Page 1

1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6997 OF 2013 (Arising out of SLP(C) No.33459 of 2012)

M/s Young Achievers ..... Appellant  

Versus

IMS Learning Resources Pvt. Ltd. ....Respondent

J U D G M E N T

K.S. Radhakrishnan, J.

Leave granted.

2. IMS Learning  Resources  Private  Limited,  the  respondent  

herein, filed CS (OS) No.2316 of 2011 in the High Court of Delhi  

at  New  Delhi  for  a  permanent  injunction  restraining  

infringement  of  a  registered  trademark,  infringement  of  

copyright,  passing  off  of  damages,  rendition  of  accounts  of  

profits  and  also  for  other  consequential  reliefs  against  the  

appellant herein.  Appellant preferred IA No.18 of 2012 under

Page 2

2

Section  8,  read  with  Section  5  -of  the  Arbitration  and  

Conciliation Act, 1996 for rejecting the plaint and referring the  

dispute to arbitration and also for other consequential reliefs.  

Respondent-plaintiff  raised  objection  to  the  said  application  

stating that the suit is perfectly maintainable.   The High Court  

rejected the application vide its order dated 16.04.2012 holding  

that that earlier agreements dated 01.04.2007 and 01.04.2010,  

which contained arbitration clause stood superseded by a new  

contract dated 01.02.2011 arrived at between the parties by  

mutual consent.  Defendant aggrieved by the said order filed  

FAO (OS) No.290 of 2012 before the Division Bench of the Delhi  

High Court,  which confirmed the order  of  the learned Single  

Judge and dismissed the appeal against which this appeal has  

been preferred by special leave.

3. Mr. Manu T. Ramachandran, learned counsel appearing for  

the appellant raised the following question of law:

“a) Whether an arbitration clause is a collateral term  in  the  contract,  which  relates  to  resolution  of  disputes,  and  not  performance  and  even  if  the  performance  of  the  contract  comes  to  an  end  on  account  of  repudiation,  frustration  of  breach  of  contract, the arbitration agreement would survive for  the purpose of resolution of disputes arising under or  in connection with the contract?

Page 3

3

b) Whether the impugned judgment is contrary to  the law settled by this Hon’ble Court in Branch - Manager, /s Magma Leasing & Finance Limited  and another v.  Potluri Madhavilata and another  (2009)  10  SCC  103  and  National  Agricultural  Cooperative Marketing Federation India Ltd. V.  Gains Trading Ltd. (2007) 5 SCC 692?

c) Whether  the  Hon’ble  High  Court  is  correct  in  holding that the law settled by this Hon’ble Court in  The  Branch  Manager,  M/s  Magma  Leasing  &  Finance  Limited  and  another v.  Potluri  Madhavilata and another (2009) 10 SCC 103 and  National  Agricultural  Cooperative  Marketing  Federation India Ltd. V. Gains Trading Ltd. (2007)  5  SCC  692  is  applicable  in  case  of  unilateral  termination of agreement by one of the parties and  not in mutual termination for accord and satisfaction  of the earlier contract?”

4. Learned counsel also submitted that arbitration clause is a  

collateral  term in the contract,  which relates to resolution of  

disputes and not performance and even if the performance of  

the  contract  comes  to  an  end  on  account  of  repudiation,  

frustration  of  breach  of  contract,  the  arbitration  agreement  

would survive for the purpose of resolution of disputes arising  

under or in connection with the contract.   Learned counsel also  

submitted that the court has erroneously held that the case of  

the  appellant  is  not  a  case  involving  the  assertion  by  the  

respondent  of  accord  and  satisfaction  in  respect  of  earlier  

contracts, especially when the sole purpose of the Exit paper

Page 4

4

dated  01.02.2011  was  to  put  an  end  to  the  contractual  

relationship  between  them  under  the  -aforesaid  earlier  

contracts.   Apart  from  the  decisions  referred  hereinbefore,  

reliance was also placed on the judgment of the U.S. Court in  

Nolde Bros., Inc. v. Bakery Workers 430 US 243.

5. Mr. Sai Krishna Rajgopal, learned counsel appearing for the  

respondent  placing reliance on the detailed counter  affidavit  

filed on behalf of the respondent submitted that the arbitration  

clause  in  the  agreements  dated  01.04.2007  and  01.04.2010  

cannot be invoked since both the above-mentioned agreements  

were superseded and abrogated by the new agreement dated  

01.02.2011.  Learned counsel also submitted that in the new  

agreement  it  was  mutually  decided  by  the  parties  that  any  

violation of the respondent’s trade mark IMS would entitle the  

respondent  to  take  legal  recourse  against  the  appellant.  

Reference was made to clause 4 of the penultimate paragraph  

of the new agreement dated 01.02.2011.  Learned counsel also  

submitted that Suit No. CS (OS) 2316 of 2011 was based on  

prior  trade  mark  rights  and  not  on  the  agreements  dated  

01.04.2007 and 01.04.2010.  Further it  was also pointed out  

that the new agreement dated 01.02.2011 records the mutual

Page 5

5

agreement between the parties that the appellant shall not be  

eligible to use -the trade mark IMS in any form and any breach  

thereof entitles respondent to seek legal recourse on violation  

of trade mark IMS.

6. We are of the view that survival of the arbitration clause,  

as sought by the appellant in the agreements dated 01.04.2007  

and 01.04.2010 has to be seen in the light of the terms and  

conditions  of  the  new  agreement  dated  01.02.2011.   An  

arbitration  clause  in  an  agreement  cannot  survive  if  the  

agreement  containing  arbitration  clause  has  been  

superseded/novated  by  a  later  agreement.   The  agreement  

dated 01.04.2010 contained the following arbitration clause:

“20.  Arbitration All  disputes  and questions  whatsoever  which  may  arise, either during the substance of this agreement  or afterwards, between the parties shall be referred  to the arbitration of trhe managing director of IMS  Learning  Resources  Pvt.  Ltd.  Or  his  nominee  and  such arbitration shall be in the English language at  Mumbai.  The arbitration shall be governed by the  provisions  of  the  Arbitration  and  Conciliation  Act,  1996  or  any  other  statutory  modification  or  re- enactment thereof for the time being in force and  award or awards of such arbitrator shall be binding  on all the parties to the said dispute.”

Page 6

6

7. We  have  now  to  examine  terms  of  the  subsequent  

agreement  titled  “Exit  paper”  dated  01.02.2011.  It  is  the  

common  case  of  the  parties  that  the  Exit  paper/agreement  

entered  into  -between  the  parties  does  not  contain  any  

arbitration clause.  It is useful to extract the relevant portion of  

the Exit paper, which is as follow:

“With  reference  to  your  mail/letter  dated  1st  February,  2011  on  closing  the  center,  from  the  aforesaid date with mutual consent we have agreed  on the following:

“1.  Enrolled students All enrolled students of IMS with you will be serviced  by you with respect to their classes, workshops and  conduct of test series, GD/PI and any other servicing  required as per the product manual.

2. Premises IMS will reserve the first right of utilization to occupy  the premises.  In an eventuality of IMS exercising the  right to use the premises, then IMS will reimburse the  monthly  rent  for  the  corresponding  months  before  changing the rental agreement onto IMS name.

3. Marketing From the above-mentioned date you are not eligible  to do any marketing and promotional activities in the  name of IMS.

4. Brand “From the above-mentioned date you are not eligible  to use IMS brand in any form.

Page 7

7

5. Monthly claims The  partner  abides  to  deposit  all  the  course  fees  collected for any of IMS programs till now as per the  deposit  policy  of  IMS.   All  monthly  claims  will  be  settled till 31st January, 2011 and the claims would be  - released after the date of termination of the partner  agreement.

6. Security Deposit The security deposit amount will be refunded back to  you after the completion of servicing of all enrolled  IMS students.  In case of any due on partner to the  company (unsettled fees, loan or advance for centre  activities etc.), same amount will be deducted from  the security deposit.

7. Non Compete Clause The  partner  has  averred  that  neither  he,  nor  his  family members are directly or indirectly interested  in any business in direct competition with that of IMS  and  the  partner  agrees  and  undertakes  to  ensure  that  neither  he  nor  his  family  members  shall  be  involved in  or  connected to  any business  in  direct  competition with that of IMS at any time during the  currency of this agreement and for a further period of  six months therafter.

8. Full and final settlement I/We  accept  all  the  above-mentioned  points  and  confirm  that  upon  receipt  of  the  sum  stated  hereinafter in full and final settlement of all my/our  claims, neither me/we nor any person claiming by or  through me/us shall have any further claims against  IMS whatsoever.   

Any violation of points 1,3,4,5 & 7 from the partner’s  end will attract legal course of action and penalties  from  IMS  ranging  from  forfeiture  of  the  security  deposit & pending claims.

Page 8

8

I hereby accept above terms and conditions.”

8. Exit  paper  would  clearly  indicate  that  it  is  a  mutually  

agreed  document  containing  comprehensive  terms  and  

conditions  which  -admittedly  does  not  contain  an  arbitration  

clause.  We are of the view that the High Court is right in taking  

the  view  that  in  the  case  on  hand,  is  not  a  case  involving  

assertion by the respondent of accord a satisfaction in respect  

of the earlier contracts dated 01.04.2007 and 01.04.2010.  If  

that be so, it could have referred to arbitrator in terms of those  

two  agreements  going  by  the  dictum in  Union  of  India  v.  

Kishorilal Gupta and Bros.  AIR 1959 SC 1362.  This Court in  

Kishorilal  Gupta’s  case  (supra)  examined  the  question  

whether an arbitration clause can be invoked in the case of a  

dispute under a superseded contract.  The principle laid down is  

that if the contract is superseded by another,  the arbitration  

clause,  being  a  component  part  of  the earlier  contract,  falls  

with it.  But where the dispute is whether such contract is void  

ab  intio,  the  arbitration  clause  cannot  operate  on  those  

disputes, for its operative force depends upon the existence of  

the contract and its validity.   The various other observations  

were made by this Court in the above-mentioned judgment in

Page 9

9

respect  of  “settlement  of  disputes  arising  under  the  original  

contract, including the dispute as to the breach of the contract  

and its consequences”.    Principle laid down by the House of  

Lords in  Heyman v.  Darwins Limited 1942 (1) All. E.R.  -337  

was  also  relied  on  by  this  Court  for  its  conclusion.   The  

Collective bargaining principle laid down by the US Supreme  

Court in Nolde Bros. case (supra) would not apply to the facts  

of the present case.

9. We  may  indicate  that  so  far  as  the  present  case  is  

concerned, parties have entered into a fresh contract contained  

in the Exit paper which does not even indicate any disputes  

arising  under  the  original  contract  or  about  the  settlement  

thereof,  it  is  nothing but  a pure and simple novation of  the  

original contract by mutual consent.  Above being the factual  

and legal position, we find no error in the view taken by the  

High  Court.   The  appeal,  therefore,  lacks  merit  and  stands  

dismissed, with no order as to costs.

……………………..…J. (K.S. Radhakrishnan)

Page 10

10

………………………….J.                               (A.K. Sikri)

New Delhi, August  22, 2013