Damodar Valley Corporation vs KK Kar 1974 AIR 158

This blog is written by Keerthana R Reddy, who is a second year law student at Christ Academy Institute of Law.

1. Facts/Background

The appellant and the respondent entered into a contract for the appellant to supply specific quantities of coal at a specific price. When the respondent failed to fulfill his end of the bargain, the appellant repudiated the agreement, imposed penalties that he later waived, and eventually paid the respondent the amounts he was entitled to for the coal supply. According to the appellant, the respondent’s claims were ultimately resolved by these payments, which also included the return of the deposit sum.

The respondent was requested to provide his bill and a receipt attesting to the fact that he had received payment in full and final settlement of all outstanding balances and that he had no further claims. However, the reply did not provide the requisite receipt while submitting his bill. Nevertheless, the bill was paid, and upon receipt of the payment, the respondent demanded additional amounts from the appellant, including damages for contract repudiation. Respondent filed notice of his intention to take the matter to arbitration under the terms of the arbitration provision in the contract when the appellant refused to comply with the demands.

With that notification, he asked the appellant to choose his sole arbitrator and informed it that J. N. Mullick had been named as his arbitrator. After the appellant refused to accept it, the respondent informed him again through notice that the arbitrator he had nominated would be the only one to decide the parties’ disagreement. The appellant was then served with a notice by the sole arbitrator, J. N. Mullick, and was required to submit an application under sections 9(b) and 33 of the Arbitration Act 10 of 1940[repealed], contesting the validity of the sole arbitrator’s appointment.

1. Issues

• Does the Court have the authority to rule on the issues brought out in the appellant’s petition?

• If the agreement were to terminate, would the arbitration clause remain in effect? 

• Whether orally addressing the disagreement regarding the alleged final settlement of the claim would be permitted to be presented during the proceedings? 

The Subordinate Judge gave a positive response to these queries, ruling that the appellant could present proof that the contract had ended and that the arbitration clause had expired along with it.

3. Arguments advanced by: 

• Appellant

The arguments or contentions raised by the appellant were that the rights and responsibilities under the contract have been fully and finally settled, and the arbitration provision likewise expires with the settlement because the rights and obligations under the contract no longer exist. If so, arbitration cannot be used to decide the disagreement over whether or not there has been a settlement.

• Respondent

The respondent argued in this case that the appellant unilaterally repudiated the contract, essentially renouncing or refusing to fulfill their obligations under the agreement. As a result, the respondent claimed that they were forced to accept this repudiation because they could not fulfill their obligations under the contract if the appellant was not willing to receive the items or perform their part of the agreement.

1. Judgment

The court considered the significance of the arbitration clause within the contract. It stated that even if there is a dispute regarding the validity of termination or the recoverability of damages due to wrongful termination, the existence of the arbitration clause remains unaffected. This means that despite such disputes, either party can still invoke the arbitration clause for the appointment of an arbitrator to resolve the matter. 

The court found that the High Court made an error in directing the dismissal of the appellant’s petition. The appellant had raised several contentions in their petition, including challenging the appointment of an arbitrator. The court believed that these matters should have been addressed by the lower court, and it was an error to dismiss the petition without considering these issues.

The court directed the Subordinate Judge to reconsider the appellant’s petition, taking into account the existence of the arbitration clause and addressing the other contentions raised by the appellant. 

The respondent filed a Civil Miscellaneous Petition, citing a concession made by their counsel, but the court found no justification for changing its decision regarding the petition’s dismissal. The court partly allowed the appeal, indicating that some aspects of the appellant’s arguments have merit. However, it also specifies that this decision is made without costs, which means that neither party is required to bear the expenses of the legal proceedings.

1. Key judgments cited 

   Union of India v. Kishorilal Gupta and Bros [1960] 1 SCR 493

1. Author’s Insights

The court’s decision emphasized the importance of adhering to the arbitration clause in the contract and directed the lower court to reconsider the appellant’s petition while addressing all relevant issues that were raised.