Hero Eco Tech Ltd & Ors. vs Hero Cycles Ltd. & Anr.
2016 Latest Caselaw 3314 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                         Date of decision: May 06, 2016
+      O.M.P.(I) (COMM.) 136/2016

       HERO ECO TECH LTD & ORS.         ..... Petitioners
                    Through: Mr.C.M.Lall with Ms.Nancy
                             Roy, Ms.Jyotideep Kaur,
                             Mr.Rupin Bahl, Advs.

                         versus

       HERO CYCLES LTD. & ANR.            ..... Respondents
                    Through: Mr. Akhil Sibal, Adv. with
                              Ms.Malini Sud, Ms. Vidhi
                              Goel, Ms.Shagun Parashar &
                              Mr. Nikhil Chawla, Advs.

CORAM:
HON'BLE MR. JUSTICE V.KAMESWAR RAO
V.KAMESWAR RAO, J.(Oral)

1.     This is a petition filed by the petitioners under Section 9 of the

Arbitration & Conciliation Act, 1996 („Act‟ in short) with the following

prayers:-

       "A. Pending the hearing and final disposal of the
       arbitration proceedings, the Respondents be restrained
       by way of an ex-parte ad interim and interim injunction
       from exhibiting, promoting, displaying or selling
       bicycles bearing the trademark / Trade name HERO in
       any country other than India, USA, Russia, Australia
       New Zealand, Japan and European Union (except UK,
       Germany and Turkey) otherwise using the mark HERO

OMP (I)(COMM) 136/2016                                    Page 1 of 20
        in any country other than India, USA, Russia, Australia,
       New Zealand, Japan and European Union (except UK,
       Germany and Turkey) either as a trademark, trade name
       or in any manner whatsoever;
       B. Pending the hearing and final disposal of the
       arbitration proceedings, the Respondents be restrained
       by way of an ex-parte ad interim and interim injunction
       from using the monogram as described in the Family
       settlement agreement dated 20th May 2010 in any
       country other than India, USA, Russia, Australia, New
       Zealand, Japan and European Union (except UK,
       Germany and Turkey);
       C. The Respondents be directed to put a disclaimer on
       their    advertisements/   invoices/   bills/   promotional
       materials that the goods sold by them are not for sale or
       export (directly or indirectly) in any country other than
       India, USA, Russia, Australia, New Zealand, Japan and
       European Union (except UK, Germany and Turkey);
       D. The cost of the petition be paid by the Respondents to
       the Petitioners ; and
       E. This Hon'ble Court be pleased to pass such other or
       further or order(s) as this Hon'ble Court deems fit and
       appropriate in the facts and circumstances of the
       present case."
FACTS

:-

2. A Family Settlement Agreement („FSA‟ in short) was executed

between four Family Groups of the Munjal family being (F-1, F-2, F-3

and F-4) on 20th May, 2010, wherein, according to the petitioners, the

rights of the different family groups qua the trademark Hero were clearly

demarcated. The petitioners‟ case is that F1 family group, represented

by the petitioner No.2 herein would be entitled to exclusively own and

use the trademark HERO for export of bicycles and parts thereof to all

countries except India, USA, Russia, Australia, New Zealand, Japan and

European Union (except UK, Germany and Turkey) and F-4 Family

Group of which respondent No.2 is a part would be entitled to use the

trademark HERO for bicycles and parts in India and the six countries

excluded above.

3. The petitioners also avers that the parties herein, more specifically

the petitioner No. 1 and the respondent No. 2 also entered into an

undertaking and Business Realignment Agreement (BRA) dated January

31, 2011 wherein the operations and business of manufacturing bicycles

and bicycle components under the concern namely "M/s. New Cycle

Division" at Ludhiana along with the assets and liabilities were assigned

by the respondent No.2 to the petitioner No. 1. According to the

petitioners, by virtue of this Agreement, the petitioners herein became

entitled to full rights and benefits of use and exploitation, to the extent

such rights and benefits are vested in or available to the respondent

No.2 and subject to the FSA/Trademark Agreement as of 20th May, 2010

and such other restrictions as are applicable thereto, of all intangible

assets relating to and forming part of the business of the undertaking

including trademarks , sub trademarks, patents, copyrights , designs, etc.

and goodwill. It is the case of the petitioners that other than HERO

marks, all other trademarks, sub-trademarks came to the share of the

petitioners. The petitioner, in his petition has given reference to different

litigations between the parties. The case of the petitioners is that, despite

having full knowledge of the rights and liabilities pursuant to the Family

Settlement Agreement that they (respondents) did not have any rights in

the trademark HERO for the purposes of export (except USA, Russia,

Australia, New Zealand, Japan and European Union (except UK,

Germany and Turkey), as a clever device to wriggle out of their

obligations therein, started holding and participating in various

exhibitions in relation to bicycles, parts, components etc. in the countries

which exclusively fell in the domain of the petitioners in respect of the

use and exploitation of the Trade Mark „HERO‟ by using the trade name

Hero Cycles Ltd. and also the Monogram associated with the Trade

Mark „HERO‟ so as to impinge upon the exclusive rights of the

Petitioners with respect to the commercial use and exploitation of the

Trade Mark 'HERO' in the aforesaid countries and to thereby violate the

terms and conditions of the Family Settlement Agreement dated May

20th 2010. A reference has been made by the petitioners to one such

participation in the 25th International Bicycle and Motor Fair in China

during 2015, which made them to file a petition before this Court being

OMP 288/2015, which petition was disposed of in terms of a settlement

arrived at between the parties on the basis of an undertaking given by the

respondents that they shall not export or sell to China, any HERO brand

bicycles or bicycle parts under the trade name HERO in the said fair.

4. It is the case of the petitioners, that they had agreed that the

respondents could book orders for export of their products for customers

visiting the fair from countries where the respondents have right to use

the mark HERO. It is also the case of the petitioners that they have

found a wrongful sale of bicycles and bicycle parts to domestic

purchasers, inasmuch as the respondents made sale of their goods

consisting of bicycles and parts to Infinity Enterprises, SCF 21-F, B.R.S.

Nagar, Ludhiana ostensibly as a domestic sale. The said organisation, on

the same day, sold the same to one M/s Guru Kirpa Overseas, Ludhiana,

for the purposes of export, which in turn started exporting the said goods

bearing the trademark HERO to Bangladesh, which territory vests

exclusively with the petitioners.

5. The petitioner would aver that the families continued to negotiate

to resolve the issues. However, to the shock of the petitioners, it has

come to their attention that the respondents, in complete violation of the

Family Settlement Agreement/Trademark Agreement have once again

booked a stall at the 26th International Bicycle and Motor Fair in China

commencing May 06, 2016 and also an exhibition in Germany

commencing on August 31, 2016.

6. In the reply, it is the stand of the respondents that while seeking an

interim order under Section 9 of the Act, it is the manifest intention of a

party to go for arbitration at the time of the filing of the petition but

previously also, the petitioners had filed OMP 288/2015 under Section 9

of the Act seeking a restraint order from exhibiting, promoting or

displaying its bicycles at the 25th International Bicycle and Motor Fair in

China in 2015 but the petitioner had not invoked the arbitration clause

and from which, it can be inferred, the petitioners have no intention to

commence arbitration proceedings and on this ground only, the petition

needs to be dismissed. The respondents have also pleaded delay and

acquiescence on the part of the petitioners to approach this Court

inasmuch as the petitioners knowing well that the booking for the fair

takes place at least 4-6 months prior thereto and definitely by January.

The respondents referred to the fact that on January 12, 2015, the

petitioners wrote to the respondents stating that they have come to know

that the respondents have booked a stall in the fair at China. Despite the

same, the petitioners deliberately did not approach this Court in a timely

manner. Instead, they have waited till the last month in approaching this

Court so as to create an artificial urgency in the hope, they may be able

to obtain orders on the basis of the urgency. On the plea of

acquiescence, it is the case of the respondents that they have been

participating in this fair since 2013 but the petitioners never objected to

the same despite knowledge as the petitioners had also participated there.

According to the respondents, the petitioners and the respondents had

also participated in the fair in the year 2014 and 2015. The very fact,

that the petitioners have consented to the respondents booking orders for

export of their products including HERO brand bicycle or bicycle parts

from customers visiting the on-going fair from countries like USA,

Russia, Australia, New Zealand, Japan and European Union (except UK,

Germany and Turkey), they were very well aware that the respondents

would participate in this year also.

7. Insofar as the merit of the case is concerned, it is the case of the

respondents that they have exclusive right of ownership and use over the

trademark HERO in relation to or in connection with Bicycle/

Automotive Products and Services and retain all right, title and interest

therein. The petitioners have only been permitted to use the trademark

HERO for export of bicycle and bicycle parts to specified territories.

According to the respondents, as Clause 2.1.7 of the Undertaking and

Business Realignment Agreement is subject to the Family Settlement

Agreement and the Trade Mark and Name Agreement, there is no

prohibition or negative intendment that hinders the respondents'

participation in international trade fairs and the reliance placed by the

petitioners upon the Undertaking and Business Realignment Agreement

is of no significance.

8. Mr. C.M. Lall and Mr. Akhil Sibal had made their oral

submissions. Mr. Lall reiterates the stand taken by the petitioners in its

petition. That apart, it has been his endeavour to show in what manner,

the respondents have violated the family settlement agreement. He

would vehemently oppose the plea of the delay taken by the respondents

in their reply to contend that there is no delay, inasmuch as after the

culmination of the proceedings in OMP 288/2015, a meeting was held in

July, 2015 between the family members. He states that a further meeting

was held on August 21, 2015 of which minutes have been drawn and

which have been annexed at page 8 of the documents filed along with the

rejoinder. He also states, vide order dated October 30, 2015 even the

Supreme Court has observed that it would be open for the parties to

negotiate and settle the matter and in January, 2016, the negotiations

have started as per the order of the Supreme Court. He also states, two

meetings were held on January 16, 2016 and February 11, 2016.

According to him, on March 15, 2016, settlement between the parties has

failed. He also states, on March 18, 2016, the petitioners had

participated in the Ludhiana exhibition without any objection. It was

only on April 9, 2016 when the petitioners got an e-mail of final lay out,

it was found that the respondents are participating in the China fair. He

makes a similar plea that the petitioners have written to the respondents

in 2013. The petitioners have also written to them against their

participation in the 2015 China exhibition. It was only when the

respondents refused to adhere to the Agreement, the petitioners filed a

petition under Section 9 of the Arbitration & Conciliation Act being

OMP 288/2015. He also states, that during the settlement process, the

issue of participation in China exhibition was also discussed and since

the negotiations failed in March, 2016 and thereafter the petitioners

gained knowledge of participation of the respondents in the 2016 China

fair only on April 9, 2016, the petitioners have filed the present petition.

9. On the other hand, Mr. Akhil Sibal, learned counsel for the

respondents reiterates the plea of delay and laches and absence of

manifest intention to arbitrate by stating that the petitioners had raised an

objection to the respondents‟ exporting to Africa as far back as 2011 and

the petitioners also objected to the sale under the Hawk branch in Africa

and other territories as far back as 2013 and took a specific objection to

the respondents‟ participation in the China fair in 2013. Admittedly, the

respondents attended the China fair in 2014 without objection raised by

the petitioners. According to him, Hawk and Hero branch were

displayed at the China fair in 2015 as well, as has been done in 2013.

Therefore, the action complained of today was the same action taken by

the respondents in the year 2013, 2014 and 2015. He states, that booking

for the China fair are closed 4-6 months prior to the date of exhibition.

The respondents have made payment of US Dollars 27,350 for

participation in the China fair. Thus, the belief of the petitioners, as

canvassed by Mr. C.M. Lall that the respondents would not participate in

the international fairs to be held in China and Germany on the basis of

the order dated May 8, 2015 passed in OMP 288/2015 is unfounded. It

was a fitment of imagination of the petitioners. In case, the petitioners

had any doubt, they could have written to the respondents seeking a

confirmation. Without resorting to such a process, the petitioners have

filed the present petition in this Court in the last week of April, in a

similar manner, as they had done in the year 2015. He also pleads

acquiescence, inasmuch as the petitioner is selling bicycles and bicycle

parts under the banner of Hero Ecotech Ltd. in India, which as per the

Family Settlement Agreement dated May 20, 2010 is not the petitioner‟s

territory. According to him, the stand of the petitioner that such sales are

permissible under the Family Settlement Agreement since it is under a

different branch, namely Kross, and it is only being associated with one

of the companies of the petitioners, namely Hero Ecotech Ltd and by

prominently displaying name of Hero Ecotech Ltd. along with Kross, the

petitioner is drawing such association in order to ride on the goodwill of

the Hero brand.

10. According to him, the respondents had challenged such use in

India and injunction restraining the petitioners in similar terms to what is

sought at prayer (A) of this petition under Section 9 of the Act. The

petitioner is now objecting to sale of bicycles by Hero Cycles Ltd.

(HCL) under different sub-brands of HCL including Hawk in territories

which, according to the petitioners, are allocated to it under the Family

Settlement Agreement, while having successfully argued before the High

Court of Patna that the sale by the petitioner Hero Ecotech Ltd in India

of bicycles under the brand Kross is not in violation of the Family

Settlement Agreement/Trade Mark Agreement. While the respondents

have challenged the judgment of the Patna High Court before the

Supreme Court, which challenge is pending final disposal, the petitioner

has accepted the judgment and thereby acquiesced to an interpretation of

the Family Settlement Agreement/Trade Mark Agreement to the effect

that selling of cycles under each other‟s territories under different brand

names albeit by companies with „Hero‟ formative names is consistent

with the Family Settlement Agreement/Trade Mark Agreement, by

which, it is clear that the petitioner is taking contradictory stands before

different Courts and having already obtained benefit of its stand before

the High Court at Patna, the petitioners cannot argue opposite before this

Court.

11. On the interpretation of the Trademark and Name Agreement, it is

his submission that the respondent is the proprietor and owner of all

rights, title and interest in the trademark and name „Hero‟ including all

registrations in the trademark Hero, which is allocated to the F4 family

group, namely the respondents, together with goodwill of the business

accrued by use of the Hero mark in India and many other countries. He

would rely upon clause 3.8 and 2.1 in support of his contention. He

states that the limited exclusivity and rights of ownership and use

granted to the petitioners, which is use for export of bicycles and bicycle

parts in the territories as specified in sub-clause(d). Use for export

would mean that F1 family group is permitted to export to certain

territories using the Hero trademark from India, which given that Hero

Cycles Ltd belonging to the respondents is otherwise the registered

owner of Hero trademarks in India and would amount to infringement of

trademarks as per Section 56 read with Section 29(6) of the Trademarks

Act. He would also state, there is no prima facie case in favour of the

petitioners; the balance of convenience is in favour of the respondents

and would cause irreparable loss if the interim order, as sought, is

granted. In that regard, he states, a high powered delegation from the

State of Punjab including Deputy Chief Minister, two other Ministers

and four staff members are expected to travel to China with respect to

manufacture and sale of Hero cycles in India.

12. Mr. C.M. Lall, in rejoinder would state that the respondents and

petitioners are not on the same footing in view of the following clauses

of the agreements:-

(i) Clause 19.3(c) of Family Settlement Agreement;

(ii) Clause 22.11 of Family Settlement Agreement;

(iii) Narrative D to Schedule 10 to Family Settlement Agreement;

(iv) Clause 1.1.7 of Schedule 10 to Family Settlement Agreement,

which clearly provides that the petitioners have exclusive right to use the

trademarks/trade names HERO EXPORTS, HERO ELECTRIC, HERO

ECO and rights to use the trademark HERO in the defined territories.

Clause 2(ii) of the Family Settlement Agreement, clearly states that the

petitioner have the exclusive right of ownership to use the F1 family

trademarks as defined in clause 1.1.7.

(v) Clause 3.7 of Schedule 10 to Family Settlement Agreement;

(vi) BRA was executed between the respondents and the petitioner

No.1 for realignment of New Cycle Division of the respondent No.1.

(vii) Clause 2.1.7 of BRA;

13. According to him, a combined reading of the above clauses clearly

shows that the respondent No.1 could assign its rights under the Family

Settlement Agreement to the petitioners and the same was permitted to

be facilitated by the facilitator. Thus, by way of the BRA, the

respondent No.1 assigned its rights in the New Cycle Division to the

petitioner No.1. The respondent No.1 also assigned the rights in and to

the Sub-brands exclusively to the petitioner No.1 which is apparent from

clause 2.1.7 of the BRA. Further, the petitioner No.1 was also permitted

to manufacture and sell bicycles and bicycle components in India under

the corporate name Hero Ecotech by virtue of the BRA. He states, the

petitioners do not display HERO branded cycles in the territories of

respondent whereas the respondents display HERO branded cycles with

or without the Hero Monogram as well as prominently display their

corporate name HERO CYCLES LTD. in the territories of the

petitioners. Clearly the petitioners are permitted by the respondents to

use the corporate name HERO ECO TECH LTD. in the territories of the

respondents whereas no such permission has been granted to the

respondents by the petitioners to use the corporate name of trademark

comprising of HERO in the territories of the petitioners. The

respondents filed a suit against use of corporate name Hero Eco Tech

Ltd. by the petitioners before the District Judge, Patna wherein

injunction order was passed by the Ld. District Judge. However, the

same has been vacated by the Patna High Court. The respondents have

filed an SLP against the order of Patna High Court and no stay has been

granted by the Supreme Court. The SLP is pending adjudication. The

respondents have also not invoked arbitration till date despite disputes,

which is clearly in violation of the Agreement as well as the order dated

May 8, 2015 passed by this Court in OMP 288/2015. He states, in view

of the above, the conduct of the petitioners in no manner can be called to

be against equities and the petitioners have acted with bona fides and are

entitled to the reliefs claimed in the petition. He states, the present

petition only pertains to the participation of the respondents in the China

Exhibition 2016 and Germany Exhibition 2016 and no issues have been

raised pertaining to the sub-brands including HAWK, which also belong

to the petitioners. The petitioners reserve their rights to raise all

objections and grounds before the learned Arbitrator, once he is

appointed after invoking Arbitration. The balance of convenience is

completely in favour of the petitioners as the respondents have violated

the orders and undertaking given to this Court in 2015. The respondents

are violating the rights of the petitioners as per the Agreements and are

most likely to continue doing the same if not restrained by way of an

injunction order passed by this Court. The petitioners have made a

prima facie case for grant of injunction and irreparable injury will be

caused to the petitioners if the same is not granted.

14. Having heard the learned counsel for the parties, there is no

dispute that the Family Settlement Agreement incorporates an arbitration

clause. From the pleadings and the contentions as advanced before this

Court, it is noted that disputes have arisen between the parties. Surely, it

is not for this Court to adjudicate the inter-se disputes between them as

the same need to be settled through the process of arbitration. The

limited relief, which this Court is now considering in this petition is

pending arbitration whether the petitioners are entitled to the relief

sought for, in relation to the fair that is being held in China from 6 th May

to 9th May, 2016.

15. Insofar as the plea of delay, as raised by the respondents is

concerned, it is not disputed by Mr. Sibal that till March 2016, in terms

of the order of the Supreme Court dated October 30, 2015, the parties

were in talks. The talks have failed in the month of March, 2016. A plea

has been taken by the petitioners that it was only through the e-mail

dated April 9, 2016, the petitioners have come to know of the

participation of the respondents in the China fair. It is the plea of the

petitioners that the participation of the respondents in China fair was also

subject-matter of the talks. In any case, when the parties were in talks,

there was no occasion for the petitioners to approach this Court earlier to

March 2016. The petitioners having a confirmed information, of the

respondents participating in the China fair to be held between 6th May

and 9th May, 2016, only on April 9, 2016 and the petition having been

filed on April 21, 2016, the petition cannot be dislodged on the ground of

delay.

16. The plea of acquiescence of Mr. Sibal is concerned, any finding

either way at this stage, would have a bearing on the merit of the

disputes between the parties and I refrain from saying anything on that.

Further, the prayers „A‟ and „B‟ if granted, would amount to granting the

final relief to the petitioners, which in any case, has to be considered by

the learned Arbitrator.

17. The only prayer survives in the present petition is prayer „C‟. On

the said prayer, the submission of Mr. Sibal is that the petitioner is

claiming disclaimer in respect of use by the respondents without offering

corresponding disclaimer for its own use is answered by Mr. Lall by

relying upon clause 1.1.7 of the Schedule 10 of FSA, which according to

him clearly provides that the petitioners have exclusive right to use trade

mark / trade name HERO Exports, HERO Electric, HERO Echo and

right to use the trademark HERO in the defined territories and the

petitioners do not display HERO branded cycles in territories of

respondent whereas the respondents displayed HERO branded cycles

with or without HERO Monogram as well as prominently displayed the

incorporated name HERO Cycles Limited in the territories of the

petitioners. This position is disputed by Mr. Sibal.

18. Be that as it may, in OMP 288/2015, the undertaking of the

respondents was to the extent that it shall not export to China / sell any

HERO brand bicycles or bicycle parts under the trade name HERO in the

ongoing 25th China International Bicycle and Motor Fair, China.

However, they would be at liberty to book the orders for export of their

products including HERO brand bicycles or bicycle parts, HERO trade

name or HERO monogram from customers visiting the Fair from

countries like USA, Russia, Australia, New Zealand, Japan and

European Union (except UK, Germany and Turkey).

19. I note the duration of the Fair is only for four days and it is

commencing from May 06, 2016, which is one day away. Being an

International Fair, heavy business is expected to be done by the parties.

To ensure, no prejudice is caused to either party and noting the admitted

position that China is not a territory of the respondents and the territories

of the respondents being USA, Russia, Australia, New Zealand, Japan

and European Union (except UK, Germany and Turkey), this Court is of

the view that pending adjudication of the disputes by the Arbitrator, the

respondents shall be at liberty to book the orders for export of their

products including HERO brand bicycles and bicycle parts, HERO trade

name or HERO monogram from customers visiting the ongoing Fair

from countries like USA, Russia, Australia, New Zealand, Japan and

European Union (except UK, Germany and Turkey) and shall put a

disclaimer on the invoices and bills only, to be issued to the customers

that the goods sold by them are not for sale or export (directly or

indirectly) in any other country other than USA, Russia, Australia, New

Zealand, Japan and European Union (except UK, Germany and Turkey).

This direction is only confine to the Fair to be held in China. For

seeking any order for the Fair to be held in Germany, the parties would

be at liberty to invoke the arbitration clause and seek reference to the

arbitration and file appropriate application for appropriate relief with

regard to the said Fair before the Arbitrator. It is made clear, the

aforesaid is not an expression on the merit of the disputes between the

parties.

20. The petition is disposed of with no costs.

(V.KAMESWAR RAO) JUDGE MAY 06, 2016 ak