LEGAL UPDATE | SIGNIFICANCE OF THE INTENTION OF PARTIES

The Supreme Court in a recent judgement of South Eastern Coalfields Ltd. & Ors. vs M/s S. Kumar’s Associates AKM (JV) held that for a document to be of a binding nature, the intention of the parties has to be looked upon. The court observed that for a Letter of Intent (LOI) to be a legally binding contract, the intent of the same must be clear and unambiguous, as evidenced by its terms. It stated that an LOI simply expresses a party's intention to engage into a contract with the other party in the future. Likewise, in another recent case of Bhimrao Ramchandra Khalate (Deceased) Through L.Rs. vs Nana Dinkar Yadav (Tanpura) & Anr , the Supreme Court ruled that the parties' intentions must be considered while determining whether a transaction is an absolute sale or a mortgage by conditional sale.

Questions of law for adjudication:

  1.Whether an LOI executed between the parties can be construed as a binding contract?
  2.Whether a Deed is of Absolute Transfer or Mortgage by Conditional Sale?

Background:

South Eastern Coalfield Case - In this case, South Eastern Coalfields Limited (Appellant) floated a tender for the work and S Kumar’s Associates AKM (Respondent) was the successful bidder. An LOI was issued dated 5 October 2009 by awarding the contract for work. LOI had a clause which stated that- ``The Respondent was called upon to deposit Performance Security Deposit for a sum total to 5% of annualized contract amount within 28 days from the date of receipt of the LOI as per the provisions of the tender document``. The Respondent mobilized the resources, but the effort was halted due to circumstances beyond the Respondent's control. The Appellant addressed a letter stating that they would award the work to another contractor at the risk and cost of the Respondent. Due to non-performance, the Appellant elected to terminate the contract on 23 December 2009 and again on 15 April 2010 (Termination Letters). The work was given to a different contractor at a higher price than agreed upon with the Respondent and thus the Appellants sent a letter requesting Rs. 78,07,573/- (Recovery Order) from the Respondent. The sum in question was the difference between the Respondent's and the new contractor's work values. The Respondent filed a writ petition at the Chhattisgarh High Court seeking to quash the Termination Letters and Recovery Order sent by the Appellants. The High Court held that there was no existing contract between the parties to bind them to the contract's general terms and conditions. The Appellants preferred a special leave petition before the Supreme Court.

Supreme Court View: The Supreme Court stated that the terms and circumstances of the LOI, and the actions of the parties are all factors in determining whether a contract is consummated. It concluded that mobilization at site by the Respondent would not amount to a concluding a contract inter se the parties. LOI merely indicates the intention of the parties to enter into a contract in future. At this point, there is no binding link between the parties, and the totality of the facts must be assessed in each situation.

Bhimrao Ramchandra Khalate case - Bhimrao Khalate (Plaintiff) being the owner of agricultural land (Land) in Village Khunte borrowed Rs 3000/- from Defendant No 1 on 22 February 1969 by executing ‘conditional sale deed’ as a security for the loan amount. The Defendant No 1 refused to re convey the Land and transferred the same in favour of his brother (Defendant No 2). Thus, the Plaintiff filed a suit for redemption of property and possession on 5 April 1989. The Plaintiff claimed that the ‘conditional sale deed’ was in the nature of mortgage even though it was titled as the conditional sale. The clauses of the conditional sale deed stated that the defendant was bound to give back the possession to the plaintiff within one year from the date of conditional sale deed.

The Judgment: It was observed by the Supreme Court that the intention of the parties has to be seen when the document is executed. The plaintiff had borrowed a sum of Rs. 3,000/- for his family costs, and the defendant is obligated to retransfer the land if the amount is paid within one year, according to the entire interpretation of the conditional sale deed. The loan advance and repayment are both part of the same instrument that establishes a debtor-creditor relationship. This is covered by the proviso in Section 58(c) of the Transfer of Property Act, 1882. Accordingly, the Supreme Court set aside the order passed by the lower courts which dismissed the suit for redemption against the defendants and further directed the Appellant to pay or deposit the mortgage amount within three months of the receipt of copy of the order.

MHCO COMMENT:

The Supreme Court of India has clarified and reiterated that the intention of the parties is paramount and should be looked at while understanding the nature of any contract. We believe that these judgments are a welcome step from the Apex court, to clear the ambiguity with respect to the intention of parties.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

INFRINGEMENT OF TRADEMARKS ON E-COMMERCE PLATFORMS | FORUM FOR TERRITORIAL JURISDICTION

A Single Judge Bench of Delhi High Court (Court) in a recent case of V Guard Industries Ltd. v. Sukan Raj Jain & Anr. , pertaining to a trademark infringement dispute has affirmed that the territorial court can exercise the jurisdiction in cases wherein the infringing goods are accessible on e-commerce platforms within the forum state, thereby giving rise to cause of action, despite the Defendants not having place of business in the said state.

Question of law for adjudication : Whether sale of infringing goods on third party e-commerce platforms accessible within the forum state satisfies the territorial jurisdiction of that forum/Court?

Background: V Guard Industries Ltd. (Plaintiff) is a company, head quartered at Kerala in the business of marketing / selling electrical goods under the trademark ‘V Guard’. Defendant No.1 is a sole proprietor of the firm M/s N-Guard Electronic Industries (Defendant). The Plaintiff filed a suit seeking a permanent injunction against the sale of offending products on third-party marketplace websites such as Indiamart, Flipkart, Shopclues and Snapdeal (E-commerce Platforms) wherein the Defendant was shown as a verified supplier of the product. For evidencing the same, the Plaintiff had produced sale invoices of the offending products purchased online by it. The Court had passed an ex-parte ad-interim order restraining the Defendants from infringing and passing-off of the Plaintiff’s trademark “V-Guard”.

An Application was filed by the Defendants under Order 7 Rule 10 of the Civil Procedure Code, 1908 (CPC) for Return of Plaint on the grounds that the Court lacked territorial jurisdiction. The Plaintiff’s registered office was in Kerala and the Defendant’s registered office was in Karnataka. Defendants’ contention was that none of the parties had its registered office in Delhi and they do not directly sell their products in Delhi and the sale relied upon by the Plaintiff is a “trap sale” and, hence, is not admissible evidence. The Plaintiff argued that since the Defendant’s offending products were accessible on E-commerce Platforms within Delhi, the cause of action had arisen in Delhi, and that the Plaintiff had its supply offices also in Delhi.

Judgment: The Court held that self-generated sale relied upon by the Plaintiff cannot per se be termed as “trap sale”, if the Defendant is otherwise found to have targeted products at a place where the said sale was made.

Points of law discussed:

• Trademark Act, 1999: Section 134 of the Trade Marks Act, 1999 (TM Act) provides that a plaintiff can initiate a cause of an infringement action, where the plaintiff resides or has a place of business.

• Section 20 of CPC provides that the plaintiff can institute a suit where the defendant resides or carries on business, or where the cause of action wholly or in part arises.

• The Court observed that additional jurisdictions have been made available to the Plaintiff by virtue of Section 134 of the TM Act, over the jurisdictions available under Section 20 of CPC.

The occurrence of cause of action is held to be a determining factor under both the sections to attract the territorial jurisdiction of the Court. Therefore, if any part of cause of action has arisen at a place where the Plaintiff has its branch/subordinate office, Courts at that place will have jurisdiction to entertain a suit against infringement and passing off. Hence, since the Defendant’s offending products were accessible at a place where the Plaintiff had its subordinate (supply) office, the Plaintiff was held to be qualified both under Section 134 of the TM Act as well as under Section 20(c) of CPC.

MHCO COMMENT:

Delhi High Court in this judgment, has clarified the position of law regarding territorial jurisdiction of courts by acknowledging and equating the existence of virtual stores on the internet with the conventional physical stores. This is an important precedent, as due to the pandemic there has been a paradigm shift in the way the vendors and consumers interact through online platforms. This judgment also elucidates the importance of limiting the territories which a manufacturer would supply to through a distributor, in order to restrict the litigations in territories where they would not like to do any business.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

AMAZON VS FUTURE ARBITRATION UPDATE | INTERNATIONAL EMERGENCY AWARDS ENFORCEABLE IN INDIA

Introduction:

The Supreme Court of India (SC) in a very recent case of Amazon.Com NV Investment Holdings LLC v Future Retail Limited & Ors has upheld the enforcement of an order by the Singapore International Arbitration Centre (SIAC)`s Emergency Arbitrator in favour of Amazon that puts on hold the Future Group`s deal with Mukesh Ambani Group of Companies (Reliance Group).

This update briefly analyses the said judgement of the Supreme Court.

FACTS:

• Amazon.Com NV Investment Holdings LLC (Amazon), the appellant in the present case, invested INR 14310 million in the Future Coupons Private Limited (FCPL), on 26 December 2019 by way of a Shareholders Agreement (SHA). The said investment amount had `flown down`` transferred, on the same day, to Future Retail Limited (FRL), basis an internal agreement between the two companies (together, along with other promoters, Future Group)

• On 29 August 2020, FRL entered into an agreement with the Reliance Group, by way of a slump sale of the retail and wholesale businesses (Future-Reliance Deal)

• Amazon objected to the said deal on the ground that the Reliance Group was listed in the category of “Restricted Persons” in the SHA between Amazon and FCPL, as well as in the other agreements entered into between Future Group companies and promoters. Amazon challenged the said deal before the Emergency Arbitral Tribunal constituted under the SIAC Rules, pursuant to the SHA which provided for/ had prescribed arbitration in accordance with the SIAC Rules..

• The Emergency Arbitrator passed an award on 25 October 2020, granting interim relief to Amazon, putting on hold the Future-Reliance Deal (Emergency Award). Future Group, instead of challenging this award, went ahead with the deal..

• FRL in the meantime filed a Suit before the Hon’ble Delhi High Court and sought to interdict the arbitration proceedings before the SIAC and restrain Amazon from taking any action in accordance with the Emergency Award. Delhi High Court refused to grant any interim relief to FRL on the ground that the balance of convenience went in favour of Amazon. No appeal was filed by FRL against this order. However, Amazon filed an appeal before the Division Bench of the Delhi High Court, challenging some portions of the order, which is pending.

• In the meantime, Amazon filed an Application against FRL under Section 17(2) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) before the single bench of Delhi High Court. By Order dated 2 February 2021 and Order dated 18 March 2021, the single bench of Delhi Court granted a stay in favour of Amazon and restrained Future Group from going ahead with the Future-Reliance Deal.

• Aggrieved by the said order of the Single Judge, FRL filed an appeal before the Division Bench of Delhi High Court, which stayed both the Orders of 2 February 2021 and 18 March 2021. Aggrieved by this stay order, Amazon challenged the order before the Hon’ble Supreme Court in appeal..

ISSUE 1:

Whether an “award” delivered by an Emergency Arbitrator under the SIAC Rules can be said to be an order under section 17(1) of the Arbitration Act?

HELD

The Supreme Court answered the first question in the Affirmative based on the following reasons:

• In the interpretation of the Arbitration Act, party autonomy is considered paramount. Thus, when the parties had agreed to abide by the SIAC Rules, the question of then contesting the legality and correctness of those rules does not arise.

• Secondly, the SIAC Rules on Emergency Arbitration reflect similar provisions as provided in Section 9 and 17 of the Arbitration Act. It can thus be said that the award passed by an “Emergency Arbitrator” can be construed as an “Interim Order” passed by an arbitrator under Section 17(1) of the Arbitration Act.

• SIAC Rules and the Arbitration Act go hand in hand in achieving the common objective of decongestion of the arbitration proceedings in the civil courts for the grant of interim relief.

ISSUE 2:

Whether an Order passed by High Court under Section 17(2) of the Arbitration Act for enforcement of an award passed by Emergency Arbitrator is appealable?

HELD

The Court answered this question in the negative on the basis of following reasons:

• Section 37 of the Arbitration Act provides for appealable orders, wherein the orders of the arbitral tribunal “granting or refusing to grant an interim measure under section 17” have been included.

• However, the intention of the legislature becomes clear from the wording that only the orders under section 17(1) which are passed by the tribunal are covered by this section and not the orders passed by the court under Section 17(2), thereby enforcing the orders passed under Section 17(1).

MHCO COMMENT:

The Supreme Court has taken one significant step in developing the Indian Arbitration Jurisprudence, reducing the judicial interference in the Arbitration process to the minimum. The Court has once again unequivocally demonstrated the judicial intent of promoting arbitration as a preferred method of dispute resolution. Supreme Court has also reaffirmed that in order to augment faith and trust in the arbitral proceedings, enough powers and teeth need to be given to the arbitrators, both domestic as well as international. The present judgment is with respect to the SIAC Rules. In view of the 2019 amendments to the Arbitration Act, seeking to foster institutional arbitration within India, this judgment will serve as an important precedent for similar disputes that may arise in future.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.