Section 42 Bars Petitions In Different Courts, Fraud Or Collusion Allegations Can Only Be Examined By The First Court: Delhi HC

The Delhi High Court has decided that if a petition under Section 9 is submitted to any court other than the one where the initial application was made, Section 42 of the A&C Act will prevent it. This section grants exclusive jurisdiction to the first court for arbitration-related cases. First court is basically the court where an arbitration petition is filed at the first instance. Section 42 says that if I have filed an application before the Delhi High Court, any other application that I file before any other court say Calcutta, would be barred by limitation. A bench of Justice Jyoti Singh noted that allegations involving fraud, collusion, or malafides in the filing of the first petition can only be addressed by the court where the initial petition was filed. The second court isn't authorized to investigate such matters. The court also determined that if the first court concludes that the first proceedings were tainted by fraud or collusion or lacks jurisdiction over the case, Section 42 wouldn't apply. In such cases, parties can approach the appropriate court without being restricted by Section 42. Further, the Court held that when the seat of arbitration is not defined in the agreement, it would be determined as per the place of the cause of action in terms of Section 2(1)(e) of the Act. Facts The petitioner, established in 1954 as a registered partnership firm, specialized in marketing and manufacturing footwear and fashion products. They were the first user and owner of the 'LIBERTY' trademark, coined in the same year. On 01.04.2001, a Registered User Agreement was entered with the respondent for the 'LIBERTY' trademark in Class 25 for three years. By 28.03.2003, the petitioner became the exclusive 'LIBERTY' trademark owner and formedative marks. A Trademark License Agreement (License Agreement) was executed on 31.03.2003 for seven years, renewed automatically for three years if not terminated. The respondent was granted an exclusive license to use the trademarks globally in connection with their products, adhering to petitioner’s quality standards. Another License Agreement was executed on 03.04.2013, effective from 01.04.2013 for five years, renewing for two further terms. Disputes arose when the respondent defaulted on obligations since 2018-19: license fee shortfall, payment delays, not providing audited accounts, outsourcing manufacturing without sublicensing, and lacking proper bookkeeping. Starting in 2019, the petitioner issued notices to the respondent for these breaches. On 04.11.2019, a demand notice under Section 8 of the IBC was issued. On 20.02.2020, a petition under IBC was filed in NCLT, Chandigarh for a sum of Rs.9,51,15,334. On 27.09.2022, Mr. Harish Gupta of the petitioner firm issued termination notice. Respondent invoked arbitration on 20.10.2022, yet continued using 'LIBERTY' marks without payments. Petitioner responded on 22.11.2022, citing no arbitrable claims and breach of obligations. Respondent responded on 22.12.2022, expressing intent to continue the License Agreement. Due to alleged continuous breaches, petitioner terminated the Agreement on 04.05.2023, asking respondent to cease 'LIBERTY' marks use. Since respondent continued using these marks, violating petitioner’s rights, the present petition was filed. Thereafter, the respondent filed a Section 9 application before the District Court in Karnal with a prayer to restrain the petitioner from acting on the termination notice. The ld. District Court, vide an order dated, 16.03.2023 directed the parties to maintain a status quo. Contention of the Parties The respondent objected to the maintainability of the petition on the following grounds: The petition is not maintainable by virtue of Section 42 of the Act as the respondent has already filed an application before the District Court in Karnal and all subsequent petitions can only be filed before that Court only as it has the exclusive jurisdiction over the arbitral proceedings.The petitioner has approached the Court without clean hands as it has not disclosed the fact regarding the order of the District Court, Karnal directing the parties to maintain status quo.Any allegation regarding fraud, collusion or malafides can only be examined by the Court before which the petition was filed and the High Court of Delhi is not the competent court to examine whether the petition filed before the District Court, Karnal was valid or vitiated by fraud. That principle of comity commands that the Court where the second petition is filed shall not comment on the issue whether the first petition filed under Section 9 of the Act before another Court is devoid of merit and/or had the hidden agenda of ousting jurisdiction that was inconvenient to the Petitioner in the first Court.Otherwise also, the High Court of Delhi does not have the territorial jurisdiction as no cause ...

Section 42 Bars Petitions In Different Courts, Fraud Or Collusion Allegations Can Only Be Examined By The First Court: Delhi HC

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