Delhi High Court Refers Suit Alleging Copyright Infringement To Arbitration As Dispute Stems From Agreement

The Delhi High Court has recently referred to arbitration a commercial suit alleging copyright infringement and diversion of business after holding that the dispute, in the facts of the case, arose from the parties' contractual collaboration.

Justice Tejas Karia passed the order while allowing an application filed under Section 8 of the Arbitration and Conciliation Act seeking reference of the dispute to arbitration.

The suit had been filed by Terix Computer Service India Pvt. Ltd., which provides hardware and software maintenance services to clients globally. Terix alleged that its former directors Deepak Chandra Joshi and Jyoti Joshi, along with several employees and associates, diverted service contracts worth more than Rs 3.7 crore to TPM Guru Pvt. Ltd., a company allegedly controlled by them.

According to Terix, the accused parties orchestrated a scheme under which several of its clients were diverted to TPM Guru while services continued to be rendered using Terix's manpower, hardware and infrastructure. The company also alleged that its proprietary software systems and related materials were copied and misappropriated in order to service those clients.

TPM Guru Pvt. Ltd. and the other accused individuals sought to have the dispute referred to arbitration under Section 8 of the Arbitration Act, relying on the arbitration clause in the Collaboration Agreement between Terix and TPM Guru.

Examining the pleadings, the court noted that although the suit was framed as one alleging copyright infringement and diversion of business, the dispute essentially arose from the parties' Collaboration Agreement.

“Although the Plaintiff has framed the Suit as one alleging copyright infringement and diversion of business, the substance of the grievance is that the Defendants acted beyond, or contrary to the permissions and arrangements flowing from the contractual understanding between the Parties. The dispute in the present Suit, therefore, is not independent of the contractual framework,” the court observed.

The court also noted that Terix had not sought any declaration regarding the ownership of copyright.

“The Plaintiff is not seeking a declaration of copyright ownership… the relief claimed in the Plaint is directed against the Defendants,” the court noted.

Terix had argued that copyright disputes involve rights in rem and therefore cannot be referred to arbitration. The court referred to the Supreme Court's decision in Vidya Drolia v. Durga Trading Corporation, which clarifies that disputes relating to the grant, registration or existence of intellectual property rights are excluded from arbitration.

However, the court held that the dispute raised in the present suit could not be said to be ex facie non-arbitrable.

On the scope of Section 8 of the Arbitration Act, the court reiterated that its scrutiny at this stage is limited and does not involve a detailed examination of the merits of the dispute.

“The proceedings under Section 8 of the Act are preliminary and summary in nature and should not result in a mini-trial and that unless there is a clear case of non-existence of a valid arbitration agreement, or of the dispute being ex facie non-arbitrable the court should leave these aspects to be decided by a competently constituted arbitral tribunal” the court observed.

The court also rejected the contention that the dispute could not be referred to arbitration because several parties to the suit were not signatories to the Collaboration Agreement.

“Therefore, at this stage, the mere fact that some of the Defendants are not signatory party to the Collaboration Agreement cannot, by itself, be a ground to refuse reference to arbitration,” the court held, relying on the Supreme Court's ruling in Cox & Kings Ltd. v. SAP India Pvt. Ltd.

It also rejected the argument that referring the matter to arbitration would result in bifurcation of causes of action.

“Acceptance of such a submission would permit a party to avoid arbitration merely by combining claims or causes of action which may not, by themselves, be subject to arbitration. This would effectively allow the arbitration agreement to be rendered meaningless. Such an approach would dilute the mandate of Section 8 of the Act and run contrary to the object of the Act,” the court observed.

Noting that the Collaboration Agreement containing the arbitration clause was in writing and was valid, the court referred the parties to arbitration.