by Zen Webnet | Jan 10, 2024 | Blog
Article by Saima Mahmood
The recent judgment of 7 Judge Bench in the In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, the Court has extensively dealt with the overall harmonious play of Arbitration Act, Stamp Act and the Contract Act. The Court’s purpose to dwell in this aspect was the Five-Judge Bench in N N Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.[1] which directly impacts the business and commercial transaction in the country as it has raised a vital question to the entire interpretation and application of the Arbitration Law in India.
Position of Law prior to In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899:
A Division Bench of the Supreme Court in SMS Tea Estates vs Chandmari Tea Co (P) Ltd[2] had held that if any document is found to be unstamped/insufficiently stamped then even the arbitration clauses shall become invalid as per Section 35 of the Stamp Act.
After this judgement, a legislative amendment was inserted as Section 11(6) of the Arbitration and Conciliation Act which limited the scope of judicial intervention to merely “examine” the existence of arbitration agreement. The Supreme Court further clarified that the role of Courts under Section 11 of the Arbitration Act shall confine to analyzing the existence of arbitration agreement at the stage of appointment of Arbitrator(s).
Subsequent to the insertion, a Three-bench judge in Vidya Drolia v. Durga Trading Corpn.[3],held that the existence and validity of an arbitration agreement would not exist if it were illegal or does not satisfy the mandatory legal requirements for it to be enforceable which includes a stamp duty.
Subsequent to this position, a Three-judge Bench of the Supreme Court, in N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited[4] doubted this position and observed that since arbitration agreement is an independent agreement, it cannot be invalidated merely on insufficiently stamped main contract.
Since both the judgments were passed by 3-judge Bench, the Supreme Court referred the issue to a larger bench to render the verdict of this issue. Thereafter, a Five Judge Bench decided the reference by a 3:2 majority summarizing as below[5]:
- An unstamped instrument containing an arbitration agreement is void under Section 2(g) of the Contract Act;
- An unstamped instrument, not being a contract and not enforceable in law, cannot exist in law. The arbitration agreement in such an instrument can be acted upon only after it is duly stamped;
- The “existence” of an arbitration agreement contemplated under Section 11(6A) of the Arbitration Act is not merely a facial existence or existence in fact, but also “existence in law”;
- The Court acting under Section 11 of the Arbitration Act cannot disregard the mandate of Sections 33 and 35 of the Stamp Act requiring it to examine and impound an unstamped or insufficiently stamped instrument; and the certified copy of an arbitration agreement.
Thereafter, The Supreme Court has meticulously dealt with every aspect of Stamp Act, Arbitration Act and Contract Act to in the 7-judge bench judgement in In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899
The scope and effect of Stamp Act:
The court discussed the procedure envisaged in the Stamp Act regarding failure to stamp an instrument. Section 17 of the Stamp Act provides that all instruments chargeable with duty and executed by any person in India shall be stamped before or at the time of execution. Further, section 62 penalizes any failure to comply with Section 17 of the Stamp Act. The Court further discussed other ways vide which an instrument may not be properly stamped including the following[6]:
- The duty may have been paid under an incorrect description under Schedule I;
- The duty paid may be of a sufficient amount but of improper description;
- The provisions of Section 5 which govern instruments relating to several distinct matters may not have been complied with; or
- The instrument may be written in contravention of Sections 13 and 14, and thereby deemed to be unstamped in terms of Section 15.
The court observed that the legislature realized that the mandate of Stamp Act maybe not be complied for reasons as mentioned and thus Sch IV was enacted. Further, Section 35 of the Stamp Act provides that instruments which are not duly stamped are inadmissible in evidence and it shall not be acted upon, registered, or authenticated[7]. The Court also explained that Clause (a) of the proviso to Section 35 stipulates that the bar contained in the provision is removed upon the payment of duty and the penalty. Thus, the party or parties may pay the duty chargeable to the person who has the authority to receive evidence by law or by consent of parties. Further under Section 38 of the Stamp Act, the Collector is granted with power to impound an instrument under section 33 of the Stamp Act. In terms of Section 42 of the Stamp Act, an instrument is admissible in evidence once the payment of duty and a penalty is complete. It is clear that section 38 of the Stamp Act stipulates that either the person admitting the instrument in evidence or the Collector, as the case may be, shall certify by endorsement that the proper duty has been paid.
The procedure contemplated by the Stamp Act facilitates the collection of revenue. It permits instruments to be impounded not only by persons in charge of a public office or those who are empowered by law to receive evidence but also by any person who is empowered to receive evidence by consent of parties. The statute then sets out the procedure to be followed upon impounding a document. This procedure ensures that stamp-duty is paid. After the payment of the appropriate amount under the appropriate description in Schedule I and the penalty (if any), the Stamp Act provides for the certification of such payment by an endorsement by the appropriate authority. Once an instrument has been endorsed, it may be admitted into evidence, registered, acted upon or authenticated as if it had been duly stamped.
Distinctiveness between inadmissibility and voidness of arbitration agreements
The next question that emanated from the above observation of the Court is the distinctiveness between inadmissibility (Stamp Act) and voidness (As per Contract Law) of an agreement. Whether the impact of an inadmissibility of documents hold the same weightage as voidness of contract. This question was also answered by the Court, wherein the Court concluded that in essence the difference is that when an agreement is void, it raises the question of enforceability of the agreement before the Court of Law whereas when the question of inadmissibility arises, it raises the issue whether such a document maybe considered by the court while adjudication of the case.
Therefore, the Court held that paying inadequate duty or not paying it, would only render an instrument inadmissible in evidence and not void.
Harmonious Intent under Indian Laws
The Court further analyzed the scope of Harmonious Intent under Indian Laws. While going into the harmonious construct, the Court defined that the cardinal principle of interpretation of statutes is to discover and give effect to the legislative intention. If a statute is susceptible to two interpretations, the court will have to reject the construction which will defeat the plain intention of the legislation[8]. The purpose of judiciary is to not only truly interpret the clause but the entirety of a statute. The Court relied on Sultana Begum v. Prem Chand Jain[9], to enumerate the principles pertaining to harmonious construction of statue which includes that an interpretation which reduces one of the provisions to a “dead letter” or “useless lumber” is not harmonious construction; and to harmonize is not to destroy any statutory provision or to render it otiose[10].
It is clear understanding that the challenge before the Court is to harmonize the provisions of the of the Arbitration Act and the Stamp Act. The object of the Arbitration Act is to inter alia ensure an efficacious process of arbitration and minimize the supervisory role of courts in the arbitral process. On the other hand, the object of the Stamp Act is to secure revenue for State. It is a cardinal principle of interpretation of statutes that provisions contained in two statutes must be, if possible, interpreted in a harmonious manner to give full effect to both the statutes[11].
The Court discussed the primacy of Arbitration Act for arbitration agreements over Contract Act and Stamp Act. The reasons opined by the Court were as follows:
- Arbitration Act is a special law and the Indian Contract Act, and the Stamp Act are general laws.
- Scope of Section 5 of the Arbitration Act restricts the scope of judicial intervention in the Arbitration Act. The courts can only intervene if the same is provided in the Arbitration Act. The Court further observed that one of the primary objectives of the Arbitration Act was to minimize the supervisory role of the courts in the arbitral process[12] and therefore, dissented from the N N Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.[13] view that effect of Sections 33 and 35 of the Stamp Act shall prevail despite the interdict in Section 5.
- Parliament was aware of the Stamp Act when it enacted the Arbitration Act, thus despite being aware of the mandate of Section 33 of the Stamp Act, the Parliament at the time of enactment of Arbitration Act, did not specify stamping as a pre-condition to the existence of a valid arbitration agreement.
Upon establishing the primacy of Arbitration Act for arbitration agreements over Contract Act and Stamp Act, the Court further enumerated the Harmonious construction of the three statutes.
- Effect of competence-competence doctrine: the effect of the principle of competence-competence is that the arbitral tribunal is vested with the power and authority to determine its enforceability. The question of enforceability survives, pending the curing of the defect which renders the instrument inadmissible. By appointing a tribunal or its members, this Court is merely giving effect to the principle enshrined in Section 16. The Court further observed that Arbitration requires to provide “a one-stop forum” for resolution of all disputes and held:
(a) Courts must give effect to the commercial understanding of parties to arbitration agreements that arbitration is efficacious; and
(b) This can be done by minimizing judicial intervention[14]
- Scope of Arbitral Tribunal: The Court goes on to say that issues which concern the payment of stamp-duty fall within the remit of the arbitral tribunal and it is understood from the legislative intent that courts are not required to deal with the issue of stamping at the stage of granting interim measures under Section 9.
- Scope and interpretation of word “shall” in Section 33 and 35 of Stamp Act: The Court while interpreting the term shall has expressly stated that while ordinarily term “shall” is mandatory, however sometimes it may be read directory which depends on the intent of the legislature. Therefore, it is pertinent that the interplay of the three statutes and the intent of the legislature must be evaluated in the context of interpreting “shall”.
- Fourthly, another important aspect which the Court discussed was the interpretation of the law must give effect to the purpose of the Arbitration Act in addition to Stamp Act.
Conclusion:
For the above observation, the Court concluded as follows:
- Agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act. Such agreements are not rendered void or void ab initio or unenforceable;
- Non-stamping or inadequate stamping is a curable defect;
- An objection as to stamping does not fall for determination under Sections 8 or 11 of the Arbitration Act. The concerned court must examine whether the arbitration agreement prima facie exists;
- Any objections in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal; and
- The decision in SMS Tea estates vs Chandmari Tea Co (P) Ltd[15] and N N Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.[16] are overruled.
The aforementioned detailed observations of the Supreme Court makes it clear that any non-payment or incorrect or inadequate stamp duty will not render an instrument invalid or void. Further it was highlighted the objective of the Arbitration Act is to reduce the judicial intervention or supervisory role in arbitration mattes. This judgment has brought immense clarity to the Arbitration Laws in India, it is a perfect epiphany to the harmonious intent in Indian Laws. This ruling brings great relief to parties entering commercial contracts and other business related transactions.
[1] (2023) 7 SCC 1
[2] (2011) 14 SCC 66
[3] (2021) 2 SCC 1
[4] (2021) 4 SCC 379
[5] Para 5 of the judgment
[6] Para 38 of the judgment
[7] Subject to the proviso to Section 35
[8] CIT v. Hindustan Bulk Carriers, (2003) 3 SCC 57
[9] (1997) 1 SCC 373
[10] (1997) 1 SCC 373
[11] Jagdish Singh v. Lt. Governor, Delhi, (1997) 4 SCC 435
[12] Statements of Objects and Reasons, Arbitration Act
[13] (2023) 7 SCC 1
[14] (2016) 10 SCC 386
[15] (2011) 14 SCC 66
[16] 2023) 7 SCC 1
by Zen Webnet | Jan 9, 2024 | Blog
Article by Rakesh Yadav
The World Intellectual Property Organization (WIPO) released its annual World Intellectual Property Indicators (WIPI) report for 2022, revealing a remarkable surge in global patent applications. Despite a decline in filings for trademarks and designs, innovators worldwide submitted a record-breaking 3.46 million patent applications, marking the third consecutive year of substantial growth. China, the United States, Japan, the Republic of Korea, and Germany emerged as the frontrunners in patent filings for 2022. Notably, China continued its dominance by contributing nearly half of all global patent applications, although its growth rate experienced a dip for the second consecutive year, decreasing from 6.8% in 2021 to 3.1% in 2022. In contrast, the United States, Japan, the Republic of Korea, and Germany showcased resilience, maintaining their positions among the top filers.
One of the most striking revelations in the WIPI report was India’s exceptional performance, with patent applications by residents experiencing a remarkable growth rate of 31.6% in 2022. This surge extends an impressive 11-year run of growth unparalleled by any other country within the top 10 filers. The report underscores India’s emergence as a significant player in the global innovation landscape.
Residents of China and India played a pivotal role in driving global growth, as evidenced by a substantial rise in their patent filings. China, with approximately 1.58 million patent applications in 2022, continued to lead the pack, followed by the United States (505,539), Japan (405,361), the Republic of Korea (272,315), and Germany (155,896). Notably, China, the Republic of Korea, and the United States exhibited increased filing activity in 2022, showcasing their resilience amid dynamic global conditions.
While several nations experienced growth, Germany and Japan faced a decline in their patent filings in 2022. Germany saw a decrease of 4.8%, and Japan followed suit with a 1.6% reduction in applications. This divergence highlights the varied trajectories of countries within the global intellectual property landscape.
Examining the top 20 origins of patent filings, the WIPI found that 13 out of 20 countries filed more patent applications in 2022 than in the previous year. Notable contributors to this growth included India, with a remarkable 31.6% increase, Switzerland (6.1%), China (3.1%), Austria (2.5%), and the United Kingdom (2.5%). The robust growth reported by these nations underscores the global nature of innovation and the distributed impact on the intellectual property landscape.
A critical insight from the report is the role of resident filings as a principal driver of overall growth for China and India. China’s residents filed approximately 1.58 million patent applications in 2022, covering both domestic and foreign jurisdictions. India’s surge in resident filings is indicative of a burgeoning culture of innovation, further solidifying its position as a key player in the global patent landscape.
In 2021, computer technology emerged as the most frequently featured technology in published patent applications worldwide, constituting 11.1% of the global total. It was closely followed by electrical machinery (6.4%), measurement (5.8%), medical technology (5.2%), and digital communication (4.9%). Noteworthy growth in specific fields, such as chemical engineering (11.4%), computer technology (11%), and IT methods for management (13.7%) between 2011 and 2021, underscores the dynamic nature of innovation across diverse technological domains.
As the WIPI report highlights India’s remarkable growth in patent filings, it is imperative to delve into the initiatives and strategies employed by the Indian government to empower its intellectual property landscape. The establishment of Intellectual Property Facilitation Centers (IPFCs) across the country has played a pivotal role in supporting inventors and entrepreneurs. These centers provide guidance on patent filing procedures, conduct awareness programs, and facilitate the exchange of information, creating a conducive environment for innovation.
India’s Intellectual Property Endeavors
India’s engagement with international organizations, particularly the World Intellectual Property Organization (WIPO), reflects a commitment to aligning its patent practices with global standards. Collaborative efforts and adherence to international best practices position India as a significant contributor to the global intellectual property ecosystem.
The “Make in India” initiative, a flagship program launched by the government, emphasizes the importance of intellectual property rights in fostering innovation. By creating a robust ecosystem that protects and incentivizes intellectual property, the initiative aims to transform India into a global manufacturing and innovation hub.
Government authorities, particularly the Indian Patent Office (IPO), have been instrumental in streamlining patent procedures. Initiatives to digitize patent processing, reduce application timelines, and enhance examination efficiency contribute to creating a responsive and investor-friendly environment.
In conclusion, the World Intellectual Property Indicators 2022 report paints a vivid picture of the global patent landscape, emphasizing the contributions of key players like China, the United States, and the remarkable growth trajectory of India. As countries navigate the dynamic terrain of intellectual property, the report underscores the role of innovation in shaping economies and driving technological advancements. India’s ascent as a significant player in patent filings reflects its commitment to fostering a culture of innovation, supported by strategic government initiatives and a collaborative approach on the global stage. The report serves as a valuable resource for policymakers, innovators, and stakeholders, providing insights into the evolving trends and dynamics that define the contemporary intellectual property landscape.
by Zen Webnet | Jan 8, 2024 | Blog
Article by Vivek Pandey
Introduction
According to Section 2(1)(m) of the Trade Marks Act, 1999, a trademark is defined as a “mark,” encompassing various elements such as devices, brands, headings, labels, tickets, names, signatures, words, letters, numerals, shapes of goods, packaging, or combinations of colors, among others. In simpler terms, any mark, whether it be a word, device, brand, heading, letter, numeral, or a combination thereof, capable of distinguishing the goods and services of one person from another, can be eligible for trademark registration. It’s worth noting that certain marks like smells and single colors are not explicitly mentioned in the Act but can still be protected and granted trademark status. The scope of a trademark, as defined in Section 2(1)(zb) of the Trade Marks Act 1999, pertains to a mark that can be graphically represented and has the capability to distinguish the goods or services of one person from those of others. This includes the shape of goods, their packaging, and combinations of colors.
Unconventional Trade Mark
An unconventional trademark is a classification distinct from conventional or traditional trademarks. Such a trademark can manifest as visible signs like colors, shapes, motion, or holograms, as well as non-visible signs such as sounds, scents, tastes, or textures. For an unconventional mark to be effective, it must possess the communicative capacity to distinguish the goods and services of one entity from those of another. It is essential for the mark to demonstrate distinctiveness, indicating its origin and thereby setting apart the goods or services from others.
Some Known Unconventional Trade Marks
- Design of a Carlsberg beer bottle (Shape)
- Google doodle (fluid)
- Amul girl (fluid)
- red and yellow combination of McDonald’s (color)
- Yahoo’s yodel, a man yodelling “Yahoo” (sound mark)
- Cadbury- shape of purple, Pantone 2685C on their chocolate wrappers (color)
- Nokia’s Connecting Hands (Motion/device mark)
Landmark Cases: Unconventional Trade Mark
- Carlsberg Breweries v. Som Distilleries and Breweries Ltd [2017 SCC OnLine Del 8125]:
In the case of Carlsberg Breweries v. Som Distilleries and Breweries Ltd., the Delhi High Court ruled that the design of a Carlsberg beer bottle, encompassing elements such as the shape, pull caps, and labels, did not constitute a novel concept. The court emphasized that there was a discernible distinction between the designs in question. Carlsberg had asserted that Som was replicating its unique trademark-registered bottle design and trade dress with the intent to market Hunter beer.
- Zippo Mfg. Co. v. Anil Moolchandani [2011 SCC OnLine Del 4562] :
In the legal case of Zippo Mfg. Co. v. Anil Moolchandani, the Delhi High Court issued a ruling that restrained the respondents from selling counterfeit lighters bearing the Zippo mark and 3D shapes similar to those of Zippo’s distinctive lighters. The court concluded that such use amounted to infringement of Zippo’s shape mark, affirming the protection of Zippo’s unique 3D shapes in the context of trademarks. This case underscored the importance of safeguarding distinctive shapes as integral elements of a trademark, reinforcing the legal precedent for the protection of shape marks in India.
- The Indian Hotels Company Limited (IHCL) established a significant precedent in the realm of shape marks in India by successfully registering a trademark application for the exterior design of the Taj Mahal Palace Hotel in Mumbai in 2017. This legal action effectively prohibited anyone from utilizing the image of the iconic Taj Mahal structure for commercial purposes without obtaining prior licensing from IHCL. The registration underscored the recognition of architectural elements as protectable trademarks, serving as a landmark case that acknowledged the distinctiveness and commercial value associated with the unique design of the Taj Mahal Palace Hotel.
Limitations
In India, the Act does not mention smell/olfactory, taste/flavour as trade marks. The definition does not rule out olfactory marks however graphical representation is difficult in case of such marks. A taste can be described in written form, but the graphical representation hinders the possibility of a registration.
Limitations exist in India regarding the registration of certain types of trademarks. Specifically, the Trade Marks Act does not explicitly include smell/olfactory or taste/flavor as eligible trademarks. Although the Act doesn’t exclude olfactory marks, the challenge lies in the graphical representation of such marks. While a taste can be described in written form, the graphical representation requirement poses a hurdle to their registration.
In 2009, the Trade Marks Registry issued a Draft Manual on Trade Marks, serving as a guide for the registration practice in India. The manual emphasized that trademarks could be registered only if they could be graphically represented and if they had the capability to be distinguished from other products.
Section 9(3) of the Act introduces constraints on shape marks, outlining that shapes resulting from the inherent nature of the goods, those necessary to achieve a technical result, and those conferring substantial value to the goods shall not be registered. This provision aims to prevent a monopoly on shapes, ensuring fair competition and preventing owners from gaining an undue advantage over competitors.
Furthermore, Section 26(4)(i) of the 2017 Rules specifies requirements for the registration of trademarks consisting of the shape of goods or their packaging. According to this rule, the reproduction submitted for such trademarks must include at least five different views of the trademark, along with a verbal description of the mark. This detailed documentation requirement aims to enhance clarity and precision in the registration process for shape-based trademarks.
Past Reforms in Trade Mark Act
Several notable reforms have been introduced in the Trade Marks Act, particularly through the Trade Marks Rules of 2017, reflecting a positive evolution in trademark registration processes:
The Trade Marks Rules of 2017 marked a significant advancement by allowing the submission of sound marks in an MP3 format. Rule 26(5) specifically outlined the format and duration for sound marks, requiring a 30-second length. This provision acknowledged the growing importance of non-traditional marks, such as sounds, in the realm of trademark recognition.
- Registration of Color Marks:
Rule 26(2) of the Trade Marks Rules, 2017 facilitated the registration of color marks. However, it’s noteworthy that this provision is limited to a combination of colors. This acknowledgment of color combinations as distinctive elements demonstrates an understanding of the diverse ways in which trademarks can be visually represented.
- Graphical Representation of Trademarks:
Rule 2(1)(k) of the Trade Marks Rules, 2017 emphasized the graphical representation of trademarks. According to this rule, a trademark can be represented graphically through a set of pictures, continuous snapshots of a moving mark, and accompanying descriptions. This provision underscores the importance of clarity and precision in the visual representation of trademarks, especially in cases involving dynamic or evolving marks.
These reforms collectively reflect an effort to modernize the trademark registration process, accommodating non-traditional marks, and providing clear guidelines for graphical representation. They signify a recognition of the evolving nature of trademarks in a contemporary and dynamic business environment.
Conclusion
In the contemporary era, there is a pressing need to explore the registration of additional unconventional trademarks. As we advance, it becomes crucial to consider not only the technical aspects of registration but also factors such as goodwill, distinctiveness, public image, and overall association before granting registration to any unconventional mark. Failure to do so could lead to confusion and undermine the fundamental purpose of trademarks. While the Trade Marks Rules of 2017 made commendable strides by addressing certain unconventional elements like sound marks, color, fluid, and motion, there remain aspects within the Trade Marks Act of 1999 that warrant further reform. Companies should have the opportunity to protect not only the traditional elements of their brand but also distinctive features like fragrance, recipes, spices, and ingredients that contribute to a unique taste, as well as memorable jingles. Recognizing and accommodating these diverse elements in the trademark registration process would not only align with the evolving nature of businesses but also foster a more comprehensive and inclusive protection framework. Such reforms would serve to encourage innovation, creativity, and fair competition while safeguarding the distinctiveness and integrity of brands in a dynamic and modern business landscape.
by Zen Webnet | Jan 7, 2024 | Blog
Article by Jagatjeet Singh and Jagrati Maru
Introduction
In a landmark ruling[1], the Hon’ble Apex Court has ruled on the finality of the long-standing debate of Group of Companies Doctrine (hereinafter referred to as ‘GOC Doctrine’) being a challenge to the foundational principles of arbitration law being party autonomy, privity of contract, consensus ad idem and separate legal personality. The doctrine postulates that an arbitration agreement which is entered into by a company within a group of companies may bind non-signatory affiliates if the “circumstances are such as to demonstrate the mutual intention of the parties to bind both signatories and non-signatories”. This article attempts to dissect the GOC Doctrine from the perspective of foreign jurisdictions and discuss the implications of the judgment upon Indian Arbitration Jurisprudence.
Observations of the Hon’ble Supreme Court in Cox and Kings Ltd. v. SAP India Pvt. Ltd.
The Supreme Court while upholding the GOC Doctrine has concluded, the following:
- Definition of “parties” in Section 2(1)(h) of the read with the Section 7 Arbitration & Conciliation Act, 1996 (hereinafter referred to as ‘A&C Act’) includes both signatories and non-signatories.
- Consent to be bound by an arbitration shall be inferred from the conduct of the non-signatory.
- Section 7 of A&C Act requirement of written arbitration agreement does not exclude the possibility of a non-signatory party.
- Under the A&C Act, “party” and “persons claiming through or under” a party are distinct and different terms.
- Basis of the application of the GOC Doctrine is for maintaining the corporate separateness of group of companies while determining common intention of parties to bind a non-signatory party.
- Piercing of Corporate veil or the Doctrine of Alter Ego cannot be the foundation for the application of the GOC Doctrine.
- GOC Doctrine is a principle of law which stems from the conjoint reading of Section 2(1)(h) and Section 7 of the A&C Act.
- Single Economic Unit cannot be sole basis for invoking the GOC Doctrine.
- Persons “claiming through or under” can only assert their right in a derivative capacity.
- GOC Doctrine shall be retained ‘considering its utility in determining the intention of the parties in context of complex transactions involving multiple parties.
- At referral stage (under Section 11 or Section 8 of the A&C Act), the referral Court shall leave it to the Arbitral Tribunal whether non-signatory is bound by the arbitration agreement.
Overview of the Doctrine in other Jurisdictions
France
The Doctrine finds its origin from France wherein an ICC tribunal as early as in 1982 passed an interim award in an arbitration titled Dow Chemical v. Isover Saint Gobain[2], holding the Dow Chemical (France) and Dow Chemical Company, non-signatories to the contracts, to be a party to the arbitration. The Tribunal observed that Dow Chemical (France) played vital role in the negotiation, performance and termination of the contract and Dow Chemical Company was the holding company who owned the trademarks under which the products were sold in France and also had absolute control over its subsidiary, the signatory to the contracts. In French law an arbitration agreement can be extended on the non-signatory parties, if it can be stablished that all the parties had a common intention to be bound by the agreement. Such common intention is subjective and is inferred on the objective conduct of the said party during the ‘negotiation, performance and termination of the contract containing the arbitration agreement.[3]
Switzerland
The Swiss law considers the consent of the parties, either implied or express by their conduct to determine whether a non-signatory is bound by an arbitration agreement. In Swiss law, the mere fact that a non-signatory is a part of the same group of companies is not enough justification for binding the said non-signatory to the arbitration agreement[4]. The Swiss law, similar to the French, mandates a subjective willingness of a non-signatory derived through certain behaviour or conduct which is expressed through an objective element such as involvement in negotiation and performance of the contract for a non-signatory to be bound to the arbitration agreement.[5]
England
Under the English law, even non-signatory parties may be bound by an arbitration agreement but only if they are claiming under or through the original party to the agreement. Therefore, the doctrine of privity is adhered to strictly and an arbitration agreement is extended to non-signatory parties on the basis of traditional contractual principles and doctrines such as agency, novation, assignment, operation of law, and merger and succession. English Courts have discarded the applicability of the Doctrine of Group of Companies. For instance, in Peterson Farms INC case[6] the Respondent claimed damages suffered by its group entities against the Petitioner and some of these group entities were non-signatories to the arbitration agreement. While the tribunal opined that by virtue of the GOC Doctrine the Respondent was entitled to claim damages suffered by its group entities against the Petitioner, on appeal the Commercial Court held that English Law excludes the application of GOC Doctrine and arbitration agreement, therefore, cannot be extended to non-signatory parties.
USA
The US Federal Arbitration Act does not provide for joinder of non-signatory parties to arbitration agreements. The US Courts have used non-consensual doctrines to extend arbitration agreements to non-signatory parties. For example, where parent company completely exercised control over subsidiary, the Courts have pierced corporate veil and held the alter ego liable in exceptional circumstances. The US Supreme Court in GE Energy case[7] held that the New York Convention is silent on the aspect of whether non-signatories can enforce an arbitration agreement and therefore the Convention does not conflict with the application of domestic law equitable estoppel doctrines to third parties.
Brazil
The Brazilian Arbitration Act, 1996 does not envisage any express provision governing joinder of third parties however, the rule finds its recognition in several institutional arbitration rules.
A look at the jurisprudence on the GOC doctrine, it can be observed that the Courts in Brazil have relied on the GOC Doctrine in limited circumstances. The Doctrine finds its recognition in Court of Appeals decisions wherein the Doctrine has been used to find the very consent to arbitrate when non-signatories from the same group of companies of one of the parties were involved in the negotiation or performance of underlying contract. The Superior Court of Justice in one case pierced corporate veil under Article 50 of the Brazilian Civil Code invoking an exceptional circumstance to find implicit consent when the signatory and non-signatory parties belonging to the same Group of Companies had abused their rights by committing fraud and acting malafide[8].
Japan
The Japanese Arbitration Act does not contain provisions to enable an Arbitral Tribunal to assume or assert its jurisdiction over individuals or companies who are not a party to the arbitration. The Japanese Law, in stark contrast to the French, Indian and the Swiss, dictates that no parent company or subsidiary company of a signatory shall be bound by the arbitration agreement under the doctrine of group of companies even though the same may have played a vital role in the negotiation, performance and termination of the contract. However, a District Court in Nagoya, Japan in 1995 had held that ‘an arbitration clause in a contract entered into by a company would extend to the individuals closely associated with the said company.’[9]
Singapore
The Singapore High Court has taken a concurrent view with the English Courts in rejecting the Group of Companies Doctrine on reasoning that the doctrine is “anathema to the logic of consensual basis of an agreement to arbitrate; and second, ordering of companies within a broader group did not mean one could dispense with separate legal entity[10].” Following the English decision in Peterson Farms (supra), it was observed that enforceable obligations cannot be imposed on “strangers” to an arbitration agreement.
Conclusion
The Hon’ble Supreme Court while listing its reasoning for upholding the GOC Doctrine has referred to and explored numerous jurisdictions and foreign case laws with respect to the GOC Doctrine. The Court has recognised implied consent for binding non-signatories to an arbitration agreement.
To conclude, this decision has crystalized the applicability of GOC Doctrine in the Indian Arbitration Law landscape and paved way for a comprehensive standard in determining the intention of parties, particularly in a multi-party commercial setup.
[1] Cox and Kings Ltd. v. SAP India Pvt. Ltd. and Anr. 2023 SCC OnLine SC 1634.
[2] Dow Chemical v. Isover Saint Goblain, Interim Award, ICC Case No. 4131, 23 September 2023.
[3] ICC award in Case No. 11405 of 2001.
[4] Saudi Butec Ltd et Al Fouzan Trading v. Saudi Arabian Saipem Ltd, unpublished ICC Interim Award of 25 October 1994, confirmed by DFT on 29 January 1996, ASA Bulletin (1996) Vol 3 p 496.
[5]Cox and Kings Ltd. (Supra).
[6] Peterson Farms INC v. C & M Farming Limited [2004] EWHC 121 (Comm).
[7] 140 S.Ct. 1637 (2020).
[10] Manuchar Steel Hong Kong Limited v. Star Pacific Line Pte Ltd. [2014] SGHC 181.
by Zen Webnet | Jan 6, 2024 | Blog
Article by Aditya Pratap Singh
Intellectual Property Rights (IPR) play a crucial role in fostering innovation and protecting the interests of creators and inventors. In the pharmaceutical industry, where research and development are integral to the creation of life-saving drugs, the impact of intellectual property rights is particularly significant. In the Indian context, understanding the dynamics of IPR in the pharmaceutical sector is essential for comprehending its effects on innovation, accessibility, and competitiveness.
Historical Context:
India has a rich history in pharmaceuticals, and its contribution to the global pharmaceutical market is substantial. The strong presence of companies producing generic medicines can be majorly contributed to the Patents Act enacted in 1970. The Act had two key features that led to the growth of generic companies. One of the features was that the grant was allowed for process patent. That meant that if a company develops the same drug, but uses a different process, it will escape from the earlier patent. The other feature that contributed to the flourishing of the generic companies was the shorter patent protection term envisaged in the previous Act.
The introduction of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement in 1995 compelled India to align its patent laws with international standards. Before TRIPS, India did not grant product patents for pharmaceuticals, leading to the proliferation of generic drugs and fostering a robust domestic industry.
TRIPS Compliance and Challenges:
Post-TRIPS, India amended its patent laws to introduce product patent protection for pharmaceuticals. This move was aimed at complying with international standards, but it also sparked concerns about potential negative consequences. Critics argued that this change would lead to a surge in the prices of medicines and hinder the availability of affordable generic drugs, which were crucial for a large population with limited access to healthcare.
Impact on Innovation:
One of the primary objectives of intellectual property rights is to incentivize innovation by providing a mechanism for inventors to protect their creations. In the pharmaceutical industry, patents serve as an essential tool for companies to recover the substantial investments made in research and development. However, critics of stringent patent protection argue that it may stifle innovation by limiting competition and creating monopolies.
In the Indian context, the impact on pharmaceutical innovation is a subject of ongoing debate. While patent protection can encourage foreign investment and collaboration, it may also deter domestic companies from pursuing research on certain drugs due to the fear of patent infringement lawsuits. Striking a balance between protecting intellectual property and ensuring a conducive environment for innovation remains a key challenge for policymakers.
Access to Medicines and Affordable Healthcare:
Affordability and accessibility of medicines are critical considerations in the context of public health, especially in a country as populous as India. Generic drugs, which are often more affordable than their branded counterparts, have played a vital role in making essential medications accessible to a large section of the population.
The introduction of product patents post-TRIPS raised concerns about the potential negative impact on access to medicines. However, India’s patent laws include provisions for compulsory licensing, allowing the production of generic versions of patented drugs in certain situations, such as public health emergencies. This provision helps strike a balance between protecting intellectual property rights and ensuring access to essential medicines.
International Trade Dynamics:
India’s adherence to TRIPS has also influenced its standing in international trade agreements, particularly in the context of pharmaceutical exports. The country has become known as the “pharmacy of the developing world,” supplying affordable generic drugs to various countries. The balance between respecting intellectual property rights and promoting public health remains a diplomatic challenge for India in its trade relations.
Conclusion:
The impact of intellectual property rights on the pharmaceutical industry in India is complex and multifaceted. While patent protection can incentivize innovation and attract foreign investment, it also poses challenges related to accessibility and affordability of medicines. Policymakers face the ongoing task of finding a delicate balance that promotes innovation, ensures access to essential medicines, and upholds international trade obligations.
As the pharmaceutical landscape continues to evolve, it is imperative for India to adapt its policies to address the dynamic needs of its population while maintaining a competitive edge in the global pharmaceutical market. Striking the right balance between intellectual property rights and public health will be crucial for shaping the future of the pharmaceutical industry in India.
