Court Has To Confine Itself To Examination Of Existence Of Arbitration Agreement While Considering Prayer U/S 11(6) of A&C Act: Supreme Court

The petitioner, a company duly incorporated under the laws of the United States of America had invoked the jurisdiction of the Apex Court under sub-sections (6) and (12) of Section 11 for appointment of a sole arbitrator in terms of arbitration clause stipulated in the agreements to adjudicate upon the disputes between the petitioner and the respondents.

The Division Bench of Chief Justice D Y Chandrachud & Justice Manoj Misra asserted, “ Be that as it may, since at the stage of consideration of a prayer under Section 11(6) of the 1996 Act the Court has to confine itself to the examination of the existence of an arbitration agreement (vide sub-section (6-A) of Section 11), it would not be appropriate for us to delve deep into the issue as it could well be considered by the arbitrator on the basis of evidence led by the parties.”

AOR Astha Prasad represented the Petitioner while Senior Advocate Amit Sibal represented the Respondent.

It was the petitioner’s case that it had purchased the assets of Cryobank International at a public auction in pursuance of a decree passed by the Circuit Court of Florida, USA. Following which, a certificate of title was issued in its favor certifying purchase of all assets, tangible and intangible, of Cryobank USA by it.

The dispute between the petitioner and the respondents stemmed from Exclusive and Perpetual License Agreement and Share Subscription and Shareholders Agreement. License agreement is between Cryobanks USA and Cryobanks India International Pvt. Ltd whereas Share Subscription Agreement is between RJ Corp (respondent no.2) acting on behalf of itself andits shareholders. Both the agreements contained the clause stating that the disputes are referable to a sole arbitrator subject to the jurisdiction of courts at Delhi.

It was the petitioner’s case that under the license agreement, the respondents were entitled to use Cryobank’s intellectual property rights in lieu of consideration which included issue of shares in the respondent company. The fact that the petitioner stepped into the shoes of Cryobank USA was acknowledged by the respondent Company. However, since petitioner’s demand was not met, arbitration clause had to be invoked.

On the contrary, the respondent contended that the license agreement was non-assignable, and the respondents had not accepted thepetitioner as the assignee. There was therefore, no privity of Contract.

In this matter, existence of an arbitration agreement wasn’t the issue. The issue was that the agreement was not between the petitioner and the respondent company but between Cryobank USA and the respondents.

The Bench placed reliance upon its judgment in Khardah Company Ltd. v. Raymon & Co (India) Pvt. Ltd., AIR 1962 SC 1810 wherein it was held that an assignment of a contract might result by transfer either of the rights or of the obligations thereunder. It was also explained therein that the obligations under a contract cannot be assigned exceptwith the consent of the promisee, and when such consent is given, it is really a novation resulting in substitution of liabilities. On the other hand, the rights under a contract are assignable unless the contract is personal in its nature, or the rights are incapable of assignment either under the law or under an agreement between the partie

The Bench referred to the judgment of the Bombay High Court in DLF Power Ltd. v. Mangalore Refinery & Petrochemicals Ltd.,2016 SCC OnLine Bom 5069 wherein it has been observed that the arbitration agreement in a contract is a benefit which can be assigned along with the main contract or even otherwise.

Thus, observing that at the stage of consideration of a prayer under Section 11(6) of the 1996 Act the Court has to confine itself to the examination of the existence of an arbitration agreement (vide sub-section (6-A) of Section 11), the Bench held that it would not be appropriate for it to delve deep into the issue as it could well be considered by the arbitrator on the basis of evidence led by the parties. "More so, when existence of arbitration agreement in the license agreement and share subscription agreement is not in dispute”, the Bench added.

Thus referring the matter to the Delhi International Arbitration Centre for appointment of a sole arbitrator to adjudicate upon the dispute between the parties, the Bench disposed of the petition.