THE UNION OF INDIA versus KISHORILAL GUPTA AND BROS.

Citation: [1960] 1 S.C.R. 493 · Decided: 21-05-1959 · Supreme Court of India · Bench: SYED JAFFER IMAM · Disposal: Dismissed

Cited by 5 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

S.C.R. 
SUPREME COURT REPORTS 
THE UNION OF INDIA 
v. 
KISHORILAL GUPTA AND BROS. 
493 
(.JAFER !:MAM, A. K. SARKAR and K. SuBBA RAO, JJ.) 
Contract--Arbitration clause-Cancellation of contract-Settle-
ment of disputes by mutual agreement-Arbitration clause, if sur-
vives-Award based on such clause-Validity; 
The respondents entered into thre~ several contracts with 
the appellant, for the fabrication and supply of diverse military 
stores, each of which contracts contained an arbitration clause. 
Before the contracts had been fully executed disputes arose 
between the parties, one alleging that the other was committing 
a breach of the contract. The parties then entered into three 
fresh contracts on successive dates purporting to settle these dis-
putes on the terms therein contained. By the first two of 
these settlement contracts the respondents agreed to pay to the 
appellant certain moneys in settlement respectively of the dis-
putes relating to the first two original contracts. By the last 
of these settlement contracts the respondents agreed to pay to 
the appellant in specified instalments certain moneys in settle-
ment of the disputes relating to the third original contract as 
also the moneys which had then become due on the first two 
settlement contracts and had not been paid and further under-
took to hypothecate certain properties to secure the due repay-
ment of these moneys. The third settlement contract provided: 
"The contracts stand' finally concluded in terms of the settle-
ment and no party will have any further or other claim against 
the other." 
The respondents paid some of the instalments but failed to 
pay the rest. They also failed to create the hypothecation. The 
appellant then referred its claims for breach of the three origi-
nal contracts to arbitration under the •arbitration clauses con-
tained in them. On this reference an award for a total sum of 
Rs. 1,16.446-n-5 was made against the respondents in respect of 
the appellant's claim on the first and the third original contracts, 
the claim in respect of the second original contract having been 
abandoned by the appellant, and this award was filed in the 
High Court at Calcutta. The respondents applied to the High 
Court for a declaration that the arbitration clauses in the original 
contracts had ceased to have any effect and the contracts stood 
finally determined as a result of the settlement contracts and 
for an order setting' aside the award as void and nullity. The 
High Court held that the first original contract had not been 
abrogated by the settlement in respect of it, but the third original 
contract and the arbitration clause contained in it had ceased to 
exist as a result of the last settlement and the arbitrator had no 
jurisdiction to arbitrate under that arbitration clause. It further 
63 
494 
SUPREME COURT REPORTS [1960\l)] 
z95~ 
held that as the award was a single and inseverable award the 
whole of it was null and void. In this view the High Court set 
The Union of India aside the award. 
v. 
Held (per Imam and Subba Rao, JJ., Sarkar J .. dissenting), 
Kishorilal Gupl• that the third settlement, properly construed, left no manner of 
& Bros. 
doubt that it was for valid consideration and represented the 
common intention of the parties to substitute it for the earlier 
contracts between them. 
It gave rise to a new cause of action by 
obliterating the earlier cocytracts and the parties could look to it 
alone for the enforcement of their claims. There could, there-
fore, be no question that the arbitration clause which, whether a 
substantive or a collateral term, was nevertheless an integral 
part of the said contracts, must be deemed to exist along with 
them as a result of the said settlement. 
Hirji Mulji v. Cheong Yue Steamship Company, [1926] 
A.C. 502 and Heyman v. Darwin Ltd., [1942] l All E.R. 337, 
referred to. 
Tolaram Nathmull v. Birla Jute Manufacturing Co. Ltd., 
I.L.R. (1948) 2 Cal. 171, distinguished. 
Held, further, that it was well settled that the parties to an 
original contract could by mutual agreement enter intoa new 
contract in substitution of the old one. 
Payana Reena Saminathan v. Pana Lana Palaniappa, [1914] 
A.C. 618: Norris v. Baron and Company, [1918] A.C. land British 
Russian Gazette and Trade Outlook Ltd. v. Associated Newspaper, 
Limited, [1933] 2 K.B. 616, referred to. 
Per Sarkar, J.-The award was valid and could not be set 
aside as the third settlement neither expressly 

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