Background:
The Hon'ble High Court of Bombay in the matter Wonderchef Home Appliances Pvt. Ltd. v. Shree Swaminarayan Pty Ltd. held that a gag order under Section 9 of the Arbitration and Conciliation Act, 1996 ("the Act") can be granted, pending resolution of disputes between the parties, if the contractual obligation between the parties stipulates to protect the party's reputation and not otherwise.
Facts:
The Respondent is a distributor of the Petitioner in Australia. The Respondent has been sending out e-mails to various parties, including other distributors of the Petitioner in other jurisdictions and various statutory addressees such as Government Officers and prospective financial investors, complaining about the Petitioner's product having demonstrated defects, the poor treatment of the Respondent by the Petitioner, and the manner in which the relationship is being handled. Accordingly, in light of the Distribution Agreement dated 26 December 2017 ("Agreement") executed between the Petitioner and Respondent, the Petitioner sought the present petition to injunct the Respondent from making disparaging statements or taking any actions that may harm or damage, malign or disparage the Petitioner's reputation and its brand name "Wonderchef".
Issue for consideration:
Whether a gag order to injunct commercial speech can be passed under the ambit of Section 9 of the Act.
Held:
The Hon'ble High Court of Bombay stated that the scope of powers of this Hon'ble Court under Section 9 of the Act is essentially to make interim measures of protection with respect to the preservation of the subject matter of the agreement between the parties, which is subject to resolution by arbitration. To be able to seek a gag order, the Petitioner would need to show that the remarks of the Respondent are proscribed by the agreement that contains the arbitration agreement and that, pending resolution of disputes, such remarks cannot be made. The Hon'ble Court, considered clause 12.2(c) of the Agreement, which required the distributor to conduct business in a manner that reflected favorably on the Petitioner and its products. Given the contractual obligation and the potential harm alleged by the Petitioner, the Hon'ble Court granted an interim injunction against the Respondent for 90 days following clause 12.2(c) of the Agreement, restraining them from making statements that could harm the Petitioner's reputation and also stated that the Respondent shall not vitiate the atmosphere for the arbitration by sending out e-mails attacking the Petitioner's reputation.
MHCO Comment:
The Hon'ble High Court of Bombay clarified that a gag order under Section 9 of the Act can only be granted if there is a contractual obligation to protect a party's reputation. While the Hon'ble Court rejected the Petitioner's claim of confidentiality breach, it recognized the contractual duty under clause 12.2(c) of the Agreement to maintain the Petitioner's reputation. We believe that this judgment is a welcome step by the Hon'ble Court to protect a Petitioner's reputation, by injuncting the Respondent from spreading derogatory information about the Petitioner, pending arbitration proceedings.
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