Successor To Merger Transaction Can Invoke Arbitration Clause When All Rights And Liabilities Are Transferred: Calcutta High Court
The Calcutta High Court bench of Justice Shampa Sarkar has held that once all liabilities, rights, and obligations are transferred to an entity through a merger approved by the competent forum, the arbitration clause contained in a loan agreement executed between the parties prior to the merger can be invoked by a third party that has acquired all such rights...
The Calcutta High Court bench of Justice Shampa Sarkar has held that once all liabilities, rights, and obligations are transferred to an entity through a merger approved by the competent forum, the arbitration clause contained in a loan agreement executed between the parties prior to the merger can be invoked by a third party that has acquired all such rights and liabilities post-merger.
Brief Facts:
This application has been filed under section 11(6) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) seeking appointment of an Arbitrator.
The Petitioner is a non banking finance company. In terms of the order of the National Company Law Tribunal, Mumbai, Tata Capital Financial Services Limited and Tata Cleantech Capital Limited merged with Tata Capital Limited. Thus, all properties, assets, rights, benefits, interest, duties, obligations, liabilities, contracts, agreements securities etc. of those two companies were transferred to the petitioner with effect from January 1, 2024
Tata Capital Financial Services Limited had sanctioned a loan to the respondent, and the business loan agreement was transferred accordingly. Following the respondent's default, a loan recall notice for the final dues relating to the loan dated 24th June 2023 was issued on 12th August 2024.
The agreement was handed over to the borrower, and the dispute resolution clause stipulated arbitration in Kolkata. The petitioner issued an arbitration notice on November 7, 2024, which the respondent duly received. But no response was given to the said notice by Krishna Kant Tiwari (Respondent).
Observations:
The court noted that though not a signatory, the petitioner acquired all rights, liabilities, agreements, and business assets of Tata Capital Financial Services Ltd. from January 1, 2024, by order of the appropriate forum.
The court noted that the Supreme Court in 'Ajay Madhusudan Patel v. Jyotrindra S. Patel, (2025)' held that the intention of the parties to be bound by an arbitration agreement can be gauged from the circumstances that surround the participation of the non-signatory party in the negotiation, performance, and termination of the underlying contract containing such agreement.
The Apex Court also held that the nature or standard of involvement of the non-signatory in the performance of the contract should be such that the non signatory has actively assumed obligations or performance upon itself under the contract.
Similarly, the Supreme Court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc. (2013) held that normally, arbitration is between parties to both the arbitration agreement and the underlying contract. However, claims may arise involving a non-signatory. While this can create challenges, it is not a legal bar.
It further said that Arbitration can occur between a signatory and a third party, but the third party has to discharge a heavy burden to prove that it claims “through” or “under” the signatory, as per Section 45 of the Arbitration Act.
Based on the above, the court held that merger is a transaction that combines companies or assets, transferring all assets and liabilities to the surviving entity, which assumes the rights and legal obligations of both original companies. Further adjudication is left to the learned Arbitrator.
Accordingly, the present application was allowed and the Arbitrator was appointed.
Case Title: TATA CAPITAL LIMITED VS KRISHNA KANT TIWARI
Case Number: AP-COM/1035/2024
Judgment Date: 07/04/2025
Mr. Amritam Mandal, Advocate Mr. Jit Roy, Advocate Mr. Aharnish Ghosh, Advocate … for the petitioner.
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