ZENITH DRUGS & ALLIED AGENCIES PVT. LTD. REPRESENTED BY ITS MANAGING DIRECTOR, SHRI UDAY KRISHNA PAULversusM/S. NICHOLAS PIRAMAL INDIA LTD.

360                     [2019] REPORTS
               SUPREME COURT    10 S.C.R. 360             [2019] 10 S.C.R.


A            ZENITH DRUGS & ALLIED AGENCIES PVT. LTD.
             REPRESENTED BY ITS MANAGING DIRECTOR,
                     SHRI UDAY KRISHNA PAUL
                                       v.
                  M/S. NICHOLAS PIRAMAL INDIA LTD.
B
                        (Civil Appeal No. 4430 of 2009)
                                 JULY 30, 2019
               [R. BANUMATHI AND A.S. BOPANNA, JJ.]
              Arbitration and Conciliation Act, 1996 – s.8 – Power to refer
C
      parties to arbitration where there is an arbitration agreement – RPIL
      appointed the appellant company as its clearing and forwarding
      agent for period of 3 years by agreement dated 01.05.1997 – The
      said agreement contained arbitration clause – RPIL informed
      appellant that it was getting merged with respondent Company-NPIL
D     and therefore, the subsisting agreement between them stood
      terminated – Appellant filed suit contending that agreement with
      RPIL was valid, subsisting, legal and continuing – In the said suit,
      parties compromised the matter – In terms of the said compromise,
      respondent made payment of Rs. 23,50,000/- to the appellant and
      also as a part of compensation package appointed the appellant as
E
      its stockist for their products – Again, dispute arose between the
      parties – Respondent filed criminal complaint u/ss.420, 406, 409
      and 403 r/w. 34 IPC against the appellant – Appellant filed money
      suit against the respondent claiming compensation for rupees twenty
      crores alleging financial loss and loss of goodwill – Respondent
F     filed application u/s.8 of the Act for referring the parties to
      arbitration in money suit, relying upon the Arbitration clause in
      agreement dated 01.05.1997 – Trial Court dismissed the application
      u/s. 8 of the Act – In revision, High Court referred the dispute to
      arbitration – On appeal, held: On perusal of the compromise deed,
      it is clear that the parties have substituted a new agreement by way
G
      of compromise – When parties have settled their differences and
      compromised the matter, in the dispute subsequently arising between
      the parties, arbitration clause in the prior agreement cannot be
      invoked – Since, the agreement dated 01.05.1997 and compromise
      are different, the arbitration clause in agreement dated 01.05.1997
H
                                      360
ZENITH DRUGS & ALLIED AGENCIES P. LTD. REP. BY ITS MANAGING            361
         DIRECTOR v. M/S. NICHOLAS PIRAMAL INDIA LTD.


cannot be read into the terms of the compromise as per which the       A
parties have entered into a new arrangement – Further, since
respondent has also challenged the compromise decree alleging it
was obtained by inducement and fraud, in view of the same, the
parties cannot be referred to arbitration – The High Court erred in
proceeding under the footing that dispute falls within the ambit of
                                                                       B
agreement dated 01.05.1997 – Thus, impugned judgment of the High
Court set aside.
      Allowing the appeal, the Court
      HELD: 1. From a reading of the terms of the compromise
deed dated 11.12.2001, it is clear that the parties have substituted   C
a new agreement by way of compromise. As per the agreement
dated 01.05.1997, the appellant was the clearing and forwarding
agent for the entire north-eastern region; whereas under the
terms of the compromise, the appellant has been appointed as
stockist of the company only for Guwahati and Agartala and not
as clearing and forwarding agent for north-eastern region. The         D
clauses in the compromise memo also clearly state that the
appellant handed over all the stocks of goods to the respondent-
Company. The appellant had also handed over the entire
documents in their possession both used and unused as well as
sales tax documents, road permit, ‘C’ forms from stockists and         E
other documents. When the parties have settled their differences
and compromised the matter, in the dispute subsequently arising
between the parties, arbitration clause in the prior agreement
cannot be invoked. Since the agreement dated 01.05.1997
(agreement for appointing the appellant as clearing and forwarding
agent) and the compromise (appointing the appellant as stockist)       F
are different, the arbitration clause in the agreement dated
01.05.1997 cannot be read into the terms of the compromise as
per which the parties have entered into a new arrangement and
this has not been kept in view by the High Court. The High
Court erred in holding that the existence of the arbitration clause    G
has been admitted by the appellant-Company and it is for the
arbitrator to decide under Section 16 of the Arbitration and
Conciliation Act, 1996 whether the arbitration clause applied to
the subject matter of the suit or not. [Para 13] [369-E-H;
370-A-B]
                                                                       H
362            SUPREME COURT REPORTS                     [2019] 10 S.C.R.


A            2. The parties can be referred to arbitration in an application
      filed under Section 8 of the Act only if the subject matter of the
      action before the judicial authority relates to dispute which is the
      subject matter of the arbitration agreement. An application under
      Section 8 of the Act can be made only if the subject matter of the
      suit is also the same as the subject matter of arbitration. In other
B
      words, only those disputes which are specifically agreed to be
      resolved through arbitration can be the subject matter of
      arbitration; and upon satisfaction of the same, the Court can refer
      the parties to arbitration. [Para 14] [370-B, E]
            3. In the present case, the compromise decree does not
C     contain any arbitration clause. The subsequent money suit No.73
      of 2003 has been filed by the appellant due to failure of the
      respondent Company to appoint the appellant as stockist of their
      products in Guwahati and Agartala and the same has caused
      substantial loss to the appellant. In the said suit, the appellant
D     also alleged that due to illegal act of the respondent, the appellant
      has to face the criminal trial unnecessarily due to which the
      appellant has sustained heavy loss both financially and mentally
      and also it resulted in loss of goodwill and reputation of the
      appellant and therefore, the appellant claimed compensation of
      rupees twenty crores from the respondent. The suit claim is not
E     covered by the arbitration. [Para 16] [371-B-D]
            4. As discussed earlier, by the agreement dated 01.05.1997,
      the appellant was appointed as clearing and forwarding agent of
      RPIL for the entire north-eastern region; whereas under the
      compromise memo, the appellant has been appointed as stockist
F     of the respondent Company at Guwahati and Agartala which is
      entirely a different appointment though, as part of compensation
      package. Clause 17 of the agreement dated 01.05.1997 cannot
      be invoked regarding the agreement of the parties to appoint
      the appellant as stockist for Guwahati and Agartala pursuant to
G     the compromise. [Para 20] [373-B]
             5. It is also pertinent to note that the respondent has
      challenged the compromise decree alleging that it has been
      obtained by inducement and fraud. In view of the allegations of
      fraud levelled by the respondent that the compromise decree is
H     vitiated by fraud, the parties cannot be referred to arbitration.
ZENITH DRUGS & ALLIED AGENCIES P. LTD. REP. BY ITS MANAGING               363
         DIRECTOR v. M/S. NICHOLAS PIRAMAL INDIA LTD.


Observing that where there are allegations of fraud which are so          A
complicated that it becomes absolutely essential that such complex
issues can be decided only by the Civil Court on apprehension of
the evidence adduced by the parties. [Para 21] [373-C-D]
       6. As discussed earlier, there is no arbitration clause relating
to the dispute between the parties in not appointing the appellant        B
as stockist and the claim of compensation towards loss of goodwill
and reputation. The High Court erred in proceeding under the
footing that the dispute falls within the ambit of the agreement
dated 01.05.1997 and that the appellant-plaintiff admits the
existence of the arbitration clause and the impugned judgment is
liable to be set aside. [Para 22] [374-B-C]                               C

      Nathani Steels Ltd. v. Associated Constructions (1995)
      3 Suppl. SCC 324 ; Konkan Railway Corporation Ltd.
      and Another v. Rani Construction Pvt. Ltd. (2002) 2
      SCC 388 : [2002] 1 SCR 728; Sukanya Holdings (P)
      Ltd. v. Jayesh H. Pandya and Another (2003) 5 SCC                   D
      531: [2003] 3 SCR 558 ; Deccan Merchants
      Cooperative Bank Ltd. v. Dalichand Jugraj Jain and
      Others AIR 1969 SC 1320 : [1969] 1 SCR 887 ; World
      Sport Group (Mauritius) Limited v. MSM Satellite
      (Singapore) PTE Limited (2014) 11 SCC 639 : [2014] 1                E
      SCR 796 ; Swiss Timing v. Commonwealth Games 2010
      (2014) 6 SCC 677 : [2014] 6 SCR 514 – referred to.
      Yogi Agarwal v. Inspiration Clothes & U and Others
      (2009) 1 SCC 372 : [2008] 16 SCR 895 ;
      A. Ayyasamy v. A. Paramasivam and Others (2016) 10                  F
      SCC 386 : [2016] 11 SCR 521 – relied on.
                        Case Law Reference
        (1995) 3 Suppl. SCC 324         referred to      Para 6
        [2002] 1 SCR 728                referred to      Para 6
                                                                          G
        [2008] 16 SCR 895               relied on        Para 8
        [2003] 3 SCR 558                referred to      Para 8
        [1969] 1 SCR 887                referred to      Para 17

                                                                          H
364            SUPREME COURT REPORTS                        [2019] 10 S.C.R.


A           [2014] 1 SCR 796             referred to              Para 17
            [2014] 6 SCR 514             referred to              Para 18
            [2016] 11 SCR 521            relied on                Para 21


B           CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4430
      of 2009
            From the Judgment and Order dated 26.03.2007 of the Gauhati
      High Court in Civil Revision Petition No. 31 of 2005
            Manish Goswami, Rameshwar Prasad Goyal, Advs. for the
C
      Appellant.
            Hrishikesh Baruah, Ms. Radhika Gupta, Sayantan Talapatra, Jagjit
      Singh Chhabra, Advs. for the Respondent.
            The Judgment of the Court was delivered by
D           R. BANUMATHI, J.
            1. This appeal arises out of the order dated 26.03.2007 passed by
      the Guwahati High Court in Civil Revision (P) No.31 of 2005 in and by
      which the High Court allowed the revision petition preferred by the
      respondent and referred the parties to arbitration.
E
            2. Brief facts which led to filing of this appeal are as follows:-
             The appellant is a Company registered under the Companies Act,
      1956 and is involved with various types of agency businesses including
      that of clearing and forwarding agents, freight contractors, etc. M/s
F     Rhone Poulene India Limited (RPIL) vide agreement dated 01.05.1997
      appointed the appellant Company as its clearing and forwarding agent
      for a period of three years. Clause 17 of the agreement dated 01.05.1997
      contains arbitration clause. The agreement was renewed for a further
      period from 01.04.2001 to 31.03.2002.
             3. RPIL vide its letter dated 20.07.2001 informed the appellant
G
      that their Company is getting merged with respondent Company- Nicholas
      Piramal India Ltd. (NPIL) and that pursuant to the merger, RPIL shall
      cease to exist as a legal entity and therefore, with effect from three
      months from the date of the letter, the subsisting clearing and forwarding
      agency agreement shall stand terminated in terms of the provisions of
H
ZENITH DRUGS & ALLIED AGENCIES P. LTD. REP. BY ITS MANAGING                  365
DIRECTOR v. M/S. NICHOLAS PIRAMAL INDIA LTD. [R. BANUMATHI, J.]


the agreement. The Bombay High Court in Company Application No.252           A
of 2001 passed the order dated 27.09.2001 inter alia approving
amalgamation of RPIL with the respondent Company. The appellant by
its letter dated 25.07.2001 objected to the unilateral decision of the
respondent Company to terminate the clearing and forwarding agency
agreement and requested the respondent to maintain status-quo with
                                                                             B
respect to the agency until the issue is resolved through negotiations.
RPIL vide its letter dated 03.09.2001 informed the appellant that they
are unable to accede to the request for withdrawing the termination
letter. For all practical purposes, the clearing and forwarding agency
agreement dated 01.05.1997 thus stood terminated.
       4. The appellant filed Title Suit No.241 of 2001 inter alia praying   C
for declaration that the contract between the appellant and RPIL-
defendant No.1 was valid, subsisting, legal and continuing and for further
declaration that defendants cannot terminate the appellant as clearing
and forwarding agents in any manner in case of merger with the respondent
Company. In the said suit, the parties have compromised the matter and       D
on the basis of compromise deed dated 11.12.2001 jointly filed by the
parties, Civil Judge, Senior Division, Guwahati vide its order dated
24.12.2001 decreed the Title Suit No.241 of 2001 on compromise as per
the terms and conditions embodied in the compromise deed. In terms of
the said compromise, respondent has made the payment of Rs.23,50,000/-
to the appellant and also as a part of compensation package appointed        E
the appellant as its stockist for their products at Guwahati and Agartala.
       5. Case of appellant is that the respondents refused to honour the
terms and conditions of the compromise decree therefore, the appellant
had filed Title Execution case No.4 of 2002 for execution of the
compromise decree dated 24.12.2001. Differences arose between the            F
parties on the alleged diversion of stocks by the appellant’s employee in
the year 2002. The respondent filed criminal complaint in C.R. Case
No.1446 of 2002 before the Chief Judicial Magistrate, Kamrup for the
offences punishable under Sections 420, 406, 409 and 403 IPC read
with Section 34 IPC. The respondent had also filed an application under      G
Section 151 CPC praying for setting aside/recalling of compromise decree
dated 24.12.2001 on the ground that the compromise decree was obtained
by appellant by false inducement and misrepresentation and the same is
vitiated on account of fraud.

                                                                             H
366             SUPREME COURT REPORTS                          [2019] 10 S.C.R.


A            6. On 30.04.2003, appellant had filed Money Suit No.73 of 2003
      claiming compensation for rupees twenty crores. In the suit, the appellant
      inter alia alleged that due to intentional acts of omission and commission
      by respondent, the appellant-plaintiff had suffered huge financial loss as
      well as loss of goodwill and reputation in the market. On 15.06.2004,
      relying upon Clause 17 of the agreement dated 01.05.1997, the
B
      respondent filed an application under Section 8 of the Arbitration and
      Conciliation Act, 1996 (for short “the Act”) praying for referring the
      parties to arbitration in Money Suit No.73 of 2003. The trial court vide
      order dated 19.02.2005 dismissed the application filed under Section
      8 of the Act by holding that the earlier suit in Title Suit No.241 of 2001
C     filed by the appellant was decreed on compromise between the parties
      and therefore, in view of the law laid down in Nathani Steels Ltd. v.
      Associated Constructions 1995 Supp.(3) SCC 324, the respondent-
      defendant cannot invoke the arbitration clause pertaining to the same
      dispute and the suit was directed to be proceeded. The respondent filed
      Civil Revision Petition No.31 of 2005 before the High Court challenging
D
      the order of the trial court dated 19.02.2005. The High Court vide
      impugned order allowed the revision petition and referred the dispute to
      arbitration. The High Court held that even before the merger of RPIL
      with the respondent which was approved by the Bombay High Court on
      27.09.2001, the appellant instituted Title Suit No.241 of 2001 on the
E     ground of illegal termination of contract, which suit resulted in a
      compromise decree. Observing that the existence of arbitration clause
      has been admitted by the appellant Company, the High Court held that in
      view of the decision reported in Konkan Railway Corporation Ltd.
      and Another v. Rani Construction Pvt. Ltd. (2002) 2 SCC 388 and
      other decisions, the Civil Court has no jurisdiction to decide whether the
F
      subject matter of the suit attracted the arbitration clause or not. The
      High Court further held that under Section 16 of the Act, whether
      arbitration clause applied to the subject matter of the suit or not is for the
      arbitrator to decide on its own jurisdiction. Being aggrieved, the appellant
      has preferred this appeal.
G           7. We have heard Mr. Manish Goswami, learned counsel
      appearing on behalf of the appellant and Mr. Hrishikesh Baruah, learned
      counsel appearing on behalf of the respondent.
            8. The learned counsel for the appellant contended that the High
      Court erred in saying that the appellant-plaintiff admitted the existence
H
ZENITH DRUGS & ALLIED AGENCIES P. LTD. REP. BY ITS MANAGING                  367
DIRECTOR v. M/S. NICHOLAS PIRAMAL INDIA LTD. [R. BANUMATHI, J.]


of the arbitration clause and the High Court failed to take note that        A
compromise decree dated 24.12.2001 in Suit No.241 of 2001 was in full
and final settlement of the dispute between the parties. It was inter alia
contended that a substantial and bona fide part of the claim was outside
the scope of arbitration clause and when dispute is not covered by the
arbitration clause, the same cannot be referred to arbitration. Placing
                                                                             B
reliance upon Yogi Agarwal v. Inspiration Clothes & U and Others
(2009) 1 SCC 372 and Sukanya Holdings (P) Ltd. v. Jayesh H.
Pandya and Another (2003) 5 SCC 531, the learned counsel for the
appellant submitted that in order to refer the parties to arbitration, the
dispute must relate to the contract in respect of which the parties have
agreed to refer to arbitration. Taking us through the pleadings and relief   C
sought for in the subsequent suit in Money Suit No.73 of 2003, learned
counsel for the appellant submitted that the dispute is exclusively
determinable by the trial court and the High Court erred in referring the
parties to arbitration. It was also submitted that the High Court did not
keep in view that the respondent has challenged the very compromise
                                                                             D
decree dated 24.12.2001 on the ground of inducement and fraud by
filing a petition and the same is still pending.
       9. Per contra, the learned counsel for the respondent submitted
that the factum of arbitration clause in the agreement dated 01.05.1997
is admitted by the appellant and the appellant is seeking compensation
on account of illegal termination of clearing and forwarding agent           E
agreement and the issue continues to be arbitrable. It was also submitted
that the compromise deed dated 11.12.2001 in Title Suit No.241 of 2001
was obtained by the appellant Company through false inducement and
practising fraud upon the respondent Company and if the fraud played
by the appellant was known to the respondent Company, the respondent         F
would not have been a party to the aforesaid compromise deed and the
said compromise decree having been obtained by practising fraud is a
nullity and void ab-initio. Learned counsel further submitted that the
dispute raised by the appellant is “….touching upon the presents….”
of the agreement dated 01.05.1997 and the High Court rightly set
aside the order of the trial court and referred the parties to               G
arbitration”.
       10. We have carefully considered the rival contentions and perused
the impugned judgment and materials on record. The following points
arise for determination in this appeal:-
                                                                             H
368             SUPREME COURT REPORTS                         [2019] 10 S.C.R.


A            (i)   Whether the High Court was right in referring the parties to
                   arbitration by observing that the appellant-Company admits
                   the existence of arbitration clause in the agreement dated
                   01.05.1997?
             (ii) Whether the appellant is right in contending that the dispute
B                 raised in the Money Suit No.73 of 2003 is not covered by
                  the arbitration clause and cannot be referred to arbitration?
            11. In the agreement dated 01.05.1997 between the appellant-
      company and RPIL, the appellant was appointed as clearing and
      forwarding agent for the entire north-eastern region. Clause 17 of the
C     said agreement contains the arbitration clause which reads as under:-
            “In the event of dispute arising between the parties out of the
            subject contained herein or touching upon these presents during
            pendency of this Agreement or thereafter the same shall be
            referred to Arbitration Act Bombay as provided under the Rules
D           and Regulations of the subject of Arbitration framed by the Bombay
            Chamber of Commerce and the competent court in Mumbai alone
            shall have jurisdiction in the matter.”
             12. The respondent did not accede to the request of the appellant
      for withdrawing the termination letter and hence, the appellant filed Title
E     Suit No.241 of 2001 inter alia praying for declaration that the contract
      between the appellant and the respondent-RPIL was valid, subsisting
      and continuing. The appellant also sought for declaration that the
      respondent cannot terminate the appellant as clearing and forwarding
      agent in any manner in case of RPIL’s merger with NPIL and sought
      for permanent injunction. As pointed our earlier, the said Title Suit No.241
F     of 2001 ended in compromise and compromise decree was passed on
      24.12.2001. As per the said compromise, an amount of Rs.23,50,000/-
      was paid by RPIL to the appellant by way of four demand drafts being
      (i) Draft No.215684 for Rs.7,50,000/-; (ii) Draft No.215682 for
      Rs.6,70,000/-; (iii) Draft No.215683 for Rs.6,20,000/-; and (iv) Draft
G     No.215685 for Rs.3,10,000/-, all dated 04.01.2001 drawn on Allahabad
      Bank, Panbazar, Guwahati. As a part of compensation package, the
      respondent appointed the appellant as stockist of the company at Guwahati
      and Agartala. In terms of the compromise, the appellant has handed
      over all the documents to the respondent. The relevant portion of the
      terms of compromise reads as under:-
H
ZENITH DRUGS & ALLIED AGENCIES P. LTD. REP. BY ITS MANAGING                    369
DIRECTOR v. M/S. NICHOLAS PIRAMAL INDIA LTD. [R. BANUMATHI, J.]


           “…….                                                                A
       (iv) The defendant No.3 by letter dated 07.12.2001 has appointed
             the plaintiff as a stockist of the company at Guwahati and
             Agartala as part of compensation package.
       (v) The plaintiff has handed over all the stocks of goods to the
            defendants company and the company has already started             B
            lifting the stocks from the custody of the plaintiff and
            expected to clear by 11th December, 2001. The plaintiff
            has also handed over entire documents including L/R in
            possession, files, records and Sales Tax documents such as
            both utilized and unutilized sales tax documents (1) Road          C
            Permit; (2) Despatched Note; (3) ‘C’ Forms; (4) ‘F’ Forms;
            (5) ‘C’ Forms from stockists and papers to the defendants
            relating to the C & F Agency under defendants No.1; (6)
            All previous records starting from November, 1994 till date
            has also been handed over to the plaintiff; (7) Software
            supplied and data’s of computer is also taken and PC left          D
            after complete deletion of programme of RPIL.”
       13. From a reading of the above terms of the compromise deed
dated 11.12.2001, it is clear that the parties have substituted a new
agreement by way of compromise. As per the agreement dated
01.05.1997, the appellant was the clearing and forwarding agent for the        E
entire north-eastern region; whereas under the terms of the compromise,
the appellant has been appointed as stockist of the company only for
Guwahati and Agartala and not as clearing and forwarding agent for
north-eastern region. The clauses in the compromise memo also clearly
state that the appellant handed over all the stocks of goods to the            F
respondent-Company. The appellant had also handed over the entire
documents in their possession both used and unused as well as sales tax
documents, road permit, ‘C’ forms from stockists and other documents.
When the parties have settled their differences and compromised the
matter, in the dispute subsequently arising between the parties, arbitration
clause in the prior agreement cannot be invoked. Since the agreement           G
dated 01.05.1997 (agreement for appointing the appellant as clearing
and forwarding agent) and the compromise (appointing the appellant as
stockist) are different, the arbitration clause in the agreement dated
01.05.1997 cannot be read into the terms of the compromise as per
which the parties have entered into a new arrangement and this has not         H
370             SUPREME COURT REPORTS                          [2019] 10 S.C.R.


A     been kept in view by the High Court. The High Court erred in holding
      that the existence of the arbitration clause has been admitted by the
      appellant-Company and it is for the arbitrator to decide under Section 16
      of the Act whether the arbitration clause applied to the subject matter of
      the suit or not.
B            14. The parties can be referred to arbitration in an application
      filed under Section 8 of the Act only if the subject matter of the action
      before the judicial authority relates to dispute which is the subject matter
      of the arbitration agreement. As per Section 8 of the Act, the following
      conditions have to be satisfied for referring the parties to arbitration:-
C           (i) there is an arbitration agreement;
            (ii) a party to the agreement brings an action in the court against
                  the other party;
            (iii) subject-matter of the action is the same as the subject-matter
                  of the arbitration agreement;
D
            (iv) the opposite party applies to the judicial authority for referring
                  the parties to arbitration before it submits his first statement
                  on the substance of the dispute.
             An application under Section 8 of the Act can be made only if the
      subject matter of the suit is also the same as the subject matter of
E
      arbitration. In other words, only those disputes which are specifically
      agreed to be resolved through arbitration can be the subject matter of
      arbitration; and upon satisfaction of the same, the Court can refer the
      parties to arbitration.
            15. Observing that filing application under Section 8 of the Act
F
      should relate to the arbitration agreement or to be applicable to the dispute,
      in Yogi Agarwal v. Inspiration Clothes and U and Others (2009) 1
      SCC 372, it was held as under:-
             “9. When a defendant invokes Section 8 of the Act by alleging
             existence of an arbitration agreement, he should establish that
G            such arbitration agreement related to, or is applicable to, the suit
             transaction/contract. The parties may enter into different contracts
             at different points of time or may enter into a series of unrelated
             transactions. It is possible that in regard to some, they may provide
             for arbitration and in regard to others, may not provide for
H
ZENITH DRUGS & ALLIED AGENCIES P. LTD. REP. BY ITS MANAGING                       371
DIRECTOR v. M/S. NICHOLAS PIRAMAL INDIA LTD. [R. BANUMATHI, J.]


       arbitration. Obviously, the existence of an arbitration agreement          A
       with reference to some other transaction/contract to which the
       plaintiff was or is a party, unconnected with the transactions or
       contracts to which a suit relates, cannot be considered as existence
       of an “arbitration agreement” in regard to the suit transactions/
       contracts.
                                                                                  B
       16. In the present case, the compromise decree does not contain
any arbitration clause. The subsequent Suit No.73 of 2003 has been
filed by the appellant due to failure of the respondent Company to appoint
the appellant as stockist of their products in Guwahati and Agartala and
the same has caused substantial loss to the appellant. In the said suit, the
appellant also alleged that due to illegal act of the respondent, the appellant   C
has to face the criminal trial unnecessarily due to which the appellant
has sustained heavy loss both financially and mentally and also it resulted
in loss of goodwill and reputation of the appellant and therefore, the
appellant claimed compensation of rupees twenty crores from the
respondent. The suit claim is not covered by the arbitration.                     D
       17. Mr. Hrishikesh Baruah, learned counsel for the respondent
submitted that clause 17 of the agreement dated 01.05.1997 covers all
the disputes including “any dispute arising between the parties” that may
“touch upon” the clauses of the agreement. It was submitted that the
reading of the plaint filed by the appellant clearly shows that the disputes      E
between the parties stem from the contractual agreement which “touches
upon” the agreement dated 01.05.1997. Learned counsel further
submitted that the words “….touching upon these presents…..” used in
the agreement has wide meaning which not only relates to the dispute
arising out of the appointment of the appellant as clearing and forwarding
agent, but also any other dispute arising out of the same would necessarily       F
fall within the ambit of “…..touching upon these presents…..” and the
High Court rightly referred the parties to arbitration. In support of his
contention, the learned counsel placed reliance upon P Ramanatha
Aiyar’s Advanced Law Lexicon, 4th Edition, Page 4876. The relevant
portion relied upon reads as under:-                                              G
       “The dictionary meaning of the word ‘touching’ is ‘in reference
       or relation to, respecting, regarding, or concerning’ and this
       meaning indicates that the disputes need not directly arise out of
       the business of the society; but that it is enough that it should have
                                                                                  H
372             SUPREME COURT REPORTS                          [2019] 10 S.C.R.


A           reference or relation to or concern the business of the society.
            M.S. Madhava Rao v. D.V.K. Surya Rao, AIR 1954 Mad 103,
            107 (FB). [Madras Co-operative Societies Act (6 of 1932), S.51]”
            In this regard, reliance was also placed upon in Deccan Merchants
      Cooperative Bank Ltd. v. Dalichand Jugraj Jain and Others AIR
B     1969 SC 1320 : [1969] 1 SCR 887, World Sport Group (Mauritius)
      Limited v. MSM Satellite (Singapore) PTE Limited(2014) 11 SCC
      639.
             18. Taking us through the pleadings in the Money Suit No.73 of
      2003, the learned counsel for the respondent submitted that the various
C     claims made in the Money Suit No.73 of 2003 relate to the alleged loss
      sustained by the appellant-plaintiff due to termination of the agreement
      dated 01.05.1997 necessarily falls within the ambit of “…..touching upon
      these presents…..” occurring in clause 17 of the agreement and therefore,
      the High Court rightly referred the parties to arbitration. Placing reliance
      upon Swiss Timing v. Commonwealth Games 2010(2014) 6 SCC 677,
D     the learned counsel submitted that to shut out arbitration at the initial
      stage would destroy the very purpose for which the parties had entered
      into arbitration agreement. It was submitted that when there is a clause
      for arbitration agreed by the parties, it is mandatory for the civil court to
      refer the disputes to an arbitrator. It was urged that in the present case,
E     in view of clause 17 of the agreement dated 01.05.1997 and in view of
      the mandatory language of Section 8 of the Act, the High Court rightly
      referred the parties to arbitration.
             19. Though some of the claims in the Money Suit No.73 of 2003
      relate to the loss allegedly sustained by the appellant-plaintiff due to
F     termination of the agreement dated 01.05.1997, other claims relate to
      the loss said to have been caused to the appellant-plaintiff subsequent to
      the compromise. According to the appellant-plaintiff, claim of Rs.1.40
      crores relates to alleged loss caused due to the failure of respondent to
      appoint appellant-plaintiff as stockist at Guwahati and Agartala; claim
      relating to the alleged loss of goodwill and reputation; claim relating to
G     the loss caused due to the mental pressure and legal proceedings and
      such other claims do not touch upon the agreement dated 01.05.1997.
      The learned counsel for appellant submitted that in the Money Suit No.73
      of 2003, substantial part of the claim pertains to the events subsequent
      to non-compliance of the compromise memo which do not fall within the
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ZENITH DRUGS & ALLIED AGENCIES P. LTD. REP. BY ITS MANAGING                    373
DIRECTOR v. M/S. NICHOLAS PIRAMAL INDIA LTD. [R. BANUMATHI, J.]


ambit of agreement dated 01.05.1997 and could be resolved only by the          A
civil court.
       20. As discussed earlier, by the agreement dated 01.05.1997, the
appellant was appointed as clearing and forwarding agent of RPIL for
the entire north-eastern region; whereas under the compromise memo,
the appellant has been appointed as stockist of the respondent Company         B
at Guwahati and Agartala which is entirely a different appointment though,
as part of compensation package. Clause 17 of the agreement dated
01.05.1997 cannot be invoked regarding the agreement of the parties to
appoint the appellant as stockist for Guwahati and Agartala pursuant to
the compromise.
                                                                               C
       21. It is also pertinent to note that the respondent has challenged
the compromise decree alleging that it has been obtained by inducement
and fraud. In view of the allegations of fraud levelled by the respondent
that the compromise decree is vitiated by fraud, the parties cannot be
referred to arbitration. Observing that where there are allegations of
fraud which are so complicated that it becomes absolutely essential that       D
such complex issues can be decided only by the Civil Court on
apprehension of the evidence adduced by the parties, in A. Ayyasamy v.
A. Paramasivam and Others (2016) 10 SCC 386, it was held as under:-
      “25. ……..It is only in those cases where the court, while dealing
      with Section 8 of the Act, finds that there are very serious             E
      allegations of fraud which make a virtual case of criminal offence
      or where allegations of fraud are so complicated that it becomes
      absolutely essential that such complex issues can be decided only
      by the civil court on the appreciation of the voluminous evidence
      that needs to be produced, the court can sidetrack the agreement         F
      by dismissing the application under Section 8 and proceed with
      the suit on merits. It can be so done also in those cases where
      there are serious allegations of forgery/fabrication of documents
      in support of the plea of fraud or where fraud is alleged against
      the arbitration provision itself or is of such a nature that permeates
      the entire contract, including the agreement to arbitrate, meaning       G
      thereby in those cases where fraud goes to the validity of the
      contract itself of the entire contract which contains the arbitration
      clause or the validity of the arbitration clause itself…….”.

                                                                               H
374                SUPREME COURT REPORTS                     [2019] 10 S.C.R.


A           Since the respondent has raised the plea that the compromise
      decree is vitiated by fraud, the merits of such a plea could be decided
      only by the Civil Court upon consideration of the evidence adduced by
      the parties.
             22. As discussed earlier, there is no arbitration clause relating to
B     the dispute between the parties in not appointing the appellant as stockist
      and the claim of compensation towards loss of goodwill and reputation.
      The High Court erred in proceeding under the footing that the dispute
      falls within the ambit of the agreement dated 01.05.1997 and that the
      appellant-plaintiff admits the existence of the arbitration clause and the
      impugned judgment is liable to be set aside.
C
            23. In the result, the impugned order of the High Court in Civil
      Revision (P) No.31 of 2005 is set aside and this appeal is allowed and
      the Money Suit No.73 of 2003 shall stand restored to the file of Civil
      Judge, Senior Division, Kamrup, Guwahati and the trial court shall proceed
      with the matter in accordance with law.
D

      Ankit Gyan                                                   Appeal allowed.




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