Trademark Disputes Are Arbitrable If They Arise Out of Contractual Arrangements

Summary

The Supreme Court held that trademark disputes arising out of private agreements, in the present case – assignment deeds, are arbitrable in nature. Further, it reaffirmed the settled position of law that mere allegations of fraud or forgery do not oust the jurisdiction of an arbitral tribunal to adjudicate in personam disputes arising out of a valid arbitration agreement. The Court clarified that where the right over a trademark arises out of an assignment deed and not under the Trademarks Act, 1999, such a dispute would be arbitrable. Further, the arbitral tribunal, by virtue of Section 16 of the Arbitration & Conciliation Act, 1996 (hereinafter “the Arbitration Act”), has the power to adjudicate upon its own jurisdiction including the questions pertaining to the validity or existence of an arbitration agreement. As such, where allegations of fraud or misconduct are put forth, the arbitral tribunal would have the jurisdiction to adjudicate on such issues as well. It upheld the High Court’s observation that for the jurisdiction of an arbitral tribunal to be ousted, the allegation must have some implication on the public domain. 

Facts

• Petitioner No. 1 i.e., K. Mangayarkarasi was the proprietrix of the trademark “ANGANNAN”. The Respondent No. 1 i.e., N.J. Sundaresan claimed right over the trademark through two assignment deeds executed between the Petitioners and Respondent No. 1. 

• The Petitioners claimed that they had signed a blank paper that was fabricated into assignment deeds. The Petitioners claims that the Respondent No. 1 fraudulently included his name in the assignment deeds and that the signature of the Petitioner was forged by the Respondent No. 1. 

• The Petitioners thereafter instituted a suit in Commercial Court seeking injunction against the Respondent No. 1 from using the trademark “ANGANNAN” and also sought compensation for losses suffered. The Respondents in response filed a petition under Section 8 of the Arbitration Act for referral of the dispute to arbitration which was allowed by the Commercial Court.  

• The Petitioners thereafter approached the High Court by way of a Civil Revision Petition which was also rejected by the Court. Therefore, the present Special Leave Petition was filed before the Supreme Court by the Petitioners.  

Issue

• Whether a dispute pertaining to trademark rights is subject matter that is arbitrable under the Arbitration Act? 

• Whether mere allegations of fraud and cheating are sufficient to oust the jurisdiction of an arbitral tribunal even where a valid arbitration agreement exists between parties? 

Judgement

1. The Arbitral Tribunal has Authority to Adjudicate upon its own Jurisdiction and the Validity of an Arbitration Agreement 

By virtue of the provision under Section 16 of the Arbitration Act, the Court remarked that an arbitral tribunal has been provided with the authority to decide upon its own jurisdiction, including whether a valid arbitration agreement exists between the parties. The Court affirmed the ratio in case of Kvaerner Cementation India Ltd. v. Bajranglal Agarwal and Anr. (2012) 5 SCC 214, where it was held that Civil Courts do not have jurisdiction to entertain questions as to the validity of arbitration agreements.  

2. Whether Civil Courts can Entertain Questions on Validity of Arbitration Agreement in a Petition under Section 8 of the Arbitraion Act 

The Supreme Court, relying upon its earlier precedents also ruled upon the aspect of jurisdiction of Civil Courts under Section 8 of the Arbitration Act. The Court cited the judgement in A. Ayyasamy v. A. Paramasivam & Ors. (2016) 10 SCC 386 where it was held that under an application under Section 8 of the Arbitration Act, the Civil Courts have to merely address whether the allegation of fraud is such that can oust the jurisdiction of the arbitral tribunal. Reference was also made to the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited & Ors. (2011) 5 SCC 532, where the Supreme Court held under Section 8, the Civil Court can refuse to refer a dispute to arbitration in spite of an existing arbitration agreement, only where the subject matter of the dispute is not arbitrable in nature. Finally, it held that once on application under Section 8 is made, the approach of the Civil Court should be not to see whether the court has jurisdiction but to see whether its jurisdiction has been ousted.  

3. Whether All Disputes Relating to Trademarks’ Rights are Non-Arbitrable 

The Supreme Court importantly remarked that the assumption that all matters relating to trademarks are outside the scope of arbitration is ‘plainly erroneous’. It said that there may be disputes relating to trademarks that arise from subordinate rights, such as under a license granted by the proprietor under an agreement, and such agreements, if they contain an arbitration clause, are undisputedly arbitrable as they relate to rights of parties to the license agreement inter se. The Court held that in the present case too, the dispute concerned was not related to a right in rem but a right in personam. 

4. Whether Allegations of Fraud and Deceit can render a Dispute Non-Arbitrable 

Finally, the Court considered the question as to whether the allegations of fraud in a contract can oust the jurisdiction of the arbitral tribunal to adjudicate upon the dispute. It was held that questions as to frivolity or dishonesty in litigation, etc. were well within the domain of the arbitral tribunal to consider. It affirmed the decision of the High Court wherein the High Court had observed that allegations of fraud cannot undermine the jurisdiction of the arbitral tribunal unless the allegation has some implication in the public domain and is not limited to the affairs of parties inter se. 

Analysis 

The Supreme Court rejected the contention of the Petitioners that the dispute was not arbitrable due to fraud in execution of the assignment deeds. This decision of the Supreme Court reinforces a consistent line of precedents from Vidya Drolia, Booz Allen and Ayyasamy that disputes arising from rights in personam are arbitrable and that the allegations of fraud do not by themselves oust the jurisdiction of arbitral tribunal if they do not relate to rights in rem i.e., do not have an implication in the public domain.  

The judgement clarifies the position that even issues of trademark rights, which otherwise are related to rights in rem, may be arbitrable when a dispute related to trademark arises out of private agreement, such as an assignment deed. The judgment also reflects the pro-arbitration stance of Indian courts post the 2015 and 2019 amendments to the Arbitration & Conciliation Act of 1996, narrowing judicial intervention at the referral stage. By upholding the enforceability of arbitration clauses in private contracts related to intellectual property rights and clarifying that private fraud claims are not inherently non-arbitrable, the Court furthered the objective of the Arbitration Act to speedily resolve arbitrable disputes.