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M/S. Magma Leasing & Fin. Ltd. & Anr vs Potluri Madhavilata & Anr on 18 September, 2009

Supreme Court of India
M/S. Magma Leasing & Fin. Ltd. & Anr vs Potluri Madhavilata & Anr on 18 September, 2009
Author: R Lodha
Bench: Tarun Chatterjee, R.M. Lodha
                                                               Reportable



            IN THE SUPREME COURT OF INDIA
             CIVIL APPELLATE JURISDICTION

              CIVIL APPEAL NO.6399 OF 2009
          (Arising out of SLP(C) No. 21323 of 2007)


The Branch Manager,
M/s. Magma Leasing &Finance Limited & Anr.        ...Appellants

                             Versus

Potluri Madhavilata & Anr.                      ...Respondents


                        JUDGEMENT

R.M. Lodha, J.

Leave granted.

2. The core question that falls to be determined in this

appeal by special leave is : does the arbitration agreement

survive for the purpose of resolution of disputes arising under

or in connection with the contract even if its performance has

come to an end on account of termination due to breach ?

3. MAGMA Leasing Limited Public United Company

(for short, `MAGMA’) is a financial institution engaged in the
business of providing funds for purchase of plant and

machinery and other assets by way of hire purchase.

Smt. Potluri Madhavilata-respondent no. 1 (hereinafter referred

to as `hirer) entered into an agreement of hire purchase with

MAGMA for purchase of a motor vehicle (Bolero Camper-AP 16

TV 1263) on January 31, 2005. As per the terms of hire

purchase agreement, the hirer was required to pay hire

purchase price in 46 installments. It appears that the hirer

committed default in payment of few installments and as a

result thereof, MAGMA seized the said vehicle from the hirer on

August 6, 2005. MEGMA also sent a notice to the hirer

intimating her that hire purchase agreement has been

terminated. Thereafter some correspondence seems to have

ensued between the parties.

4. The hirer then filed a suit against MAGMA in the

Court of Senior Civil Judge, Vijayawada seeking recovery of

possession of the aforesaid vehicle and for restraining MAGMA

from transferring the said vehicle.

5. MAGMA, upon receipt of notice of the aforesaid

proceedings, made an application (I.A. No. 490 of 2006) before

2
the trial court under Section 8 of the Arbitration and Conciliation

Act, 1996 (for short , `Act, 1996′) read with Section 151 of the

Code of Civil Procedure praying therein that the dispute raised

in the suit be referred to an arbitrator and the proceedings in

the suit be stayed.

6. The hirer contested the aforesaid application on the

ground that the hire purchase agreement having been

terminated, the arbitration agreement does not survive and the

matter need not be referred to the arbitration.

7. The First Additional Senior Civil Judge, Vijayawada

vide order dated December 4, 2006 dismissed the application

made by MAGMA under Section 8 of the Act, 1996.

8. Not satisfied with the order of the trial court,

MAGMA filed a civil revision petition before the High Court of

Andhra Pradesh.

9. The Division Bench dismissed the revision petition

on April 30, 2007 holding that upon termination of the hire

purchase agreement, the arbitration agreement does not

survive. The present appeal by special leave arises from this

order.

3

10. Despite service, hirer has not chosen to

appear before this court.

11. The hire purchase agreement contains the following

clause for arbitration :

“22. Arbitration : All disputes, differences, claims
and questions whatsoever arising out of this agreement
between magma and/or its representatives and/or its assigns
on the one hand and the Hirer/s and the Guarantor/s on the
other hand touching and concerning these presents or
anything herein contained or in any way relating to or arising
from these presents shall be referred to a sole arbitrator to be
appointed by Magma Leasing Limited. The Arbitrator so
appointed shall formulate his own procedure and shall be
entitled to dispense with filing of pleadings or taking of any
evidence and shall be entitled to dispose off the proceedings
in a summary manner. The Arbitrator shall have summary
powers. The award of such arbitrator so appointed shall be
final and binding on all the parties to this agreement. Such
arbitration proceedings will be at Kolkata. The sole arbitrator
shall pronounce the award as expeditiously as possible after
entering on the reference or within such time as he may deem
expedient. The pronouncement of the award by the arbitrator
in a meeting of the parties fixed after the conclusion of the
arbitration proceedings shall be deemed to be the publication
of the award and shall be construed as the date of receipt of
the award by the Hirer/s/Guarantor/s and Magma. The costs
and expenses of the arbitration proceedings shall be borne by
the Hirer/s/Guarantor/s. The Arbitrator shall hold his sittings at
Kolkata.”

12. The House of Lords in Heyman and Another v.

Darwins Ltd.1 had discussed elaborately on the scope of

arbitration clause in the context of a dispute arising on the

question of repudiation of a contract. That was a case where
1
(1942) 1 ALL ER 337

4
the contract was repudiated by one party and accepted as such

by another. The contract between the parties contained an

arbitration clause providing for that any dispute between the

parties in respect of the agreement or any of the provisions

contained therein or anything arising thereout should be

referred to arbitration. Viscount Simon, L.C., summarised the

legal position with regard to scope of an arbitration clause in a

contract as follows :

“An arbitration clause is a written submission, agreed
to by the parties to the contract, and, like other written
submissions to arbitration, must be construed according to
its language and in the light of the circumstances in which it
is made. If the dispute is as to whether the contract which
contains the clause has ever been entered into at all, that
issue cannot go to arbitration under the clause, for the party
who denies that he has ever entered into the contract is
thereby denying that he has ever joined in the submission.
Similarly, if one party to the alleged contract is contending
that it is void ab initio (because, for example, the making of
such a contract is illegal), the arbitration clause cannot
operate, for on this view the clause itself is also void.

If, however, the parties are at one in asserting that
they entered into a binding contract, but a difference has
arisen between them as to whether there has been a breach
by one side or the other, or as to whether circumstances
have arisen which have discharged one or both parties from
further performance, such differences should be regarded as
differences which have arisen “in respect of,” or “with regard
to'” or “under” the contract, and an arbitration clause which
uses these, or similar, expressions, should be construed
accordingly. By the law of England (though not, as I
understand, by the law of Scotland), such an arbitration
clause would also confer authority to assess damages for
breach, even though it does not confer upon the arbitral
body express power to do so.

5

I do not agree that an arbitration clause expressed in
such terms as above ceases to have any possible
application merely because the contract has “come to an
end,” as, for example, by frustration. In such cases it is the
performance on the contract that has come to an end.”

Viscount Simon, L.C. concurred with the view
expressed by Lord Dunedin in Scott & Sons v. Del
Sel, (1923) S.C.(H.L.) 37 and observed:

“………The reasoning of LORD DUNEDIN applies equally to
both cases. It is, in my opinion, fallacious to say that,
because the contract has “come to an end” before
performance begins, the situation, so far as the arbitration
clause is concerned, is the same as though the contract had
never been made. In such case a binding contract was
entered into, with a valid submission to arbitration contained
in its arbitration clause, and, unless the language of the
arbitration clause is such as to exclude its application until
performance has begun, there seems no reason why the
arbitrator’s jurisdiction should not cover the one case as
much as the other.”

13. Lord Macmillan, Lord Wright and Lord Porter though

expressed their views separately but all of them agreed with

the statement of law summarised by Viscount Simon, L.C..

14. In Union of India v. Kishorilal Gupta and Bros.2,

Subba Rao, J. (as His Lordship then was) while dealing with the

question whether the arbitration clause of the original contract

survived after the execution of settlement of the contract

referred to the judgment of House of Lords in Heyman

exhaustively and held :

2

(1960) 1 SCR 493

6
“Uninfluenced by authorities or case-law, the logical
outcome of the earlier discussion would be that the
arbitration clause perished with the original contract.
Whether the said clause was a substantive term or a
collateral one, it was nonetheless an integral part of the
contract, which had no existence de hors the contract. It was
intended to cover all the disputes arising under the
conditions of, or in connection with, the contracts. Though
the phraseology was of the widest amplitude, it is
inconceivable that the parties intended its survival even after
the contract was mutually rescinded and substituted by a
new agreement. The fact that the new contract not only did
not provide for the survival of the arbitration clause but also
the circumstance that it contained both substantive and
procedural terms indicates that the parties gave up the terms
of the old contracts, including the arbitration clause. The
case-law referred to by the learned Counsel in this
connection does not, in our view, lend support to his broad
contention and indeed the principle on which the said
decisions are based is a pointer to the contrary.

We shall now notice some of the authoritative
statements in the textbooks and a few of the cases bearing
on the question raised: In Chitty on Contract, 21st Edn., the
scope of an arbitration clause is stated thus, at p. 322:

“So that the law must be now taken to be that when
an arbitration clause is unqualified such a clause will
apply even if the dispute involve an assertion that
circumstances had arisen whether before or after the
contract had been partly performed which have the
effect of discharging one or both parties from liability
e.g. repudiation by one party accepted by the other,
or frustration.”

In “Russel on Arbitration”, 16th Edn., p. 63, the following test
is laid down to ascertain whether an arbitration clause
survives after the contract is determined:

“The test in such cases has been said to be whether
the contract is determined by something outside itself,
in which case the arbitration clause is determined with
it, or by something arising out of the contract, in which
case the arbitration clause remains effective and can
be enforced.”

7

The Judicial Committee in Hirji Mulji v. Cheong Yue
Steamship Company {(1926) A.C. 497} gives another test at
p. 502:

“That a person before whom a complaint is brought
cannot invest himself with arbitral jurisdiction to decide
it is plain. His authority depends on the existence of
some submission to him by the parties of the subject
matter of the complaint. For this purpose a contract
that has determined is in the same position as one that
has never been concluded at all. It founds no
jurisdiction.”

A very interesting discussion on the scope of an arbitration
clause in the context of a dispute arising on the question of
repudiation of a contract is found in the decision of the
House of Lords in Heyman v. Darwine Ltd.{(1942) All.E.R.
337}. There a contract was repudiated by one party and
accepted as such by the other. The dispute arose in regard
to damages under a number of heads covered by the
contract. The arbitration clause provided that any dispute
between the parties in respect of the agreement or any of
the provisions contained therein or anything arising thereout
should be referred to arbitration. The House of Lords held
that the dispute was one within the arbitration clause. In the
speeches of the Law Lords a wider question is discussed
and some of the relevant principles have been succinctly
stated. Viscount Simon, L.C. observed at p. 343 thus:

“An arbitration clause is a written submission, agreed
to by the parties to the contract, and, like other written
submissions to arbitration, must be construed
according to its language and in the light of the
circumstances in which it is made. If the dispute is as
to whether the contract which contains the clause has
ever been entered into at all, that issue cannot go to
arbitration under the clause, for the party who denies
that he has ever entered into the contract is thereby
denying that he has ever joined in the submission.
Similarly, if one party to the alleged contract is
contending that it is void ab initio (because, for
example, the making of such a contract is illegal), the
arbitration clause cannot operate, for on this view the
clause itself is also void.

8

If, however, the parties are at one in asserting that
they entered into a binding contract, but a difference
has arisen between them as to whether there has
been a breach by one side or the other, or as to
whether circumstances have arisen which have
discharged one or both parties from further
performance, such differences should be regarded as
differences which have arisen “in respect of”, or “with
regard to”, or “under” the contract, and an arbitration
clause which uses these, or similar, expressions,
should be construed accordingly. By the law of
England (though not, as I understand, by the law of
Scotland) such an arbitration clause would also confer
authority to assess damages for breach even though
it does not confer upon the arbitral body express
power to do so.

I do not agree that an arbitration clause expressed
in such terms as above ceases to have any possible
application merely because the contract has “come to
an end”, as, for example, by frustration. In such cases
it is the performance of the contract that has come to
an end.”

The learned Law Lord commented on the view expressed by
Lord Dunedin at p. 344 thus:

“The reasoning of Lord Dunedin applies equally to
both cases. It is, in my opinion, fallacious to say that,
because the contract has “come to an end” before
performance begins, the situation, so far as the
arbitration clause is concerned, is the same as though
the contract had never been made. In such case a
binding contract was entered into, with a valid
submission to arbitration contained in its arbitration
clause, and, unless the language of the arbitration
clause is such as to exclude its application until
performance has begun, there seems no reason why
the arbitrator’s jurisdiction should not cover the one
case as much as the other.”

Lord Macmillan made similar observations at p. 345:
“If it appears that the dispute is as to whether there
has ever been a binding contract between the parties,
such a dispute cannot be covered by an arbitration
clause in the challenged contract. If there has never

9
been a contract at all, there has never been as part of
it an agreement to arbitrate; the greater includes the
less. Further, a claim to set aside a contract on such
grounds as fraud, duress or essential error cannot be
the subject-matter of a reference under an arbitration
clause in the contract sought to be set aside. Again,
an admittedly binding contract containing a general
arbitration clause may stipulate that in certain events
the contract shall come to an end. If a question arises
whether the contract has for any such reason come to
an end, I can see no reason why the arbitrator should
not decide that question. It is clear, too, that the
parties to a contract may agree to bring it to an end to
all intents and purposes and to treat it as if it had
never existed. In such a case, if there be an
arbitration clause in the contract, it perishes with the
contract. If the parties substitute a new contract for
the contract which they have abrogated, the
arbitration clause in the abrogated contract cannot be
invoked for the determination of questions under the
new agreement. All this is more or less elementary.”

These observations throw considerable light on the question
whether an arbitration clause can be invoked in the case of a
dispute under a superseded contract. The principle is
obvious; if the contract is superseded by another, the
arbitration clause, being a component part of the earlier
contract, falls with it. The learned Law Lord pin-points the
principle underlying his conclusion at p. 347:

“I am accordingly of opinion that what is commonly
called repudiation or total breach of a contract,
whether acquiesced in by the other party or not, does
not abrogate a contract, though it may relieve the
injured party of the duty of further fulfilling the
obligations which he has by a contract undertaken to
the repudiating party. The contract is not put out of
existence, though all further performance of the
obligations undertaken by each party in favour of the
other may cease. It survives for the purpose of
measuring the claims arising out of the breach, and
the arbitration clause survives for determining the
mode of their settlement. The purposes of the
contract have failed, but the arbitration clause is not
one of the purposes of the contract.”

1

Lord Wright, after explaining the scope of the word
“repudiation” and the different meanings it bears, proceeded
to state at p. 350:

“In such a case, if the repudiation is wrongful and the
rescission is rightful, the contract is ended by the
rescission; but only as far as concerns future
performance. It remains alive for the awarding of
damages, either for previous breaches, or for the
breach which constitutes the repudiation. That is only
a particular form of contract breaking and would
generally, under an ordinary arbitration clause,
involve a dispute under the contract like any other
breach of contract.”

This decision is not directly in point; but the principles laid
down therein are of wider application than the actual
decision involved. If an arbitration clause is couched in
widest terms as in the present case, the dispute, whether
there is frustration or repudiation of the contract, will be
covered by it. It is not because the arbitration clause
survives, but because, though such repudiation ends the
liability of the parties to perform the contract, it does not put
an end to their liability to pay damages for any breach of the
contract. The contract is still in existence for certain
purposes. But where the dispute is whether the said contract
is void ab initio, the arbitration clause cannot operate on
those disputes, for its operative force depends upon the
existence of the contract and its validity. So too, if the
dispute is whether the contract is wholly superseded or not
by a new contract between the parties, such a dispute must
fall outside the arbitration clause, for, if it is superseded, the
arbitration clause falls with it.”

15. In his separate but concurring judgment, A.K.

Sarkar, J. (as His Lordship then was) exposited the legal

position thus :

“Now I come to the nature of an arbitration clause. It
is well settled that such a clause in a contract stands apart
from the rest of the contract. Lord Wright said in Heyman’s
case that an arbitration clause “is collateral to the

1
substantial stipulations of the contract. It is merely
procedural and ancillary, it is a mode of settling disputes,….

All this may be said of every agreement to arbitrate, even
though not a separate bargain, but one incorporated in the
general contract”. Lord Macmillan also made some very
revealing observations on the nature of an arbitration clause
in the same case. He said at pp. 373-4:

“I venture to think that not enough attention has been
directed to the true nature and function of an arbitration
clause in a contract. It is quite distinct from the other
clauses. The other clauses set out the obligations which
the parties undertake towards each other hinc inde, but
the arbitration clause does not impose on one of the
parties an obligation in favour of the other. It embodies
the agreement of both the parties that, if any dispute
arises with regard to the obligations which the one party
has undertaken to the other, such dispute shall be settled
by a tribunal of their own constitution. And there is this
very material difference, that whereas in an ordinary
contract the obligations of the parties to each other
cannot in general be specifically enforced and breach of
them results only in damages, the arbitration clause can
be specifically enforced by the machinery of the
Arbitration Act. The appropriate remedy for breach of the
agreement to arbitrate is not damages, but its
enforcement.”

It seems to me that the respective nature of accord
and satisfaction and arbitration clause makes it impossible
for the former to destroy the latter. An accord and
satisfaction only releases the parties from the obligations
under a contract but does not affect the arbitration clause in
it, for as Lord Macmillan said, the arbitration clause does not
impose on one of the parties an obligation in favour of the
other but embodies an agreement that if any dispute arises
with regard to the obligations which the one party has
undertaken to the other, such dispute shall be settled by
arbitration. A dispute whether the obligations under a
contract have been discharged by an accord and satisfaction
is no less a dispute regarding the obligations under the
contract. Such a dispute has to be settled by arbitration if it is
within the scope of arbitration clause and either party wants
that to be done. That cannot be unless the arbitration clause
survives the accord and satisfaction. If that dispute is not
within the arbitration clause, there can of course be no

1
arbitration, but the reason for that would not be that the
arbitration clause has ceased to exist but that the dispute is
outside its scope. I am not saying that it is for the arbitrator
to decide whether the arbitration clause is surviving; that
may in many cases have to be decided by the Court. That
would depend on the form of the arbitration agreement and
on that aspect of the matter it is not necessary to say
anything now for the question does not arise.

In my view therefore an accord and satisfaction does
not destroy the arbitration clause. An examination of what
has been called the accord and satisfaction in this case
shows this clearly. From what I have earlier said about the
terms of the settlement of February 22, 1949, it is manifest
that it settled the disputes between the parties concerning
the breach of the contract for kettles camp and its
consequences. All that it said was that the contract had been
broken causing damage and the claim to the damages was
to be satisfied “in terms of the settlement”. It did not purport
to annihilate the contract or the arbitration clause in it. I feel
no doubt therefore that the arbitration clause subsisted and
the arbitrator was competent to arbitrate. The award was not
in my view, a nullity.

The position is no different if the matter is looked at
from the point of view of Section 62 of the Contract Act. That
section is in these terms:

“Section 62. If the parties to a contract agree to
substitute a new contract for it, or to rescind or alter it, the
original contract need not be performed.”

The settlement cannot be said to have altered the original
contract or even to have rescinded it. It only settled the
dispute as to the breach of the contract and its
consequences. For the same reason it cannot be said to
substitute a new contract for the old one. As I have earlier
stated it postulates the existence of the contract and only
decides the incidence of its breach.”

1

16. In the case of National Agricultural Coop. Marketing

Federation India Ltd. v. Gains Trading Ltd.3, this Court held

thus:

“6. The respondent contends that the contract was
abrogated by mutual agreement; and when the contract
came to an end, the arbitration agreement which forms part
of the contract, also came to an end. Such a contention has
never been accepted in law. An arbitration clause is a
collateral term in the contract, which relates to resolution
disputes, and not performance. Even if the performance of
the contract comes to an end on account of repudiation,
frustration or breach of contract, the arbitration agreement
would survive for the purpose of resolution of disputes
arising under or in connection with the contract. (Vide
Heyman v. Darwins Ltd.[(1942)AC356], Union of India v.
Kishorilal Gupta & Bros (AIR
1959 SC 13) and Naihati Jute
Mills Ltd. v. Khyaliram Jagannath (AIR
1968 SC 522). This
position is now statutorily recognised. Sub-section (1) of
Section 16 of the Act makes it clear that while considering
any objection with respect to the existence or validity of the
arbitration agreement, an arbitration clause which forms part
of the contract, has to be treated as an agreement
independent of the other terms of the contract; and a
decision that the contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.”

17. Recently, in the case of P.Manohar Reddy & Bros.

vs. Maharashtra Krishna Valley Development Corporation And

Ors4., while dealing with the argument of the respondent

therein that in terms of the contract the claim for extra work or

additional work should have been raised during the pendency

of the contract itself and not after it came to an end, this Court

3
(2007) 5 SCC 692
4
(2009) 2 SCC 494

1
considered the concept of separability of the arbitration clause

from the contract and made the following observations :

“27. An arbitration clause, as is well known, is a part
of the contract. It being a collateral term need not, in all
situations, perish with coming to an end of the contract. It
may survive. This concept of separability of the arbitration
clause is now widely accepted. In line with this thinking, the
UNCITRAL Model Law on International Commercial
Arbitration incorporates the doctrine of separability in Article
16(1). The Indian law — the Arbitration and Conciliation Act,
1996, which is based on the UNCITRAL Model Law, also
explicitly adopts this approach in Section 16(1)(b), which
reads as under:

“16. Competence of Arbitral Tribunal to rule on its
jurisdiction.–(1) The Arbitral Tribunal may rule on its
own jurisdiction, including ruling on any objections
with respect to the existence or validity of the
arbitration agreement, and for that purpose,–

(a) an arbitration clause which forms part of a
contract shall be treated as an agreement
independent of the other terms of the contract; and

(b) a decision by the Arbitral Tribunal that the
contract is null and void shall not entail ipso jure the
invalidity of the arbitration clause.”

(emphasis supplied)
Modern laws on arbitration confirm the concept.

28. The United States Supreme Court in a recent
judgment in Buckeye Check Cashing Inc. v. Cardegna [546
US 460 (2005)] acknowledged that the separability rule
permits a court “to enforce an arbitration agreement in a
contract that the arbitrator later finds to be void”. The Court,
referring to its earlier judgments in Prima Paint Corpn. v.
Flood & Conklin Mfg. Co.[18 L.Ed. 2d 1270] and Southland
Corpn. v. Keating [465 US 1 (1984)], inter alia, held:

“Prima Paint and Southland answer the question
presented here by establishing three propositions.
First, as a matter of substantive federal arbitration
law, an arbitration provision is severable from the
remainder of the contract.”

But this must be distinguished from the situation
where the claim itself was to be raised during the

1
subsistence of a contract so as to invoke the
arbitration agreement would not apply.”

18. The statement of law expounded by Viscount

Simon, L.C. in the case of Heyman as noticed above, in our

view, equally applies to situation where the contract is

terminated by one party on account of the breach committed

by the other particularly in a case where the clause is framed in

wide and general terms. Merely because the contract has

come to an end by its termination due to breach, the

arbitration clause does not get perished nor rendered

inoperative; rather it survives for resolution of disputes arising

“in respect of” or “with regard to” or “under” the contract. This

is in line with the earlier decisions of this Court, particularly as

laid down in Kishori Lal Gupta & Bros.

19. In the instant case, clause 22 of the hire purchase

agreement that provides for arbitration has been couched in

widest possible terms as can well be imagined. It embraces all

disputes, differences, claims and questions between the

parties arising out of the said agreement or in any way relating

thereto. The hire purchase agreement having been admittedly

1
entered into between the parties and the disputes and

differences have since arisen between them, we hold, as it

must be, that the arbitration clause 22 survives for the purpose

of their resolution although the contract has come to an end

on account of its termination.

20. The next question, an incidental one, that arises for

consideration is whether the trial court must refer the parties

to arbitration under Section 8 of the Act, 1996.

21. Section 8 reads thus:

“8. Power to refer parties to arbitration where
there is an arbitration agreement.–(1) A judicial authority
before which an action is brought in a matter which is the
subject of an arbitration agreement shall, if a party so
applies not later than when submitting his first statement on
the substance of the dispute, refer the parties to arbitration.

(2) The application referred to in sub-section(1) shall
not be entertained unless it is accompanied by the original
arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been
made under sub-section (1) and that the issue is pending
before the judicial authority, an arbitration may be
commenced or continued and an arbitral award made.”

22. An analysis of Section 8 would show that for its

applicability, the following conditions must be satisfied: (a) that

there exists an arbitration agreement; (b) that action has been

brought to the court by one party to the arbitration agreement

1
against the other party; (c) that the subject matter of the suit is

same as the subject matter of the arbitration agreement; (d)

that the other party before he submits his first statement of the

substance of the dispute, moves the court for referring the

parties to arbitration; and (e) that along with the application the

other party tenders the original arbitration agreement or duly

certified copy thereof.

23. Section 8 is in the form of legislative command to

the court and once the pre-requisite conditions as aforestated

are satisfied, the court must refer the parties to arbitration.

As a matter of fact, on fulfillment of conditions of Section 8, no

option is left to the court and the court has to refer the parties

to arbitration.

24. There is nothing on record that the pre-requisite

conditions of Section 8 are not fully satisfied in the present

case. The trial court, in the circumstances, ought to have

referred the parties to arbitration as per arbitration clause 22.

25. In the result, appeal must succeed and is allowed.

The impugned order dated April 30, 2007 passed by the High

Court affirming the order dated December 4, 2006 passed by

1
the First Additional Senior Civil Judge, Vijayawada is set aside.

I.A.No.490/2006 in O.S.No.19/2006 is restored to the file of the

First Additional Senior Civil Judge, Vijayawada for passing an

appropriate order in the light of the observations made

hereinabove. Since the respondent has not chosen to appear,

no order as to costs.

……………………J
(Tarun Chatterjee)

……………………J
(R. M. Lodha)

New Delhi
September 18, 2009.

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