• Delhi High Court: An arbitration clause contained in a contract perishes upon its novation.
  • NCLT Hyderabad rejects resolution plan for being incompliant with Regulation 36B 4(A) of the CIRP Regulations.
  • Madras High Court rejects enforcement of a foreign arbitration award which was passed without considering FEMA violations and fraud in share valuations.
  • NCLAT: NCLTs and NCLAT have the power to recall their judgments.

I. Delhi High Court: An arbitration clause contained in a contract perishes upon its novation.

The Delhi High Court ("Delhi HC") has, in its judgement dated June 2, 2023, in the matter of B. L. Kashyap and Sons Limited v. Mist Avenue Private Limited [Commercial Arbitration 190/2019], held that an arbitration clause contained in a contract would perish with its novation if the novated contract does not contain any arbitration clause.


B. L. Kashyap and Sons Limited ("Petitioner") and Mist Avenue Private Limited ("Respondent") entered into an undated construction contract in August, 2014 ("Construction Contract") for civil and structural works relating to a project known as 'MIST' in Uttar Pradesh. The estimated value of the Construction Contact was INR 229 Crores, to be executed on a bill of quantities ("BBQ") on an item rate basis. The Construction Contract contained an arbitration clause which provided the parties with the right to refer any dispute arising out of or in connection with the Construction Contract to a sole arbitrator, where the parties were unable to resolve such dispute amicably by way of joint discussions.

Subsequently, certain disputes arose between the Petitioner and the Respondent which were resolved mutually and its terms were recorded in a memorandum of understanding dated October 8, 2015 ("MoU"). The MoU recorded the terms upon which the Construction Contract would stand fully satisfied towards both the parties and was also accompanied by an annexure titled 'List of Assets Paid for'. Notably, the MoU did not contain an arbitration clause.

The Respondent breached the MoU by failing to make payments to the Petitioner in accordance with the terms of the MoU. Consequently, the Petitioner invoked the arbitration clause in the Construction Contract and an arbitrator was appointed by the Delhi HC ("Arbitrator") under Section 11 (Appointment of arbitrators) of the Arbitration and Conciliation Act, 1996 ("Act").

The Petitioner lodged seven claims before the Arbitrator amounting to total of INR 35,17,69,185/-. The Respondent challenged the arbitrability of the dispute on the basis of the execution of the MoU and contended that it had paid an excess amount of INR 32,83,865/- to the Petitioner, which in fact, the Respondent was entitled to claim from the Petitioner.

The Arbitrator, while examining the claims made by the Petitioner, concluded that even though the MoU was not fully complied with, it would not lead to the conclusion that the arbitration clause in the Construction Contract stood revived. Moreover, as the parties had moved from the BBQ/item rate basis of payment to a 'cost plus' basis of payment as set out in the MoU, there was no question of revival of the Construction Contract, even if the terms of the MoU had been breached by the Respondent.

Relying on the judgement passed by the Hon'ble Supreme Court ("SC") in Young Achievers v. IMS Learning Resources Private Limited [(2013) 10 SCC 535] ("Young Achievers Case") and the judgement of the Delhi HC in Ansal Housing and Construction Limited v. Samyak Projects Private Limited [2018 SCC OnLine Del 12866], the Arbitrator in its award dated January 7, 2019 ("Impugned Award") opined as follows:

"Once there is full and final settlement in respect of all the disputes in relation to a matter covered in the arbitration clause in the contract, such disputes or differences do not remain arbitrable and the arbitration clause cannot be invoked...Though the original contract was validly executed, the Petitioner and the Respondent had decided to put an end to it as if it never existed and substituted a new contract in its place, governing their rights and liabilities. In such a situation, the original contract is extinguished by the substituted one, the arbitration clause of the original one perishes with it."

Aggrieved by this, the Petitioner filed a petition under Section 34 (Application for setting aside arbitral awards) of the Act, urging the Delhi HC to set aside the Impugned Award.


  1. Whether an arbitration clause survives a supervening agreement between the parties.
  2. Whether the Construction Contract stood novated by the MoU.


Contentions of the Petitioner:

The Petitioner contended that the Arbitrator's interpretation of the Construction Contract and the MoU was arbitrary and perverse, therefore rendering the Impugned Award manifestly illegal. The Petitioner submitted that as per the MoU, the Construction Contract was to stand satisfied only upon the fulfilment of conditions enumerated therein and that the Respondent had failed to make full payment of the sum of INR 132 Lakhs to the Petitioner. Therefore, the Petitioner was entitled to claim all dues under the Construction Contract. Further, the MoU contemplated execution of a new contract on 'cost plus' basis which was not done. For that reason, the Petitioner had submitted its claims before the Arbitrator under the Construction Contract rather than under the MoU.

The Petitioner argued that the Impugned Award would have an effect of taking away the Petitioner's right to make claims for its dues and losses under the Construction Contract, which was contrary to the terms of the MoU.

In order to support its contention that the Construction Contract did not stand novated by the MoU and that the arbitration clause contained in the Construction Contract survived the execution of the MoU, the Petitioner sought to distinguish the judgement in the Young Achievers Case on the basis of the decision rendered in Union of India v. Kishorilal Gupta and Brothers [AIR 1959 SC 1362] wherein the SC made a distinction between a contract which stands finally determined only on payment of the agreed amount and a contract which stands determined on the date of settlement. The Petitioner submitted that a proper interpretation of the terms of the MoU would place the instant case in the first category. Thus, the Arbitrator had missed the conditional nature of cancellation of the Construction Contract. Reliance was also placed by the Petitioner on the judgement passed in Lata Construction v. Rameshchandra Ramniklal Shah [(2000) 1 SCC 586] wherein the SC opined that an original agreement would remain enforceable if the payment under a second contract was not made.

Click here to continue reading . . .

© 2020, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.