Authored By: Alima Khan, United University (B.A.LL.B (Hons), Research Writer at Law Audience®,
Edited By: Mr. Varun Kumar, Advocate, Himachal, Punjab & Haryana and Founder at Law Audience.
CASE CORAM:
CITATIONS: (1997) 68 DLT 14; (1997) 42 DRJ 313
YEAR: 1997
COURT: Supreme Court of India
BENCH: Division bench comprising Justices A.S. Anand and K. Venkataswami.
I. FACTS OF THE CASE:
The appellant, Dominant Offset Private Limited, is an Indian company that specialises in the production of offset printing machines. The respondent, Adamovske Strojirny A.S., is a Czech company that resulted from the privatisation and reorganisation of a defunct state-owned enterprise in Czechoslovakia. In 1982 and 1986, Dominant Offset signed technical collaboration and licensing contracts with Zavody Vseobecneho Strojirenstvi (ZVS), a state-owned company of Czechoslovakia. The agreements allowed Dominant Offset to produce, assemble and market certain models of printing machines in India using the foreign technology. The contracts offered an arrangement of supplying technical expertise, drawings and documentation, payment of royalties and fees depending on regulatory approvals by the Indians, a mandatory arbiter clause under the ICC Rules, and binding by the successors and assigns. Adamovske Strojirny A.S. became a company heir after the disintegration of Czechoslovakia and the privatisation of ZVS. Disputes regarding technical support, documentation and agency later arise.
Dominant Offset filed a petition to the Delhi High Court, requesting the application of the arbitration clause in court and the possibility of disputes being resolved using arbitration. In 1997, the Delhi High Court declined the petition on the basis that, despite the fact that the respondent was a successor-in-interest and that the court had jurisdiction, the agreements had lapsed due to the lapse of time, making the arbitration clause inapplicable. The appellant was aggrieved at the rejection of the dispute going to arbitration and thus appealed to the Supreme Court of India, requesting the Supreme Court to review and enforce the arbitration agreement.
II. ISSUES RAISED:
The following legal issues were laid before the Supreme Court:
- Whether the 1986 license agreements include a valid subsisting arbitration clause which could be enforced after purported expiry?
- Whether the Delhi High Court was wrong in dismissing an injunction on the basis of Section 9 of the Arbitration and Conciliation Act, 1996, against Adamovske appointing Amit International as agent, allegedly breaching the negative covenant?
- Was the “effective date” (Clause 1.01(a)) GOI approval (22.05.1987, expiry 1995) or RBI remittance (08.04.1992, subsistence till 2000), affecting exclusivity or breaches?
- Whether the Court could appoint an arbitrator and grant ad-interim relief restraining sales, given prima facie breaches?
III. ARGUMENTS OF THE PARTIES:
III.I PETITIONER’S ARGUMENTS:
Dominant Offset Pvt. Ltd., the petitioner, pleaded that the license agreements signed in 1986 were in existence and valid and the effective date under Clause 1.01(a) of the FERA regulations was the remittance approval of the RBI on 08 April 1992, and thus the 8-year term was due by the year 2000. They further argued that the arbitration clause of Clause 22 was freestanding and opened any alleged expiry, and therefore the rejection of the arbitration petition (AA 82/1996) and injunction application (IA 7107/1996) by the Delhi High Court was inaccurate in reliance upon any prior pleadings in Suit 1448/1994. Moreover, they raised claims of the prima facie breaches by the respondents in terms of breach of the negative covenant, which they were not to make direct sales within the exclusive geographical area of India, Bhutan and Nepal, as evidenced by the appointment of Amit International as an agent in January 1995 with advertisements expiring before the date of April 1994 and inability to provide updated drawings and components in spite of the tripartite protocol in 1992 and subsequent letters in 07 March 1994 and 29 April, 1994, causing irreparable harm that warranted interim restraint pending arbitration.
III.II RESPONDENTS’ ARGUMENTS:
The respondents, Adamovske Strojirny A.S. and others, replied that the agreements were out of date on 22 May 1995 since the valid date of the agreement was the import permission of the Government of India of 22 May 1987, and the principal contract and arbitration clause had lapsed long before the dispute occurred. They held that there were no established violations, the appointment of the agent was not made prior to expiry, no sales had been made prior to 1995 could be proved, there were no letters which had not been proven, and an inert protocol of 1992 had been issued as nothing had been imported. They also held the position that claims were speculative, time-barred, and Section 9 relief was barred by the existence of a prior live agreement, which was not in existence, and previous determinations in Suit 1448/1994 affirmed expiry in 1994 and warranted the dismissal by the Delhi High Court.
IV. JUDGMENT OF THE CASE:
In the case of Dominant Offset Pvt. Ltd. vs. Adamovske Strojirny A.S., the Supreme Court of India allowed the petitioners the right to have their arbitration petition, along with the injunction application dismissed by the Delhi High Court. The Court did not consider the merits of the underlying disputes as to whether or not the subsistence of the 1986 license agreements, the date of effect, under Clause 1.01(a), and purported breaches of negative covenants and failure to supply drawings. Rather, it accepted a prima facie case of arbitration under Section 9 of the Arbitration and Conciliation Act, 1996, as it referred all the disputes to sole arbitration before Justice P.K. Bahri. The controlling order required the arbitrator to operate without reliance on findings or pleadings made in the earlier suit and focused on speedy adjudication and the pro-arbitration policy of the 1996 Act. At this stage, no interim injunction was ordered, and parties were not allowed to dispose of disputed assets before the award. This interlocutory judgment reaffirmed the primacy of arbitration as opposed to review of merits, and the interim award and final award in the arbitration would be upheld by the Delhi High Court in OMP 133/2003.
V. RATIO DECIDENDI OF THE CASE:
The decision of the Supreme Court was that the courts had to use a pro-arbitration strategy under the Arbitration and Conciliation Act, 1996, by referring to the arbitration in cases where a prima facie valid arbitration agreement exists, without making a detailed examination of the subject matter of the underlying contract or its existence. Simply, the Court reasoned, when parties have already agreed to resolve their disputes by referring them through arbitration under Clause 22 of the license agreements of 1986, apparently, judges should not decide complicated matters of fact such as the date in which the contract was effective or alleged breaches under the contract at the referral stage, but should simply appoint an arbitrator and leave the full case to be tried by that expert, devoid of any prior court results in related cases. This precedent was used to overturn the rejection of the arbitration petition by the Delhi High Court, as the arbitration clause was separable and survived despite the expiry dispute, and thus promoted the power of quick arbitration over time-consuming litigation and minimal judicial intervention with commercial contracts.
VI. CONCLUSION:
The order of the Supreme Court in Dominant Offset Pvt. Ltd. vs. Adamovske Strojirny A.S. (1997) is important as a landmark of reinforcing the pro-arbitration position taken by India under the Arbitration and Conciliation Act, 1996, in which the court stated that it should refer to arbitration to find a prima facie valid agreement, without examining such issues as the existence of a contract and contract breaches. The Court established a precedent of limited judicial involvement by appointing Justice P.K. Bahri as sole arbitrator and directing independent adjudication uncoupled from the presence of prior suits and encouraging party autonomy, expeditious resolution and separability of arbitration clauses in international commercial contracts, especially where technology transfer is involved during the FERA era. This interlocutory decision led to the future acceptance of the arbitral awards, which made a mark on the further jurisprudence and emphasised the evidence burden in exclusivity claims. To legal practitioners and interns, it underscores the importance of meticulous writing of the effective date clauses and substantive evidence in arbitration about commercial assurance and judicial restraint in international disputes.
