Bombay High Court: In an application filed under Section 9 of the Arbitration and Conciliation Act, 1996 (‘the Act’) filed by Wonderchef Home Appliances (‘Wonderchef’) against the respondent, its distributor in Australia, seeking an injunction against the distributor from making any disparaging statements or taking any actions that may harm Wonderchef’s reputation and brand name, a Single Judge Bench of Somasekhar Sundaresan, J., allowed the petition and injuncted the distributor for 90 days from indulging in any action that would violate the agreement between the parties (‘the Agreement’) which provided that the distributor shall conduct business in a manner that would always reflect favourably on Wonderchef’s reputation and products.
Background
The distributor was allegedly sending e-mails complaining about defects in Wonderchef’s products, the poor treatment of the distributor, and how their relationship was being handled. Aggrieved by this, Wonderchef filed the present petition seeking an injunction against the distributor from making any disparaging statements or taking any actions that may harm or damage, malign, or disparage their reputation and brand name under Section 9 of the Act, before the invocation of arbitration as per the Agreement.
Analysis
Regarding the scope of consideration under Section 9 of the Act, the Court stated that the powers were essentially to make interim measures of protection with respect to the preservation or inspection of the subject matter of the agreement between the parties, which was subject to resolution by arbitration. The Court stated that to be able to seek a gag order, Wonderchef would need to show that the remarks of the distributor were prohibited by the Agreement.
At the outset, Court pointed out that commercial speech was imminently part of free speech, and it was difficult for a Court to prohibit a party from expressing its grievances about a product acquired in the course of commerce since it was supposed to be borne in mind whether such expression was truthful and warranted. Merely because a speech was made in a commercial context, it would not cease to have the ingredients of free expression.
Regarding the contention that confidential information was shared by the distributor in violation of the Agreement, the Court stated that such an inference would be too sweeping. To consider any and every comment on Wonderchef’s products as being ‘confidential information’ would also be counter-intuitive because a distributor who was expected to publicly praise the virtues of the products would, in terms of this interpretation, violate confidential information since he would be sharing information about the products.
However, the Court noted that Clause 12.2(c) of the Agreement provided that the distributor shall conduct business in a manner that “reflects favourably at all times” on Wonderchef’s products and reputation. The distributor was contractually obliged to conduct business in the aforesaid manner in order to develop, promote, and maintain such reputation and favourable reflection with customers, and to protect as well as preserve the goodwill and image of Wonderchef and its products. The Court stated that, thus, the reliefs prayed for in the present petition could be granted within the jurisdiction of Section 9 of the Act. The Court elaborated that since the subject matter of the dispute was the Agreement and Clause 12.2(c) formed an integral part of the Agreement, pending the resolution of disputes and differences between the parties, the Court had a ground for affording some protection under Section 9.
Thus, the Court held that there was an element of the distributor having consciously and autonomously bound himself not to harm Wonderchef’s reputation.
The Court noted that in 2023, the distributor sought arbitration proceedings to be initiated, but there was nothing on record to show that Wonderchef responded favourably to such an offer. Thereafter, the parties engaged in discussions, and Wonderchef sent a draft settlement agreement to the distributor, which dismissed the draft as being one-sided. The discussions between the parties took a shabby turn, after which the aforesaid e-mails were allegedly sent by the distributor to the various parties.
The Court remarked that Wonderchef, being promoted by a celebrity Indian chef, enjoyed a strong reputation. Even from what was brought on record, it was hard to conclude that the distributor’s e-mails were able to cause any perceptible dent to Wonderchef’s reputation. Higher the stature of the celebrity, the thicker the skin, was a reasonable expectation.
The Court added that if the comments made during a commercial dispute would not dent the reputation and cause light harm, one had to be even more careful when considering whether and how to deal with a prayer for gagging free commercial speech. If the nature of the expression would lead a reasonable person of commerce to conclude that the publicly aired complaints were rants of a disgruntled commercial counterparty, the likelihood of damage would not be easy to infer. Stating this, the Court noted that in the present case, such a reaction was seen in the response from another distributor based in Fiji, who told the distributor that he was quite happy with Wonderchef’s products and advised it to resolve the dispute.
Considering the aforesaid, to balance equities and make an interim arrangement, the Court allowed the petition by granting an injunction against the distributor for 90 days. The Court further directed the distributor to ensure that he fully complied with Clause 12.2(c) of the Agreement and to refrain from indulging in any action that would violate it. The Court also stated that it expected that Wonderchef would invoke the arbitration within the aforesaid period of 90 days.
The Court highlighted that typically disparagement cases in a commercial context were set in the context of disputes between competitors, so this was a unique case in which the manufacturer accused the distributor of disparagement.
Lastly, the Court held that whether the e-mails sent by the distributor were accurate and their contents bore out the truth were matters of evidence that the arbitral tribunal would decide on merits.
[Wonderchef Home Appliances Pvt. Ltd v. Shree Swaminarayanan Pty Ltd., Commercial Arbitration Petition No. 791 of 2024, decided on 27-01-2025]
Advocates who appeared in this case:
For the petitioner: Malhar Zatakia and Kaushal Ameta
Buy Arbitration and Conciliation Act, 1996 HERE
