R.N. KUMARversusR.K. SORAL

                                     R.N. KUMAR
                                                                                      A
                                          v.
                                     R.K. SORAL

                                    APRIL 13, 1988

        [SABYASACHI MUKHARJI ANDS. RANGANATHAN, JJ.J                                  B

            Arbitration Act, i940. Section 20---Arbitration agreement-Duty


-      bf Court to direct filing of-Whether obligatory.

             Indian Contract Act, 1872. Section JO-Contract-Whether there
       is complete novation of a contract in a particular case-Held, it depends
       on facts and circumstances of the case.                                        c
             An agreement for distribution of the film "Savere Wali Gadi"
       was entered into on 19th March, 1983 between the petitioner as the
       distributor and the respondent as the producer. The agreement con-
       tained an arbitration clause. A sum of Rs.3.40 lakhs paid to the respon-       D
       dent and acknowledged by him earlier to the agreement was deemed to
       have been adjusted against the first instalment. In or about J 984 about
       Rs. 3 lakhs were further advanced to the respondent. As per the agree-
       ment the respondent was to hand over the prints of the film by JOth
       August, 1983, but it was not done.
                                                                                      E
             On JJth March, 1985 a further agreement was entered into bet-
       ween the parties whereby the respondent agreed to pay a total sum of
-      Rs.6.50 lakhs to the petitioner for giving up his distribution rights in the
       first agreement. The first agreement was accordingly irrevocably

--r-
  )
       cancelled and superseded by the subsequent agreement.

             The respondent took up the matter with Motion Pictures Associa-
                                                                                      F

       tion to de-register the film in the name of the petitioner. The Motion
       Picture Association stated that de-registration would be allowed only
       when the respondent pays Rs.6.50 lakhs to the petitioner or deposits the
       amount with the Association. The petitioner's claim before the Associa-
       tion was that the respondent committed 'breach of the subsequent               G
       agreement.

             A civil suit was filed in the High Court for recovery of Rs.6.50
       lakhs with interest, by the petitioner ag~inst the respondent. Later, an
       application under section 20 of the Arbitration Act was made. The
       Single Judge' held that the first agreement had revived and directed the       H
                                           527
    528                    SUPREME COURT REPORTS               I1988] 3 S.C.R.
    filing of the agreement. On appeal, the Division Bench confirmed the
A
    order. This special leave petition is against the order of the Division
    Bench of the High Court.

          Dismissing the special leave petition, this Court,

B         HELD: I. I Whether in any particular case there was a complete
    novation of a contract in the sense that the new contract replaced or
    substituted the old contract, could depend upon the facts and circumst-
    ances of the case. [53IB-C]

          1.2 When the agreement of 1985 was entered into, it was the
                                                                                 -
    intention of the parties that the earlier agreement would be superseded
c   and a new arrangement was sought to be brought about whereby the
    rights of the petitioner under the earlier agreement were to be yielded
    for a sum of Rs.6.50 lakhs. This amouut of Rs.6.50 lakhs was never
    paid by the respondent, and it was the case of the petitioner that the
    earlier agreement stood cancelled. The petitioner who claimed rights
0   under the earlier agreement, sought the continuation of his registration
    of distributorship. This registration could continue only by virtue of the
    earlier agreement which had revived. [530G-H; 53IB)

          Babula/ Marwari and others v. Tulsi Singh and others, A.I.R. 1940
    Patna 121, referred to.
E
          2.1 Sub-section (I) of Section 20 of the Arbitration Act gives an
    option to the parties by the use of the expression 'may', but the other
    sub-sections, if the conditions are fultilled, make it obligatory for the
    Court to direct filing of an arbitration agreement. [532G I
                                                                                 -
F        2.2 Indubitably, there was an arbitration clause in the agree-
  ment. The parties have applied for reference. The Division Bench has
  reiterated that the original agreement dated 19th March, 1983 which
  ceased to have effect and came to an end by the agreement dated l lth
  March, 1985 stood revived by virtue of the two letters dated 15th July,
  1985 and !Ith September, 1985 by the appellant. It is clear that the
G petitioner in the above letters fell back on the original contract of 19th
  March, 1983. This was accepted by the respondent. Hence there was at
  all relevant times a valid and binding contract between the parties. That
  contract contained an arhitrati~n clause. There was nothing to disenti-
  tle the parties to have their rights adjudicated in terms of an arbitration
  clause. The civil suit filed does not by itself preclude filing of proper
H arbitration agreement between the parties. There being no impediment
                    R.N. KUMAR v. R.K. SORAL [MUKHARJI, J.)                529

     in filing the arbitration agreement which was subsisting at the relernnt     A
     time when the High Court directed that the a'rbitration agreement he
     filed, that discretion should not be interfered with. tS32G-H; 531F'G I

           CIVIL APPELLATE JURISDICTION: Special Leave Petitfon
     (Civil) No. 4221of1988.
                                                                                  B
          From the Judgment and Order dated 3.12. 1987-0f{be Delhi High
     Court in FAO (OS) No. 120of1987.

-          Mukul Rohtagi and Miss Bina Gupta for the petitioner.

          Soli J. Sorabji, D.K. Sorab, P. Jain, Sushil Kr. Jain and Sud-
     hanshu Atreya for the Respondent.
                                                                                  c
           The J udginent of the Court was delivered by

             SABYASACHI MUKHARJI, J. This is an application for leave
      to appeal under Article 136 of the Constitution from the order of the       D
      Division Bench of the Delhi High Court affirming the order of the
      learned single Judge of that High Court. It appears that on 19th
      March, !983, there was an agreement for distribution of the film
      "Savere Wali Gadi" entered into between the parties, the petitioner as
      the distributor ·and the respondent as the producer. The agreement
    . contained an arbitration clause. It is stated that a sum of Rs.3 lakhs      E
      was paid by the petitioner and acknowledged by the respondent earlier

-     to the execution of the said agreement and therefore, the first instal·
      ment payable under the agreement to the respondent of Rs.3.40 lakhs
      was deemed to be adjusted. Under the aforesaid distribution agree-
      ment by 30th August, 1983, the respondent was to hand over the prints
      of the film by this date which he never did. In or about 1984 certain       F
      other moneys of about Rs.3 lakhs were further advanced to the
      respondent. On 11th March, 1985 a further agreement was entered
      into between the parties whereby the respondent agreed to pay a total
      amount of Rs.6.50 lakhs to the petitioner and the petitioner to give up
      his distribution rights in the first agreement of 19th March, 1983. The
      first agreement was accordingly irrevocably cancelled and superseded
      by this subsequent agreement. On or about 2nd June, 1985 respondent
      wrote to the Motion Pictures Association, Delhi to de-register the film
      in the name of the petitioner in view of the petitioner having given up
      the distribution rights by_virtue of Annexure P/2 dated 11.3.85 where·
      under the petitioner had agreed..to receive Rs.6.50 lakhs and finished
      the deal within six months of 11.3 .SS, It is the case of the petitioner.   H
                                                                                1·




    530                  SUPREME COURT REPORTS            [19881 3 S.C.R.

A however, that the sum of Rs.6.50 lakhs was never paid by the respon·
  dent to the petitioner. On 3rd July, 1985 the Motion Picture Associa-
  tion wrote to the respondent acknowledging receipt of respondent's
  letter dated 22nd June 1985 whereby he had asked for de-registration
  of the film in view of Annexure P/2. The Motion Picture Association
  stated that de-registration would be allowed only when the respondent
B pays Rs.6.50 lakhs to the petitioner or deposits the amount with the
  Motion ricture Association. It is stated that between July 1985 and
  September 1985, the petitioner wrote two letters to the Motion Picture
  Association stating that the respondent had committed a breach of the
  subsequent agreement dated I Ith March, 1985 executed between the
  parties whereunder the respondent was to make payment of Rs.6.50
                                                                                -
  lakhs and it was clear that the respondent had no desire to make
c payment   and the respondent wrongly wanted to deal with the film and
  sell the distribution rights to somebody else thereby enjoying benefit
  of the same and also to deprive the petitioner of the amount of Rs.6.50
  lakhs. Civil suit was filed in February, 1986 for recovery of Rs.6.50
  lakhs with interest by the petitioner against the respondent. The writ·
0 ten statement was submitted. An application was made under section
  20 in June, 1986. This application had been made later than the institu·
  tion of the civil suit in the same High Court. The learned single Judge
  directed that the arbitration agreement to be filed and reference was
  directed according to the agreement. There was an order passed by the
  learned single Judge to that effect. There was an appeal to the Division
E Bench of the High Court and the Division Bench confirmed the order
  of the learned single Judge. Hence this petition.

          It appears that there were two agreements one dated 1lth
    March, 1985 and the other dated 19th March, 1983. The learned Judge
    found ·that there could be little doubt that the intention of the parties
                                                                                -
F   when agreement dated 1lth March, 1985 was entered into was that the
    earlier contract dated 19th March, 1983 should be superseded. But it
    appears that the agreement fell through because when the agreement
    of 1985 was entered into, it was the intention of the parties to the
    earlier agreement would be superseded and a new arrangement was
    sought to be brought about whereby the rights of the petitioner herein
G   under agreement dated 19th March, 1983 were to be yielded for a sum
    of Rs.6.50 lakhs. This amount of Rs.6.50 lakhs was never paid by the
    respondent. It was the case of the petitioner herein that thereby the
    agreement of 11th March, 1985 stood cancelled. The petitioner who
    claimed rights under the earlier agreement dated 19th March, 1983 and
    sought the continuation of his registration of distributorship. The
H   learned single Judge found that it was at the instance of petitioner
                   R.N. KUMAR v. R.K. SORAL [MUKHARJI, J.)               531

    herein that re_spondent No. 2 confirmed vide its letter dated 19th
                                                                             A
    September, 1985 that as the petitioner, before the learned single
    Judge, had failed to pay Rs.6,50,000 the aforesaid picture stood
    registered in the name of the petitioner herein. This registration could
    continue only by virtue of the earlier· agreement dated March 19,
    1983. The. learned single Judge further found that the agreement dated
    11th March, 1985 had come to an end and the earlier agreement dated B
    19th March, 1983 had revived. In this connection reference may be
    made to the observations of the Patna High Court in Babula/ Marwari
-   and others v. Tulsi Singh and others, A.LR. 1940 Patna 121. Whether
    in any particular case there was a complete novation of a contract in ·
    the sense that the new contract. replaced or substituted the old con-
    tract, could depend upon the facts and circumstances-of the case.
                                                                                c
         In that view of the matter, the single Judge of the High Court, in
    our opinion, rightly directed that the first agreement be filed.

          The Division Bench of the High Court pointed out after referring
    to the letter dated 19/21st September, 1985 the Motion Pictures             D
    Association confirmed that in view of the failure of the producer to
    comply with his earlier letter regarding payment of Rs.6.50 lakhs plus
    interest, the picture in question stood registered in the name of M/s.
    Raja Movies in the Motion Pictures Association. This position was
    accepted by Suyog Films in the letter dated 5th November, 1985 and
    the subsequent letter by them. The non-performance of the terms of          E
    the contract dated 11th March, 1985 may not by itself revive the earlier
    contract of 19th March, 1983, but the petitioner in his letters dated
    15th July, 1985 and 19th September, 1985 fell back on the original
    contract of 19th March, 1983. This was accepted by M/s. Suyog Films
    and thus a binding contract came into existence. In this case the Divi-
    sion Bench came to the conclusion on the construction of the letters        F
    and the conduct of the party that the contract dated 19th March, 1983
    continued. The contract dated 19th March, )983 contained an arbitra-
    tion clause. There is no reason why that arbitration agreement should
    not be filed. A civil suit had been filed but that by itself unlike under
    section 34 of the Arbitration Act, 1940 does not preclude filing of
    proper arbitration agreement between the parties. There being no            G
    impediment in filing the arbitration agreement which indubitably was
    subsisting at the relevant time when the High Court directed that the
    arbitration agreement be filed, that discretion should not be interfered
    with. Section 20 of the Arbitration Act provides as follows:

                "20. Application to file in Court arbitration agreement-        H
    532                   SUPREME COURT REPORTS              I1988] 3 S.C.R.
               (1) Where any persons have entered into an arbitration
A
               agreement before the institution of any suit with respect to
               the subject-matter of the agreement or any part of it, and
               where a difference has arisen to which the agreement
               applies, they or any of them, instead of proceeding under
               Chapter II, may apply to a Court having jurisdiction in the
B              matter to which the agreement relates, that the agreement
               be filed in Court.

                (2) The application shall be in wntmg and shall be
                numbered and registered as a suit between one or more of
                the parties interested or claiming to be interested as
                                                                                     --
                plaintiff or plaintiffs and the remainder is defendant or
c               defendants, if the application has been presented by all the
                parties, or if otherwise, between the applicant as plaintiff
                and the other parties as defendants.

                      (3) On such application being made, the Court shall
D               direct notice thereof to be given to all parties to the agree-
                ment other than the applicants, requiring them to show
                cause within the time specified in the notice why the agree-
                ment should not be filed.

                (4) Where no sufficient cause is shown, the Court shall
E               order the agreement to be filed, and shall make an order of
                reference to the arbitrator appointed by the parties,
                whether in the agreement or otherwise, or, where the parties
                cannot agree upon an arbitrator, to an arbitrator appointed
                by the Court.

F               (5) Thereafter the arbitration shall proceed in accordance
                with, and shall be governed by, the other provisions of this
                Act so far as they can be made applicable."

           It is significant to note that the sub-section (1) gives an option to
    the parties by the use of expression 'may' but the other sub-section if
G   the conditions are fulfilled, makes it obligatory for the Court to direct
    filing of an arbitration agreement. Indubitably, in this case there was
    an arbitration clause in the agreement. The parties have applied for           Ji.--~
    reference. The Division Bench has reiterated that the original agree-
    ment dated 19th March, 1983 which ceased to have effect and came to
    an end by the agreement dated 11th March,. !985, stood revived by
H   virtue of the two letters dated 15th July, 1985 and 11th September,
               R.N. KUMAR v. R.K. SORAL [MUKHARJI, J.]                533

1985 by the appellant. The High Court has confirmed that the said two       A
letters were acted upon by the Motion Pictures Association. By letter
dated 19/21 September, 1985 the Motion Pictures Association con-
firmed that in view of the failure of the producer to comply with his
earlier letter regarding payment of Rs.6,50,000 plus interest, the
picture "Savere Wali Gadi" stood registered in the name of M/s. Raja
                                                                            B
Movies in the Motion Pictures Association. This position was accepted
by Suyog Films in letter dated 5th November, 1985 and the subsequent
letter by them. It is clear that the petitioner in his letters dated 15th
July, 1985 and 11th September, 1985 fell back on the original contract
of 19th March, 1983. This was accepted by the respondent. Hence,
there was at all relevant times a valid and binding contract between the
parties. That contract contained an arbitration clause. There was           c
nothing, in view of the reasons indicated above, to disentitle the
parties to have their rights adjudicated in· terms of an arbitration
clause.

       In the premises the High Court was right in the view it took. This
                                                                            D
petition fails and is accordingly dismissed.

G.N.                                                 Petition dismissed.