INVOKING OF ARBITRATION CLAUSE AFTER COMPROMISE DECREE: CAN OR CANNOT BE DONE?

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Introduction:

Arbitration proceeding is one of the kind of Alternative Dispute Resolution proceeding which the parties opt. for fast disposal of cases, it is a kind of out of court proceedings, which is generally opted for fast disposal of cases. Companies nowadays prefer to include arbitration clause in their agreement, so in case if any dispute arises between them they would go to arbitration proceedings.

Sec 8 of the Arbitration andConciliation Act, 1996 provides power to refer partiesto arbitration where there is an Arbitration Agreement. According to this clause the parties in case of any dispute arising between the parties, the parties can take the matter directly before the Arbitrator.[1]

Case Summary:

The Supreme court in the case of Zenith Drugs & Allied Agencies Pvt. Ltd. vs. Nicholas Piramal India Ltd[2], gave the judgement that invoking of arbitration clause cannot be invoked once the compromise decree have been issued.

A brief background of this case was that, the appellant and respondent formed an agreement where the appellant company was appointed as clearing and forwarding agency. The respondent company RPIL and the appellant first signed the agreement in 1957 and later renewed it till 2002. But in 2001 the respondent company got merger into the respondent 2 i.e.with Nicholas Piramal India LTD. , the respondent 1 followed  the due process of law and informed the appellant for termination of contract. The appellant accordingly filed the suit for non termination. The matter was then resolved and the compromise decree was then issued. Then respondent refused to follow terms and condition of the compromising decree, according to which the respondent was to give s. 23, 50,000 and appoint appellant as stockist. The appellant then filed suit for execution of decree. The respondent in lieu of the suit so filed, filed another suit before the Chief Judicial Magistrate for the offences punishable under 420,406, 409 and 403 of IPC, and also under section 151of CPC for setting the compromise decree, on the ground alleging that the order so obtained was by false inducement and misrepresentation and fraud, and therefore relying under clause 17 of the agreement, the respondent filed application under sec 8 of the arbitration and conciliation act, 1996, for the money suit to heard in Arbitration. The trial court accordingly refused the plea.

Against the order of the trail court the respondent went to High Court for granting the matter to be heard under the arbitration act. To which the HC vide its impugned order allowed the and thereby referred the matter to be heard before arbitration.

Against which the appellant went to Supreme Court, where they appealed that the matter was not within the scope of arbitration and therefore he arbitration act can’t be applied. As the high court has erred in giving the judgement, as the relevant facts of the case, i.e. the petition filed was for challenging the compromise decree and moreover the according to the respondent the decree was obtained by fraud against which the civil court has the power to heard the case and not arbitration. Moreover the appellant also appealed that the compromise decree was full fledge decree[3].

Judgement

The Hon’ble Supreme Court, held that there is no arbitration clause for compensation or not appointing appellant as stockist. The High Court erred in giving the order for hearing the case under arbitration, and thereby set-aside the order so passed. And explained that, “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”.[4]



[1]https://indiacode.nic.in/handle/123456789/1978?view_type=browse&sam_handle=123456789/1362

[2]https://indiankanoon.org/doc/93604801/

[3]https://www.livelaw.in/top-two-news/can-arbitration-clause-be-invoked-in-a-dispute-arising-after-the-parties-compromise-146822

[4]https://indiankanoon.org/doc/93604801/



Submitted by:

Sakshi Raje

Student Reporter INBA