“Liberty” : How the Delhi High Court asserted its jurisdiction over the arbitration between Liberty Footwear Company and Liberty Shoes Ltd
The court rejected the challenge to its jurisdiction and held that the first court where an application under Part-I of the Arbitration and Conciliation Act, 1996 is filed must be a court of competent jurisdiction
The Delhi High Court has recently dismissed a challenge to its jurisdiction by Liberty Footwear Company, which is engaged in a dispute with Liberty Shoes Ltd over the sale of the trademark ‘Liberty’. The court held that it has jurisdiction to entertain an application under Section 9 of Part-I of the Arbitration and Conciliation Act, 1996 for interim measures, as it was the first court where such an application was filed in accordance with the arbitration agreement between the parties.
The dispute and the arbitration agreement for Liberty
The dispute arose from an agreement dated 15.01.2021, where Liberty Footwear Company agreed to sell its trademark ‘Liberty’ to Liberty Shoes Ltd for a consideration of Rs. 100 crores. However, Footwear Company later refused to transfer the trademark and claimed that the agreement was not valid, as it was executed under coercion and undue influence.
The agreement contained an arbitration clause, which stated that any dispute arising out of or in connection with the agreement shall be referred to arbitration in accordance with the Arbitration and Conciliation Act, 1996. The clause also specified that the seat of arbitration shall be Delhi and the language of arbitration shall be English.
The application for interim measures and the challenge to jurisdiction
Liberty Shoes Ltd invoked the arbitration clause and filed an application under Section 9 of Part-I of the Arbitration and Conciliation Act, 1996 in the Delhi High Court, seeking interim measures to restrain Footwear Company from using or transferring the trademark ‘Liberty’ pending arbitration. Liberty Shoes Ltd also sought an order directing Liberty Footwear Company to deposit Rs. 100 crores in an escrow account as security for the performance of the agreement.
Footwear Company challenged the jurisdiction of the Delhi High Court, arguing that the application should have been filed in the court of competent jurisdiction where the cause of action arose or where the defendant resides or carries on business. Footwear Company contended that since it is situated in Mumbai and the agreement was executed in Mumbai, the Bombay High Court would have jurisdiction over the matter.
The decision of the court and its reasoning for Liberty
The Delhi High Court rejected this argument and held that the first court where a party to an arbitration agreement files an application under Part-I of the Arbitration and Conciliation Act, 1996 must be a court of competent jurisdiction and the petition must be validly/properly constituted. The court explained that the court of competent jurisdiction is defined under Section 2(1)(e) of the Act as the principal civil court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction. The court further noted that Section 42 of the Act provides that where an application under Part-I has been made in a court, no other court shall have jurisdiction over arbitral proceedings arising out of that agreement.
The court also relied on the Supreme Court’s decision in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., where it was held that Part-I of the Act applies only to arbitrations where the seat is in India, and Part-II applies to arbitrations where the seat is outside India. The court clarified that Section 9 of Part-I is an exception to this rule, and allows parties to seek interim measures from Indian courts even if the seat of arbitration is outside India.
The court concluded that since Liberty Shoes Ltd had filed its application under Section 9 of Part-I in the Delhi High Court, which is a court of competent jurisdiction as per Section 2(1)(e) of the Act, no other court can entertain any application arising out of the same arbitration agreement as per Section 42 of the Act. The court also found that the petition was validly/properly constituted as it contained all the necessary particulars and documents required by law.
Therefore, the court dismissed Liberty Footwear Company’s challenge to its jurisdiction and proceeded to hear Liberty Shoes Ltd’s application for interim measures.
If you want to read more about this case, you can check out [this article], [this summary], [the full judgment] and [the original judgment PDF] from this link [here].
Para 15 : Para 16 : Para 23 : https://www.livelaw.in/news-updates/delhi-hc-asserts-jurisdiction-over-arbitration-between-liberty-footwear-company-and-liberty-shoes-ltd-178881 : https://indiankanoon.org/doc/140737050/ : https://www.livelaw.in/pdf_upload/liberty-footwear-company-vs-liberty-shoes-ltd-395892.pdf : https://www.bing.com/search?q=delhi+high+court+asserts+jurisdiction+over+arbitration+between+liberty+footwear+company+and+liberty+shoes+ltd