SUPREME COURT REFERS APPOINTMENT OF A SOLE ARBITRATOR IN AN INTERNATIONAL ARBITRATION TO THE DELHI INTERNATIONAL ARBITRATION CENTRE

A double-Judge Bench of the Supreme Court comprising of Justice Dr. D.Y. Chandrachud and Manoj Misra passed a Judgement dated 08-11-2024 in the matter of Lifeforce Cryobank Sciences Inc vs. Cryoviva Biotech Pvt. Ltd. & Ors Arbitration Petition No. 15/2018. The Court determined that an arbitration agreement alone is sufficient for the appointment, leaving complex matters like contract assignability and privity for the Arbitrator to evaluate.

FACTS:

1.  That the aforesaid Petition filed before the Supreme Court by the Lifeforce Cryobank Sciences Inc (Petitioner) against Cryoviva Biotech Pvt. Ltd. & Ors (Respondents), invoked jurisdiction under Section 11(6) and (12) of the Arbitration and Conciliation Act, 1996 (Act), seeking the Appointment of a Sole Arbitrator as stipulated in the arbitration clauses of the Agreements dated 27.12.2009, and 11.02.2010 and to adjudicate the disputes between the Petitioner and the Respondents.

2. The Petitioner, Lifeforce Cryobank Sciences Inc., a company incorporated in the United States, sought the appointment of an Arbitrator against Respondents.

3. The Petitioner acquired the assets of Cryobank International, Inc. at a public auction on 08.06.2010, following a decree issued by the Circuit Court of Florida, USA, on 05.10.2010.

4. The certificate of title issued post-auction confirmed the Petitioner’s acquisition of all tangible and intangible assets of Cryobank USA. Based on this, the Petitioner asserts that it stepped into Cryobank USA’s position.

5. The dispute originated from two agreements — an “Exclusive and Perpetual License Agreement” and a “Share Subscription and Shareholders Agreement.” These agreements contained arbitration clauses, designating disputes to be settled by a sole arbitrator under the jurisdiction of courts in Delhi.

6. The Petitioner argues that disputes arose from two agreements:

• An Exclusive and Perpetual License Agreement between Cryobank USA and Cryobanks India International Pvt. Ltd. (now known as Cryoviva Biotech Pvt. Ltd., the first Respondent).
• A Share Subscription and Shareholders Agreement involving RJ Corp (the second Respondent) and other Respondents as shareholders.

Both agreements include arbitration clauses specifying disputes should go to a sole arbitrator under the jurisdiction of Delhi courts.

7. Under the License Agreement, the Petitioner claims that Respondents were authorized to use Cryobank’s intellectual property in return for shares in the Respondent company. The Petitioner states that Cryoviva Biotech acknowledged Lifeforce Cryobank Sciences Inc. as Cryobank USA’s successor in various correspondences. However, the Respondents failed to meet the Petitioner’s demands, leading to the invocation of the arbitration clause on 29.09.2017.

8. The Respondents contend that the License Agreement was non-assignable and deny recognizing the Petitioner as an assignee. They argue that there is no privity of contract between them and the Petitioner, asserting that the Petitioner merely acquired Cryobank USA’s assets without the Respondent’s consent, thereby not stepping into Cryobank USA’s contractual role.

Issues

i) Whether the rights and obligations under the original contracts (the License Agreement and Share Subscription Agreement) could be assigned to Lifeforce Cryobank without the Respondents’ consent, especially as the Respondents argued that the license agreement was non-assignable and required privity of contract.

ii) Whether there was a direct contractual relationship (privity) between the Petitioner and the Respondents, given that the Petitioner acquired Cryobank USA’s assets through an auction, rather than through a direct contractual arrangement with the Respondents.

SUPREME COURT OBSERVATIONS

a) The Supreme Court, in considering the Arbitration Petition, limited its examination to the existence of an Arbitration Agreement between Lifeforce Cryobank Sciences Inc. and Cryoviva Biotech Pvt. Ltd. under Section 11 of the Arbitration and Conciliation Act, 1996. The Court observed that under sub-section (6-A) of Section 11, its role is confined to confirming the presence of an arbitration clause and not assessing deeper issues related to the merits of the case, which are reserved for the arbitrator. The Apex Court underscored that, as long as the agreement contained an arbitration clause, the appointment of an Arbitrator would be appropriate without delving into complex issues like contract assignability and privity, which are better suited for the arbitral process.

b) The Respondents argued that the Petitioner lacked standing to enforce the arbitration clauses because they were only in privity with Cryobank USA, not with Lifeforce Cryobank and that the License Agreement was non-assignable without their consent. They contended that Lifeforce’s purchase of Cryobank USA’s assets in a public auction did not automatically transfer the contractual rights and obligations associated with the original agreements. The Court noted this objection and acknowledged that the non-assignability clause raised substantial questions about whether the Petitioner was legally entitled to initiate arbitration in place of Cryobank USA.

c) In addressing the Petitioner’s position, the Bench noted that Lifeforce Cryobank had presented documents to support its claim of succession, including a certificate of title and communications allegedly showing the Respondents’ acknowledgement of its status as Cryobank USA’s successor. The Petitioner argued that it had acquired all rights under the original agreements, including the arbitration clauses, and could therefore compel arbitration with the Respondents. Lifeforce further relied on legal precedents suggesting that rights under contracts, including arbitration agreements, are generally assignable unless explicitly prohibited.

CONCLUSION:

Based on the aforementioned facts, the Supreme Court, emphasizing judicial minimalism in the context of arbitration, deferred the resolution of these substantive issues to the arbitrator. It directed that the Delhi International Arbitration Centre appoint a sole arbitrator to decide on all contested matters, including the assignability of the agreement and the privity of the contract. By doing so, the Court reinforced the principle that arbitration proceedings should be the primary forum for resolving contractual disputes, particularly when the arbitration agreement itself is not in dispute, and affirmed that any conclusions on the merits or arbitrability would be for the arbitral tribunal to determine.

 

Adv Sakshi Raghuvanshi

Senior Associate

The Indian Lawyer