In a recent ruling, the Calcutta High Court clarified that an entity resulting from a merger can invoke the arbitration clause from a pre-merger agreement if all rights and liabilities have been legally transferred. The decision came from a single-judge bench led by Justice Shampa Sarkar in the case Tata Capital Limited vs Krishna Kant Tiwari, underlining the legal recognition of successors in arbitration matters post-merger.
The case involved Tata Capital Limited, a non-banking finance company. Following an order from the National Company Law Tribunal (NCLT), Mumbai, Tata Capital Financial Services Limited and Tata Cleantech Capital Limited were merged into Tata Capital Limited, effective from January 1, 2024. With this merger, all assets, properties, contractual rights, liabilities, obligations, and benefits of the two companies were officially transferred to Tata Capital Limited.
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The matter before the court arose after Tata Capital Financial Services Limited had sanctioned a business loan to Krishna Kant Tiwari (respondent). However, after the merger, the rights and obligations under this agreement transferred to Tata Capital Limited. When the respondent defaulted on the repayment, a recall notice demanding the final settlement of dues linked to the loan, originally sanctioned on June 24, 2023, was sent on August 12, 2024.
“The intention of the parties to be bound by an arbitration agreement can be gauged from the circumstances that surround the participation of the non-signatory party in the negotiation, performance, and termination of the underlying contract containing such agreement.”
As per the agreement terms, any dispute arising out of the loan contract was to be resolved through arbitration, with Kolkata as the designated venue. Accordingly, Tata Capital Limited issued an arbitration notice to the respondent on November 7, 2024, which the respondent acknowledged but failed to respond to.
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The court emphasized that the agreement's wording covered successors, heirs, and assigns, and the successor company had rightfully stepped into the shoes of the original lender. The court also pointed out that the arbitration clause remains enforceable even if the invoking party is not the original signatory, as long as it has acquired the rights through a lawful merger.
Quoting the Supreme Court’s ruling in Ajay Madhusudan Patel v. Jyotrindra S. Patel (2025), the High Court highlighted:
The Supreme Court had also observed that if a non-signatory entity actively participates in the contract's performance or assumes obligations, its rights to invoke the arbitration clause are recognized. The court further cited the Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc. (2013) case, which affirmed that non-signatory parties could invoke arbitration provided they claim “through” or “under” a signatory, as permitted under Section 45 of the Arbitration and Conciliation Act, 1996.
Justice Sarkar also referred to the ruling in Cox & Kings Ltd. v. SAP (India) Pvt. Ltd. (2025), which clarified the legal standing for non-signatory parties in arbitration:
“In case of joinder of non-signatory parties to an arbitration agreement, the referral court is required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory is a veritable party to the arbitration agreement.”
The judgment reinforced the principle that in a merger, the successor entity becomes entitled to enforce and be bound by the obligations of the merged entities, including arbitration agreements.
Finally, the court appointed Mr. Nayan Chand Bihani, Senior Advocate, as the sole Arbitrator to resolve the dispute. The Arbitrator will proceed according to the provisions of the Arbitration and Conciliation Act, 1996, and will have the liberty to decide his fee under the Act.
The matter was accordingly disposed of by the court.
Case Title: TATA CAPITAL LIMITED VS KRISHNA KANT TIWARI
Case Number: AP-COM/1035/2024
Judgment Date: 07/04/2025
