Trademark Disputes That Purely Arise Out Of Contractual Rights And Obligations Are Arbitrable: Delhi HC

The Court further clarified that unless it is a dispute relating to registration of trademarks, there is no legal requirement of raising the same before the Registrar of Trade Marks or the IP Division of the High Court and the disputes that purely arise out of contractual rights and obligations under a Trade Mark agreement can be adjudicated in arbitration.

The Court relied on the judgment of the Apex Court in Vidya Drolia v. Durga Trading and BSNL v. Nortel Networks, to hold that the jurisdiction of the Court at the pre-arbitral stage is very limited and the Court should ideally refer the parties to arbitration unless it is satisfied that the claims are Ex-Facie barred by limitation or non-arbitrable and when there is no vestige of doubt regarding the claims being barred by limitation. Whenever the issue of limitation is a contentious one, the court must refer the parties to arbitration. It further clarified that the Court is only to do a Prima Facie review and not conduct a full-fledged trial to determine the validity and existence of the arbitration agreement.

The Court relied on Shin-Etsu v. Aksh Optifibre, to clarify that the findings of the Court, while appointing an arbitrator or making a reference, on the existence and validity of the arbitration agreement is only a prima facie view and it does not preclude the arbitral tribunal to decide on the same issue.

The Court also observed that a non-signatory to arbitration an agreement can be made a party to arbitration if it is any of the following:

• A beneficiary of the principal agreement
• Alter ego signatory
• The non-signatory is found to be a party by the lifting of the corporate veil
• Part of the same group of companies
• A party to the composite transaction
• In cases of implied consent

The Court observed that if the appointment procedure stipulated in the arbitration agreement has become illegal, the parties are at liberty to approach the court for appointment of the arbitrator. The Court held that a person who has become ineligible to be appointed as an arbitrator after the coming into force of S. 12(5), cannot be appointed as an arbitrator except for an express agreement between the parties after the dispute has arisen.

The court also observed that the pre-arbitral steps like mediation or conciliation are only a voluntary process, therefore, only directory in nature.

Facts

The dispute pertained to a Family Settlement Agreement dated 20.05.2010 (FSA) and Trade Marks and Name Agreement dated 20.05.2010 (TMNA) entered into between the four brothers of the Munjal Family by which they agreed to separate ownership and control of the properties owned by the Munjal Group of Entities. Schedule 7 to the FSA set out the details of the division of the business and the properties.

Similarly, Clause 1.1.7. of the TMNA set out the details pertaining to the use and distribution of the trade mark "Hero" between the four families. The clause specified the categories and classes of the trademark that each family was exclusively entitled to.

The present dispute was between F1 Family Group and F3 Family Group related to the use of the trademark "Hero" to conduct the business relating to electric/eco-friendly vehicles.

Clause 19.5 of the FSA and Clause 5.6 of the TMNA were the disputes resolution clauses.

Contention of the Parties

The respondent(s) challenged the application on the following grounds:

• That the dispute in question relates to the right of the respondent to the use of Trade Mark registered in its name, the same would have an erga omnes effect, therefore, the same would be non-arbitrable.
• That the said disputes could only be adjudicated by the IPR Division of the High Court and no other forum could decide the said disputes.
• That the claims of the petitioner are barred by limitation.
• That respondents no. 2 and 3 were not a party to the arbitration agreement.
• That the petitioner has failed to include the necessary parties, therefore, the petition is liable to be dismissed for non-joinder of necessary parties.
• That the petitioner has not acted in terms of the arbitration agreement and the petition is premature for the reason that the petitioner did not attempt the conciliation as stipulated in the arbitration clause. In addition, the petitioners had removed the Facilitator as the named Arbitrator, in terms of the Arbitration Agreements.

The petitioner contended that:

• The Scope of the Court's jurisdiction under S. 11 is only to examine the existence of the arbitration agreement and the same does not go to the extent of examining the substantive claims.
• The cause of action for the present application arose only when the respondent proceeded to commercially launch an Electric Vehicle under the brand name "Hero" in 2021, therefore, the claims are well within the limitation.
• The dispute does not deal with rights in rem but is an issue regarding the entitlements of F1 and F3 Family Groups arising under the FSA and TMNA and the respondents have violated the provision of the agreements. The rights and obligations under these agreements are rights in personam, therefore, arbitrable.
• Respondents no.2 & 3 are bound by the FSA and TMNA as both the respondents had signed a Deed of Adherence to be bound by FSA as if they were the original parties.
• Section 7 of the Act uses the word "party" and not "signatory", therefore a non-signatory can also be compelled to arbitrate.

Analysis By The Court

• Arbitrability Of The Trade Mark Disputes

The Court observed that the present dispute pertained to the issue of rights of the F1 Family group under both the agreements and the petitioners are not claiming the use of the trademark "hero" in connection with the Electric Vehicles in rem but only claiming a remedy against the breach of contractual provisions by the respondents and that they are not seeking registration or grant of a trademark under the Trade Marks Act 1999.

"Prima facie, the nature of disputes sought to be raised by the petitioners cannot be considered as actions in rem. The assumption that all matters relating to trademarks are outside the scope of arbitration is plainly erroneous. There may be disputes that may arise from subordinate rights such as licences granted by the proprietor of a registered trademark. Undisputedly, these disputes, although, involving the right to use trademarks, are arbitrable as they relate to rights and obligations inter se the parties to a licence agreement (Eros International Media Ltd. v. Telemax Links India Pvt. Ltd., 2016 SCC OnLine Bom 2179). Similarly, disputes arising inter se the contracting parties in respect of their rights and obligations under the contract, are arbitrable and any action to enforce such contractual rights inter se the contracting parties, is an action in personam."

The Court relied on its earlier decision in Hero Electric Vehicles Pvt. Ltd. v. Lectro E-Mobility Pvt. Ltd2021 SCC OnLine Del 1058, wherein an identical issue between the same parties was considered by the Court observed that "In any event, no inalienable exercise of sovereign governmental functions can be said to be involved, in the assignment, to the various Family Groups, of their individual rights to use the existing trademarks, in respect of one, or the other, categories of goods. The dispute does not, therefore, fall under any of the categories of disputes excepted, by the Supreme Court, from the arbitral umbrella." And "the plaintiffs are not seeking a declaration, of their right to use a particular trademark, against any potential infringer, anywhere in the world, as is the case with "normal" infringement suits. The dispute is clearly inter-se amongst two Family Groups, pillowed on the rights emanating from the FSA and the TMNA, and essentially alleges infraction of the terms of the FSA and TMNA, not of the provisions of the Trade Marks Act."

The Court observed that the right that is being asserted by the petitioners is not a right under the Trade Marks Act, but only a right arising out of the contractual provisions and the same is also not asserted against the world at large but only against the respondents, therefore, the argument that the dispute creates an erga omnes effect or it is in rem is wholly unmerited.

• Special Forum To Decide The Trade Mark Cases

In so far as the argument that the present dispute shall only be decided by the Registrar of the Trade Marks or the IP Division of the High Court, the Court observed that the present dispute is not related to the grant or registration of patent or trade mark but purely out of contractual rights and obligations, therefore, the argument is without any substance.

• Limitation Of The Substantive Claims

The court rejected the argument that the claims were barred by limitation with the following observation:

"Indisputably, issuing advertisement or showcasing a vehicle under the trademark, which includes the word mark "Hero" would amount to using the said trademark. However, prima facie, that may not extinguish the cause of action arising from a commercial launch of vehicles under the said trademark. This Court must refrain from adjudicating such issues as it is clearly beyond the standards of examination under Section 11 of the A&C Act."

• Discharge Of The TMNA Agreement

The Court refused to into the issue of discharge of the TMNA as it involved factual assertions from both sides and the court felt that to be outside the scope of S. 11.

• Non-Joinder Of Parties

The Court also observed that the argument that the petition should be dismissed for non-joinder of the necessary parties is without any substance as the main relief was only against the F3 Family Group and the non-joinder of the non-necessary parties is no ground to dismiss the petition.

• Non-Signatory To Arbitration Agreement

The Court further observed that since Respondent no. 3 has undeniably signed the Deed of Adherence, it is bound by FSA, thus can be relegated to arbitration. It further held that since Respondent no. 2 is also part of the same group of entities and an indirect beneficiary of the FSA, and thus liable to be bound by the arbitration clause in FSA.

The Court observed that a non-signatory to arbitration agreement can be made a party to arbitration if it is any of the following:

• A beneficiary of the principal agreement
• Alter ego signatory
• The non-signatory is found to be a party by the lifting of the corporate veil
• Part of the same group of companies
• A party to the composite transaction
• In cases of implied consent

Appointment Petition Not In Terms Of The Arbitration Agreement

The Court observed that if the appointment procedure stipulated in the arbitration agreement has become illegal, the parties are at liberty to approach the court for the appointment of the arbitrator. The Court held that a person who has become ineligible to be appointed as an arbitrator after the coming into force of S. 12(5), cannot be appointed as an arbitrator except for an express agreement between the parties after the dispute has arisen.

• Nature Of Pre-Arbitral Steps.

The court also observed that the pre-arbitral steps in the nature of mediation or conciliation are only a voluntary process, therefore, only directory in nature.

Appeal Before The Supreme Court

The Supreme Court has dismissed the SLP filed by the respondents against this judgment

Case Title: Vijay Kumar Munjal V. Pawan Kumar Munjal, Arb. P. 975/2021

Citation: 2022 LiveLaw (Del) 278

Date: 17/02/2022

Counsel for the Petitioners: Mr Gopal Subramaniam, Senior Advocate, Mr Parag P. Tripathi, Senior Advocate with Mr Sanjeev Kapoor, Mr Sahil Narang, Mr Ankur Sangal, Mr Dhritiman Roy, Ms Pragya Mishra, Ms Ananya Bhat, Mr Madhavam Sharma, Mr Ayushman Kacker, Mr Vishakha, Advocates.

Counsel for the Respondents: Dr. Abhishek Manu Singhvi, Senior Advocate, Mr. Rajiv Nayar, Senior Advocate, Mr. B.B. Gupta, Senior Advocate with Mr. Mahesh Agarwal, Mr. Rishi Agrawala, Mr. Karan Luthra, Mr. Ankit Banati, Ms. Manavi Agarwal, Mr. Saurabh Seth, Mr. Aman Sharma and Mr. Achal Gupta, Advocates for Respondent Nos.1 and 3. Mr Mukul Rohatgi, Senior Advocate Mr Sandeep Sethi, Senior Advocate, Mr Akhil Sibal, Senior Advocate with Mr Sidharth Chopra, Mr Kanishk Kumar, Mr Muktesh Maheshwari, Ms Abhiti Vachher, Ms Asavari Jain, Ms Shriya Misra, Advocates for Respondent No. 2.

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