India Household and Healthcare Ltd Vs. Lg Household and Healthcare Ltd [2007]
Insc 252 (8 March 2007)
S.B. SINHA
S.B. SINHA, J :
This application under Sub-sections (5) and (6) of Section 11 of the
Arbitration and Conciliation Act, 1996 (for short "the 1996 Act") has
been filed for appointing an arbitrator on the respondent's purported failure
to do so in spite of notice dated 15.04.2005.
Allegedly, an agreement was entered into by and between the parties hereto
on 8.05.2004. The said agreement contained an arbitration clause being Clause
12 thereof, the relevant portion whereof reads as follows:
"12.2 In the event of any dispute or difference arising between the
parties hereto or as to the rights and obligations under this agreement or as
to any claim monetary or otherwise of one party to another, such dispute or
difference shall be referred to arbitration of a common arbitrator, if agreed
upon, otherwise to two or more arbitrators, one to be appointed by each of the
parties to this agreement and such arbitration shall be governed by the Arbitration and
Conciliation Act, 1996, for the time being in force. The venue for such
arbitration shall be in India or as is mutually decided otherwise. Until a
finality is achieved in the arbitration or litigation, the Licensor shall have
no right to cancel the agreement and appoint any third party or enter into
agreement with any party for the sale/ importation or manufacture of the
products/ provision of services in the territory."
Respondent, however, contends that the said agreement was preceded by a
Memorandum of Understanding dated 1.11.2003. Respondent further contends that
the said purported Memorandum of Understanding and licence agreement dated
8.05.2004 are vitiated by a fraud of a very large magnitude fructified by a
criminal conspiracy hatched between M/s. K.P. Jayram Pillai and Vijay R. Singh
representing the petitioner and M/s. C.H. Kim and B.K.
Jung representing the respondent. The petitioner - company bribed the said
C.H. Kim and B.K. Jung for the purpose of creation of the aforesaid documents.
They had already been convicted and sentenced to undergo imprisonment by the
Korean Criminal Court. It was contended that they misused their official
position to advance private benefit. There seems to be a substantial and
reasonable nexus to promote personal advantage. There was furthermore no
ostensible authority on their part to represent the company. The said
Memorandum of Understanding also contravenes the Korean laws in terms whereof
the execution thereof required the prior approval of and a duly executed power
of attorney from the Representative Director and the Chief Executive Officer of
the respondent which did not exist in the present case.
Respondent has also filed a suit in the Madras High Court wherein by an
order dated 6.10.2005, a learned Single Judge of the said High Court directed:
"1. That 1. India Household and Health Care Limited, through Mr. Vijay
R. Singh its Managing Director 2. Mr. K.P. Jayaram C/o India Household and
Health Care Ltd. and 3. Mr. Vijay R. Singh, the respondents 1 to 3 herein,
their agents, men, assigns, representatives, employees or any one claiming
through or under them be and are hereby restrained by an order of interim
injunction until further orders of this Court directly or indirectly acting on
the so called MOU dated November 1, 2003, the License Agreement and the minutes
dated May 8, 2004 respectively, or deriving any other benefit based upon the so
called MOU, the License Agreement and Minutes, in any manner whatsoever."
The said interim order has been confirmed by an order dated 21.01.2006
stating:
"That the order of interim injunction granted in pursuance of the order
dated 06/10/2005 restraining the First, Second and Third Respondents, therein
their agents, men, assigns, representatives, employees or any one claiming
through or under them from directly or indirectly acting on the so called MOU
dated November 1, 2003, the License Agreement and the minutes dated May 8,
2004, respectively, or deriving any other benefit based upon the so called MOU,
the License Agreement and Minutes, in any manner whatsoever together be and is
hereby made absolute."
This Court's attention was further drawn to the fact that in the plaint of
the said suit it had categorically been stated that the private respondents
therein hatched their conspiracy to defraud the respondent and for the purpose
of obtaining bribes, commissions and kickbacks and in that view of the matter the
entire agreement is vitiated in law.
Mr. Dushyant Dave, learned senior counsel appearing on behalf of the
petitioner, in support of this application, would submit:
(i) the execution of the agreement dated 8.05.2004 has not been denied or
disputed.
(ii) The correspondences have been passed between the parties between the
period 8.05.2004 and 5.02.2005 and dispute arose in regard to the use of the
logo 'L.G.' (iii) The arbitration agreement being a part of the contract, the
validity or otherwise thereof can be gone into by the arbitrator in terms of
Section 16 of the 1996 Act.
(iv) Once an arbitration agreement is found to exist; having regard to
Section 5 thereof, no judicial authority can exercise any jurisdiction in the
matter.
(v) This Court, having regard to the philosophy underlying the 1996 Act
should uphold the arbitration agreement between the parties.
Mr. R.F. Nariman, learned senior counsel appearing on behalf of the
respondent, on the other hand, would submit:
(i) in view of the Constitution Bench decision of this Court in SBP &
Co. v. Patel Engineering Ltd. and Another [(2005) 8 SCC 618], this Court is
obligated to go into the question as to whether the entire agreement is
vitiated by fraud as a result whereof no valid arbitration agreement came into
being.
(ii) a fraud of grave magnitude having been committed insofar as the
officers representing the company had used different signatures, the entire
agreement is vitiated.
(iii) The original agreement has not been produced before any court so as to
compare the signatures of the persons with their original.
(iv) An order of injunction having been passed by a learned Judge of the
Madras High Court on 6.10.2005, this Court should not exercise its
discretionary jurisdiction.
(v) The arbitration agreement is vague as it contemplates both litigation as
also an arbitration.
(vi) In any event, the applicant having not appointed its arbitrator in
terms of the purported arbitration agreement, the application is premature.
(vii) As some of the disputes fall outside the scope of the arbitration
agreement, this application is not maintainable.
There cannot be any doubt whatsoever that there exists a sharp distinction
between the provisions of the Arbitration Act,
1940 and the 1996 Act. The philosophy of the 1996 Act is different. The
1996 Act is required to be read keeping in view the UNCITRAL Model Rules.
[Pandey and Co.
Builders Pvt. Ltd. v. State of Bihar and Anr. 2006 (11) SCALE 665 and
Rashtriya Ispat Nigam Limited and Anr. v. Verma Transport Company (2006) 7 SCC
275] It is also no doubt true that where existence of an arbitration agreement
can be found, apart from the existence of the original agreement, the Courts
would construe the agreement in such a manner so as to uphold the arbitration
agreement. However, when a question of fraud is raised, the same has to be
considered differently. Fraud, as is well known, vitiates all solemn acts. A
contract would mean a valid contract; an arbitration agreement would mean an
agreement which is enforceable in law.
Before embarking upon the rival contentions noticed hereinbefore, we may
notice that a 7-Judge Bench of this Court in SBP & Co. (supra) opined that
an order passed by the Chief Justice or his designate under Sub-sections (5) or
(6) of Section 11 of the 1996 Act is judicial in nature. It was stated:
"39. It is necessary to define what exactly the Chief Justice,
approached with an application under Section 11 of the Act, is to decide at
that stage. Obviously, he has to decide his own jurisdiction in the sense,
whether the party making the motion has approached the right High Court.
He has to decide whether there is an arbitration agreement, as defined in
the Act and whether the person who has made the request before him, is a party
to such an agreement. It is necessary to indicate that he can also decide the
question whether the claim was a dead one; or a long barred claim that was
sought to be resurrected and whether the parties have concluded the transaction
by recording satisfaction of their mutual rights and obligations or by
receiving the final payment without objection. It may not be possible at that
stage, to decide whether a live claim made, is one which comes within the purview
of the arbitration clause. It will be appropriate to leave that question to be
decided by the arbitral tribunal on taking evidence, along with the merits of
the claims involved in the arbitration. The Chief Justice has to decide whether
the applicant has satisfied the conditions for appointing an arbitrator under
Section 11(6) of the Act. For the purpose of taking a decision on these
aspects, the Chief Justice can either proceed on the basis of affidavits and
the documents produced or take such evidence or get such evidence recorded, as
may be necessary. We think that adoption of this procedure in the context of
the Act would best serve the purpose sought to be achieved by the Act of
expediting the process of arbitration, without too many approaches to the court
at various stages of the proceedings before the Arbitral tribunal."
The power of this Court, therefore, no longer is an administrative power.
The purported arbitration agreement is an international commercial arbitration
agreement. Section 16 of the 1996 Act which is in Chapter 4 of Part I thereof
may not, thus, be applicable in this case. Even if it applies, the jurisdiction
of the arbitrator to determine his own jurisdiction is on the basis of that
arbitration clause which may be treated as an agreement independent of the
other terms of the contract and his decision that the contract is null and void
shall not entail ipso jure the validity of the arbitration clause. But, the
question would be different where the entire contract containing the arbitration
agreement stands vitiated by reason of fraud of this magnitude. It may be
noticed that Part II of the 1996 Act contains a provision for approaching the
court. Section 45 of the 1996 Act contains a non-obstante clause. A judicial
authority, therefore, may entertain an application at the instance of a party
which alleges that there exists an arbitration agreement whereupon judicial
authority may refer the parties to arbitration, save and except in a case where
it finds that the said agreement is null and void, inoperative and incapable of
being performed. Section 8 of the 1996 Act, however, is differently worded.
Thus, as and when a question in regard to the validity or otherwise of the
arbitration agreement arises, a judicial authority would have the jurisdiction
under certain circumstances to go into the said question.
Fraud, as is well known, vitiates all solemn acts. [See Hamza Haji v.
State of Kerala and Another, (2006) 7 SCC 416, Prem Singh and Others v.
Birbal and Others, (2006) 5 SCC 353 and Jai Narain Parasrampuria (Dead) and
Others v. Pushpa Devi Saraf and Others, (2006) 7 SCC 756] The said issue is
pending consideration before the Madras High Court.
Not only the parties to the agreement but also those officers who have
negotiated on behalf of the respective companies are also parties therein.
LG Corporation which is the owner of the LG logo is also a party therein.
Therein, an order of injunction had been passed. In terms of the said order
of injunction, the applicant herein was prohibited from taking any action in
terms of the said agreement which would include the arbitration clause also.
The order dated 21.01.2006 has become final. No appeal has been preferred
thereagainst. The applicant could have filed an appropriate application for
modification of the order of injunction which it did not choose to do. The
doctrine of comity or amity required a court not to pass and order which would
be in conflict with another order passed by a competent court of law.
The courts have jurisdiction to pass an order of injunction not only under
Order XXXIX, Rule 2 of the Code of Civil Procedure but also under Section 151
thereof.
This aspect of the matter has been considered in 'A Treatise on The Law
Governing Injunctions' by Spelling and Lewis' wherein it is stated :
"Sec. 8. Conflict and Loss of Jurisdiction.
Where a court having general jurisdiction and having acquired jurisdiction
of the subject-matter has issued an injunction, a court of concurrent
jurisdiction will usually refuse to interfere by issuance of a second
injunction. There is no established rule of exclusion which would deprive a
court of jurisdiction to issue an injunction because of the issuance of an
injunction between the same parties appertaining to the same subject- matter, but
there is what may properly be termed a judicial comity on the subject. And even
where it is a case of one court having refused to grant an injunction, while
such refusal does not exclude another coordinate court or judge from
jurisdiction, yet the granting of the injunction by a second judge may lead to
complications and retaliatory action"
[See also M/s Transmission Corporation of A.P. Ltd. & Ors. v. M/s Lanco
Kondapalli Power Pvt. Ltd. (2006) 1 SCC 540 and Morgan Securities and Credit
Pvt. Ltd. v. Modi Rubber Ltd. 2006 (14) SCALE 267] In Manohar Lal Chopra v. Rai
Bahadur Rao Raja Seth Hiralal [AIR 1962 SC 527], this Court injuncted a party
from prosecuting a suit wherein power under Section 10 of the Code of Civil
Procedure could not have been exercised.
A court while exercising its judicial function would ordinarily not pass an
order which would make one of the parties to the lis violate a lawful order
passed by another court.
Furthermore, the applicant herein has also prayed for inter alia the following
reliefs:
"c. Whether the issue of use of LG logo is a valid and tenable ground
for the termination of agreements between the parties? d. Whether the
Petitioner is entitled under the agreements to continue with the production of
the "Products" with LG logo as agreed between the parties?"
The said prayers fall outside the arbitration agreement since LG Logo
belongs to LG Corporation which is the owner of the trade mark. It is not a
party to the arbitration agreement. It is allegedly has filed a separate suit.
In a case of this nature, a Division Bench of this Court in Sukanya Holdings
(P) Ltd. v. Jayesh H. Pandya and Another (2003) 5 SCC 531] held:
"Secondly, there is no provision in the Act that when the
subject-matter of the suit includes subject-matter of the arbitration agreement
as well as other disputes, the matter is required to be referred to
arbitration. There is also no provision for splitting the cause or parties and
referring the subject-matter of the suit to the arbitrators.
It was further stated :
"The next question which requires consideration is even if there is no
provision for partly referring the dispute to arbitration, whether such a
course is possible under Section 8 of the Act. In our view, it would be
difficult to give an interpretation to Section 8 under which bifurcation of the
cause of action, that is to say, the subject- matter of the suit or in some
cases bifurcation of the suit between parties who are parties to the
arbitration agreement and others is possible. This would be laying down a
totally new procedure not contemplated under the Act. If bifurcation of the
subject-matter of a suit was contemplated, the legislature would have used
appropriate language to permit such a course. Since there is no such indication
in the language, it follows that bifurcation of the subject-matter of an action
brought before a judicial authority is not allowed.
Secondly, such bifurcation of suit in two parts, one to be decided by the
Arbitral Tribunal and the other to be decided by the civil court would
inevitably delay the proceedings. The whole purpose of speedy disposal of
dispute and decreasing the cost of litigation would be frustrated by such
procedure. It would also increase the cost of litigation and harassment to the
parties and on occasions there is possibility of conflicting judgments and
orders by two different forums."
We are, however, not oblivious of the fact that Sukanya Holdings (supra) has
been distinguished in Rashtriya Ispat Nigam Limited and Anr. v.
Verma Transport Company [(2006) 7 SCC 275]. The present case, however, is
covered by Sukanya Holdings (supra).
By reason of a notice dated 15.04.2005, only a request had been made to
nominate a person in Chennai with whom the respondent could "interact to
agree on the arbitrator to whom the claims can be made to decide the disputes
between the parties".
Applicant has not appointed its arbitrator. Respondent has also not been
called upon to appoint its arbitrator by the said notice or otherwise. An
application for appointment of an arbitrator, therefore, is not maintainable
unless the procedure and mechanism agreed to by and between the parties is
complied with.
In National Highways Authority of India & Anr. v. Bumihiway DDB Ltd.
(JV) & Ors. [(2006) 9 SCALE 564], it was opined:- "44The parties have
entered into a contract after fully understanding the import of the terms so
agreed to from which there cannot be any deviation. The Courts have held that
the parties are required to comply with the procedure of appointment as agreed
to and the defaulting party cannot be allowed to take advantage of its own
wrong."
For the views, I have taken, it is not necessary to consider the other
submissions made at the bar.
For the reasons aforementioned, this application is dismissed being not
maintainable at this stage. No costs.
Back
Pages: 1 2
