Summary
The Court declined to interfere with the reference to arbitration under Section 8 of the Arbitration and Conciliation Act of a suit for injunction and damages over the use of a trademark, where the defendants relied on assignment deeds containing an arbitration clause that the plaintiffs alleged were fabricated. Disputes arising from assignment or licence of a trademark are subordinate rights in personam and arbitrable, allegations of fraud do not oust the arbitral tribunal, and on a Section 8 application the court must refer the parties to arbitration without any discretion.
Issues
- Whether a dispute over the use of a trademark arising from deeds of assignment containing an arbitration clause is arbitrable or is a non-arbitrable action in rem.
- Whether allegations that the assignment deeds were fraudulently fabricated take the dispute outside the jurisdiction of the arbitral tribunal.
- What approach a civil court must adopt when an application under Section 8 of the Arbitration and Conciliation Act, 1996 is filed in a pending suit.
Provisions considered
- Section 8, Arbitration and Conciliation Act, 1996Once an application in due compliance with Section 8 is filed, the civil court must ask whether its jurisdiction has been ousted rather than whether it has jurisdiction, and is under a positive obligation to refer the parties to arbitration with no element of discretion. The Commercial Court's order allowing the respondents' Section 8 application and the High Court's affirmance were upheld. (¶¶ 1, 3, 4, 9, 10, 16, 17, 18)
- Section 16, Arbitration and Conciliation Act, 1996Following Kvaerner Cementation, the arbitral tribunal has power to rule on its own jurisdiction including objections to the existence or validity of the arbitration agreement, a decision assailable under Section 34; the civil court cannot go into that question, and a party may raise the objection before the arbitrator as a preliminary issue. Matters such as full and final settlement or frivolity in litigation are equally within the tribunal's domain. (¶¶ 8, 14)
- Section 11, Arbitration and Conciliation Act, 1996Referring to Krish Spinning, Mayavati Trading and In Re Interplay, the Court noted that referral courts under Section 11 must limit their examination to the existence of the arbitration agreement, leaving accord and satisfaction, frivolity and dishonesty to the arbitral tribunal, consistent with the 2015 amendment. (¶ 14)
- Act generally (registration vs. assignment and licence disputes), Trade Marks Act, 1999Grant and issue of patents and registration of trademarks are sovereign functions with erga omnes effect and are non-arbitrable, but the assumption that all trademark matters are outside arbitration is erroneous; disputes over subordinate rights such as licences or assignments concern rights inter se the parties and are arbitrable. The petitioners' disputes were prima facie not actions in rem. (¶ 12)
Held
- Where an arbitral tribunal is constituted at the instance of one party and the other disputes the validity of the proceedings, the civil court cannot go into the existence or validity of the arbitration agreement; under Section 16 the arbitral tribunal rules on its own jurisdiction, its decision being assailable under Section 34, and the objecting party may raise the question of non-existence of an arbitration agreement before the arbitrator, who should decide it as a preliminary issue (Kvaerner Cementation). (¶ 8)
- When a defendant files a Section 8 application in a suit, the court is to pronounce upon the arbitrability of the dispute; certain categories (criminal offences of a public nature, matters of status, insolvency and the like) are treated as non-arbitrable, and the question is whether a mere allegation of fraud suffices to exclude the dispute from arbitration (A. Ayyasamy). (¶ 9)
- Arbitrability has three facets: whether the disputes are capable of settlement by arbitration, whether they are covered by the arbitration agreement, and whether the parties have referred them to arbitration. Disputes relating to rights in personam are generally arbitrable while rights in rem must be adjudicated by courts, but this is not rigid: disputes over subordinate rights in personam arising from rights in rem are arbitrable (Booz Allen). (¶¶ 10, 11)
- Grant of patents and registration of trademarks are sovereign functions with erga omnes effect (Vidya Drolia), but it is plainly erroneous to assume that all matters relating to trademarks are outside the scope of arbitration; disputes arising from subordinate rights such as licences granted by the proprietor, though involving the right to use the trademark, are arbitrable as they relate to the parties' rights and obligations inter se. The petitioners' disputes were prima facie not actions in rem. (¶ 12)
- A plea that a settlement or discharge was obtained by fraud or coercion itself gives rise to an arbitrable issue and does not bar arbitration (Krish Spinning following Boghara Polyfab); referral courts must confine themselves to the existence of the arbitration agreement, and ex facie frivolity or dishonesty in litigation is for the arbitral tribunal to decide. (¶¶ 13, 14)
- Allegations of fraud, criminal wrongdoing or statutory violation do not detract from the jurisdiction of the arbitral tribunal to resolve a dispute arising out of a civil or contractual relationship under the arbitration agreement. (¶ 15)
- Once an application in due compliance with Section 8 is filed, the civil court should not ask whether it has jurisdiction but whether its jurisdiction has been ousted under the special statute (generalia specialibus non derogant). A judicial authority before whom an action covered by an arbitration agreement is brought is under a positive obligation to refer the parties to arbitration; no discretion is left to obviate the legislative mandate. (¶¶ 16, 17)
Result
Special leave petition dismissed; no error found in the High Court's judgment affirming the Commercial Court's order referring the parties to arbitration under Section 8. Pending applications disposed of.