2024 (11) TMI 465 - SC - Indian Laws

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 - sub-sections (6) and (12) of Section 11 of the Arbitration and Conciliation Act, 1996 - HELD THAT - In Khardah Company Ltd. v. Raymon Co (India) Pvt. Ltd., 1962 (5) TMI 32 - SUPREME COURT it was held that an assignment of a contract might result by transfer either of the rights or of the obligations thereunder. But there is a well-recognized distinction between these two classes of assignments. As a rule, obligations under a contract cannot be assigned except with 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 parties. 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 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. It is deemed appropriate to refer the matter to the Delhi International Arbitration Centre for appointment of a sole arbitrator to adjudicate upon the dispute between the parties.

Summary

Issues:
Jurisdiction under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of a sole arbitrator, interpretation of arbitration clauses in agreements, assignment of contract rights and obligations, acceptance of assignee by the respondents, existence of privity of contract, appointment of arbitrator by the Court, arbitrability of the dispute.

Analysis:
The petitioner, a company incorporated in the USA, sought the appointment of a sole arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, to resolve disputes arising from agreements dated December 27, 2009, and February 11, 2010. The disputes relate to Exclusive and Perpetual License Agreement and Share Subscription Agreement with the respondents. The petitioner claimed to have acquired assets of Cryobank USA and stepped into its shoes, which was contested by the respondents citing non-assignability of the license agreement and lack of privity of contract due to non-acceptance of the petitioner as the assignee.

The Court emphasized that at the stage of appointing an arbitrator, the key consideration is the existence of an arbitration agreement between the parties. While the respondents argued that the petitioner did not step into the shoes of Cryobank USA without their consent, the petitioner presented documents indicating acceptance as the assignee. Referring to legal precedents, the Court noted the distinction between assignment of contract rights and obligations, highlighting that rights under a contract are generally assignable unless restricted by law or agreement.

Citing previous judgments, the Court clarified that the examination at the Section 11(6) stage is limited to the existence of an arbitration agreement, leaving detailed issues for the arbitrator to decide based on evidence. Consequently, the Court referred the matter to the Delhi International Arbitration Centre for the appointment of a sole arbitrator to adjudicate the disputes. The Court maintained neutrality on the merits of the claims and arbitrability of the dispute, keeping all contentions open for the arbitral tribunal to consider.

In conclusion, the Court disposed of the petition by appointing an arbitrator, ensuring that all pending applications are included in the referral. The judgment underscored the importance of arbitration agreements, assignment of contract rights, and the role of the arbitrator in resolving disputes, while maintaining a neutral stance on the substantive issues to be addressed during arbitration proceedings.