It has been held that if the parties have not entered into a new agreement (novated contract) and the preceding agreement has been expressly extended through written communication or emails, the arbitration clause in the agreement perpetuates.

The appellant filed a case on the basis that arbitration clause survives even after the termination of the main agreement since the extension was done through written communication, and it cannot be excluded. In the case, though the agreed period of agreement was for 12 months according to which the agreement would expire on 30th June 2018, however, under a mutual agreement the parties arranged to continue their agreement and extended it further till 2019(Unique Décor (India) Pvt. Ltd v. Synchronized Supply Systems Ltd, Delhi High Court). Hence, the arbitration clause stands still and isn’t superseded.

The Court added if a substantial disagreement arises between parties regarding the validity of arbitration clause, whether it has been novated or superseded, parties should refer to arbitration and not the court since it goes beyond its jurisdiction and what is allowed under Section 8 of Arbitration and Conciliation Act (further referred as A&C Act).

In another case, the court held that the arbitration clause would cease to exist with its novation if the novated contract does not mention the arbitration clause. The decision taken by the bench held the non-arbitrability of the dispute was a reasonable view based upon the contractual interpretation of the existing agreement and hence, cannot be contested under Section 34 of A&C Act.

In the case of B. L Kashyap and Sons Ltd. v. MIST Avenue Pvt. Ltd., MoU (Memorandum of Understanding, the substituted agreement), was successfully executed which cancelled the original agreement as well as the arbitration clause. The new agreement, MoU, did not contain any arbitration clause. Furthermore, the parties expressly agreed to cancel the previous existing agreement and it stood novated. The petitioner formed the premise of argument on the basis that upon the non-fulfilment of the conditions in the contract, the original contract would be revived.

In it’s decision, the court reiterated the decisions of Kishorilal Gupta and Lata Construction (in both these cases, the Supreme Court held that the original contract would perish when substituted with another contract) and held that the arbitration clause will cease to exist with its novation. (Delhi High Court, 2023)

Moreover, the court reviewed that the non-fulfilmentof the conditions, would not revive the original contract unless it is expressly provided in the novated contract.

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