DAMODAR VALLEY CORPORATION versus K.K.KAR

Citation: [1974] 2 S.C.R. 240 · Decided: 12-11-1973 · Supreme Court of India · Bench: P. JAGANMOHAN REDDY · Disposal: Appeal(s) allowed

Cited by 9 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

240 
DAMODAR VALLEY CORPORATION 
v. 
K.K.KAR 
November 12, 1973 
[P. JAGANMOHAN REDDY AND S. N. DWIVEDI, JJ.] 
Arbitration Act, 1940 (10 of 1940)-Repudintion of contract-If arhttr•ti#n 
clause perishes with repudiation. 
On the respondent's failure to fulfil the terms of the contract, tho appdlaat 
repudiated it and imposed certain penalties in accordance with the terms of 
tlu: contract. 
Th& appellant later waived the penalties and paid certain IUDII 
due to the respondent. 
The appellant claimed that these payments, includinJ 
the return of the deposit money finally settled the claims of the reap«JD<ient. 
ne respondent on the other hand claimed from the appellant certain JUIDI, 
i•cludin& damages for repudiation of the contract. 
The appellant not haviD&: 
aJJeed, the respondent appointed an arbitrator whom he later named u th• 
sole arbitrator. The validity of the appointment of the ~ole arbitrator was 
challenged by the appellant under ss. 9(b) and 33 of the Indian Arbitration Act, 
U-40. 
The arbitratcon clause in the contract was to the effect that in cue 
of a dispute "upon" or "in relation to" or "in connection with" the c:ontraot 
the ·matter shall be referred to arbitration. 
The Subordinate Jud11e pennitted 
tile ·appellant to add1,1ce evidence to establish whether the contract was P!Jt 
aJl end to bv . final payment and whether the arbitration clauao contaflled fD 
lire (;9Dtract perished with it .. The Hiib Court in revision ·set aside the order 
a:f the Subordinate Judao and dism.issed the applicatio~ of the appellant b. 
toto. 
It was contended that since there had been a full and final settlement nn4er 
the contract, the rights and obligations under the contract did not subsist and 
comequently the arbitration clause also perished along with the settlement. 
HELD: (i) Where in a contract there is an arbitration clause, notwithstand· 
ina the plea that there was a full and final settlement ~><;,ween the parties,· aut 
dispute can be referred to the arbitration's. The High Court waa in error in 
dim."ting the dismissal of the appellant's petition in toto. The question whether 
taere bas been a full and final settlement of a claim under the contract 
Is 
itself a dispute arising 'upon' or 'in relation to' or 'in connection with' the 
coutract. 
These w!'rds are wide enough to cover the dispute sought to 
be 
referred. 
On the facts of this case when the appellant refused to accept the 
goods, the respondent could claim damages for breach of contract. Such 
a elaim for damages is a dispute or difference which arises between the res· 
pendent and appellant and is "upon" or "in relation to" or "in connection with" 
the contract. 
r248C; 243C·D1 
A contract is the creature of an agreement between the parties 8.1ld where 
the parties under the terms of the contract agree to incnrpor~te an nrhitration 
clause, that clause stands apart from the rights and obligations under that 
contract, as it has been incorporated with the object of providing a machinery 
for the settlement of disputes arising in relation to or in co..,necti('\n .vith 
that contract. The questions of unilateral repudiation of the rights and obli-
gations under the contract or of a full and final settlement of the contract 
re-late to the performance or discharge of the contract. 
Far from putting an 
end to the arbitration clause, they fall within the purview of it. A repudiation 
by one party alone does not terminate the contract. It takes two to end it 
nnd hence it foll0ws that as the contract subsists for the determinatio[l of tll.e 
riJihl.~ and obligations of the parties. the arbitration clause 
also 
survives. 
r243F·G] 
(ii) In cases where the dispute between the parties is that the contraet 
itselt did not subsist either as a result of its being substituted by a new contract 
or by rescission or alteration. that dispute could not be referred to the arbitra· 
tion as the arbitration clause itself would perish if the averment was found tc> 
be valid. 
As the verv jurisdiction of the arbitrator is dependent 
upon 
the 
existence of the arbitration clause under which he is · appointed, the parties. 
have no right to invoke a clause which perishes with the contract. 
£244B·C1 
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~A~!ODARVALLEY CORP. v: IC. 1<. KAR (Jagan!noha11 Reddy, J.) 
(iii) The contract. being conccnsual, the question whether the arbitration. 
" 
survives or pensbcs would de~end upon the nature of the controvel'lly and 
da~<ct upon the cxis

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