By this petition filed under section 9 of the Arbitration Act,
the petitioner has only applied for an order and injunction against the
respondent from operating any EuroKids School or using the method,
license rights or any other traded name, logos etc. and seeks to
restrain the respondent from using of such trade mark and copyright
in those items and the trade name of the petitioner in compliance with
its obligations under the said franchise agreement and other related
reliefs. The petitioner has not filed any statement of claim before the
learned arbitrator. The judgment of the Supreme Court in the case of
Booz Allen & Hamilton Inc. (supra) thus does not assist the
respondent. In my view, since there is no dispute about the trade
mark and copyright of the petitioner in various items,the proceedings
filed by the petitioner is not in the nature of the proceedings in rem. In
any event as and when the statement of claim is filed and if any such
relief which would be in the nature of the proceedings in rem is
claimed, the respondent can always raise issue of jurisdiction before
the learned arbitrator.
19. This Court has considered the similar argument in the case
of redemption of mortgage while dealing with the matter under section
9 of the Arbitration Act in the case of Tata Capital Financial Services
Ltd. vs. M/s.Deccan Chronicle Holdings Limited & Mr. T. Venkatram
Reddy, 2013 (3) Bom.C.R. 205. It is held by this Court that since the
petitioner therein had not filed any statement of claim before the
arbitral tribunal, seeking any enforcement of the mortgaged property,
this Court cannot reject the petition under section 9 of the Arbitration
Act on the presumption that even in the arbitration proceedings, the
petitioner would apply for enforcement of the mortgage and which
would be beyond jurisdiction of the arbitral tribunal. Paragraphs 34 of
the said judgment reads as under :-
“34. On perusal of Judgment of Supreme Court
in case of Booz Allen MANU/SC/0533/2011 : (2011) 5
SCC 532 (supra), it is clear that Supreme Court, after
considering the prayers in the plaint in a mortgage
suit, has held that as the suit was for enforcement of
mortgage and was a suit in rem, issue of arbitrability
having raised by the defendant in such suit and the
application filed under Section 8 of the Act, such issue
of arbitrality has to be decided by the Court hearing
the suit and cannot be left to be decided by the arbitral
tribunal. Question, however, arises for consideration of
this Court in the present proceedings is whether in an
application under Section 9 of the Act while deciding a
relief in the nature of interim measures and in the
absence of the plaint before this Court, whether this
Court shall decide the issue of arbitrability of the
claims which are not even before this Court and on
that ground, dismiss the application under Section 9
for interim measures ?
It is not in dispute that the petitioners have not filed
any statement of claim before the arbitral tribunal
seeking any enforcement of the mortgaged property
under deeds of mortgage in so far as ARBP No. 1321
of 2012 is concerned. The learned counsel appearing
for the petitioner in both the matters submit that
considering the law laid down by the Supreme Court in
case of Booz Allen (supra), petitioner would not apply
for enforcement of mortgage in the arbitration
proceedings and on this ground, this Court cannot
reject the present application under Section 9 on the
presumption that even in the arbitration proceedings,
the petitioner would apply for enforcement of
mortgage and which would be beyond the jurisdiction
of the arbitral tribunal. On perusal of the Supreme
Court judgment in case of Booz Allen
MANU/SC/0533/2011 : (2011) 5 SCC 532 (supra), in
my view, it is clear that if the plaint and/or statement of
claim before the arbitral tribunal is not before the Court
while hearing application under Section 9 of the Act,
Court cannot reject the application for interim
measures on the ground that the petitioner may
ultimately apply for enforcement of mortgage which
would be beyond the jurisdiction of the arbitral tribunal.
In my view, it is for the petitioner to decide what claims
the petitioner would make before the arbitral tribunal. If
the petitioner choses not to apply for enforcement of
mortgage and files a simpliciter suit for recovery of
money or for enforcement of any other properties
which were not mortgaged by the respondents in
favour of the petitioners, such proceedings would be
the proceedings in personam and not in rem which
obviously would be within the jurisdiction of the arbitral
tribunal to adjudicate upon. In my view, even if any
such relief by way of enforcement of mortgage is
claimed before the arbitral tribunal, petitioner would
always have liberty to decide whether to withdraw
such claims and/or seek amendment for moulding its
reliefs, which would be within the jurisdiction of the
arbitral tribunal. In my view, if any such reliefs are
claimed which are beyond the jurisdiction of the
arbitral tribunal and cannot be adjudicated upon,
mechanism under Section 16 is provided by the
legislature to raise issue of jurisdiction by the
respondents before the arbitral tribunal. On hearing
such application under Section 16, an arbitral tribunal
can always decide whether any of the claims made by
the claimants were within its jurisdiction to adjudicate
upon. In my view, proceedings under Section 9 filed in
this Court by the petitioner for interim measures,
cannot be equated with the proceedings filed in a
pending suit for referring the parties to arbitration
under Section 8 of the Act of 1996. Thus, in my view,
reliance placed by the respondents on the Judgment
of Supreme Court in case of Booz Allen (2011) 5 SCC
532 (supra) is of no assistance to the respondents
while opposing application under Section 9 of the Act
of 1996.”
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO.1061 OF 2014
EuroKids International Private Limited,
..Versus..
Bhaskar Vidhyapeeth Shikshan Sanstha,
CORAM : R.D. DHANUKA, J.
PRONOUNCED ON : 1ST JULY, 2015.
1. By this petition filed under section 9 of the Arbitration &
Conciliation Act, 1996 (for short the said ”Arbitration Act”), the
petitioner seeks an order and injunction against the respondent from
operating any EuroKids School or using the method, license rights or
any other traded name, logos, devices, insignia, procedures or from
holding himself out in any way as a franchisee of the petitioner and for
various other reliefs. Some of the relevant facts for the purpose of
deciding this arbitration petition are as under :
2. On 3rd June, 2009, the petitioner and Mr.Ashish Sharma,
who is brother of Mr.Ashwin Kachwal had entered into an agreement
whereby the petitioner agreed to license the proprietary marks of the
petitioner for an initial period of about three years ending on 31st
March, 2012. On 5th March, 2012, the petitioner agreed to renew the
franchise agreement however, on the additional terms and
conditions. It is the case of the petitioner that the respondent had
started advertising for academic year April, 2012 to March, 2013
without awaiting confirmation of the terms of the petitioner. On 23rd
August, 2012, the petitioner executed a fresh franchise agreement but
restricted the initial term of the same till 31st March, 2013. It is the
case of the petitioner that the respondent did not pay royalty fee and
also had issued instructions to stop payment of the cheques issued to
the petitioner. Though the respondent agreed to clear the outstanding
royalty amount, the respondent did not clear such outstanding royalty
fee.
3. On 11th March, 2013, the petitioner issued a cease and
desist notice informing the respondent of its decision not to renew the
franchise agreement and called upon the respondent to comply with
the formalities of de-recognition of the respondent as franchisee of
the petitioner. The respondent vide its e-mail dated 17th March, 2013
raised various issues and protested against the termination of the
franchise agreement. The petitioner by its letter dated 20th March,
2013, once again alleged that the respondent had committed various
defaults. The respondent vide its e-mail dated 22nd March, 2013,
denied the right of the petitioner to terminate the agreement and
alleged that the respondent had made payment of the sum of
Rs.70,416/- as license fee for the term 2013-2014 and also paid the
outstanding dues and other sums towards uniforms etc.
4. On 9th July, 2013, the petitioner through its advocate
issued a fresh cease and desist notice addressed to the respondent
highlighting infringement of the petitioner's proprietary marks. On
25th February, 2013, the petitioner issued a legal notice and appointed
Mr.Sunil Payak as the sole arbitrator in accordance with clause 15 of
the franchise agreement.
5. On 26th March, 2013, the respondent through its advocate
replied to the said notice and demanded a sum of Rs.15.00 lakhs
allegedly being the cost of the manufacture and purchase of the
copyright material of the petitioner. It is the case of the petitioner that
the respondent continued to use proprietary marks of the petitioner
without being paying the license fee for last two years and also royalty
amount and have continued to use the same though the said
franchise agreement has been terminated by the petitioner.
6. Learned counsel for the petitioner invited my attention to
the various provisions of the franchise agreement entered into
between the parties. Reliance is placed on clauses 5.1.4, 7.2.4, 7.5,
10.1, 12.1 and 13.1 of the said franchise agreement and it is
submitted that under the said provisions, the respondent who was
franchisee, upon termination of the franchise agreement was under
an obligation to return the franchiser all equipment, materials,
manuals, information and all other items that franchisee received from
franchiser, including all copies thereof and notes thereon which
franchisee may have or control. Under the said provisions, the
respondent had also undertaken to obtain understanding such
confidentiality from its personnel and had undertaken not to carry out
the same or similar activity for a period of one year under any other
brand name.
7. The respondent had agreed to use the proprietary marks
of the petitioner only for so long as the franchisee and the license
granted under the said agreement remained in force and also in
connection and in accord with the method, and in compliance with the
said franchise agreement. The franchisee had also agreed not to use
the proprietary marks or hand over the names containing such name
or any of the proprietary marks in or part of the firm or corporate
name of the franchisee.
8. Under clause 10.1, it is agreed by the franchisee that
during the term of the said agreement and three years thereafter it
would not engage, directly or indirectly, in any capacity, in any
business activity with pre-school children except as provided in the
said franchise agreement or in any other similar business with any
person without advance written consent of the franchiser. The
franchisee also agreed not to carry out the Eurokids pre-school
activity any place other than the site location without prior permission
of franchiser. Clause 12.1 provides for termination of the franchise
agreement. Under clause 13.1 it is provided that upon termination,
expiration or cancellation of the said agreement, the franchisee shall
cease to authorize the franchisee and shall immediately discontinue
the use of the method in its entirety all the proprietary marks, and any
names, marks, or signs which may be confusingly the similar thereto
and all other materials which may indicate that franchisee is or was
an authorized franchisee or otherwise associated with franchiser.
9. The franchisee further agreed to return to the franchiser all
materials (utilized and unutilized) containing any reference to
franchiser, and to cancel any pending advertising and discontinue
future advertising which refers to or cannotes any relationship
between franchisee and franchiser.
10. Learned counsel for the petitioner invited my attention to
the correspondence exchange between the parties. My attention is
also invited to a letter dated 26th March, 2014, addressed by the
respondent through its advocate in reply to the notice dated 25th
February, 2014 which was issued by the petitioner's advocate. He
submits that even in the said reply, the respondent has not disputed
that the petitioner had copyright over the material in possession of
the respondent but the respondent had refused to return the said
copyright material on the ground that the respondent had spent a sum
of Rs.15.00 lakhs and till the same was returned by the petitioner, the
respondent would not return such copyright material and had full right
to use the said material for the use and engagement in its school for
the academic year 2013-2014.
11. Learned counsel for the petitioner submits that in view of
various negative covenants in the agreement and in view of the
franchise agreement entered into between the parties, having come
to an end in view of the termination notice, the respondent cannot be
allowed to use any copyright material and trade marks of the
petitioner. He submits that the respondent has continued to use the
proprietary materials of the petitioner in breach of the agreement. In
support of this submission, learned counsel placed reliance on the
newspaper advertisement issued by the respondent, which according
to the petitioner establishes unauthorized use of the proprietary mark
of the petitioner without a valid license. The petitioner therefore, has
prayed for various interim measures.
12. Learned counsel for the respondent on the other hand
submits that the petitioner in this petition filed under section 9 of the
Arbitration Act has raised the dispute regarding infringement of
intellectual property rights allegedly held by the petitioner in the
material and/or equipment provided by the respondent for running of
Eurokids school which dispute can be exclusively tried by a Civil
Court since the petitioner ceases to exercise a right in rem which
would not be an arbitral dispute.
13. It is submitted by learned counsel that this Court cannot
direct the respondent to disclose the amounts that had been collected
by the respondent from 2012 till date and to grant any permission to
the petitioner to withdraw the said amount, since the said relief is in
the nature of the final relief at the interlocutory stage, which is not
permissible. In support of this submission, learned counsel for the
respondent placed reliance on the judgment of the Supreme Court in
the case of Booz Allen & Hamilton Inc. vs. SBI Home Finance Ltd. &
Ors. AIR 2011 SC 2507 and more particularly paragraphs 22, 23 and
25. It is submitted by learned counsel for the respondent that even if
there was any negative covenant on the part of the respondent, such
negative covenant cannot be enforced post termination of the
agreement. In support of this submission, learned counsel placed
reliance on the judgment of the Supreme Court in the case of
Superintendence Company of India (P) Ltd. vs. Sh. Krishan Murgai,
AIR 1980 SC 1717 and in particular paragraphs 6 and 21.
14. It is submitted by learned counsel for the respondent that
the respondent has not been using any trade mark or copyright mark
of the petitioner. Merely because of the clever drafting of the
petitioner, the petitioner is trying to show that there is no dispute
about any infringement of the trade mark of copyright proposed to be
raised by the petitioner. She submits that the balance of convenience
is in favour of the respondent. In support of this submission, learned
counsel for the respondent placed reliance on the judgment of the
Supreme Court in the case of Sopan Sukhdeo Sable & Ors. vs.
Assistant Charity Commissioner & Ors. AIR 2004 SC 1801 and in
particular paragraphs 11 and 12.
15. Learned counsel for the petitioner in rejoinder submits that
the petitioner has not filed any statement of claim before the learned
arbitrator so far. The petitioner has not filed any proceedings, which
would be the proceeding in rem. The petitioner seeks enforcement of
the negative covenant in respect of the franchise agreement which
the respondent had agreed to comply with. He submits that there is
no dispute between the parties about the ownership of the petitioner
in the trade mark and copyright of various materials and thus no right
in rem is claimed by the petitioner.
16. A perusal of various provisions referred to aforesaid,
clearly indicates that when the respondent was granted a license
under the said franchise agreement dated 23rd August, 2012 till the
said franchise agreement was subsisting. The respondent has ceased
to be an authorized franchisee in view of the termination of the said
franchise agreement by the petitioner or by efflux of time. Upon such
termination, the respondent had agreed to discontinue the use of the
method in its entirety, all proprietary marks and any names, marks or
signs immediately and to return to the franchiser all materials
containing in reference to the franchiser and to cancel any pending
advertising and to continue future advertising which referred to or
connotes any relationship between the franchisee and franchiser.
17. A perusal of the letter dated 26th March,2014 addressed by
the respondent through its advocate clearly indicates that the
respondent has not disputed the ownership of the petitioner of the
copyright and trademark in the material and other items in
possession of the respondent. On the contrary, it is contended by the
respondent that since the respondent has spent a sum of Rs.15.00
lakhs for the manufacture / purchase of such material, the respondent
had right to use the said copyright material for the use and enjoyment
of the said school till the petitioner would return the sum of Rs.15.00
lakhs to the respondent. In my view, the submission of learned
counsel for the respondent that the petitioner has no copyright or
trade mark in such material has no merits. A perusal of the agreement
as well as the correspondence entered into between the parties
clearly indicates that the trade mark and the copyright of the petitioner
is not in dispute.
18. By this petition filed under section 9 of the Arbitration Act,
the petitioner has only applied for an order and injunction against the
respondent from operating any EuroKids School or using the method,
license rights or any other traded name, logos etc. and seeks to
restrain the respondent from using of such trade mark and copyright
in those items and the trade name of the petitioner in compliance with
its obligations under the said franchise agreement and other related
reliefs. The petitioner has not filed any statement of claim before the
learned arbitrator. The judgment of the Supreme Court in the case of
Booz Allen & Hamilton Inc. (supra) thus does not assist the
respondent. In my view, since there is no dispute about the trade
mark and copyright of the petitioner in various items,the proceedings
filed by the petitioner is not in the nature of the proceedings in rem. In
any event as and when the statement of claim is filed and if any such
relief which would be in the nature of the proceedings in rem is
claimed, the respondent can always raise issue of jurisdiction before
the learned arbitrator.
19. This Court has considered the similar argument in the case
of redemption of mortgage while dealing with the matter under section
9 of the Arbitration Act in the case of Tata Capital Financial Services
Ltd. vs. M/s.Deccan Chronicle Holdings Limited & Mr. T. Venkatram
Reddy, 2013 (3) Bom.C.R. 205. It is held by this Court that since the
petitioner therein had not filed any statement of claim before the
arbitral tribunal, seeking any enforcement of the mortgaged property,
this Court cannot reject the petition under section 9 of the Arbitration
Act on the presumption that even in the arbitration proceedings, the
petitioner would apply for enforcement of the mortgage and which
would be beyond jurisdiction of the arbitral tribunal. Paragraphs 34 of
the said judgment reads as under :-
“34. On perusal of Judgment of Supreme Court
in case of Booz Allen MANU/SC/0533/2011 : (2011) 5
SCC 532 (supra), it is clear that Supreme Court, after
considering the prayers in the plaint in a mortgage
suit, has held that as the suit was for enforcement of
mortgage and was a suit in rem, issue of arbitrability
having raised by the defendant in such suit and the
application filed under Section 8 of the Act, such issue
of arbitrality has to be decided by the Court hearing
the suit and cannot be left to be decided by the arbitral
tribunal. Question, however, arises for consideration of
this Court in the present proceedings is whether in an
application under Section 9 of the Act while deciding a
relief in the nature of interim measures and in the
absence of the plaint before this Court, whether this
Court shall decide the issue of arbitrability of the
claims which are not even before this Court and on
that ground, dismiss the application under Section 9
for interim measures ?
It is not in dispute that the petitioners have not filed
any statement of claim before the arbitral tribunal
seeking any enforcement of the mortgaged property
under deeds of mortgage in so far as ARBP No. 1321
of 2012 is concerned. The learned counsel appearing
for the petitioner in both the matters submit that
considering the law laid down by the Supreme Court in
case of Booz Allen (supra), petitioner would not apply
for enforcement of mortgage in the arbitration
proceedings and on this ground, this Court cannot
reject the present application under Section 9 on the
presumption that even in the arbitration proceedings,
the petitioner would apply for enforcement of
mortgage and which would be beyond the jurisdiction
of the arbitral tribunal. On perusal of the Supreme
Court judgment in case of Booz Allen
MANU/SC/0533/2011 : (2011) 5 SCC 532 (supra), in
my view, it is clear that if the plaint and/or statement of
claim before the arbitral tribunal is not before the Court
while hearing application under Section 9 of the Act,
Court cannot reject the application for interim
measures on the ground that the petitioner may
ultimately apply for enforcement of mortgage which
would be beyond the jurisdiction of the arbitral tribunal.
In my view, it is for the petitioner to decide what claims
the petitioner would make before the arbitral tribunal. If
the petitioner choses not to apply for enforcement of
mortgage and files a simpliciter suit for recovery of
money or for enforcement of any other properties
which were not mortgaged by the respondents in
favour of the petitioners, such proceedings would be
the proceedings in personam and not in rem which
obviously would be within the jurisdiction of the arbitral
tribunal to adjudicate upon. In my view, even if any
such relief by way of enforcement of mortgage is
claimed before the arbitral tribunal, petitioner would
always have liberty to decide whether to withdraw
such claims and/or seek amendment for moulding its
reliefs, which would be within the jurisdiction of the
arbitral tribunal. In my view, if any such reliefs are
claimed which are beyond the jurisdiction of the
arbitral tribunal and cannot be adjudicated upon,
mechanism under Section 16 is provided by the
legislature to raise issue of jurisdiction by the
respondents before the arbitral tribunal. On hearing
such application under Section 16, an arbitral tribunal
can always decide whether any of the claims made by
the claimants were within its jurisdiction to adjudicate
upon. In my view, proceedings under Section 9 filed in
this Court by the petitioner for interim measures,
cannot be equated with the proceedings filed in a
pending suit for referring the parties to arbitration
under Section 8 of the Act of 1996. Thus, in my view,
reliance placed by the respondents on the Judgment
of Supreme Court in case of Booz Allen (2011) 5 SCC
532 (supra) is of no assistance to the respondents
while opposing application under Section 9 of the Act
of 1996.”
20. Insofar the judgment in the case of Superintendence
Company of India (P) Ltd. (supra) relied upon by learned counsel for
the respondent is concerned, the facts of the said judgment before
the Supreme Court were totally different. In this case, the respondent
had agreed not to use any trade mark and copyright of the petitioner
upon termination of the franchise agreement and such right is
enforceable in law and violation of any such negative covenant can
be restrained by an order of injunction of this Court.
21. Insofar as the judgment of the Supreme Court in the case
of Sopan Sukhdeo Sable & Ors. (supra), relied upon by the
respondent is concerned, it is held by the Supreme Court while
dealing with the application under order VII Rule 11 of the Code of
Civil Procedure that the basic question that has to be decided is
whether a real cause of action has been set out in the plaint or
something purely illusory has been stated with a view to get out of
Order VII Rule 11 of the Code of Civil Procedure. In my view, the said
judgment of the Supreme Court does not assist the respondent in any
manner whatsoever. The present proceedings are filed under section
9 of the Arbitration Act. The petitioner has not as yet filed any
statement of claim before the learned arbitrator. Be that as it may, in
my prima-facie view, since there is no dispute about the trade mark
and copyright of the petitioner in various materials and other items
being used by the respondent, the proceedings filed by the petitioner
is not the proceeding in rem. In my view, there is thus no merit in the
submission of the learned counsel for the respondent.
22. In my view, the respondent cannot be allowed to use the
trade mark and copyright of the petitioner merely on the ground that
the respondent had a money claim against the petitioner and till such
amount is paid by the petitioner, the respondent can use the said
trade mark and copyright of the petitioner of such material. The said
contention of the respondent clearly indicates that the respondent has
not disputed the trade mark and copyright of the petitioner in such
material which is in possession of the respondent.
23. In my view, the petitioner has made out a case for interim
measures. A copy of the newspaper advertisement annexed to the
petition at Exhibit “T” clearly indicates that the respondent has
continued to use the proprietary mark of the petitioner contrary to the
negative covenant not to use such proprietary marks of the petitioner
post termination of the franchise agreement. In my view, the balance
of convenience is in favour of the petitioner and not the respondent.
24. In my view, there is no substance in the submission of the
respondent that this Court cannot direct the respondent to disclose
the amounts collected by the respondent under section 9 of the
Arbitration Act. In my view, in view of the provisions of the agreement,
the petitioner can apply for enforcement of the negative covenant
even upon terminating the agreement or on the agreement coming to
an end on efflux of time.
25. I therefore, pass the following order :-
a). The arbitration petition is made absolute in terms of prayer
clauses (a-i), (a-iii), (a-iv) and (a-viii).
b). The respondent is directed to disclose on affidavit in terms
of prayer clause (a-iv) within four weeks from the date of
communication of this order. Upon such disclosure on affidavit in
terms of prayer clause (a-iv) by the respondent, the petitioner would
be at liberty to seek further interim measures before the learned
arbitrator under section 17 of the Arbitration Act.
c). The petitioner is directed to take steps for appointment of
the arbitral tribunal in accordance with the arbitration agreement
within four weeks from today.
d). The arbitration petition is disposed of in the aforesaid
terms. There shall be no order as to costs.
(R.D. DHANUKA, J.)
Print Page
the petitioner has only applied for an order and injunction against the
respondent from operating any EuroKids School or using the method,
license rights or any other traded name, logos etc. and seeks to
restrain the respondent from using of such trade mark and copyright
in those items and the trade name of the petitioner in compliance with
its obligations under the said franchise agreement and other related
reliefs. The petitioner has not filed any statement of claim before the
learned arbitrator. The judgment of the Supreme Court in the case of
Booz Allen & Hamilton Inc. (supra) thus does not assist the
respondent. In my view, since there is no dispute about the trade
mark and copyright of the petitioner in various items,the proceedings
filed by the petitioner is not in the nature of the proceedings in rem. In
any event as and when the statement of claim is filed and if any such
relief which would be in the nature of the proceedings in rem is
claimed, the respondent can always raise issue of jurisdiction before
the learned arbitrator.
19. This Court has considered the similar argument in the case
of redemption of mortgage while dealing with the matter under section
9 of the Arbitration Act in the case of Tata Capital Financial Services
Ltd. vs. M/s.Deccan Chronicle Holdings Limited & Mr. T. Venkatram
Reddy, 2013 (3) Bom.C.R. 205. It is held by this Court that since the
petitioner therein had not filed any statement of claim before the
arbitral tribunal, seeking any enforcement of the mortgaged property,
this Court cannot reject the petition under section 9 of the Arbitration
Act on the presumption that even in the arbitration proceedings, the
petitioner would apply for enforcement of the mortgage and which
would be beyond jurisdiction of the arbitral tribunal. Paragraphs 34 of
the said judgment reads as under :-
“34. On perusal of Judgment of Supreme Court
in case of Booz Allen MANU/SC/0533/2011 : (2011) 5
SCC 532 (supra), it is clear that Supreme Court, after
considering the prayers in the plaint in a mortgage
suit, has held that as the suit was for enforcement of
mortgage and was a suit in rem, issue of arbitrability
having raised by the defendant in such suit and the
application filed under Section 8 of the Act, such issue
of arbitrality has to be decided by the Court hearing
the suit and cannot be left to be decided by the arbitral
tribunal. Question, however, arises for consideration of
this Court in the present proceedings is whether in an
application under Section 9 of the Act while deciding a
relief in the nature of interim measures and in the
absence of the plaint before this Court, whether this
Court shall decide the issue of arbitrability of the
claims which are not even before this Court and on
that ground, dismiss the application under Section 9
for interim measures ?
It is not in dispute that the petitioners have not filed
any statement of claim before the arbitral tribunal
seeking any enforcement of the mortgaged property
under deeds of mortgage in so far as ARBP No. 1321
of 2012 is concerned. The learned counsel appearing
for the petitioner in both the matters submit that
considering the law laid down by the Supreme Court in
case of Booz Allen (supra), petitioner would not apply
for enforcement of mortgage in the arbitration
proceedings and on this ground, this Court cannot
reject the present application under Section 9 on the
presumption that even in the arbitration proceedings,
the petitioner would apply for enforcement of
mortgage and which would be beyond the jurisdiction
of the arbitral tribunal. On perusal of the Supreme
Court judgment in case of Booz Allen
MANU/SC/0533/2011 : (2011) 5 SCC 532 (supra), in
my view, it is clear that if the plaint and/or statement of
claim before the arbitral tribunal is not before the Court
while hearing application under Section 9 of the Act,
Court cannot reject the application for interim
measures on the ground that the petitioner may
ultimately apply for enforcement of mortgage which
would be beyond the jurisdiction of the arbitral tribunal.
In my view, it is for the petitioner to decide what claims
the petitioner would make before the arbitral tribunal. If
the petitioner choses not to apply for enforcement of
mortgage and files a simpliciter suit for recovery of
money or for enforcement of any other properties
which were not mortgaged by the respondents in
favour of the petitioners, such proceedings would be
the proceedings in personam and not in rem which
obviously would be within the jurisdiction of the arbitral
tribunal to adjudicate upon. In my view, even if any
such relief by way of enforcement of mortgage is
claimed before the arbitral tribunal, petitioner would
always have liberty to decide whether to withdraw
such claims and/or seek amendment for moulding its
reliefs, which would be within the jurisdiction of the
arbitral tribunal. In my view, if any such reliefs are
claimed which are beyond the jurisdiction of the
arbitral tribunal and cannot be adjudicated upon,
mechanism under Section 16 is provided by the
legislature to raise issue of jurisdiction by the
respondents before the arbitral tribunal. On hearing
such application under Section 16, an arbitral tribunal
can always decide whether any of the claims made by
the claimants were within its jurisdiction to adjudicate
upon. In my view, proceedings under Section 9 filed in
this Court by the petitioner for interim measures,
cannot be equated with the proceedings filed in a
pending suit for referring the parties to arbitration
under Section 8 of the Act of 1996. Thus, in my view,
reliance placed by the respondents on the Judgment
of Supreme Court in case of Booz Allen (2011) 5 SCC
532 (supra) is of no assistance to the respondents
while opposing application under Section 9 of the Act
of 1996.”
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO.1061 OF 2014
EuroKids International Private Limited,
..Versus..
Bhaskar Vidhyapeeth Shikshan Sanstha,
CORAM : R.D. DHANUKA, J.
PRONOUNCED ON : 1ST JULY, 2015.
1. By this petition filed under section 9 of the Arbitration &
Conciliation Act, 1996 (for short the said ”Arbitration Act”), the
petitioner seeks an order and injunction against the respondent from
operating any EuroKids School or using the method, license rights or
any other traded name, logos, devices, insignia, procedures or from
holding himself out in any way as a franchisee of the petitioner and for
various other reliefs. Some of the relevant facts for the purpose of
deciding this arbitration petition are as under :
2. On 3rd June, 2009, the petitioner and Mr.Ashish Sharma,
who is brother of Mr.Ashwin Kachwal had entered into an agreement
whereby the petitioner agreed to license the proprietary marks of the
petitioner for an initial period of about three years ending on 31st
March, 2012. On 5th March, 2012, the petitioner agreed to renew the
franchise agreement however, on the additional terms and
conditions. It is the case of the petitioner that the respondent had
started advertising for academic year April, 2012 to March, 2013
without awaiting confirmation of the terms of the petitioner. On 23rd
August, 2012, the petitioner executed a fresh franchise agreement but
restricted the initial term of the same till 31st March, 2013. It is the
case of the petitioner that the respondent did not pay royalty fee and
also had issued instructions to stop payment of the cheques issued to
the petitioner. Though the respondent agreed to clear the outstanding
royalty amount, the respondent did not clear such outstanding royalty
fee.
3. On 11th March, 2013, the petitioner issued a cease and
desist notice informing the respondent of its decision not to renew the
franchise agreement and called upon the respondent to comply with
the formalities of de-recognition of the respondent as franchisee of
the petitioner. The respondent vide its e-mail dated 17th March, 2013
raised various issues and protested against the termination of the
franchise agreement. The petitioner by its letter dated 20th March,
2013, once again alleged that the respondent had committed various
defaults. The respondent vide its e-mail dated 22nd March, 2013,
denied the right of the petitioner to terminate the agreement and
alleged that the respondent had made payment of the sum of
Rs.70,416/- as license fee for the term 2013-2014 and also paid the
outstanding dues and other sums towards uniforms etc.
4. On 9th July, 2013, the petitioner through its advocate
issued a fresh cease and desist notice addressed to the respondent
highlighting infringement of the petitioner's proprietary marks. On
25th February, 2013, the petitioner issued a legal notice and appointed
Mr.Sunil Payak as the sole arbitrator in accordance with clause 15 of
the franchise agreement.
5. On 26th March, 2013, the respondent through its advocate
replied to the said notice and demanded a sum of Rs.15.00 lakhs
allegedly being the cost of the manufacture and purchase of the
copyright material of the petitioner. It is the case of the petitioner that
the respondent continued to use proprietary marks of the petitioner
without being paying the license fee for last two years and also royalty
amount and have continued to use the same though the said
franchise agreement has been terminated by the petitioner.
6. Learned counsel for the petitioner invited my attention to
the various provisions of the franchise agreement entered into
between the parties. Reliance is placed on clauses 5.1.4, 7.2.4, 7.5,
10.1, 12.1 and 13.1 of the said franchise agreement and it is
submitted that under the said provisions, the respondent who was
franchisee, upon termination of the franchise agreement was under
an obligation to return the franchiser all equipment, materials,
manuals, information and all other items that franchisee received from
franchiser, including all copies thereof and notes thereon which
franchisee may have or control. Under the said provisions, the
respondent had also undertaken to obtain understanding such
confidentiality from its personnel and had undertaken not to carry out
the same or similar activity for a period of one year under any other
brand name.
7. The respondent had agreed to use the proprietary marks
of the petitioner only for so long as the franchisee and the license
granted under the said agreement remained in force and also in
connection and in accord with the method, and in compliance with the
said franchise agreement. The franchisee had also agreed not to use
the proprietary marks or hand over the names containing such name
or any of the proprietary marks in or part of the firm or corporate
name of the franchisee.
8. Under clause 10.1, it is agreed by the franchisee that
during the term of the said agreement and three years thereafter it
would not engage, directly or indirectly, in any capacity, in any
business activity with pre-school children except as provided in the
said franchise agreement or in any other similar business with any
person without advance written consent of the franchiser. The
franchisee also agreed not to carry out the Eurokids pre-school
activity any place other than the site location without prior permission
of franchiser. Clause 12.1 provides for termination of the franchise
agreement. Under clause 13.1 it is provided that upon termination,
expiration or cancellation of the said agreement, the franchisee shall
cease to authorize the franchisee and shall immediately discontinue
the use of the method in its entirety all the proprietary marks, and any
names, marks, or signs which may be confusingly the similar thereto
and all other materials which may indicate that franchisee is or was
an authorized franchisee or otherwise associated with franchiser.
9. The franchisee further agreed to return to the franchiser all
materials (utilized and unutilized) containing any reference to
franchiser, and to cancel any pending advertising and discontinue
future advertising which refers to or cannotes any relationship
between franchisee and franchiser.
10. Learned counsel for the petitioner invited my attention to
the correspondence exchange between the parties. My attention is
also invited to a letter dated 26th March, 2014, addressed by the
respondent through its advocate in reply to the notice dated 25th
February, 2014 which was issued by the petitioner's advocate. He
submits that even in the said reply, the respondent has not disputed
that the petitioner had copyright over the material in possession of
the respondent but the respondent had refused to return the said
copyright material on the ground that the respondent had spent a sum
of Rs.15.00 lakhs and till the same was returned by the petitioner, the
respondent would not return such copyright material and had full right
to use the said material for the use and engagement in its school for
the academic year 2013-2014.
11. Learned counsel for the petitioner submits that in view of
various negative covenants in the agreement and in view of the
franchise agreement entered into between the parties, having come
to an end in view of the termination notice, the respondent cannot be
allowed to use any copyright material and trade marks of the
petitioner. He submits that the respondent has continued to use the
proprietary materials of the petitioner in breach of the agreement. In
support of this submission, learned counsel placed reliance on the
newspaper advertisement issued by the respondent, which according
to the petitioner establishes unauthorized use of the proprietary mark
of the petitioner without a valid license. The petitioner therefore, has
prayed for various interim measures.
12. Learned counsel for the respondent on the other hand
submits that the petitioner in this petition filed under section 9 of the
Arbitration Act has raised the dispute regarding infringement of
intellectual property rights allegedly held by the petitioner in the
material and/or equipment provided by the respondent for running of
Eurokids school which dispute can be exclusively tried by a Civil
Court since the petitioner ceases to exercise a right in rem which
would not be an arbitral dispute.
13. It is submitted by learned counsel that this Court cannot
direct the respondent to disclose the amounts that had been collected
by the respondent from 2012 till date and to grant any permission to
the petitioner to withdraw the said amount, since the said relief is in
the nature of the final relief at the interlocutory stage, which is not
permissible. In support of this submission, learned counsel for the
respondent placed reliance on the judgment of the Supreme Court in
the case of Booz Allen & Hamilton Inc. vs. SBI Home Finance Ltd. &
Ors. AIR 2011 SC 2507 and more particularly paragraphs 22, 23 and
25. It is submitted by learned counsel for the respondent that even if
there was any negative covenant on the part of the respondent, such
negative covenant cannot be enforced post termination of the
agreement. In support of this submission, learned counsel placed
reliance on the judgment of the Supreme Court in the case of
Superintendence Company of India (P) Ltd. vs. Sh. Krishan Murgai,
AIR 1980 SC 1717 and in particular paragraphs 6 and 21.
14. It is submitted by learned counsel for the respondent that
the respondent has not been using any trade mark or copyright mark
of the petitioner. Merely because of the clever drafting of the
petitioner, the petitioner is trying to show that there is no dispute
about any infringement of the trade mark of copyright proposed to be
raised by the petitioner. She submits that the balance of convenience
is in favour of the respondent. In support of this submission, learned
counsel for the respondent placed reliance on the judgment of the
Supreme Court in the case of Sopan Sukhdeo Sable & Ors. vs.
Assistant Charity Commissioner & Ors. AIR 2004 SC 1801 and in
particular paragraphs 11 and 12.
15. Learned counsel for the petitioner in rejoinder submits that
the petitioner has not filed any statement of claim before the learned
arbitrator so far. The petitioner has not filed any proceedings, which
would be the proceeding in rem. The petitioner seeks enforcement of
the negative covenant in respect of the franchise agreement which
the respondent had agreed to comply with. He submits that there is
no dispute between the parties about the ownership of the petitioner
in the trade mark and copyright of various materials and thus no right
in rem is claimed by the petitioner.
16. A perusal of various provisions referred to aforesaid,
clearly indicates that when the respondent was granted a license
under the said franchise agreement dated 23rd August, 2012 till the
said franchise agreement was subsisting. The respondent has ceased
to be an authorized franchisee in view of the termination of the said
franchise agreement by the petitioner or by efflux of time. Upon such
termination, the respondent had agreed to discontinue the use of the
method in its entirety, all proprietary marks and any names, marks or
signs immediately and to return to the franchiser all materials
containing in reference to the franchiser and to cancel any pending
advertising and to continue future advertising which referred to or
connotes any relationship between the franchisee and franchiser.
17. A perusal of the letter dated 26th March,2014 addressed by
the respondent through its advocate clearly indicates that the
respondent has not disputed the ownership of the petitioner of the
copyright and trademark in the material and other items in
possession of the respondent. On the contrary, it is contended by the
respondent that since the respondent has spent a sum of Rs.15.00
lakhs for the manufacture / purchase of such material, the respondent
had right to use the said copyright material for the use and enjoyment
of the said school till the petitioner would return the sum of Rs.15.00
lakhs to the respondent. In my view, the submission of learned
counsel for the respondent that the petitioner has no copyright or
trade mark in such material has no merits. A perusal of the agreement
as well as the correspondence entered into between the parties
clearly indicates that the trade mark and the copyright of the petitioner
is not in dispute.
18. By this petition filed under section 9 of the Arbitration Act,
the petitioner has only applied for an order and injunction against the
respondent from operating any EuroKids School or using the method,
license rights or any other traded name, logos etc. and seeks to
restrain the respondent from using of such trade mark and copyright
in those items and the trade name of the petitioner in compliance with
its obligations under the said franchise agreement and other related
reliefs. The petitioner has not filed any statement of claim before the
learned arbitrator. The judgment of the Supreme Court in the case of
Booz Allen & Hamilton Inc. (supra) thus does not assist the
respondent. In my view, since there is no dispute about the trade
mark and copyright of the petitioner in various items,the proceedings
filed by the petitioner is not in the nature of the proceedings in rem. In
any event as and when the statement of claim is filed and if any such
relief which would be in the nature of the proceedings in rem is
claimed, the respondent can always raise issue of jurisdiction before
the learned arbitrator.
19. This Court has considered the similar argument in the case
of redemption of mortgage while dealing with the matter under section
9 of the Arbitration Act in the case of Tata Capital Financial Services
Ltd. vs. M/s.Deccan Chronicle Holdings Limited & Mr. T. Venkatram
Reddy, 2013 (3) Bom.C.R. 205. It is held by this Court that since the
petitioner therein had not filed any statement of claim before the
arbitral tribunal, seeking any enforcement of the mortgaged property,
this Court cannot reject the petition under section 9 of the Arbitration
Act on the presumption that even in the arbitration proceedings, the
petitioner would apply for enforcement of the mortgage and which
would be beyond jurisdiction of the arbitral tribunal. Paragraphs 34 of
the said judgment reads as under :-
“34. On perusal of Judgment of Supreme Court
in case of Booz Allen MANU/SC/0533/2011 : (2011) 5
SCC 532 (supra), it is clear that Supreme Court, after
considering the prayers in the plaint in a mortgage
suit, has held that as the suit was for enforcement of
mortgage and was a suit in rem, issue of arbitrability
having raised by the defendant in such suit and the
application filed under Section 8 of the Act, such issue
of arbitrality has to be decided by the Court hearing
the suit and cannot be left to be decided by the arbitral
tribunal. Question, however, arises for consideration of
this Court in the present proceedings is whether in an
application under Section 9 of the Act while deciding a
relief in the nature of interim measures and in the
absence of the plaint before this Court, whether this
Court shall decide the issue of arbitrability of the
claims which are not even before this Court and on
that ground, dismiss the application under Section 9
for interim measures ?
It is not in dispute that the petitioners have not filed
any statement of claim before the arbitral tribunal
seeking any enforcement of the mortgaged property
under deeds of mortgage in so far as ARBP No. 1321
of 2012 is concerned. The learned counsel appearing
for the petitioner in both the matters submit that
considering the law laid down by the Supreme Court in
case of Booz Allen (supra), petitioner would not apply
for enforcement of mortgage in the arbitration
proceedings and on this ground, this Court cannot
reject the present application under Section 9 on the
presumption that even in the arbitration proceedings,
the petitioner would apply for enforcement of
mortgage and which would be beyond the jurisdiction
of the arbitral tribunal. On perusal of the Supreme
Court judgment in case of Booz Allen
MANU/SC/0533/2011 : (2011) 5 SCC 532 (supra), in
my view, it is clear that if the plaint and/or statement of
claim before the arbitral tribunal is not before the Court
while hearing application under Section 9 of the Act,
Court cannot reject the application for interim
measures on the ground that the petitioner may
ultimately apply for enforcement of mortgage which
would be beyond the jurisdiction of the arbitral tribunal.
In my view, it is for the petitioner to decide what claims
the petitioner would make before the arbitral tribunal. If
the petitioner choses not to apply for enforcement of
mortgage and files a simpliciter suit for recovery of
money or for enforcement of any other properties
which were not mortgaged by the respondents in
favour of the petitioners, such proceedings would be
the proceedings in personam and not in rem which
obviously would be within the jurisdiction of the arbitral
tribunal to adjudicate upon. In my view, even if any
such relief by way of enforcement of mortgage is
claimed before the arbitral tribunal, petitioner would
always have liberty to decide whether to withdraw
such claims and/or seek amendment for moulding its
reliefs, which would be within the jurisdiction of the
arbitral tribunal. In my view, if any such reliefs are
claimed which are beyond the jurisdiction of the
arbitral tribunal and cannot be adjudicated upon,
mechanism under Section 16 is provided by the
legislature to raise issue of jurisdiction by the
respondents before the arbitral tribunal. On hearing
such application under Section 16, an arbitral tribunal
can always decide whether any of the claims made by
the claimants were within its jurisdiction to adjudicate
upon. In my view, proceedings under Section 9 filed in
this Court by the petitioner for interim measures,
cannot be equated with the proceedings filed in a
pending suit for referring the parties to arbitration
under Section 8 of the Act of 1996. Thus, in my view,
reliance placed by the respondents on the Judgment
of Supreme Court in case of Booz Allen (2011) 5 SCC
532 (supra) is of no assistance to the respondents
while opposing application under Section 9 of the Act
of 1996.”
20. Insofar the judgment in the case of Superintendence
Company of India (P) Ltd. (supra) relied upon by learned counsel for
the respondent is concerned, the facts of the said judgment before
the Supreme Court were totally different. In this case, the respondent
had agreed not to use any trade mark and copyright of the petitioner
upon termination of the franchise agreement and such right is
enforceable in law and violation of any such negative covenant can
be restrained by an order of injunction of this Court.
21. Insofar as the judgment of the Supreme Court in the case
of Sopan Sukhdeo Sable & Ors. (supra), relied upon by the
respondent is concerned, it is held by the Supreme Court while
dealing with the application under order VII Rule 11 of the Code of
Civil Procedure that the basic question that has to be decided is
whether a real cause of action has been set out in the plaint or
something purely illusory has been stated with a view to get out of
Order VII Rule 11 of the Code of Civil Procedure. In my view, the said
judgment of the Supreme Court does not assist the respondent in any
manner whatsoever. The present proceedings are filed under section
9 of the Arbitration Act. The petitioner has not as yet filed any
statement of claim before the learned arbitrator. Be that as it may, in
my prima-facie view, since there is no dispute about the trade mark
and copyright of the petitioner in various materials and other items
being used by the respondent, the proceedings filed by the petitioner
is not the proceeding in rem. In my view, there is thus no merit in the
submission of the learned counsel for the respondent.
22. In my view, the respondent cannot be allowed to use the
trade mark and copyright of the petitioner merely on the ground that
the respondent had a money claim against the petitioner and till such
amount is paid by the petitioner, the respondent can use the said
trade mark and copyright of the petitioner of such material. The said
contention of the respondent clearly indicates that the respondent has
not disputed the trade mark and copyright of the petitioner in such
material which is in possession of the respondent.
23. In my view, the petitioner has made out a case for interim
measures. A copy of the newspaper advertisement annexed to the
petition at Exhibit “T” clearly indicates that the respondent has
continued to use the proprietary mark of the petitioner contrary to the
negative covenant not to use such proprietary marks of the petitioner
post termination of the franchise agreement. In my view, the balance
of convenience is in favour of the petitioner and not the respondent.
24. In my view, there is no substance in the submission of the
respondent that this Court cannot direct the respondent to disclose
the amounts collected by the respondent under section 9 of the
Arbitration Act. In my view, in view of the provisions of the agreement,
the petitioner can apply for enforcement of the negative covenant
even upon terminating the agreement or on the agreement coming to
an end on efflux of time.
25. I therefore, pass the following order :-
a). The arbitration petition is made absolute in terms of prayer
clauses (a-i), (a-iii), (a-iv) and (a-viii).
b). The respondent is directed to disclose on affidavit in terms
of prayer clause (a-iv) within four weeks from the date of
communication of this order. Upon such disclosure on affidavit in
terms of prayer clause (a-iv) by the respondent, the petitioner would
be at liberty to seek further interim measures before the learned
arbitrator under section 17 of the Arbitration Act.
c). The petitioner is directed to take steps for appointment of
the arbitral tribunal in accordance with the arbitration agreement
within four weeks from today.
d). The arbitration petition is disposed of in the aforesaid
terms. There shall be no order as to costs.
(R.D. DHANUKA, J.)
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