Sst Software International Pvt.Ltd vs Neos Interactive Limited

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

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.