Mrs. Hema Khattar & Anr. v. Shiv Khera
Background
Hema Khattar had contracted with Shiv Khera to reconstruct his building, but the work was found structurally defective. Khera invoked the contract's arbitration clause and appointed a sole arbitrator, while separately Hema Khattar and her husband jointly sued in the High Court seeking declarations that the contract was terminated by a later oral agreement, plus recovery of money allegedly spent by the husband. A single judge found the suit improperly combined two unrelated claims (misjoinder) and ordered the Khattars to choose which claim to pursue; a Division Bench upheld this, leading to the present appeal.
Decision Breakdown
The Supreme Court held that the written and oral agreements were sufficiently connected, the oral arrangement was a continuation/substitution of the original written contract, so the two claims were not improperly joined, and the lower courts were wrong to force an election between them. However, since the original written contract contained a mandatory arbitration clause under Section 8 of the Arbitration and Conciliation Act, 1996, and that clause continued to apply to the substituted oral arrangement as well, the civil court had no jurisdiction to decide the dispute itself once an arbitration application was made. The Court therefore set aside both lower court orders and referred the entire dispute to the already-appointed sole arbitrator.
Lesson Learnt
If a contract contains an arbitration clause, that obligation to arbitrate generally survives even when the contract is later modified or replaced by a fresh oral understanding between the same parties, going to court to decide the dispute is not an available shortcut once the other side insists on arbitration.