Del HC | What is the scope of Court’s jurisdiction while examining application under S. 8, Arbitration and Conciliation Act. What is effect of ‘Chalk & Cheese’ case of non-arbitrability? HC examines in “Hero” electric bikes dispute

Delhi High Court: C. Hari Shankar, J., expressed while addressing a dispute that:

“Where a valid arbitration agreement exists, the decision also underscores the position that, ordinarily, the disputes between the parties ought to be referred to arbitration, and it is only where a clear “chalk and cheese” case of non- arbitrability is found to exist, that the court would refrain from permitting invocation of the arbitration clause.”

The present suit has sought a decree of permanent injunction, restraining the defendants from dealing in electric bikes having a throttle, using “Hero” or any mark deceptively similar as a trademark, brand name or tradename as it infringes the said mark, or result in passing off the defendant’s electric bikes having a throttle as those of the plaintiffs.

Defendants had filed IA 3381/2020 under Section 8 of the Arbitration and Conciliation Act, 1996, seeking reference of the disputes, forming the subject matter of the suit, to arbitration.

Controversy  

Plaintiff 2 claimed to have started its business of electric vehicles and to have launched battery fitted electric cycles and scooters under the well-known trademarks “Hero” and “Hero Electric”.

The said marks were registered under the Trade Marks Rules, 2002. Hero Exports used to be a partnership firm of all the members of the Munjal Group and vide a Family Settlement Agreement, the businesses of the group were divided among 4 family groups designated as – F-1, F-2, F-3 and F-4.

As per the plaintiff Hero Exports along with its business was transferred to F-1 group.

Plaintiffs belong to F-1 Group and defendants to F-4 Group.

Further, it has been submitted that parallelly with the Family Settlement Agreement, a “Trade Mark and Name Agreement” (TMNA), was executed, which assigned the right to use the trademark “Hero”, and its variants, among the Family Groups, in relation to the products and services to which the business of each group catered, to the exclusion of other groups. The plaintiff asserts that the TMNA conferred, on the F-1 group, the exclusive right to use the trademarks “Hero” and “Hero Electric”, and its variants, on all-electric vehicles, including electric bikes.

Partners of Hero Exports incorporated Hero Electric Vehicles (P) Ltd. –Plaintiff 1 to conduct the business of electric vehicles and further it was asserted that Hero Exports gave a license to HEVPL to use the trademarks of Hero Exports in respect of electric vehicles and further to proceed against third parties who sought to infringe the said trademark.

HEVPL has become the single source identifier of electric vehicles sold under the marks “Hero” and “Hero Electric”, and has exclusive statutory and common law rights over the “Hero” and “Hero Electric” trademarks in relation to electric vehicles, which include electric bikes.

Plaint alleged that Lectro was manufacturing and selling electric bikes through Hero Electric under the brand “Hero”.

The plaintiffs espied Lectro selling and promoting throttle assisted electric bikes under the brand name “Hero”. This, according to the plaint, was completely mala fide, as the defendants were aware that the exclusive right to use the trademark “Hero” and “Hero Electric”, for electric vehicles, vested in the plaintiffs, who had built up a reputation in that regard.

Defendants with the above act encroached upon the exclusive contractual statutory and common law rights of the plaintiffs in the trademarks “Hero” and “Hero Electric”.

Analysis

In the Supreme Court decision of Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1,  Court authoritatively expounded on the scope of the jurisdiction of a Court, examining and application under Section 8 of the 1996 Act.

Bench observed that the decision in Vidya Drolia has been followed by this Court as well as by other High Courts.

Further while discussing the principles that emerged from the above decision, Court stressed upon criterion (viii), which as follows:

(viii) The scope of examination by the Court exercising jurisdiction under Section 8 or under Section 11, is prima facie in nature. The Court is not to enter into the merits of the case between the parties. It is only to examine whether the dispute is prima facie arbitrable under a valid arbitration agreement. This prima facie examination is intended to weed out manifestly and ex facie non-existent or invalid arbitration agreements or non-arbitrable disputes, thereby cutting the deadwood and trimming off the side branches, in cases where the litigation cannot be permitted to proceed. The proceedings are preliminary and summary in nature and should not result in a mini-trial. Unless there is a clear case of non-existence of a valid arbitration agreement, or of the dispute being ex facie non-arbitrable, tested on the above parameters, the court should leave these aspects to be decided by a competently constituted arbitral tribunal. Relegation to arbitration should be regarded as a rule, and resolution by the civil court, where a valid arbitration agreement exists and is sought to be invoked by one of the parties, as an exception. The expression “chalk and cheese situation”, as used by this Court has, in this background, been approved by the Supreme Court. “When in doubt,” says Ramana, J., in his concurring opinion, “refer”. (Having said that, the “doubt”, in my view, has to be real and substantial, and not merely an escape route to avoid examining the issue in perspective.) 

Adding to the above, Bench stated that while examining the aspect of arbitrability of the dispute, or the existence of a valid arbitration agreement binding the parties, in exercise of Section 8, Court has to always remain alive to the fact that it is exercising the very same jurisdiction which the Arbitral Tribunal is empowered to exercise.

“…where the Court finds the case to be “chalk and cheese”, and where referring the matter to the arbitral process would be opposed to public interest or public policy, and a futility ex facie, that the Court should nip the request for referring the dispute to arbitration in the bud.”

Bench agreeing with Mr Akhil Sibal stated that the dispute between the plaintiffs and the defendants required a holistic appreciation of the FSA and the TMNA, their various covenants and the interplay, in order to adjudicate on the rights conferred on the various family groups.

Adding to the above, court stated that the disputes between parties are ex-facie arbitrable in nature, seen in the light of the provisions of the FSA and TMNA.

The controversy, in the present case, does not relate to grant, or registration, of trademarks. The trademarks already stood granted, and registered, prior to the FSA and TMNA.

The dispute is regarding the Family Group to which the rights to use the said trademarks, in connection with electric cycles and e-cycles had been assigned, by the FSA and TMNA.

Bench in view of the above stated that the dispute does not fall under any of the categories of disputes excepted by the Supreme Court, from the arbitral umbrella.

The right that the plaintiffs seek to assert, in the plaint, is clearly against the F-4 group, and the F-4 group alone, and not against the whole world.

The dispute is clearly inter-se amongst two Family Groups, pillowed on the rights emanating from the Family Settlement Agreement and Trade Mark and Name Agreement and essentially alleged infraction of the terms of the FSA and TMNA, not of the provisions of the Trade Marks Act.

The right asserted by the plaintiffs is not a right that emanates from the Trade Marks Act, but a right that emanates from the FSA and the TMNA, and is not asserted vis-à-vis the whole world, but is asserted specifically vis-à-vis the F-4 Family Group.

In view of the above discussion, Court decided that it would be more appropriate if the petitioner were to present the present plaint before the Arbitrator and seek any interim or interlocutory relief as it may choose under Section 17 of the 1996 Act.

Hence, the suit shall be referred to Arbitration, parties would be at liberty to appoint the arbitrator/arbitrators in accordance with the covenants of the FSA and TMNA and or approach the Court.[Hero Electric Vehicles (P) Ltd. v. Lectro E-Mobility (P) Ltd., 2021 SCC OnLine Del 1058, decided on 02-03-2021]


Advocates before the Court:

For the plaintiffs: Mr Sudhir Chandra, Sr. Adv. with Mr Ankur Sangal, Mr Sahil Narang, Ms. Pragya Mishra and Ms Richa Bhargava, Advs.

For the Defendants: Mr Akhil Sibal, Sr. Adv. with Mr Vikas Mishra, Ms Malini Sud, Mr Nikhil Chawla, Ms Shriya Mishra, Advs.

One comment

Join the discussion

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.