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AoA has the effect of undoing and abrogating the arbitration clause predicated in the Contract Agree

In the Supreme Court case of WAPCOS LTD V. SALMA DAM JOINT VENTURE AND ANR. CIVIL APPEAL NO.  OF 2019 ARISING OUT OF SLP (C) NO. 7979 OF 2019).

The Bench comprising of Justice A.M.Khanwilkar and Justice Dinesh Maheshwar while setting aside the Delhi High Court judgment held that if the parties agree upon an arrangement to not include arbitration for settlement of any claims. However, the court insists that options are to be made available to take recourse to other remedies, to which the parties are free to adopt in accordance with law.

The question in this case is “ whether the AoA has the effect of undoing and abrogating the arbitration clause predicated in the Contract   Agreement?”

The court observed in the present case, the terms of contract agreement which incorporated the arbitration agreement, when it is agreed between the parties that all disputes and differences arising out of the agreement shall be decided by process of settlement of disputes. On the perusal of the contract we can find arbitration as specified in clause 20 of the conditions of contract unless specifically agreed upon to amend the terms and conditions of the contract agreement. Thereby executing a formal Amendment Of Agreement(AoA) include that there will be “no arbitration” for the settlement of claims.

Even otherwise we feel that once the parties have arrived at a settlement in respect of any dispute or difference arising under a contract and that dispute or the difference is amicably settled by way of a final settlement   by   and   between   the   parties,   unless   that settlement is set aside in proper proceedings, it cannot lie in the mouth of one of the parties to the settlement to spurn it on the ground that it was a mistake and proceed to invoke the Arbitration clause. If this is permitted the sanctity of contract, the settlement also being a contract, would be wholly lost and it would be open to one party to take   the   benefit   under   the   settlement   and   then   to question the same on the ground of mistake without having the settlement set aside.

The court noted that in the commercial world the parties to the contract amend the original contract and even give up on their claims under the substantial agreement. The case on hand is one such where the parties consciously and with full understanding executed AoA that included “that there will be no arbitration for the settlement of any claims by the contractor in future”. The court relies upon the Damodar Valley Corporation vs. K. K. Kar,  where the court observed that where the dispute between parties is that the contract itself is substituted by a new contract or by a rescission or alteration, that dispute cannot be referred to the arbitration as the arbitration clause itself would perish if the averment is found to be valid.

Written by:

Pranav M Varma

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