Arbitration agreement travels with assignment where assignee steps into original lender's shoes and borrower acts upon it: Bombay high court

Arbitration agreements remain valid through assignments, allowing assignees to assume the original lender's role, as confirmed by the Bombay High Court.

Kotak Mahindra Bank Ltd. v. Sitaram Energy and Logistics Ltd. Citation: (2026) ibclaw.in 4019 HC Court: High Court of Bombay Case No.: Comm Arbitration Petition (L) No. 5535 of 2025 with Comm Arbitration Petition (L) No. 5944 of 2025 Decided on: 23-Jul-26 Coram: Mr. Justice Amit Borkar

The Bombay High Court has held that where a loan agreement expressly permits assignment and the assignee is vested with all rights and remedies of the original lender, and the borrower thereafter continues to deal with the assignee and act upon the assigned agreement, the arbitration agreement contained in the loan agreement travels along with the assignment, even without a separate arbitration agreement being executed between the assignee and the borrower.

A Single Bench of Justice Amit Borkar was dealing with two Section 9 petitions filed by Kotak Mahindra Bank Ltd., as assignee of a loan agreement originally executed between Family Credit Limited and the respondent, seeking interim protective measures pending arbitration. The loan rights and the underlying hypothecation had been assigned to the petitioner through a Deed of Assignment, and the respondent was informed of the assignment, after which it continued making payments to the petitioner.

The respondent contested the petitioner's locus to invoke arbitration, arguing that the Deed of Assignment transferred only the monetary receivables and the right to institute recovery proceedings, and did not expressly transfer the arbitration clause, relying on Section 7(5) of the Arbitration and Conciliation Act, 1996, M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited, and Vishranti CHSL v. Tattva Mittal Corporation Private Limited.

The Court held that the Loan Agreement itself contemplated assignment and defined "Borrower" and "Lender" to include successors and assigns, while the Deed of Assignment vested the petitioner with all rights and duties of the assignor, entitling it to recover dues and institute proceedings in its own name and right. Distinguishing Vishranti CHSL and relying on its earlier decisions in Siemens Factoring Private Limited v. Future Enterprises Private Limited and DLF Power Limited v. Mangalore Refinery & Petrochemicals Limited, the Court held that where the assignee is intended to occupy the same position as the original contracting party and the other party accepts and acts upon the assignment, the arbitration agreement accompanies the remaining rights without requiring separate execution. It found that the respondent's continued payments to the petitioner after being informed of the assignment amounted to acceptance of the petitioner stepping into the shoes of the original lender.

On the merits of the interim reliefs, the Court noted that the respondent had admitted outstanding liability in its Annual Reports, had filed an incomplete initial affidavit of disclosure despite directions, and that subsequent financial statements showed reduction in bank balances and receivables alongside increased investment in subsidiary companies, without explanation. Holding that these circumstances, taken cumulatively, warranted protective measures, the Court restrained the respondents from dealing with the hypothecated assets, directed a fresh and complete affidavit of disclosure, directed furnishing of a bank guarantee equivalent to the admitted liability, directed ONGC not to release security deposits or terminal payments without prior notice to the petitioner, and appointed the Court Receiver to take symbolic possession and prepare an inventory.

The Court declined the prayers for freezing all bank accounts, a blanket garnishee order, and appointment of a Receiver with actual physical possession, holding that such drastic reliefs were not justified on the material available. The petitions were accordingly partly allowed, with the Court clarifying that its findings were prima facie in nature.