Zenith Drugs & Allied Agencies Pvt. Ltd. vs. Nicholas Piramal India Ltd

Question of law: – Invoking of Arbitration Clause after compromise decree

  • Sec 8 of the Arbitration and Conciliation Act, 1996 provides power to refer parties to arbitration where there is an Arbitration Agreement. According to this clause the parties in case of any dispute arising between the parties, the parties can take the matter directly before the Arbitrator.

The Supreme Court in the case of Zenith Drugs & Allied Agencies Pvt. Ltd. vs. Nicholas Piramal India Ltd, has observed that when the parties to a contract containing arbitration clause have settled their differences and compromised the matter, arbitration clause in the prior agreement cannot be invoked in the dispute subsequently arising between the parties after such compromise.

  • “Since the respondent has raised the plea that the compromise decree is vitiated by fraud, the merits of such a plea could be decided only by the Civil Court upon consideration of the evidence adduced by the parties.”
  • Court referred to Yogi Agarwal v. Inspiration Clothes and Others (2009) 1 SCC 372, in which it was held that:

“9. When a defendant invokes Section 8 of the Act by alleging existence of an arbitration agreement, he should establish that such arbitration agreement related to, or is applicable to, the suit transaction/contract. The parties may enter into different contracts at different points of time or may enter into a series of unrelated transactions. It is possible that in regard to some, they may provide for arbitration and in regard to others, may not provide for arbitration. Obviously, the existence of an arbitration agreement with reference to some other transaction/contract to which the plaintiff was or is a party, unconnected with the transactions or contracts to which a suit relates, cannot be considered as existence of an “arbitration agreement” in regard to the suit transactions/contracts.”

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