applicationfiled under Section 8 of the Act only if the subject matter of theaction before the judicial authority relates to dispute which is thesubject matter of the arbitration agreement. An application underSection 8 of the Act can be made only if the subject matter of thesuit is also the same as the subject matter of arbitration. In otherBwords, only those disputes which are specifically agreed to beresolved through arbitration can be the subject matter ofarbitration; and upon satisfaction of the same, the Court can referthe parties to arbitration. [Para 14] [370-B, E]

3. In the present case, the compromise decree does notCcontain any arbitration clause. The subsequent money suit No.73of 2003 has been filed by the appellant due to failure of therespondent Company to appoint the appellant as stockist of theirproducts in Guwahati and Agartala and the same has causedsubstantial loss to the appellant. In the said suit, the appellantDalso alleged that due to illegal act of the respondent, the appellanthas to face the criminal trial unnecessarily due to which theappellant has sustained heavy loss both financially and mentallyand also it resulted in loss of goodwill and reputation of theappellant and therefore, the appellant claimed compensation ofrupees twenty crores from the respondent. The suit claim is notEcovered by the arbitration. [Para 16] [371-B-D]

4. As discussed earlier, by the agreement dated 01.05.1997,the appellant was appointed as clearing and forwarding agent ofRPIL for the entire north-eastern region; whereas under thecompromise memo, the appellant has been appointed as stockistFof the respondent Company at Guwahati and Agartala which isentirely a different appointment though, as part of compensationpackage. Clause 17 of the agreement dated 01.05.1997 cannotbe invoked regarding the agreement of the parties to appointthe appellant as stockist for Guwahati and Agartala pursuant toGthe compromise. [Para 20] [373-B]

5. It is also pertinent to note that the respondent haschallenged the compromise decree alleging that it has beenobtained by inducement and fraud. In view of the allegations offraud levelled by the respondent that the compromise decree isHvitiated by fraud, the parties cannot be referred to arbitration.

Observing that where there are allegations of fraud which are socomplicated that it becomes absolutely essential that such complexissues can be decided only by the Civil Court on apprehension ofthe evidence adduced by the parties. [Para 21] [373-C-D]

A

6. As discussed earlier, there is no arbitration clause relatingto the dispute between the parties in not appointing the appellantas stockist and the claim of compensation towards loss of goodwilland reputation. The High Court erred in proceeding under thefooting that the dispute falls within the ambit of the agreementdated 01.05.1997 and that the appellant-plaintiff admits theexistence of the arbitration clause and the impugned judgment isliable to be set aside. [Para 22] [374-B-C]

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C

Nathani Steels Ltd. v. Associated Constructions (1995)3 Suppl. SCC 324 ;Konkan Railway Corporation Ltd.and Another v. Rani Construction Pvt. Ltd. (2002) 2SCC 388 : [2002] 1 SCR 728;Sukanya Holdings (P)Ltd. v. Jayesh H. Pandya and Another (2003) 5 SCC531: [2003] 3 SCR 558 ; Deccan MerchantsCooperative Bank Ltd. v. Dalichand Jugraj Jain andOthers AIR 1969 SC 1320 : [1969] 1 SCR 887 ; WorldSport Group (Mauritius) Limited v. MSM Satellite(Singapore) PTE Limited(2014) 11 SCC 639 : [2014] 1SCR 796 ; Swiss Timing v. Commonwealth Games 2010(2014) 6 SCC 677 : [2014] 6 SCR 514– referred to.

D

E

Yogi Agarwal v. Inspiration Clothes & U and Others(2009) 1 SCC 372 : [2008] 16 SCR 895 ;A. Ayyasamy v. A. Paramasivam and Others (2016) 10SCC 386 : [2016] 11 SCR 521 – relied on.

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Case Law Reference

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BCIVIL APPELLATE JURISDICTION: Civil Appeal No. 4430of 2009

From the Judgment and Order dated 26.03.2007 of the GauhatiHigh Court in Civil Revision Petition No. 31 of 2005

Manish Goswami, Rameshwar Prasad Goyal, Advs. for theCAppellant.

Hrishikesh Baruah, Ms. Radhika Gupta, Sayantan Talapatra, JagjitSingh Chhabra, Advs. for the Respondent.

The Judgment of the Court was delivered byD

R. BANUMATHI, J.

1. This appeal arises out of the order dated 26.03.2007 passed bythe Guwahati High Court in Civil Revision (P) No.31 of 2005 in and bywhich the High Court allowed the revision petition preferred by therespondent and referred the parties to arbitration.

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2. Brief facts which led to filing of this appeal are as follows:- The appellant is a Company registered under the Companies Act,1956 and is involved with various types of agency businesses includingthat of clearing and forwarding agents, freight contractors, etc. M/sFRhone Poulene India Limited (RPIL) vide agreement dated 01.05.1997appointed the appellant Company as its clearing and forwarding agentfor a period of three years. Clause 17 of the agreement dated 01.05.1997contains arbitration clause. The agreement was renewed for a furtherperiod from 01.04.2001 to 31.03.2002.

3. RPIL vide its letter dated 20.07.2001 informed the appellantthat their Company is getting merged with respondent Company- NicholasPiramal India Ltd. (NPIL) and that pursuant to the merger, RPIL shallcease to exist as a legal entity and therefore, with effect from threemonths from the date of the letter, the subsisting clearing and forwardingagency agreement shall stand terminated in terms of the provisions of G

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the agreement. The Bombay High Court in Company Application No.252of 2001 passed the order dated 27.09.2001 inter alia approvingamalgamation of RPIL with the respondent Company. The appellant byits letter dated 25.07.2001 objected to the unilateral decision of therespondent Company to terminate the clearing and forwarding agencyagreement and requested the respondent to maintain status-quo withrespect to the agency until the issue is resolved through negotiations.RPIL vide its letter dated 03.09.2001 informed the appellant that theyare unable to accede to the request for withdrawing the terminationletter. For all practical purposes, the clearing and forwarding agencyagreement dated 01.05.1997 thus stood terminated.

4. The appellant filed Title Suit No.241 of 2001 inter alia prayingfor declaration that the contract between the appellant and RPIL-defendant No.1 was valid, subsisting, legal and continuing and for furtherdeclaration that defendants cannot terminate the appellant as clearingand forwarding agents in any manner in case of merger with the respondentCompany. In the said suit, the parties have compromised the matter andon the basis of compromise deed dated 11.12.2001 jointly filed by theparties, Civil Judge, Senior Division, Guwahati vide its order dated24.12.2001 decreed the Title Suit No.241 of 2001 on compromise as perthe terms and conditions embodied in the compromise deed. In terms ofthe said compromise, respondent has made the payment of Rs.23,50,000/-to the appellant and also as a part of compensation package appointedthe appellant as its stockist for their products at Guwahati and Agartala.

5. Case of appellant is that the respondents refused to honour theterms and conditions of the compromise decree therefore, the appellanthad filed Title Execution case No.4 of 2002 for execution of thecompromise decree dated 24.12.2001. Differences arose between theparties on the alleged diversion of stocks by the appellant’s employee inthe year 2002. The respondent filed criminal complaint in C.R. CaseNo.1446 of 2002 before the Chief Judicial Magistrate, Kamrup for theoffences punishable under Sections 420, 406, 409 and 403 IPC readwith Section 34 IPC. The respondent had also filed an application underSection 151 CPC praying for setting aside/recalling of compromise decreedated 24.12.2001 on the ground that the compromise decree was obtainedby appellant by false inducement and misrepresentation and the same isvitiated on account of fraud.

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A6. On 30.04.2003, appellant had filed Money Suit No.73 of 2003claiming compensation for rupees twenty crores. In the suit, the appellantinter alia alleged that due to intentional acts of omission and commissionby respondent, the appellant-plaintiff had suffered huge financial loss aswell as loss of goodwill and reputation in the market. On 15.06.2004,relying upon Clause 17 of the agreement dated 01.05.1997, theBrespondent filed an application under Section 8 of the Arbitration andConciliation Act, 1996 (for short “the Act”) praying for referring theparties to arbitration in Money Suit No.73 of 2003. The trial court videorder dated 19.02.2005 dismissed the application filed under Section8 of the Act by holding that the earlier suit in Title Suit No.241 of 2001Cfiled by the appellant was decreed on compromise between the partiesand therefore, in view of the law laid down in Nathani Steels Ltd. v.Associated Constructions 1995 Supp.(3) SCC 324, the respondent-defendant cannot invoke the arbitration clause pertaining to the samedispute and the suit was directed to be proceeded. The respondent filedCivil Revision Petition No.31 of 2005 before the High Court challengingDthe order of the trial court dated 19.02.2005. The High Court videimpugned order allowed the revision petition and referred the dispute toarbitration. The High Court held that even before the merger of RPILwith the respondent which was approved by the Bombay High Court on27.09.2001, the appellant instituted Title Suit No.241 of 2001 on theEground of illegal termination of contract, which suit resulted in acompromise decree. Observing that the existence of arbitration clausehas been admitted by the appellant Company, the High Court held that inview of the decision reported in Konkan Railway Corporation Ltd.and Another v. Rani Construction Pvt. Ltd. (2002) 2 SCC 388 andother decisions, the Civil Court has no jurisdiction to decide whether theFsubject matter of the suit attracted the arbitration clause or not. TheHigh Court further held that under Section 16 of the Act, whetherarbitration clause applied to the subject matter of the suit or not is for thearbitrator to decide on its own jurisdiction. Being aggrieved, the appellanthas preferred this appeal.G7. We have heard Mr. Manish Goswami, learned counselappearing on behalf of the appellant and Mr. Hrishikesh Baruah, learnedcounsel appearing on behalf of the respondent.

8. The learned counsel for the appellant contended that the HighCourt erred in saying that the appellant-plaintiff admitted the existenceH

of the arbitration clause and the High Court failed to take note thatcompromise decree dated 24.12.2001 in Suit No.241 of 2001 was in fulland final settlement of the dispute between the parties. It was inter aliacontended that a substantial and bona fide part of the claim was outsidethe scope of arbitration clause and when dispute is not covered by thearbitration clause, the same cannot be referred to arbitration. Placingreliance upon Yogi Agarwal v. Inspiration Clothes & U and Others(2009) 1 SCC 372 and Sukanya Holdings (P) Ltd. v. Jayesh H.Pandya and Another (2003) 5 SCC 531, the learned counsel for theappellant submitted that in order to refer the parties to arbitration, thedispute must relate to the contract in respect of which the parties haveagreed to refer to arbitration. Taking us through the pleadings and reliefsought for in the subsequent suit in Money Suit No.73 of 2003, learnedcounsel for the appellant submitted that the dispute is exclusivelydeterminable by the trial court and the High Court erred in referring theparties to arbitration. It was also submitted that the High Court did notkeep in view that the respondent has challenged the very compromisedecree dated 24.12.2001 on the ground of inducement and fraud byfiling a petition and the same is still pending.

9. Per contra, the learned counsel for the respondent submittedthat the factum of arbitration clause in the agreement dated 01.05.1997is admitted by the appellant and the appellant is seeking compensationon account of illegal termination of clearing and forwarding agentagreement and the issue continues to be arbitrable. It was also submittedthat the compromise deed dated 11.12.2001 in Title Suit No.241 of 2001was obtained by the appellant Company through false inducement andpractising fraud upon the respondent Company and if the fraud playedby the appellant was known to the respondent Company, the respondentwould not have been a party to the aforesaid compromise deed and thesaid compromise decree having been obtained by practising fraud is anullity and void ab-initio. Learned counsel further submitted that thedispute raised by the appellant is “….touching upon the presents….”of the agreement dated 01.05.1997 and the High Court rightly setaside the order of the trial court and referred the parties toarbitration”.

10. We have carefully considered the rival contentions and perusedthe impugned judgment and materials on record. The following pointsarise for determination in this appeal:- AB

C

D

EF

G

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(i) Whether the High Court was right in referring the parties toarbitration by observing that the appellant-Company admitsthe existence of arbitration clause in the agreement dated01.05.1997?

A

(ii) Whether the appellant is right in contending that the disputeBraised in the Money Suit No.73 of 2003 is not covered bythe arbitration clause and cannot be referred to arbitration?

11. In the agreement dated 01.05.1997 between the appellant-company and RPIL, the appellant was appointed as clearing andforwarding agent for the entire north-eastern region. Clause 17 of theCsaid agreement contains the arbitration clause which reads as under:- “In the event of dispute arising between the parties out of thesubject contained herein or touching upon these presents duringpendency of this Agreement or thereafter the same shall bereferred to Arbitration Act Bombay as provided under the RulesDand Regulations of the subject of Arbitration framed by the BombayChamber of Commerce and the competent court in Mumbai aloneshall have jurisdiction in the matter.”

12. The respondent did not accede to the request of the appellantfor withdrawing the termination letter and hence, the appellant filed TitleESuit No.241 of 2001 inter alia praying for declaration that the contractbetween the appellant and the respondent-RPIL was valid, subsistingand continuing. The appellant also sought for declaration that therespondent cannot terminate the appellant as clearing and forwardingagent in any manner in case of RPIL’s merger with NPIL and soughtfor permanent injunction. As pointed our earlier, the said Title Suit No.241Fof 2001 ended in compromise and compromise decree was passed on24.12.2001. As per the said compromise, an amount of Rs.23,50,000/-was paid by RPIL to the appellant by way of four demand drafts being(i) Draft No.215684 for Rs.7,50,000/-; (ii) Draft No.215682 forRs.6,70,000/-; (iii) Draft No.215683 for Rs.6,20,000/-; and (iv) DraftGNo.215685 for Rs.3,10,000/-, all dated 04.01.2001 drawn on AllahabadBank, Panbazar, Guwahati. As a part of compensation package, therespondent appointed the appellant as stockist of the company at Guwahatiand Agartala. In terms of the compromise, the appellant has handedover all the documents to the respondent. The relevant portion of theterms of compromise reads as under:- H

ZENITH DRUGS & ALLIED AGENCIES P. LTD. REP. BY ITS MANAGINGDIRECTOR v. M/S. NICHOLAS PIRAMAL INDIA LTD. [R. BANUMATHI, J.]

“…….

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(iv) The defendant No.3 by letter dated 07.12.2001 has appointedthe plaintiff as a stockist of the company at Guwahati andAgartala as part of compensation package.

(v) The plaintiff has handed over all the stocks of goods to theBdefendants company and the company has already startedlifting the stocks from the custody of the plaintiff andexpected to clear by 11[th] December, 2001. The plaintiffhas also handed over entire documents including L/R inpossession, files, records and Sales Tax documents such asboth utilized and unutilized sales tax documents (1) RoadCPermit; (2) Despatched Note; (3) ‘C’ Forms; (4) ‘F’ Forms;(5) ‘C’ Forms from stockists and papers to the defendantsrelating to the C & F Agency under defendants No.1; (6)All previous records starting from November, 1994 till datehas also been handed over to the plaintiff; (7) SoftwareDsupplied and data’s of computer is also taken and PC leftafter complete deletion of programme of RPIL.”

13. From a reading of the above terms of the compromise deeddated 11.12.2001, it is clear that the parties have substituted a newagreement by way of compromise. As per the agreement dated01.05.1997, the appellant was the clearing and forwarding agent for theentire north-eastern region; whereas under the terms of the compromise,the appellant has been appointed as stockist of the company only forGuwahati and Agartala and not as clearing and forwarding agent fornorth-eastern region. The clauses in the compromise memo also clearlystate that the appellant handed over all the stocks of goods to therespondent-Company. The appellant had also handed over the entiredocuments in their possession both used and unused as well as sales taxdocuments, road permit, ‘C’ forms from stockists and other documents.When the parties have settled their differences and compromised thematter, in the dispute subsequently arising between the parties, arbitrationclause in the prior agreement cannot be invoked. Since the agreementdated 01.05.1997 (agreement for appointing the appellant as clearingand forwarding agent) and the compromise (appointing the appellant asstockist) are different, the arbitration clause in the agreement dated01.05.1997 cannot be read into the terms of the compromise as perwhich the parties have entered into a new arrangement and this has not EFGH

Abeen kept in view by the High Court. The High Court erred in holdingthat the existence of the arbitration clause has been admitted by theappellant-Company and it is for the arbitrator to decide under Section 16of the Act whether the arbitration clause applied to the subject matter ofthe suit or not.

14. The parties can be referred to arbitration in an applicationfiled under Section 8 of the Act only if the subject matter of the actionbefore the judicial authority relates to dispute which is the subject matterof the arbitration agreement. As per Section 8 of the Act, the followingconditions have to be satisfied for referring the parties to arbitration:- B

C(i) there is an arbitration agreement;

(ii) a party to the agreement brings an action in the court againstthe other party;

(iii) subject-matter of the action is the same as the subject-matterof the arbitration agreement; D

(iv) the opposite party applies to the judicial authority for referringthe parties to arbitration before it submits his first statementon the substance of the dispute.

An application under Section 8 of the Act can be made only if thesubject matter of the suit is also the same as the subject matter ofEarbitration. In other words, only those disputes which are specificallyagreed to be resolved through arbitration can be the subject matter ofarbitration; and upon satisfaction of the same, the Court can refer theparties to arbitration.

15. Observing that filing application under Section 8 of the ActFshould relate to the arbitration agreement or to be applicable to the dispute,in Yogi Agarwal v. Inspiration Clothes and U and Others (2009) 1SCC 372, it was held as under:- “9. When a defendant invokes Section 8 of the Act by allegingexistence of an arbitration agreement, he should establish thatGsuch arbitration agreement related to, or is applicable to, the suittransaction/contract. The parties may enter into different contractsat different points of time or may enter into a series of unrelatedtransactions. It is possible that in regard to some, they may providefor arbitration and in regard to others, may not provide for H

arbitration. Obviously, the existence of an arbitration agreementwith reference to some other transaction/contract to which theplaintiff was or is a party, unconnected with the transactions orcontracts to which a suit relates, cannot be considered as existenceof an “arbitration agreement” in regard to the suit transactions/contracts.

16. In the present case, the compromise decree does not containany arbitration clause. The subsequent Suit No.73 of 2003 has beenfiled by the appellant due to failure of the respondent Company to appointthe appellant as stockist of their products in Guwahati and Agartala andthe same has caused substantial loss to the appellant. In the said suit, theappellant also alleged that due to illegal act of the respondent, the appellanthas to face the criminal trial unnecessarily due to which the appellanthas sustained heavy loss both financially and mentally and also it resultedin loss of goodwill and reputation of the appellant and therefore, theappellant claimed compensation of rupees twenty crores from therespondent. The suit claim is not covered by the arbitration.

17. Mr. Hrishikesh Baruah, learned counsel for the respondentsubmitted that clause 17 of the agreement dated 01.05.1997 covers allthe disputes including “any dispute arising between the parties” that may“touch upon” the clauses of the agreement. It was submitted that thereading of the plaint filed by the appellant clearly shows that the disputesbetween the parties stem from the contractual agreement which “touchesupon” the agreement dated 01.05.1997. Learned counsel furthersubmitted that the words “….touching upon these presents…..” used inthe agreement has wide meaning which not only relates to the disputearising out of the appointment of the appellant as clearing and forwardingagent, but also any other dispute arising out of the same would necessarilyfall within the ambit of “…..touching upon these presents…..” and theHigh Court rightly referred the parties to arbitration. In support of hiscontention, the learned counsel placed reliance upon P RamanathaAiyar’s Advanced Law Lexicon, 4[th] Edition, Page 4876. The relevantportion relied upon reads as under:- “The dictionary meaning of the word ‘touching’ is ‘in referenceor relation to, respecting, regarding, or concerning’ and thismeaning indicates that the disputes need not directly arise out ofthe business of the society; but that it is enough that it should have A

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372SUPREME COURT REPORTS

Areference or relation to or concern the business of the society.M.S. Madhava Rao v. D.V.K. Surya Rao, AIR 1954 Mad 103,107 (FB). [Madras Co-operative Societies Act (6 of 1932), S.51]”

In this regard, reliance was also placed upon in Deccan MerchantsCooperative Bank Ltd. v. Dalichand Jugraj Jain and Others AIRB1969 SC 1320 : [1969] 1 SCR 887, World Sport Group (Mauritius)Limited v. MSM Satellite (Singapore) PTE Limited(2014) 11 SCC639.

18. Taking us through the pleadings in the Money Suit No.73 of2003, the learned counsel for the respondent submitted that the variousCclaims made in the Money Suit No.73 of 2003 relate to the alleged losssustained by the appellant-plaintiff due to termination of the agreementdated 01.05.1997 necessarily falls within the ambit of “…..touching uponthese presents…..” occurring in clause 17 of the agreement and therefore,the High Court rightly referred the parties to arbitration. Placing relianceupon Swiss Timing v. Commonwealth Games 2010(2014) 6 SCC 677,Dthe learned counsel submitted that to shut out arbitration at the initialstage would destroy the very purpose for which the parties had enteredinto arbitration agreement. It was submitted that when there is a clausefor arbitration agreed by the parties, it is mandatory for the civil court torefer the disputes to an arbitrator. It was urged that in the present case,Ein view of clause 17 of the agreement dated 01.05.1997 and in view ofthe mandatory language of Section 8 of the Act, the High Court rightlyreferred the parties to arbitration.

19. Though some of the claims in the Money Suit No.73 of 2003relate to the loss allegedly sustained by the appellant-plaintiff due toFtermination of the agreement dated 01.05.1997, other claims relate tothe loss said to have been caused to the appellant-plaintiff subsequent tothe compromise. According to the appellant-plaintiff, claim of Rs.1.40crores relates to alleged loss caused due to the failure of respondent toappoint appellant-plaintiff as stockist at Guwahati and Agartala; claimrelating to the alleged loss of goodwill and reputation; claim relating toGthe loss caused due to the mental pressure and legal proceedings andsuch other claims do not touch upon the agreement dated 01.05.1997.The learned counsel for appellant submitted that in the Money Suit No.73of 2003, substantial part of the claim pertains to the events subsequentto non-compliance of the compromise memo which do not fall within the H

ZENITH DRUGS & ALLIED AGENCIES P. LTD. REP. BY ITS MANAGINGDIRECTOR v. M/S. NICHOLAS PIRAMAL INDIA LTD. [R. BANUMATHI, J.]

ambit of agreement dated 01.05.1997 and could be resolved only by thecivil court.

20. As discussed earlier, by the agreement dated 01.05.1997, theappellant was appointed as clearing and forwarding agent of RPIL forthe entire north-eastern region; whereas under the compromise memo,the appellant has been appointed as stockist of the respondent Companyat Guwahati and Agartala which is entirely a different appointment though,as part of compensation package. Clause 17 of the agreement dated01.05.1997 cannot be invoked regarding the agreement of the parties toappoint the appellant as stockist for Guwahati and Agartala pursuant tothe compromise.

21. It is also pertinent to note that the respondent has challengedthe compromise decree alleging that it has been obtained by inducementand fraud. In view of the allegations of fraud levelled by the respondentthat the compromise decree is vitiated by fraud, the parties cannot bereferred to arbitration. Observing that where there are allegations offraud which are so complicated that it becomes absolutely essential thatsuch complex issues can be decided only by the Civil Court onapprehension of the evidence adduced by the parties, in A. Ayyasamy v.A. Paramasivam and Others (2016) 10 SCC 386, it was held as under:-

“25. ……..It is only in those cases where the court, while dealingwith Section 8 of the Act, finds that there are very seriousallegations of fraud which make a virtual case of criminal offenceor where allegations of fraud are so complicated that it becomesabsolutely essential that such complex issues can be decided onlyby the civil court on the appreciation of the voluminous evidencethat needs to be produced, the court can sidetrack the agreementby dismissing the application under Section 8 and proceed withthe suit on merits. It can be so done also in those cases wherethere are serious allegations of forgery/fabrication of documentsin support of the plea of fraud or where fraud is alleged againstthe arbitration provision itself or is of such a nature that permeatesthe entire contract, including the agreement to arbitrate, meaningthereby in those cases where fraud goes to the validity of thecontract itself of the entire contract which contains the arbitrationclause or the validity of the arbitration clause itself…….”.

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[2019] 10 S.C.R.

ASince the respondent has raised the plea that the compromisedecree is vitiated by fraud, the merits of such a plea could be decidedonly by the Civil Court upon consideration of the evidence adduced bythe parties.

22. As discussed earlier, there is no arbitration clause relating toBthe dispute between the parties in not appointing the appellant as stockistand the claim of compensation towards loss of goodwill and reputation.The High Court erred in proceeding under the footing that the disputefalls within the ambit of the agreement dated 01.05.1997 and that theappellant-plaintiff admits the existence of the arbitration clause and theimpugned judgment is liable to be set aside.C

23. In the result, the impugned order of the High Court in CivilRevision (P) No.31 of 2005 is set aside and this appeal is allowed andthe Money Suit No.73 of 2003 shall stand restored to the file of CivilJudge, Senior Division, Kamrup, Guwahati and the trial court shall proceedwith the matter in accordance with law.

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Ankit Gyan

Appeal allowed.

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