LexM/S INDIAN DRUGS AND PHARMACEUTICALS LTD. versus M/S INDO SWISS SYNTHETICS GEM MANUFACTURING CO. LTD. AND ORS.
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MIS INDIAN DRUGS AND PHARMACEUTICALS LTD. A v. MIS INDO SWISS SYNTHETICS GEM MANUFACTURING CO. LTD. AND ORS. NOVEMBER 14, 1995 [K. RAMASWAMY AND B.L. HANSARIA, JJ.) Arbitration-Arbitration clause-Operative only if contract in exist- ence-Tennination of contract-Contract subsists for certain purposes-Ar- B bitration clause operates in respect of these purposes. C The appellant entered into an agreement with respondent No. 2 whereunder the respondent was to undertake filling of vials with medicine. The agreement was for the period from 1.4.1982 to 31.3.1984 and it was terminated w.e.f. 1.4.1984. During the subsistence of the agreement accord- ing to the appellant, some work undertaken by the respondent was not in terms of the agreement. After the defect came to the notice of the appellant, it called upon the respondent to reimburse the loss. The respondent disputed the claim whereupon by invoking clause 19 of the agreement, the appellant referred the dispute to respondent No. 3 who had been appointed D by the Chairman and Managing Director of the appellant in exercise of E power conferred by clause 19. Respondent No. 2 challenged the appointment by filing an applica- tion uls 33 of the Arbitration Act, 1940, alleging that clause 19 of the agreement could not be invoked to refer the matter to arbitration. The application was allowed which was challenged by the appellant. The High F Court upheld the order of Sub-ordinate Judge. Hence this appeal. The respondent mainly urged that as the appellant itself had ter- minated the agreement w.e.f. 1.4.1984, the arbitration clause, which was a part of the agreement, had ceased to be operative after 1.4.1984; that clause 19 visualised arbitration on 'any difference about the quality of the material', whereas in the present case the dispute was about the vials filled up with less quantity and not as per specification and that as the appellant had for the first time required the respondent to reimburse the supposed G loss '.>y its letter of 10.11.1987, which was after about 4 years of the supply, the. invocation of arbitration clause was apparently barred by limitation H 189 190 SUPREME COURT REPORTS [1995] SUPP. 5 S.C.R. A and that respondent No. 3 might not be required to arbitrate in as much as he being an appointee of the Chairman and Managing Director of the appellant himself, respondents might not be fairly examined. B c D E F G The appellant submitted relying on Union of India v. Kishorilal Gupta & Bros., (1960) 1 SCR 493, that when a question of breach of contract is raised after the termination of the contract, it is the performance of the contract that comes to an end on termination of the contract, but the same remains in existence for certain purposes in respect of disputes arising under it or in connection with it and therefore, the arbitration clause operates in respect of these purposes; that the Court of Sub-ordinate Judge at Coimbatore had no jurisdiction to entertain the application u/s 33 of the Arbitration Act; that the cause of action to claim damage really accrued by July, 1985 as the complaint from the customers, particularly Defence Department, came to be known by the appellant in early 1985 whereupon the matter was taken up with the respondent and the tests ultimately were done in July, 1985. The questions raised for determination were (i) whether the arbitra- tion clause remained in existence by 1988 when the arbitrator was ap- pointed on the face of termination of the agreement by the appellant w.e.f. 1.4.1984; (ii) whether the arbitration clause, if held to be operative, could be invoked for the purpose at hand and (iii) whether the Court of Sub-or- dinate Judge at Coimbatore had jurisdiction to entertain the application u/s 33 of the Arbitration Act? Allowing the appeal, this Court HELD : 1.1. An arbitration clause, howsoever comprehensive in terms, can be operative only if the contract is in existence. However, when a question of breach of contract, inter alia, is raised after the termination of the contract, it is the performance of the contract that comes to an end on termination of the contract, but the same remains in existence for certain purposes in respect of disputes arising under it or in connection with it. In the instant case, clause 19 dealing with arbitration did survive despite the contract having come to an end w.e.f. 1.4.1984. The arbitration clause would perish in
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