M/S. Delhi Iron And Steel Company ... vs U.P. Electricity Board & Another
2001 Latest Caselaw 638 Del

ORDER

J.D. Kapoor, J.

1. This is a petition under Section 33 of the Arbitration Act moved by the petitioner seeking declaration that respondent No.2 has no authority or jurisdiction to act as an Arbitrator firstly because there exists no arbitration agreement between the parties and secondly there was no concluded contract and thirdly that the rights and claims in respect of the obligations of the parties are assignable under the law.

2. The facts giving rise to the above petition are in short as under:

That Victor Cable Corporation (hereinafter referred as Victor Cables), a partnership firm of four partners was carrying on its business of manufacture and sale of cables of various sizes at 802, Joshi Road, New Delhi and was a firm of repute with a well equipped factory at Sahibabad, Uttar Pradesh. The disputes arose between the partners after the death of one of the partners of the said firm. One of the partners filed a suit against the other partners being Suit No.95/80 for dissolution of the partnership firm were ordered to but put on sale. The petitioner company offered to purchase the assets of the said firm namely Victor Cables and the offer of the petitioner company for Rs.60 lacs was accepted by the Court. Under the orders of the Court the petitioner company was required to clear the liabilities of the Allahabad Bank before handing over the possession of the assets of Victor Cable. The petitioner company was also obliged to clear the liabilities of Oriental Bank of Commercial and United Commercial Bank.

3. It is averred that the petitioner spent huge amounts on renovations etc. to bring the factory in running condition and therefore it had nothing to do with the previous dissolved firm Victor Cables. Dispute is in relation of a tender enquiry issued by respondent no.1 in pursuance of which Victor Cables vide its letter dated 21st September, 1978 offered to supply various quantities of cables of different sizes. Clause 13 of the terms and conditions of the said offer as proposed by Victor Cables was to the following effect:-

Clause-13

"We do not agree to arbitration clause and in case of any dispute, the law of the land shall prevail and shall be subject to Delhi jurisdiction."

4. However when the final agreement was sent by respondent No.1, clause 12 of the terms and conditions provided the settlement of disputes by way of arbitration. Letter of acceptance and the terms and conditions were duly acknowledged and accepted by the Victor Cables vide letter dated 21st November, 1978. Records of Victor Cables showed that the Victor Cables had failed to make the supply to respondent no.1 on the basis of the alleged contract except small quantity of 33. However respondent no.1 addressed to the Chairman of the Victor Cables unilaterally asking him to either enter into reference himself or nominate somebody to settle the disputes of Victor Cables. The Chairman appointed Shri R.K. Tandon, Chief Zonal Engineer, UP State Electricity Board i.e. the respondent no.2 as sole Arbitrator to adjudicate disputes between the petitioner and the respondent. The entrance of the reference by the said Arbitrator has been now challenged by the petitioner on the following grounds:-

1) That the petitioner company is only the purchaser of the assets and liabilities of the Victor Cables.

2) That in the sale ordure there is no privity of contract between the petitioner and respondent no.1 so far as arbitration clause is concerned.

3) That the reference is unilateral as the petitioner company never joined the same and, therefore, initiation of proceedings by respondent no.2 are illegal and without jurisdiction.

4) That there is no concluded contract between the Victor Cables and respondent no.1 as the offer of the former specifically stated that they did not agree to the arbitration clause.

5) That Victor Cables of which the petitioner is the proprietor is not a legal entity. Mere purchase of the factory of Victor Cables by the petitioner does not bind the petitioner to the contract between the Victor Cables and respondent no.1

5. On the other hand the respondent no.1 has challenged the maintainability of the petition and has attempted to refute the aforesaid pleas questioning the jurisdiction of the Arbitrator as well as the status and liability of the petitioner as to the contract between Victor Cables and the respondent. Contentions of respondent no.1 in brief are:

1) That the petitioner company has taken over the contractual obligations of Victor Cables Corporation and such it is liable to fulfill these obligations.

2) That the petitioner has concealed the material information regarding the proceedings of s.95/80 filed by the one of the partners of Victor Cables against the remaining partners for dissolution of the firm as it was only after the discharge of the liabilities of Victor Cables by the petitioner in respect of dues towards the Bank that the he was handed over the possession of the factory and, therefore, the petitioner company is liable to fulfill all the contractual obligations of Victor Cables.

3) That in the letter dated 1st April, 1980 the petitioner had in its offer to purchase the above factory specifically agreed to purchase Victor Cables as a going concern as also its accessories because of income tax and sale tax which were payable by the erstwhile partners. The assets and liabilities were to be as recorded in the books of accounts and more specified in the proposed contract prepared by the Court. It was further agreed that liabilities shall include contractual obligations of pending contracts.

4) In view of the aforesaid undertaking given by the petitioner at the time of purchase of the Victor Cables, the petitioner company is fully liable under the terms of purchase to discharge t he liabilities and responsibilities of the Victor Cables arising out of the contract in question particularly when the petitioner company has retained goodwill of the firm.

5) The petitioner agreed to purchase the assets of Victor Cables Corporation of the following term:-

"All contracts of Victor Cables Corporation and all benefits arising there from and liabilities there under in all or in any form shall be of the petitioner and simultaneously all goodwill, trade name, licenses, entitlements etc. will all be that of the petitioner."

6) Similarly the petitioner also agreed to fully indemnify and obtain discharge form all claims and liabilities personal guarantees and enforcement of all guarantees, decrees.

6. Now the question arises whether the petitioner was bound by the arbitration clause of the contract conclude between the Victor Cables and the respondent no.1 vide letter dated 21st November, 1978 whereby victor Cables Corporation acknowledged the receipt of the purchase order and duly signed on each page of the agreement in token of acceptance of the same.

7. The contention of the learned counsel for the petitioner is that clause for arbitration in a contract between Victor Cables and the respondent no.1 does not bind the pet itinere firstly because the petitioner was not party to the arbitration clause and secondly that the obligations for breach of contract are not assignable even under law. It is further contended that mere retaining the name for the purpose of goodwill does not bind the petitioner in respect of the contract to which the petitioner is not a party.

8. While canvassing the above proposition of law the learned counsel placed reliance upon, Khardah Company Ltd. vs. Raymon & Co. (Private) Ltd., wherein the Supreme Court took the view that there is in law a clear distinction between assignment of rights under a contact by a party who has performed his obligations there under and assignment of claim for compensation which one party has against the other fro breach of contract. It was further observed that 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. Thus the rights conferred on the sellers under the contract to resell and so forth against the buyer on the latter refusing to accept the documents and thus committing breach of the contract are incapable of assignment does not stand in the way of the sellers assigning their rights to receive the price after they had performed their obligations.

9. Reference was also made to 1946(2) All E.R. 54, Shayler vs. Woolf, wherein it was held that an arbitration clause does not take away the right of a party to a contract to assign it if it is otherwise assignable.

10. Another case relied upon by the learned counsel for the petitioner is , Jawahar Lal Barman Vs. T he Union of India, wherein scope of Section 2(b), 7 and 10 of the Contract Act was considered. The facts were that in response to the advertisement published by the respondents the appellant submitted a tender for the supply of the required quantity of coconut oil. According to one of the conditions of contract to which the tender was subject, the failure on the part of the contractor to make the required security deposit constituted a breach of the contract itself and therefore the security deposit was a condition subsequent and not a condition precedent. The letter of acceptance however stated hat the offer was accepted subject to your depositing 10 per cent as security but in the last paragraph it was stated that the contract was concluded by the acceptances and a formal acceptance of Tender will follow immediately on receipt of Treasury Receipt.

11. In view of these facts it was held that the acceptance of the offer must be absolute and unqualified, it cannot be, conditional. However the ratio of its authority is being used by the learned counsel for the petitioner in respect of a letter dated 17th November, 1978 sent by the Victor Cables while making the offer wherein they clearly stated hat there will be no clause for arbitration and merely because at the time of acceptance of the offer a clause for arbitration was added by the opposite party does not mean that the Victor Cables Corporation also bound itself to this clause.

12. I am afraid this argument does not cut ice as it is the final document of contract duly signed by both the parties which takes effect and not the intention of one of the parties at the stage of negotiations of the contract that it does not agree to arbitration clause. Any kind of offers or counter offers by the parties at pre-conclusion stage become irrelevant once the contracted is concluded and reduced into writing an is duly singed by both the parties. The letter dated 17th November, 1978 was sent by the Victor Cables clearly stating that all the terms contained in the agreement were acceptable to it and this included a clause for arbitration also.

13. As t the proposition of law whether the arbitration clause contained in a contract is assignable or not in case the concluded contract is owned by the prospective party it is settled that any contract which contains an arbitration clause has two separate independent entities namely the arbitration agreement itself and the main terms and conditions of the contract.

14. Merely because the petitioner had agreed at the time of purchase of the factory that all contracts of Victor Cables and all benefits arising there from and liabilities there under in all or any form shall be of the petitioner does not mean that he had also agreed to the clause for arbitration. It only meant t hat he owned the obligations of discharging the main contract. However the learned counsel for the respondent does not agree to this interpretation and contends that the petitioner at the time of purchase of the factory while owning the liabilities of the firm for performing all the contracts of Victor Cables did not clarify or specify that the arbitration clause of the agreement would not be applicable. It is contended that at the time of the purchase of the factory the petitioner was at liberty to specifically state that it will only own the liability of performing the concluded contracts and not the other terms of the contract. It is further contended that the arbitration clause is a par t of the contract and is not segregable from the main contract.

15. Clause of arbitration by no stretch of imagination can come within the ambit of owning the liabilities of the predecessor-in-interest. Such a clause is personal to the parties. It is merely an agreement for setting the disputes between the parties to the agreement by way of arbitration. The contract always relates to the main offer and acceptance. Owning of liabilities is confined to the liability of performance of the contract so far sale and purchase of the goods are concerned.

16. In Khardah Company Ltd. case (supra) almost a similar proposition of law cropped up for consideration before the Supreme Court. A pleas was taken that the agreement or contract for sale and purchase of the goods is personal in its character and is therefore not assignable. It was held that there can be nothing personal about such a contract as it is of no consequence to the buyer as to who delivered the goods. What is important to him is the goods delivered should be delivered and be in accordance with the specifications of the contract.

17. So far as the arbitration clause is concerned it was held that this contract is personal in its character and incapable of assignment on that ground. However it is a settled law that an arbitration clause does not take away the right of a party of a contract to assign it if it is otherwise assignable.

18. While distinguishing between two clauses of assignment the Supreme Court observed that a right of obligations under a contract cannot be assigned except with the consent of the promisee, and when such consent is given, it is really a novation resulting in substitution of liabilities In other words, rights sunder a contract are assignable unless the contract is personal in its nature or the rights are incapable of assignment either under the law or under an agreement between the parties.

19. As observed above the petitioner had the liability to perform all contracts of Victor Cables and all benefits arising there from and liabilities there under in all or in any form. It does not mean that he had also the obligation to get the dispute settled by way of arbitration as ag reed by Victor Cables. These are two different and distinguished liabilities. The former is assignable where the latter is not. Thus the undertaking by the petitioner that "all contracts of Victor Cables corporation and all benefits arising thereform and liabilities there under in all or in any form shall be of the petitioner" was in the form of discharging all the liabilities of the Victor Cables and there was nothing personal about such contracts whereas clause of arbitration was personal in tits character and was even otherwise incapable of assignment.

20. In view of the foregoing reasons the unilateral reference f the alleged disputes to the respondent No.2 and unilateral appointment of respondent No.2 as arbitrator are hereby held illegal and inoperative and set aside. Petition is allowed.