M/S.ELMAG WIRES LIMITED v. M/S.STABLE MAGNET WIRE PVT.LTD

ARB.A.13/083The appellant (their group) has another establishment atAroor called “Solvar Wires Private Limited, which wasoriginally called “Southern Electromag Private Limited”.Contending that violating the above clause, appellant ismanufacturing identical products from Aroor Factory, apetition was filed under Section 9 of the Arbitration andConciliation Act for granting injunction as an interim measureas they are contemplating arbitration proceedings. It is notdisputed that there is an arbitration clause in the agreement. 2. Clause 27 of the agreement reads as follows:27. ARBITRATION27.1In the event any dispute or difference arisesout of or in connection with the interpretationor implementation of this Agreement, or out ofor in connection with the breach, or allegedbreach of this Agreement the parties shallattempt in the first instance to resolve suchdispute through friendly consultations. If thedispute is not resolved through friendlyconsultations within thirty (30) days after oneparty first informs the other party in writing ofthe existence of the dispute, then either ofthese parties may refer the dispute for ARB.A.13/084resolution by arbitration. Such arbitrationshall be governed by the provisions of theIndian Arbitration and Conciliation Act, 1996.The arbitration shall be held at Cochin in thefollowing manner:27.1.1 All proceedings in any such arbitrationshall be conducted in English27.1.2 There shall be three (3) arbitrators, allof whom shall be fluent in English. Withinfifteen (15) days of the reference of thisdisputes to arbitration, Seller shall appoint onearbitrator and the Purchaser shall appoint onearbitrator. The third arbitrator shall beappointed by the two (2) appointed arbitrators.27.1.3 The arbitration award made by all ormajority of the arbitrators shall be final andbinding on the Parties and the Parties agree tobe bound thereby and to act accordingly. Theaward shall be enforceable in any competentcourt of law.27.1.4 The award shall be in writing and shallbe a reasoned award.”Section 9 petition was considered by the Court and injunctionwas granted. The prayer in the injunction petition is asfollows:(i)Restrain the respondents by an ad interiminjunction from carrying on or conducting anybusiness, by themselves or through others, which competes with the Business ofmanufacture and sale of magnet wires and ARB.A.13/085enameled copper wires carried on by thePetitioner and particularly from carrying on orconducting any such business in the 6threspondent's factory at II/538, ChemicalIndustrial Estate, Aroor-688 534 and in thefactory of Deepthi Insulated Cables Pvt. Ltd. AtChemical Industrial Estate, Aroor – 688 534 tillarbitration proceedings are concluded andaward is passed. The above prayer was fully granted by the impugned order. According to the appellant, they sold the business in theSpecial Economic Zone only. Intention of the agreement wasthat they will not do business in competition with therespondent establishment either through themselves or theirsister companies and not that they will not conduct any businessat all. It is contended that the factory sold is in the CESZarea, respondent can only export goods. Even if the finalproducts are sold in the local area, it will be deemed exportand procedure should be complied with and appellants are notdoing any business in competition with the business of therespondent. They are not manufacturing or selling any goodsfor export or deemed export. It is further contended that theyare not selling the products to any of the customers of therespondent. It is also further contended that no effective ARB.A.13/086steps were so far taken for arbitration even though petitionwas filed in March, and therefore, interim protection cannotbe given. Relief can be granted as an interim protectionpending contemplation of arbitration for which no steps aretaken so far. Finally it was contended that a reading of thepetition shows that main dispute with the petitioner isregarding interpretation of Clause 15. According to therespondent, petitioner seller cannot do any business at allwhereas according to the appellant, they can do similarbusiness except in competition with the business of therespondent buyer of that establishment in CESZ area. That isa matter to be decided by the arbitrator but by the impugnedorder civil court has decided the matter taking away thefunctions of the Arbitrator. In the above circumstances, considering all these aspects, interim protection order shouldnot have been made. 3. We have gone through the contentions of both sides. Section 9 of the Arbitration and Conciliation Act reads asfollows: ARB.A.13/0879. Interim measures, etc. by Court:- A partymay, before or during arbitral proceedings or atany time after the making of the arbitral awardbut before it is enforced in accordance withSection 36, apply to a Court:-(i) for the appointment of a guardian for aminor or a person of unsound mind for thepurpose of arbitral proceedings; or(ii) for an interim measure of protection inrespect of any of the following matters, namely:-(a) the preservation, interimcustody or sale of any goods whichare the subject-matter of thearbitration agreement;(b) securing the amount indispute in the arbitration;(c) the detention, preservationor inspection of any property orthing which is the subject-matter ofthe dispute in arbitration, or as towhich any question may arise thereinand authorising for any of theaforesaid purposes any person toenter upon any land or building inthe possession of any party, orauthorising any samples to be takenor any observation to be made, orexperiment to be tried, which may benecessary or expedient for thepurpose of obtaining full informationor evidence;(d) interim injunction or theappointment of a receiver;(e) such other interim measureof protection as may appear to the ARB.A.13/088Court to be just and convenient, andthe Court shall have the same powerfor making orders as it has for thepurpose of, and in relation to, anyproceedings before it.As held by the Apex Court in M/s.Sundaram Finance Ltd.v. M/s.NEPC India Ltd. (AIR 1999 SC 565), interim orderunder Section 9 by court can be passed even before thecommencement of Arbitration proceedings. But arbitrationshould be in contemplation. This decision was furtherexplained by the Supreme Court in Firm Ashok Traders andanother etc. v. Gurumukh Das Saluja and others (AIR2004 SC 1433), wherein, Supreme Court held as follows “Section 9 permits application being filed inthe Court before the commencement of thearbitral proceedings but the provision does notgive any indication of how much before. Theword 'before' means, inter alia, ahead of; inpresence or sight of; under the considerationor cognizance of.' The two events sought to beinterconnected by use of the term 'before'must have proximity of relationship byreference to occurrence; the later eventproximately following the preceding event as aforeseeable or 'within sight' certainty. Theparty invoking Section 9 may not have actuallycommenced the arbitral proceedings but mustbe able to satisfy the Court that the arbitralproceedings are actually contemplated or ARB.A.13/089manifestly intended (as M/s. SundaramFinance Ltd. Puts it) and are positively goingto commence within a reasonable time. Whatis a reasonable time will depend on the factsand circumstances of each case and the natureof interim relief sought for would itself give anindication thereof. The distance of time mustnot be such as would destroy the proximity ofrelationship of the two events between whichit exists and elapses. The purpose of enactingS.9, read in the light of the Model Law andUNCITRAL Rules is to provide 'interimmeasures of protection.' The order passed bythe Court should fall within the meaning of theexpression 'an interim measure of protection'as distinguished from an all-time or permanentprotection.”It is further held as follows:“The Court, approached by a party with anapplication under S.9, is justified in asking theparty and being told how and when the partyapproaching the Court proposes to commencethe arbitral proceedings. Rather, the schemein which S.9 is placed obligates the Court to doso. The Court may also while passing an orderunder S.9 put the party on terms and mayrecall the order if the party commits breach ofthe terms.”It is also held that one party need not wait for orders underSection 9 to initiate arbitration. Even though a petition underSection 9 was filed in March, so far no arbitration notice was ARB.A.13/0810served on the respondent. However, that itself cannot be areason for rejecting the petition under Section 9 as it is statedthat they are going to arbitration. But we make it clear thatthe interim order will not be of any effect if steps are nottaken within two months from today. 4. With regard to the contention that no business at allcan be conducted by the appellant in view of the agreement, itis contended that competition will be with the petitioner.In competition means competition of export business ordeemed export which can be done by the establishment sold inCESZ zone. Complete closure of all type of business by theappellant, colleagues, sister companies etc. will be a restrainton trade agreement. We are not expressing any opinion asthese matters has to be decided by the arbitrators if thematter is referred for arbitration. It is not appropriate for thecourt to decide these issues pending contemplation ofarbitration proceedings. But on a plain reading of Section15 (C), we are of the opinion that the appellant shall notmanufacture any products by name “Elmag Wires”, “DeepthiWires” or any other words resembling such names. They also ARB.A.13/0811shall not sell Magnet wires/Copper wires in the exportbusiness including deemed export business either jointly or incollaboration with others in competition with the business ofthe respondent. But they can do the business, engage in themanufacture and sale of products in domestic market otherthan export or deemed export sales. Even in such sales, theyshall not have their products resembling to the trade namesmentioned in Clause 15.1.2 of the agreement. The orderpassed under Section 9 is altered to that effect. We are notexpressing any opinion on the real issue regardinginterpretation of Clause 15 as the matter has to be decided bythe arbitrator. That interim order will be automaticallyvacated if the arbitration proceedings are not initiated withintwo months from today. This appeal is disposed ofaccordingly. J.B.KOSHY, JUDGE P.N.RAVINDRAN, JUDGEprp ARB.A.13/0812 J.B.KOSHY & P.N.RAVINDRAN, JJ.--------------------------------------------------------M.F.A.NO. OF 2006 ()---------------------------------------------------------J U D G M E N T---------------------------------------------------------26th May, 2008