Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6
CASE NO.:
Arbitration Petition 18 of 2005
PETITIONER:
India Household and Healthcare Ltd
RESPONDENT:
LG Household and Healthcare Ltd
DATE OF JUDGMENT: 08/03/2007
BENCH:
S.B. SINHA
JUDGMENT:
J U D G M E N T
S.B. SINHA, J :
This application under Sub-sections (5) and (6) of Section 11 of the
Arbitration and Conciliation Act, 1996 (for short "the 1996 Act") has been
filed for appointing an arbitrator on the respondent’s purported failure to do
so in spite of notice dated 15.04.2005.
Allegedly, an agreement was entered into by and between the parties
hereto on 8.05.2004. The said agreement contained an arbitration clause
being Clause 12 thereof, the relevant portion whereof reads as follows:
"12.2 In the event of any dispute or difference
arising between the parties hereto or as to the
rights and obligations under this agreement or as to
any claim monetary or otherwise of one party to
another, such dispute or difference shall be
referred to arbitration of a common arbitrator, if
agreed upon, otherwise to two or more arbitrators,
one to be appointed by each of the parties to this
agreement and such arbitration shall be governed
by the Arbitration and Conciliation Act, 1996, for
the time being in force. The venue for such
arbitration shall be in India or as is mutually
decided otherwise. Until a finality is achieved in
the arbitration or litigation, the Licensor shall have
no right to cancel the agreement and appoint any
third party or enter into agreement with any party
for the sale/ importation or manufacture of the
products/ provision of services in the territory."
Respondent, however, contends that the said agreement was preceded
by a Memorandum of Understanding dated 1.11.2003. Respondent further
contends that the said purported Memorandum of Understanding and licence
agreement dated 8.05.2004 are vitiated by a fraud of a very large magnitude
fructified by a criminal conspiracy hatched between M/s. K.P. Jayram Pillai
and Vijay R. Singh representing the petitioner and M/s. C.H. Kim and B.K.
Jung representing the respondent. The petitioner - company bribed the said
C.H. Kim and B.K. Jung for the purpose of creation of the aforesaid
documents. They had already been convicted and sentenced to undergo
imprisonment by the Korean Criminal Court. It was contended that they
misused their official position to advance private benefit. There seems to be
a substantial and reasonable nexus to promote personal advantage. There
was furthermore no ostensible authority on their part to represent the
company. The said Memorandum of Understanding also contravenes the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6
Korean laws in terms whereof the execution thereof required the prior
approval of and a duly executed power of attorney from the Representative
Director and the Chief Executive Officer of the respondent which did not
exist in the present case.
Respondent has also filed a suit in the Madras High Court wherein by
an order dated 6.10.2005, a learned Single Judge of the said High Court
directed:
"1. That 1. India Household and Health Care
Limited, through Mr. Vijay R. Singh its Managing
Director 2. Mr. K.P. Jayaram C/o India Household
and Health Care Ltd. and 3. Mr. Vijay R. Singh,
the respondents 1 to 3 herein, their agents, men,
assigns, representatives, employees or any one
claiming through or under them be and are hereby
restrained by an order of interim injunction until
further orders of this Court directly or indirectly
acting on the so called MOU dated November 1,
2003, the License Agreement and the minutes
dated May 8, 2004 respectively, or deriving any
other benefit based upon the so called MOU, the
License Agreement and Minutes, in any manner
whatsoever."
The said interim order has been confirmed by an order dated
21.01.2006 stating:
"That the order of interim injunction granted
in pursuance of the order dated 06/10/2005
restraining the First, Second and Third
Respondents, therein their agents, men, assigns,
representatives, employees or any one claiming
through or under them from directly or indirectly
acting on the so called MOU dated November 1,
2003, the License Agreement and the minutes
dated May 8, 2004, respectively, or deriving any
other benefit based upon the so called MOU, the
License Agreement and Minutes, in any manner
whatsoever together be and is hereby made
absolute."
This Court’s attention was further drawn to the fact that in the plaint
of the said suit it had categorically been stated that the private respondents
therein hatched their conspiracy to defraud the respondent and for the
purpose of obtaining bribes, commissions and kickbacks and in that view of
the matter the entire agreement is vitiated in law.
Mr. Dushyant Dave, learned senior counsel appearing on behalf of the
petitioner, in support of this application, would submit:
(i) the execution of the agreement dated 8.05.2004 has not been denied or
disputed.
(ii) The correspondences have been passed between the parties between
the period 8.05.2004 and 5.02.2005 and dispute arose in regard to the
use of the logo ’L.G.’
(iii) The arbitration agreement being a part of the contract, the validity or
otherwise thereof can be gone into by the arbitrator in terms of
Section 16 of the 1996 Act.
(iv) Once an arbitration agreement is found to exist; having regard to
Section 5 thereof, no judicial authority can exercise any jurisdiction in
the matter.
(v) This Court, having regard to the philosophy underlying the 1996 Act
should uphold the arbitration agreement between the parties.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6
Mr. R.F. Nariman, learned senior counsel appearing on behalf of the
respondent, on the other hand, would submit:
(i) in view of the Constitution Bench decision of this Court in SBP &
Co. v. Patel Engineering Ltd. and Another [(2005) 8 SCC 618],
this Court is obligated to go into the question as to whether the
entire agreement is vitiated by fraud as a result whereof no valid
arbitration agreement came into being.
(ii) a fraud of grave magnitude having been committed insofar as the
officers representing the company had used different signatures,
the entire agreement is vitiated.
(iii) The original agreement has not been produced before any court so
as to compare the signatures of the persons with their original.
(iv) An order of injunction having been passed by a learned Judge of
the Madras High Court on 6.10.2005, this Court should not
exercise its discretionary jurisdiction.
(v) The arbitration agreement is vague as it contemplates both
litigation as also an arbitration.
(vi) In any event, the applicant having not appointed its arbitrator in
terms of the purported arbitration agreement, the application is
premature.
(vii) As some of the disputes fall outside the scope of the arbitration
agreement, this application is not maintainable.
There cannot be any doubt whatsoever that there exists a sharp
distinction between the provisions of the Arbitration Act, 1940 and the 1996
Act. The philosophy of the 1996 Act is different. The 1996 Act is required
to be read keeping in view the UNCITRAL Model Rules. [Pandey and Co.
Builders Pvt. Ltd. v. State of Bihar and Anr. 2006 (11) SCALE 665 and
Rashtriya Ispat Nigam Limited and Anr. v. Verma Transport Company
(2006) 7 SCC 275]
It is also no doubt true that where existence of an arbitration
agreement can be found, apart from the existence of the original agreement,
the Courts would construe the agreement in such a manner so as to uphold
the arbitration agreement. However, when a question of fraud is raised, the
same has to be considered differently. Fraud, as is well known, vitiates all
solemn acts. A contract would mean a valid contract; an arbitration
agreement would mean an agreement which is enforceable in law.
Before embarking upon the rival contentions noticed hereinbefore, we
may notice that a 7-Judge Bench of this Court in SBP & Co. (supra) opined
that an order passed by the Chief Justice or his designate under Sub-sections
(5) or (6) of Section 11 of the 1996 Act is judicial in nature. It was stated:
"39. It is necessary to define what exactly the
Chief Justice, approached with an application
under Section 11 of the Act, is to decide at that
stage. Obviously, he has to decide his own
jurisdiction in the sense, whether the party making
the motion has approached the right High Court.
He has to decide whether there is an arbitration
agreement, as defined in the Act and whether the
person who has made the request before him, is a
party to such an agreement. It is necessary to
indicate that he can also decide the question
whether the claim was a dead one; or a long barred
claim that was sought to be resurrected and
whether the parties have concluded the transaction
by recording satisfaction of their mutual rights and
obligations or by receiving the final payment
without objection. It may not be possible at that
stage, to decide whether a live claim made, is one
which comes within the purview of the arbitration
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6
clause. It will be appropriate to leave that question
to be decided by the arbitral tribunal on taking
evidence, along with the merits of the claims
involved in the arbitration. The Chief Justice has to
decide whether the applicant has satisfied the
conditions for appointing an arbitrator under
Section 11(6) of the Act. For the purpose of taking
a decision on these aspects, the Chief Justice can
either proceed on the basis of affidavits and the
documents produced or take such evidence or get
such evidence recorded, as may be necessary. We
think that adoption of this procedure in the context
of the Act would best serve the purpose sought to
be achieved by the Act of expediting the process of
arbitration, without too many approaches to the
court at various stages of the proceedings before
the Arbitral tribunal."
The power of this Court, therefore, no longer is an administrative
power. The purported arbitration agreement is an international commercial
arbitration agreement. Section 16 of the 1996 Act which is in Chapter 4 of
Part I thereof may not, thus, be applicable in this case. Even if it applies, the
jurisdiction of the arbitrator to determine his own jurisdiction is on the basis
of that arbitration clause which may be treated as an agreement independent
of the other terms of the contract and his decision that the contract is null
and void shall not entail ipso jure the validity of the arbitration clause. But,
the question would be different where the entire contract containing the
arbitration agreement stands vitiated by reason of fraud of this magnitude. It
may be noticed that Part II of the 1996 Act contains a provision for
approaching the court. Section 45 of the 1996 Act contains a non-obstante
clause. A judicial authority, therefore, may entertain an application at the
instance of a party which alleges that there exists an arbitration agreement
whereupon judicial authority may refer the parties to arbitration, save and
except in a case where it finds that the said agreement is null and void,
inoperative and incapable of being performed. Section 8 of the 1996 Act,
however, is differently worded.
Thus, as and when a question in regard to the validity or otherwise of
the arbitration agreement arises, a judicial authority would have the
jurisdiction under certain circumstances to go into the said question.
Fraud, as is well known, vitiates all solemn acts. [See Hamza Haji v.
State of Kerala and Another, (2006) 7 SCC 416, Prem Singh and Others v.
Birbal and Others, (2006) 5 SCC 353 and Jai Narain Parasrampuria (Dead)
and Others v. Pushpa Devi Saraf and Others, (2006) 7 SCC 756]
The said issue is pending consideration before the Madras High Court.
Not only the parties to the agreement but also those officers who have
negotiated on behalf of the respective companies are also parties therein.
LG Corporation which is the owner of the LG logo is also a party therein.
Therein, an order of injunction had been passed. In terms of the said order
of injunction, the applicant herein was prohibited from taking any action in
terms of the said agreement which would include the arbitration clause also.
The order dated 21.01.2006 has become final. No appeal has been preferred
thereagainst. The applicant could have filed an appropriate application for
modification of the order of injunction which it did not choose to do. The
doctrine of comity or amity required a court not to pass and order which
would be in conflict with another order passed by a competent court of law.
The courts have jurisdiction to pass an order of injunction not only under
Order XXXIX, Rule 2 of the Code of Civil Procedure but also under Section
151 thereof.
This aspect of the matter has been considered in ’A Treatise on The
Law Governing Injunctions’ by Spelling and Lewis’ wherein it is stated :
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6
"Sec. 8. Conflict and Loss of Jurisdiction.
Where a court having general jurisdiction and
having acquired jurisdiction of the subject-matter
has issued an injunction, a court of concurrent
jurisdiction will usually refuse to interfere by
issuance of a second injunction. There is no
established rule of exclusion which would deprive
a court of jurisdiction to issue an injunction
because of the issuance of an injunction between
the same parties appertaining to the same subject-
matter, but there is what may properly be termed a
judicial comity on the subject. And even where it
is a case of one court having refused to grant an
injunction, while such refusal does not exclude
another coordinate court or judge from
jurisdiction, yet the granting of the injunction by a
second judge may lead to complications and
retaliatory action\005"
[See also M/s Transmission Corporation of A.P. Ltd. & Ors. v. M/s
Lanco Kondapalli Power Pvt. Ltd. (2006) 1 SCC 540 and Morgan Securities
and Credit Pvt. Ltd. v. Modi Rubber Ltd. 2006 (14) SCALE 267]
In Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal [AIR
1962 SC 527], this Court injuncted a party from prosecuting a suit wherein
power under Section 10 of the Code of Civil Procedure could not have been
exercised.
A court while exercising its judicial function would ordinarily not
pass an order which would make one of the parties to the lis violate a lawful
order passed by another court.
Furthermore, the applicant herein has also prayed for inter alia the
following reliefs:
"c. Whether the issue of use of LG logo is a valid
and tenable ground for the termination of
agreements between the parties?
d. Whether the Petitioner is entitled under the
agreements to continue with the production of the
"Products" with LG logo as agreed between the
parties?"
The said prayers fall outside the arbitration agreement since LG Logo
belongs to LG Corporation which is the owner of the trade mark. It is not a
party to the arbitration agreement. It is allegedly has filed a separate suit. In
a case of this nature, a Division Bench of this Court in Sukanya Holdings (P)
Ltd. v. Jayesh H. Pandya and Another (2003) 5 SCC 531] held:
"Secondly, there is no provision in the Act that
when the subject-matter of the suit includes
subject-matter of the arbitration agreement as well
as other disputes, the matter is required to be
referred to arbitration. There is also no provision
for splitting the cause or parties and referring the
subject-matter of the suit to the arbitrators.
It was further stated :
"The next question which requires
consideration is \027 even if there is no provision for
partly referring the dispute to arbitration, whether
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6
such a course is possible under Section 8 of the
Act. In our view, it would be difficult to give an
interpretation to Section 8 under which bifurcation
of the cause of action, that is to say, the subject-
matter of the suit or in some cases bifurcation of
the suit between parties who are parties to the
arbitration agreement and others is possible. This
would be laying down a totally new procedure not
contemplated under the Act. If bifurcation of the
subject-matter of a suit was contemplated, the
legislature would have used appropriate language
to permit such a course. Since there is no such
indication in the language, it follows that
bifurcation of the subject-matter of an action
brought before a judicial authority is not allowed.
Secondly, such bifurcation of suit in two parts,
one to be decided by the Arbitral Tribunal and the
other to be decided by the civil court would
inevitably delay the proceedings. The whole
purpose of speedy disposal of dispute and
decreasing the cost of litigation would be
frustrated by such procedure. It would also
increase the cost of litigation and harassment to the
parties and on occasions there is possibility of
conflicting judgments and orders by two different
forums."
We are, however, not oblivious of the fact that Sukanya Holdings
(supra) has been distinguished in Rashtriya Ispat Nigam Limited and Anr. v.
Verma Transport Company [(2006) 7 SCC 275]. The present case, however,
is covered by Sukanya Holdings (supra).
By reason of a notice dated 15.04.2005, only a request had been made
to nominate a person in Chennai with whom the respondent could "interact
to agree on the arbitrator to whom the claims can be made to decide the
disputes between the parties".
Applicant has not appointed its arbitrator. Respondent has also not
been called upon to appoint its arbitrator by the said notice or otherwise. An
application for appointment of an arbitrator, therefore, is not maintainable
unless the procedure and mechanism agreed to by and between the parties is
complied with.
In National Highways Authority of India & Anr. v. Bumihiway DDB
Ltd. (JV) & Ors. [(2006) 9 SCALE 564], it was opined:-
"44\005The parties have entered into a contract after
fully understanding the import of the terms so
agreed to from which there cannot be any
deviation. The Courts have held that the parties
are required to comply with the procedure of
appointment as agreed to and the defaulting party
cannot be allowed to take advantage of its own
wrong."
For the views, I have taken, it is not necessary to consider the other
submissions made at the bar.
For the reasons aforementioned, this application is dismissed being
not maintainable at this stage. No costs.