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1999 (7) TMI 691 - HC - Indian Laws

Issues Involved:
1. Validity of the agreement without government approval.
2. Applicability of the arbitration clause.
3. Jurisdiction and competence of the arbitrator.
4. Plaintiff's application for an interim injunction.
5. Defendant's application for rejection of the plaint.

Detailed Analysis:

1. Validity of the Agreement Without Government Approval:
The plaintiff entered into an agreement with defendant No.1 on 20.5.1994, granting exclusive rights to manufacture and market certain products in India. According to clause 18.5, the agreement was subject to requisite approval from the Government of India and/or Reserve Bank of India. The plaintiff applied for this approval, but it was not granted. Defendant No.1 terminated the agreement on 25.4.1996, alleging that the plaintiff did not commence commercial production or promote sales. The plaintiff contested this termination, claiming it was defendant No.1 who breached the agreement by failing to provide the necessary technical know-how.

2. Applicability of the Arbitration Clause:
Defendant No.1 initiated arbitration proceedings before the International Court of Arbitration of I.C.C. Paris, demanding a license fee and seeking to restrain the plaintiff from using the trademark "Fittydent." The plaintiff filed a suit for a declaration that no concluded agreement existed due to the lack of government approval, and thus, the matter could not be referred to arbitration under clause 18.4. The plaintiff also sought a mandatory injunction to restrain the defendants from proceeding with the arbitration.

3. Jurisdiction and Competence of the Arbitrator:
The court examined whether the arbitration agreement in clause 18.4 was binding despite the lack of government approval. It was noted that under Section 45 of the Arbitration & Conciliation Act, 1996, a judicial authority must refer parties to arbitration unless the agreement is found to be null and void, inoperative, or incapable of being performed. The court considered whether the arbitration agreement could still be enforced even if the main agreement was not effective due to the absence of government approval.

4. Plaintiff's Application for an Interim Injunction:
The plaintiff argued that the arbitration clause could not be enforced because the main agreement was void without government approval. The court referred to the judgment in Alliance Mills (Lessees) Pvt. Ltd. Vs. M/s. Madan Gopal & Sons, which held that an arbitration clause cannot be enforced if the main agreement is illegal. However, the court noted that Section 47 of the Foreign Exchange Regulation Act allows legal proceedings to recover sums due, even if government approval is not granted. The court concluded that the arbitration proceedings could not be stayed based on this provision.

5. Defendant's Application for Rejection of the Plaint:
The defendant argued that the plaintiff had accepted the arbitration proceedings by seeking time to deposit arbitration fees and raise claims. The court noted that under the new Arbitration & Conciliation Act, 1996, an arbitral tribunal has the power to rule on its own jurisdiction, including the validity of the arbitration agreement. The court held that even if the main agreement was invalid, the arbitration clause could still be valid and it was within the arbitrator's competence to decide on its validity.

Conclusion:
The court dismissed the plaintiff's application for an interim injunction, stating that the plaintiff had not made a case for such relief. The suit was also dismissed as it was barred by the provisions of Section 16 of the Arbitration and Conciliation Act. The court allowed the defendant's application under Order 7, Rule 11, rejecting the plaint with no order as to costs.

 

 

 

 

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