“Supreme Court Orders Arbitration in Cryobank USA Asset Dispute, Leaves Assignability and Contractual Rights for Arbitrator’s Determination”

Court’s Decision

The Supreme Court, under Section 11 of the Arbitration and Conciliation Act, 1996, determined that the existence of an arbitration agreement is not in dispute. Thus, the Court referred the case to the Delhi International Arbitration Centre to appoint a sole arbitrator to adjudicate the dispute between the petitioner and respondents.

Facts

The petitioner, a U.S.-based company, invoked arbitration for disputes arising from two agreements: an Exclusive and Perpetual License Agreement and a Share Subscription and Shareholders Agreement. The petitioner acquired all assets of Cryobank USA at a public auction, asserting that they had stepped into Cryobank USA’s contractual position. However, the respondents contested this claim, arguing that the petitioner could not assume Cryobank USA’s position without their consent, rendering the agreements non-assignable.

Issues

The primary issue is whether the petitioner, by acquiring Cryobank USA’s assets, has effectively assumed its contractual rights and obligations under the License and Share Subscription agreements. Additionally, there is a question of whether the agreements are indeed assignable without explicit consent from the respondents.

Petitioner’s Arguments

The petitioner argued that it acquired the rights under Cryobank USA’s contracts, including intellectual property rights, and that the respondents recognized this in their correspondences. This acquisition, the petitioner argued, granted them standing to demand arbitration under the agreements’ arbitration clauses.

Respondent’s Arguments

The respondents argued that the agreements were non-assignable, as they did not consent to the petitioner as Cryobank USA’s assignee. Thus, they asserted no contractual relationship existed between them and the petitioner, rendering the petition for arbitration invalid.

Analysis of the Law

The Court examined Section 11(6-A) of the Arbitration and Conciliation Act, 1996, which limits judicial inquiry to the existence of an arbitration agreement when appointing an arbitrator. The Court also referenced the distinction between assignable rights and obligations, as discussed in Khardah Company Ltd. v. Raymon & Co (India) Pvt. Ltd. (AIR 1962 SC 1810), noting that obligations typically require consent from the promisee to be assigned.

Precedent Analysis

The Court cited Khardah Company Ltd. and DLF Power Ltd. v. Mangalore Refinery & Petrochemicals Ltd. (2016 SCC OnLine Bom 5069), which held that arbitration agreements can be assigned with the main contract unless restricted by law or agreement. These precedents support the notion that arbitration clauses may be transferred if the underlying rights are assignable.

Court’s Reasoning

The Court reasoned that since the existence of an arbitration agreement is acknowledged in both the License and Share Subscription agreements, the question of assignability should be left to the arbitrator. The Court emphasized that it would not assess the merits of the contractual rights or assignment at this stage, as such issues would require evidence and analysis suited to arbitration.

Conclusion

The Supreme Court referred the matter to the Delhi International Arbitration Centre to appoint a sole arbitrator. The Court clarified that it had not made any judgment on the substantive issues of assignment or arbitrability, leaving all arguments open for consideration by the arbitrator.

Implications

This decision underscores the Court’s limited role in arbitration-related petitions under Section 11(6-A) of the Arbitration Act, focusing solely on the existence of an arbitration agreement and leaving questions of arbitrability to the arbitrator. The ruling reiterates the principle that assignment of contracts, especially those with arbitration clauses, may require consent, and parties should carefully consider the contractual terms regarding assignment.

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