Delhi High Court
M/S Liberty Footwear Company vs M/S Liberty International on 10 January, 2023
Author: Navin Chawla
Bench: Navin Chawla
Neutral Citation Number 2023/DHC/000153
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on:31.10.2022
Date of decision: 10.01.2023
+ CS(COMM) 715/2019
M/S LIBERTY FOOTWEAR COMPANY ..... Plaintiff
Through: Mr.Rajshekhar Rao, Sr. Adv. with
Mr.Kapil Wadhwa, Ms.Surya
Rajappan, Ms.Tejasvini Puri,
Advs.
versus
M/S LIBERTY INTERNATIONAL ..... Defendant
Through: Mr.Vijay Pal Dalmia, Mr.Rajat
Jain, Mr.Aditya Dhar and
Ms.Neelam Dalmia, Advs.
CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
I.A.474/2020
1. This application has been filed by the defendant under Section 8 of
the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the
'Arbitration Act') praying that the parties to the suit be referred to
arbitration. It is the case of the defendant/applicant that there is an
Arbitration Agreement in the Partnership Deed dated 08.09.2003 between
the parties and the disputes raised by the plaintiff fall within the scope of
the said Arbitration Agreement.
CASE OF THE PLAINTIFF
2. The plaintiff has filed the present suit, inter alia, for the following
reliefs:-
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"A. A decree of permanent injunction restraining
the Defendant, its business associates, partners,
directors, principal officers, family members,
servants, agents, dealers, distributors, franchisees
and anyone acting for and on their behalf from
selling, offer to sell, manufacturing, advertising,
promoting or in any other manner using the
impugned trade name LIBERTY
INTERNATIONAL, Plaintiff's registered trade
mark LIBERTY and the corporate logo
and/or any other mark
identical/deceptively similar to Plaintiff's well-
known trademark LIBERTY, LIBERTY variant
marks with respect to goods falling within Class
25 and any other cognate and allied goods in any
manner, so as to result in infringement of
Plaintiff's registered trademark LIBERTY.
B. A decree of permanent injunction restraining
the Defendant, its business associates, partners,
directors, principal officers, family members,
servants, agents, dealers, distributors, franchisees
and anyone acting for and on their behalf from
selling, offer to sell, manufacturing, advertising,
promoting or in any other manner using the
impugned trade name LIBERTY
INTERNATIONAL, Plaintiff's registered trade
mark LIBERTY and the corporate logo
and/or any other mark
identical/deceptively similar to Plaintiff's well-
known trademark LIBERTY, LIBERTY variant
marks with respect to goods falling within Class
25 and any other cognate and allied goods in any
manner, so as to result in passing off or any act of
Unfair Competition including resulting in
confusion of any manner whatsoever.
C. For an order of delivery up of all the material
bearing the impugned trademark, impugned trade
name, impugned logos on packaging, labels,
name, cartons, packaging material, name plates,
publicity material like pamphlets, fliers,
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hoardings, sign boards, stationery, digital
material, website, internet, social media etc. for
the purpose of destruction/erasure.
D. For an order directing the Defendant to render
the accounts to ascertain the quantum of unjust
profits gained by Defendant;
E. For an order of damages to the Plaintiff to the
tune of Rs.2,00,00,400/- damage caused to the
Plaintiff's brand equity, goodwill and reputation
may be passed in favour of the Plaintiff and
against the Defendant. If this Hon'ble Court
directs a rendition of accounts, the Plaintiff
undertakes to pay further court fees once the sum
is ascertained on the Defendant's rendering true
and proper accounts.;"
3. It is the case of the plaintiff that the plaintiff is a partnership firm
and is the proprietor of the registered trade mark 'LIBERTY', amongst
several other trade marks. Mr. Dheeraj Gupta, the Sole Proprietor of the
defendant, is a partner of the plaintiff firm, however, he does not have
any personal rights in the plaintiff's registered trade mark 'LIBERTY' in
any manner whatsoever.
4. It is further claimed that Mr. Dheeraj Gupta is the youngest son of
Mr. Harish Kumar Gupta, also a partner of the plaintiff firm.
5. It is alleged that the plaintiff has granted an exclusive license vide
an Exclusive License Agreement dated 31.03.2003 in favour of 'M/s
Liberty Shoes Limited' for the use of the mark 'LIBERTY' and its many
variants. Mr. Dheeraj Gupta is also a shareholder in the said company/
exclusive licensee.
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6. It is further alleged that Mr. Dheeraj Gupta is a family member of
Mr. Adarsh Gupta, the Managing Partner of the plaintiff's firm, on whose
authorization the present plaint has been filed. It is claimed that the
parties tried to amicably settle the issues between them, however, the
same has failed.
7. It is alleged that the defendant is unauthorizedly using the
plaintiff's trade mark 'LIBERTY' in the following manner:
" a. Incorporated LIBERTY in its trade name
"LIBERTY INTERNATIONAL" (hereinafter
referred as "impugned trade name") for
competing business of footwear.
b. Manufacturing, trading, importing and
marketing identical
products i.e. footwear using Plaintiff's registered
trademarks LIBERTY and
c. Affixing the Plaintiff's registered trademarks
LIBERTY and on its products and
packaging.
d. Using the Plaintiffs registered trademark
LIBERTY individually on identical products i.e.
shoes/footwear.
e. Operating infringing email id
[email protected]."
8. For the purposes of the present application, I may not go further
into the case set up by the plaintiff.
CASE OF THE DEFENDANT/APPLICANT
9. As noted hereinabove, the defendant has filed the present
application praying that as the dispute raised by the plaintiff is one inter
se amongst the partners of the firms and arising out of the Partnership
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Deed dated 08.09.2003, the parties should be referred to arbitration in
terms of Clause 14 of the Partnership Deed.
SUBMISSIONS OF THE PLAINTIFF
10. The learned senior counsel for the plaintiff asserts that as the
present Suit claims relief under the Trade Marks Act, 1999 (hereinafter
referred to as 'the Trade Marks Act'), the same cannot be referred to
arbitration. In support he places reliance on the following judgments: -
a) Steel Authority of India Ltd. v. SKS Ispat and Power Ltd. and
Ors., 2014 SCC OnLine Bom 4875;
b) A. Ayyasamy v. A. Paramasivam and Others, (2016) 10 SCC 386;
c) Indian Performing Right Society Ltd. v. Entertainment Network
(India) Ltd., 2016 SCC OnLine Bom 5893;
d) Eros International Media Limited v. Telemax Links India Pvt.
Ltd. and Others., 2016 SCC OnLine Bom 2179
11. The learned counsel for the plaintiff submits that under Section
134 of the Trade Marks Act, a suit for infringement cannot be instituted
before a Court inferior to a District Court, therefore, by implication, a
relief for infringement of a trade mark cannot be adjudicated upon by an
Arbitrator.
12. Placing reliance on various provisions of the Partnership Act, 1932
(hereinafter referred to as the 'Partnership Act'), he submits that the
plaintiff has distinct rights under the Trade Marks Act and the Partnership
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Act. Where the plaintiff makes claims under the Trade Marks Act, the
Arbitration Agreement shall have no application; whereas, if the plaintiff
chooses to exercise the rights under the Partnership Act, arbitration
would be the remedy.
SUBMISSIONS OF THE DEFENDANT
13. On the other hand, the learned counsel for the defendant submits
that in the present case, there is no dispute that the plaintiff is the
proprietor of the trade marks. In fact, the defendant has, of its own
accord, stopped using the logo ' ' of the plaintiff, which is one
of the claims made in the suit. He submits that, therefore, the only dispute
left between the parties is as to whether the partnership can be
represented by Mr. Adarsh Gupta, and whether the defendant, who is one
of the partners of the plaintiff firm, can use the marks of the plaintiff
firm.
14. He submits that, therefore, there is no dispute in rem to be
adjudicated and arbitration would be the proper remedy. In support he
places reliance on the following judgments:-
a) Hero Electric Vehicles Private Limited and Anr. v. Lectro E-
Mobility Private Limited and Anr., 2021 SCC OnLine Del 1058;
b) Chem Academy Pvt. Ltd. v. Praveen Malik, 2022 SCC OnLine
Del 2414;
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c) Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway
Petroleums, (2003) 6 SCC 503,;
d) Golden Tobie Private Limited v. Golden Tobacco Limited, 2021
SCC OnLine Del 3029;
e) Vimi Verma v. Sanjay Verma and Ors., 2013 SCC OnLine Del
4194; and
f) Lifestyle Equities CV v. Q.D. Seatoman Design Pvt. Ltd. and
Ors., 2019 SCC OnLine Mad 38921;
15. The learned counsel for the defendant further submits that in view
of Section 8 of the Arbitration Act, this Court cannot enter into the merits
of the disputes raised between the parties, even for the purposes of
consideration of a prayer for grant of an interim injunction. In case, the
present application is to be allowed, the parties have to be relegated to
arbitration without expressing any opinion on the merits of the claims
raised by the parties. In support he places reliance on the following
judgments:-
a) Learonal and Another v. R.B. Business Promotions Private
Limited and Another, (2010) 15 SCC 733;
b) Jagdish Raj & Brothers v. Jagdish Raj and Ors., 2002 SCC
OnLine P&H 852;
c) Sundaram Finance Limited and Ors. v. T. Thankam, (2015) 14
SCC 444;
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ANALYSIS AND FINDINGS
16. I have considered the submissions made by the learned counsels
for the parties.
17. From the reading of the plaint itself, it is evident that the plaintiff
has filed the Suit through one of the partners in the plaintiff firm. The
defendant is the sole proprietorship concern of one of the other partners
in the plaintiff firm. The defendant also does not deny the proprietary
rights of the plaintiff in the mark 'LIBERTY', including its variants and
the logo. The dispute to be determined in the Suit, therefore, is whether
the proprietor of the defendant, who is also a partner in the plaintiff firm,
is entitled to use the marks of the plaintiff firm.
18. Clause 14 of the Partnership Deed dated 08.09.2003 contains the
Arbitration Agreement between the partners of the plaintiff firm, and is
reproduced hereinunder:-
"14. ARBITRATION
That in case of any dispute between the parties
with regard to the interpretation of this deed or
any other matter relating to the affairs of the firm,
the same shall be referred to an arbitrator
mutually agreed upon between the parties in
accordance with the provisions of the Indian
Arbitration Act."
(Emphasis Supplied)
19. In Vidya Drolia and Others vs. Durga Trading Corporation,
(2021) 2 SCC 1, the Supreme Court (Justice Sanjiv Khanna speaking for
the Bench) answered the following questions:-
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"2. A deeper consideration of the order of
reference reveals that the issues required to be
answered relate to two aspects that are distinct
and yet interconnected, namely:
2.1 (i) meaning of non-arbitrability and when the
subject-matter of the dispute is not capable of
being resolved through arbitration.
2.2. (ii) the conundrum - "who decides" -
whether the court at the reference stage or the
Arbitral Tribunal in the arbitration proceedings
would decide the question of non-arbitrability.
2.3 The second aspect also relates to the scope
and ambit of jurisdiction of the court at the
referral stage when an objection of non-
arbitrability is raised to an application under
Section 8 or 11 of the Arbitration and Conciliation
Act, 1996 (for short, the "Arbitration Act")."
20. In answering the above issues, the Supreme Court held as under:-
"46. Having examined and analysed the
judgments, we would coalesce and crystalise the
legal principles for determining non-arbitrability.
We begin by drawing principles that draw
distinction between adjudication of actions in rem
and adjudication of actions in personam.
47. A judgment is a formal expression of
conclusive adjudication of the rights and
liabilities of the parties. The judgment may
operate in two ways, in rem or in personam.
Section 41 of the Evidence Act, 1872 on the
question of relevancy of judgments in the context
of conclusiveness of a judgment, order or decree
provides:
"41. Relevancy of certain judgments in
probate, etc. jurisdiction.--A final
judgment, order or decree of a competent
court, in the exercise of probate,
matrimonial, admiralty or insolvency
jurisdiction, which confers upon or takes
away from any person any legal character,
or which declares any person to be entitled
to any such character, or to be entitled to
any specific thing, not as against any
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specified person but absolutely, is relevant
when the existence of any such legal
character, or the title of any such person to
any such thing, is relevant.
Such judgment, order or decree is
conclusive proof--
that any legal character, which it
confers accrued at the time when such
judgment, order or decree came into
operation;
that any legal character, to which it
declares any such person to be entitled,
accrued to that person at the time when
such judgment, order or decree declares it
to have accrued to that person;
that any legal character which it takes away
from any such person ceased at the time
from which such judgment, order or decree
declared that it had ceased or should cease;
and that anything to which it declares any
person to be so entitled was the property of
that person at the time from which such
judgment, order or decree declares that it
had been or should be his property."
48. A judgment in rem determines the status of a
person or thing as distinct from the particular
interest in it of a party to the litigation; and such a
judgment is conclusive evidence for and against
all persons whether parties, privies or strangers of
the matter actually decided. Such a judgment
"settles the destiny of the res itself" and binds all
persons claiming an interest in the property
inconsistent with the judgment even though
pronounced in their absence. [ G.C. Cheshire &
P.M. North, Private International Law, 12th Edn.
by North & Fawcett (Eds.) (London :
Butterworths, 1992), p. 362.] By contrast, a
judgment in personam, "although it may concern
a res, merely determines the rights of the litigants
inter se to the res". [ G.C. Cheshire & P.M.
North, Private International Law, 12th Edn. by
North & Fawcett (Eds.) (London : Butterworths,
1992), p. 362.] Distinction between judgments in
rem and judgments in personam turns on their
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power as res judicata, [ G.C. Cheshire & P.M.
North, Private International Law, 12th Edn. by
North & Fawcett (Eds.) (London : Butterworths,
1992).] i.e. judgment in rem would operate as res
judicata against the world, and judgment in
personam would operate as res judicata only
against the parties in dispute. Use of expressions
"rights in rem" and "rights in personam" may
not be correct for determining non-arbitrability
because of the interplay between rights in rem and
rights in personam. Many a times, a right in rem
results in an enforceable right in personam. Booz
Allen & Hamilton Inc. v. SBI Home Finance Ltd.,
(2011) 5 SCC 532, refers to the statement
by Mustill and Boyd that the subordinate rights in
personam derived from rights in rem can be ruled
upon by the arbitrators, which is apposite.
Therefore, a claim for infringement of copyright
against a particular person is arbitrable, though
in some manner the arbitrator would examine the
right to copyright, a right in rem. Arbitration by
necessary implication excludes actions in rem.
49. Exclusion of actions in rem from arbitration,
exposits the intrinsic limits of arbitration as a
private dispute resolution mechanism, which is
only binding on "the parties" to the arbitration
agreement. The courts established by law on the
other hand enjoy jurisdiction by default and do
not require mutual agreement for conferring
jurisdiction. The Arbitral Tribunals not being
courts of law or established under the auspices of
the State cannot act judicially so as to affect those
who are not bound by the arbitration clause.
Arbitration is unsuitable when it has erga
omnes effect, that is, it affects the rights and
liabilities of persons who are not bound by the
arbitration agreement. Equally arbitration as a
decentralised mode of dispute resolution is
unsuitable when the subject-matter or a dispute in
the factual background, requires collective
adjudication before one court or forum. Certain
disputes as a class, or sometimes the dispute in the
given facts, can be efficiently resolved only
through collective litigation proceedings.
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Contractual and consensual nature of arbitration
underpins its ambit and scope. Authority and
power being derived from an agreement cannot
bind and is non-effective against non-signatories.
An arbitration agreement between two or more
parties would be limpid and inexpedient in
situations when the subject-matter or dispute
affects the rights and interests of third parties or
without presence of others, an effective and
enforceable award is not possible. Prime objective
of arbitration to secure just, fair and effective
resolution of disputes, without unnecessary delay
and with least expense, is crippled and mutilated
when the rights and liabilities of persons who
have not consented to arbitration are affected or
the collective resolution of the disputes by
including non-parties is required. Arbitration
agreement as an alternative to public fora should
not be enforced when it is futile, ineffective, and
would be a no result exercise. [ Prof. Stavros
Brekoulakis, "On Arbitrability : Persisting
Misconceptions and New Areas of Concern" essay
in the edited collection, Arbitrability :
International and Comparative
Perspectives(Kluwer, 2009) pp. 19-45.]
50. Sovereign functions of the State being
inalienable and non-delegable are non-arbitrable
as the State alone has the exclusive right and duty
to perform such functions. [ Ajar Raib, "Defining
Contours of the Public Policy Exception -- A New
Test for Arbitrability", Indian Journal for
Arbitration Law, Vol. 7 (2018) p. 161.] For
example, it is generally accepted that monopoly
rights can only be granted by the State.
Correctness and validity of the State or sovereign
functions cannot be made a direct subject-matter
of a private adjudicatory process. Sovereign
functions for the purpose of Arbitration Act would
extend to exercise of executive power in different
fields including commerce and economic,
legislation in all forms, taxation, eminent domain
and police powers which includes maintenance of
law and order, internal security, grant of pardon,
etc. as distinguished from commercial activities,
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economic adventures and welfare activities.
[Common Cause v. Union of India, (1999) 6 SCC
667 : 1999 SCC (Cri) 119 and Agricultural
Produce Market Committee v. Ashok Harikuni,
(2000) 8 SCC 61.] Similarly, decisions and
adjudicatory functions of the State that have
public interest element like the legitimacy of
marriage, citizenship, winding up of companies,
grant of patents, etc. are non-arbitrable, unless
the statute in relation to a regulatory or
adjudicatory mechanism either expressly or by
clear implication permits arbitration. In these
matters the State enjoys monopoly in dispute
resolution.
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53. Dhulabhai v. State of M.P., (1968) 3 SCR 662,
is not directly applicable as it relates to exclusion
of jurisdiction of civil courts, albeit we
respectfully agree with the order of reference that
Condition 2 is apposite while examining the
question of non-arbitrability. Implied legislative
intention to exclude arbitration can be seen if it
appears that the statute creates a special right or
a liability and provides for determination of the
right and liability to be dealt with by the specified
courts or the tribunals specially constituted in that
behalf and further lays down that all questions
about the said right and liability shall be
determined by the court or tribunals so
empowered and vested with exclusive jurisdiction.
Therefore, mere creation of a specific forum as a
substitute for civil court or specifying the civil
court, may not be enough to accept the inference
of implicit non-arbitrability. Conferment of
jurisdiction on a specific court or creation of a
public forum though eminently significant, may
not be the decisive test to answer and decide
whether arbitrability is impliedly barred.
54. Implicit non-arbitrability is established when
by mandatory law the parties are quintessentially
barred from contracting out and waiving the
adjudication by the designated court or the
specified public forum. There is no choice. The
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person who insists on the remedy must seek his
remedy before the forum stated in the statute and
before no other forum. In Transcore v. Union of
India, (2008) 1 SCC 125, this Court had examined
the doctrine of election in the context whether an
order under proviso to Section 19(1) of the
Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 ("the DRT Act") is a
condition precedent to taking recourse to the
Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act,
2002 ("the NPA Act"). For analysing the scope
and remedies under the two Acts, it was held that
the NPA Act is an additional remedy which is not
inconsistent with the DRT Act, and reference was
made to the doctrine of election in the following
terms : (Transcore case p. 162, para 64)
"64. In the light of the above discussion, we now
examine the doctrine of election. There are three
elements of election, namely, existence of two or
more remedies; inconsistencies between such
remedies and a choice of one of them. If any one
of the three elements is not there, the doctrine will
not apply. According to American Jurisprudence,
2d, Vol. 25, p. 652, if in truth there is only one
remedy, then the doctrine of election does not
apply. In the present case, as stated above, the
NPA Act is an additional remedy to the DRT Act.
Together they constitute one remedy and,
therefore, the doctrine of election does not apply.
Even according to Snell's Principles of
Equity (31st Edn., p. 119), the doctrine of election
of remedies is applicable only when there are two
or more co-existent remedies available to the
litigants at the time of election which are
repugnant and inconsistent. In any event, there is
no repugnancy nor inconsistency between the two
remedies, therefore, the doctrine of election has
no application."
55. Doctrine of election to select arbitration as a
dispute resolution mechanism by mutual
agreement is available only if the law accepts
existence of arbitration as an alternative remedy
and freedom to choose is available. There should
not be any inconsistency or repugnancy between
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the provisions of the mandatory law and
arbitration as an alternative. Conversely, and in a
given case when there is repugnancy and
inconsistency, the right of choice and election to
arbitrate is denied. This requires examining the
"text of the statute, the legislative history, and
"inherent conflict" between arbitration and the
statute's underlying purpose" [ Jennifer L.
Peresie, "Reducing the Presumption of
Arbitrability" 22 Yale Law & Policy Review, Vol.
22, Issue 2 (Spring 2004), pp. 453-462.] with
reference to the nature and type of special rights
conferred and power and authority given to the
courts or public forum to effectuate and enforce
these rights and the orders passed. When
arbitration cannot enforce and apply such rights
or the award cannot be implemented and enforced
in the manner as provided and mandated by law,
the right of election to choose arbitration in
preference to the courts or public forum is either
completely denied or could be curtailed. In
essence, it is necessary to examine if the statute
creates a special right or liability and provides for
the determination of each right or liability by the
specified court or the public forum so constituted,
and whether the remedies beyond the ordinary
domain of the civil courts are prescribed. When
the answer is affirmative, arbitration in the
absence of special reason is contraindicated. The
dispute is non-arbitrable.
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67. Public policy in the context of non-
arbitrability refers to public policy as reflected in
the enactment, that is, whether the enactment
confers exclusive jurisdiction to the specified
court or the special forum and prohibits recourse
to arbitration. Public policy in the context of sub-
clause (ii) to Section 34(2)(b) refers to the public
policy of the enactment, defining and fixing rights
and obligations, and application of those rights
and obligations by the arbitrator.
68. Statutes unfailingly have a public purpose or
policy which is the basis and purpose behind the
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legislation. Application of mandatory law to the
merits of the case do not imply that the right to
arbitrate is taken away. Mandatory law may
require a particular substantive rule to be applied,
but this would not preclude arbitration. Implied
non-arbitrability requires prohibition against
waiver of jurisdiction, which happens when a
statute gives special rights or obligations and
creates or stipulates an exclusive forum for
adjudication and enforcement. An arbitrator, like
the court, is equally bound by the public policy
behind the statute while examining the claim on
merits. The public policy in case of non-
arbitrability would relate to conferment of
exclusive jurisdiction on the court or the special
forum set up by law for decision making. Non-
arbitrability question cannot be answered by
examining whether the statute has a public policy
objective which invariably every statute would
have. There is a general presumption in favour of
arbitrability, which is not excluded simply
because the dispute is permeated by applicability
of mandatory law. Violation of public policy by
the arbitrator could well result in setting aside the
award on the ground of failure to follow the
fundamental policy of law in India, but not on the
ground that the subject-matter of the dispute was
non-arbitrable.
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76. In view of the above discussion, we would
like to propound a fourfold test for determining
when the subject-matter of a dispute in an
arbitration agreement is not arbitrable:
76.1. (1) When cause of action and subject-matter
of the dispute relates to actions in rem, that do not
pertain to subordinate rights in personam that
arise from rights in rem.
76.2. (2) When cause of action and subject-matter
of the dispute affects third-party rights; have erga
omnes effect; require centralised adjudication,
and mutual adjudication would not be appropriate
and enforceable.
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76.3. (3) When cause of action and subject-matter
of the dispute relates to inalienable sovereign and
public interest functions of the State and hence
mutual adjudication would be unenforceable.
76.4. (4) When the subject-matter of the dispute is
expressly or by necessary implication non-
arbitrable as per mandatory statute(s).
76.5. These tests are not watertight
compartments; they dovetail and overlap, albeit
when applied holistically and pragmatically will
help and assist in determining and ascertaining
with great degree of certainty when as per law in
India, a dispute or subject-matter is non-
arbitrable. Only when the answer is affirmative
that the subject-matter of the dispute would be
non-arbitrable.
76.6. However, the aforesaid principles have to
be applied with care and caution as observed in
Olympus Superstructures (P) Ltd., (199) 5 SCC
651:
"35...Reference is made there to certain
disputes like criminal offences of a public nature,
disputes arising out of illegal agreements and
disputes relating to status, such as divorce, which
cannot be referred to arbitration. It has, however,
been held that if in respect of facts relating to a
criminal matter, say, physical injury, if there is a
right to damages for personal injury, then such a
dispute can be referred to arbitration (Keir v.
Leeman, (1846) 9 QB 371). Similarly, it has been
held that a husband and a wife may refer to
arbitration the terms on which they shall separate,
because they can make a valid agreement between
themselves on that matter (Soilleux v. Herbst,
(1801) 2 Bos & P 444, Wilson v. Wilson, (1848) 1
HL Cas 538, and Cahill v. Cahill, (1883) LR 8 AC
420 (HL))."
(Emphasis Supplied)
21. In his Supplementing Opinion, Justice N.V. Ramana, held as
under:-
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"225. From a study of the above precedents, the
following conclusion, with respect to adjudication
of subject-matter arbitrability under Section 8 or
11 of the Act, are pertinent:
225.1. In line with the categories laid down by the
earlier judgment of Boghara Polyfab [National
Insurance Co. Ltd. v. Boghara Polyfab, the courts
were examining "subject-matter arbitrability" at
the pre-arbitral stage, prior to the 2015
Amendment.
225.2. Post the 2015 Amendment, judicial
interference at the reference stage has been
substantially curtailed.
225.3. Although subject-matter arbitrability and
public policy objections are provided separately
under Section 34 of the Act, the courts herein have
understood the same to be interchangeable under
the Act. Further, subject-matter arbitrability is
interlinked with in rem rights.
225.4. There are special classes of rights and
privileges, which enure to the benefit of a citizen,
by virtue of constitutional or legislative
instrument, which may affect the arbitrability of a
subject-matter.
226. It may be noted that the Act itself does not
exclude any category of disputes as being non-
arbitrable. However, the courts have used the
"public policy" reason to restrict arbitration with
respect to certain subject-matters. In line with the
aforesaid proposition, the courts have interfered
with the subject-matter arbitrability at the pre-
reference stage.
227. However, post the 2015 Amendment, the
structure of the Act was changed to bring it in
tune with the pro-arbitration approach. Under the
amended provision, the court can only give prima
facie opinion on the existence of a valid
arbitration agreement. In line with the amended
language and the statutory scheme, the
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examination of the subject-matter arbitrability
may not be appropriate at the stage of reference
under Section 8 of the Arbitration Act. It is more
appropriate to be taken up by the court at the
stage of enforcement under Section 34 of the Act.
Having said so, in clear cases where the subject-
matter arbitrability is clearly barred, the court
can cut the deadwood to preserve the efficacy of
the arbitral process.
228. At this stage a word of caution needs to be
said for arbitrators. They have been given
jurisdiction to decide on the subject-matter
arbitrability. They are required to identify specific
public policy in order to determine the subject-
matter arbitrability. Merely because a matter
verges on a prohibited territory, should not by in
itself stop the arbitrator from deciding the matter.
He/she should be careful in considering the
question of non-arbitrability.
xxxxx
244. Before we part, the conclusions reached, with
respect to Question 1, are:
244.1. Sections 8 and 11 of the Act have the same
ambit with respect to judicial interference.
244.2. Usually, subject-matter arbitrability cannot
be decided at the stage of Section 8 or 11 of the
Act, unless it is a clear case of deadwood.
244.3. The court, under Sections 8 and 11, has to
refer a matter to arbitration or to appoint an
arbitrator, as the case may be, unless a party has
established a prima facie (summary findings) case
of non-existence of valid arbitration agreement,
by summarily portraying a strong case that he is
entitled to such a finding.
244.4. The court should refer a matter if the
validity of the arbitration agreement cannot be
determined on a prima facie basis, as laid down
above i.e. "when in doubt, do refer".
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244.5. The scope of the court to examine the
prima facie validity of an arbitration agreement
includes only:
244.5.1. Whether the arbitration agreement was in
writing? Or
244.5.2. Whether the arbitration agreement was
contained in exchange of letters,
telecommunication, etc.?
244.5.3. Whether the core contractual ingredients
qua the arbitration agreement were fulfilled?
244.5.4. On rare occasions, whether the subject-
matter of dispute is arbitrable?"
(Emphasis Supplied)
22. The Supreme Court has, therefore, held that a distinction is to be
drawn between an action in personam, that is, actions which determine
the rights and interests of the parties themselves in the subject-matter of
the case, and actions in rem, which refer to actions determining the title
to the property and the rights of the parties, not merely among themselves
but also against all persons at any time claiming an interest in that
property. While rights in personam are amenable to arbitration, disputes
in rem are required to be adjudicated by the Courts and Public Tribunals,
therefore, being unsuitable for private arbitration. However, disputes
relating to subordinate rights in personam arising from rights in rem are
considered to be arbitrable. The Supreme Court, in fact, gives an example
stating that rights under a patent license may be arbitrated, but the
validity of the underline patent may not be arbitrable; similarly, a claim
for infringement of copyright against a particular person is arbitrable,
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though in some manner the arbitrator would examine the right to
copyright, a right in rem.
23. I must herein also refer to the following observations of Justice
Sanjiv Khanna in Vidya Drolia and Others (supra), which was relied
upon by the learned senior counsel for the plaintiff:
"77. Applying the above principles to determine
non-arbitrability, it is apparent that insolvency or
intracompany disputes have to be addressed by a
centralised forum, be the court or a special forum,
which would be more efficient and has complete
jurisdiction to efficaciously and fully dispose of
the entire matter. They are also actions in rem.
Similarly, grant and issue of patents and
registration of trade marks are exclusive matters
falling within the sovereign or government
functions and have erga omnes effect. Such grants
confer monopoly rights. They are non-arbitrable.
Criminal cases again are not arbitrable as they
relate to sovereign functions of the State. Further,
violations of criminal law are offences against the
State and not just against the victim. Matrimonial
disputes relating to the dissolution of marriage,
restitution of conjugal rights, etc. are not
arbitrable as they fall within the ambit of
sovereign functions and do not have any
commercial and economic value. The decisions
have erga omnes effect. Matters relating to
probate, testamentary matter etc. are actions in
rem and are a declaration to the world at large
and hence are non-arbitrable."
(Emphasis Supplied)
24. The above observation of the Supreme Court, however, would not
be applicable in the present case, as the present Suit does not relate to an
issue of 'grant or issue of or registration of trade mark'. The present suit
is for enforcement of such a right, not against a third party which is a
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total stranger to the registered proprietor of the trademark, but someone
who claims (whether rightly or wrongly) a right to use the trademark
under or through the registered proprietor of the trademark. In fact, as
noted hereinabove, the defendant does not even dispute the plaintiff to be
the proprietor of the marks in question. What would govern the present
dispute would, therefore, be the observations of the Supreme Court which
state that where the claim in the Suit is the enforceability of rights in
personam, flowing out of a right in rem, by virtue of the plaintiff being
the proprietor of the said marks, the parties are to be referred to
arbitration.
25. This Court in Hero Electric Vehicles Private Limited and Ors.
(supra), following the ratio of Vidya Drolia and Others (supra), held as
under:-
"39. The following clear principles emerge, from
Vidya Drolia MANU/SC/0939/2020, insofar
as Section 8 is concerned:
xxxx
(iv) The arbitrability of the dispute forming
subject matter of the suit, and the arbitrability of
the claim, are different. A claim may be non-
arbitrable because of the scope of the arbitration
agreement, not because the subject matter of the
claim is essentially not amenable to arbitration.
On the other hand, the subject matter of the suit is
normally non-arbitrable only if it is not amenable
to resolution by arbitration, in law.
(v) Non-arbitrability may be said to exist
(a) where the cause of action, and the
subject matter of the dispute, related to
actions in rem, which do not pertain to
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subordinate rights in personam arising
from rights in rem,
(b) where the cause of action and subject
matter of the dispute affects third party
rights, or has erga omnes effect, i.e. affects
rights owed to all,
(c) where the cause of action and subject
matter of the dispute require centralised
adjudication, and for which mutual
adjudication would not be appropriate or
enforceable,
(d) where the cause of action and subject
matter of the dispute relate to inalienable
sovereign and public interest functions of
the State, not amenable to adjudication by
the arbitral process, or
(e) where the subject matter of the dispute is
non- arbitrable by mandatory statutory fiat.
These principles are, however, not watertight, and
have to be applied with care and caution.
(vi) Specific instances of non-arbitrable disputes
are
(c) grant and issue of patents and
registration of trademarks being exclusive
matters falling within the sovereign or
government function, having erga omnes
effect, conferring monopoly rights,"
(Emphasis Supplied)
26. In Golden Tobie Private Limited (supra), this Court reiterated as
under:-
"15. It is clear that the aforenoted judgment of the
co-ordinate Bench of this court applies on all
fours to the facts of the present case. The court
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held that the dispute did not pertain to
infringement of a trademark on the ground that
the defendants are using a deceptively similar
trademark. The ground was that the right to use
the trademark was conferred by a particular
agreement on a particular group of the family.
Even if the plaintiff in that case were to rely on
any provisions of the Trademark Act the essential
infraction as allegedly committed by the defendant
was not the provisions of the Trademark Act but
the provisions of the agreements in question. The
dispute which emanates out of the agreement
between the parties was held to be arbitrable. The
court also clarified that the controversy in the said
case did not relate to grant or registration of
trademarks. The said trademarks stood granted
and registered. It was also held that assignment of
a trademark is by a contract and is not a statutory
fiat. It does not involve any exercise of sovereign
functions.
16. It is manifest from the facts of this case as
narrated above that the dispute in question
primarily relates to interpretation of the terms of
the Agreement dated 12.02.2020 and the
amendment agreement dated 29.08.2020 executed
between the parties and as to whether the
termination of the said agreements by the
defendant and cancellation of the assignment of
the trademark in favour of the plaintiffs is legal
and valid. The right that is asserted by the plaintiff
is not a right that emanates from the Trademark
Act but a right that emanates from the Agreement
dated 12.02.2020 and the amendment agreement
dated 29.08.2020. The assignment of trademark is
by a contract and not by a statutory act. It does
not involve any exercise of sovereign functions of
the State. It cannot be said that the disputes are
not arbitrable. The pleas of learned senior counsel
for the plaintiff are clearly without merit. The
reasons spelt out by the plaintiff for not referring
the matter to arbitration are misplaced and
without merits."
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27. The plea of the learned senior counsel for the plaintiff that as
Section 134 of the Trade Marks Act prescribes that a suit for
infringement shall not lie in a Court inferior to a District Court,
arbitration would be implicitly barred, cannot also be accepted. In Vidya
Drolia and Others (supra), the Supreme Court while considering the
issue of implied ouster of arbitration on account of a statute providing for
a specific Civil Court to adjudicate on the rights and liabilities arising out
the statute, observed as under: -
"53......Implied legislative intention to exclude
arbitration can be seen if it appears that the
statute creates a special right or a liability and
provides for determination of the right and
liability to be dealt with by the specified courts or
the tribunals specially constituted in that behalf
and further lays down that all questions about the
said right and liability shall be determined by the
court or tribunals so empowered and vested with
exclusive jurisdiction. Therefore, mere creation of
a specific forum as a substitute for civil court or
specifying the civil court, may not be enough to
accept the inference of implicit non-arbitrability.
Conferment of jurisdiction on a specific court or
creation of a public forum though eminently
significant, may not be the decisive test to answer
and decide whether arbitrability is impliedly
barred."
(Emphasis Supplied)
28. In the present case, Section 134 of the Trade Marks Act does not
totally exclude the jurisdiction of the Civil Courts to entertain and
adjudicate upon a claim of the infringement of a trade mark. It merely
provides that such claim cannot be adjudicated upon by a Court inferior
to the Court of a District Judge. The Trade Marks Act, therefore, does not
create any specific forum as far as suits for infringement of a trade mark
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are concerned as a substitute for a Civil Court. As held by the Supreme
Court in Vidya Drolia and Others (supra), merely specifying which Civil
Court is to adjudicate such disputes may not be enough to accept the
inference of implicit non-arbitrability of such disputes.
29. In Eros International Media Limited (supra), the High Court of
Bombay negated the submission that Section 134 of the Trade Marks Act
would impliedly bar arbitration, by observing as under: -
"16. Section 62 of the Copyright Act 1957
corresponds almost exactly to Section 134 of the
Trade Marks Act, 1999: infringement and passing
off actions cannot be brought in a court lower
than a jurisdictionally competent District Court,
one within whose limits the plaintiff resides or
works for gain. I do not think these sections can
be read as ousting the jurisdiction of an arbitral
panel. All that they mean is that such actions are
not to be brought before the registrar or the
board, viz., an authority set up by either of those
statutes. In fact, Section 134 of the Trade Marks
Act, 1999, correctly read, answers in full Mr.
Dhond's case of having to pursue a remedy given
by statute in a particular forum; for that section
contains the same provision as regards trade
mark passing off actions and it is well settled that
an action in passing off is not in pursuit of a
statutory remedy but one in common law. It is a
mistake, I think, to see these so-called 'intellectual
property' statutes as relating to rights that stand
wholly apart from the general body of law. These
are special rights to be sure, but they are, at their
heart, a species of property and share much with
their more tangible cousins to whom acts such as
the Sale of Goods Act or the Transfer of Property
Act apply. Even those acts confer certain 'rights';
and the registration of a document of title to land
(or, for that matter, to a motor scooter) is also in
one sense a right against the world, i.e., any other
who would lay claim to it. I see no material
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distinction between in this regard between being
the owner of land and the proprietor of a mark.
What Sections 62 of the Copyright Act, 1957 and
the Trade Marks Act, 1999 seem to do, I believe,
is to define the entry level of such actions in our
judicial hierarchy. They confer no exclusivity, and
it is not possible from such sections, common to
many statutes, to infer the ouster of an entire
statute. These sections do not themselves define
arbitrability or non-arbitrability. For that, we
must have regard to the nature of the claim that is
made."
30. In Steel Authority of India Ltd. (supra), the High Court of
Bombay held as under:-
"4. The present suit, firstly, is for reliefs against
infringement and passing off, which by their very
nature do not fall within the jurisdiction of the
Arbitrator. The rights to a trademark and
remedies in connection therewith are matters in
rem and by their very nature not amenable to the
jurisdiction of private forum chosen by the parties.
Secondly, the disputes concerning infringement
and passing off do not arise out of the contract
between the parties dated 1 June 2011, which
contains the arbitration agreement. Thirdly, there
are other parties who are arraigned as party
Defendants to the present suit, who are not parties
to the arbitration agreement contained in the
contract dated 1 June 2011."
31. The above observations are clearly no longer good law in view of
the judgment of the Supreme Court in Vidya Drolia and Others (supra).
32. The judgment of A. Ayyasamy (supra), relied upon by the learned
senior counsel for the plaintiff, has been extensively considered by the
judgment of Vidya Drolia and Others (supra) and I, therefore, would not
dare to revisit the said exercise; suffice it to say, even the said judgment
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does not hold that merely because a claim of a right in a trademark is
made, arbitration shall stand ousted.
33. In The Indian Performing Right Society Ltd. (supra), the High
Court of Bombay was considering a case wherein the claimant in the
arbitration proceedings had specifically denied that the respondent had
any copyright in relation to pre-recorded sound recording and, therefore,
denied that the respondent had any right to collect any license fee or
royalty in respect thereof. It was in that light that the High Court held that
the disputes being one in rem, could not have been made subject-matter
of arbitration. It was in those peculiar facts, and as rights in rem were
being determined, that the High Court held that the dispute was not
arbitrable. Though in passing, the High Court also placed reliance on
Section 62 (1) of the Copyright Act, 1957, which provides that a suit for
infringement for copyright in any work shall be instituted in the District
Court having jurisdiction, to hold that arbitration was not maintainable, in
my opinion, the said view would not be correct in view of the judgment
of the Supreme Court in Vidya Drolia (supra).
34. The submission of the learned Senior Counsel for the plaintiff that
the plaintiff having chosen the remedy under the Trade Marks Act and
not one under the Partnership Act and, therefore, cannot be relegated to
arbitration, cannot also be accepted. As held by the Supreme Court in
Vidya Drolia (supra), the doctrine of election of remedies is applicable
only where there are two or more remedies available to the litigants at the
time of election which are repugnant and inconsistent. In the present
case, there is no inconsistency or repugnancy shown to exist between the
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rights of the plaintiff under the Trade Marks Act and the Partnership Act.
The plaintiff cannot breach the arbitration agreement merely by framing
the Suit as one under the Trade Marks Act.
35. Sub-Section 1 of Section 8 of the Arbitration Act reads as under:-
"8. Power to refer parties to arbitration where
there is an arbitration agreement.-- [(1) A
judicial authority, before which an action is
brought in a matter which is the subject of an
arbitration agreement shall, if a party to the
arbitration agreement or any person claiming
through or under him, so applies not later than the
date of submitting his first statement on the
substance of the dispute, then, notwithstanding
any judgment, decree or order of the Supreme
Court or any Court, refer the parties to
arbitration unless it finds that prima facie no valid
arbitration agreement exists."
36. In Vidya Drolia and Others (supra), the Supreme Court also
considered the issue of 'Who Decides Non-arbitrability?'. As noted
hereinabove, the Supreme Court held that the referral Court under
Section 8 of the Arbitration Act, without getting bogged down, would
compel the parties to abide by the Arbitration Agreement unless there are
good and substantial reasons to the contrary. Prima facie examination is
not fully a review, but a primary first review to weed out manifestly and
ex facie non-existent and invalid arbitration agreements and non-
arbitrable disputes. It is only where the Court is certain that no valid
Arbitration Agreement exists or the disputes/subject-matter are not
arbitrable, the application under Section 8 of the Arbitration Act would
be rejected. As Hon'ble Mr. Justice Ramana concluded, 'when in doubt,
do refer'.
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37. Applying the above principles to the facts of the present case, the
present application filed by the defendant under Section 8 of the
Arbitration Act deserves to be allowed. In the present case, the disputes
that would have to be referred to be adjudicated through arbitration. It
would have to be determined as to whether the defendant, who is the
partner in the plaintiff firm, can use the trade marks of the plaintiff's firm
for his own sole proprietorship concern. The learned counsel for the
defendant also claims that there exists an understanding between the
partners of the plaintiff firm wherein all the members of the family are
permitted to use the plaintiff firm's trade mark 'LIBERTY' for their
respective businesses. The same would also be required to be adjudicated
by the learned Arbitrator. The effect of the Partnership Act; the terms of
the Partnership Agreement; the effect of the registration of the
trademarks in favour of the plaintiff; and their licence on exclusive basis
to 'M/s Liberty Shoes Limited', can all be considered by the arbitrator. As
noticed hereinabove, the disputes between the parties would, therefore,
flow from the Partnership Deed dated 08.09.2003.
38. In P. Anand Gajapathi Raju and Ors. v. P.V.G. Raju, (2000) 4
SCC 539, the Supreme Court held that the language of Section 8 of the
Arbitration Act is peremptory in nature and therefore, in cases where
there is an Arbitration Clause in the agreement, it is obligatory for the
Court to refer the parties to arbitration in terms of their arbitration
agreement and nothing remains to be decided in the original action after
such an application is made, except to refer the dispute to an arbitrator.
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39. In Vidya Drolia (supra), the Supreme Court reiterated this
principle in the following words:
"133. Prima facie case in the context of Section 8
is not to be confused with the merits of the case
put up by the parties which has to be established
before the Arbitral Tribunal. It is restricted to the
subject-matter of the suit being prima facie
arbitrable under a valid arbitration agreement.
Prima facie case means that the assertions on
these aspects are bona fide. When read with the
principles of separation and competence-
competence and Section 34 of the Arbitration Act,
the referral court without getting bogged down
would compel the parties to abide unless there are
good and substantial reasons to the contrary.
134. Prima facie examination is not full review
but a primary first review to weed out manifestly
and ex facie non-existent and invalid arbitration
agreements and non-arbitrable disputes. The
prima facie review at the reference stage is to cut
the deadwood and trim off the side branches in
straightforward cases where dismissal is
barefaced and pellucid and when on the facts and
law the litigation must stop at the first stage. Only
when the court is certain that no valid arbitration
agreement exists or the disputes/subject-matter
are not arbitrable, the application under Section 8
would be rejected. At this stage, the court should
not get lost in thickets and decide debatable
questions of facts. Referral proceedings are
preliminary and summary and not a mini trial.
This necessarily reflects on the nature of the
jurisdiction exercised by the court and in this
context, the observations of B.N. Srikrishna, J. of
"plainly arguable" case in Shin-Etsu Chemical
Co. Ltd. [Shin-Etsu Chemical Co. Ltd. v. Aksh
Optifibre Ltd., are of importance and relevance.
Similar views are expressed by this Court in Vimal
Kishor Shah [Vimal Kishor Shah v. Jayesh Dinesh
Shah, wherein the test applied at the pre-
arbitration stage was whether there is a "good
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arguable case" for the existence of an arbitration
agreement."
40. In view of the above, I have, therefore, intentionally not dwelled
into the details of the disputes between the parties for any observations
may be construed as observations on merit of the inter se claims of the
parties to the Suit. These would have to be necessarily left for the
adjudication by the learned Arbitrator.
RELIEF
41. In view of the above, the application filed by the defendant under
Section 8 of the Arbitration Act is allowed. The parties are referred to
Arbitration in accordance with Clause 14 of the Partnership Deed dated
08.09.2003.
CS(COMM) 715/2019 & I.A. 18161/2019, I.A. 475/2020, 476/2020,
2864/2020, 2879/2020 & 3607/2020
42. In view of the order passed above, the present Suit and the pending
applications stand disposed of.
NAVIN CHAWLA, J.
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