If Original Agreement Contains Arbitration Clause, Subsequent Agreement Extending Just Validity Need Not To Have A Separate Arbitration Clause: Calcutta High Court

The Single Bench of Justice Shekhar B. Saraf has held that if the new agreement provides for a specific reference to the terms of the earlier agreement and does not contain any clause other than the extension of the validity of the original agreement then there is no requirement to have an arbitration clause in the new agreement.

The Court further held that the arbitration clause contained in the original agreement would not come to an end due to efflux of time merely because the subsequent agreement does not have an arbitration clause.

Facts

The parties entered into an agreement for financial accommodation wherein the petitioner agreed to lend some money to the respondent. The agreement also had an arbitration clause. A year later, the parties entered into another agreement to extend the validity of the earlier agreement by another year. The new agreement was not an exhaustive agreement and only extended the validity and incorporated all the terms and conditions of the earlier agreement.

The respondent failed to make the payments in terms of the agreement and also did not agree to mutually appoint the arbitrator, therefore, the petitioner filed the application for the appointment of the arbitrator.

Contention Of The Parties

The petitioner requested the court to appoint an arbitrator on the following grounds:

• The respondent has failed to make the payments in terms of the agreement between the parties resulting in default as per the agreement.
• The agreement between the parties has an arbitration clause, therefore, the dispute must be referred to the arbitration tribunal.

The respondent objected to the maintainability of the application on the following grounds:

• There is no valid arbitration agreement between the parties.
• The arbitration clause contained in the original agreement has expired due to the efflux of time.
• Relying on the judgment of the Supreme Court in M.R. Engineers v. Som Datt Builders, (2009) 7 SCC 696, the respondent contended that the subsequent agreement has made no specific reference to the arbitration clause in the original agreement, therefore, the same cannot be assumed to have been incorporated into the agreement.

Analysis By The Court

The Court held that a subsequent agreement entered into between the parties need not contain a separate arbitration clause if it is made only to extend the validity of the original agreement that contained an arbitration clause.

The Court held that if the new agreement provides for a specific reference to the terms of the earlier agreement and does not contain any clause other than the extension of the validity of the original agreement then there is no requirement to have an arbitration clause in the new agreement.

The Court distinguished the judgment in MR. Engineers (supra) on the ground that in that case, the contractor entered into a sub-contract with a third party and that agreement governed the rights and obligations between the parties, therefore, there needed to have a specific incorporation of the arbitration clause contained in the original agreement between the contractor and the principal employer.

The Court held that there is a clear distinction between the nature of a sub-contract and an agreement entered subsequently for extension of validity of time. The former brings into existence a separate set of rights and obligations while the latter only extends the validity of the agreement.

The Court further held that the arbitration clause contained in the original agreement would not come to an end due to efflux of time merely because the subsequent agreement does not have an arbitration clause. Accordingly, the Court allowed the application.

Case Title: Sukumar Ray v. M/s Indo-Industrial Services and Ors. A.P No. 70 of 2022

Case Citation: 2022 LiveLaw (Cal) 140 

Date: 21.04.2022

Counsel for the Petitioner: Mr. Sounak Mukherjee, Ms. Taniya Bhowmik, and Mr. Anupam Ghosh

Counsel for the Respondent: Mr. Supratim Laha, Mr. Binay Kumar Jain, and Mr. Piyush Jain

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