Jurisdiction in Arbitration Disputes: The Delhi High Court Decision in Liberty Footwear Company v. Liberty Shoes Ltd

Introduction

The landscape of arbitration law in India witnessed a significant development in 2023 when the Delhi High Court delivered a landmark judgment in the case of Liberty Footwear Company v. Liberty Shoes Ltd. This decision reinforced crucial principles regarding jurisdiction authority in arbitration proceedings under the Arbitration and Conciliation Act, 1996. The case centered around a trademark sale agreement worth Rs. 100 crores and the subsequent dispute over the transfer of the ‘Liberty’ trademark, highlighting the importance of proper jurisdictional determination in arbitration matters.

The case emerged from a commercial dispute between two entities operating in the footwear industry, where questions of territorial jurisdiction and the application of interim measures under Section 9 of the Arbitration and Conciliation Act, 1996 became paramount. The Delhi High Court’s decision not only resolved the immediate jurisdictional challenge but also provided clarity on the interpretation and application of key provisions of India’s arbitration law.

Background of the Dispute

The dispute originated from an agreement executed on January 15, 2021, between Liberty Footwear Company and Liberty Shoes Ltd [1]. Under this agreement, Liberty Footwear Company was obligated to transfer its trademark ‘Liberty’ to Liberty Shoes Ltd for a substantial consideration of Rs. 100 crores. This transaction was part of a larger commercial arrangement aimed at consolidating trademark rights within the Liberty brand ecosystem.

However, the commercial relationship soured when Liberty Footwear Company subsequently refused to complete the trademark transfer as stipulated in the agreement. The company challenged the validity of the entire agreement, claiming that it had been executed under coercion and undue influence [2]. This refusal to perform contractual obligations created the foundation for the arbitration proceedings that would follow.

The agreement contained specific provisions regarding dispute resolution, including an arbitration clause that would prove crucial to the jurisdictional determination. The clause specified that any disputes arising out of or in connection with the agreement would be referred to arbitration in accordance with the Arbitration and Conciliation Act, 1996. Additionally, the agreement designated Delhi as the seat of arbitration and English as the language for arbitration proceedings [3].

Legal Framework: Arbitration and Conciliation Act, 1996

Section 9: Interim Measures by Court

Section 9 of the Arbitration and Conciliation Act, 1996 provides courts with the authority to grant interim relief before, during, or after arbitral proceedings. The provision states that “A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a Court for an interim measure of protection in respect of securing the amount in dispute in the arbitration” [4].

The scope of interim measures under Section 9 encompasses various forms of relief, including preservation and interim custody of goods that are subject matter of the arbitration agreement, securing disputed amounts, detention and preservation of property, and appointment of receivers or guardians for arbitration purposes. These measures serve as essential protective mechanisms during the pendency of arbitration proceedings, ensuring that the eventual arbitral award can be meaningfully enforced.

Section 2(1)(e): Definition of Court

Section 2(1)(e) of the Act defines “Court” as “the principal civil court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction” [5]. This definition is crucial for determining which courts have competent jurisdiction to entertain applications under various provisions of the Act, including Section 9 applications for interim measures.

The definition establishes a hierarchy of courts with jurisdiction over arbitration matters, ensuring that parties have clear guidance on where to file their applications. The inclusion of High Courts in their ordinary original civil jurisdiction reflects the legislature’s intent to provide parties with access to experienced judicial forums for complex commercial disputes involving arbitration.

Section 42: Jurisdiction and Exclusivity

Section 42 of the Arbitration and Conciliation Act, 1996 establishes the principle of exclusivity in jurisdictional matters. The provision stipulates that “where in respect of an arbitration agreement any application under this Part has been made in a court, that court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the same shall not be entertained by any other court” [6].

This provision prevents forum shopping and ensures judicial efficiency by consolidating all matters related to a particular arbitration agreement before a single court. The section creates a binding effect once the first application under Part-I of the Act is filed in a competent court, establishing that court’s exclusive jurisdiction over all future proceedings related to the same arbitration agreement.

The Delhi High Court’s Application for Interim Relief

Liberty Shoes Ltd initiated arbitration proceedings by invoking the arbitration clause contained in the January 15, 2021 agreement. Subsequently, the company filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court, seeking interim measures to protect its interests pending arbitration [7].

The specific reliefs sought by Liberty Shoes Ltd were multifaceted and designed to preserve the status quo during arbitration proceedings. The company requested the court to restrain Liberty Footwear Company from using or transferring the ‘Liberty’ trademark pending the resolution of the arbitration dispute. This relief was essential to prevent any irreversible damage to Liberty Shoes Ltd’s commercial interests while the substantive dispute was being resolved through arbitration.

Additionally, Liberty Shoes Ltd sought a mandatory order directing Liberty Footwear Company to deposit Rs. 100 crores in an escrow account as security for the performance of the agreement. This relief aimed to ensure that adequate financial security would be available to satisfy any eventual arbitral award in favor of Liberty Shoes Ltd, recognizing the substantial monetary consideration involved in the trademark transfer agreement.

Jurisdictional Challenge by Liberty Footwear Company

Liberty Footwear Company mounted a vigorous challenge to the Delhi High Court’s jurisdiction over the Section 9 application. The company’s primary argument centered on territorial jurisdiction principles, contending that the Delhi High Court lacked the necessary territorial connection to entertain the application [8].

The jurisdictional challenge was based on several grounds. Liberty Footwear Company argued that since it was situated in Mumbai and the agreement was executed in Mumbai, the Bombay High Court would be the appropriate forum with territorial jurisdiction over the matter. The company contended that the Delhi High Court could only exercise jurisdiction if there was a sufficient territorial nexus, either through the location where the cause of action arose or where the defendant resides or carries on business.

Furthermore, Liberty Footwear Company challenged the Delhi High Court’s jurisdiction by arguing that the arbitration agreement did not specify Delhi as the seat of arbitration in clear terms, and therefore, the court’s jurisdiction should be determined based on traditional territorial jurisdiction principles under the Code of Civil Procedure, 1908. This argument sought to bypass the special jurisdictional provisions of the Arbitration and Conciliation Act, 1996 and apply general civil procedure rules.

Delhi High Court’s Jurisdictional Analysis

First Court Doctrine

The Delhi High Court addressed the jurisdictional challenge by applying the “first court doctrine” established under Section 42 of the Arbitration and Conciliation Act, 1996. The court held that the first court where a party to an arbitration agreement files an application under Part-I of the Act must be a court of competent jurisdiction, and once such application is properly filed, that court gains exclusive jurisdiction over all subsequent proceedings related to the arbitration agreement.

The court emphasized that competent jurisdiction under Section 2(1)(e) of the Act includes any principal civil court of original jurisdiction in a district and High Courts exercising ordinary original civil jurisdiction. The Delhi High Court, being a High Court with ordinary original civil jurisdiction, clearly fell within this definition of competent jurisdiction [9].

The court’s analysis focused on the procedural requirements for establishing jurisdiction rather than territorial connections. Once Liberty Shoes Ltd filed its Section 9 application in the Delhi High Court, and provided that the application was properly constituted with all necessary particulars and documents, the court acquired jurisdiction over the arbitration proceedings regardless of where the parties were located or where the agreement was executed.

Application of the Bharat Aluminium Doctrine

The Delhi High Court also relied on the Supreme Court’s landmark decision in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. to support its jurisdictional determination. The Bharat Aluminium case established important distinctions between Part-I and Part-II of the Arbitration and Conciliation Act, 1996, particularly regarding the seat of arbitration.

According to the Bharat Aluminium doctrine, Part-I of the Act applies to arbitrations where the seat is in India, while Part-II applies to arbitrations where the seat is outside India. However, Section 9 of Part-I is an exception to this general rule, allowing parties to seek interim measures from Indian courts even when the seat of arbitration is outside India. This principle expanded the scope of Indian courts’ jurisdiction in international commercial arbitration.

In the present case, the Delhi High Court applied this doctrine to establish that Section 9 applications can be filed in competent Indian courts regardless of specific territorial limitations, provided the court has competent jurisdiction as defined under the Act. This interpretation reinforced the availability of interim relief to parties engaged in arbitration proceedings, ensuring that such relief is not denied due to technical jurisdictional objections.

Regulatory Framework Governing Arbitration Jurisdiction

Arbitration and Conciliation Act, 1996: Structure and Purpose

The Arbitration and Conciliation Act, 1996 was enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards, and conciliation. The Act is divided into four distinct parts, each addressing different aspects of alternative dispute resolution mechanisms.

Part-I of the Act deals with arbitration, covering provisions from Section 2 to Section 43. This part establishes the fundamental framework for arbitration proceedings in India, including provisions for arbitration agreements, constitution of arbitral tribunals, conduct of arbitral proceedings, and enforcement of arbitral awards. The jurisdictional provisions contained in this part are crucial for determining which courts have authority over arbitration-related matters.

Part-II addresses international commercial arbitration and foreign arbitral awards, implementing India’s obligations under various international conventions including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Part-III deals with conciliation as an alternative dispute resolution mechanism, while Part-IV contains supplementary provisions applicable to arbitration and conciliation proceedings.

Judicial Interpretation and Evolution

The interpretation of jurisdictional provisions under the Arbitration and Conciliation Act, 1996 has evolved significantly through judicial pronouncements over the past two decades. Courts have consistently emphasized the need to adopt a pro-arbitration approach while ensuring that jurisdictional requirements are met to prevent forum shopping and conflicting decisions.

The evolution of arbitration law in India has been marked by several landmark Supreme Court decisions that have clarified jurisdictional principles. These include judgments dealing with the relationship between court jurisdiction and arbitral proceedings, the scope of interim relief available under Section 9, and the application of territorial jurisdiction principles in arbitration matters.

Recent amendments to the Arbitration and Conciliation Act, including those introduced in 2015, 2019, and 2021, have further refined the jurisdictional framework. These amendments have sought to minimize court intervention in arbitral proceedings while ensuring that adequate judicial support is available when required, particularly for interim measures and enforcement of arbitral awards.

Case Laws and Precedential Authority

Supreme Court Precedents

The Supreme Court of India has established several important precedents regarding jurisdictional authority in arbitration proceedings. The Bharat Aluminium case remains the foundational precedent for determining the applicability of Part-I versus Part-II of the Arbitration and Conciliation Act, 1996, particularly in international commercial arbitration contexts.

In subsequent decisions, the Supreme Court has refined the principles established in Bharat Aluminium, addressing various aspects of jurisdictional determination. These include cases dealing with the designation of arbitral seats, the relationship between seat and venue of arbitration, and the scope of Indian courts’ jurisdiction in arbitration matters with international elements.

The Supreme Court has also addressed the interpretation of Section 42 of the Act, emphasizing that the first court doctrine serves important policy objectives of preventing conflicting decisions and ensuring judicial efficiency. These precedents have provided clarity on the exclusive jurisdiction that attaches once an application under Part-I of the Act is filed in a competent court.

High Court Decisions

Various High Courts across India have contributed to the development of arbitration jurisprudence, particularly regarding jurisdictional matters. The Delhi High Court itself has been at the forefront of developing pro-arbitration jurisprudence, consistently interpreting jurisdictional provisions in a manner that facilitates rather than impedes arbitration proceedings.

Other High Courts, including the Bombay High Court, Calcutta High Court, and Madras High Court, have also rendered important decisions on arbitration jurisdiction. These decisions have collectively contributed to a body of jurisprudence that emphasizes the need for certainty in jurisdictional determination while ensuring that parties have adequate access to judicial remedies when required.

The interpretation of Section 9 by various High Courts has generally been liberal, recognizing the importance of interim measures in preserving the effectiveness of arbitration proceedings. Courts have consistently held that the power to grant interim relief under Section 9 should be exercised in a manner that supports rather than undermines the arbitration process.

Analysis of the Delhi High Court Decision

Judicial Reasoning and Legal Principles

The Delhi High Court’s decision in Liberty Footwear Company v. Liberty Shoes Ltd demonstrates a careful application of established legal principles to the specific facts of the case. The court’s reasoning was grounded in a textualist interpretation of the Arbitration and Conciliation Act, 1996, emphasizing the plain meaning of statutory provisions rather than relying on policy considerations or equitable factors.

The court’s application of the first court doctrine under Section 42 was particularly significant. By holding that the first court where an application under Part-I is filed must be a court of competent jurisdiction, the court established a clear test for jurisdictional determination that prioritizes procedural compliance over territorial connections. This approach provides certainty to parties seeking judicial intervention in arbitration matters.

The court’s analysis also demonstrated the importance of proper pleading and case presentation in arbitration-related proceedings. The court specifically noted that Liberty Shoes Ltd’s Section 9 application was “validly/properly constituted” with all necessary particulars and documents, emphasizing that jurisdictional authority depends not only on legal provisions but also on procedural compliance.

Implications for Arbitration Practice

The Delhi High Court’s decision has significant implications for arbitration practice in India. By reinforcing the first court doctrine, the judgment provides clarity to parties and their legal representatives regarding forum selection for arbitration-related applications. This clarity is particularly valuable in commercial disputes involving parties from different states or jurisdictions.

The decision also reinforces the effectiveness of interim relief under Section 9 of the Arbitration and Conciliation Act, 1996. By rejecting technical jurisdictional challenges and focusing on competent jurisdiction as defined by statute, the court ensured that parties have meaningful access to interim measures that are essential for preserving the subject matter of arbitration proceedings.

For legal practitioners, the decision provides guidance on drafting arbitration agreements and structuring dispute resolution clauses. The court’s emphasis on the seat of arbitration and the language of arbitration suggests that careful attention to these provisions can help avoid jurisdictional challenges and ensure smooth conduct of arbitration proceedings.

Contemporary Relevance and Future Directions

Impact on Commercial Dispute Resolution

The Liberty Footwear case contributes to the growing body of Indian jurisprudence that supports efficient resolution of commercial disputes through arbitration. By eliminating technical jurisdictional barriers to interim relief, the decision encourages parties to choose arbitration as their preferred dispute resolution mechanism while maintaining confidence that appropriate judicial support will be available when needed.

The decision is particularly relevant in the context of intellectual property disputes, trademark licensing agreements, and other commercial transactions where interim measures are crucial for preserving the value of disputed assets. The court’s approach provides assurance that such measures will be available regardless of technical jurisdictional objections based on territorial connections.

The judgment also contributes to India’s efforts to position itself as an arbitration-friendly jurisdiction. By demonstrating judicial support for arbitration proceedings and minimizing technical barriers to accessing court-ordered interim relief, the decision enhances India’s attractiveness as a seat for international commercial arbitration.

Legislative and Judicial Developments

The Liberty Footwear decision should be understood in the context of ongoing legislative and judicial developments in Indian arbitration law. Recent amendments to the Arbitration and Conciliation Act, 1996 have sought to minimize court intervention while ensuring that necessary judicial support remains available for arbitration proceedings.

Future developments in arbitration law are likely to build upon the principles established in decisions like Liberty Footwear, further refining the balance between judicial support and arbitral autonomy. The trend toward specialized commercial courts and dedicated arbitration benches in various High Courts suggests that jurisdictional principles will continue to evolve in response to the needs of commercial dispute resolution.

The decision also highlights the importance of international conventions and comparative arbitration law in shaping Indian jurisprudence. As India continues to integrate with global commercial dispute resolution systems, decisions like Liberty Footwear demonstrate the judiciary’s commitment to applying international best practices while respecting domestic legal principles.

Conclusion

The Delhi High Court’s decision in Liberty Footwear Company v. Liberty Shoes Ltd represents a significant contribution to Indian arbitration jurisprudence, particularly regarding jurisdictional authority and the availability of interim relief under Section 9 of the Arbitration and Conciliation Act, 1996. The court’s application of the first court doctrine and its rejection of technical jurisdictional challenges demonstrate a practical approach to arbitration law that prioritizes substance over form.

The decision reinforces several important principles that govern arbitration proceedings in India. These include the exclusive jurisdiction that attaches once an application under Part-I of the Act is filed in a competent court, the liberal interpretation of competent jurisdiction under Section 2(1)(e) of the Act, and the importance of procedural compliance in establishing jurisdictional authority.

For commercial parties engaged in arbitration proceedings, the Liberty Footwear decision provides valuable guidance on forum selection and the availability of interim relief. The court’s emphasis on proper pleading and case presentation also highlights the importance of engaging experienced legal counsel in arbitration-related proceedings.

The decision contributes to India’s evolving arbitration landscape, demonstrating judicial commitment to supporting efficient commercial dispute resolution while maintaining appropriate safeguards against abuse of process. As Indian arbitration law continues to develop, decisions like Liberty Footwear will serve as important precedents for future jurisdictional determinations and the interpretation of key provisions of the Arbitration and Conciliation Act, 1996.

Category: Arbitration Law, Commercial Dispute Resolution

Focus Keywords: Arbitration jurisdiction, Section 9 interim measures, Liberty Footwear Delhi High Court, first court doctrine, Arbitration and Conciliation Act 1996, commercial arbitration India, trademark dispute arbitration, Delhi High Court arbitration

References

[1] SCC Online. (2023). Liberty Footwear v. Liberty Shoes: Delhi High Court dismisses the petition for the want of jurisdiction. Retrieved from https://www.scconline.com/blog/post/2023/08/26/delhi-hc-dismiss-petition-liberty-footwear-under-section9-arbitration-having-no-jurisdiction/ 

[2] LinkedIn. (2023). Defending Jurisdiction: Delhi High Court’s Win in Liberty Trademark Feud. 

[3] Liberty Shoes Limited v. Liberty Footwear Company, Judgment of the Delhi High Court 2023/DHC/5945. 

[4] Indian Kanoon. (1996). Section 9 in The Arbitration And Conciliation Act, 1996. Retrieved from https://indiankanoon.org/doc/1079220/ 

[5] India Code. (1996). Arbitration and Conciliation Act, 1996. Retrieved from https://www.indiacode.nic.in/bitstream/123456789/1978/3/a1996-26.pdf 

[6] SCC Online. (2022). The Wide Scope of Section 9 of the Arbitration and Conciliation Act, 1996. Retrieved from https://www.scconline.com/blog/post/2022/11/21/the-wide-scope-of-section-9-of-the-arbitration-and-conciliation-act-1996/ 

[7] iPleaders. (2022). Section 9 of Arbitration and Conciliation Act, 1996. Retrieved from https://blog.ipleaders.in/section-9-of-arbitration-and-conciliation-act-1996/ 

[8] IBC Laws. (2023). Liberty Footwear Company Vs. Liberty Shoes Ltd. – Delhi High Court. Retrieved from https://ibclaw.in/liberty-footwear-company-vs-liberty-shoes-ltd-delhi-high-court/ 

[9] Lexology. (2024). Section 9 – Judicial Interpretations and Legislative Intent. Retrieved from https://www.lexology.com/library/detail.aspx?g=ef1f96b5-47ff-4fb9-b3b8-1cc2e036f176 

Author: Dhrutika Barad