Bombay High Court: When Original Party to the Original Agreement Assigns its Rights and Liabilities it also Includes Right to Arbitrate

Bombay High Court: When Original Party to the Original Agreement Assigns its Rights and Liabilities it also Includes Right to Arbitrate

The Bombay High Court by its single judge Justice Bharati Dangre observed 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 favor of an assignee, the remedy of arbitration would also stand assigned in its favor.

In the present case the Respondent – Future Enterprises, a private limited company claiming to be a leading brand, operating retail stores throughout the country and engaged in variety of household, consumer and fashion products, entered into a Master Rental Agreement (in short hereinafter referred to as MRA) on 27.01.2020 with one LIQ Residuals Private Limited (referred to as ‘LIQ’), for the purpose of renting equipment’s.

As a subsequent event, the LIQ by distinct notification of assignments contained in letter dated 17.02.2020, 20.02.2020 and 04.03.2020, intimated the Respondent/Renter about the assignment of the rental payments in favor of the Applicant i.e., Siemens Factoring Pvt. Ltd, a non-banking financial company engaged in the business of providing secured loans against hypothecation of tangible assets and financial leases across the Country and this assignment was acknowledged by the Respondent.

Pursuant to the said assignment, the case of the Applicant was that, a Sale of Receivable Agreements came to be executed between the Applicant and the LIQ on 27.02.2020, 29.02.2020 and 12.02.2020, wherein, LIQ was referred as the ‘Company’ and the Applicant was described as ‘Financier’, wherein it was agreed that the Company may sell the receivables under the Rent Agreement and provide collateral securities to the Financier, subject to the terms and conditions agreed upon. As a consequence, the Applicant was assigned the receivables by LIQ, payable to them under the Rental Agreement executed with the Respondent.

The LIQ also executed irrevocable Power of Attorney in favor of the Applicant, thereby nominating/appointing the Applicant as the true and lawful Attorney of LIQ.

Certain dispute arose between the applicant and the respondent. 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.

According to the respondent, there was no valid arbitration agreement between it and Siemens. The respondent argued 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.

On the other hand, the applicant contended that the Rental Agreement executed between Future and LIQ itself contains an arbitration clause. It further pleaded that though the notification of assignment letter was not signed by it, on perusal of the contents of the letter, it was manifestly obvious that it had placed the present Applicant in the shoes of LIQ and this would bring within its ambit all the liabilities, entitlement etc. as provided in the Master Rental Agreement dated 27.01.2020 and would also cover a right to invoke arbitration.

The Court undisputedly, found that the Applicant had not signed the document, which was in form of notification of assignment letter and that is why the argument was raised by the learned counsel for the Respondent to the effect that it does not amount to a binding arbitration agreement, as in terms of Section 7 of the Arbitration and Conciliation Act, the Agreement must be in writing and signed by the parties.

However, the Court opined that “in the light of reading of the aforesaid recitals in the MRA along with the ‘rights and remedies’ clause included in the Notification of Assignment in favor of the Applicant and which is duly communicated to the Respondent and acknowledgment by it, it has become evident that the Applicant has stepped into shoes of ‘LIQ’ and stand substituted in its place, by the Notification of the assignment letter for receipt of the rental payments mentioned in the said notification. By the assignment, the Applicant is held entitled to enforce all rights, discretions, and remedies of the LIQ, as assigned to it, in respect of repayment of lease rental.”

The primary question was whether it would cover a right to invoke arbitration, in case any dispute, difference and/ or claim arise out of or in connection with the Master Rental Agreement and pursuant thereto, whether an Arbitrator could be appointed.

The judge stated that though in the wake of latest position of law as regards unilateral appointment of arbitrator, it cannot be an Arbitrator appointed by the Applicant or LIQ, but on invocation of arbitration, this Court would exercise its power under sub-section 6 of Section 11, to appoint an Arbitrator.

“The position of law as regards valid arbitration agreement between the parties is clear and unambiguous. An arbitration agreement can be a separate agreement between the parties agreeing that the disputes and difference arising between themselves to be referred for arbitration or an arbitration agreement may be in form of a clause contained in the Agreement itself. In that sense, it is an Agreement within an Agreement. It can thus be a collateral term of a contract or independent and distinct from its substantive term,” observed the judge.

The Court remarked that the, quintessential feature of an arbitration agreement is an arrangement necessarily or rather mandatorily requiring appointment of an Arbitrator/s by mutual consensus arrived between the parties.

The Court was of the considered view that if the rights of LIQ were specifically assigned in favor of the Applicant and it had undertaken to discharge all its liabilities and enjoy all its privileges and entitlement, there was no reason why the arbitration clause which permit the parties to refer the disputes for arbitration, arising out of the Master Rental Agreement cannot be invoked by the Applicant.

The Court discerned if the arbitration clause was also additionally comprised in the notification of assignment, the object of which was only to apprise the Respondent that the Applicant shall henceforth stand in place of LIQ, when the MRA already contemplating the provision for assignment, merely because the said document which comprised of an arbitration clause in addition to the one in MRA was not signed, cannot be a ground by itself to exclude the Applicant from invoking arbitration since in my considered opinion it has assumed the role of ‘LIQ.’

Hence, 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 Court concluded that that an arbitration agreement could be assigned and where there is a specific provision for assigning of rights and liabilities, and the assignment was duly accepted by the Respondent, was clearly indicative of the intention of the parties in implementation of the rights, obligations, duties and benefits of the original contract.

The Court expressed that there was no need of separate execution of arbitration agreement between the Applicant and Respondent since all the rights in favor of LIQ has been assigned in favor of the present Applicant and this assignment was specifically acknowledged by the Respondent, with the arbitration remedy also being assigned in its favor.

Hence, the Court found that the Applicant had rightly invoked arbitration and it was deemed appropriate to exercise the power to appoint a Sole Arbitrator as was prayed in the petition and allowed the application.