Dispute over Assignment Agreement involving Non-Signatory Entity to be Resolved through Arbitration
In a significant development, the Calcutta High Court has appointed former Chief Justice T.S. Sivagnanam as the arbitrator to adjudicate the disputes arising from an assignment agreement between SREI Infrastructure Finance Limited (SIFL), SREI Equipment Finance Limited (SEFL), and Orissa Steel Expressway Private Limited. The decision comes amid complex legal contentions surrounding the involvement of a non-signatory entity, SEFL, in the arbitration process.
The case stems from a long-standing financial arrangement initiated in October 2016, where Orissa Steel Expressway Private Limited sought financial assistance from SIFL. The loan agreement led to several advances totaling Rs. 150 crores. When disputes arose due to the foreclosure of a construction contract by the National Highway Authority of India (NHAI), resulting in arbitration proceedings between NHAI and Orissa Steel Expressway, the respondent defaulted on payments to SIFL. Consequently, an assignment agreement was executed, assigning the receivables from the arbitral award to SIFL.
SEFL, a non-signatory to the original assignment agreement, invoked the arbitration clause, claiming rights under a business transfer agreement and a resolution plan approved by the National Company Law Tribunal (NCLT). The petitioners argued that SEFL should be considered the lender for all purposes due to these arrangements.
The court examined the applicability of the Arbitration and Conciliation Act, 1996, particularly Sections 11 and 16, which outline the appointment of arbitrators and the Kompetenz-Kompetenz principle. The court acknowledged the prima facie connection of SEFL to the underlying contract through the business transfer agreement and the NCLT-approved resolution plan, allowing SEFL to invoke the arbitration agreement.
The respondent, represented by Mr. Rohit Das, argued against SEFL's involvement, citing the lack of sanction for the business transfer agreement in the resolution plan and ongoing proceedings under Section 66 of the Insolvency and Bankruptcy Code (IBC). The court, however, found that the issues of jurisdiction, non-signatory involvement, and arbitrability are best decided by the arbitrator, emphasizing that Section 66 of IBC pertains to fraudulent transactions and requires evidence to determine arbitrability.
Justice Shampa Sarkar, presiding over the matter, clarified that the arbitral tribunal has the jurisdiction to decide preliminary issues, including the joinder of non-signatory parties and the validity of arbitration agreements, applying the Group of Companies Doctrine. The court dismissed the respondent's contention that proceedings under Section 66 of the IBC should take precedence over arbitration, asserting that matters of fraudulent transactions and evidence should be weighed by the arbitrator.
The appointment of Justice T.S. Sivagnanam as arbitrator marks a pivotal step in resolving the disputes, with the arbitrator tasked with determining all jurisdictional and substantive issues, including the alleged fraudulent nature of transactions and the supremacy of IBC over arbitration proceedings.
Bottom line:-
Arbitration proceedings - A non-signatory party can invoke an arbitration agreement if connected to the underlying contract through a business transfer agreement or a resolution plan approved by the National Company Law Tribunal (NCLT).
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 11, 16; Insolvency and Bankruptcy Code, 2016 Section 66
