2007 (3) TMI 669 - SC - Companies Law

Supreme Court dismisses arbitrator appointment application citing injunction & third-party disputes

INDIA HOUSEHOLD AND HEALTHCARE LTD Versus LG HOUSEHOLD AND HEALTHCARE LTD

INDIA HOUSEHOLD AND HEALTHCARE LTD Versus LG HOUSEHOLD AND HEALTHCARE LTD - 2007 (5) SCC 510 Issues Involved:1. Appointment of an arbitrator under the Arbitration and Conciliation Act, 1996.2. Validity of the arbitration agreement due to alleged fraud.3. Jurisdiction of the court in light of an existing injunction from the Madras High Court.4. Prematurity of the application for appointment of an arbitrator.5. Scope of the arbitration agreement concerning disputes involving third parties.Detailed Analysis:1. Appointment of an Arbitrator:The application was filed under Sub-sections (5) and (6) of Section 11 of the Arbitration and Conciliation Act, 1996, for appointing an arbitrator due to the respondent's failure to do so despite a notice dated 15.04.2005. The agreement dated 8.05.2004 contained an arbitration clause (Clause 12), which mandated arbitration in case of disputes.2. Validity of the Arbitration Agreement Due to Alleged Fraud:The respondent contended that the agreement and the preceding Memorandum of Understanding (MoU) dated 1.11.2003 were vitiated by fraud involving a criminal conspiracy. It was argued that the officers representing the petitioner bribed the respondent's officers, who were convicted by a Korean Criminal Court. The respondent claimed the MoU contravened Korean laws and lacked proper authorization. The Supreme Court noted that fraud vitiates all solemn acts and that a contract, including an arbitration agreement, must be valid and enforceable in law. The issue of fraud was pending before the Madras High Court, where an injunction was already in place.3. Jurisdiction of the Court in Light of an Existing Injunction:The Madras High Court had issued an interim injunction on 6.10.2005, restraining the respondents from acting on the MoU, License Agreement, and related documents. This injunction was confirmed on 21.01.2006 and had become final. The Supreme Court emphasized the doctrine of comity, stating that a court should not pass an order conflicting with another court's lawful order. The applicant did not seek modification of the injunction, and the court highlighted that judicial comity required respecting the existing injunction.4. Prematurity of the Application for Appointment of an Arbitrator:The respondent argued that the application was premature as the applicant had not appointed its arbitrator per the arbitration agreement. The Supreme Court agreed, noting that the applicant's notice dated 15.04.2005 only requested interaction to agree on an arbitrator but did not appoint one. The court cited National Highways Authority of India & Anr. v. Bumihiway DDB Ltd. (JV) & Ors., emphasizing that parties must comply with the agreed procedure for appointment, and a defaulting party cannot take advantage of its own wrong.5. Scope of the Arbitration Agreement Concerning Disputes Involving Third Parties:The court noted that some disputes, such as the use of the LG logo, fell outside the arbitration agreement. The LG Corporation, which owned the logo, was not a party to the arbitration agreement and had filed a separate suit. The court referenced Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Another, stating that there is no provision for bifurcating the subject matter of a suit between arbitration and court proceedings. The court concluded that bifurcation would delay proceedings and increase litigation costs.Conclusion:The Supreme Court dismissed the application as not maintainable at this stage due to the existing injunction, the prematurity of the application, and the scope of the arbitration agreement. The court emphasized the need to respect judicial comity and follow the agreed procedures for appointing an arbitrator.