JUDGMENT
Mahinder Narain J.
1. The appellant before us is M/s. LG Electronics Inc. (hereinafter called as “LG”.) who aggrieved by an order passed by the learned Single Judge dated 29-7-1997 in I.A. No. 6040 of 1997, has appealed to this court. By the said order dated 29-7-1997, the appellant, its subsidiaries, its distributors, stockists and/or any one acting on its behalf or claiming through it, was restrained from transferring, causing to transfer or utilising or causing to utilise “Fuzzy Logic Technology” or the sole technology by any other name for the manufacture, sale, assembly of automatic washing machines. The appellant was also restrained from manufacturing, assembling, selling, offering for sale, fully automatic washing machines and parts thereof with “Fuzzy Logic Technology”. It was also restrained from taking delivery of the automatic washing machines lying with the customs authorities and further restraining the customs from releasing the same into the appellant or any one claiming through the appellant. The appellant was further restrained from advertising by hand bills, hoarding, newspapers, television, periodicals, that the appellant is manufacturing or can offer to sell washing machines manufactured with “Fuzzy Logic Technology”.
2. Onida Savak Limited (hereinafter called as “ONIDA”), respondent herein, filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, (hereinafter called as “the Act”) which was numbered as A.A. 168 of 1997. Along with the said application, another application bearing I.A. No. 6040 of 1997 was filed under Section 9 of the Act. In the petition under Section 8 of the Arbitration and Conciliation Act, 1996, ONIDA asserted that it is, carrying on business of manufacture and sale of electronic goods including televisions, semi-automatic washing machines various electronic components including tuners, speakers, printed circuit boards etc. It is further asserted that it had tied up with internationally well known electronic companies, like JVC Japan and Murata Manufacturing Company Ltd., Japan, for colour T.V. sets and V.C.Rs. I, was also asserted that ONIDA was in the business of semi-automatic washing machines since 1990, and wanted to start making fully automatic washing machines, and in that connection, had encountered “LG”, which was earlier known as Goldstar Company Limited (Lucky Gold Star Company Limited). LG had been, inter alia, engaged in manufacturing of fully automatic washing machines. It was further asserted in para 6 of the application that, “the respondent (LG) expressed its willingness to provide to Onida the technology for fully automatic washing machines. This latest technology was at the relevant point of time termed by, the respondent as the “FUZZY LOGIC TECHNOLOGY”. It was also asserted that, “the respondent further unequivocally agreed to make India as the exclusive territory of Onida for sale of fully automatic washing machines with “Fuzzy Logic Technology”. It was on this clear understanding by respondent and the understandings between the parties that the rights granted to Onida would be exclusive for Onida, did Ondia agree to pay such a heavy amount as technical assistance fee. As per the assessment of Onida, the demand of US $700,000 coupled with royalty on a per machine, basis was as extremely high. However, on the respondent’s promise that Onida’s rights would be exclusive, Onida agreed for these terms and conditions.”
3. ONIDA further asserted that a Technical Assistant Agreement dated 10-12-1994 was entered into between the parties, and the said agreement was to be approved by the Government of India and also by the Government of Korea.
4. ONDIA asserted that the “Contract Product” mentioned in the agreement, would mean Fuzzy Logic Control washing machines with all modifications and improvements, which may be carried out by LG during the term of the agreement. The LG was obliged to transfer this technology to ONIDA. In this context it is also to be noted that in the said application, Article 12 of the contract between the parties had been reproduced. That article dealt with “Contract Product”, which reads as under :
“Contract Product” shall mean the products, manufactured, assembled and/or sold by ONIDA in the Contract Territory in accordance with this Agreement being identical with/or modifications of GOLDSTAR’S model numbers, as set forth in Appendix hereto and made part hereof.”
5. This assertion was different from, if what not contrary to, what was asserted in para 10 to the “Contract Product” as meaning Fuzzy Logic Control Washing Machines.
A reference to the contract shows that Appendix I thereto reads as under :
Specification of Product :
Model : WF 10954 A
(1) Specification :
- Fuzzy Logic Control Washing Machine
- Most suitable round design
- Silent cover and noise proof plastic base
- Low noise drain valve
- Auto power off 10 minutes after operation
- Shock absorbing rubber legs
- Laundry load sensor
- Water level sensor
- Dimension : 610 x 610 x 970
- (W* D* H*)
- Capacity : 5.2 kg.
(2) CBU Price : US $275 FOB Korea.
6. ONIDA averred in the petition under Section 8 of the Act that it was shocked and surprised to see advertisement in the Hindustan Times dated 15-5-1997 to the effect that LG was introducing washing machines with the same technology, i.e., Fuzzy Logic Technology in the Indian market through its fully own subsidiary in India, which is clearly indicated in the pamphlet distributed to dealers. It was asserted that this act of LG is completely contrary to the letter and spirit of the agreement. The agreement clearly contemplates that the territory of India would be exclusively for Onida for manufacture assembly, sale and use of washing machines with this technology. It was asserted that according to the advertisement LG was intending to market in India under the CHAOS name washing machines which contain, Fuzzy Logic Technology. It was also asserted that the washing machines which the LG intended to introduce in Indian market, contain the same technology for which the LG had charged a huge technical fee from ONDIA.
7. It was also asserted that such an act on the part of LG is a fraud, as defined by Section 7(3) of the Contract Act. It was finally asserted that there is an arbitration clause in the agreement, requiring the parties to resort to arbitration proceedings for the resolution of disputes, that the arbitration proceedings are to be conducted under the rules of the international Chambers of Commerce, and they are subject to Indian laws. It was also asserted that since the agreement and the arbitration clause therein, is subject to Indian laws, the place of arbitration would also be India.
8. It was also asserted in para 35 that the following disputes had arisen between the parties :
(a) Whether the acts of the respondent to not amount to “violation of the various terms and conditions of the agreement dated 10th December, 1994 ?
(b) Whether the respondent is not under an obligation to reimburse and/or compensate Onida for unlawfully depriving Ondia of its huge amount of money because of the conspiracy and fraud committed by the officers of the respondent ?
(c) Whether the respondent, after it has been directed to suitably reimburse and compensate Onida, as stated above, be compelled to perform all its obligations under the agreement dated 10th December, 1994 ?
(d) Whether the respondent be not injuncted from selling any washing machines with Fuzzy Logic Technology in the Indian market which is Onida’s exclusive territory belonging to Onida under the terms of the agreement ?
(e) Any other dispute that may arise between, the parties.
(f) Relief with costs.
9. It was asserted that the breach of the terms and conditions of the agreement committed by LG had caused serious damage to the reputation, goodwill and business of ONIDA, heavy continuous pecuniary losses to ONIDA which are accumulating due to continuous act of breach committed by LG. It was also asserted that ONIDA has established a prima facie case in its favour, the balance of convenience is in favour of ONIDA, and against LG, that the entire investment of ONIDA in terms of money, time and effort would be rendered worthless if LG is not immediately injuncted by an order of the Court, irreparable harm and injury would be caused to ONIDA if LG’s illegal activities are not immediately enjoined. Injunction was sought, restraining LG or its servants, agents, employees, dealers, distributors, stockists, and or anyone acting on its behalf from directly or indirectly manufacturing, assembling, selling, offering, for sale, using or in any other manner alienating or dealing Fully Automatic Washing Machines and Parts thereof with “Fuzzy Logic Technology under the name Chaos Punch + 3”, “Chaos” or any other name. An injunction was also sought, restraining taking of delivery of automatic washing machines lying with the custom authorities against the custom authorities from releasing the same unto the LG Appointment of a Receiver was also sought, and it was prayed that the machines lying with the LG be inventorised, accounts be rendered afterwards.
10. In the descriptive literature filed by ONIDA, along with the Arbitration Application No. 168 of 1997, the specification of the Onida Automatic washing machine is stated as follows :
Type : Fully Automatic
Washing System : Pulsator, Fuzzy
Controlled, Fully Automatic
Tube Volume : 51 litres
Washing Capacity : 6 Kgs.
Power Source : 220V AC, 50 Hz.
Motor Rating : 340 Watts (Input)
Revolution Speed : Pulsator (Wash)
130 r.p.m. Tub (Spin) 740 r.p.m.
Water Pressure :
Range : 0.3 - 10 kg/cm. 2.
Dimensions : 580 x 970 x 595 mm (W x H x D)
Weight : 2 kgs.
(Specifications are subject to change without notice)
11. The above said specification clearly indicates that the washing machine has a washing system which is controlled by Fuzzy. To our mind it indicates that the Fuzzy Logic, which the LG (appellant herein) has mentioned in the appeal, is nothing but a control system. According to the Chambers Dictionary, 1993 Edition, reprinted in 1996, at Page 677, Fuzzy Logic is defined as “a computerized form of logic used in machines where finer than usual interpretative distinctions need to be made, rather than coarse binary ones.”
12. It is the case of the appellant that the chip which controls various operations is based upon Fuzzy Logic Control and is one of the components of the washing machine Model No. WF 1095A. This Fuzzy Logic Control chip is housed in a control Panel on top of the machine along with other control systems in the washing machine model No. No. WF 1095A. The chip aforesaid, does not have a separate part number in terms of the part list attached to the contract. It is, however, a part of the control assembly that was displayed to us in Court.
13. Every washing machine comprises of an outer body within which is housed a drum, electric, motor, a tub and agitator pulsator. It has to be filled up with water, either manually or automatically, after the clothes are loaded on to it. Every washing machine has a capacity to carry a maximum load which is indicated by its manufacturer. All clothes go into the drum. The drum also contains a pulsator or agitator, is capable of moving in clockwise or anti-clockwise direction, and the agitator is capable of making reciprocating movements or spinning movements. Similarly once water is drain off for the purpose of “spin drying” the clothes, the drum inside the washing machine is capable of spinning at a high speed so that with the centrifugal force water is taken out of the clothes. In case of non automatic washing machine, the machine would have control knobs for ensuring different types of movements which have to be attended to by the person washing clothes for specified period of time in order to, have the requite wash. In case of automatic washing machine, all the washing, spinning and drying operations are automatic, and timer devices are incorporated in the control panel for the purposes of controlling the duration of each of the actions, which the washing machine undertakes, that of washing spinning or drying.
14. After having heard as much as we have heard in the matter, coupled with what is stated by LG in it own brochure, it is apparent that the Fuzzy Logic Control is nothing but a control system, which has bean devised for the purposes of automatic machines, like automatic washing machines. In the instant case the Fuzzy Logic Control controls the duration/timing of each of the actions of the washing machine, whether it is washing, spinning, drying, filling up of the water in the washing machine, or the draining of it etc.
15. From what we have heard, it appears to us that the Fuzzy Logic is a controlling device which acts like a timing device automatically according to its programme.
16. The Fuzzy Logic is contained in a chip, which we are told by the appellant, is specifically designed for giving the best possible results in each of the different models of automatic washing machines manufactured by the appellant.
17. The chip comprises of a number of water thin sheets, which are put one upon the other in such a way as a sandwich is prepared. In each of the sheets which may be of a very large number, which form the sandwich, are printed circuits, which in turn, are programmed according to the needs of each machine, and ultimately control the entire operations by means of very low voltage electrical currents which are used in electronic devices. The printed circuit in each of the sheets, is as is contained in other electronic devices which needed for that purpose. According to Mr. Laxmi Kumaran, learned counsel for the appellant, each chip contains 100s of circuits. A chip itself is in a solid state incapable of being altered or modified once it has been made. The only alteration will be to eliminate any operation for which it was designed. The purpose of stating, what has been stated about chip is to meet with the case, as has been made out by the parties, as to whether Fuzzy Logic is a “technology” or not, whether the agreement between the parties suit contemplated transfer of Fuzzy Logic Technology.
18. According to Collins English Dictionary a “chip” vis-a-vis electronics is “a tiny wafer of semiconductor material, such as silicon, processed to form a type or integrated circuit or component such as a transistor”. It is this chip which contains circuit based upon concepts of Fuzzy Logic.
19. From what has been argued before us. It appears to us Fuzzy Logic is something which is theoretically defined. It is not relatable to mathematically accurate proportions, but with approximations, with concepts not necessarily as sharply defined, as black and white. The principles of Fuzzy Logic have apparently been successfully translated into electrical circuits which can function on the basis of approximations. The circuits based on Fuzzy Logic are sandwich in the chip which not only acts like a controlling device which controls various operations, like washing spinning, drying, after filling, water draining etc., but it can also determine the weight of the laundry and draws the approximate amount of water required to wash, which information is based upon the type of laundry which is intended to be laundered, whether cotton, woollen, nylon, etc. For the type of laundry, there are separate control buttons which will activate individual circuits therefore in the chip itself.
20. According to the appellant, it does not make or manufacture the chip. The necessary particulars with regard to the operations and duration of operations are submitted to the Motorola Corporations, who in turn manufactures the chip and sends them to the appellant for use in their washing machines which use a particular type of chip.
21. We have been shown control panels with the chip, which is visible, and under a magnifying glass becomes clear that each chip bears a distinctive number, which may be any number, and bears also the trade mark of Motorola Corporation, that is to say it also indicates that the goods have been manufactured by the Motorola Corporation. We have set in this out for the reason that the appellant seems to be right in asserting that they do not have the facilities for the manufacture of, the chips which is used in the washing machines. It may be that they have the capability to do so, but we did not ask then that, as we are satisfied from what was placed before us, that the chip is manufactured by Motorola Corporation, and not by LG Electronics, the appellant herein.
22. As such, the chip having been got manufactured by the Motorola Corporation, it is the Motorola Corporation who would have the details of the method and manner in which in other words the technology – for manufacture of the chip containing Fuzzy Logic, and not the LG Electronics.
23. It is with this background, that one has to understand what is contained in the agreement between the parties, which, contains the definition of the “Contract Product”. In the light, of, what has been stated above regarding the “Contract Product” and the Appendix I to the contract, we are satisfied that the “Contract Product” means Model WF 1095A, and not its component parts. The definition of the “Contract Product” also makes it clear that the agreement between the parties does not relate to any part which goes into, or is part of what is assembled together to make up washing machine Model No. WF-1095A. We do not think that it can be doubted that the chip designed with Fuzzy Logic is one of the many component parts of the washing machine model No. WF 10954A. The question then, arises, what is it for which the technology was to be transferred by LG to ONIDA. To answer that one must understand that technology is application of electrical or mechanical science to industry or products, the methods, theory and practices governing such application. Therefore, in the context of the contract in question, technology must mean how Model No. WF 1095A, is to be manufactured according to the specifications of its various components. In other words, how the outer housing of the washing machine is to be manufactured, out of what gauge, (thickness) of sheet, what kind of paint is painted upon it; what kind of stainless steel the drum is to be made; what is its diameter and height, what kind stainless steel materials it is going to be made of what gauge, it is to be ensured that it will be a perfectly balanced drum; what kind of perforation it has to have; how it is to be connected to electric motor through a clutch; how the agitator, pulsator is to be amounted within it how the water is to be put into it and drain out of it, and the controls which are going to stop and start the washing machine to affixed on the machine; what material are going to be used or each of the button switches etc. This becomes clear from the fact that along with the contract is a list of parts setting out distinctive part numbers which are to be supplied or not to be supplied by the appellant under the contract. The contract even mentions that the clutch is to connect the electric motor to the drums, is to be a subject matter of a separate contract if the appellant is interested in having that technology. Apparent the clutch making technology is different from the technology which is required to assemble and make up the washing machine No. WF 1095A. What the appellant has contended before us, is that the Fuzzy Logic cannot amount to a technology. It is a controlling device. It cannot be said to be a technology.
24. In the facts and circumstances of the case we are of the view that as far as the agreement between the parties is concerned, in so far it relates to the “Contract Product” which comprises of washing machine bearing Model No. WF 1095A, that agreement and the exclusively connected therewith, has to be confined to the Model No. WF-1095A. What follows from this is that LG Electronics has contracted with ONIDA that it will not market its model No. WF 1095A in the territory of India in terms of the contract. The relevant term of the contract reads as under :
Article 2 (Grant of License)
2.1. Subject to the terms conditions set forth in this agreement GOLDSTAR hereby grants to ONIDA a non-exclusive except India, non-transferable right to use Technical information furnished by GOLDSTAR to ONIDA for its manufacture, selling, use of otherwise dispose of the Contract Product inside the Contract Territory.
25. In view of the aforesaid the conclusion is that the exclusive rights of ONIDA are confined only to model No. WF 1095A, and it cannot get a restraint order, restraining LG Electronics from importing goods other than its model No. WF 1095A. The Hon’ble trial Judge dealing with the matter was not correct in law in granting an injunction in wide term, as has been granted in the instant case, and that order is not sustainable in the light of facts and circumstances detailed hereinabove.
26. Before us a considerable amount of arguments were addressed on the questions which arose out of the provisions of the Arbitration and Conciliation Act, 1996, whether the provisions thereof, are in accordance with or not in accordance with the UNCITRAL model of law relating to arbitration and whether Section 9 of the Arbitration and Conciliation Act, 1996 has any application to the instant case in view of the provisions of Sections 2(2) and (5) of the Act. In view of the fact that we are vacating the order of injunction granted by the learned single Judge on a construction of the agreement between the parties, it is not necessary to decide questions relating to the Arbitration and Conciliation. Act, passed during the hearing of this appeal. All these questions are, therefore, left open by us.
27. Needless to say that all the opinions which has been expressed by us, are for the purpose of deciding the interlocutory application and will not, in any way, binding upon any court which is finally adjudicating upon the main matter between the parties.
28. In the circumstances, the appeal succeeds and the injunction order passed by the Hon’ble Single Judge is set aside and the custom authorities are directed to release the goods, which can be disposed the normal course of business of the appellant.
29. No order as to costs.