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Hindustan Steel Works Construction Ltd. Vs. Bharat Spun Pipe Co. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberAward Case No. 159 of 1973
Judge
Reported inAIR1975Cal8
ActsArbitration Act, 1940 - Section 34; ;Contract Act, 1872 - Section 37
AppellantHindustan Steel Works Construction Ltd.
RespondentBharat Spun Pipe Co.
DispositionApplication dismissed
Cases ReferredLotus Oil Co. v. Calcutta Soap Works
Excerpt:
- .....which would prevent that from taking place. the consequence is that, in my opinion, this was a contract assignable by mrs. peacock and as it was assigned by her in her conveyance to the present plaintiff, the benefit of the contract is now vested in nun and he is entitled to sue on it.'lord justice morton in the aforesaid judgment at page 323 had occasion to deal with the observations of wright. j., in the case of (1928) 2 kb 463 (supra) and observed that the learned judge was dealing with the facts in the case before him and did not intend to lay down the general proposition. the supreme court in india had occasion to deal with the question in the case of khardah co. ltd. v. raymon and co. (india) pvt. ltd., air 1962 sc 1810where the supreme court observed that an assignment of.....
Judgment:
ORDER

Sabyasachi Mukharji, J.

1. This is an application for setting aside of an award dated the 28th March, 1973. In order to appreciate the point urged in this application the facts that need be referred to briefly are that there was an agreement in writing between Hindustan Steel Works Construction Ltd., the petitioner herein and M/s. Bharat Spun Pipe Company. The said contract was executed on the 7th October, 1967. One Shrigopal Modi was the sole proprietor of Bharat Spun Pipe Company at that time. Thereafter, sometime in 1968 the said Messrs. Bharat Spun Pipe Company was transformed into a partnership firm and some persons were taken in as partners. At the hearing of this application a deed of partnership dated the 2nd of November, 1967, was produced before me whereunder this partnership was formed in respect of the said contract with the Hindustan Steel Works Construction Ltd. and the work carried thereunder. According to the petitioner the petitioner was not aware of this transformation of the composition of Messrs. Bharat Spun Pipe Company. According to the respondent, however, the petitioner was duly informed by a letter and the petitioner continued to have transactions with Messrs. Bharat Spun Pipe Company and made payment to the said company after it had been changed into the said partnership firm as mentioned hereinbefore. Thereafter, disputes and differences having arisen between the parties about payment in respect of the said contract, there was a reference to arbitration in accordance with the arbitration clause contained in the said contract. Two arbitrators were nominated by the parties and they have nominated an umpire. Before the arbitrators statement and counter statement of facts were duly filed. The statement of fact on behalf of the claimant Messrs. Bharat Spun Pipe Company was filed by the partnership firm and Shrigopal Modi was acting for the said firm. Originally in the counter statement of fact no point had been taken regarding the change of this partnership firm. It appears that thereafter during the course of hearing at the time of evidence of Shrigopal Modi an application for amendment of the counter statement of fact was filed by the petitioner and the same was allowed by the arbitrators. Thereafter, upon hearing the parties the arbitrators have made an order awarding a sum of Rs. 89,842.42 P. in full settlement of the claim of the respondent and also directing that the petitioner should refund the security deposit of Rs. 48,017/- to the respondent. This award as mentioned hereinbefore has been challenged before me.

2. In the petition two grounds were taken. It was urged, firstly, that the arbitrators had given no reasons for their award. This ground was. rightly, not pressed by counsel for the petitioner. It was, secondly, urged that the reference to arbitration was by a party with whom the petitioner did not have any agreement containing any arbitration clause and the award in favour of Messrs. Bharat Spun Pipe Company which was a partnership firm was invalid and illegal as the petitioner never had entered into any agreement containing any arbitration clause with the said partnership firm. It was urged that the petitioner had transactions with Shrigopal Modi who is the sole proprietor and carrying on business under the name and style of Bharat Spun Pipe Company and the partnership firm was not entitled to enforce the award in respect of the arbitration agreement between Shrigopal Modi and Hindustan Steel Works Construction Ltd. The award was, therefore, without jurisdiction and null and void.

3. The main point upon which this attack is based is that there could not have been any assignment in law of any arbitration clause and as such the reference to arbitration by the subsequent partnership firm was wholly without jurisdiction and illegal. It was, secondly, urged that in fact there was no assignment of the arbitration agreement. The question, is. whether a clause which contained an arbitration agreement could be the subject-matter of an assignment. Counsel for the petitioner strongly relied on the observations of Wright, J., as the learned Judge then was in the case of Cottage Club Estates, Ltd. v. Woodside Estates Co. (Amersham), Ltd., (1928) 2 KB 463. At page 466 of the report the learned Judge observed as follows:

'The arbitration clause is a personal covenant and cannot be transferred; nor indeed was it transferred in any sense in this case.'

Mainly relying upon these observations Counsel urged that the arbitration clause could not be the subject-matter of assignment as it involved personal confidence and mutual trust. Therefore, without the consent and concurrence of the petitioner which, it was urged, were not present in this case, there could not have been any assignment or transfer of the arbitration agreement. Therefore, the partnership firm had no arbitration agreement subsisting with the petitioner company. Reliance was placed also on the decision in the case of M. R. Desa v. Girdharilal Ghanshamdas, AIR 1932 Sind 128 where it was held that power given by a submission clause in a contract being a personal covenant, could not be validly transferred. Reliance was placed on the aforesaid decision of (1928) 2 KB 463 (supra) in coming to the aforesaid conclusion. This question, however, was examined by the Court of Appeal in England in the case of Shayler v. Woolf. (1946) 1 Ch D 320. In that case the defendant sold to the plaintiff's predecessor in title a piece of land for the erection of a bungalow and covenanted to supply water to the bungalow by means of an existing pump on adjoining land of the defendant and to maintain the pump in repair. This covenant was expressed to bind the defendant's successors in title but no mention was made of the purchaser's assigns. The contract provided for the submission of any disputes to arbitration. The pump having fallen into disrepair, the defendant sank a new shaft on her land but did not connect the new supply to the bungalow. The original purchaser having sold the bungalow to the plaintiff with the benefit of the defendant's covenant to supply water, the plaintiff demanded a water supply which the defendant refused to give. It was held by the Court of Appeal affirming Roxburgh, J., that the benefit of the covenant was assignable and that the existence of arbitration clause did not render it unassignable. It was argued before the Court of Appeal that the contract could not be assigned because of the ex-istence of the arbitration clause, inasmuch as such a clause was in its nature not assignable or. it was said, was only assignable where the assigns were expressly mentioned in the clause itself or the contract which contained the arbitration clause was itself expressly declared to be assignable. Lord Greene, M. R. observed that these propositions were incapable of support and further went on to say that the question whether an arbitration clause prevented a contract from being assignable should depend on the intention of the parties and the nature of the contract would, of course, be very important. It was observed, further, that quite apart from an arbitration clause, if the mature of the contract was one which made it incapable of assignment owing to its personal nature, there was no question of the assignability of the arbitration clause but an arbitration clause was assignable and it was contemplated according to the learned Master of Rolls by Section 4 of the Arbitration Act. 1889. It was noted that this was also held by the Court in the case of Aspell v. Seymour. 1929 WN 152. It was further observed by the court at page 323 of the report,

'As I said, from this arbitration clause, the agreement in this case is, in my opinion, clearly assignable and it seems to me that the result of that must necessarily be that the arbitration clause follows the assignment of the subject-matter of the contract. There is nothing, I conceive, in principle or authority which would prevent that from taking place. The consequence is that, in my opinion, this was a contract assignable by Mrs. Peacock and as it was assigned by her in her conveyance to the present plaintiff, the benefit of the contract is now vested in nun and he is entitled to sue on it.'

Lord Justice Morton in the aforesaid judgment at page 323 had occasion to deal with the observations of Wright. J., in the case of (1928) 2 KB 463 (supra) and observed that the learned Judge was dealing with the facts in the case before him and did not intend to lay down the general proposition. The Supreme Court in India had occasion to deal with the question in the case of Khardah Co. Ltd. v. Raymon and Co. (India) Pvt. Ltd., AIR 1962 SC 1810where the Supreme Court observed that an assignment of contract might result by transfer either of the rights or of the obligations thereunder, and there is a well recognised distinction between these two classes of assignments. As a rule obligations under a contract could not be assigned except with the consent of the promisee and when such a consent was given, it is really a novation resulting in substitution of liabilities. On the other hand, rights under a contract were assignable unless the contract was personal in its nature or the rights were incapable of assignment either under the law or under the agreement between the paties. An arbitration clause did not take away the right of a Party to a contract to assign ft when it was assignable and reliance was placed on the decision in the case of (1946) 1 Ch D 320 (supra). The Supreme Court further observed that there was a clear, distinction between assignment of Eights under a contract by a party who had performed his obligations thereunder and assignment of a claim for compensation which one party has against the other for breach of contract The latter was a mere claim for damages which could not be assigned in law, the former was a benefit under an agreement, which was capable of assignment. The fact therefore, that the lights 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 con-tract were, incapable of assignment did not stand in the way of the sellers assigning their rights to receive the price after they had performed their obligations. In this context dealing with the question of assignability the Supreme Court observed at page 1818 of the report as follows:

'The appellants sought, in the first Instance, to establish on, the basis of Clauses 12 and 14 that the agreement is personal in its character, and is therefore not assignable. Now the contract in question is one for the sale of goods, and ordinarily there can be nothing personal about it. It is of no consequence to the buyer as to who delivers the goods. What matters to him is that the goods delivered should be in accordance with the specifications. But it is argued that the status of the parties was a determinative factor in the making of the agreement, and that is sought to be deduced from Clause 12 of the contract. That clause provides that if either or both the parties to the contract are members of the Indian Jute Mills Association and if either of them is placed in the disapproved list of the, Association then the contract shall be deemed to have been broken by that party. That shows, it is said, that the contract was entered into on the faith of the status of the parties as members of the Jute Mills Association. But it is clear from the wording of the clause that the parties to the contract need not necessarily be members of the Association and that being so, the element of status does not enter into it. Clause 14, which is the arbitration clause, is also relied on as an indication that the contract is personal in its character and incapable of assignment on that ground. But it is settled law that an arbitration clause does not take away the right of a party to a contract to assign It if it is otherwise assignable. Vide Shayler v. Woolf. 1946-2 All ER 54 and Russel on Arbitration. 16th Edition, p. 65'

4. Therefore, from the observations of the courts both of England and in this country. It appears to me, that the correct position in law seems to be that whether the contract is assignable or not depends upon the nature of the con-tract. A contract in the nature of a personal covenant cannot be assigned. Secondly, the rights under a contract can be assigned, but the obligations under a contract lawfully cannot be assigned. Thirdly, the intention about assignability would depend upon, the terms and the language used in a contract. Fourthly, and this is important for our purpose, existence of an arbitration clause per se does make neither the contract non-assignable or assignable. But in a particular case the arbitration clause may be so worded as to afford an Indication about the contract being personal or not. But apart from that the existence of arbitration clause does not in my opinion, affect either the rights or the assignability of the contract if it is otherwise assignable. This is the position as a result of the principles of the different judicial authorities before the Appeal Court in Eng-land and the Supreme Court la India. This again, in my opinion, is corroborated by Section 34 of the Arbitration Act. 1940 which is in pari materia with Section 4 of the Arbitration Act 1950 of England so far as relevant from this aspect of the matter and which re-enacts part of Section 4 of the Act of 1889 upon which Master of the Rolls Lord Creene M. R. relied In the case of (1946) 2 All ER 54 (supra).

On this aspect it may be appropriate to refer to the statement of law as stated by the learned editor of Russel on Arbitration, 18th Edition at page 143.

'3. Person claiming through or under a party.

Assignee of contract.

An arbitration clause will bind a valid assignee of a contract containing it, and the presence of an arbitration clause will not normally cause a court to hold that a contract is not assignable.'

Looking at the contract containing arbitration clause in this case it appears to me that the contract was not personal. It was for performance and for supply of some materials. It was an agreement between the buyer and seller. There is nothing in the facts of the case or on the terms of the contract or to the arbitration clause, which make it necessary to hold that it was upon personal qualification or quality of Shrigopal Modi that the Hindustan Steel Works Construction Ltd. was induced to enter into this transaction.

Furthermore, the arbitration clause in its nature also does not in my opinion contain any special clause which indicated any personal nature of the covenant. In the aforesaid view of the matter this is not a contract which by the nature of the contract or by the terms of the contract could not be said to be one which is not assignable and. the existence of the arbitration clause itself or its term also do not indicate any contrary intention. There was, therefore, nothing in law which prevented effectual assignment of this contract.

5. There is a second aspect of the matter as I mentioned before and that is the argument that in fact there was no assignment. As mentioned in the deed of partnership dated the 2nd of November, 1967, produced before me, the deed, read as a whole, in my opinion clearly establishes the rights under the contract and the right to perform and to get the money under the contract entered into between Bharat Spun Pipe Company and Hindustan Steel Works Construction Ltd. was in fact assigned to the partnership firm.

6. There is another aspect of the matter that this contract, as I have indicated before, was not so much with Shri-gopal Modi and Hindustan Steel Works Construction Ltd. The contract was with Messrs. Bharat Spun Pipe Company and Hindustan Steel Works Construction Ltd. The fact that the composition of Bharat Spun Pipe Company has changed may be relevant factor in execution of the decree that may be passed in favour of Messrs Bharat Spun Pipe Company but that is not a factor which makes an award passed in favour of Messrs. Bharat Spun Pipe Company void or without iurisdic-tion.

7. It was contended before me on behalf of the respondent that in any event there has been a waiver by the petitioner and it has accepted the assignment and secondly having taken part in the arbitration proceedings, the petitioner was estopped. As against this it was urged that where a transaction on award was void or reference was void, there could not be a waiver. In this connection reliance was placed on the decisions in the case of Deep Narain Singh v. Dhaneswari, : AIR1960Pat201 ; in the case of Kanakarathanammal v. V. S. Loganatha Mudaliar, : [1964]6SCR1 in the case of Nath-mull Tolaram v. Killa & Co., : AIR1961Cal65 : in the case of Harack Chand Da-mani v. Ramsarup Lakkar. (1950) 85 Cal LJ 232 and in the case of Lotus Oil Co. v. Calcutta Soap Works, : AIR1962Cal441 and Russell on Arbitration, 18th Edition 56. But in the view I have taken it is not necessary for me to go into this aspect of the matter.

8. In the aforesaid view of the matter this application fails and is accordingly dismissed. In the facts and circumstances of the case each party will pay and bear his own costs. Interim order, if any, is vacated. Operation of this order is stayed for a fortnight.


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