Gujarat High Court
Galatea Ltd vs Shree Krishna Exports on 24 December, 2021
Author: J. B. Pardiwala
Bench: J.B.Pardiwala, Vaibhavi D. Nanavati
C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/APPEAL FROM ORDER NO. 30 of 2020
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2020
In R/APPEAL FROM ORDER NO. 30 of 2020
With
CIVIL APPLICATION (FOR ORDERS) NO. 2 of 2020
In R/APPEAL FROM ORDER NO. 30 of 2020
With
CIVIL APPLICATION (FOR ADDITIONAL EVIDENCE) NO. 4 of 2020
In R/APPEAL FROM ORDER NO. 30 of 2020
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
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1 Whether Reporters of Local Papers may be allowed to YES
see the judgment ?
2 To be referred to the Reporter or not ? YES
3 Whether their Lordships wish to see the fair copy of NO
the judgment ?
4 Whether this case involves a substantial question of NO
law as to the interpretation of the Constitution of India
or any order made thereunder ?
CIRCULATE THIS JUDGEMENT IN THE SUBORDINATE
JUDICIARY.
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GALATEA LTD.
Versus
SHREE KRISHNA EXPORTS
==========================================================
Appearance:
MR SHALIN MEHTA SENIOR COUNSEL WITH MR DILIP B RANA(691) for
the Appellant(s) No. 1
for the Respondent(s) No. 14,15,16,17,18
MR MEHUL SURESH SHAH SENIOR COUNSEL WITH MR MANAN A
SHAH(5412) for the Respondent(s) No. 1,10,11,12,13,2,3,4,5,6,7,8,9
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C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021
CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
Date : 24/12/2021
CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1 This appeal under Section 50 of the Arbitration and Conciliation Act, 1996 (for short, "the Act, 1996") is at the instance of the original defendant No.1 and is directed against the order passed by the Small Cause Court (Commercial Court), Surat, dated 4 th February 2020 below Exhibit : 24 in the Commercial Civil Suit No.14 of 2019 instituted by the respondents Nos.1 to 13 respectively (original plaintiffs), by which the application Exhibit : 24 filed by the appellant herein, under Section 45 of the Act, 1996 to refer the parties to arbitration, came to be rejected.
2 The facts giving rise to this appeal may be summarised as under:
3 For the sake of convenience, the parties before us shall be referred to as the plaintiffs and defendant.
4 All the plaintiffs are partnership firms engaged in the business of Diamond manufacturing. The plaintiffs entered into various agreements for the purchase of Scanning Machines such as the Solaris 100 Machine, Galaxy LR Hardware, Galaxy 1000 Machines, etc. The plaintiffs also entered into various agreements for the purchase of Planning Machines with the defendant herein.
5 The purchased machines are embedded and integrated with their respective software, such as Solaris 100 Software Infrastructure (in case Page 2 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 of Galaxy LR Hardware machines), GalScan and Gal3D software (in case of various Scanning machines), and Advisor Software (in case of Planning machines). These software programs that form an integrated part of the purchased machines and its functionality, were also purchased along with the purchased machines. The purchased machines and purchased software are collectively referred to as the "purchased product" consisting of the "Scanning Product" (Scanning machines embedded with its respective software) and "Planning Product"
(Planning machines embedded with its respective software).
6 It is the case of the plaintiffs that it is virtually impossible to use the purchased machines without the purchased software. The Scanning Product is also interlinked with the Galatea's server (server of the defendant No.1) located in Israel that interfaces with the Scanning Product located in the premises of each of the plaintiffs at Surat. Although the purchase of the purchased product (both Scanning Product and Planning Product) and vide the End User License Agreements, the plaintiffs had secured perpetual licenses for the purchased software for the perpetual use of the purchased product, yet the perusal of the agreement would indicate that due to the very nature of the purchased product, there is an express duty cast upon the defendants to continue the purchased software (software programs embedded in the Scanning machines and Planning machines so that the plaintiffs can continue to use the purchased product.
7 It is the case of the plaintiffs that the defendants Nos.1 - 3 jointly known as 'Sarine Group', are in a dominant position in the diamond technology industry within the relevant market and are providing diamond support services world over, of which the majority share of business for the defendants Nos.1 - 3 resply originates from Surat. The Page 3 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 defendants Nos.1 - 3 resply are alter egos of one another in India. The defendants Nos.1 and 2 resply have been acting through their Indian arm i.e. the defendant No.3 in order to provide support to the purchased product including the annual maintenance of the purchased product.
8 The dispute between the parties arose with the appellant - defendant issuing notices dated 16th August 2019 terminating the agreements of the Scanning Products, which led to the shut down of the operations of the machines.
9 It is the case of the plaintiffs that the defendant has come up with a new software for its own machines, which are the Scanning Machines. The defendant wants to replace the earlier purchased software included in the purchase machine with a new software. The new software, if replaced, with the old purchased software in the purchased machines would lead to removal / change of the core functionality of the Scanning product, which presently includes the generation of ".gal" files.
10 It is the case of the plaintiffs that the agreements, by which the Scanning Products, were sold to them, nowhere grants the appellant - defendant any such right to change, remove, move away from the generation of ".gal" files or perform any act that may render the previously generated files to be uncompatible with the new software as maintaining backward compatibility is fundamental to any upgrade / update / change to a new software.
11 It is the case of the plaintiffs that with a view to illegally coerce the plaintiffs to replace their current / existing software with the new software of the defendant, the defendant has mischievously misrepresented the new software to be an "upgrade" to the purchased Page 4 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 software. This, according to the plaintiffs, is a fraud played upon by the defendant.
12 The aforesaid dispute between the parties, ultimately, led to the institution of the Civil Suit No.14 of 2019 in the Commercial Court at Surat.
13 The cause of action pleaded by the plaintiffs in the plaint reads thus:
"44. The cause of action arose when the defendants approached plaintiffs seeking to sell the purchased Product, the cause of action arose when the plaintiffs and defendants executed the Agreements, the cause of action arose when the plaintiffs made payments towards the purchase of purchased Product, the cause of action again arose when the defendants issued notices to illegally terminate the Agreements for the Scanning Product, the cause of action further arose when the Agreements for the Scanning Product were unilaterally and illegally terminated by the defendants in breach of the terms of the Agreements, the cause of action again arose when plaintiffs sent the reply to notices explaining its position as well as a notice to the defendants for breach of contract and the defendants evaded rectifying the wrongs and the cause of action again arose when the defendants disconnected the online connection from its server based in Israel making the Purchased Product non-functional and defunct. The defendants have still not rectified the wrongs done and restored the status quo ante and the cause of action continues.
45. That the defendant Nos.1 - 3, work collectively being the Sarine group of Companies, wherein the Defendant No.1 is largely in scanning products, Defendant No.2 is in planning products and Defendant No.3 based in India provides annual maintenance services on the products sold by Defendant No.1 and 2 and they operate a common website www.sarine.com. The defendant nos.1 - 3 have their branch / subordinate officers in Surat and work for gain in Surat and sold and serviced the purchased product in Surat. It is stated that past communications between the various plaintiffs and the defendants and their employees in relation to the purchased product shows that defendant No.1 is merely acting as an agent / vehicle of the defendant Nos.1 and 2 in India. The cause of action has arisen in Surat as the purchased product which have been made non-functional are positioned in Surat and the plaintiffs were issued notices in Surat and Page 5 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 operate these purchased product from Surat. The agreements do not restrict the exercise of jurisdiction of this Hon'ble Court for deciding the present suit. This Hon'ble Court, therefore, has the jurisdiction to entertain the present suit and grant the relief prayed."
14 The reliefs prayed for in the suit are as under:
"a. declare the termination of the agreements (as defined and detailed in the plaint) for the Scanning Product (as defined in the plaint) by the defendants as null and void being in breach of the terms of the agreements and b. declare that defendants have breached the agreements by disconnecting the Scanning Product from the defendant no.1's servers located in Israel and have therefore failed to perform / fulfill their contractual obligations under the agreements; and c. pass a decree for the specific performance / enforcement of the agreement by directing / compelling the defendants to restore the status quo ante as it existed on 16.08.2019 and thereby directing / compelling the defendants to perform / fulfill their contractual obligations under the agreements by:
i. restoring the online connection of the Scanning Product (as defined in the plaint) to the defendants' servers based in Israel as it existed on 16.08.2019 and by ii. restoring entire process / systems / purchased product of the defendants as it existed before the said disconnection from the defendants' servers arose and by iii. Restoring the provision of all the services by the defendants to the plaintiffs as were being provided till 16.08.2019 since the execution of the respective agreements;
and d. pass a decree for mandatory and perpetual injunction against the defendants by preventing them from unilaterally terminating the agreements for the Scanning Product and from disconnecting the Scanning Product from their servers; and e. pass a decree by permanently, perpetually and mandatorily injuncting / restraining the defendants, their agents, employees representatives, assignees, transferees and every person claiming for and on behalf of any of them from causing any act, thing or deed which may either threaten and/or violates the rights of the defendants under Page 6 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 the agreements or which may be capable of causing destruction, obstacle or obstruction to the plaintiffs business processes or to the legal rights of the defendants in the purchased product in any manner whatsoever; and f. pass a decree by permanently, perpetually and mandatorily injuncting / restraining the defendants, their agents, employees, representatives, assignees, transferees and every person claiming for and on behalf of any of them from causing, executing or creating any disturbance, disconnection, malfunctioning of the purchased product either at the end of the defendants or at the end of the servers which are under the control of the defendants or in any other manner whatsoever; and g. pass a decree by permanently, perpetually and mandatorily injuncting / restraining the defendants, their agents, employees, representatives, assignees, transferees and every person claiming for and on behalf of any of them from doing any act, deed or thing which may in any manner hamper or be adverse or contrary to the proprietary rights of the plaintiffs in the purchased product; and h. pass a decree by permanently, perpetually and mandatorily injuncting / restraining the defendants, their agents, employees, representatives, assignees, transferees and every person claiming for and on behalf of any of them from alienating, disconnecting, transferring or creating any right, interest or claim by virtue of any new software disturbing or interfering in any existing process at the plaintiffs end by transaction of any nature whatsoever; and i. pass a decree in favour of plaintiffs and against the defendants directing the defendants to pay a sum of INR1839134.16 per day from the date of illegal termination of the agreement for the Scanning Product and the non-functioning of the purchased product till the date of compliance by the defendants of prayers a) to h) above along with pendente lite and future interest.
j. as an alternative to prayers sought for in a) to i) above, pass a decree in favour of the plaintiffs and against the defendants directing the defendants to refund the entire investment in the purchased product amounting to INR 3729355370/- consisting of the Scanning Product and the Planning Product, which consequently have become defunct along with 18% simple interest per annum from the date of illegal termination of the agreements and the non-functioning of the machines and the software till the date of institution of this suit along with pendente lite and future interest on the said amounts till payment are made by defendants to plaintiffs, and k. pass a decree in favour of the plaintiffs and against the Page 7 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 defendants directing the defendants to pay damages in the nature of general and punitive damages towards mental and physically torture meted to the plaintiffs by the defendants; and l. direct the defendants to compensate the plaintiffs for the mental and physical torture meted to the plaintiffs and forcing the plaintiffs to undergo unwarranted litigation to claim their rightful dues which should have come to plaintiffs even otherwise; and m. award cost of the suit; and n. pass such further order(s) as deemed fit and proper in the interest of justice."
15 It appears that the plaintiffs also preferred an application Exhibit :
5 and prayed for interim injunction under the provisions of Order XXXIX Rules 1 and 2 resply of the Civil Procedure Code. The reliefs prayed for in the Exhibit : 5 application are as under:
"(i) an order of ex-parte ad interim injunction against the defendants by preventing them from unilaterally terminating the agreements for the Scanning Product and from disconnecting the Scanning Product from their servers; and
(ii) pass an order ex-parte ad interim injuncting / restraining the defendants, their agents, employees, representatives, assignees, transferees and every person claiming for and on behalf of any of them from causing any act, thing or deed which may either threaten and/or violate the rights of the defendants under the agreements or which may be capable of causing destruction, obstacle or obstruction to the plaintiffs business processes or to the legal rights of the defendants in the purchased product in any manner whatsoever; and
(iii) pass and order for an ex-parte ad interim injunction / restraining the defendants, their agents, employees, representatives, assignees, transferees and every person claiming for and on behalf of any of them from causing, executing or creating any disturbance, disconnection, malfunctioning of the purchased product either at the end of the defendants or at the end of the servers which are under the control of the defendants or in any other manner whatsoever, and
(iv) pass an order for an ex-parte ad interim injunction / restraining the defendants, their agents, employees, representatives, assignees, transferees and every person claiming for and on behalf of any of them Page 8 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 from doing any act, deed or thing which may in any manner hamper or be adverse or contrary to the proprietary rights of the plaintiffs in the purchased product; and
(v) pass an order for an ex-parte ad interim injunction / restraining the defendants, their agents, employees, representatives, assignees, transferees and every person claiming for and on behalf of any of them from alienating, disconnecting, transferring or creating any right, interest or claim by virtue of any new software disturbing or interfering in any existing process at the plaintiffs end by transaction of any nature whatsoever; and any other or further order(s) and/or direction(s) which the Hon'ble Court may deem fit and proper in the interest of justice and equity be passed in favour of the plaintiff and against the defendants"
16 On 1st February 2020, the Commercial Court passed the following order below Exhibit : 5:
"The present application is hereby allowed.
The defendants are hereby prevented from unilaterally terminating the agreements for the Scanning Product and from disconnecting the Scanning Product from their servers by way of temporary injunction pending hearing and final disposal of the suit.
The defendants, their agents, employees, representatives, assignees, transferees and every person claiming for and on behalf of any of them are hereby restrained from causing any act thing or deed which may either threaten and/or violate the rights of the defendants under the agreements or which may be capable of causing destruction, obstacle or obstruction to the plaintiffs business processes or to the legal rights of the plaintiffs in the purchased product in any manner whatsoever by way of temporary injunction pending hearing and final disposal of the suit.
The defendants, their agents, employees, representatives, assignees, Page 9 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 transferees and every person claiming for and on behalf of any of them are hereby restrained from causing executing or creating any disturbance, disconnection, malfunctioning of the purchased product either at the end of the defendants or at the end of the servers which are under the control of the defendants or in any other manner whatsoever by way of temporary injunction pending hearing and final disposal of the suit.
The defendants, their agents, employees, representatives, assignees, transferees and every person claiming for and on behalf of any of them are hereby restrained from doing any act deed or thing which may in any manner hamper or be adverse or contrary to the proprietary rights of the plaintiffs in the purchased product by way of temporary injunction pending hearing and final disposal of the suit.
The defendants, their agents, employees, representatives, assignees, transferees and every person claiming for and on behalf of any of them from alienating, disconnecting, transferring or creating any right, interest or claim by virtue of any new software disturbing or interfering in any existing process at the plaintiffs end by transaction of any nature whatsoever by way of temporary injunction pending hearing hearing and final disposal of the suit."
17 The appellant herein, being dissatisfied with the aforesaid order passed by the Trial court below Exhibit : 5, challenged the same by filing the Commercial Appeal No.1 of 2020 in the Court of the Principal District Judge, Surat. The appeal came to be allowed vide order dated 19th October 2020. The said order reads thus:
"::ORDER::
1. The present appeal is hereby allowed.Page 10 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
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2. The order dated 01.02.2020 passed by the learned Small Cause Court, Surat below the application Exh. 5 in Commercial Civil Suit No.14/2019 is hereby set aside.
3. R & P, if any, be sent back to the Trial Court along with a copy of this order."
18 In the meantime, the defendants preferred an application Exhibit : 24 under Section 45 of the Act, 1996 and prayed for the following reliefs:
"A. allow the present application and refer the parties to arbitration in accordance with the respective dispute resolution clauses contained in the respective agreements executed by and between each of the plaintiffs and defendant No.1;
B. consequent to prayer (A) above, dismiss the present suit as not maintainable, in light of the arbitration, agreement contained in all the agreements between each of the plaintiffs and defendant No.1; and C. pass such or further order(s) and/or direction (s) as this Hon'ble Court may deem fit and proper in the facts and circumstances of the present case."
19 The application Exhibit : 24 was adjudicated by the Commercial Court, and ultimately, vide the impugned order dated 4 th February 2020 rejected the same. Some of the relevant observations made by the Court below are reproduced herein below:
"42 In the present case, the plaintiffs have brought the present suit seeking injunctive relief against the defendants from implementing the alleged new software and interpretation of the Agreements relating to Scanning Product provided by defendant no.1 which is erroneous and fraudulent and tentamounts to imposing undue hardship on the plaintiffs. Thus the arbitration clause is negated and contradicted by non-obstante clause which bestows jurisdiction on this court thereby making the arbitration clause null and void, not binding and inoperable at the convenience of any party and this court has the jurisdiction to decide the present case.
In the instant case the non obstante clause is the distinguishing Page 11 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 feature."
"47 It is the case of the plaintiffs that they had purchased Scanning Product for the purpose of Scanning internal and/or external features of rough diamonds for the purpose of planning and/or manufacturing the diamond in accordance with the agreement with regard to Scanning Product purchased from defendant no.1.
48 The plaintiff had entered into various agreements for purchase of Purchase Product including agreements titled as 'Purchase agreements', End User License Agreements' and Confidentiality Agreements', Invoice and Terms and Conditions for the purchase of planning machines with defendants at different points in time. The plaintiffs entered into purchase agreements for the purchase of Scanning machines such as Solaris 100 machines or Galaxy LR Hardware, or Galaxy 1000 Machines and separately for planning machines which the respective plaintiffs bought from defendant no.1, 2 respectively. (hereinafter collectively referred as 'Purchased Machines'). The said purchased machines are embedded and integrated with their respective software, such as Solaris 100 Software Infrastructure (in case of Solaris 100 machines), Galaxy LR Software Infrastructure (in case of Galaxy LR Hardware machines) and Advisor Software software program that form an integrated part of the purchased machines and its functionality were also purchased alongwith the Purchased machines.
49 According to the plaintiffs all the agreements ie. for Scanning Product with defendant no.1; for planning product with defendant no,2 and of AMC's with defendant no.3 are interlinked. The Purchased product were secured by the plaintiffs for the purpose of scanning internal and /or external] features of rough diamonds for the purpose of planning and /or manufacturing the diamond as stated in the license grant clause of the End User License Agreements executed by the plaintiffs and Defendant no.1. Both the types of the machines embedded with respective software, which were sold by the defendants to the plaintiffs i.e. the scanning product and the planning product (collectively 'purchased product') are closely linked and are interdependent for the diamond manufacturing purpose. According to the plaintiffs the generation of 'gal' files is indispensable and critical to the said process of the purpose of planning and /or manufacturing the diamond because the planning machines embedded with its own software called Advisor Software (collectively Planning Product) purchased by the plaintiffs by expending huge financial resources, to only run 'gal' file in order to achieve the diamond manufacturing. Therefore, without access to 'gal' files, plaintiffs would fail to plan and for manufacture the diamond, which is the core purpose behind the purchase of the said purchased product. The new software that the defendants demanded to be replaced with the already purchase Page 12 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 software in the Scanning Product produces a new type of file which is 'adv' file, which cannot be used to plan and/or manufacture the diamond in the present status ad 'adv' files cannot be read/understood processed by the Planning Product legitimately/legally owned by the plaintiffs unless the said Planning Product are themselves altered. Thus, the change affected by the defendants have rendered the purchased product useless.
50 The defendants have not submitted detailed Written Statement to the suit as well as injunction application and there is no specific denial of the averments in the plaint and injunction application.
51 The averments made and reliefs sought in the present suit and subject matter in the present suit relates to multiple agreements, relating to Scanning Product (Scanning machines embedded with software) purchased from defendant no.1 as well as Planning product (Planning machines embedded with software) purchased from defendant no.2 as well as AMC's between plaintiffs and defendant no.3 . The averments in the plaint elaborate upon the fraudulent and malicious act jointly committed by the defendants which have led to the shutting down of the Scanning Product as well as Planning Product and entire diamond manufacturing business of the Plaintiffs. On the averments the defendant no.2 who is the parent company of defendant 70.1-3 functions together with defendant no.3 who provides complete installation and maintenance of the Scanning Product and Planning Product sold by defendant no.1 and 2 respectively along with other defendants who hold key managerial positions and are trustees and have fiduciary onus.
52 On the averments in the application prayer is made to refer the present case to arbitration by only alluding to the agreements between defendant no.1 and the plaintiffs. On the documentary evidence placed on record at Annexure 54 to 63 the agreement for the purchase of Planning Product from defendant no.2 do not contain any reference to arbitration. The AMC Agreements between Plaintiffs and defendant no.3 which makes defendant no.3 responsible for upgrade of Planning Product contemplates different type of arbitration covered under Part of Arbitration and Conciliation 1996 wherein Sec. 45 of the Act has no application.
53 In the light of the above none of the agreements executed between Plaintiff and defendant no.1 contain any valid or operative Arbitration Clause which would make arbitration as an exclusive mandate. In view of the non obstante clause the arbitration clause referred to by defendant is clearly null and void, inoperative and incapable to be performed. Issues relating to the fraudulent acts and malpractices on the part of defendants jointly raised by the plaintiffs in pleadings require detailed material evidence to be produced and the Page 13 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 matter is required to go to trial. Thus in view of the nature of dispute raised any arbitration clause in only one set of agreements is incapable of being performed as the same if applied would not resolve the interlinked nature of the disputes. in view of the non-obstante clause in the agreement related to the Scanning Product arbitration clause has clearly been negated and contradicted by non-obstante clause which clearly confers jurisdiction on this court thereby making the arbitration clause null and void, not binding inoperative at the convenience of any party.
54 On perusal of the agreement executed by and between plaintiff and defendant the defendant no.1 to 3 work collectively being the Sarine Group of Companies wherein the defendant no.1 and they operate through a common website. The defendant no.1 to 3 have their branch / subordinate offices in Surat and work for gain in Surat and have sold and serviced the Purchased Product in Surat. The cause of action has arisen in Surat as the Purchased Product which have been made non-functional are positioned in Surat and the Plaintiffs were issued notices in Surat and operate these Purchased Product from Surat. Hence the jurisdiction of this court is not restricted by the agreement to entertain the present suit and grant the relief claimed."
20 Being dissatisfied with the order passed below Exhibit : 24, the defendant No.1 is here before this Court with the present appeal.
SUBMISSIONS ON BEHALF OF THE APPELLANT (ORIGINAL DEFENDANT NO.1):
21 Mr. Shalin Mehta, the learned Senior Counsel appearing for the appellant (original defendant No.1) submitted that on plain reading of the original plaint, the following emerges:
(a) "The disputes as raised by the Original Plaintiffs in the suit are with respect to termination of the Galatea Purchase Agreements, along-
with other contemporaneously executed ancillary Agreements, executed between each of the Original Plaintiffs separately with Original Defendant No. 1 (Appellant herein).
(b) The grievance of the Original Plaintiffs is that Original Defendant No. 1 (Appellant herein) has called upon each of the Original Plaintiffs Page 14 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 separately to upgrade the Galaxy software to version 4.5 for security reasons and for protecting its intellectual property rights to prevent further piracy of its products and software.
(c) The main grievance of the Original Plaintiffs is the locking out/ shutting down the machines by Original Defendant No. 1 (Appellant herein), through a server in Israel, as a result of Original Plaintiffs' failure to upgrade the software which according to Original Defendant No. 1 (Appellant herein) tantamount to a material breach of the Agreements.
(d) It is not disputed that the machines in question were sold, and the software in question was licensed, by Original Defendant No. 1 (Appellant herein) to each of the Original Plaintiffs by way of separate Agreements.
(e) It is also not Original Plaintiffs' case that they had not upgraded the software on previous occasions, as and when such upgrades were released by the Original Defendant No. 1 (Appellant herein).
(f) It is also an admitted fact that the Original Defendant No. 2 has provided Advisor® software to each of the Original Plaintiffs separately, and that the machines in question and the software in question was provided by Original Defendant No. 1 (Appellant herein), and not Original Defendant No. 2 (Respondent No. 14 herein).
(g) It is also an admitted fact that Original Defendant No. 3 (Respondent No. 15 herein) only provides service and maintenance support for the machines and software provided by Original Defendant No. 1 (Appellant herein) to each of the Original Plaintiffs.
(h) It is also an admitted fact that Original Defendant Nos. 4 to 6 (Respondent Nos. 16, 17 and 18 herein) are only officers of the Original Defendant Nos. 1 to 3 Companies and have no direct or indirect role in their individual or personal capacity distinct from that of their official capacity in respect of the subject matter of the issues raised in the present suit. Rather, the Original Plaintiffs' entire case is directed against Original Defendant No. 1 alone.
(i) The reliefs sought in the suit are clearly and unambiguously directed against Original Defendant No. 1 (Appellant herein) alone, as the said reliefs, on a plain and meaningful reading, are capable of being enforced against Original Defendant No. 1 alone.
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(j) The cause of action as pleaded in the plaint is also clearly
directed against Original Defendant No. 1 (Appellant herein) alone - Please refer para 44 of the plaint along-with other relevant paras of the plaint, specifically paras 16, 17, 34 and 37."
22 Mr. Mehta submitted that the impugned order could be said to have been passed in violation of the principles of natural justice as the same does not even record the submissions advanced on behalf of the appellant herein before the Commercial Court. He pointed out that the arguments advanced before the Trial Court were primarily two fold:
(a) "That in view of the valid and binding arbitration agreement between each of the Original Plaintiffs and the Appellant herein, and the underlying alleged cause of action and reliefs sought in the Suit being directed only against the Appellant herein, the parties ought to be referred to arbitration under Section 45 of the Arbitration Act - being a case of an international commercial arbitration - and till such time the said issue is decided no other application be taken up for hearing/ consideration; and
(b) A bare reading of the arbitration agreement and in light of the facts and circumstances of the present case, as also the settled legal position, the proper remedy, if any, was for the Plaintiffs to invoke arbitration, and may be approach Court of competent jurisdiction under Section 9 of the Arbitration Act for seeking injunctive/interlocutory reliefs."
23 Mr. Mehta submitted that neither of the aforementioned arguments on behalf of the appellant have been even taken note of in the impugned order passed by the Trial Court.
24 The second submission of Mr. Mehta is that the impugned order is erroneous inasmuch as the same was passed after deciding the Exhibit :
5 application. He submitted that the Court below first passed the order dated 1st February 2020 below Exhibit : 5, and thereafter, passed the impugned order dated 4th February 2020 below Exhibit : 24. According to Mr. Mehta, the Court below ought to have first decided the Section 45 Page 16 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 application before proceeding further in the matter as the same is the mandate of law. He would submit that the Court below grossly erred to appreciate that having filed the Section 45 application, the appellant herein could not have filed its written statement or reply to the Exhibit :
5 application least such filing may tantamount to submitting to the jurisdiction of the Court below.
25 In support of his aforesaid submissions, Mr. Mehta has placed strong reliance on the following three decisions:
(i) Shin-Etsu Chemical Co. Ltd. vs. Akash Optifibre Ltd. and another [(2005) 7 SCC 234]
(ii) Learonal and others vs. R. B. Business Promotions Pvt Ltd and others [(2010) 15 SCC 733]
(iii) Chloro Controls India Pvt Ltd vs. Severn Trent Water Purification Inc. and others [(2013) 1 SCC 641]
26 The third submission of Mr. Mehta is that the Court below committed a serious error in taking the view that the suit is maintainable despite existence of the arbitration clauses in each of the agreements.
27 Mr. Mehta submitted that the Court below erroneously rejected the Section 45 application on the following three points:
(a) In view of the non-obstante clause in the arbitration agreement, the arbitration agreement is null and void, inoperative and incapable of being performed.Page 17 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
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(b) As the original plaintiffs have raised allegations of fraud, the arbitration agreement is negated.
(c) Due to interlinked nature of disputes, the matter cannot be referred to arbitration.
28 Mr. Mehta would submit that once the parties, by mutual agreement, decided to resolve any dispute by arbitration in a foreign country, then, in such circumstances, Part II of the Act, 1996 would apply, and once the agreement is found to be neither null and void or inoperative or incapable of being performed, the bar created under Section 45 comes into play and the Court would have no discretion, but, to refer the parties to arbitration.
29 Mr. Mehta would submit that the scope of inquiry under Section 45 of the Act does not extend to examination of the legality of the substantive contract and where the Court comes to a conclusion that there exist an arbitration agreement between the parties to a suit and the said arbitration agreement is neither null and void nor inoperative nor incapable of being performed, the Court is under a statutory obligation under Section 45 of the Act to refer the parties to arbitration.
30 In the aforesaid context, Mr. Mehta seeks to strongly rely upon the following decisions of the Supreme Court:
(i) World Sport Group (Mauritius) Ltd vs. MSM Satellite (Singapore) Pte. Ltd [(2014) 11 SCC 639]
(ii) Chloro Controls India Pvt Ltd vs. Severn Trent Water Purification Inc. and others [(2013) 1 SCC 641] Page 18 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021
(iii) Sasan Power Limited vs. North American Coal Corporation India Private Limited [(2016) 10 SCC 813]
(iv) PASL Wind Solutions Pvt Ltd. vs. GE Power Conversions India Pvt Ltd [(2021) 7 SCC 1] (relevant para 71 at page 28)
31 Mr. Mehta, thereafter, submitted that in the case on hand, the arbitration agreement could neither be said to be null and void nor inoperative and also cannot be said to be incapable of being performed. In this regard, Mr. Mehta seeks to place reliance on the following:
"34. It is important to first understand the meaning of the three expressions used by the Legislature in Section 45 of the Arbitration Act i.e. 'null and void', 'inoperative' and 'incapable of being performed'.
35. The words "inoperative or incapable of being performed" in Section 45 of the Act have been taken from Article II (3) of the New York Convention.
36. Redfern and Hunter on International Arbitration (Fifth Edition) published by the Oxford University Press has explained the meaning of these words "inoperative or incapable of being performed" used in the New York Convention at page 148, thus:
"At first sight it is difficult to see a distinction between the terms 'inoperative' and 'incapable of being performed'. However, an arbitration clause is inoperative where it has ceased to have effect as a result, for example, of a failure by the parties to comply with a time limit, or where the parties have by their conduct impliedly revoked the arbitration agreement. By contrast, the expression 'incapable of being performed' appears to refer to more practical aspects of the prospective arbitration proceedings. It applies, for example, if for some reason it is impossible to establish the arbitral tribunal."
37. Albert Jan Van Den Berg in an article titled "The New York Convention, 1958-An Overview" published in the website of ICCA [www.arbitrationicca.org/media/0/12125884227980/new_york _ convention_of-1958_overview.pdf], referring to Article II(3) of the New York Convention, states:
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a. "The words "null and void" may be interpreted as
referring to those cases where the arbitration agreement is affected by some invalidity right from the beginning, such as lack of consent due to misrepresentation, duress, fraud or undue influence.
b. The word "inoperative" can be said to cover those cases where the arbitration agreement has ceased to have effect, such as revocation by the parties.
c. The words "incapable of being performed" would seem to apply to those cases where the arbitration cannot be effectively set into motion. This may happen where the arbitration clause is too vaguely worded, or other terms of the contract contradict the parties' intention to arbitrate, as in the case of the so-called co- equal forum selection clauses. Even in these cases, the courts interpret the contract provisions in favour of arbitration."
38. The book 'Recognition and Conferment of Foreign Arbitral Awards: A Global Commentary on the New York Convention' by Kronke, Nacimiento, et al.(ed.) (2010) at page 82 says:
"Most authorities hold that the same schools of thought and approaches regarding the term null and void also apply to the terms inoperative and incapable of being performed. Consequently, the majority of authorities do not interpret these terms uniformly, resulting in an unfortunate lack of uniformity. With that caveat, we shall give an overview of typical examples where arbitration agreements were held to be (or not to be) inoperative or incapable of being performed.
The terms inoperative refers to cases where the arbitration agreement has ceased to have effect by the time the court is asked to refer the parties to arbitration. For example, the arbitration agreement ceases to have effect if there has already been an arbitral award or a court decision with res judicata effect concerning the same subject matter and parties. However, the mere existence of multiple proceedings is not sufficient to render the arbitration agreement inoperative. Additionally, the arbitration agreement can cease to have effect if the time limit for initiating the arbitration or rendering the award has expired, provided that it was the parties' intent no longer to be bound by the arbitration agreement due to the expiration of this time limit.
Finally, several authorities have held that the arbitration agreement ceases to have effect if the parties waive arbitration. There are many possible ways of waiving a right to arbitrate.Page 20 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 Most commonly, a party will waive the right to arbitrate if, in a court proceeding, it fails to properly invoke the arbitration agreement or if it actively pursues claims covered by the arbitration agreement."
39. The aforesaid terms have received concurrence from the Hon'ble Supreme Court in the judgment of World Sport (supra).
40. In the present case, the averments made by the Original Plaintiffs do not fall under either of the terms as explained above and therefore the matter ought to have been referred to arbitration under Section 45 of the Arbitration Act as the arbitration agreement is valid and subsisting between each of the Original Plaintiffs and the Appellant herein.
41. In this regard, the Appellant is placing reliance on Chloro Controls (supra), wherein it was held that when the Court comes to the conclusion that the arbitration agreement is neither null and void nor inoperative and is not incapable of being performed, the Court is obligated to refer the parties to arbitration. The relevant paragraph of the judgment is reproduced herein below for the ready reference of this Hon'ble Court:
"156. The provisions of Section 45 of the 1996 Act are to prevail over the provisions of CPC and when the court is satisfied that an agreement is enforceable, operative and is not null and void, it is obligatory upon the court to make a reference to arbitration and pass appropriate orders in relation to the legal proceedings before the court in exercise of its inherent powers."
32 Mr. Mehta next submitted that the non-obstante clause contained in the Galatea Purchase Agreement would not override / oust the arbitration agreement contained therein. In this regard, the submissions of Mr. Mehta are as under:
"42. It is most respectfully submitted that the Respondents No. 1 to 13 have attempted to resist the Section 45 Application and reference of disputes to arbitration by taking refuge on the purported non-obstante clause contained in the "Dispute Resolution" clause of the Agreements. It is relevant to note here that in the entire plaint, it has been deliberately and intentionally concealed and suppressed by the Original Plaintiffs that there is arbitration agreement between each of the Plaintiffs and the Appellant herein. It is only when the Appellant pointed this out and filed an application under Section 45 Arbitration that the Original Plaintiffs took such stand.Page 21 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
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43. Further, the interpretation given by the Original Plaintiffs to the "notwithstanding clause" contained in the arbitration agreement between the parties would render the enabling part of the arbitration agreements, viz. the intent and the agreement between the parties to refer "any disputes under the agreements" to arbitration, otiose and nullity. Such an interpretation is clearly contrary to the object of the Arbitration Act and the mandate of the Hon'ble Supreme Court of India, which is dealt in further detail in the subsequent paragraphs of the present submissions.
44. It is now well settled that Courts should adopt a pragmatic and not a pedantic or technical approach while interpreting or construing an arbitration clause. The Appellant is placing reliance on the judgment of the Hon'ble Supreme Court in Enercon (India) vs Enercon GMBH and Ors., reported at (2014) 5 SCC 1, wherein it has been enunciated that- courts have to adopt a pragmatic and not a pedantic or technical approach while interpreting or construing arbitration clause. Common sense approach has to be adopted to give effect to the intention of parties to arbitrate. (Relevant paras- 87, 88 & 96). Copy of the judgment passed in Enercon (Supra) is being placed herewith as Annexure A-7 (it is judgment no. 1 of the list of judgments relied upon and filed by the Appellant).
45. Thus, a pragmatic and common sensical reading of the aforesaid non-obstante clause would mean that the said clause only provides an option to either of the parties to approach courts of competent jurisdiction, strictly for the purposes of seeking an injunctive or interlocutory relief. This would mean that in case the need arises, a party may approach a Court of competent jurisdiction under Section 9 of the Arbitration Act to seek injunctive or interlocutory relief before a court of competent jurisdiction. However, the said clause cannot be used as a subterfuge to completely override/oust the arbitration agreement contained in first part of the said clause and file a substantive civil suit which is, very importantly, not confined to seeking injunctive reliefs but to claim specific performance and damages. In this regard, the prayers in the Suit (at page 41 and 42 of the separate compilation of documents) may kindly be seen and considered by this Hon'ble Court to ascertain whether the suit can be considered as an "injunctive Suit" as argued on behalf of Respondent No's. 1 to 13. The interpretation of the Respondents No. 1 to 13 is absurd given that a civil suit cannot be filed for seeking interim/interlocutory injunctive reliefs. Further, such an interpretation would also imply that the first part of the said clause, i.e. the arbitration agreement would become completely otiose/irrelevant, which certainly could not have been the intention of the parties.Page 22 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
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46. Further, the intention of the parties is also clear from Clause 12 of the Confidentiality agreement entered into between Respondent Nos. 1 to 14 separately and the Appellant herein. (Please refer Clause 12 at Page 69 of the Appeal Paper-Book).
47. It is relevant to note here that in an attempt to make arbitration a preferred mode of settlement of commercial disputes, the President of India on 23 October 2015 promulgated an Ordinance ("Arbitration and Conciliation (Amendment) Ordinance, 2015) amending the Arbitration and Conciliation Act, 1996. By way of such amendment, a proviso to Section 2(2) of the Arbitration Act was added which envisages that subject to the agreement to the contrary, Section 9 (interim measures), Section 27 (taking of evidence), and Section 37(1)(a), 37(3) shall also apply to international commercial arbitrations, even if the seat of arbitration is outside India. Therefore, now Section 2(2) envisages that Part-I shall apply where the place of arbitration is in India and that provisions of Sections 9, 27, 37(1) (a) and 37 (3) shall also apply to international commercial arbitration even if the seat of arbitration is outside India unless parties to the arbitration agreement have agreed to the contrary.
48. Further, the Impugned Order is clearly contrary to a recent judgment of the Hon'ble Apex Court in the matter of Mankastu Impex Private Limited vs. Airvisual Limited reported at (2020) SCC Online SC 301, wherein the Court, having regard to the proviso to Section 2(2) of the Arbitration Act, held that in the case of international commercial arbitration even if the parties have agreed that they may seek provisional, injunctive or equitable remedies from a court having jurisdiction, it will not take away or dilute the intention of the parties in the arbitration clause that the arbitration be administered outside India. The relevant paragraphs are 18, 26 to 28 which are reproduced herein below for the ready reference of this Hon'ble Court:
"18. In the present case, Clause 17 of the MoU is a relevant Clause governing the law and dispute resolution. Clause 17 reads as under:
17. Governing Law and Dispute Resolution 17.1 This MoU is governed by the laws of India, without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction.
17.2 Any dispute, controversy, difference or claim arising out of or relating to this MoU, including the existence, validity, interpretation, performance, breach or termination thereof or any dispute regarding non-contractual obligations arising out of Page 23 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 or relating to it shall be referred to and finally resolved by arbitration administered in Hong Kong.
The place of arbitration shall be Hong Kong.
The number of arbitrators shall be one. The arbitration proceedings shall be conducted in English language.
17.3 It is agreed that a party may seek provisional, injunctive, or equitable remedies, including but not limited to preliminary injunctive relief, from a court having jurisdiction, before, during or after the pendency of any arbitration proceeding.
...XXX
26. Clause 17.1 of the MoU stipulates that the MoU is governed by the laws of India and the courts at New Delhi shall have jurisdiction. The interpretation to Clause 17.1 shows that the substantive law governing the substantive contract are the laws of India. The words in Clause 17.1 "without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction" has to be read along with Clause 17.3 of the agreement. As per Clause 17.3, the parties have agreed that the party may seek provisional, injunctive or equitable remedies from a court having jurisdiction before, during or after the pendency of any arbitral proceedings. In para (161) in BALCO MANU/SC/0722/2012 : (2012) 9 SCC 552, this Court held that".....on a logical and schematic construction of Arbitration Act, 1996, the Indian Courts do not have the power to grant interim measures when the seat of arbitration is outside India....". If the arbitration agreement is found to have seat of arbitration outside India, then the Indian Courts cannot exercise supervisory jurisdiction over the award or pass interim orders. It would have therefore been necessary for the parties to incorporate Clause 17.3 that parties have agreed that a party may seek interim relief for which Delhi Courts would have jurisdiction. In this regard, we may usefully refer to the insertion of proviso to Section 2(2) of the Arbitration Act, 1996 by Amendment Act, 2015. By the Amendment Act, 2015 (w.e.f. 23.10.2015), a proviso has been added to Section 2(2) of the Act as per which, certain provisions of Part-I of the Act i.e. Sections 9
- interim relief, 27 - court's assistance for evidence, 37(1)(a) - appeal against the orders and Section 37(3) have been made applicable to "International Commercial Arbitrations" even if the place of arbitration is outside India. Proviso to Section 2(2) of the Act reads as under:
2. Definitions.-Page 24 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
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........
This Part shall apply where the place of arbitration is in India:
Provided that subject to an agreement to the contrary, the provisions of Sections 9, 27 and Clause (a) of Sub-section (1) and Sub-section (3) of Section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.
27. It is pertinent to note that Section 11 is not included in the proviso and accordingly, Section 11 has no application to "International Commercial Arbitrations" seated outside India.
28. The words in Clause 17.1 "without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction" do not take away or dilute the intention of the parties in Clause 17.2 that the arbitration be administered in Hong Kong. The words in Clause 17.1 do not suggest that the seat of arbitration is in New Delhi. Since Part-I is not applicable to "International Commercial Arbitrations", in order to enable the parties to avail the interim relief, Clause 17.3 appears to have been added. The words "without regard to its conflicts of laws provisions and courts at New Delhi shall have the jurisdiction" in Clause 17.1 is to be read in conjunction with Clause 17.3. Since the arbitration is seated at Hong Kong, the petition filed by the Petitioner Under Section 11(6) of the Act is not maintainable and the petition is liable to be dismissed." (emphasis supplied) Copy of the judgment passed in Mankastu (Supra) is being placed herewith as Annexure A-8 (it is Annexure A-2 to the Rejoinder filed by the Appellant at pages 367 to 376).
49. Even otherwise, as stated above, the Ld. Trial Court, in the Impugned Order has not even considered these vital aspects of the matter to come to a finding whether or not the Suit is maintainable.
50. Therefore, it is clear that the non-obstante clause contained in the arbitration agreement would, at best, save certain provisions of the Arbitration Act for seeking injunctive reliefs and make the same applicable to the present arbitration, which as stated above, is a case of international commercial arbitration, but CANNOT be construed by any stretch of imagination to render the arbitration agreement otiose.Page 25 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
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51. Therefore, the Ld. Trial Court has grossly erred in relying on the purported non-obstante clause in the present case at hand to come to the conclusion that in view of the said non-obstante clause the arbitration clause becomes null and void or inoperative or incapable of being performed."
33 Mr. Mehta submitted that the Court below proceeded on an erroneous premise that once certain allegations of fraud are levelled against the defendant, the arbitration clause would stand negated. He would submit that such a finding recorded by the Court below is contrary to the settled position of law, as recently held by the Supreme Court in the case of Rashid Raza vs. Sadaf Akhtar reported in (2019) 8 SCC 710 (relevant paras 4 and 5 respectively). We quote paras 4 and 5 resply as under:
"4. The principles of law laid down in this appeal make a distinction between serious allegations of forgery/fabrication in support of the plea of fraud as opposed to "simple allegations". Two working tests laid down in paragraph 25 are : (1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.
5. Judged by these two tests, it is clear that this is a case which falls on the side of "simple allegations" as there is no allegation of fraud which would vitiate the partnership deed as a whole or, in particular, the arbitration clause concerned in the said deed. Secondly, all the allegations made which have been relied upon by the learned counsel appearing on behalf of the respondent, pertain to the affairs of the partnership and siphoning of funds therefrom and not to any matter in the public domain."
34 Mr. Mehta would submit, relying on the decision of the Supreme Court in the case of World Sport Group (supra) that the Court would be justified in declining to make a reference of a dispute covered by the arbitration agreement only if it comes to the conclusion that the arbitration agreement is null and void, inoperative or incapable or being performed and not on the ground of allegation of fraud or Page 26 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 misrepresentation as those have to be inquired into while deciding the dispute between the parties.
35 In the aforesaid context, Mr. Mehta seeks to place strong reliance on a decision of the Supreme Court in the case of Avitel Post Studioz Limited vs. HSBC PI Holdings (Mauritius) Limited reported in (2021) 4 SCC 713, wherein the Supreme Court held that "serious allegations of fraud" would arise only if either of the two tests laid down in Rashid Raza (supra) referred to above are satisfied and not otherwise. Mr. Mehta submitted that the Trial Court failed to appreciate that the cause of action in the suit could not have been clubbed, and in such circumstances, the suit ought to have been dismissed for misjoinder of parties.
36 The last submission of Mr. Mehta is that the plaintiffs have attempted to entangle the issues regarding the Scanning product and Planning product to the extent it serves their concoction and falsification of facts before this Court.
37 In such circumstances referred to above, Mr. Mehta prays that there being merit in his appeal, the same may be allowed. He prays that the application Exhibit : 24 may be allowed and the parties may be asked to go for arbitration in accordance with the terms of the arbitration clause.
SUBMISSIONS ON BEHALF OF THE PLAINTIFFS: 38 Mr. Mehul Suresh Shah, the learned Senior Counsel appearing for
the original plaintiffs, on the other hand, has vehemently opposed this appeal submitting that Section 45 of the act, 1996 does not bar the institution of a suit merely because one party alleges that there subsists Page 27 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 an arbitration agreement between the parties to the suit. In an application under Section 45 of the Arbitration Act, a mere averment by the applicant that there subsists an arbitration agreement between the parties to a suit does not entail an automatic reference of the disputes and the parties to arbitration. Mr. Shah would submit that in view of the express provisions of Section 45, the judicial authority, before whom the suit is pending is required to adjudicate upon the existence, validity, operatibility and enforciability of the alleged arbitration agreement and only if it is satisfied that the arbitration agreement being propounded is valid, operative, enforceable and covers the disputes in the suit should the judicial authority refer the parties to arbitration.
39 Mr. Shah would submit that the onus is on the applicant of Section 45 application to prove that the conditions in Section 45 of the Act are satisfied when he applies to the judicial authority for referring the parties to arbitration. According to Mr. Shah, the defendants herein have failed to prove the conditions under Section 45 required to be satisfied before the judicial authority can refer the parties to arbitration.
40 Mr. Shah, in the course of his submissions, explained why it was necessary for the plaintiffs to file a composite suit. In this regard, Mr. Shah invited the attention of this Court to the averments made in para 15 of the plaint, which reads thus:
"That the plaintiffs above named state and earnestly submit that each plaintiff could have filed a separate suits on account of existence of separate cause of action, as the agreements that have been breached by the defendants were signed individually at different time frames, and the plaintiffs were paid different considerations for the purchased product and all of them have been put to great injustice. However, since the subject matter of the breaches of contracts is largely the same, all arising at the same time and at the jurisdiction with the similar consequences, therefore filing of separate suits would only result in Page 28 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 waste of time and energy of this Hon'ble Court. Hence similar disputes have been combined in the form of the present suit in order to save time and efforts at all levels."
41 Mr. Shah would submit that in addition to the above, the original defendants Nos.1 to 3, being the legal entities, in respect of the purchased product and the defendants Nos.4 to 6 being the Trustees / top managerial in the defendants Nos.1 to 3 have brought the entire manufacturing process to a grinding halt on account of the fraud alleged to have been played upon the plaintiffs by the defendants Nos.1 to 6 resply. According to Mr. Shah, the cause of action could not have been isolated and viewed only with respect to the appellant - defendant No.1 as everything is interdependent i.e. any action on the part of the appellant - defendant No.1 with respect to the Scanning Product has an equal effect on the Planning Product, which now has been rendered useless due to the alleged fraudulent act of the appellant - defendant No.1 in connivance with the defendants Nos.2 to 6 respectively.
42 Mr. Shah, thereafter, invited our attention to the End User License Agreement (EULA) at page : 71 of the paper book, more particularly, the clause 2 therein, which reads thus:
"Clause 2 - License Grant and Restriction -
2.1. subject to the terms and conditions in this agreement, customer is hereby granted a non-exclusive, non-transferable, limited license to use the Software and the related Know-How on the products for the sole purpose of (i) scanning the internal and/or external features of rough diamonds for the purpose of planning and/or manufacturing the diamond and (ii) creating a three dimensional image of the internal and/or external features of the rough diamond."
43 According to Mr. Shah, the aforesaid would clearly indicate the interlinked nature of the Scanning and Planning Machines and the purpose with which the Scanning Product operates.
Page 29 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 44 Mr. Shah, thereafter, invited our attention to the averments made
in paras 44 and 45 resply of the plaint with respect to the cause of action. The same reads thus:
"44. The cause of action arose when the defendants (it may please be noted : The word 'Defendants' have been used and not one particular defendant) approached plaintiffs seeking to sell the purchased product, the cause of action arose when the plaintiffs and defendants executed the agreement, the cause of action arose when the plaintiffs made payments towards the purchase of purchased product (it may please be noted: the word 'purchased product' is used and not particularly 'scanning' product which the defendant No.1 is trying to falsely portray or rather trying to get away with - in para 17 of the plaint we have clarified what purchased product mean i.e. scanning and planning product), the cause of action again arose when the defendants issued notices to illegally terminate the agreements for the scanning product, the cause of action further arose when the agreements for the scanning product were unilaterally and illegally terminated by the defendants in breach of the terms of the agreements, the cause of action again arose when plaintiffs sent the reply to notices explaining its position as well as a notice to the defendants for breach of contract and the defendants evaded rectifying the wrongs and the cause of action again arose when the defendants disconnected the online connection from its server based in Israel making the purchased product non-functional and defunct. The defendants have still not rectified the wrongs done and restored the status quo ante and the cause of action continues.
45. That the defendant Nos.1 -3, work collectively being Sarine Group of Companies, wherein the defendant No.1 is largely in scanning products. Defendant No.2 is planning products and defendant No.3 based in India provides annual maintenance on the products sold by defendant No.1 and 2 and they operate a common website www.sarine.com. The defendant nos.1-3 have their branch / subordinate offices in Surat and work for gain in Surat and sold and serviced the purchased product in Surat. It is stated that past communications between the various plaintiffs and defendants and their employees in relation to the purchased product shows that defendant No.1 is merely acting as an agent / vehicle of the defendant No.1 and 2 in India. The cause of action has arisen in Surat as the purchased product which have been made non-functional are positioned in Surat and the plaintiffs were issued notices in Surat and operate these purchased product from Surat. The agreements do not restrict the exercise of jurisdiction of this Hon'ble Court for deciding the present suit. The Hon'ble Court, therefore has the jurisdiction to entertain the present suit and grant the relief prayed."
Page 30 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 45 Mr. Shah submitted that the appellant herein (defendant No.1)
has tried to project a picture before this Court that the defendants Nos.2 to 6 (i.e. the respondents Nos.14 to 18) are not necessary parties to the suit and that their arbitration agreement would allegedly stand effective. According to Mr. Shah, no arbitration agreement exists in the case on hand so far as the defendant No.2 is concerned from whom the plaintiffs purchased the stand-alone Planning Product and so far as the defendant No.3 is concerned, in the Annual Maintenance Contract, the arbitration clause provides the venue of arbitration at Mumbai. He pointed out that so far as the agreement for Scanning Machines between some of the plaintiffs i.e. Nos.6, 7, 8 and 12 respectively with the appellant herein is concerned, the venue of arbitration is at Singapore, while for the other plaintiffs, the venue of arbitration is Israel. According to Mr. Shah, there are multiple inconsistencies in this regard and the same cannot be decided by an Arbitrator.
46 Mr. Shah submitted that till this date, the appellant herein (original defendant No.1) has not filed its written statement before the Trial Court and in such circumstances, the Trial Court was left to consider only the averments made in the plaint as a whole to arrive at a prima facie conclusion so far as the issue as regards the arbitration is concerned.
47 Mr. Shah, by placing strong reliance on the decision of the Supreme Court in the case of Sukanya Holdings vs. Jayesh H. Pandya and another (2003) 5 SCC 531, submitted that unlike Section 8, there is no provision in Section 45 - Part II of the Arbitration Act to bifurcate the suit into two parts. In other words, the submission is that there are multiple jurisdictions in play and the non-existence of arbitration Page 31 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 agreement with the defendant No.2 makes the arbitration agreement incapable of being performed.
48 Mr. Shah would submit that there is a fine distinction between Section 8 and Section 45 of the Arbitration Act. The Arbitration and Conciliation Act is broadly based on the 1985 UNCITRAL Model Law. The General Assembly of the United Nations has recommended that all countries should give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. The said Model Law and Rules make significant contribution to the establishment of a unified legal framework for the international commercial arbitration and the enforcement of foreign arbitral awards and hence the distinction between Section 8 in Part I (Domestic Arbitration) and Section 45 (International Arbitration) in Part II of the Act.
49 Mr. Shah submitted that the decision of the Supreme Court in the case of Avitel Post Studioz Ltd (supra) upon which strong reliance has been placed on behalf of the appellant herein has no application to the case on hand as it deals with Section 8 of the Arbitration Act and not Section 45. Besides the same, in the case of Avitel (supra), the non- obstante clause was absent. Mr. Shah would submit that in case of Section 45 of the Act, if the Court finds the agreement to be null and void, inoperative or incapable of being performed, then, in such circumstances, the application filed under Section 45 would be liable to be rejected. Such words are not to be found in Section 8 of the Act. Section 8 applies only to arbitration where the seat is in India. Agreements for offshore arbitration are governed by Section 45 of the Act, which are somewhat differently worded.
Page 32 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 50 Mr. Shah vehemently submitted that by terminating the
agreement with respect to the Scanning Machines, the appellant - defendant No.1 had made the Planning Machine defunct. It is fundamental in software domain that any upgrade would not leave the previous software version defunct and the upgraded version ought to give a backward compatibility to the past version. For example, if the Microsoft Word Version 2019 comes out with a new file extension say '.docx' where the past versions were giving the file extension of '.doc', the new upgraded version of the Microsoft Word 2019 software would still allow opening of the '.doc' files so as to maintain and give full backward compatibility, which in the present case, the defendant No.1 has forcefully and fundamentally changed. The new proposed scanning software output would be '.adv' file and not allow generation of the '.gal' file as was being generated earlier, which would as a result mandate the planning software only to process '.adv' file which requires online connectivity, and thus, fundamentally changes the complete business ecosystem of the plaintiffs in the name of an 'upgrade' when the same technically cannot be done. Mr. Shah submitted that what the defendant No.1, in connivance with the other defendants, under the garb of upgradation did was to replace the existing purchased software in the Scanning Machine. It would cease to produce the ".gal" files but instead will start producing ".adv" files which the Planning Product (purchased as a stand alone product) would not be able to read thereby making it defunct. The original defendants have put an end on the backward compatibility thereby rendering the planning machines defunct.
51 Mr. Shah next contended that the arbitration clause and the notwithstanding clause in the agreement at page : 54 of the paper book is different than that of the agreement at page : 64 of the paper book. He pointed out that the agreement at page : 54 is an agreement entered into Page 33 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 between the plaintiff No.12 (who is no longer an active party to the suit) and the Galatea for Scanning Machines wherein the venue of Arbitration is Singapore. The original plaintiffs Nos.6, 7, 8 and 12 have venue of arbitration as Singapore. The notwithstanding clause in this agreement is as follows:
"11. GOVERNING LAW, JURISDICTION ...
Notwithstanding the foregoing, Galatea may seek injunctive or other relief in the Courts of any jurisdiction in order to protect its intellectual property rights in which case such matter shall not be subject matter of arbitration."
He pointed out that the agreement at page : 64 is an agreement entered into between the original plaintiff No.11 and Galatea for the Scanning Machines wherein the venue of arbitration is TEL AVIV, ISRAEL. The original plaintiffs Nos.1, 2, 3, 4, 5, 9, 10, 11 and 13 have venue of arbitration as TEL AVIS, ISRAEL. The notwithstanding clause in the agreement is as follows:
".... Notwithstanding anything in this agreement to the contrary, any party may approach the Court of competent jurisdiction for an appropriate injunctive or interlocutory relief in connection with this agreement. In such event, the law of the jurisdiction in which the Court of competent jurisdiction resides shall apply."
52 According to Mr. Shah, the decision of the Supreme Court in the case of Venture Global Engineering vs. Satyam Computer Services Ltd and another (2008) 4 SCC 190 (para 26) clinches the issue as it states that a non-obstante clause would override the entirety of the agreement. According to Mr. Shah, the appellant - defendant is not correct in submitting that Venture Global (supra) could be said to have been overruled in the case of Bharat Aluminium Company vs. Kaiser Aluminium Technical Service (Civil Appeal No.7019 of 2005).
Page 34 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 53 Mr. Shah would submit that the intent of the non-obstante clause
in the present matter was that in case the relief sought was in the nature of injunctive or interlocutory relief, the matter would not go for arbitration and rather would go to the Court of competent jurisdiction. To further clarify, in other cases for e.g. where one is seeking damages or compensation or any other relief apart from injunction or interlocutory relief, then the arbitration clause would certainly be there and applicable, and therefore, it is surely not the case that the use / incorporation of the 'non-obstante clause' renders the arbitration clause useless or meaningless as it would be required / applicable in cases where the reliefs claimed under the agreement are not injunctive or interlocutory in nature, and that therefore, the argument of the defendants to this effect too is incorrect. It would not make the arbitration clause otiose in cases where damages or compensation are sought within the scope of the arbitration agreement. In view of the above, since the injunctive relief sought falls within the ambit of non- obstante clause at page : 64, the arbitration clause becomes inoperable and incapable of being performed on account of the overriding effect of the non-obstante clause.
54 Mr. Shah would submit that by taking undue advantage of Clause 6.3 of the End User License Agreement (EULA) at page : 72 of the paper book, the appellant (defendant No.1) has put a dent on the business of the plaintiffs by making the machines defunct. The said clause reads at the fourth line of the Clause 6.3 reads as:
"... Galatea shall be entitled to make periodic upgrades to the products or software that it deems necessary to protect the products, software and related Know How and/or Galatea's (or its licensors) intellectual property rights in such. Customer shall fully cooperate with Galatea in making such upgrades and any effort to prevent such upgrades shall be deemed as fundamental breach of this agreement."Page 35 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 Mr. Shah submitted that what the defendant No.1 did in connivance with other defendants is not in any manner "upgrade" which the appellant - defendant No.1 is banking upon to wriggle out of the fraudulent activity. What could not have been done directly has been done indirectly.
55 Mr. Shah would submit that there is no merit in the submission canvassed on behalf of the appellant herein that the notwithstanding clause should be construed as one with respect to the interim measures in the Arbitral Tribunal and not before the Court of law. He would submit that Section 9 of the Arbitration Act provides for interim measures or enforcement of the arbitral award in accordance with Section 36 of the Act. According to Mr. Shah, the Supreme Court in Venture Global Engineering (supra) has clearly observed that Section 9 of the Arbitration Act would be applicable to international arbitration as well, which falls in Part II of the Arbitration Act.
56 Mr. Shah would submit that the Arbitrator cannot decide the issue of fraud as alleged in the present case. In this regard, reliance has been placed on the decision of the Supreme Court in the case of A. Ayyasamy vs. A. Paramasivam and others (2016) 10 SCC 386.
57 In such circumstances referred to above, Mr. Shah prayed that there being no merit in the present appeal, the same may be dismissed and the Court below may be permitted to proceed further with the suit.
ANALYSIS: 58 Having heard the learned counsel appearing for the parties and
having gone through the materials on record, the following questions fall for our consideration:Page 36 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021
[i] Whether the Court below committed an error in passing the
impugned order rejecting the application filed by the appellant herein under Section 45 of the Arbitration Act?
[ii] Whether the arbitration agreement in the case on hand could be said to be null and void, inoperative or incapable of being performed?
[iii] Whether the non-obstante clause contained in the Galatea Purchase Agreement would override / oust the arbitration agreement contained therein?
59 It appears from the pleadings and the submissions canvassed on behalf of the appellant herein (original defendant No.1) that the appellant, in exercise of its contractual rights for the Scanning product under the Galatea Purchase Agreement, Confidentiality Agreements and the End User License Agreement (EULA) with the objective of preventing piracy and as a part of commercial decision, decided to permanently phase out the older versions of its operating software in its galaxy family of machines with effect from 1 st August 2019. This required upgradation of the operating software to be implemented industry-wide, including with each of the original plaintiffs in terms of the mutual agreements. Such a stance on the part of the appellant is apparent from the plain reading of the notices issued to each of the original plaintiffs dated 1 st August 2021.
60 It may not be out of place to state that out of 450 machines with their respective operating software being used in the Indian market, only the original plaintiffs (holding a total of 33 machines) declined and Page 37 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 offered resistance to upgrade their software in the Scanning Product. It may again not be out of place to state that out of the above referred 33 machines being used by the original plaintiffs, so far as the software of 7 machines owned by the plaintiffs Nos.6, 9 and 12 respectively is concerned, those have already been upgraded and one of the machines of the plaintiff No.4 namely Bhavna Gems is in the process of being upgraded.
61 It appears that as the original plaintiffs declined to get the software upgraded within the notice period of 14 days, the appellant herein by way of separate termination notices dated 16 th August 2019 terminated the agreement of the Scanning Product including all the licenses of the software and shut down the operations of the machines.
62 In such circumstances referred to above, the plaintiffs instituted the suit being aggrieved by the termination of the agreements of the Scanning Product seeking:
[i] that the termination of the contract for the Scanning Product be declared as null and void;
[ii] permanent and mandatory injunction restraining the original defendant from terminating the agreements for the Scanning Product;
[iii] decree of specific performance / enforcement of agreements in respect of Scanning Product by directing the appellant herein to restore status ante as it existed before termination i.e. as on 16 th August 2019.Page 38 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 RELEVANT CLAUSES IN THE TWO SETS OF AGREEMENTS: 63 There are two sets of agreements executed between each of the
original plaintiffs separately and the appellant herein. The first set of agreement was entered into between the plaintiffs Nos.1, 6, 8, 12 and 13 respectively and the appellant herein. The second set of the agreement was entered into between the plaintiffs Nos.2, 3, 4, 5, 7, 9, 10 and 11 respectively and the appellant herein.
64 The relevant clauses in the above referred agreements which contain the arbitration clause are as under:
"Clause titled "Governing Law and Jurisdiction" in the Solaris - Terms and conditions of Use (at page 54 of the Appeal Paper-book), which read as follows:
"GOVERNING LAW, JURISDICTION:
... XXX ...
The following provisions shall apply when Customer's address is in India:
The Agreement shall be governed by and interpreted under the laws of India. The United Nations Convention on Contracts for the International Sale of Goods will not apply to the interpretation or enforcement of this Agreement. Any dispute of any sort that might arise between Galatea and Customer hereunder will be first referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre ("SIAC Rules") for the time being in force, which rules are deemed to be incorporated by reference in this clause. The Tribunal shall consist of one arbitrator. The language of the arbitration shall be English. Customer waives any objection whereby such venue is an inconvenient forum.
Notwithstanding the foregoing, Galatea may seek injunctive or other equitable relief in any jurisdiction in order to protect its intellectual property rights, in which case such matter shall not be a subject matter of arbitration."Page 39 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 Clause titled "Governing Law and Jurisdiction" in Galatea Purchase Agreement (at page 64 of the Appeal Paper- book), which reads as follows:
"GOVERNING LAW, JURISDICTION This Agreement shall be governed by and construed under and in accordance with the laws of the State of Israel without reference to conflict of laws principles. The Parties agree that the sole venue for resolution of any disputes under this Agreement shall be binding arbitration carried out in accordance with the procedures of the Israeli Institute of Commercial Arbitration and shall take place in Tel Aviv, Israel and carried out in English language.
Notwithstanding anything in this Agreement to the contrary, any Party may approach the court of competent jurisdiction for an appropriate injunctive or interlocutory relief in connection with this Agreement. In such event, the law of the jurisdiction in which the court of competent jurisdiction resides shall apply."
Apart from the aforesaid agreements, the other ancillary agreements were also executed contemporaneously between each of the original plaintiffs separately and the appellant herein, which also contain arbitration clause, are as follows:
(i) Confidentiality Agreement at page 68 of the Appeal Paper-book -
Arbitration clause (Clause 12) at page 69), which reads as follows:
"This Agreement shall be governed by and construed under and in accordance with the laws of the State of Israel without reference to conflict of laws principles. The Parties agree that the sole venue for resolution of any disputes under this Agreement shall be binding arbitration carried out in accordance with the procedures of the Israeli Institute of Commercial Arbitration and shall take place in Tel Aviv, Israel and carried out in English language. The Provisions of Part I (except Section 9) of the Indian Arbitration and Conciliation Act shall not apply to this Agreement. Notwithstanding anything in this Agreement to the contrary, the Disclosing Party may approach the court of competent jurisdiction for an appropriate injunctive or interlocutory relief in connection with this Agreement. In such event, the law of the jurisdiction in which the competent jurisdiction resides shall apply."Page 40 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021
(ii) EULA at page 71 of the Appeal Paper-book - Arbitration clause (Clause 12.3) at page 73), which reads as follows:
"GOVERNING LAW, JURISDICTION This Agreement shall be governed by and construed under and in accordance with the laws of the State of Israel without reference to conflict of laws principles. The Parties agree that the sole venue for resolution of any disputes under this Agreement shall be binding arbitration carried out in accordance with the procedures of the Israeli Institute of Commercial Arbitration and shall take place in Tel Aviv, Israel and carried out in English language.
Notwithstanding anything in this Agreement to the contrary, any Party may approach the court of competent jurisdiction for an appropriate injunctive or interlocutory relief in connection with this Agreement. In such event, the law of the jurisdiction in which the court of competent jurisdiction resides shall apply."
SECTION 5 OF THE ARBITRATION ACT: 65 Section 5 reads thus:
"5. Extent of judicial intervention.--Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."
66 The provision begins with a non-obstante clause and bars interference by any judicial authority insofar as the matters governed by Part I of the Act are concerned. The term judicial authority has not been defined anywhere in the Act, however, in Morgan Securities & Credit (P) Ltd. vs. Modi Rubber Ltd., (2006) 12 SCC 642 the Supreme Court held in paragraph 52 that "in its ordinary parlance "judicial authority" would comprehend a court defined under the Act but also courts which would either be a civil court or other authorities which perform judicial functions or quasi-judicial functions."
Page 41 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 67 It is thus clear that a Court can intervene only in the event that its
intervention is provided for under the Act. One of the main objects of the Act, 1996 is to minimise the supervisory role of the courts in the arbitral process. Section 5, as evident, is brought of the new Act to encourage the resolution of disputes expeditiously and in a cost effective manner. Therefore, the extent of judicial intervention is limited by the non- obstante provision of Section 5 of the Act. As per the settled law, the Court should not be obliged to bypass the provisions of the Act in exercise of its power and jurisdiction.
68 Reference may be made in this regard to the case of National Agricultural Coop. Marketing Federation India Ltd. vs. Gains Trading Ltd. [(2007) 5 SCC 692], wherein it has been held as under :
"7. Part I of the Act deals with arbitration. Part II deals with enforcement of certain foreign awards. Sub-section (2) of Section 2 provides that Part I of the Act dealing with arbitration shall apply where the place of arbitration is in India. Section 11 dealing with appointment of arbitrators is contained in Part I. As the venue of arbitration is outside India, it is contended by the respondent that entire Part I including Section 11 will not apply and therefore neither the Chief Justice of India nor his designate will have the jurisdiction to appoint the arbitrator. Such a contention is already considered and negatived by this Court in Bhatia International v. Bulk Trading S.A. This Court has held: (SCC pp. 119 & 123, paras 21 & 32) "Sub-section (2) of Section 2 provides that Part I would apply where the place of arbitration is in India. To be immediately noted, that it is not providing that Part I shall not apply where the place of arbitration is not in India. It is also not providing that Part I will only apply where the place of arbitration is in India (emphasis in original).
Thus the legislature has not provided that Part I is not to apply to arbitrations which take place outside India. The use of the language is significant and important. The legislature is emphasising that the provisions of Part I would apply to arbitrations which take place in India, but not providing that the provisions of Part I will not apply to Page 42 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 arbitrations which take place out of India. The wording of sub-section (2) of Section 2 suggests that the intention of the legislature was to make provisions of Part I compulsorily applicable to an arbitration, including an international commercial arbitration, which takes place in India. Parties cannot, by agreement, override or exclude the non-
derogable provisions of Part I in such arbitrations. By omitting to provide that Part I will not apply to international commercial arbitrations which take place outside India the effect would be that Part I would also apply to international commercial arbitrations held out of India. But by not specifically providing that the provisions of Part I apply to international commercial arbitrations held out of India, the intention of the legislature appears to be to allow parties to provide by agreement that Part I or any provision therein will not apply. ... Where such arbitration is held in India the provisions of Part I would compulsorily apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part I. In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to or excluded by that law or rules will not apply."
69 The applicability of Part I of the Act, 1996 in a foreign - seated international commercial arbitration was considered by the Supreme Court in Venture Global Engineering (supra), paragraphs 25, 26 and 31 whereof are reproduced below :
"25. In order to find out an answer to the first and prime issue and whether the decision in Bhatia International is an answer to the same, let us go into the details regarding the suit filed by the appellant as well as the relevant provisions of the Act. The appellant VGE filed OS No. 80 of 2006 on the file of the Ist Additional District Court, Secunderabad, for a declaration that the award dated 3-4-2006 is invalid, unenforceable and to set aside the same. Section 5 of the Act makes it clear that in matters governed by Part I, no judicial authority shall intervene except where so provided. Section 5 which falls in Part I, specifies that no judicial authority shall intervene except where so provided. The Scheme of the Act is such that the general provisions of Part I, including Section 5, will apply to all Chapters or Parts of the Act.
26. Section 2(5) which falls in Part I, specifies that "this Part shall apply to all arbitrations and to all proceedings relating thereto". It is useful to refer to Section 45 which is in Part II of the Act which starts with non obstante clause, namely, "Notwithstanding anything contained in Part I Page 43 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 or in the Code of Civil Procedure...." Section 52 in Chapter I of Part II of the Act provides that "Chapter II of this Part shall not apply in relation to foreign awards to which this Chapter applies". As rightly pointed out, the said section does not exclude the applicability of Part I of the Act to such awards.
31. On close scrutiny of the materials and the dictum laid down in the three-Judge Bench decision in Bhatia International we agree with the contention of Mr K.K. Venugopal and hold that paras 32 and 35 of Bhatia International make it clear that the provisions of Part I of the Act would apply to all arbitrations including international commercial arbitrations and to all proceedings relating thereto. We further hold that where such arbitration is held in India, the provisions of Part I would compulsorily apply and parties are free to deviate to the extent permitted by the provisions of Part I. It is also clear that even in the case of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. We are also of the view that such an interpretation does not lead to any conflict between any of the provisions of the Act and there is no lacuna as such. The matter, therefore, is concluded by the three-Judge Bench decision in Bhatia International."
70 However, ultimately, the controversy was laid to rest by a Constitution Bench decision of the Supreme Court in the case of Bharat Aluminium Company (supra). We quote paras 194, 195 and 196 resply as under:
"194. In view of the above discussion, we are of the considered opinion that the Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India. We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to International Commercial Arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996. In our opinion, the provisions contained in Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996.
195. With utmost respect, we are unable to agree with the Page 44 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 conclusions recorded in the judgments of this Court in Bhatia International (supra) and Venture Global Engineering (supra). In our opinion, the provision contained in Section 2(2) of the Arbitration Act, 1996 is not in conflict with any of the provisions either in Part I or in Part II of the Arbitration Act, 1996. In a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration Act, 1996 is limited to all arbitrations which take place in India. Similarly, no suit for interim injunction simplicitor would be maintainable in India, on the basis of an international commercial arbitration with a seat outside India.
196. We conclude that Part I of the Arbitration Act, 1996 is applicable only to all the arbitrations which take place within the territory of India."
71 BALCO (supra), later, came to be considered by the Supreme Court in the case of Sasan Power Limited (supra) and distinguishing the ratio of BALCO having regard to the facts of Sasan Power Limited (supra), Justice Chelameswar (as His Lordship then was) observed as under:
"31. The history and development of the law of arbitration in this country was very succinctly captured by this Court in Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc. etc., (2012) 9 SCC 55221 (for short "BALCO"). It traced out the origin and development of not only the domestic law of arbitration in India but also the international arrangements regarding arbitration agreements and awards made in one country but sought recognition or enforcement in another country - the Geneva Protocol on Arbitration Clauses, 1923 and the Geneva Convention on Execution of Foreign Arbitral Awards, 1927 and the New York Convention, 1958. It also indicated how two consequential enactments known as the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 came to be made by the Parliament to give effect to the above international arrangements.
32. All the three international legal instruments dealt with the various aspects of problems which could arise out of an international commercial arbitration, such as the recognition of arbitration agreements entered into and enforcement of arbitral awards made in countries other than the one in which the arbitration agreement is entered into or award is sought to be enforced. Whereas the two enactments dealt22 with the enforcement of "foreign awards" and Page 45 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 matters incidental thereto in this country.
33. With the increase of international trade and commerce in the second half of the 20th Century, all the abovementioned assignments were considered inadequate and, therefore, the United Nation Commission on International Trade Law adopted a model law on international arbitration popularly known as UNCITRAL. The General Assembly of the United Nations by a resolution dated 11.12.1985 recommended that ""all States give due consideration to the Model Law on an international commercial arbitration, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice". Pursuant to the said recommendation, the 1996 Act came to be made by the Parliament. It is in four parts. Relevant for enquiry are only Parts I and II.
34. Part-II of the 1996 Act is headed "Enforcement of Certain Foreign Awards". It contains provisions (Section 44 to 60 divided into two Chapters I and II) dealing with the enforcement of foreign awards falling under two categories i.e. New York Convention Award and Geneva Convention Awards. Sections 44 to 52 (falling under Chapter I) deal with the New York Convention Awards, the remaining sections (falling under Chapter-II) deal with Geneva Convention Awards. Both the classes of Awards are referred to as "foreign awards" in Chapters I and II of Part-II. Section 44(a) and 53(a) define the expression "foreign award" for the purposes of Chapters I and II respectively to mean an arbitral award in pursuance of an agreement for arbitration to which the convention set forth in Ist or protocol and convention set forth in the IInd Schedule of the Act respectively applies. Such foreign awards are deemed to be a decree of a Court. Various conditions which render a foreign award unenforceable are specified in Sections 48 and 57 respectively. The other provisions deal with matters incidental to the enforcement of foreign awards. It is significant to note that Part II does not deal with any matter pertaining to any step anterior to the making of an (foreign) arbitral award.
35. We now deal with the scheme of Part I of the 1996 Act. It contains provisions which defines an arbitration agreement, its form and content, the procedure for appointment of arbitrators, jurisdiction of arbitral tribunals, the procedure to be followed by the arbitral tribunals, form and content of the arbitral awards, the forum before which and the procedure by which the arbitral award can be challenged and all matters incidental and ancillary to the above-mentioned aspect of the arbitration.
36. This Court in Bhatia International v. Bulk Trading S.A. & Another, (2002) 4 SCC 105 considered the question whether Part 1 of 1996 Act would apply to an arbitration where the place of arbitration is outside India.26 On consideration of the matter, this Court held as Page 46 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 follows:
"32. To conclude, we hold that the provisions of Part 1 would apply to all arbitrations and to all proceedings relating thereto. Where such arbitration is held in India the provisions of Part 1 would completely apply and parties are free to deviate only to the extent permitted by the derogable provisions of Part 1. In cases of international commercial arbitrations held out of India provisions of Part 1 would apply unless the parties by agreement, express or implied, exclude all or any of its provisions In that case the laws or rules chosen by the parties would prevail. Any provision, in Part 1, which is contrary to or excluded by that law or rules will not apply."
37. However, in a subsequent judgment in BALCO, a larger Bench of this Court disagreed with the conclusions recorded in Bhatia International and held as follows:
"194. ... We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to international commercial arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996. In our opinion, the provisions contained in the Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996.
* * *
196. We conclude that Part I of the Arbitration Act, 1996 is applicable only to all the arbitrations which take place within the territory of India."
However, such a declaration of law was directed to operate only prospectively.
38. In view of the law laid down in BALCO, it is the submission of the appellant that since the AGREEMENT-I and AGREEMENT-II are anterior to BALCO judgment, the case on hand is governed by the law declared by this Court in Bhatia International v. Bulk Trading S.A. (2002) 4 SCC 105.
39. The case of the appellant has been that in view of the assignment under AGREEMENT-II, the dispute becomes purely a dispute between two Indian companies (parties to this appeal). Therefore, any Page 47 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 arbitration agreement between such companies cannot be an agreement to which the (New York) Convention set forth in the First Schedule of the 1996 Act applies. If such Convention does not apply, the question of application of Section 45 does not arise. In view of the judgment of this Court in Bhatia International, only Part-I of the 1996 Act applies and, therefore, Interlocutory Application No.5 of 2015 is liable to be rejected.
40. From a plain reading of Part I of the 1996 Act, having regard to the scheme of the Act and language of Section 2(2), Part I of the Act applies to all arbitrations which take place in India. It is irrelevant whether any one of the parties to such arbitration agreement is an Indian entity (either a citizen or body corporate incorporated in India etc.) or not. If two non-Indian entities agree to have their disputes resolved through the process of arbitration with seat of arbitration in India, such an arbitration would obviously be governed by the provisions of Part I of the Act. By virtue of the law declared by this Court in the case of Bhatia International (supra), even if the seat of arbitration is not in India, if one of the parties to such arbitration is an Indian entity, Part I would apply unless parties by an agreement in such a case choose to exclude the application of all or some of the provisions of Part I by an agreement.
41. The question, therefore, is whether the arbitration agreement in question is one falling exclusively under Part-I of the 1996 Act or falling under both parts of the 1996 Act. Bhatia International never declared that the arbitration agreement falling under the scope of Part-I of the 1996 Act would automatically cease to fall under Part-II of the 1996 Act. On the other hand there are observations to the contra. A recent judgment of this Court (Union of India v. Reliance Industries Ltd (2015) 10 SCC 213, p.226, para 15) clearly recorded that Bhatia International judgment leads to such a possibility. However, with reference to the agreements entered into subsequent to BALCO, this question does not arise. It is only for the interregnum between the date of the 1996 Act and the date of the judgment, in BALCO such a question arises.
42. To determine the question, whether an arbitration agreement governed by the law laid down by Bhatia International is one which falls exclusively within the operation of Part-I or one which falls within the operation of both Part-I and Part-II of the 1996 Act, depends on three factors:
(i) who are the parties to the arbitration agreement;
(ii) the venue of the arbitration; and
(iii) in a foreign seated arbitration where one of the parties is Page 48 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 not an Indian entity whether parties agreed to exclude the application of Part I.
43. In any case, whether an arbitration agreement is exclusively governed by the provisions of either Part-I or by Part-II of the 1996 Act or both (as discussed earlier), judicial authorities seized of an action in respect of which there exists an arbitration agreement are bound to refer the dispute between the parties to arbitration and are precluded under Sections 8 and 45 from adjudicating the dispute (of course) subject to the other conditions stipulated in the two sections."
72 In the aforesaid context, Clause 12 of the Confidentiality Agreement at page : 68 of the paper book should also be looked into. The same reads thus:
"12. This Agreement shall be governed by and construed under and in accordance with the laws of the State of Israel without reference to conflict of laws principles. The Parties agree that the sole venue for the resolution of any disputes under this Agreement shall be binding arbitration carried out in accordance with the procedures of the Israeli Institute of Commercial Arbitration and shall take place in tel Avivi, Israel and carried out in the English language. The provisions of Part I (except Section 9) of the Indian Arbitration and Conciliation Act shall not apply to this Agreement. Notwithstanding anything in this Agreement to the contrary, the Disclosing Party may approach the Court of competent jurisdiction for an appropriate injunctive or interlocutory relief in connection with this Agreement. In such event, the law of the jurisdiction in which the Court of competent jurisdiction resides shall apply."
73 Section 2(1)(b) defines an "arbitration agreement" to mean an agreement referred to in Section 7. Section 7 of the Act contains a detailed description of an arbitration agreement on the following lines:
"7. Arbitration agreement--
(1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.Page 49 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in--
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract."
74 Section 44, dealing with the definition of "foreign award", reads as follows:
"44. Definition--In this Chapter, unless the context otherwise requires, "foreign award" means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960--
(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and
(b) in one of such territories as the Central Government, being satisfied that the reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies."
75 Section 45, dealing with the power of a judicial authority to refer parties to arbitration, reads as follows:
Page 50 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 "45. Power of judicial authority to refer parties to arbitration-- Notwithstanding anything contained in Part 1 or in the Code of Civil Procedure (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.
Article II of the First Schedule to the Act reads as follows:
"Article II
1. Each contracting State shall recognise an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.
2. The term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.
3. The court of a contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative and incapable of being performed."
Articles 6.2 and 6.4 of the Rules of Arbitration of the International Chamber of Commerce read as follows:
"6.2. If the respondent does not file an answer, as provided by Article 5, or if any party raises one or more pleas concerning the existence, validity or scope of the arbitration agreement, the court may decide, without prejudice to the admissibility or merits of the plea or pleas, that the arbitration shall proceed if it is prima facie satisfied that an arbitration agreement under the rules may exist. In such a case, any decision as to the jurisdiction of the arbitral tribunal shall be taken by the arbitral tribunal itself. If the court is not so satisfied, the parties shall be notified that the arbitration cannot proceed. In such a case, any party retains the right to ask any court having jurisdiction whether or not there is a binding arbitration agreement.
6.4. Unless or otherwise agreed, the arbitral tribunal shall not cease to Page 51 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 have jurisdiction by reason of any claim that the contract is null and void or allegation that it is non-existent provided that the arbitral tribunal upholds the validity of the arbitration agreement. The arbitral tribunal shall continue to have jurisdiction to determine the respective rights of the parties and to adjudicate their claims and pleas even though the contract itself may be non-existent or null and void."
SCOPE OF ENQUIRY UNDER SECTION 45: 76 As stated earlier, the Arbitration and Conciliation Act, 1996 confer
powers upon a judicial authority which is seized of an action, to refer the parties to arbitration, under three different contingencies, i.e. (i) when the action brought before it, is the subject matter of arbitration agreement, covered by Part I (Domestic Arbitrations); (ii) when the action brought before it, is the subject matter of an agreement referred to in Section 44 (Chapter I, Part II relating to New York Convention Awards); and (iii) when the action brought before it is the subject matter of a contract made between persons to whom Section 53 applies, including an arbitration agreement (Chapter II of Part II relating to Geneva Convention Awards). The above three contingencies are covered by Sections 8, 45 and 54 resply.
77 The scope of enquiry under Section 8, is only peripheral in nature in the sense that it is confined to the examination of a few aspects namely (a) the existence of an arbitration agreement; (b) whether the action brought before the court is by one of the parties to the said agreement against the other party; (c) whether the subject matter of the action before the court is the same as the subject matter of the arbitration agreement; and (d) whether the other party moves the court seeking a reference to arbitration, before submitting its first statement on the substance of the dispute. In other words, the judicial authority is not empowered under Section 8 to get into the merits of the case to Page 52 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 decide whether the parties should be referred to arbitration or not. The focus of the judicial authority in an application under Section 8 is only on the arbitration agreement and not on the merits of the dispute that has arisen between the parties. It is perhaps on account of this fact that Section 7(2) equated an arbitration agreement made out in the form of a separate agreement to an arbitration clause contained in a main agreement.
78 In contradistinction to Section 8 which applies only to domestic arbitration, Section 45, which applies to international commercial arbitration (confined only to the contracting States under the New York Convention), empowers the judicial authority to refuse to refer the parties to arbitration, if it finds that the agreement is null and void, inoperative or incapable of being performed. The Convention detailed in the First Schedule to the Act applies to such cases.
79 Under Section 54, which applies to the international commercial arbitration between contracting States under the Geneva Convention, the judicial authority is obliged to refer the parties to arbitration, but such reference shall not prejudice the competence of the judicial authority in case the agreement or the arbitration cannot proceed or becomes inoperative. The Conventions under the Second Schedule and the Third Schedule to the Act apply to such cases.
80 Thus, it is seen that the scope of an enquiry under Section 45 and Section 54 is not limited to test the existence and validity of the arbitration clause or arbitration agreement but also to something more, viz. whether such agreement is null and void, inoperative or incapable of being performed. Even as between themselves, Sections 45 and 54 resply vary widely in their scope and ambit, but it is not necessary to get into Page 53 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 the same for the purpose of deciding the issue on hand.
81 Since the judicial authority seized of an action, in a matter in respect of which the parties have made an agreement referred to in Section 44, is entitled to reject a reference to arbitration, if it finds the said agreement to be null and void, inoperative or incapable of being performed, the scope of the enquiry to be conducted under Section 45 is much wider than the one under Section 8. But there is a divergence of views, as to whether such an enquiry on the validity of the agreement is only to arrive at a prima facie finding or to arrive at a finding as a preliminary issue in the course of the trial of the suit.
82 In Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. and another (supra), Mr. Justice Y. K. Sabharwal (the Chief Justice of India, as he then was) in his minority view, held categorically in paragraph 57 (paragraph 61 of Arb. LR) of the judgment as follows:
"In view of the aforesaid discussion, I am of the view that under Section 45 of the Act, the determination has to be on merits, final and binding and not prima facie.
Mr. Justice B. N. Srikrishna (as he then was) in his majority view, held in paragraphs 105 and 106 (paragraphs 119 and 120 of Arb. LR) as follows:
105....It is precisely for this reason that I am inclined to the view that at" the pre-reference stage contemplated by Section 45, the court is required to take only a prima facie view for making the reference, leaving the parties to a full trial either before the arbitral tribunal or before the court at the post award stage.
106....Finally, having regard to the structure of the Act, consequences arising from particular interpretations, judgments in other jurisdictions, as well as the opinion of learned authors on the subject, I am of the Page 54 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 view that, the correct approach to be adopted under Section 45 at the pre-reference stage, is one of a prima facie finding by the trial court as to the validity or otherwise of the arbitration agreement.
Mr. Justice D. M. Dharmadhikari, partly concurring with Mr. Justice B. N. Srikrishna, added a rider to the conclusion reached by Mr. Justice B. N. Srikrishna. It is found in paragraph 111 (paragraph 69 of Arb. LR) of the judgment which is reproduced as follows:
111....I respectfully agree with learned brother Srikrishna, J. only to the extent that if on a prima facie examination of the documents and material on record, including the arbitration agreement on which request for reference is made by one of the parties, the judicial authority or the court decides to make" a reference. It may merely mention the submissions and contentions of the parties and summarily decide the objection if any raised on the alleged nullity, voidness, inoperativeness or incapability of the arbitration agreement. In case, however, on a prima facie view of the matter, which is required to be objectively taken on the basis of material and evidence produced by the parties on the record of the case, the judicial authority including a regular civil court, is inclined to reject the request for reference on the ground that the agreement is "null and void" or "inoperative" or "incapable of being performed" within the meaning of Section 45 of the Act, the judicial authority or the court must afford full opportunities to the parties to lead whatever documentary or oral evidence they want to lead and then decide the question like trial of a preliminary issue on jurisdiction or limitation in regular civil suit and pass an elaborate reasoned order. Where a judicial authority or the court refuses to make a reference on the grounds available under Section 45 of the Act, it is necessary for the judicial authority or the court, which is seized of the matter, to pass a reasoned order as the same is subject to appeal to the appellate court under Section 50(1)(a) of the Act and further appeal to this court under sub-section (2) of the said section."
83 Therefore, it is clear that when the agreement is assailed as null and void, inoperative or incapable of being performed, the Court has an obligation cast under Section 45, first to reach a prima facie conclusion, on the basis of the submissions and contentions. If such a prima facie conclusion, leads the court to a decision to reject the application under Section 45, the court must afford full opportunities to the parties to lead Page 55 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 oral and documentary evidence and decide the question like the trial of a preliminary issue in a suit.
84 In the aforesaid context, we may refer to the decision of the Supreme Court in the case of Sasan Power Limited (supra). Justice A. M. Sapre (as His Lordship then was), supplementing the judgement rendered by Justice Chelameswar, observed in para 81 as under:
"Mere reading of Section 45 would go to show that the use of the words "shall" and "refer the parties to arbitration" in the section makes it legally obligatory on the Court to refer the parties to the arbitration once it finds that the agreement in question is neither null and void nor inoperative and nor incapable of being performed. In other words, once it is found that the agreement in question is a legal and valid agreement, which is capable of being performed by the parties to the suit, the Court has no discretion but to pass an order by referring the parties to the arbitration in terms of the agreement."
85 Thus, in Sasan Power Limited (supra), the Supreme Court laid emphasis on the words "shall" and "refer the parties to arbitration" and construed those as a legal obligation on the Court to refer the parties to the arbitration once it finds that the agreement in question is neither null and void nor inoperative and nor incapable of being performed. Once the agreement in question is found to be legal and valid i.e. capable of being performed by the parties to the suit, the Court, thereafter, would have no discretion, but to pass an order by referring the parties to the arbitration in terms of the agreement.
NULL AND VOID OR INOPERATIVE OR INCAPABLE OF BEING PERFORMED:
86 The words "null and void" in Section 45 of the Act may be interpreted or understood as referring to those cases where the arbitration agreement is affected by some invalidity right from the beginning, such as lack of consent due to misrepresentation, duress, Page 56 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 forgery or undue influence. The words "inoperative" could be said to cover those cases where the arbitration agreement has ceased to have effect, such as revocation by the parties. The words "incapable of being performed" would seem to apply to those cases where the arbitration cannot be effectively set into motion. This may happen where the arbitration clause is too vaguely worded, or other terms of the contract contradict the parties' intention to arbitrate. The arbitration agreement does not become "inoperative or incapable of being performed" where the allegations of fraud have to be inquired into and the Court should not refuse to refer the parties to arbitration, as provided in Section 45 of the Act, 1996, on the ground that allegations of fraud have been made by the parties, which can only be inquired into by the Court and not by the Arbitrator.
87 In the case of arbitrations covered by the New York Convention, the Court may decline to make a reference of a dispute covered by the arbitration agreement only if it comes to the conclusion that the arbitration agreement is null and void, inoperative or incapable of being performed and not on the ground that allegations of fraud or misrepresentation have to be inquired into while deciding the disputes between the parties [see: World Sport Group (Mauritius) (supra)].
ALLEGED FRAUD: 88 What type of fraud the plaintiffs are talking about in the case on
hand? We have given more than a fair idea about the dispute between the parties as on date. We need not reiterate what has been observed by us in the earlier part of this judgement. We have gathered an impression that the allegations of fraud have been made by the plaintiffs only with a view to wriggle out of the arbitration. The plaintiffs, at any cost, want to avoid arbitration and pursue the Civil Suit instituted in the Court below.
Page 57 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 The allegations of fraud, in the case on hand, does not fulfill the two working tests laid down in para 25 in the case of A. Ayyasamy (supra). The Supreme Court in A. Ayyasamy (supra) has observed that the allegations of fraud should make a virtual case of criminal offence. When we are talking about a criminal offence, it could only be an offence of cheating as alleged by the plaintiffs, as defined under Section 415 of the Indian Penal Code and made punishable under Section 420 of the Indian Penal Code. One of the most important ingredients to constitute the offence of cheating is the intention to deceive right from the inception. Mere breach of contract or mere dispute arising from a contract by itself may not be sufficient to bring the case within the ambit of cheating. At the cost of repetition, the intention to betray should be shown right from the inception i.e. the time the parties entered into the contract.
89 In the aforesaid context, we are of the view that no such case has been made out by the plaintiffs. The appellant - defendant wants the plaintiffs to purchase the new software as it is necessary to upgrade the same. Whereas the plaintiffs' case is that no upgradation is necessary. In such a kind of dispute, it is difficult for us to accept the case of the plaintiffs that the termination of the contract by the appellant - defendant amounts to a fraud. Besides the same, we do not find such allegations even if they are believed for the time being to be true of very complicated or vexed nature that only a Civil Court would be in a position to look into those on appreciation of evidence. Fraud has not been alleged by the plaintiffs against the arbitration provisions itself. There are no allegations of forgery or fabrication of document in support of the plea of fraud.
90 It is too much for the plaintiffs to say that fraud was in the mind of the appellant - defendant from day one and the day the defendant Page 58 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 issued the notices terminating the agreement, the same was made evident.
91 We are of the view that few stray allegations of fraud, by one party against the other, would not be sufficient to exclude the subject matter of dispute from arbitration and decision thereof necessary by the Civil Court. It may not be out of place to state at this stage that out of 450 machines with their respective operating software being used in the Indian market as on date, only the plaintiffs (holding a total of 33 machines) have termed the dispute as a fraud.
92 In PASL Wind Solutions Pvt Ltd. (supra), the Supreme Court held that once the parties by mutual agreement have decided to resolve their dispute by arbitration in a foreign country, then, in such a case, Part II of the Arbitration Act would apply and once it is found that the agreement is neither null and void or inoperative or incapable of being performed, Section 45 would come into play and the Court will be left with no other option, but to refer the parties to arbitration.
NON-OBSTANTE CLAUSE CONTAINED IN THE GALATEA
PURCHASE AGREEMENT:
93 In the aforesaid context, we are of the view that the non-obstante
clause contained in the Galatea Purchase Agreement cannot be construed as overriding or rendering the arbitration agreements otiose. Without any hesitation, we may say that the non-obstante clause only provides an option to either of the parties to approach the Court of competent jurisdiction for the purposes of seeking injunctive or interlocutory relief under Section 9 of the Arbitration Act.
94 It is a settled position of law that a non-obstante clause in a Page 59 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021
particular provision of law or contract does not mean that the whole of the said provision of law or contract has to be made applicable or the whole of the other law or contract has to be made inapplicable. It is the duty of the court to avoid any conflict and construe the provisions to that they are harmonious. The Court must ascertain the intention of the parties by directing its attention not merely to the clauses to be construed, but to the entire agreement; it must compare the non- obstante clause with the other parts of the agreement and the setting in which the clause to be interpreted occurs. The Court must try to ascertain the intention of the parties. Mr. Mehta, the learned Senior Counsel is right in his submission that the Court should adopt a pragmatic approach and not a pedantic or technical approach while interpreting or construing an arbitration clause. Commonsense approach has to be adopted to give effect to the intention of the parties to arbitrate.
95 We are of the view that the non-obstante clause only provides an option to either of the parties to approach the Court of competent jurisdiction under Section 9 of the Arbitration Act and that is exactly the parties understood at the time of execution of the agreements.
96 We are also in agreement with Mr. Mehta that the intention of the parties is clear from the Clause 12 of the Confidentiality Agreement entered into between the plaintiffs separately and the appellant herein.
97 In the aforesaid context, we may refer to and rely upon the decision of the Supreme Court in the case of Enercon (India) Limited and others vs. Enercon GMBH and others [(2014) 5 SCC 1], wherein the Supreme Court has observed that when the Court is faced with a seemingly unworkable arbitration clause, it would be the duty of the Page 60 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 Court to make the same workable within the permissible limits of the law, of course without stretching it beyond the boundaries of recognition. We quote the relevant observations:
"88. In our opinion, the Courts have to adopt a pragmatic approach and not a pedantic or technical approach while interpreting or construing an arbitration agreement or arbitration clause. Therefore, when faced with a seemingly unworkable arbitration clause, it would be the duty of the Court to make the same workable within the permissible limits of the law, without stretching it beyond the boundaries of recognition. In other words, a common sense approach has to be adopted to give effect to the intention of the parties to arbitrate. In such a case, the court ought to adopt the attitude of a reasonable business person, having business common sense as well as being equipped with the knowledge that may be peculiar to the business venture. The arbitration clause cannot be construed with a purely legalistic mindset, as if one is construing a provision in a statute. We may just add here the words of Lord Diplock in The Antaios Compania Neviera SA v Salen Rederierna AB,[1985 AC 191 : (1984) 2 WLR 592] which are as follows:
"If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense."
We entirely agree with the aforesaid observation.
89. This view of ours is also supported by the following judgments which were relied upon by Dr. Singhvi:
89.1 In Visa International Limited (supra), it was inter alia held that:
"25....No party can be allowed to take advantage of inartistic drafting of arbitration clause in any agreement as long as clear intention of parties to go for arbitration in case of any future disputes is evident from the agreement and material on record including surrounding circumstances.
26. What is required to be gathered is the intention of the parties from the surrounding circumstances including the conduct of the parties and the evidence such as exchange of correspondence between the parties...."
89.2 Similar position of law was reiterated in Nandan Biomatrix Ltd.
Page 61 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 v. DI Oils Ltd (2009) 4 SCC 495, wherein this court observed inter alia as under:
28. This Court in Rukmanibai Gupta v. Collector, Jabalpur has held (at SCC p. 560, para 6) that what is required to be ascertained while construing a clause is "whether the parties have agreed that if disputes arise between them in respect of the subject-matter of contract such dispute shall be referred to arbitration, then such an arrangement would spell out an arbitration agreement".
29. In M. Dayanand Reddy v. A.P. Industrial Infrastructure Corpn. Ltd. (1993) 3 SCC 137, this Court has held that: (SCC p.
142, para 8) "8. ... an arbitration clause is not required to be stated in any particular form. If the intention of the parties to refer the dispute to arbitration can be clearly ascertained from the terms of the agreement, it is immaterial whether or not the expression arbitration or 'arbitrator' or 'arbitrators' has been used in the agreement." (original emphasis supplied)
30. The Court is required, therefore, to decide whether the existence of an agreement to refer the dispute to arbitration can be clearly ascertained in the facts and circumstances of the case. This, in turn, may depend upon the intention of the parties to be gathered from the correspondence exchanged between the parties, the agreement in question and the surrounding circumstances. What is required is to gather the intention of the parties as to whether they have agreed for resolution of the disputes through arbitration. What is required to be decided in an application under Section 11 of the 1996 Act is: whether there is an arbitration agreement as defined in the said Act."
90. It is a well recognized principle of arbitration jurisprudence in almost all the jurisdictions, especially those following the UNCITRAL Model Law, that the Courts play a supportive role in encouraging the arbitration to proceed rather than letting it come to a grinding halt. Another equally important principle recognized in almost all jurisdictions is the least intervention by the Courts. Under the Indian Arbitration Act, 1996, Section 5 specifically lays down that :
"Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part".Page 62 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022
C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 Keeping in view the aforesaid, we find force in the submission of Dr. Singhvi that the arbitration clause as it stands cannot be frustrated on the ground that it is unworkable.
91. Dr. Singhvi has rightly submitted that the un-workability in this case is attributed only to the machinery provision. And the arbitration agreement, otherwise, fulfils the criteria laid down under Section 44 of the Indian Arbitration Act, 1996. Given that two Arbitrators have been appointed, the missing line that "the two Arbitrators appointed by the parties shall appoint the third Arbitrator" can be read into the arbitration clause. The omission is so obvious that the court can legitimately supply the missing line. In these circumstances, the Court would apply the officious bystander principle, as explained by MacKinnonn, LJ in Shirlaw v. Southern Foundries, [1939 2 KB 206 :
(1939) 2 All 113 (CA)] to interpret the clause. In Shirlaw, it was held that:
"prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common 'Oh, of course!"
In construing an arbitration clause, it is not necessary to employ the strict rules of interpretation which may be necessary to construe a statutory provision. The court would be well within its rights to set right an obvious omission without necessarily leaving itself open to the criticism of having reconstructed the clause.
92. Further, we find support in this context from the following extract of Halsbury's Laws of England (Vol. 13, Fourth Edition, 2007 Reissue):
"The words of a written instrument must in general be taken in their ordinary or natural sense notwithstanding the fact that such a construction may appear not to carry out the purpose which it might otherwise be supposed the parties intended to carry out; but if the provisions and expressions are contradictory, and there are grounds, appearing on the face of the instrument, affording proof of the real intention of the parties, that intention will prevail against the obvious and ordinary meaning of the words; and where the literal (in the sense of ordinary, natural or primary) construction would lead to an absurd result, and the words used are capable of being interpreted so as to avoid this result, the literal construction will be abandoned."
93. Mr. Rohinton Nariman had very fairly submitted that it is Page 63 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 permissible for the Court to construe the arbitration clause in a particular manner to make the same workable when there is a defect or an omission in it. His only caveat was that such an exercise would not permit the Court to re-write the contract. In our opinion, in the present case, the crucial line which seems to be an omission or an error can be inserted by the Court. In this context, we find support from judgment of this court in Shin Satellite Public Co. Ltd. (supra), wherein the 'offending part' in the arbitration clause made determination by the arbitrator final and binding between the parties and declared that the parties have waived the rights to appeal or an objection against such award in any jurisdiction. The Court, inter-alia, held that such an objectionable part is clearly severable being independent of the dispute that has to be referred to be resolved through arbitration. By giving effect to the arbitration clause, the court specifically noted that "It cannot be said that the Court is doing something which is not contemplated by the parties or by 'interpretative process', the Court is rewriting the contract which is in the nature of 'novatio' (sic). The intention of the parties is explicit and clear; they have agreed that the dispute, if any, would be referred to an arbitrator. To that extent, therefore, the agreement is legal, lawful and the offending part as to the finality and restraint in approaching a Court of law can be separated and severed by using a 'blue pencil'."
94. There is another reason which permits us to take the aforesaid view and accept the submission made by Dr. Singhvi that while construing the arbitration agreement/clause the same can be construed to make it workable, as such an approach is statutorily provided for. For this submission, Dr. Singhvi has rightly relied upon the provision contained in Sections 10 and 11 of the Indian Arbitration Act, 1996. The object of these two provisions is to avoid failure of the arbitration agreement or the arbitration clause if contained in contract. Under Section 10(1), there is freedom given to the parties to determine the number of Arbitrators, provided that such number shall not be an even number. The arbitration clause in this case provides that the arbitral tribunal shall consist of three arbitrators. Further, it must also be noticed that the Respondents have been trying to seek adjudication of disputes by arbitration. As noted earlier, the Respondent No.2 in its email dated 13th March, 2008 clearly offered that the third and the presiding arbitrator be appointed by the respective arbitrators of the Appellants and the Respondents. On the other hand, the attitude of the Appellants is to avoid arbitration at any cost.
95. In this context, reliance placed by Dr. Singhvi upon MMTC Limited v. Sterlite Industries (India) Ltd (1996) 6 SCC 716 is justified.
Page 64 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 In MMTC, the provisions contained in Sections 10(1) and (2) of the Indian Arbitration Act, 1996 have been held to be machinery provisions by this Court. It was further held that the validity of an arbitration agreement does not depend on the number of arbitrators specified therein. The Court declined to render the arbitration agreement invalid on the ground that it provided an even number of arbitrators. In the present case, Mr. Rohinton Nariman had rightly not even emphasised that the arbitration agreement itself is illegal. The learned sr. counsel only emphasised that the arbitrators having expressed the view that the arbitration clause is unworkable, the parties ought not to be sent to the arbitration.
96. Similarly, other provisions contained in Sections 8, 11 and 45 of the Indian Arbitration Act, 1996 are machinery provisions to ensure that parties can proceed to arbitration provided they have expressed the intention to Arbitrate. This intention can be expressed by the parties, as specifically provided under Section 7 of the Indian Arbitration Act, 1996 by an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement. Such intention can even be expressed in the pleadings of the parties such as statements of claim and defence, in which the existence of the agreement is alleged by one party and not denied by the other. In view of the above, we are of the opinion that the parties can be permitted to proceed to arbitration."
98 The Supreme Court in the case of Mankastu Impex Private Limited vs. Airvisual Limited [(2020) SCC Online 301], having regard to the proviso to Section 2(2) of the Act, held that in an international commercial arbitration, even if the parties have agreed to seek provisional, injunctive or equitable remedies from a Court having jurisdiction, it will not take away or dilute the intention of the parties in the arbitration clause that the arbitration be administered outside India.
99 A clause in a contract can be construed as an "arbitration agreement" only if an agreement to refer disputes or differences to arbitration is expressly or impliedly spelt out from the clause. The intention of the parties, as noted above, to enter into an arbitration agreement shall have to be gathered from the terms of the agreement. The Supreme Court, in many of its decisions, has taken the view that Page 65 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 where there is merely a possibility of the parties agreeing the arbitration in future, as contrasted from an obligation to refer the disputes to arbitration, there is no valid and binding arbitration agreement [see : K. K. Modi v. K. N. Modi (1998) 3 SCC 573].
100 The following fundamental guidelines and principles relating to a valid arbitration agreement have been laid down by the Supreme Court in the case of Jagdish Chander v. Ramesh Chander and others [(2007) 5 SCC 719] along with the reference of the cases mentioned above:
"1. Where the clause provides that in the event of disputes arising between the parties, the disputes shall be referred to arbitration, it is an arbitration agreement. But where the clause relating to settlement of disputes, contains words which specifically exclude any of the attributes of an arbitration agreement or contains anything that detracts from an arbitration agreement, it will not be an arbitration agreement.
2. Mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as "parties can, if they so desire, refer their disputes to arbitration" or "in the event of any dispute, the parties may also agree to refer the same to arbitration" or "if any disputes arise between the parties, they shall consider settlement by arbitration" in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement.
3. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future."
101 In M/s Linde Heavy Truck Division Ltd v. Container Corporation of India Ltd and another [195 (2012) DLT 366] the Page 66 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 Arbitration Clause of the agreement contained "...that in case either party may require that the dispute be referred for resolution by arbitration...". The Apex Court, relying on the well settled principles, laid down in the above referred cases, held that if the agreement between the parties provides that in the event of any dispute, they may refer the same to arbitration, such clause would not constitute a binding arbitration agreement. The Supreme Court held that the above clause envisages a fresh consent for arbitration, in case the option for arbitration is sought to be exercised by one of the parties to the disputes. Accordingly, it was held that the above clause containing the word 'may' does not constitute a binding arbitration agreement.
102 In Wellington Associates Ltd. vs. Kirit Mehta [(2000) 4 SCC 272], the Clauses 4 and 5 resply of the agreement entered into between the parties were the following:-
"4 : It is hereby agreed that, if any dispute arises in connection with these presents, only Courts in Bombay would have jurisdiction to try and determine the suit and the parties hereto submit themselves to the exclusive jurisdiction of the Courts in Bombay."
5 : It is also agreed by and between the parties that any dispute or differences arising in connection with these presents may be referred to arbitration in pursuance of the Arbitration Act, 1940, by each party appointing one arbitrator and the arbitrators so appointed selecting an umpire. The venue of arbitration shall be at Bombay."
103 Interpreting the two clauses as above, the Supreme Court held thus:
"21. Does Clause 5 amount to an arbitration clause as defined in Section 2(b) read with Section 7? I may here state that in most arbitration clauses, the words normally used are that "disputes shall be referred to arbitration." But in the case before me, the words used are 'may be referred.'
22. It is contended for the petitioner that the word 'may' in Clause 5 has Page 67 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 to be construed as 'shall.' According to the petitioner's-counsel, that is the true intention of the parties. The question then is as to what is the intention of the parties. The parties, in my view, used the words 'may' not without reason. If one looks at the fact that Clause 4 precedes clause 5, one can see that under Clause 4 parties desired that in case of disputes, the Civil Courts at Bombay are to be approached by way of a suit. Then follows Clause 5 with the words 'it is also agreed' that the dispute 'may' be referred to arbitration implying that parties need not necessarily go to the Civil Court by way of suit but can also go before an arbitrator. Thus, Clause 5 is merely an enabling provision as contended by the respondents. I may also state that in cases where there is a sole arbitration clause couched in mandatory language, it is not preceded by a clause like Clause 4 which discloses a general intention of the parties to go before a Civil Court by way of suit. Thus, reading Clause 4 and Clause 5 together, I am of the view that it is not the intention of the parties that arbitration is to be the sole remedy. It appears that the parties agreed that they can "also" go to arbitration in case the aggrieved party does not wish to go to a Civil Court by way of a suit. But in that event, obviously, fresh consent to go to arbitration is necessary. Further, in the present case, the same Clause 5, so far as the venue of arbitration is concerned, uses the word 'shall.' The parties, in my view, must be deemed to have used the words 'may' and 'shall' at different places, after due deliberation."
104 In the case of B. Gopal Das v. Kota Straw Board [1970 WLN 572] the dispute resolution clause in the agreement prescribed:
"That in case of any dispute arising between us, the matter may be referred to arbitrator mutually agreed upon and acceptable to you and us."
It was held that fresh consent for arbitration was necessary.
105 In the case of Jyoti Brothers v. Shree Durga Mining Co [AIR 1956 Calcutta 280], the arbitration clause read as under:
"In the event of any dispute arising out of this contract the same can be settled by Arbitration held by a Chamber of Commerce at Madras. Their decision shall be binding to the Buyers and the Sellers."
Holding that the arbitration clause, extracted above, was not a Page 68 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 valid Arbitration agreement, the Calcutta High Court, inter alia, held that:
"The word 'can' by the most liberal interpretation only indicate a possibility. It only means this that after the dispute has occurred, the parties may go to Arbitration as an alternative method of settling the dispute instead of going to the Courts. But that means that after the dispute has arisen, the parties will have to come to a further agreement that they shall go to Arbitration."
106 In Powertech World Wide Limited v. Delvin International General Trading LLC [2011 (4) ARBLR 278(SC)], the Supreme Court reiterated the law on subsistence of an arbitration agreement, but also in addition, looked into particular facts and circumstances of the case, and thereby specified an additional factor to establish the existence of an Arbitration agreement. The Dispute resolution clause provided that:
"Any disputes arising out of this Purchase Contract shall be settled amicably between both the parties or through an Arbitrator in India/UAE"
The Court held that there exists consensus ad idem between the disputed parties to amicably settle their disputes or settle through arbitration in India or UAE.
107 In Avant Garde Clean Room and Engineering Solutions Pvt Ltd v. Ind Swift Limited [210 (20140 DLT 714], the dispute resolution clause read as under:
"Arbitration-Dispute if any arising out of this Agreement shall be subject to the exclusive jurisdiction of the courts in city of Delhi."
The High Court of Delhi held that the above clause merely uses 'arbitration' in the heading of the clause. However, the main body of the Page 69 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 said clause completely contra-indicates the existence of any arbitration agreement since it provides that disputes, if any, arising out of the agreement 'shall be subject to the exclusive jurisdiction of the courts in city of Delhi'. It was held by the Court that in the said case that the main body of the clause did not even contemplate that the parties may agree to arbitration in future. The Court also compared the said case before it with the case of Linde Heavy Truck and Wellington case (supra) on the use of the expression, 'may be referred to arbitration' as opposed to the expression, 'shall be referred to arbitration', and held that the intention of the parties was not to refer their disputes for arbitration. The submission of the petitioner therein that the word, 'may' used in clause aforesaid should be construed as 'shall', was rejected by the Court by observing that the parties had used "shall" and "may" at different places in the dispute resolution clause. It was held that the parties used the word, 'may' not without any reason.
108 Thus, when a dispute arises as to whether there is a valid arbitration agreement between the parties, the Court is expected to construe the terms of the agreement. If the words in the agreement are plain and clear, there should not be any difficulty to conclude whether there is an arbitration clause. The difficulty arises where the words are not so clear or when different clauses are irreconcilable with each other or where different clauses in the agreement convey different meanings or where different clauses are mutually destructive. The intention of the parties, that is, whether they intended to have the disputes resolved through arbitration assumes importance in such circumstances. It is the duty of the court to ascertain the intention of the parties by interpreting the various clauses in the agreement in accordance with well settled principles of interpretation of contracts.
Page 70 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 109 In Chitty on Contracts 29th Edition Volume-I, paragraphs 12-043 and 12-044, it is stated thus:-
"12-043 Intention of the parties. The task of ascertaining the intention of the parties must be approached objectively : the question is not what one or other of the parties meant or understood by the words used, but "the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract". The cardinal presumption is that the parties have intended what they have in fact said, so that their words must be construed as they stand. That is to say the meaning of the document or of a particular part of it is to be sought in the document itself. "One must consider the meaning of the words used, not what one may guess to be the intention of the parties". However, this is not to say that the meaning of the words in a written document must be ascertained by reference to the words of the document alone. In the modern law, the courts will, in principle, look at all the circumstances surrounding the making of the contract which would assist in determining how the language of the document would have been understood by a reasonable man."
12-044 Further it has long been accepted that the courts will not approach the task of construction with too nice a concentration upon individual words.
"The common and universal principle ought to be applied: namely, that [an agreement] ought to receive that construction which its language will admit, and which will best effectuate the intention of the parties, to be collected from the whole of the agreement, and that greater regard is to be had to the clear intention of the parties than to any particular words which they may have used in the expression of their intent."
110 In paragraph 12-078 in Chitty on Contracts, how to interpret inconsistent or repugnant clauses is stated as follows:
"12-078 Inconsistent or repugnant clauses. Where the different parts of an instrument are inconsistent, effect must be given to that part which is calculated to carry into effect the real intention of the parties as gathered from the instrument as a whole, and that part which would defeat it must be rejected. The old rule was, in such a case, that the earlier clause was to be received and the later rejected, but this rule was a mere rule of thumb, totally unscientific, and out of keeping with Page 71 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 the modern construction of documents. To be inconsistent a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses. A term may also be rejected if it is repugnant to the intention of the parties as it appears from the document. However, an effort should be made to give effect to every clause in the agreement and not to reject a clause unless it is manifestly inconsistent with or repugnant to the rest of the agreement."
111 In Bank of India and another vs. K. Mohandas [(2009) 5 SCC 313] and others the principles regarding true construction of contracts were stated thus:
"28. The true construction of a contract must depend upon the import of the words used and not upon what the parties choose to say afterwards. Nor does subsequent conduct of the parties in the performance of the contract affect the true effect of the clear and unambiguous words used in the contract. The intention of the parties must be ascertained from the language they have used, considered in the light of the surrounding circumstances and the object of the contract. The nature and purpose of the contract is an important guide in ascertaining the intention of the parties.
29. In Ottoman Bank of Nicosia v. Ohanes Chakarian, Lord Wright made these weighty observations: (AIR p.29) " .......that if the contract is clear and unambiguous, its true effect cannot be changed merely by the course of conduct adopted by the parties in acting under it."
30. In Ganga Saran v. Firm Ram Charan Ram Gopal a four-Judge Bench of this Court stated: (AIR p.11, para 6) "6. ......Since the true construction of an agreement must depend upon the import of the words used and not upon what the parties choose to say afterwards, it is unnecessary to refer to what the parties have said about it."
31. It is also a well-recognised principle of construction of a contract that it must be read as a whole in order to ascertain the true meaning of its several clauses and the words of each clause should be interpreted so as to bring them into harmony with the other provisions if that interpretation does no violence to the meaning of which they are naturally susceptible. (North Eastern Railway Co. v. Lord Hastings)"
112 In Visa International Ltd. vs. Continental Resources (USA) Page 72 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022 C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 Ltd [(2009) 2 SCC 55], the relevant clause in the agreement was the following:
"Any dispute arising out of this agreement and which cannot be settled amicably shall be finally settled in accordance with the Arbitration and Conciliation Act, 1996."
Interpreting the above clause, the Supreme Court held:
"25. The submission is unsustainable for more than one reason. No party can be allowed to take advantage of inartistic drafting of arbitration clause in any agreement as long as clear intention of parties to go for arbitration in case of any future disputes is evident from the agreement and material on record including surrounding circumstances."
It was held that the intention of the parties to refer the disputes to arbitration is evident from the agreement. The expression "shall be finally settled" was held to be significant.
113 In the case on hand, the language employed in the arbitration clause itself is indicative of the intention of the parties to go for arbitration in the event of any type of dispute arising between them. The arbitration clause is worded stating "the Parties agree that the sole venue for resolution of any disputes under this Agreement shall be binding arbitration carried out in accordance with the procedures of the Israeli Institute of Commercial Arbitration and shall take place in Tel Aviv, Israel and carried out in English language". In the Solaris - Terms and Conditions of Use, the arbitration clause says "any dispute of any sort that might arise between Galatea and Customer hereunder will be first referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre".
Page 73 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 114 The aforesaid now takes us to consider the third and the
last submission as regards the multiple agreements relating to Scanning and Planning Products purchased from the defendants Nos.1 and 2 resply as well as the AMCs between the plaintiffs and the original defendant No.3.
115 In the aforesaid context, the Court below failed to appreciate that the reliefs sought in the suit are directed against the appellant herein (defendant No.1 alone), as the said reliefs, on a plain and meaningful reading, are capable of being enforced against the appellant alone. The defendant No.3 (the respondent No.15 herein) only provides service and maintenance support in the machines and software provided by the appellant herein. The machines in question were sold and the software in question was licensed by the appellant herein by way of a separate agreement. The disputes in the suit are with respect to the termination of the Galatea Purchase Agreement along with the ancillary agreements executed between each of the plaintiffs separately with the appellant herein.
116 All the agreements in question contain an arbitration clause, which, in our view, have not been properly looked into by the Court below. The arbitration clause contained in the first set of agreement (i.e. the Solaris - Terms and Conditions of Use) is contained in the clause titled "Governing Law and Jurisdiction". The arbitration clause contained in the second set of agreement i.e. the Galatea Purchase Agreement is contained in the clause titled "Governing Law and Jurisdiction". The arbitration clause is also contained in all the other ancillary agreements i.e. in the (a) Confidentiality Agreement in Clause 12 thereof, and (b) EULA in Clause 12.3 thereof.
Page 74 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 117 We are of the view that the said agreements were
admittedly being performed by the parties separately and do not impose any mutual dependence of performance on the parties.
118 It appears that the appellant has separately terminated all these independent agreements.
119 We are also of the view that the Trial Court has failed to appreciate that the agreement for Planning Product contains an arbitration clause which is evident from the EULAs filed by the appellant along with an application under Order LXI Rule 27 of the C.P.C. (being C.A. No.4 of 2020). The said EULAs also contain clauses that would covers all versions of the Planning Product. The said EULAs, which were deliberately concealed and suppressed by the original plaintiffs, also contain an arbitration clause. Therefore, all disputes raised in relation to the Planning Product, would also be arbitrable.
120 The Trial Court further failed to appreciate the judgement of the Supreme Court in Chloro Control India Pvt Ltd (supra), wherein the Supreme Court in para 157 held that even when the disputes are interlinked, there can be a composite reference to arbitration. The Court further held that 'even if different forums are provided, recourse to one of them which is capable of resolving all their issues should be preferred, over a refusal of reference to arbitration'.
121 In the overall view of the matter, we are convinced that the impugned order passed by the Court below rejecting the application Exhibit : 24 is not sustainable in law on various grounds, as discussed above.
Page 75 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022C/AO/30/2020 CAV JUDGMENT DATED: 24/12/2021 122 In the result, this appeal succeeds and is hereby allowed.
The impugned order passed by the Small Cause Court (Commercial Court), Surat, dated 4th February 2020 below Exhibit : 24 in the Commercial Civil Suit No.14 of 2019 is hereby quashed and set aside. The application Exhibit : 24 stands allowed. The parties are referred to arbitration in accordance with the respective dispute resolution Clauses contained in the respective agreements executed by and between each of the plaintiffs and the defendant No.1 (appellant herein).
123 Consequently, all the connected Civil Applications stand disposed of.
(J. B. PARDIWALA, J) (VAIBHAVI D. NANAVATI,J) FURTHER ORDER After the judgement was pronounced, Mr. Manan Shah, the learned counsel appearing for the plaintiffs made a request to stay the operation of this judgement for some time to enable his clients to approach the higher forum. For the reasons recorded above, we decline such request.
(J. B. PARDIWALA, J) (VAIBHAVI D. NANAVATI,J) CHANDRESH Page 76 of 76 Downloaded on : Wed Jan 12 14:41:30 IST 2022