2016 (7) TMI 1703 - HC - Indian Laws

Dismissal of arbitral proceedings on the ground of jurisdiction - assignment of arbitration agreement - locus standi to invoke the arbitration agreement - whether a separate arbitration agreement was required to be entered into between the petitioner and the respondent for adjudication of the disputes arising between the parties having arisen under the original contracts between the respondent herein and DLF Industries Limited or assignment of the said contracts dated 16th April, 1997 accepted by the respondent would include the assignment of arbitration agreement also recorded in the said contracts by conduct or otherwise? HELD THAT - A perusal of the record clearly indicates that the respondent had not disputed various factual aspects indicating the fact that the petitioner had stepped in the shoes of DLF Industries Limited and DLF Universal Limited and had complied with various obligations under the said contracts dated 16th April, 1997. The respondent had also credited the amount payable to the said DLF Industries Limited or DLF Universal Limited for the various extra works done, in the account of the petitioner. The Supreme Court in case of Enercon (India) Limited Ors. 2014 (2) TMI 1170 - SUPREME COURT has considered section 16 of the Arbitration Conciliation Act, 1996 and in that context has held that under the said provision of the Arbitration Conciliation Act, 1996, the concept that the main contract and the arbitration agreement formed two independent contracts. Commercial rights and obligations are contained in the underlying, substantive, or the main contract. It is followed by a second contract, which expresses the agreement and the intention of the parties to resolve the disputes relating to the underlying contract through arbitration. A remedy is elected by parties outside the normal Civil Court remedy. A perusal of the contracts dated 16th April, 1997 clearly indicates that there is no provision in the said contracts that even if the said contracts were assigned in favour of a third party by any of the party to the said contracts, the same could be of the entire contract however, excluding the arbitration agreement. No separate writing is contemplated under the said two contracts for execution of a fresh arbitration agreement between the assignee of the contracts by one of the party to the said contracts and other party to the said contracts. The Supreme Court in case of M.R. Engineers Contractors Pvt. Limited 2009 (7) TMI 1151 - SUPREME COURT has held that an arbitration clause though an integral part of the contract, is an agreement within an agreement. It is a collateral term of a contract, independent of and distinct from its substantive terms. The Supreme Court in the said judgment was considering the case of doctrine of incorporation under section 7(5) of the Arbitration Conciliation Act, 1996. It is held that there is a difference between the reference to another document in a contract and incorporation of another document in a contract by reference. In the first case, the parties intended to adopt only specific portions and part of referred document for the purpose of contract. In the second case, the parties intend to incorporate referred document in entirely into the contract. The facts of this case are totally different. A perusal of the opening paragraph of the contracts clearly indicates that the said paragraph has described the parties to the contract i.e. Owner and Contractor which includes its legal successors and permitted assigns. Though prior approval in writing of the respondent was not obtained by the assignor under clause 19.1 of the said two contracts before assigning its rights, obligations and duties in favour of the petitioner, the fact remains that the respondent has accepted the said assignment in favour of the petitioner and has acted upon it. The arbitral tribunal has recorded such finding in the impugned award in favour of the petitioner. It is not the case of the respondent that the contract between the respondent and the DLF Industries Limited was not assignable. Clause 19.1 of the General Conditions of Contract appended to the said contract dated 16th April, 1997 provided for assignment of the obligation or any benefit or interest in the said contract or any part thereof, however explicit prior approval in writing of the other party. A perusal of the said contract dated 16th April, 1997 clearly indicates that the DLF Industries Limited which was a party to the said contract as a contractor included its legal successor and permitted assigns. The intention of the party to the said contract dated 16th April, 1997 is clear from the provisions of the said contracts that the said contracts were assignable in toto. There is no substance in the submission of the learned senior counsel for the respondent that even if the two contracts were assigned in favour of the petitioner, the arbitration agreement forming part of such contracts was not assigned - Under section 16 of the Arbitration Conciliation Act, 1996, it is provided that an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. It is provided that the arbitral tribunal has power to rule on its own jurisdiction including ruling on any objections with respect to the existence or validity of the arbitration agreement and for that purpose, the arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. Merely because a party has appointed an arbitrator or has participated in the appointment of an arbitrator, he is not precluded from raising a plea of jurisdiction in the arbitral proceedings. The scheme of section 16 permitting a party to raise such an objection of jurisdiction though he had participated in the appointment of an arbitrator in an arbitration, without intervention of the Court is totally different and is limited only for that purpose. A perusal of the record indicates that the arbitral tribunal has not accepted the case of the respondent that in view of clause 6 of the Memorandum of Sale entered into between the petitioner and DLF Universal Limited, the petitioner could act only as a constituted authority on behalf of the said assignors in case of any dispute between the petitioner and the respondent. It is not in dispute that the said assignors did not file any separate proceedings against the respondent nor the respondent filed any separate proceedings against the said assignors in respect of the dispute arising under the said two contracts dated 16th April, 1997 - no separate execution of the arbitration agreement was required to be executed between the petitioner and the respondent, in view of the fact that the said two contracts containing arbitration agreement was already assigned in favour of the petitioner and the entire contracts were acted upon by both the parties herein. In view of the assignment of the said two contracts in favour of the petitioner, the arbitration agreement contained therein also stood assigned in favour of the petitioner. The petitioner had thus locus standi and had rightly invoked the said arbitration agreement. The impugned order holding that arbitration agreement was not assigned in favour of the petitioner shows patent illegality. Petition allowed.

Summary

Issues Involved:

1. Whether the arbitration agreement can be assigned along with the main contract.
2. Whether the petitioner has the locus standi to invoke the arbitration agreement.
3. Whether the arbitral tribunal had jurisdiction to entertain the claims made by the petitioner.

Detailed Analysis:

1. Assignment of Arbitration Agreement:

The primary issue was whether the arbitration agreement could be assigned along with the main contract. The petitioner argued that the entire agreement, including the arbitration clause, was assigned to them when they acquired the business undertaking. The respondent contended that the arbitration agreement, being a separate and independent agreement, could not be assigned without explicit consent. The court examined the conduct of the parties and the correspondence exchanged, which indicated that the respondent had accepted the petitioner as the successor to the original contracts. The court concluded that the arbitration agreement, being a benefit under the contract, is capable of assignment unless the contract's nature is personal, which was not the case here.

2. Locus Standi of the Petitioner:

The petitioner claimed that they were the rightful successor to the contracts and thus entitled to enforce the arbitration agreement. The respondent argued that the petitioner was not a party to the original arbitration agreement and lacked the locus standi to initiate arbitration. The court noted that the petitioner had stepped into the shoes of the original contracting party and had performed obligations under the contract, which the respondent had accepted. The court found that the respondent's conduct, including the acceptance of performance and correspondence, demonstrated that the petitioner had been recognized as a party to the contract, including the arbitration agreement.

3. Jurisdiction of the Arbitral Tribunal:

The arbitral tribunal had dismissed the proceedings, holding that it lacked jurisdiction as there was no arbitration agreement between the petitioner and the respondent. The court examined whether a separate arbitration agreement was necessary post-assignment. It found that the assignment of the main contract inherently included the arbitration agreement, given that the respondent had accepted the petitioner as the successor. The court held that the arbitral tribunal's decision was based on a misinterpretation of the law and the facts, as the arbitration agreement was indeed assigned along with the main contract.

Conclusion:

The court set aside the arbitral tribunal's order, holding that there existed an arbitration agreement between the petitioner and the respondent due to the assignment of the original contracts. The court directed the parties to proceed with the arbitration expeditiously, recognizing the petitioner's right to invoke the arbitration agreement. The judgment emphasized that the arbitration agreement, as a collateral benefit of the contract, is assignable unless explicitly stated otherwise in the contract terms.