Bismi Appliances vs BISMI Home Appliances LLP and V.A. Yusuf

**“CR”** # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE V.G.ARUN** **WEDNESDAY, THE 15[TH] DAY OF DECEMBER 2021 / 24TH AGRAHAYANA, 1943** **CRP NO. 270 OF 2021** **OS 26/2021 OF VTH ADDITIONAL DISTRICT COURT, ERNAKULAM** ## **REVISION PETITIONER/S:** BISMI APPLIANCES XXXVII/3A AND 3 B, CASTLE VIANY, TVS JUNCTION, KALAMASSERY, ERNAKULAM DISTRICT, KERALA STATE, REPRESENTED BY ITS MANAGING PARTNER V.A.AJMAL. BY ADVS. M.A.ABDUL HAKHIM JOSEPH GEORGE ## **RESPONDENT/S:** 1 BISMI HOME APPLIANCES LLP 72/1059-44/3017, OPP. MICRO TOWER, DESHABHIMANI ROAD, KALOOR, ERNAKULAM, PIN -682 917 REPRESENTED BY ITS MANAGING PARTNER MR.V.A.YUSUF. 2 V.A.YUSUF AGED 70 YEARS S/O.ALI, VALIYAVEETTIL HOUSE, DESHABHIMANI ROAD, KALOOR, COCHIN - 682 017. BY ADVS. S.SREEKUMAR (SR.) P.MARTIN JOSE P.PRIJITH THOMAS P.KURUVILLA R.GITHESH C.K.ANWAR HARIKRISHNAN S. KEZIAH MIRUM GEORGE **THIS CIVIL REVISION PETITION HAVING BEEN FINALLY HEARD ON** **27.09.2021, THE COURT ON 15.12.2021 DELIVERED THE FOLLOWING:** CRP No.270 of 2021 -2- **==> picture [30 x 9] intentionally omitted <==** ## **ORDER** Dated this the 15[th] day of December, 2021 The petitioner is the plaintiff in O.S.No.26 of 2021 of the Vth Additional District Court, Ernakulam. The suit is filed under Sections 29, 134 and 135 of the Trade Marks Act, 1999, alleging infringement of petitioner's trademark. The essential facts are as under; The petitioner is a registered firm constituted with the objective of conducting business in home appliances and allied products. The petitioner firm is the registered holder of the trademark 'Bismi'. The firm was reconstituted from time to time. As on 31.05.2018, partners of the firm were V.A.Ajmal, V.Y.Shabani, V.A.Yusuf and P.M.Nafeesa. The partners are close relatives; V.A.Ajmal and V.Y.Shabani being the son-in-law and daughter of V.A.Yusuf and CRP No.270 of 2021 -3- P.M.Nafeesa. Difference of opinion arose among the partners, with V.A.Ajmal and V.Y.Shabani on one side and V.A.Yusuf and P.M. Nafeesa on the other. The disputes were settled at the intervention of mediators and a Memorandum of Understanding (MoU) was executed by the partners on 31.05.2018. As per Clause 13 of the MoU, V.A.Yusuf and P.M.Nafeesa were to retire from the firm with effect from 15.06.2018 and all existing debts and liabilities were to be taken over by the continuing partners, namely, V.A.Ajmal and V.Y.Shabani. As per Clause 13 of the MoU, the retiring partners have the right to use the goodwill and trademarks of the petitioner firm at their Kaloor, Angamaly and Thodupuzha offices, godowns and outlets, as also the offices and godowns to be opened from the date of execution of the retirement deed. In accordance with the MoU, a deed of retirement was executed between the continuing and retiring partners on CRP No.270 of 2021 -4- 15.06.2018. As per Clause 5 of the Deed of Retirement, the continuing partners permitted the retiring partners to use the firm's trademark for their new firm and the retiring partners agreed that they will not set up any new business in the same name 'Bismi Appliances', except names starting with 'Bismi'. In turn, the continuing partners agreed that the trademark of the petitioner firm can be used by the retiring partners for their new firm, along with their new partners. Thus, the petitioner firm became the owner and prior user of the trade name and trademark 'Bismi' and the retiring partners, permitted users of the trademark. Later, the first respondent, a Limited Liability Partnership (LLP), constituted by the retiring partners along with others, put up display boards and advertisements with the words 'Real Bismi'. Thereupon, the petitioner issued a lawyer notice to the respondents, asking them to refrain from CRP No.270 of 2021 -5- using the words 'Real Bismi'. The second respondent sent a reply notice claiming that he is entitled to use the trade name 'Bismi' and has every right to let the public known that, his is the real business. Hence, the suit was filed seeking the following reliefs; _“i) issuing a permanent prohibitory injunction restraining the defendants, their men and agents from making any reference, use, description of the trade mark of the plaintiff 'BISMI' as real in any manner including restraining the use of the words 'real' or similar words as prefix or suffix to the trade mark/name 'BISMI' and the use of the logos and advertisements included in Schedule B,_ _ii) issuing a permanent prohibitory injunction restraining the defendants, their men and agents from enlarging or exceeding the permission given by the plaintiff to use the trademark/name, 'BISMI or from modifying such trademark/name,_ _iii) issuing mandatory injunction directing the defendants to remove the logos and advertisements included in Schedule B from all its literature, promos, flyers, labels, packings, advertisements and in any printed material, digital, electronic social media and media of any other form of representation to the general public; on their failure to do so, the plaintiffs may be permitted to do the same through the process of this Hon'ble Court and to realise the cost from the defendants;_ The respondents filed counter affidavit to the CRP No.270 of 2021 -6- injunction application filed along with the suit, contending that the suit is not maintainable in view of the arbitration clause in the MoU dated 31.05.2018. The respondents also filed I.A.No.3 of 2021, for hearing maintainability as the preliminary issue. In spite of petitioner's objection, maintainability was heard as the preliminary issue and I.A.No.3 of 2021 was allowed. Consequently, the suit was referred to arbitration, granting liberty to the parties to appoint Arbitrator/Arbitrators in accordance with the covenants of the MoU. Aggrieved, this revision petition is filed. 2. Sri.M.A.Abdul Hakhim, learned Counsel for the petitioner, assailed the findings in the impugned order on the following grounds; (i) The first respondent, an LLP, is not a party to the MoU. The first respondent consists of partners other than M.A.Yusuf and P.M.Nafeesa. As per Section 3 of the Limited CRP No.270 of 2021 -7- Liability Partnership Act, 2008, an LLP is a legal entity, separate from its partners. The matter cannot be referred to arbitration, since the first respondent or its partners, other than V.A.Ajmal and V.Y.Shabani, are not signatories to the MoU. In support of the contention, learned Counsel placed reliance on the decisions in _**Sukanya Holding Pvt.Ltd v. Jayesh H.Pandya and another [(2003) 5 SCC**_ **531]** _**, Vidhya Drolia and others v. Durga Trading Corporation [(2021) 2 SCC 1]**_ **.** (ii) The MoU dated 31.05.2018 is superseded by the Deed of Retirement executed on 15.06.2018. Applying the principle of novation under Section 62 of the Indian Contract Act, 1872, the MoU has ceased to exist. As the Deed of Retirement, based on which the suit is filed, does not contain an arbitration clause, the trial court committed gross illegality by referring the suit CRP No.270 of 2021 -8- to Arbitration by relying on a clause in the nonexistent MoU. 3. Sri.S.Sreekumar, learned Senior Counsel appearing for the respondents, raised a preliminary objection regarding maintainability of the revision petition. It is contended that as per Section 115 of CPC, the High Court shall not entertain a revision, except when the impugned order, if made in favour of the party applying for revision, would have finally disposed of the suit or other proceedings. To buttress the contention, reliance is placed on the decisions in _**Shiv Shakti Cooperative Housing Society v. Swaraj Developers [2003 (6) SCC 659], Radhe Shyam and another v. Chhabi Nath and others**_ _**[(2015) 5 SCC 423].**_ 4. Relying on the decisions in _**Mahanagar Telephone Nigam Ltd v. Canara Bank and others [(2020) 12 SCC 767]**_ , _**Chloro Controls (I) P.Ltd v.**_ CRP No.270 of 2021 -9- ## _**Severn Trent Water Purification Inc. and others**_ _**[(2013) 1 SCC 641],**_ it is contended that an arbitration agreement can bind even a nonsignatory based on the 'group of companies' doctrine. According to the Senior Counsel, even though only the second respondent and P.M.Nafeesa are signatories to the MoU, applying the group of companies doctrine, the arbitration clause will bind the LLP and the other partners. It is argued that the principle of novation has no application as far as an arbitration clause is concerned, in view of the settled legal position that an arbitration clause contained in the agreement would remain operative even if the agreement stands terminated by mutual consent of parties. _**Vidhya Drolia** (supra)_ is pressed into service to contend that, going by the legislative mandate of the Arbitration and Conciliation Act, 1996 and the principle of severability and CRP No.270 of 2021 -10- competence-competence, the Arbitral Tribunal is the preferred first authority to determine and decide the question of arbitrability. 5. In reply, learned Counsel for the petitioner contended that the impugned order has the effect of terminating the suit as far as the petitioner is concerned and hence, the revision is maintainable. Alternatively, it is contended that even if the revision is found to be not maintainable, this Court has ample power to convert the revision to a proceeding under Article 227 of the Constitution. 6. The first question to be considered is whether a revision is maintainable against the impugned order. In _**Shiv Shakti Cooperative**_ _**Housing Society,** (supra),_ Apex Court considered the meaning of the words “had an order been passed in favour of the party applying for revision, the same would have finally disposed of CRP No.270 of 2021 -11- the suit or other proceeding,” and held as under; _**“32.** A plain reading of Section 115 as it stands makes it clear that the stress is on the question whether the order in favour of the party applying for revision would have given finality to suit or other proceeding. If the answer is “yes” then the revision is maintainable. But on the contrary, if the answer is “no” then the revision is not maintainable. Therefore, if the impugned order is interim in nature or does not finally decide the lis, the revision will not be maintainable. The legislative intent is crystal clear. Those orders, which are interim in nature, cannot be the subject-matter of revision under Section 115. There is marked distinction in the language of Section 97(3) of the Old Amendment Act and Section 32(2)(i) of the Amendment Act. While in the former, there was a clear legislative intent to save applications admitted or pending before the amendment came into force. Such an intent is significantly absent in Section 32(2)(i). The amendment relates to procedures. No person has a vested right in a course of procedure. He has only the right of proceeding in the manner prescribed. If by a statutory change the mode of procedure is altered, the parties are to proceed according to the altered mode, without exception, unless there is a different stipulation.”_ Here, the impugned order has the effect of finally terminating the suit. The arbitral proceedings to be initiated on the basis of the impugned order cannot be termed as continuation of the suit or the other proceedings within the CRP No.270 of 2021 -12- meaning of Section 115 of CPC. Hence, I find the revision to be maintainable. 7. The next question is whether the arbitration clause will bind non-signatories to the agreement. In _**Vidhya Drolia,** (supra)_ it has been categorically held that an arbitration is unsustainable when it affects the rights and liabilities of persons who are not bound by the arbitration agreement. Paragraph 49 of the judgment, being contextually relevant, is extracted here under; _“49. Exclusion of actions in rem from arbitration, exposits the intrinsic limits of arbitration as a private dispute resolution mechanism, which is only binding on “the parties” to the arbitration agreement. The courts established by law on the other hand enjoy jurisdiction by default and do not require mutual agreement for conferring jurisdiction. The Arbitral Tribunals not being courts of law or established under the auspices of the State cannot act judicially so as to affect those who are not bound by the arbitration clause. Arbitration is unsuitable when it has erga omnes effect, that is, it affects the rights and liabilities of persons who are not bound by the arbitration agreement. Equally arbitration as a decentralised mode of dispute resolution is unsuitable when the_ CRP No.270 of 2021 -13- _subject-matter or a dispute in the factual background, requires collective adjudication before one court or forum. Certain disputes as a class, or sometimes the dispute in the given facts, can be efficiently resolved only through collective litigation proceedings. Contractual and consensual nature of arbitration underpins its ambit and scope. Authority and power being derived from an agreement cannot bind and is noneffective against non-signatories. An arbitration agreement between two or more parties would be limpid and inexpedient in situations when the subject-matter or dispute affects the rights and interests of third parties or without presence of others, an effective and enforceable award is not possible. Prime objective of arbitration to secure just, fair and effective resolution of disputes, without unnecessary delay and with least expense, is crippled and mutilated when the rights and liabilities of persons who have not consented to arbitration are affected or the collective resolution of the disputes by including nonparties is required. Arbitration agreement as an alternative to public fora should not be enforced when it is futile, ineffective, and would be a no result exercise. [ Prof. Stavros Brekoulakis, “On Arbitrability : Persisting Misconceptions and New Areas of Concern” essay in the edited collection, Arbitrability : International and Comparative Perspectives (Kluwer, 2009) pp. 19-45.]_ In _**Chloro Controls (I) P.Ltd** (supra)_ , the Apex Court adverted to the circumstances under which the 'group of Companies' doctrine can be applied and held as under; CRP No.270 of 2021 -14- _**“71.** Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the courts under the English law have, in certain cases, also applied the “group of companies doctrine”. This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This theory has been applied in a number of arbitration so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. [Russell on Arbitration(23rd Edn.)]_ _**72.** This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, “intention of the parties” is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties._ _**73.** A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature_ CRP No.270 of 2021 -15- _where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the court answers the same in the affirmative, the reference of even non-signatory parties would fall within the exception aforediscussed.”_ ## The position was further clarified in _**Mahanagar**_ _**Telephone Nigam Ltd** (supra)_ in the following ## manner; _“10.5. The group of companies doctrine has been invoked by courts and tribunals in arbitrations, where an arbitration agreement is entered into by one of the companies in the group; and the non-signatory affiliate, or sister, or parent concern, is held to be bound by the arbitration agreement, if the facts and circumstances of the case demonstrate that it was the mutual intention of all parties to bind both the signatories and the nonsignatory affiliates in the group. The doctrine provides that a non-signatory may be bound by an arbitration agreement where the parent or holding company, or a member of the group of companies is a signatory to the arbitration agreement and the non-signatory entity on the group has been engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, the non-signatory will also be bound and benefited by the relevant contracts._ CRP No.270 of 2021 -16- _10.6. The circumstances in which the “group of companies” doctrine could be invoked to bind the non-signatory affiliate of a parent company, or inclusion of a third party to an arbitration, if there is a direct relationship between the party which is a signatory to the arbitration agreement; direct commonality of the subject-matter; the composite nature of the transaction between the parties. A “composite transaction” refers to a transaction which is interlinked in nature; or, where the performance of the agreement may not be feasible without the aid, execution, and performance of the supplementary or the ancillary agreement, for achieving the common object, and collectively having a bearing on the dispute._ _10.7.The group of companies doctrine has also been invoked in cases where there is a tight group structure with strong organisational and financial links, so as to constitute a single economic unit, or a single economic reality. In such a situation, signatory and non-signatories have been bound together under the arbitration agreement. This will apply in particular when the funds of one company are used to financially support or restructure other members of the group.”_ The group of Companies doctrine has no application as far as the instant case is concerned, since, indisputably, neither the first respondent nor its partners, other than the second respondent and P.M.Nafeesa, are signatories to the MoU. As per Section 3 of the CRP No.270 of 2021 -17- Limited Liability Partnership Act, 2008, an LLP is a body corporate formed and incorporated under the Act and is a legal entity separate from its partners. Section 4 of the Act excludes the application of the provisions of the Indian Partnership Act, 1932 to an LLP, unless otherwise provided. Being so, the arbitration clause in the MoU cannot bind the first respondent, which is a separate legal entity, distinct from its partners and a non-signatory to the agreement. Further, parametres for attracting the group of companies doctrine, of the non-signatory being a sister concern or the non-signatory having made statements indicating its intention to be bound by the contract, commonality of subject matter, composite nature of transaction etc are also absent. 8. The remaining question is whether the MoU and consequently the arbitration clause, ceased to exist on execution of the deed of CRP No.270 of 2021 -18- retirement. From a reading of the MoU, it is evident that the document was executed as a stopgap arrangement till execution of the deed of retirement. The contextually relevant clauses are extracted here under; _“WHEREAS the first and second parties are the partners of a firm by name and style of “BISMI APPLIANCES” carrying on the business of home appliances and allied products on the basis of a partnership deed executed on 21.03.2013 which was revised on 01-04-2016 (hereinafter referred to as the existing firm”)._ _WHEREAS the existing firm has a total of 11 outlets at Calicut, Thrissur, Angamaly, Perumbavoor, Muvattupuzha, Thodupuzha, Kottayam, Kollam, Tripunithura, Kalamassery and Kaloor with sufficient godowns and offices._ _WHEREAS on mutual discussion between the parties involving mediators, it was decided for the benefit of all, that both parties hereto shall carry on business separately and for this purpose, the second parties shall retire from the existing firm by execution of a retirement deed and shall constitute a new partnership firm, limited liability partnership, company or proprietary concern as per their choice (hereinafter referred to as the 'new firm'). For facilitating the same both the parties hereto have decided to separate certain assets of the firm, by transferring the same from existing firm to new firm._ _WHEREAS sufficient time is required for settling the accounts of the existing firm and for drafting retirement deed, both the parties_ CRP No.270 of 2021 -19- _hereto agree that effective date of retirement shall be on 15[th] June, 2018 and the retirement deed shall be prepared by mutual consent on including the following terms and conditions;_ _xxx xx”_ ## The following 'Arbitration Clauses' in the deed of retirement are also relevant; _“WHEREAS the retiring partners V.A. Yousuf and P.M.Nafeesa have declared their intention to retire from the partnership with effect from the close of business on 15[th] day of June, 2018 and the continuing partners agreed to relieve them from the partnership._ _WHEREAS the continuing and retiring partners have executed a Memorandum of Understanding dated (31/5/2018) narrating clearly the basis and terms of retirement._ _WHEREAS the parties hereto have been advised to execute a deed of retirement of the two retiring partners.”_ Therefore, it is evident that the MoU got subsumed into the deed of retirement, as per the terms of which the partnership got terminated. As per Section 62 of the Contract Act, 1872, if the parties to a contract agrees to substitute it with a new contract, or to rescind or alter it, the original contract need not be performed. CRP No.270 of 2021 -20- Here, only the original contract, viz, the MoU, contained an arbitration clause. The question therefore is whether in the absence of such an arbitration clause in the deed of retirement, the clause in the MoU can be pressed into service. Of course, in a series of decisions, the Apex Court has held that even if the agreement/contract is terminated, the arbitration clause will survive on its own. The position here is slightly different inasmuch as the MoU stands substituted, with the deed of retirement, which does not contain an arbitration clause. This obviously is for the reason that the MoU was entered into for the purpose of working out the terms of retirement and on execution of the deed of retirement, the parties severed their relationship as partners. In such circumstances, the arbitration clause in the MoU cannot survive by itself. Being so, the trial court exceeded its jurisdiction and committed a material CRP No.270 of 2021 -21- irregularity by referring the suit to arbitration. For the aforementioned reasons, the impugned order is liable to be set aside. In the result, the civil revision petition is allowed by setting aside the impugned order. The trial court shall proceed with the suit from the stage at which it was stopped. Sd/- **V.G.ARUN JUDGE** Scl/ CRP No.270 of 2021 -22- ## **APPENDIX OF CRP 270/2021** |PETITIONER ANNEXURES|PETITIONER ANNEXURES| |---|---| |Annexure A1|A PHOTOSTAT COPY OF THE MEMORANDUM OF| ||UNDERSTANDING DATED 31/05/2018| ||EXECUTED BY MR.V.A.AJMAL &| ||MRS.V.Y.SHABANI ON THE ONE SIDE AND| ||MR.V.A.YUSUF & MRS.P.M.NAFEESA.| |Annexure A2|A PHOTOSTAT COPY OF THE DEED OF| ||RETIREMENT DATED 15/06/2018 EXECUTED| ||BY MR.V.A.AJMAL & MRS.V.Y.SHABANI ON| ||THE ONE SIDE AND MR.V.A.YUSUF &| ||MRS.P.M.NAFEESA.| |Annexure A3|A PHOTOSTAT COPY OF THE PLAINT DATED| ||24/05/2021 IN O.S.NO.26/2021 OF THE| ||TRIAL COURT.| |Annexure A4|A PHOTOSTAT COPY OF THE COUNTER| ||AFFIDAVIT DATED 25/06/2021 FILED BY| ||THE RESPONDENTS IN I.A.NO.1/2021 IN| ||O.S.NO.26/2021 OF THE TRIAL COURT.| |Annexure A5|A PHOTOSTAT COPY OF THE I.A.NO.3/2021| ||DATED 24/08/2021 FILED BY HE| ||RESPONDENTS O.S.NO.26/2021 OF THE| ||TRIAL COURT.| |Annexure A6|A PHOTOSTAT COPY OF THE COUNTER| ||AFFIDAVIT FILED BY THE PETITIONER| ||DATED 21/08/2021 IN I.A.NO.3/2021 IN| ||O.S.NO.26/2021 OF THE TRIAL COURT.|