Sst Software
International Pvt. Ltd. Vs. Neos Interactive Limited [2008] INSC 2102 (5
December 2008)
Judgment
CIVIL ORIGINAL
JURISDICTION Arbitration Application No. 22 of 2007 Speech & Software
Technologies (India) Pvt. Ltd. ... Applicant Versus Neos Interactive Ltd. ...
Respondent
J.M. Panchal, J.
1.
By
filing the instant application under Section 11 (6) of the Arbitration and
Conciliation Act, 1996 ("the Act" for short), the applicant, i.e.,
Speech & Software Technologies (India) Pvt. Ltd. has prayed to appoint Mr.
Justice Arvind Sawant (Retd.), former Chief Justice, High Court of Kerala, as
sole arbitrator and to refer the disputes to him, which have arisen between 2
the applicant and the respondent during the course of execution of Services
Agreement dated July 15, 2006.
2.
The
relevant facts, which emerge from the record of the case, are as under: - The
applicant is a company registered under the Companies Act, 1956. Its registered
office is situated at Chennai. The respondent is a company having its
registered office at London. The applicant and the respondent entered into a
Services Agreement dated July 15, 2006. Under the said agreement, the applicant
was to provide services to the respondent as set out in schedule 2 to the said
agreement. The respondent had agreed to make payment of 15,500 per month to the
applicant and also to compensate the Director of the applicant for coordination
activities. A copy of the agreement dated July 15, 2006 is produced by the
applicant at Annexure `1' to the application. It is the case of the applicant
that since December, 2006 the respondent refused to make any payment to the
applicant and insisted for execution of another 3 agreement as suggested by
the principal shareholder of the respondent. The applicant has averred that the
applicant was not inclined to enter into new agreement as suggested by the
respondent and as the respondent had failed to comply with the terms of the
Services Agreement dated July 15, 2006, it terminated the said agreement by
sending notice dated February 15, 2007 in terms of Clause 19 of the agreement.
By the said letter the applicant also appointed Mr. Justice Arvind Sawant
(Retd.), former Chief Justice of Kerala High Court, as the sole arbitrator and
called upon the respondent to appoint its arbitrator in the event the
respondent did not agree to the appointment of Mr. Justice Arvind Sawant
(Retd.) as the sole arbitrator. A copy of the notice dated February 15, 2007 is
produced by the applicant at Annexure `3' to the application.
3.
On
receipt of the notice the advocate of the respondent addressed a letter dated
March 15, 2007 urging the applicant not to take any unilateral action for a
period of two weeks so as 4 to enable him to obtain comprehensive instructions
in the matter in order to effectively study and evaluate the issues involved in
the matter. The case of the applicant is that the respondent did not give reply
to the notice dated February 15, 2007, nor concurred in the appointment of Mr.
Justice Arvind Sawant (Retd.) as sole arbitrator nor appointed its arbitrator.
The applicant has
claimed that it is entitled to recover a sum of 252,911-76 from the respondent
for the services rendered. Under the circumstances the applicant has filed the
instant application and claimed relief to which reference is made earlier.
4.
On
receipt of notice from this Court, the respondent has filed reply affidavit. In
the reply affidavit it is mentioned by the respondent that the Services Agreement
dated July 15, 2006 was signed on July 31, 2006 and August 1, 2006 by the
applicant and the respondent respectively, after which Tripartite Share
Purchase Agreement 5 was executed on August 1, 2006, of which Services
Agreement dated July 15, 2006 formed part as schedule `A' to the agreement. It
is averred in the reply that Share Purchase Agreement, inter-alia provided that
on certain events not taking place by July 31, 2006, the Tripartite Share
Purchase Agreement would stand terminated. According to the respondent the said
Tripartite Share Purchase Agreement stood automatically terminated as the
various events mentioned therein did not take place by July 31, 2006 and as
Services Agreement relied upon by the applicant was part of the said agreement the
same also stood automatically terminated and, therefore, the applicant is not
entitled to invoke arbitration clause incorporated in the agreement dated July
15, 2006. It is claimed by the respondent that the Tripartite Share Purchase
Agreement stood novated, rescinded and revoked on account of Letter of Intent
dated August 1, 2006, executed by the 6 parties, which totally replaced the
Tripartite Share Purchase Agreement and, therefore, also the present
application was not maintainable. By filing the reply, the respondent demanded
dismissal of the application filed by the applicant.
5.
The
applicant has filed rejoinder affidavit to the affidavit in reply filed by the
respondent. In the rejoinder affidavit, the applicant has, by and large,
reiterated what is stated in the application and, therefore, this Court is of
the opinion that it is not necessary to make a detailed reference to the
rejoinder filed by the applicant.
6.
This
Court has heard the learned counsel for the parties at length and in great
detail. This Court has also considered the documents forming part of the
application.
7.
By
now it is well settled that exercise of power under Section 11(6) of the Act is
judicial power.
After the decision of
this Court in SBP and Company vs. Patel Engineering Ltd. (2005) 8 SCC 7 618,
the Designated Judge has to consider the claim of both the parties to the
matter and pass a reasoned order. It is also well settled that existence of
arbitration agreement is a condition precedent before exercise of powers under
Section 11(6) of the Act. The preliminary matters to be considered by the court
are (1) existence of arbitration agreement, (2) territorial jurisdiction, (3)
whether there are live issues to be referred to the arbitrator, and (4) whether
application is filed within the period of limitation prescribed by the law. If
the court finds that the arbitration agreement does not exist or is rescinded
then the prayer for referring the dispute to the arbitrator will have to be
rejected.
8.
The
contention raised by the learned counsel for the respondent that the Tripartite
Share Purchase Agreement stood automatically terminated because various events
mentioned therein did not take place and, therefore, the Services Agreement
dated July 15, 2006, which 8 was part of the Tripartite Share Purchase
Agreement, ceased to exist, cannot be accepted.
9.
In
order to ascertain whether the Services Agreement dated July 15, 2006 exists or
not, it will be relevant to notice salient features of two agreements, namely,
(1) Services Agreement dated July 15, 2006 and (2) Tripartite Share Purchase
Agreement executed on August 1, 2006. Clause (2) of the Services Agreement
dated July 15, 2006 requires the applicant to supply services to the respondent
on payment of consideration by the respondent. The services to be supplied have
been detailed in Schedule 2 to the agreement. The consideration to be paid by
the respondent is mentioned in Schedule 1 to the agreement. Clause 4 of the
said agreement provides that invoicing shall be done at the beginning of each
calendar month and the amount due would be payable monthly. Clause 9 of the
Services Agreement dated July 15, 2006 confers right upon the applicant to
terminate the 9 agreement if payment for services rendered is not received by
the applicant within a period of fifteen days from the expiry of the previous
month.
Clause 10 of the said
agreement provides for consequences which would ensue on termination of the
agreement, whereas clause 19 enables the aggrieved party to approach arbitrator
for resolution of the disputes. It is relevant to note that by letter dated
February 15, 2007 the applicant had terminated the Services Agreement and
appointed its sole arbitrator as well as called upon the respondent to concur
with the said appointment or to appoint its arbitrator. It is an admitted fact
that no reply was given by the respondent to the said notice. It is also
relevant to notice that the execution of the Services Agreement dated July 15,
2006 is not denied by the respondent. What is claimed by the respondent is that
the Services Agreement ceased to exist in view of termination of Tripartite
Share Purchase Agreement.
10.
From
the record of the case it becomes at once evident that the Services Agreement
dated July 15, 2006 was never a schedule to the Tripartite Share Purchase
Agreement. This becomes clear from the contents of clauses 5.2 and 5.2.5 of the
Tripartite Share Purchase Agreement dated August 1, 2006. Clause 5 of the
Tripartite Share Purchase Agreement, which is to be found on running page 99 of
the short counter affidavit filed on behalf of the respondent, provides the
venue where completion of the said agreement would take place and also mentions
post completion obligations. According to clause 5.1 of the said agreement,
completion was to take place at a venue to be agreed between the applicant and
Abela on the second business day after the day on which the conditions
stipulated were satisfied. The consequences which were to follow on the
completion of the Tripartite Share Purchase Agreement are mentioned in clause
5.2.
Clause 5.2.5 of the
agreement reads as under: - 11 "SST and the Company shall enter into the
Services Agreement and Shareholders Agreement (SHA) as per drafts given in
Schedule A and B."
It is the specific
case of the respondent that the Tripartite Share Purchase Agreement dated July
15, 2006, of which Schedules A and B were intrinsic and inseparable parts,
stood automatically terminated on July 31, 2006 owing to non-completion of the
material conditions as postulated in clause 3.4 of the agreement, without any
further obligations, liability or claim between the parties under the
agreement. As the Tripartite Share Purchase Agreement automatically stood
terminated due to non- completion of the conditions mentioned in clause 3.4 of the
agreement, there was no obligation on the applicant to enter into the Services
Agreement, draft of which was annexed to the Tripartite Share Purchase
Agreement as Schedule A or Shareholders Agreement, draft of which was produced
as Schedule B to the agreement. It is not the case of the respondent at all
that the draft of the Services 12 Agreement was signed by the applicant at any
point of time. Hence, automatic termination of Tripartite Share Purchase
Agreement has nothing to do with the existence of the Services Agreement dated
July 15, 2006, which was already separately executed between the parties. The
record would indicate that the Services Agreement was executed before the
Tripartite Share Purchase Agreement was executed. The existence of the said
agreement was not dependent upon the completion of events as contemplated by
the Tripartite Share Purchase Agreement and, therefore, it is wrong to contend
that the Services Agreement ceased to exist on termination of the Tripartite
Share Purchase Agreement.
11.
Similarly,
the plea that the Tripartite Share Purchase Agreement was novated, rescinded
and revoked on account of Letter of Intent dated August 1, 2006 and, therefore,
the instant application should be rejected, has no force. The Letter of Intent
dated August 1, 2006 under no circumstances can be treated as novating, 13
rescinding or revoking the Tripartite Share Purchase Agreement. The said Letter
of Intent on a bare reading is nothing but an agreement to enter into another
agreement because it is provided in the said letter that "both parties
agree to have set a deadline to sign this agreement by 15th September,
2006". It is well settled legal position that an agreement to enter into
an agreement is not enforceable nor does it confer any right upon the parties.
The agreement in terms of the said Letter of Intent was to be signed on or
before September 15, 2006. It is not the case of the respondent that any
agreement was executed between the parties on or before September 15, 2006. The
respondent has not stated in its counter reply that the agreement, which was to
be executed by September 15, 2006, was in fact executed. During the course of
hearing of the instant application it was fairly conceded by the learned
counsel for the respondent that no such agreement was executed 14 between the
parties at all. Hence, as the agreement contemplated by the Letter of Intent
was never executed, it cannot be said that the agreement contemplated by the
said Letter of Intent had novated, rescinded or superseded the Tripartite Share
Purchase Agreement. Further, the scope/terms of the Tripartite Share Purchase
Agreement as well as those of the Services Agreement and the terms contemplated
by Letter of Intent dated August 1, 2006 are not consistent at all and,
therefore, it is difficult to hold that novation of the Tripartite Share
Purchase Agreement read with the Services Agreement had taken place, as
contended by the respondent.
12.
The
net result of the above discussion is that the Services Agreement dated July
15, 2006 has not ceased to exist and the applicant is entitled to invoke the
arbitration clause contained in that agreement. The application filed by the
applicant is within the time prescribed by law. There is no manner of doubt
that disputes are existing 15 between the parties relating to the execution of
the Services Agreement dated July 15, 2006, which are arbitrable. Under the
circumstances, the instant application will have to be accepted.
13.
For
the foregoing reasons the application succeeds. Mr. Justice Arvind Sawant
(Retd.), former Chief Justice, High Court of Kerala, is appointed as the sole
arbitrator. The learned arbitrator is requested to enter on the reference and
do the needful in the matter as early as possible in accordance with law.
14.
There
shall be no order as to costs.
............................J.
[J.M. Panchal]
New
Delhi;
December
05, 2008.
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