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TMI Blog2016 (7) TMI 1703X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted 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 sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them for resolution of their dispute arising out of the contracts entered into between the parties. Some of the relevant facts for the purpose of deciding this petition are as under: 2. On 16th April, 1997 and 30th April, 1997, DLF Industries Limited (DIL) signed two contracts with the respondent i.e. contract No. E-10010 for engineering and supply of equipments for 3 x 26.5 MW power project and contract No. E-11011 for civil works for carrying out erection and commissioning of the power plant equipment respectively. It is the case of the petitioner that the said DLF Industries Limited (DIL) undertook the performance and execution of contracts in right earnest. 3. It was the case of the petitioner that the said DLF Industries Limited (DIL) however, could not commission the power plant within the original contractual time on account of various reasons not attributable to the said company but attributable to the defaults of Mangalore Refinery Petrochemicals Limited in meeting its reciprocal obligations under the contract. The said DLF Industries Limited (DIL) commissioned four units of the Co-generation Power Plant on 30th May, 1999, 23rd July, 1999, 7th August, 1999 and 18th April, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... August, 2001, the petitioner requested the respondent for release of the balance payment, extension of contractual completion period, release of bank guarantee, return of excess material, payment of additional expenses incurred by it due to non-release of payment by the respondent within 20 days as provided under the contracts, expenses of Skoda representatives which were not to be borne by the petitioner, as the respondent had directly contracted with them etc. 9. On 24th September, 2001, the respondent admitted that a sum of Rs. 523.84 lacs consisting of Rs. 362.11 lacs shown as payable against the original contract price and Rs. 161.73 lacs against extra work was due and payable by the respondent to the petitioner but failed and neglected to pay the said sum alleged to have been admitted by them. 10. On 24th September, 2001 and 1st October, 2001, the petitioner requested the respondent to release its bank guarantee alleging that the respondent was continuously delaying the performance guarantee tests. 11. On 2nd December, 2003, 29th November, 2004 and 25th November, 2005, the petitioner informed the respondent that its bankers had issued amendment extending the validity and clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 70.28 lacs in this Court within a period of six weeks, the respondent shall not encash the bank guarantee and it would stand released and discharged. 18. On 20th June, 2008, during the pendency of the arbitral proceedings, the petitioner changed its name to Eastern India Powertech Limited. The Deputy Registrar of Companies, Delhi and Haryana issued a fresh certificate of incorporation consequent upon the change of name of the petitioner. 19. The respondent filed an application under section 16 of the Arbitration Act before the arbitral tribunal raising the plea of jurisdiction of the arbitral tribunal to entertain, try and dispose of the claim filed by the petitioner. The said application was resisted by the petitioner on various grounds. The arbitral tribunal framed the issues including preliminary issue whether the claimant proves that it has locus to initiate, sustain and pursue the present proceedings . After recording of evidence, the arbitral tribunal heard the arguments on the said preliminary issue. By an order dated 2nd February, 2011, the arbitral tribunal dismissed the arbitral proceedings on the ground that it had no jurisdiction to entertain the said procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to the said division and also the liabilities as set out therein on the terms and conditions recorded therein. He submits that admittedly after execution of the said document between the said DLF Universal Limited and the petitioner herein, the respondent dealt with the petitioner exclusively under the said contract agreement entered into between the respondent and the said DLF Industries Limited for all purposes all through out, as a party to the contract agreement with the respondent in place of DLF Universal Limited. In support of this submission, the learned counsel invited my attention to various correspondence exchanged between the parties and would submit that both the parties had acted upon the said agreement dated 28th June, 2001. 23. It is submitted that the entire agreement and all the benefits thereunder accrued to the said DLF Industries Limited under the contract agreement dated 16th April, 1997, including the arbitration agreement were assigned to the petitioner. He submits that in case of any dispute between parties thus, the petitioner was entitled to invoke the said arbitration agreement recorded in the contract agreement dated 16th April, 1997 for resolving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... memorandum of sale agreement entered into the between the said successor and the petitioner. In support of this submission, the learned counsel also invited my attention to the bank guarantee submitted by the respondent in favour of the petitioner. 26. It is submitted by the learned counsel for the petitioner that the arbitration agreement is a right and not an obligation. Severality of the arbitration agreement from the contract is a legal fiction for the purpose of arbitration. The consent is not necessary for assignment of arbitration agreement. The arbitration agreement survives even if the main contract is terminated or if such contract does not survive or even it comes to an end. He submits that the consent of the respondent to assign the contract as a whole was proved by the petitioner before the arbitral tribunal. Requisites of the arbitration agreement described under section 7 of the Arbitration Act thus would have no application to the arbitration agreement assigned in favour of the petitioner. The respondent had already accepted the contractual relation with the petitioner as assignee of the contract. The respondent had acted upon the contract. The memorandum of sale a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded in agreement dated 16th April, 1997. 30. Learned senior counsel placed reliance on paragraph 2 of the statement of claim filed by the petitioner and would submit that the said statement of claim is not filed by authorized representative of DLF Industries Limited or the successor of the contract dated 16th April, 1997. He submits that even in the statement of claim, there is no averment made by the petitioner alleging assignment of the entire contract to the petitioner. My attention is also invited to the written statement filed by the respondent in the arbitral proceedings raising an issue of jurisdiction of the arbitral tribunal on the ground that no arbitration agreement existed between the petitioner and the respondent. Reliance is also placed on the averments made in the rejoinder filed by the petitioner in the arbitral proceedings. He submits that in none of the correspondence annexed to the proceedings, the petitioner has referred to the assignment of the arbitration agreement as a remedy or otherwise. 31. Learned senior counsel placed reliance on clause 6 of the memorandum of sale dated 28th June, 2001. It is submitted that under the said clause, it was clearly agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned senior counsel for the respondent placed reliance on the judgment of the Delhi High Court in case of M/s. Delhi Iron Steel Company Limited v. U.P. Electricity Board Anr., 2002(61), DRJ 1280 and in particular paragraphs 2 to 6 and 14 to 19. 35. Reliance is also placed on the judgment of King's Bench Division in case of Cottage Club Estates Limited v. Woodside Estates Company (Amersham) Limited, 463 and in particular the relevant paragraphs on pages 463 and 466. He placed reliance on the judgment of the Supreme Court in case of Indowind Energy Limited v. Wescare (India) Limited Anr., (2010) 5 SCC 306 and in particular paragraphs 15, 17, 18 and 20 in support of the submission that the petitioner has to show that he was a party to the arbitration agreement, which was contained in the original contract. 36. It is submitted by the learned senior counsel that for the purpose of invoking an arbitration agreement, the petitioner had to demonstrate that the arbitration agreement within the meaning of section 7 of the Arbitration Act existed between the parties. The petitioner had failed to demonstrate or produce any arbitration agreement between the petitioner and the respondent. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arbitral tribunal. 40. Reliance is also placed on section 4 of English Arbitration Conciliation Act and it is submitted that the said provision is in pari-materia with the amended section 8 of the Indian Arbitration Act. He submits that the judgment of the Court of Appeal in case of Baytur S.A. v. Finagro Holding S.A. (supra) relied upon by the petitioner has been followed and accepted by various Courts in India. He submits that the arbitration agreement is not obligation but is a benefit under the contract which can be assigned. Learned counsel for the petitioner distinguished various judgments referred to and relied upon by Mr. Setalvad, the learned senior counsel for the respondent on the ground that none of those judgments are applicable to the facts of this case and in any event are clearly distinguishable. REASONS AND CONCLUSIONS: 41. The question that arises for consideration of this Court is whether an arbitration agreement can be assigned. 42. A perusal of the correspondence exchanged between the parties and the execution of the bank guarantee by the petitioner in favour of the respondent and the respondent addressing various letters to the bankers of the petitioner t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Arbitration Conciliation Act, 1996. It is held by the arbitral tribunal that none of the successors of DLF Industries Limited were parties to the arbitration agreement. 45. It is held that there is neither any agreement in writing, nor any record of arbitration agreement by means of any correspondence between the petitioner herein and the respondent. It is held that it is not the case of the petitioner that existence of arbitration is alleged by the petitioner in the statement of claim which remained undenied in reply. The arbitral tribunal has held that the provisions of sections 7(3) and 7(4) are not satisfied and thus there is no arbitration agreement between the petitioner and the respondent. It is held that it would not be possible in law to treat the petitioner herein a party to the arbitration agreement because it is the assignee of the main commercial contract. Finally it is held by the arbitral tribunal that the petitioner had no locus to initiate, sustain and pursue the present proceedings because there was no arbitration agreement as contemplated by section 7 of the Act in existence and thus the proceedings are liable to be dropped for total lack of jurisdiction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious 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. 51. The Supreme Court in case of Enercon (India) Limited Ors. (supra) 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. 52. The Supreme Court in the said judgment i.e. Enercon (India) Limited and others (supra) has als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of M.R. Engineers Contractors Pvt. Limited (supra) 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. It is not the case of the petitioner assignee in the memorandum of sale entered into between the petitioner and DLF Universal Limited that the arbitration agreement recorded in the contracts dated 16th April, 1997 stood incorporated under section 7(5) of the Arbitration Conciliation Act, 1996. In my view, the judgment of the Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also would not assist the case of the respondent. In my view the facts before the Court of Appeal in the said judgment are totally different and are distinguishable with the facts of this case. 60. Insofar as the judgment of this Court in case of Pramod Chimanbhai Patel (supra) relied upon by the learned senior counsel for the respondent is concerned, the issue before this Court in the said judgment was that if an arbitration agreement is in writing, whether it must be signed by both the parties. This Court while considering the provisions of section 7(4) held that the arbitration agreement is required to be in writing and signed by both the parties. In this case, there is no dispute that the arbitration agreement which was recorded in the contracts dated 16th April, 1997 was in writing and the said contracts were admittedly signed by the respondent herein and the DLF Industries Limited. The respondent has admittedly accepted the assignment of the said contract in favour of the petitioner and has acted upon the said agreement. The findings recorded by the arbitral tribunal on this issue are not challenged by the respondent. In my view, the judgment of this Court in case of Pramod C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early considering the conduct of the parties while determining the issue whether their existed arbitration agreement or not. The arbitral tribunal however, in paragraph 26 of the impugned award though referred to these judgments, has taken an erroneous view that none of those judgments of the Supreme Court spoke about the conduct of the parties. In my view, the impugned order shows patent illegality on the face of award. 64. This Court in case of Ingram Micro India Limited v. Micro Max Media Private Limited in an unreported judgment delivered on 5th November, 2012 in Arbitration Application (Lodging) No. 874 of 2012 has while considering the arbitration agreement recorded in the printed invoices and while dealing with section 7 of the Arbitration Conciliation Act, 1996 has held that the respondent having accepted the invoices and had acted upon the same without any protest, the contract between the parties clearly contemplated a provision for arbitration. This Court in an unreported judgment in Arbitration Petition No. 76 of 2012, in case of POL India Projects Limited, v. Aurelia Reederei Eugen Friederich GmbH Schiffahrtsgesellschaft Company KG, delivered on 8th April, 2015 has tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igations thereunder and assignment of a claim for compensation which one party has against the other for breach of contract. The latter is a mere claim for damages which cannot be assigned in law, the former is a benefit under an agreement, which is capable of assignment. There is no dispute between the parties that the arbitration agreement was recorded in clause 36 of the contracts dated 16th April, 1997 between the respondent herein and DLF Industries Limited and the said agreement existed all throughout. It was also not the case of the respondent that the said contracts dated 16th April, 1997 became null and void or in-operative for any reasons whatsoever prior to the date of the successor of the said DLF Industries Limited having entered into an agreement with the petitioner herein. In my view the judgment of the Supreme Court in case of Khardah Company Limited (supra) would apply to the facts of this case and would assist the petitioner. In my view the arbitration agreement in a contract is a benefit which can be assigned along with the main contract or even otherwise. 68. The Rajasthan High Court in case of Aerens Goldsouk International Limited Co. (supra) has quoted the tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eel Works Construction Limited (supra) has adverted to the judgment of Supreme Court in case of Khardah Company Limited (supra) and has held that a contract in the nature of a personal covenant cannot be assigned. The rights under a contract can be assigned, but the obligations under a contract lawfully cannot be assigned. The intention about assignability would depend upon, the terms and the language used in a contract. It is held that the existence of an arbitration clause per-se does make neither the contract non-assignable or assignable. It is held that the existence of an arbitration clause does not affect either the rights or the assignability of the contract if it is otherwise assignable. In my view, the contracts dated 16th April, 1997 entered into between the respondent herein and DLF Industries Limited was not of a personal nature. It was for the performance and supply of various items. The respondent continued to accept the performation of the rights, duties, obligations and benefits of DLF Industries Limited and DLF Universal Limited in the said contracts dated 16th April, 1997 from the petitioner herein and vis-a-versa. Clause 19.1 of the contracts dated 16th April, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission of the learned senior counsel for the respondent that there was a separate arbitration agreement recorded between the petitioner and the successors and thus the petitioner could not have invoked the arbitration agreement in the contracts dated 16th April, 1997 is concerned, a perusal of the record indicates that the petitioner has not invoked arbitration agreement recorded in the agreement between the petitioner and the successors but has invoked arbitration agreement recorded in the contracts dated 16th April, 1997 on the premise that the said contracts stood assigned in favour of the petitioner and the petitioner having stepped in the shoes of the assignors. 74. Insofar as the submission of the learned senior counsel for the respondent that under clause 6 of the said Memorandum of Sale entered into between the petitioner and the said assignor, the petitioner was only granted powers to act as a constituted attorney of the assignor and thus the petitioner could not have invoked the arbitration agreement or could not have filed the statement of claim in its own name is concerned, in my view Mr. Andhyarujina, learned counsel for the petitioner is right in his submission that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In my view, the judgments interpreting section 16 of the Arbitration Act would not apply in case of an assignment of a contract including arbitration agreement. 77. 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. 78. In my view, no separate execution of the arbitration agreement was required to be executed between the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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