Agreement Is Linked With Family Settlement Which Contains Arbitration Clause - Delhi High Court Allows S. 8 Application To Refer Parties to Arbitration

The bench of Justice Jyoti Singh was dealing with an application filed under Section 8 of the Arbitration and Conciliation Act, 1996 (A&C Act) in a suit for infringement of Intellectual Property rights (IPR).

The court concluded that there was a valid arbitration agreement between the parties, incorporated in the Memorandum of Family Settlement (MOFS), which governed the territorial rights of the parties to use the mark “SUPERON”. Thus, the infringement of the IPR complained by the plaintiff, arose out of the covenants and terms incorporated in the said MOFS. While holding that there was no “chalk and cheese” situation, the court disposed of the suit and referred the parties to arbitration.

The bench rejected the contention that since the Sale Deed executed subsequent to the MOFS exclusively conferred jurisdiction to courts, the parties cannot be referred to arbitration. The court ruled that since the Sale Deed was executed in furtherance of the MOFS, the two agreements were linked and inseparable. Thus, arbitration was the intended and consciously chosen forum for dispute resolution between the parties, with respect to the alleged breach of the terms of the MOFS.

The plaintiff, Sanjay Mehra, is the proprietor of SUPERON and VACPAC family of trademarks, trade dresses, and other IPRs in India. The plaintiff filed a suit before the Delhi High Court seeking permanent injunction restraining the defendants from using the word/mark SUPERON or any other deceptively similar or identical mark in India. The plaintiff claimed that the said rights were previously owned by Superon India and were sold to him vide a Sale Deed.

He contended that as per the MOFS and the Sale Deed executed between the plaintiff and the 1^st defendant, Sharad Mehra, who were previously the shareholders of Superon India, the plaintiff became the exclusive owner of the IPRs- including the word SUPERON and VAC-PAC trademarks etc.- within the territory of India. The 1^st defendant, on the other hand, became the exclusive owner for territories outside India.

The plaintiff claimed that the 1^st defendant, by launching products bearing trademarks deceptively similar to “SUPERON” in India, had violated the MOFS and the Sale Deed and had infringed his IPRs in India.

In the said Suit, the 1^st defendant, Sharad Mehra, filed an application under Sections 5 and 8 of the A&C Act, seeking reference of the disputes to arbitration.

The defendant claimed that the MOFS, which prescribes the manner of division of the business and facilitates the demerger of Superon India, has an arbitration clause. He averred that the plaintiff being a signatory to MOFS was bound by its terms, including the arbitration clause.

To this, the plaintiff, Sanjay Mehra, averred that Superon India (Defendant No. 3) was not a party to the MOFS and was only a party to the Sale Deed. Thus, the arbitration clause contained in the MOFS did not apply and cannot bind the said company. He further contended that the Sale Deed executed in furtherance of the MOFS, superseded all previous agreements between the parties, and conferred exclusive jurisdiction to courts.

Referring to a catena of judgments, the High Court observed that the court, while undertaking a review of the arbitration agreement in a Section 8 application, must restrict itself to prima facie finding that there exists an arbitration agreement, which is not null and void, inoperative, or incapable of being performed.

Perusing the facts of the case, the court reckoned that the disputes raised in the suit arose entirely around the MOFS/Sale Deed and the understanding of the parties.

“From a meaningful and holistic reading of the plaint, it is luminously clear that Plaintiff is aggrieved by Defendants’ use of the mark SUPERON in a forbidden territory, contrary to the agreement between the parties,” the court observed.

The bench added: “The territorial rights claimed by the Plaintiff emerge out of the MOFS and thus any dispute with respect thereto, in my view, would relate to the MOFS and would involve appreciation/interpretation of its covenants and their interplay and cannot be effectively adjudicated without reference to its terms.” The court thus concluded that the dispute raised by the plaintiff, arose ‘out of’ or ‘in connection with’ the MOFS.

Referring to the terms of the MOFS and Sale Deed, the court further held that the latter was not a standalone document. The same was executed in furtherance of the understanding between the parties, as reflected in the MOFS, and for facilitating its implementation towards division of the business of the company and for granting the respective rights to the plaintiff and defendant no.1. The court thus ruled the both the agreements were inextricably linked to each other, and that the Sale Deed cannot be treated as a separate document or in supersession of the MOFS.

“In this view of the matter, even if the Sale Deed does not contain an arbitration clause and/or Defendant No.3 is not party to the MOFS makes no difference as the Sale Deed is integrally linked to the MOFS and the disputes raised in the suit cannot be resolved between the parties, without referring to both the documents. The rights, whose infraction is complained of by the Plaintiff, arise out of the covenants and mutual terms incorporated in the MOFS read with the Sale Deed,” the bench said.

The court reiterated: “The Sale Deed was executed in furtherance of the MOFS and as envisioned in it and both being linked and inseparable, arbitration was the intended and consciously chosen forum for dispute resolution between the parties, pertaining to alleged breach of the covenants of MOFS.”

The bench thus allowed the application and referred the parties to arbitration.

“For all the aforementioned reasons, Court comes to a conclusion that there exists a valid arbitration agreement between the parties, incorporated in the MOFS, which is not even contested by the Plaintiff and no “chalk and cheese” situation exists to discredit the case of the Defendants seeking reference of the disputes to arbitration. The question is thus answered in favour of the Defendants and against the Plaintiff.”

Case Title: Sanjay Mehra vs Sharad Mehra & Ors.

Citation: 2023 LiveLaw (Del) 340

Counsel for the Plaintiff: Mr. Rajiv Nayar and Mr. Akhil Sibal, Senior Advocates with Mr. Manish Biala, Mr. Devesh Ratan, Ms. Asavari Jain, Ms. Sanya Kumar, Mr. Saurabh Seth and Ms. Manjira Dasgupta, Advocates

Counsel for the Defendant: Mr. Chander M. Lall, Senior Advocate with Mr. Ashutosh Kumar, Mr. Vinod Chauhan, Ms. Vrinda Bagaria, Mr. Munesh Kumar Sharma, Mr. L. Badri Narayan, Mr. Aditya Bhattacharya, Ms. Vindhya S. Mani, Mr. Kunal Arora, Mr. Archit Gupta, Ms. Ananya Chugh and Mr. Palash Maheshwari, Advocates for D-1 and 2. Mr. Ashim Sood, Mr. Mayank Pandey, Mr. Ashish Kumar Pandey, Ms. Reaa Mehta, Mr. Kuberinder Bajaj and Mr. Velpula Audityaa, Advocates for D-3.

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