Arbitration Clause Can Be Invoked By Assignee Of Rights Under Contract: Bombay High Court
The Bombay High Court has ruled that an arbitration agreement is assignable, just as any other contract, and where the obligations and rights under an Agreement, containing an arbitration clause, are assigned in favour of an assignee, the remedy of arbitration would also stand assigned in its favour. The bench of Justice Bharati Dangre held that there was no need of separate execution...
The Bombay High Court has ruled that an arbitration agreement is assignable, just as any other contract, and where the obligations and rights under an Agreement, containing an arbitration clause, are assigned in favour of an assignee, the remedy of arbitration would also stand assigned in its favour.
The bench of Justice Bharati Dangre held that there was no need of separate execution of an arbitration agreement between the parties in view of the fact that all the rights in favour of the original party to the arbitration agreement (assignor) had been assigned in favour of the assignee/ claimant, and the said assignment was specifically acknowledged by the opposite party.
The respondent, Future Enterprises Pvt Ltd, entered into a Master Rental Agreement with one LIQ Residuals Private Limited (LIQ), for the purpose of renting equipments.
LIQ assigned the receivables payable under the Rental Agreement by the renter, Future, to M/s. Siemens Factoring Pvt Ltd- a non-banking financial company. LIQ and Siemens executed a ‘Sale of Receivable Agreements’, under which the rental receivables were assigned to Siemens as collateral security. Further, LIQ also executed an irrevocable Power of Attorney in favour of Siemens.
LIQ issued a ‘notification of assignment’ letter to Future, intimating that it had assigned the rental payments in favour of Siemens.
Claiming that the respondent, Future, had failed to pay the sums under the Rental Agreement, the applicant, Siemens, invoked the arbitration clause. It alleged that it was authorized to exercise all rights and remedies under the Rental Agreement, including the recovery of dues from Future. Siemens filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Bombay High Court, seeking appointment of a Sole Arbitrator.
The respondent, Future, argued before the High Court that there was no valid arbitration agreement between it and Siemens.
It added that the ‘notification of assignment’ letter only bears the signature of LIQ. Since Siemens had not signed the said assignment notification letter, which contains an arbitration clause, arbitration cannot be invoked by Siemens, it averred.
The applicant, Siemens, submitted before the Court that the Rental Agreement executed between Future and LIQ itself contains an arbitration clause.
Siemens pleaded that though the ‘notification of assignment’ letter is not signed by it, on perusal of the contents of the letter, it is manifestly obvious that it has placed Siemens in the shoes of LIQ. The same would bring within its ambit all the rights provided in the Rental Agreement and would also cover a right to invoke arbitration, it argued.
The High Court reckoned that the respondent, Future, had confirmed the receipt of the ‘notification of assignment’ letter and by putting the signature of its CEO and MD, it has acknowledged its acceptance, accepting that the applicant, Siemens, has now stepped into the shoes of LIQ. Future had also made rental payments in favour of Siemens, it took note.
While noting that Siemens has not signed the said ‘notification of assignment’ letter, the Court perused the relevant clauses contained in the Rental Agreement and the ‘notification of assignment’. It observed that the Rental Agreement itself contains an arbitration clause.
It further noted that the ‘notification of assignment’ clearly stipulates that the assignee, Siemens, has stepped into the shoes of LIQ under the Rental Agreement and is entitled to enjoy, exercise and enforce all rights, discretions and remedies of LIQ, as assigned to it. Further, the Rental Agreement itself defines ‘LIQ’ to include its assignees.
The bench concluded that since the applicant, Siemens, is empowered to exercise and enforce all rights and remedies available to LIQ under the Rental Agreement, as assigned to it, even the arbitration clause contained in the Rental Agreement would stand extended/assigned to Siemens as an ‘Assignee’.
While holding that the arbitration agreement is definitely assignable, just as any other contract, the Court held that since the obligations and rights under the Rental Agreement are assigned in favour of Siemens, there is no reason why the arbitration agreement should stand excluded, being part of the said Agreement.
The Court rejected Future’s contention that since the arbitration clause comprised in the ‘notification of assignment’ does not bind the applicant, Siemens, as it is not signed by it, Siemens is not competent to invoke arbitration.
Ruling that the arbitration clause contained in the Rental Agreement can be invoked by the applicant, Siemens, the Court said, “… merely because the subsequent communication intimating the assignment to the respondent being not signed, which also comprise of an arbitration clause would not preclude the Applicant from invoking arbitration.”
The bench concluded that there was no need of a separate execution of arbitration agreement between Siemens and Future in view of the fact that all the rights in favour of LIQ had been assigned in favour of Siemens, including the arbitration remedy, and the said assignment was specifically acknowledged by Future.
The Court thus allowed the application and appointed a Sole Arbitrator.
Case Title: M/s. Siemens Factoring Pvt Ltd vs. Future Enterprises Pvt Ltd
Dated: 01.03.2023
Counsel for the Applicant: Mr. Rohan Kelkar a/w Siddhesh Rajput and Neeli Sandesara i/b India Law LLP
Counsel for the Respondent: Mr. Nirman Sharma a/w Ankita Yadav I/B ALMT Legal