The question of arbitrability falls within the jurisdiction of the Arbitral Tribunal and can be examined at the stage of challenge under Section 34 of the Act.

JUDGMENT :

[Hearing Held Through Video Conferencing]

1. The petitioners have filed the present petition under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 (hereinafter ‘the Act’), inter alia, impugning an order dated 27.11.2020, whereby an application filed by the petitioners seeking termination of arbitral proceedings in terms of Section 32(2)(c) of the Act was rejected along with costs of Rs.20,000/-. The petitioners also pray that orders be passed terminating the arbitral proceedings.

2. The disputes between the parties arose in connection with a Sub-Franchise Agreement dated 24.01.2012 entered into between petitioner no. 1 and the respondent. In terms of the said agreement, the respondent had granted petitioner no. 1 non-transferable and non-assignable license to use the trademarks (DHI trademarks) for specified products and for hair transplantation services, in the State of Kerala.

3. Petitioner no. 1 is a company and petitioner nos. 2 and 3 are its directors.

4. The petitioners claim that petitioner no. 1 terminated the said Sub-Franchise Agreement vide a letter dated 06.03.2019. The respondent claims that it terminated the Sub-Franchise Agreement by a letter dated 16.05.2019, citing various reasons including lapses in health and safety standards.

5. By a letter dated 04.06.2019, the respondent invoked the Arbitration Agreement contained in the said Sub-Franchise Agreement for adjudicating the disputes that had arisen between the parties. The respondent also suggested names of two former judges of this Court to be appointed as Arbitrators. The said proposal was declined by the petitioners but subsequently, the parties constituted the Arbitral Tribunal by the petitioner no.1 nominating Mr. MKS Menon, Advocate and the respondent nominating Mr. Amit Bansal, Advocate as arbitrators. Justice Indermeet Kochhar was appointed as the presiding arbitrator.

6. The respondent filed a Statement of Claim claiming a sum aggregating Rs.6,31,81,795/- along with interest from the petitioners. The petitioners filed their response and petitioner nos. 1 and 2 made a counter-claim aggregating Rs.19,97,75,452.72 along with interest.

7. The petitioners state that the respondent filed a criminal complaint before the Safdarjung Police Station resulting in registration of FIR No. 340/19. The petitioners have challenged the registration of the said FIR in Crl. MC No. 516 of 2020, which is pending before this Court. The petitioners also filed a criminal complaint which led to the registration of FIR No. 107/2020 with the Ernakulam Town South Police Station, Kerala.

8. Thereafter, on 06.11.2020, the petitioners filed an application before the Arbitral Tribunal praying that the arbitral proceedings be terminated under Section 32(2)(c) of the Act. The said application was dismissed by an impugned order dated 27.11.2020.

9. The petitioners claim that the respondent had entered into the Sub-Franchise Agreement by falsely representing to it that the respondent was a franchise of DHI trademarks under the Master Franchise Agreement dated 26.05.2010. The petitioners claim that the CEO of the respondent company had falsely represented that the respondent had sufficient authority to deal with the brand ‘DHI’, which was owned by entities based in Cyprus. The petitioners further claim that the disputes have become un-arbitrable in view of subsequent developments including registration of FIRs and consequent investigations. The petitioners claim that disputes relating to Intellectual Property Rights are not arbitrable.

10. It is further stated that both the parties – petitioner no.1 as well as the respondent – had also filed criminal complaints against each other and consequentially, FIRs have also been registered on the basis of the said complaints.

11. The learned counsel appearing for the petitioner submits that since the respondent did not have any right to sub-license or deal with the brand ‘DHI’, the Sub-Franchise Agreement was a consequence of fraud