Case Note & Summary
The petitioner, DLF Power Limited (now Eastern India Powertech Limited), filed a petition under Section 37 of the Arbitration and Conciliation Act, 1996, challenging an order dated 2nd February 2011 passed by the arbitral tribunal. The tribunal had accepted the respondent Mangalore Refinery & Petrochemicals Limited's plea under Section 16 of the Act and dismissed the arbitral proceedings for lack of jurisdiction. The dispute arose from two contracts signed on 16th April 1997 and 30th April 1997 between DLF Industries Limited (DIL) and the respondent for the engineering, supply, civil works, erection, and commissioning of a power plant. DIL commissioned four units of the power plant between May 1999 and April 2000. On 19th October 1999, the High Court of Delhi and Punjab & Haryana High Court approved a scheme of merger by which the Energy System Business of DIL was transferred to the petitioner. The petitioner claimed that it was entitled to enforce the arbitration agreement contained in the original contracts. The respondent contended that the original contracts were novated by subsequent contracts entered into between the parties, and that the arbitration agreement was not assigned to the petitioner. The arbitral tribunal upheld the respondent's plea, holding that the original contracts were superseded by novation and that the petitioner could not invoke the arbitration clause. The High Court, after considering the submissions, upheld the tribunal's decision, holding that the subsequent contracts amounted to novation under Section 62 of the Indian Contract Act, 1872, and that the arbitration agreement did not automatically pass to the petitioner by virtue of the merger. The court dismissed the petition, leaving the parties to pursue other legal remedies for resolution of their disputes.
Headnote
A) Arbitration Law - Jurisdiction of Arbitral Tribunal - Section 16 of the Arbitration and Conciliation Act, 1996 - The arbitral tribunal accepted the respondent's plea that it lacked jurisdiction as the petitioner, being a successor by merger, did not have the benefit of the arbitration agreement contained in the original contracts, which were novated by subsequent agreements. The court upheld the tribunal's decision, holding that the arbitration agreement did not automatically assign to the petitioner and that the original contracts were superseded by novation. (Paras 1-37) B) Contract Law - Novation of Contract - Section 62 of the Indian Contract Act, 1872 - The court considered whether the subsequent contracts entered into between the parties amounted to novation, thereby extinguishing the original contracts and the arbitration clause therein. The court held that the subsequent contracts were intended to replace the original contracts, and thus the arbitration clause in the original contracts was not available to the petitioner. (Paras 20-30) C) Company Law - Merger and Assignment of Arbitration Agreement - The court examined whether the arbitration agreement in the original contracts was assigned to the petitioner by virtue of the scheme of merger approved by the High Court. The court held that the arbitration agreement is a personal covenant and does not automatically pass to the transferee company unless specifically assigned. (Paras 15-19)
Issue of Consideration
Whether the arbitral tribunal correctly held that it lacked jurisdiction to entertain the claims of the petitioner due to the non-assignment of the arbitration agreement and the novation of the original contracts.
Final Decision
The High Court dismissed the petition, upholding the arbitral tribunal's order that it lacked jurisdiction. The parties were left to pursue other legal remedies for resolution of their disputes.
Law Points
- Section 37 of the Arbitration and Conciliation Act
- 1996
- Section 16 of the Arbitration and Conciliation Act
- Jurisdiction of arbitral tribunal
- Scheme of merger
- Assignment of contract
- Novation of contract
