Section 16 of the Arbitration and Conciliation Act, 1996 empowers the arbitral tribunal to rule on its own jurisdiction. The High Court bench consisting of J. Vibhu Bakhru explained upon the doctrine of Kompetenz – Kompetenz arbitrations in the case of Medisprouts India Pvt. Limited CIN v. M/s Silver Maple healthcare Services (P) Ltd. [O.M.P. (T) (Comm.) 88/2020].
The dispute between the parties arose in connection with a Sub-Franchise Agreement entered into by both the parties wherein the respondent had granted the petitioner a non-transferable and non-assignable licence to use the trademarks (DHI trademarks) for specified products for hair transplantation services in Kerala. The petitioners claimed that they terminated the said agreement citing various reasons including lapses in health and safety standards. The respondents invoked the Arbitration Agreement contained in the said agreement for adjudicating the disputes that had arisen. An Arbitral Tribunal was constituted and the respondent filed a Statement of Claim claiming a sum of Rs. 6,31,81,795/- along with interest. The petitioners filed their response and made a counter claim of Rs. 19,97,75,452.72/- along with interest. The petitioners challenged the registration of an FIR filed by the respondents and thereafter, filed an application before the Tribunal praying the termination of proceedings under Section 32(2)(c) of the Act which was subsequently dismissed.
The petitioners claimed that the respondents had entered into the Sub-Franchise Agreement by falsely representing to it that they were a franchise of DHI trademarks under the Master Franchise Agreement. The petitioners further claimed that the disputes had becomes un-arbitral due to registration of FIRs and consequent investigations. The petitioners claimed that disputes relating to Intellectual Property Rights were no arbitral.
The HC firstly observed that the question of whether the disputes are arbitrable relates to the jurisdiction of the tribunal and the doctrine of Kompetenz – Kompetenz would be applicable wherein the tribunal has jurisdiction to rule as to the extent of its own competence on the issues before it. Relying on Indian Farmers Fertilizer Cooperative Limited v. Bhadra Products [(2008) 2 SCC 534], the court stated that “If the Arbitral Tribunal agrees with the contention that the disputes are not arbitrable, arbitral proceedings would require to be terminated and the aggrieved party would have its remedies against the said order/decision. However, if the Arbitral Tribunal rejects the contention that it does not have jurisdiction to decide the claims, the Arbitral Tribunal would proceed to render an award. In the given circumstances, the Arbitral Tribunal may adjudicate the dispute regarding the question of jurisdiction and such decision may be construed as an award”. Hence, the court dismissed the petition saying that It was misconceived.