Monday, 29 May 2017

Whether disputes under copyright Act can be referred to Arbitration?

    
 In para-35 of its judgment in Booz Allen & Hamilton Inc.,
the Supreme Court held that every civil or commercial dispute,
either contractual or non-contractual, which can be decided by
a Court, is in principle capable of being adjudicated and
resolved by arbitration unless the jurisdiction of the Arbitral
Tribunals is excluded either expressly or by necessary
implication.
     The Supreme Court further held that adjudication of
certain categories of proceedings are reserved by the legislature
exclusively for public fora as a matter of public policy and
certain other categories of cases, though not expressly reserved
for adjudication by public fora (Courts and Tribunals), may by
necessary implication stand excluded from the purview of
private fora. It was further held that consequently, where the
cause/dispute is inarbitrable, the Court where a suit is pending,
will refuse to refer the parties to arbitration, under Section-8 of
the Act, even if the parties might have agreed upon arbitration
as the forum for settlement of such disputes.
     No provision of the Copy Right Act is brought to our
notice by which adjudication of the disputes arising therein by
an arbitrator is barred either expressly or by implication.
     If we understand the provisions of Section-62 of the Copy
Right Act and also Sub-section-(3) of Section-2 of the
Arbitration Act in the light of the judgment of the Supreme
Court in Booz Allen & Hamilton Inc (supra), while there is no
express bar under the Copy Right Act, it requires to be seen
whether the dispute raised by respondent No.1 falls within the
well recognised exceptions of non-arbitral disputes referred by
the Supreme Court in para-36 of the judgment, which were
referred to herein before.
     Though the categories of cases referred by the Supreme
Court in Booz Allen & Hamilton Inc. (supra) may be understood
as illustrative, the fact, however, remains that the disputes under
the Copy Right Act are not included in the category of non-
arbitrable disputes.
     The Supreme Court has recognised those categories of
cases as relating to actions in rem as contrasted from a right in
personam and that, all such cases which fall in the former
category have to be necessarily decided by the public fora i.e.,
Courts and Tribunals.

     Though the learned counsel for respondent No.1 has
submitted that the Copy Right is a right in rem, he failed to
support his submission by placing before us any judgment in
this regard.

     In M/s Sundaram Finance Limitd Vs. T.Thankam , the
Supreme Court held that once an application in due compliance
of Section-8 of the Act is filed, the approach of the civil Court
should be not to see whether the Court has jurisdiction and it
should be to see whether the jurisdiction has been ousted.

     Having considered the facts of the case and the legal
position, as discussed above, we have no hesitation to hold that
the entire dispute raised by respondent No.1 in the suit before
the lower Court is an arbitrable dispute within the meaning of
Clause-29 of the Manufacturing Agreement between the parties 
and therefore, the suit was not maintainable.
HON'BLE SRI JUSTICE C.V.NAGARJUNA REDDY AND HONBLE SRI JUSTICE G.SHYAM PRASAD                    

CIVIL REVISION PETITION No.1494 of 2016    

Dated:21-7-2016 

M/s Impact Metals Ltd., Bollaram and another.
V
M/s MSR India Ltd., Hyderabad and two others. 

Coram
HON'BLE SRI JUSTICE C.V.NAGARJUNA REDDY          
AND  
HONBLE SRI JUSTICE G.SHYAM PRASAD         
        Citation: AIR 2017 Hyder 12

        This Civil Revision Petition arises out of order, dated
20.01.2016, in I.A.No.117 of 2015 in O.S.No.227 of 2015 on
the file of the XXV Additional Chief Judge, City Civil Court,
Hyderabad. 
        We have heard Mr. Vedula Srinivas, learned counsel for
the petitioners and Mr. Ashok Ram Kumar, learned counsel for
respondent No.1. 
        Respondent No.1 filed the above-mentioned suit for the
following substantive reliefs:
(a)     to pass a decree for permanent injunction
restraining the petitioners by themselves, its
partners, its servants and agents, distributors,
stockists, representatives, officers or persons
claiming through or under it from either
directly or indirectly using respondent No1s
proprietary invented technology, designs, dies,
trade secrets/Know-how and manufacturing  
processes by the petitioners;
(b)     to award damages of a sum of Rs.15 lakhs 
against the petitioners in favour of respondent
No.1 and pass a decree of damages as valued  
for the purposes of the suit and for loss of
sales, reputation and good will of respondent
No.1s trade marks caused by the activities of
the petitioners;
(c)     to pass an order directing the petitioners to
deliver to respondent No.1 all infringing
materials/printed material/dies, advertising
materials, any reference to respondent No.1
product and/or original materials, papers,
designs that are related to respondent No.1s
invented product; and
(d)     for costs.

        On receipt of the summons, the petitioners filed
I.A.No.117 of 2015 under Section-8 of the Arbitration and
Conciliation Act, 1996 (for short the Act) seeking stay of all
further proceedings in the suit and the interlocutory
applications, and to direct respondent No.1 to proceed under the
Act. This application came to be dismissed by the lower Court by
its order, dated 20.01.2016. Feeling aggrieved by the same, the
defendants in the suit filed this Civil Revision Petition.
        The only issue that fell for consideration before the lower
Court was whether the disputes raised by the defendants in the
suit are comprehended by the Manufacturing agreement  
between the parties or not.
        The petitioners and the respondents entered into a
Manufacturing agreement on 17.4.2016, under which, 
petitioner No.1 has undertaken to produce on behalf of
respondent No.1 and supply to the latter about 5,000 copper
bottles for domestic and export purposes.
        Under Clause-1.3 of the Manufacturing agreement,
respondent No.1 agreed to provide its specifications, trade
secrets and any other designs, documentation, drawings, test
information, data and information with respect to design and
manufacture of the products by the petitioners.
        Under Clause-14.1 thereof, respondent No.1 agreed to
defend, indemnify and hold petitioner No.1 harmless from any
third party claims, judgments, liabilities, expenses or costs, etc
arising out of or relating to any claim that the manufacture, use
or sale by petitioner No.1 of the products covered by the
agreement infringe any copyright, patent trademark, service
mark or any other proprietary right of any third party or
misappropriates a trade secret of any third party except to the
extent that such claims result from manufacturing processes
developed by petitioner No.1 and used in the manufacture of
product for respondent No.1.
        Similar terms were incorporated under Clause-14.2 of the
agreement in favour of respondent No.1.
     Clauses-16.3 and 16.4 of the agreement, which are very
pivotal for the present case, read as under:
Petitioner No.1 ownership: All intellectual Property
Rights in petitioner No.1 manufacturing processes
used or developed by petitioner No.1 in connection
with the manufacture of the products for respondent
No.1 shall be owned exclusively by petitioner No.1.
The manufacture of the products for respondent
No.1 covered by the agreement does not convey to 
respondent No.1 any rights or license, express or
implied, or by estoppel or otherwise, under any such
petitioner No.1s intellectual property rights. No
license, express or implied, with regard to any
trademark of petitioner No.1 or it affiliated
companies is granted to respondent No.1 under this
agreement. Petitioner No.1 expressly reserves all
right, title and interest, including all intellectual
property rights, in and to such manufacturing
processes. 
Respondent No.1 ownership: All intellectual
property rights in the facilities, know-how and the
products shall be owned exclusively by respondent
No.1 (or its licensors). Except as expressly set forth
in the provisions title License Grant, the
manufacture of the products by petitioner No.1 does
not convey to petitioner No.1 or its affiliates any
rights or license, express or implied, or by estoppel
or otherwise, under any such respondent No.1
intellectual property rights. No license, express or
implied, with regard to any trademark of respondent
No.1 is granted to petitioner No.1 or its affiliates
under this agreement. Respondent No.1 expressly 
reserves all right, title and interest, including all
intellectual property rights, in and to such Licensed
Know-How, facilities and products.

        Clause-29 of the agreement pertains to dispute resolution,
which reads as under:
Any claim, controversy or dispute arising out of or
in connection with this agreement, not settled by
mutual agreement of the parties involved, within 30
days after a party is provided written notice for
settlement thereof, shall be referred to an arbitration
to a sole arbitrator jointly appointed by the parties in
accordance with the provisions of the Indian
Arbitration and Conciliation Act, 1996. In the event,
the parties are unable to agree upon a sole
arbitrator, the claim controversy or dispute shall be
referred to a panel of three arbitrators, one of them
shall be appointed by respondent No.1 and the other
by petitioner No.1 and the third arbitrator by the
aforesaid two arbitrators. The said arbitration shall
be conducted in accordance with the Arbitration
and Conciliation Act, 1996. The venue of the
arbitration shall be Hyderabad. The Arbitration
proceedings shall be conducted in English.

        In the plaint, the following are the averments relevant in
the present context of the case:
     It is humbly submitted that defendants
having executed the manufacturing agreement, 
dated 17.4.2014, which contains the confidentiality
clauses did not abide by the same and with a view to
steal the invention of this plaintiff have gone ahead
and filed Patent Application No.3352/CHE/2014 on 
07.7.2014 at 6.13 pm. The filing of Patent
Application not only amounts to breach of the
contract but also amounts to theft of intellectual
property and misappropriation of trade secrets
which otherwise as per the agreement entered by
them on 17.4.2014 should be restricted only to
manufacture the product for the plaintiff. The said
patent application was published by the Indian
Patent Office on 01.8.2014 making the
invention/trade secret public creating huge loses for
the plaintiff.
     It is humbly submitted that the defendants not
only copied the invention of the plaintiff but have
also copied the drawings and designs and other
literary material provided to them under the said
Manufacturing Agreement. It is submitted that these
documents have been filed by the defendants with
the Controller of patents giving an impression that
they are the authors for the same, while the plaintiff
are the original author and owner of the materials.
These acts of the defendants amounts to theft of
intellectual property and misappropriation of trade
secrets of the plaintiff as well as the infringement of
copyright vested with the plaintiff under Section-51
of the Copy Right Act, 1957 as amended by the Copy  
right Amendment Act, 2013 and other provisions
therein.
     The plaintiff submits that the acts of the
defendants constitute misappropriation of the trade
secrets since it is specifically mentioned under
clause-1.3 of the said Manufacturing Agreement as
follows:
    Know-How:MSRs specifications, trade secrets
and any other designs, documentation, drawings,
test information, data and information with respect
to design and manufacture of the products which is
proprietary to MSR and provide to the IML for
manufacture of the products.
     The plaintiff would also like to draw the
attention of this Honble Court the specific provision
of clause-15 of the Manufacturing Agreement
which specifically lays down that the receiving party
shall use the disclosing partys confidential
information for the purposes of providing and
receiving products and services to and from the
disclosing party. It is submitted that there has been
complete breach of this specific clause and the
defendants are aware that the invented technology
belongs to plaintiff. It is also submitted that the
infringement also constitute criminal offences under
law.
     It is submitted that the acts of the defendants
thus constitute absolute misappropriation of the
Trade secrets as well as breach of the Manufacturing
contract dated 17.4.2014 which is actionable under
law in view of the foregoing submission of facts, the
valid cause of action being theft and
misappropriation of intellectual rights, trade secrets
by the defendants stand established on the following
grounds:-
(a)     A willful, mala fide and illegal
misrepresentation before the Controller
of patent that the invention is that the
defendant by filing the patent application
bearing No.3352/CHE/2014 (Document   
Enclosed.)
(b)     A willful manufacture of the similar
products by using the dies, design and
invented technology of the plaintiff by
the defendants with a sole intention of
committing commercial dishonestly and 
making illegal profits.
(c)     Seeking for publication of patent by
filing an early publication request under
Form-9 giving an impression to general
public that the defendant is the inventor.
(d)     Causation of actual and irreparable
injury and loss to the good will,
reputation and business interest of the
plaintiffs by selling counterfeit products
using the design, die and invented
technology of the plaintiff.

Cause of action: The cause of action for the instant
suit arose on 17.4.2014 when the plaintiffs and
defendants have entered into the Manufacturing
Agreement and defendants were provided with the 
technical know-how designs, die and invented
processes of plaintiff. The cause of action further
arose on defendant breaching of the Manufacturing
Agreement by using the technical know-how, 
designs, die and invented processes for his own
manufacture in the last week of March 2015 and
the cause of action also arose on defendants filing
Patent Arbitration on 07.7.2014 for obtaining patent
on plaintiffs invented processes and product under
the title SEAMLESS COPPER CONTAINER AND A         
MEHTOD FOR MANUFACTURING THEREOF.            
        The cause of action is a continuous one and
continues to submit till such time as the defendants
cease to use the technical know-how designs, die
and invented processes of the products, and are, vide
injunction order restrained from doing so by the
Honble Court.

        As could be noticed from Caluse-29 of the agreement,
extracted herein before, the same is widely worded, as per
which, any claim, controversy or dispute arising out of or in
connection with the agreement, not settled by mutual agreement
of the parties within 30 days, shall be referred to arbitration to a
sole arbitrator.
        We have made an extensive reproduction of various
averments in the plaint, which, undoubtedly, disclose that the
entire dispute raised by respondent No.1 arises out of and in
connection with the Manufacturing agreement.
     Though Mr. Ashok Ram Kumar, learned counsel for 
respondent No.1, submitted that some of the aspects do not arise
under the agreement, he failed to substantiate the same. On the
contrary, respondent No.1 pleaded in the plaint that though the
products are proprietary to respondent No.1 and provided to
petitioner No.1 for their manufacture, the petitioners did not
abide by Clause-1.3 of the agreement and with a view to steal
the invention of respondent No.1, they have gone ahead and
filed Patent Application on 07.7.2014 at 6.13 pm. It was
specifically averred that the filing of Patent Application not only
amounted to breach of the contract but also the theft of
intellectual property and misappropriation of trade secrets,
which otherwise, as per agreement entered by them on 
17.04.2014, should be restricted only to manufacture of the
product of the plaintiff (See para-18 of the plaint). It is thus
beyond any pale of doubt that the entire dispute raised by
respondent No.1 before the civil Court in O.S.No.227 of 2015 is
fully and completely comprehended by the agreement between  
the parties and consequently, embraced by Caluse-29 thereof,
which provides for resolution of the disputes initially, through
settlement by mutual agreement of the parties involved and,
failing which, through arbitration.
        A perusal of the order of the lower Court would reveal
that it has completely failed to comprehend the true scope and
ambit of the Manufacturing agreement qua the dispute raised
by respondent No1. 
        The reasoning of the lower Court, that as respondent No.1
is seeking the relief of permanent injunction, such a dispute is
not amenable for arbitration and falls outside the terms and
conditions of the Manufacturing agreement between the parties
is wholly unsustainable.
        The Supreme Court in Booz Allen & Hamilton Inc. Vs. SBI 
Home Finance Ltd  has succinctly dealt with the issue of
arbitrability. It has held that the term arbitrability consists of
three facets, which are as under:
(i)     Whether the disputes are capable of
adjudication and settlement by arbitration?
(ii)    Whether the disputes are covered by the
arbitration agreement?
(iii)   Whether the parties have referred the disputes
to arbitration?
     Under facet-(i), the question whether the disputes, having
regard to their nature, could be resolved by a private forum
chosen by the parties (the Arbitral Tribunal) or whether they
would exclusively fall within the domain of public fora (Courts)
is included.
     As regards facet-(ii), the Supreme Court observed that it
relates to the question whether the disputes are enumerated or
described in the arbitration agreement as matters to be decided
by arbitration or whether the disputes fall under the excepted
matters excluded from the purview of the arbitration
agreement. 
     Since facet-(iii) has no application to the present case, it is
not necessary for us to refer to the same.
     As regards facet-(i), the Supreme Court has indicated the
well recognised examples of non-arbitrable disputes, which
read are as under:
(i) disputes relating to rights and liabilities which
give arise to or arise out of criminal offences;
(ii) matrimonial disputes relating to divorce, judicial
separation, restitution of conjugal rights, child
custody;
(iii) guardianship matters;
(iv) insolvency and winding-up matters;
(v) testamentary matters (grant of probates, letters of
administration and succession certificate); and
(vi) eviction or tenancy matters governed by special
statutes where the tenant enjoys statutory protection
against eviction and only the specified courts are
conferred jurisdiction to grant eviction or decide the
disputes.

     Mr. Ashok Ram Kumar, learned counsel for respondent
No.1, has relied upon Sub-section-(3) of Section-2 of the Act
and submitted that since Section-62 of the Copy Right Act, 1957
conferred jurisdiction on the District Court having jurisdiction
over the dispute pertaining to infringement of copy right in any
work or infringement of any right conferred by that Act, the
disputes raised by respondent No.1 in the present suit are
deemed to have been excluded by the provisions of Sub-section-
(3) of Section-3 of the Act.
     We are afraid, we cannot accept this submission. Sub-
section-(3) of Section-2 of the Act reads as under:
This Part shall not affect any other law for the time
being in force by virtue of which certain disputes
may not be submitted to arbitration.

     In para-35 of its judgment in Booz Allen & Hamilton Inc.,
the Supreme Court held that every civil or commercial dispute,
either contractual or non-contractual, which can be decided by
a Court, is in principle capable of being adjudicated and
resolved by arbitration unless the jurisdiction of the Arbitral
Tribunals is excluded either expressly or by necessary
implication.
     The Supreme Court further held that adjudication of
certain categories of proceedings are reserved by the legislature
exclusively for public fora as a matter of public policy and
certain other categories of cases, though not expressly reserved
for adjudication by public fora (Courts and Tribunals), may by
necessary implication stand excluded from the purview of
private fora. It was further held that consequently, where the
cause/dispute is inarbitrable, the Court where a suit is pending,
will refuse to refer the parties to arbitration, under Section-8 of
the Act, even if the parties might have agreed upon arbitration
as the forum for settlement of such disputes.
     No provision of the Copy Right Act is brought to our
notice by which adjudication of the disputes arising therein by
an arbitrator is barred either expressly or by implication.
     If we understand the provisions of Section-62 of the Copy
Right Act and also Sub-section-(3) of Section-2 of the
Arbitration Act in the light of the judgment of the Supreme
Court in Booz Allen & Hamilton Inc (supra), while there is no
express bar under the Copy Right Act, it requires to be seen
whether the dispute raised by respondent No.1 falls within the
well recognised exceptions of non-arbitral disputes referred by
the Supreme Court in para-36 of the judgment, which were
referred to herein before.
     Though the categories of cases referred by the Supreme
Court in Booz Allen & Hamilton Inc. (supra) may be understood
as illustrative, the fact, however, remains that the disputes under
the Copy Right Act are not included in the category of non-
arbitrable disputes.
     The Supreme Court has recognised those categories of
cases as relating to actions in rem as contrasted from a right in
personam and that, all such cases which fall in the former
category have to be necessarily decided by the public fora i.e.,
Courts and Tribunals.

     Though the learned counsel for respondent No.1 has
submitted that the Copy Right is a right in rem, he failed to
support his submission by placing before us any judgment in
this regard.

     In M/s Sundaram Finance Limitd Vs. T.Thankam , the
Supreme Court held that once an application in due compliance
of Section-8 of the Act is filed, the approach of the civil Court
should be not to see whether the Court has jurisdiction and it
should be to see whether the jurisdiction has been ousted.

     Having considered the facts of the case and the legal
position, as discussed above, we have no hesitation to hold that
the entire dispute raised by respondent No.1 in the suit before
the lower Court is an arbitrable dispute within the meaning of
Clause-29 of the Manufacturing Agreement between the parties 
and therefore, the suit was not maintainable.

     The lower Court fell into a serious error in dismissing the
application filed by the petitioners for reference of the dispute
for arbitration under Section-8 of the Act.     Accordingly, the
Civil Revision Petition is allowed and the order under revision is
set aside. I.A.No.117 of 2015 in O.S.No.227 of 2015 on the file
of the XXV Additional Chief Judge, City Civil Court, Hyderabad
is allowed as prayed for.

        As a sequel to disposal of the Civil Revision Petition,
CRPMP.No.1890 of 2016 filed by the petitioners for interim
relief shall stand disposed of as infructuous.
___________________________     
JUSTICE C.V.NAGARJUNA REDDY        
_____________________    
JUSTICE G.SHYAM PRASAD       
21st July 2016

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