India: Between The Lines... January, 2018

I. Supreme Court: A trademark passing off action can succeed only if goodwill and reputation in India is established

The Supreme Court ("the Court") in Toyota Jidosha Kabushiki Kaisha v. M/s Prius Auto Industries Limited and Others (decided on December 14, 2017) while holding that the use of the mark "Prius" by M/s Prius Auto Industries Limited and Others ("the Defendants") did not amount to passing off, also held that reputation and goodwill in a trademark existing overseas does not necessarily mean that such reputation and goodwill exists in India as well. Separate proof has to be submitted to that effect in an action for passing-off.

Facts

Toyota Jidosha Kabushiki Kaisha ("the Plaintiff") is a famous Japanese automobile manufacturer that instituted a trademark infringement and passing-off suit against the Defendants. The Plaintiff alleged the infringement of its registered trademarks "TOYOTA, TOYOTA INNOVA and TOYOTA DEVICE" and passing-off of its unregistered mark under the name of "Prius". The Defendants had registered the trademark "Prius" under their name in 2002 and were registered proprietors of the trademark. The Plaintiff had not registered the mark "Prius" in India, but claimed registration in different countries as early as the year 1990. The Plaintiff began to extensively publicize the mark "Prius" in India in the year 2009 and that is when they filed an application for cancellation of the Defendant's trademark as well as the suit.

The infringement and passing off action by the Plaintiff was first agitated in the trial court where the decision was passed in favour of the Plaintiff on both the counts. Thereafter, an appeal was filed in the High Court. During the course of the appeal, the Defendants forfeited their contention pertaining to the conditional use of the trade marks 'TOYOTA', 'TOYOTA INNOVA' and 'TOYOTA DEVICE'. The High Court decided the passing-off suit against the Plaintiff holding that the findings regarding trans-border reputation of the mark "Prius" had not been correctly arrived at by the trial judge. Accordingly, the order of the trial court was reversed and the Defendants were not liable under an action for passing off. The matter in an appeal by the Plaintiff ultimately arrived at the doorstep of the Court and the following issue was framed for determination:

Issue: Whether the Defendants were liable for an action of passing off?

Arguments

The Plaintiff argued that even though the Plaintiff had not used the mark "Prius" in India, its reputation and goodwill was not contingent upon the actual sale of goods in India bearing the mark in question. Advertisement and promotion of the mark through different forms of media was sufficient to establish reputation and goodwill within a particular geographical area, India. The Plaintiff had widely publicized this mark in the world since 1997, hence, its popularity permeated into the territory of India much before the goods bearing the mark were sold herein. The Plaintiff urged that the mark "Prius" was a "well-known mark" within the meaning of the said expression under Section 2(1)(zg) of the Trade Marks Act, 1999 ("the Act"), which is subject to a higher protection against misuse under the Act. Further, the Plaintiff also asserted that the test of passing-off always rests upon a likelihood of confusion irrespective of the stage at which the matter may be considered. The fact that the trademark "Prius" was registered in favour of the Defendants was irrelevant insofar as the Plaintiff's claim for passing-off is concerned. The Plaintiff also emphasised on the dishonest intention of the Defendants to adopt the mark "Prius" to derive undue benefit from the goodwill and reputation of the Plaintiff associated with the mark.

The Defendants drew the attention of the Court to the doctrine of territoriality to urge that, according to this doctrine, in order to ascertain, if a trademark enjoyed goodwill and reputation, it is relevant to see its separate existence in each sovereign country. The mark "Prius" may have had goodwill and reputation in other countries in the year 2001, however, it was not used or publicized in India around that time. The Plaintiff did not put forth any evidence before the Court to show a spill over of its reputation and goodwill in the mark "Prius" in India. Therefore, the Defendants cannot be held liable for passing-off. Further, there was a delay on the part of the Plaintiff in approaching the courts with its grievance. The Plaintiff knew the Defendants were using the mark "Prius" since 2001 but chose to approach the courts only when they wished to launch their product in India. Therefore, the suit should be barred on account of delay and laches on the part of the Plaintiff.

Observations of the Court

The Court began its judgement by reiterating the established principle that a passing off action can lie even against a registered proprietor. A well accepted test to determine if an action under passing off lies is the trinity test laid down under Reckitt Colman Limited v. Borden Incorporated [1990 (1) All E.R. 873]. Under the trinity test, to prove and establish an action of passing off, three ingredients are required to be proved by the plaintiff- his goodwill, misrepresentation and damages. To establish goodwill, after citing several foreign judgements and academic scholars, the Court agreed with the Defendants that the doctrine of territoriality shall apply. The Court then examined the evidence of the Plaintiff which failed to indicate any reputation or goodwill in India in the year in which the trademark "Prius" was registered by the Defendants. The Court examined two newspaper clippings in Economic Times in year 1997 that mentioned the launch of hybrid cars bearing the mark "Prius" in Japan, however, these advertisements were not considered adequate enough to generate goodwill and reputation for the Plaintiff. Further, the Court also considered that the internet was not as ubiquitously used back in 2001 as it is today. Hence, the goodwill and reputation could not have permeated into India from overseas. The Court concluded that once lack of goodwill and reputation was established there was no need to discern if the other ingredients of the trinity test were satisfied which meant that there was no need to determine if the Defendants acted with dishonest intentions when they adopted the mark "Prius". The Court also noted that there was a delay on the part of the Plaintiff to approach the courts. Hence the inordinately long silence is also a reason for which Plaintiff are not entitled to any relief in this case.

The Court also made an obiter by examining the issue – that in an action for passing-off, does the plaintiff have to prove actual confusion or simply the likelihood of confusion between the mark of the plaintiff and the defendant at the final stage when pleading for permanent injunction. The Court held that proving actual confusion in the minds of the public may be a onerous burden on the plaintiff as the proof may not always be easily forthcoming and directly available, therefore, even the likelihood of confusion is adequate.

Decision

The Court held that the Defendants were not liable for passing off their goods as those of the Plaintiff on account of the use of their trademark "Prius".

II. NCLAT: Cannot reject insolvency resolution application for non-disclosure of information not mandatorily required under the Code

The National Company Law Appellate Tribunal ("the NCLAT") in M/s Unigreen Global Private Limited v. Punjab National Bank and Others (decided on December 1, 2017) held that disclosure of information relating to pending proceedings between parties or any other information unrelated to the insolvency resolution process is not required to be disclosed in terms of Section 10 of the Insolvency and Bankruptcy Code, 2016 ("the Code") and the Bankruptcy (Application to Adjudicating Authority), Rules, 2016 ("the Rules") and hence cannot be a ground for dismissal of the corporate insolvency resolution application.

Facts

An application was filed by M/s Unigreen Global Private Limited ("the Appellant") in the National Company Law Tribunal ("the NCLT") under Section 10 of the Code initiating insolvency resolution process against itself on the ground that it has failed to pay the debt due to Punjab National Bank and Others ("the Respondents"), the financial creditors of the Appellant. NCLT after taking into consideration the arguments of the Respondents held that, the Appellant had not disclosed the full facts and had not furnished full particulars and therefore had not come with clean hands. The NCLT opined that the Appellant and its directors, being guarantors, were initiating legal proceedings in different courts to thwart the Respondents from realizing their securities and to remove their personal properties from the clutches of law. Further, the NCLT held that the insolvency resolution application was another attempt in the same direction. The NCLT accordingly dismissed the application and also imposed a penalty of INR 1,000,000 (Rupees one million) on the Appellant under Section 65 of the Code for fraudulent or malicious initiation of proceedings. The matter was appealed and two issues came up before the NCLAT:

Issue 1: Whether non-disclosure of facts beyond the statutory requirement under the Code and the Rules can be a ground to dismiss an application for initiation of corporate insolvency resolution process?

Issue 2: Whether the penalty imposed by the NCLT under Section 65 of the Code was legal?

Arguments

The Respondents argued that in the application filed by the Appellants, several material facts such as existence of several ongoing legal proceedings between the parties were not disclosed. Further, full particulars in relation to the assets mortgaged or the securities furnished to the financial creditors were not furnished. The Respondents contended that civil suits, including the application for corporate insolvency resolution under Section 10 of the Code, were deliberately engineered and instigated by the Appellant with a view to remove the mortgaged properties from the accountability of the creditors. Therefore, the application of initiation of the corporate insolvency resolution process amounted to abuse of process of law and should be dismissed.

The Appellant submitted that the application made by them under Section 10 of the Code was in accordance with the Code and the Rules. Provision of disclosing the information regarding any pending legal proceedings between the parties has not been contemplated in the Code or the Rules. Further, the Appellant is not even a party to several of the proceedings alleged by the Respondents, therefore, the NCLT acted erroneously by taking into account the nonsubmission of such information. It was submitted that such grounds are beyond the scope and scrutiny of initiation of corporate insolvency resolution process. It was further alleged that since the insolvency resolution process had not been initiated, the question of imposition of penalty under Section 65 of the Code did not arise, hence, the NCLT erred on that count as well.

Observations of the NCLAT

Issue 1: The NCLAT compared and contrasted Section 7 of the Code which deals with initiation of corporate insolvency resolution process by financial creditor and Section 10 of the Code which deals with initiation of corporate insolvency resolution process by the corporate debtor. It held that there was a commonality with respect to two important factors in both these provisions, that is the debt due and a default with respect to that debt. The NCLAT held that the law laid down by the Supreme Court in Innoventive Industries Limited v. ICICI Bank and Others, wherein the Court observed that "The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority" should be applicable in case of an application made under Section 10 of the Code as well. Therefore, in order to reject the application under Section 10 of the Code, the Respondents, either have to show that there is no default or that debt is not due and is not payable in law or in fact. Admission can also be opposed on the ground that the Applicant is not eligible to make the application in view of its ineligibility under Section 11 of the Code. Since, none of these objections were made and proved by the Respondents, the application for initiating the corporate insolvency resolution process cannot be rejected.

Issue 2: The NCLAT held that for imposition of penalty under Section 65 read with Section 11(5) of the Code, the adjudicating authority is required to form prima facie opinion that the Applicant has filed the application for initiation of corporate resolution process or liquidation proceedings with the intent to defraud any person or with malicious intent for any purpose other than resolution of insolvency. Further, if the adjudicating authority prima facie comes to a conclusion that a case is made out to impose penalty under sub- Section 65, then, after recording its prima facie reasons, the adjudicating authority is required to give reasonable opportunity of hearing to the person concerned, so as to enable the person to explain his case. There was nothing on record to suggest that the Applicant had suppressed any fact or had not come with the clean hands. The NCLT had also not held that the application had been filed by the Applicant "fraudulently" or "with malicious intent" for any purpose other than for the resolution process or liquidation or to "defraud" any person. In absence of any such reasons recorded by the NCLT, the order could not be upheld. Further, the NCLT was required to give notice to the Appellant before imposing such penalty and as it failed to do so, the order could not be upheld having been passed in violation of rules of natural justice.

Decision

The NCLAT quashed the order of the NCLT stating that the dismissal of the application of the Appellant and imposition of penalty under Section 65 of the Code was bad in law and remitted the matter back to NCLT for admission.

III. Bombay High Court interprets the definition of "Court" under Section 9 of the Arbitration and Conciliation Act, 1996

The Bombay High Court in Trammo DMCC v. Nagarjuna Fertilizers and Chemicals Limited (decided on October 10, 2017) on interpreting the definition of the expression "Court" used under Section 9 of the Arbitration and Conciliation Act, 1996 ("the Arbitration Act") held that if an interim relief is sought post rendering of an foreign award in an international commercial arbitration, the court where the subject matter of the arbitral award lies is the court that has the jurisdiction to provide such a relief.

Facts

A foreign arbitral award was passed in favour of Trammo DMCC ("the Petitioner") against Nagarjuna Fertilizers and Chemicals Limited ("the Respondent") as a result of an international commercial arbitration held in London. The Petitioner with the bonafide belief that the Respondent possessed assets within the territorial jurisdiction of the Delhi High Court in the form of money lying in the Respondent's bank account at New Delhi filed a petition for enforcement and execution of the said foreign arbitral award.

On disclosure of fact by the Respondent that the monies were lying in certain bank accounts within the territorial jurisdiction of Bombay High Court, the Petitioner withdrew the said proceedings pending before the Delhi High Court, with a liberty to take appropriate steps for enforcement of said arbitral award before the appropriate court. The Petitioner then filed an application under Section 9 of the Arbitration Act before the Bombay High Court, inter alia, seeking interim reliefs against the Respondent pending enforcement and execution of the said foreign arbitral award. It is pertinent to note that the cause of action for which the foreign award was given did not arise within the jurisdiction of the Bombay High Court. The Respondent did not dwell or carry on business or personally work for gain within the jurisdiction of the Bombay High Court. With regard to the jurisdiction of the Bombay High Court, the following issue was raised:

Issue: Whether the "court" as referred to in Section 9 of the Arbitration Act in the case of international commercial arbitrations which take place outside India, is a "court" as defined under Section 2(1)(e) or as defined in the Explanation to Section 47 of the Arbitration Act?

Arguments

The Petitioner submitted that by virtue of the proviso to sub-section (2) of Section 2 of the Arbitration Act as amended by the Arbitration and Conciliation (Amendment) Act, 2015, the provisions of Section 9 of the Arbitration Act have now become applicable to international commercial arbitrations even if the place of arbitration is outside India. Further, the definition of "Court" for the purpose of Section 9 of the Arbitration Act should be the one provided under explanation of Section 47 and not the one provided under Section 2(1)(e)(ii) of the Arbitration Act. This means that the term "Court" under Section 9 of the Arbitration Act should refer to the High Court having original jurisdiction to decide the questions forming the "subject-matter of the arbitral award" if the same had been the subject-matter of a suit on its original civil jurisdiction. In the instant case, since the Respondent's monies were lying in certain bank accounts within the territorial jurisdiction of Bombay High Court, the subject matter of the arbitral award lies with the same court, and hence the Bombay High Court has jurisdiction to entertain the application for interim relief.

Respondent contended that in the case of sections under Part I, the applicable definitions are contained in Section 2(1) of the Arbitration Act which begins with the word "In this Part, unless the context otherwise requires ...". Section 2(1)(e)(ii) of the Arbitration Act is applicable to international commercial arbitration held in India and outside. The Respondent asserted that the term "Court" appearing in Section 9 of the Arbitration Act is therefore, to be understood as per Section 2(1)(e) of the Arbitration Act which provides that in case of an international commercial arbitration "Court" refers to the High Court having jurisdiction to decide the questions forming the "subject matter of the arbitration", if the same had been the subject-matter of a suit. In the present case, since the subject matter of arbitration did not fall within the jurisdiction of the Bombay High Court as it does not have any place of business within the territorial jurisdiction of the Bombay High Court, the Bombay High Court does not have jurisdiction to entertain the application for interim relief.

Observations of the Court

The Bombay High Court analysed the proviso to Section 2(2) of the Arbitration Act as amended by way of the Arbitration and Conciliation (Amendment) Act, 2015 which makes Section 9 of the Arbitration Act, applicable to international commercial arbitration, even if the place of arbitration is outside India. The intention of the legislature herein was to enable the Indian courts to exercise jurisdiction under Section 9 of the Arbitration Act, even where seat of the international commercial arbitration was outside India, even when such High Court did not exercise ordinary original civil jurisdiction.

Under Section 47 of the Arbitration Act, once the foreign award is passed, the Court where the subject matter of arbitral award lies can enforce this award. If the definition of Court provided under Section 2(1)(e)(ii) were to be applied to Section 9 of the Arbitration Act, for any interim relief sought post the passing of the award, the Petitioner would have to approach a separate court to obtain such relief. Further, to reinforce the inapplicability of Section 2(1)(e)(ii), the opening words of the definition clause are of some significance. Section 2(1) begins with the expression "In this part unless the context otherwise requires...". Thus, the contextual meaning of the definition of "Court" would be required to be considered. In this case the contextual interpretation provides that the legislative intent behind proviso to Section 2(2) of the Arbitration Act was to make the enforcement of foreign awards in India more efficacious. Having the awardee go to one court for an enforcement action and another one for interim relief post the award does not achieve this object. Therefore, a harmonious reading of Section 9 and Section 47 with the proviso to Section 2(2) of the Arbitration Act leads us to the conclusion that the jurisdiction of the Court where "subject matter of the arbitral award" lies is the Court where the petition for interim relief post the arbitral award needs to be filed.

Decision

The Bombay High Court ruled in favour of the Petitioner and held that the Court having jurisdiction to entertain the petition under Section 9 of the Arbitration Act is the "Court" as defined in explanation to Section 47 of the Arbitration Act, and therefore, the Bombay High Court accordingly has jurisdiction to entertain the petition.

IV. Moratorium under the Insolvency and Bankruptcy Code, 2016 not applicable if continuance of proceedings is beneficial to the corporate debtor

The Delhi High Court ("the Court") in Power Grid Corporation of India Limited v. Jyoti Structures Limited (decided on December 11, 2017) held that a moratorium under Section 14 (1)(a) of the Insolvency and Bankruptcy Code, 2016 ("the Code") does not apply to all "proceedings" (as defined in the aforementioned provision) but only to proceedings related to debt recovery actions against the assets of corporate debtor. Further, it was held that if such proceedings are to the benefit of the corporate debtor and do not have the effect of diminishing or dissipating the assets of the corporate debtor, then they would not be affected by the moratorium under Section 14 (1)(a) of the Code.

Facts

As a result of an on-going arbitration proceeding between Power Grid Corporation of India Limited ("the Petitioner") and Jyoti Structures Limited ("the Respondent"), the Petitioner approached the Court under Section 34 of the Arbitration and Conciliation Act, 1996 ("the Act") to set aside the arbitral award, in the nature of a pure money decree, passed by the arbitral tribunal in favour of the Respondent. During the pendency of these proceedings before the Court, an application under Section 7 of the Code was filed by a financial creditor against the Respondent before the National Company Law Tribunal Mumbai ("the NCLT"), to initiate corporate insolvency resolution against the Respondent. The NCLT admitted this application and declared a moratorium under Section 14 of the Code. Consequently, the following issue came up before the Court:

Issue: Whether proceedings under Section 34 of the Act, need to be stayed as per Section 14(1)(a) of the Code?

Arguments

The Counsel for the Respondent argued that a reading of Section 14(1)(a) of the Code that allows proceedings under Section 34 of the Act to be stayed, would result in the Respondent being unable to execute the award given in its favour till the termination of the moratorium period and consequently the Respondent would be unable to recover its dues which would further impede its financial condition.

The arguments of the Petitioner were not discussed by the Court and the Court directly commenced with its observations.

Observations of the Court

For understanding the observations of the Court, Section 14(1)(a) of the Code is reproduced hereunder for reference:

"Subject to provisions of sub- sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:-

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;"

The Court noted that the term "including" is clarificatory of the scope and ambit of the term "proceedings". The word "proceedings" mentioned in Section 14(1)(a) does not read as "all proceedings", therefore, there would certainly be some proceedings that would remain unaffected by this provision. The use of narrower term "against the corporate debtor" in Section 14(1)(a) as opposed to the wider phase "by or against the corporate debtor" used in Section 33(5) of the Code further makes it evident that Section 14(1)(a) is intended to have restrictive meaning and applicability.

Further, the Court harked back to the Supreme Court's decision under Canara Bank v. Deccan Chronicle Holdings Limited, whereby the Court excluded the application of Section 14(1)(a) to proceedings under Article 32 or 226 of the Constitution of India. The Court also made a reference to the report of the Bankruptcy Law Reforms Committee which was relied upon by the Supreme Court in M/s Innovative Industries Limited v. ICICI Bank and Another which provided that moratorium is to predominantly apply to recovery actions and filing of new claims against the corporate debtor and the purpose behind moratorium is that there should be no additional stress on the assets of the corporate debtor. The Court, to strengthen its ratio, looked at the rationale and the purpose behind the moratorium in the Code which attempts to ensure that the assets of the company are preserved so that the company can operate as a going concern. It finally held that all the existing jurisprudence indicates that moratorium would not apply to proceedings which benefit the corporate debtor and its conclusion does not endanger, diminish, dissipate or impact the assets of the corporate debtor in any manner whatsoever and hence shall be in sync with the purpose of moratorium which includes keeping the corporate debtor's assets together during the insolvency resolution process and facilitating orderly completion of the process envisaged during the insolvency resolution process.

Decision

The Court held that the proceedings under Section 34 of the Act are a step prior to the execution of an award and it does not defeat but preserves the object of the Code in this instance, hence, it shall not be impeded by Section 14(1)(a) of the Code. Therefore, a moratorium shall not apply to proceedings relating to setting aside of the arbitral award as it is beneficial to the corporate debtor.

© 2017, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.