In a significant ruling, the Supreme Court of India, led by Chief Justice Dr. D.Y. Chandrachud and Justice Manoj Misra, underscored a critical legal principle: while rights under a contract can generally be assigned, obligations require the consent of the other party. This principle played a key role in the Court’s decision to refer the ongoing dispute between Lifeforce Cryobank Sciences Inc. and Cryoviva Biotech Pvt. Ltd. to arbitration, in accordance with the existing arbitration agreement.
Background of the Case
Lifeforce Cryobank Sciences Inc., a U.S.-based company, sought arbitration with Cryoviva Biotech Pvt. Ltd. and associated parties over issues rooted in a series of agreements: an Exclusive and Perpetual License Agreement and a Share Subscription and Shareholders Agreement. These contracts, executed between Cryobank International, Inc. (predecessor of Lifeforce) and Cryoviva Biotech (formerly Cryobanks India), included provisions granting Cryoviva rights to use certain intellectual properties in exchange for share issuance.
The petitioner, having acquired Cryobank USA’s assets, claims to have assumed its contractual role under the agreements. Lifeforce asserted that it had been acknowledged as such in correspondence, effectively stepping into Cryobank’s role. However, Cryoviva contended that this transfer was non-assignable without their consent, challenging Lifeforce’s standing.
Key Legal Issues and Court’s Observations
The case spotlighted two pivotal legal concepts: the assignability of contractual rights and obligations, and the interpretation of arbitration clauses in transferred contracts. Citing the 1962 judgment in Khardah Company Ltd. v. Raymon & Co (India) Pvt. Ltd., the Supreme Court reiterated, “As a rule, obligations under a contract cannot be assigned except with the consent of the promisee.” In contrast, rights may generally be assigned unless expressly restricted by the contract or nature of the rights involved.
Further reinforcing this view, the Court referenced DLF Power Ltd. v. Mangalore Refinery & Petrochemicals Ltd., wherein it was held that arbitration rights in a contract could be assigned alongside the contract itself. Applying these principles, the bench emphasized that the mere acquisition of assets by Lifeforce did not automatically transfer Cryobank’s obligations unless Cryoviva’s consent was obtained.
Decision: Referral to Arbitration
Given that the arbitration clause was present in both agreements, the Supreme Court concluded that the matter should be adjudicated in arbitration. “The Court’s role at this stage is confined to confirming the existence of an arbitration agreement,” noted the bench, underscoring that delving into the assignment’s nuances was beyond the immediate scope and could be addressed by the arbitrator.
The Court thus directed the Delhi International Arbitration Centre to appoint a sole arbitrator, while clarifying that it had not passed judgment on the dispute’s merits or its arbitrability, leaving those considerations open for the arbitration tribunal.
