* THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY + Arbitration Application No.141 of 2010 % 18-07-2011 # M/s.Jain Irrigation Systems Limited, Jaoin Plastic Park, N.H.No.6, P.O. Box No.72, Bhambori, Jalgaon – 425 001, Maharashtra, rep. by its Joint Managing Director Shri Ajit Bhavarlal Jain ….Applicant VS. $ M/s.Satyam Computer Services Limited, Mahindra Satyam Infocity, Unit No.12, Plot No.35/36, Hi-Tech City Layout, Survey No.64, Madhapur, Hyderabad – 500 081, A.P., Rep. by its Managing Director. ..Respondent ! COUNSEL FOR APPLICANT: M/s.C.Kodandaram, Senior Counsel ^COUNSEL FOR RESPONDENT: M/s.Shireen Sethana Baria < Gist: > Head Note: ? CITATIONS: 1) AIR 2010 S.C. 1793 2) 2004 ILR (Kar.) 3463 3) (2001) 7 SCC 728 4) (2008) 14 SCC 240 5) (2009) 2 SCC 134 6) (2010) 3 SCC 1 7) (1968) 3 SCR 387 = AIR 1968 SC 1028 8) (2009) 1 SCC 267 9) (2005) 8 SCC 618 10) (2007) 5 SCC 719 11) (2009) 7 SCC 696 THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.141 of 2010 Date:18th July, 2011 Between: M/s.Jain Irrigation Systems Limited, Jain Plastic Park, N.H. No.6, P.O. Box No.72, Bhambori, Jalgaon – 425 001, Maharashtra, Rep. by its Joint Managing Director Shri Ajit Bhavarlal Jain …Applicant A n d M/s.Satyam Computer Services Limited, Mahindra Satyam Infocity, Unit No.12, Plot No.35/36, Hi-Tech City Layout, Survey No.64, Madhapur, Hyderabad-500 081, Andhra Pradesh, rep. by its Managing Director. …Respondent *** THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.141 of 2010 ORDER: This Arbitration Application has been taken out by the applicant under sub-sections (5) & (6) of Section 11 of the Arbitration and Conciliation Act, 1996 (for short, “the Act”), r/w. Scheme for Appointment of Arbitrators, 1996, seeking appointment of an arbitrator. 2. The applicant-M/s.Jain Irrigation Systems Limited, is a company registered under the Companies Act, 1956, engaged in the business of production and supply of equipment used in irrigation projects. The respondent-M/s. Satyam Computer Services Limited is a company registered under the Companies Act, 1956, engaged in the business of providing information technology services. In order to streamline the day-to-day activities of business, integrate and link all its departments and have a single platform for having complete coordination with all its departments, the applicant decided to implement SAP, which, in simple words is a software that has to be integrated in a company’s existing computer systems for effective streamlining of the day-today business operations of the company. Negotiations held between the applicant and the respondent and ultimately, negotiations culminated in appointing the respondent as service provider of the applicant for the purpose of implementation of MySAP ERP ECC 6.0 vide letter dated 23.11.2007. The said letter contained preliminary terms of the contract such as scope of work, consideration, payment schedule, etc. The applicant paid an amount of Rs.1,01,12,400/- to the respondent towards its remuneration for providing the services required by the applicant. An annual maintenance agreement, dated 14.11.2008, also came to be executed between the parties. According to the applicant, the respondent failed to carry out proper and timely services in respect of MySAP implementation for the applicant and also failed to honour the confidentiality agreement. Thereupon, the applicant issued a notice, dated 04.01.2010 to the respondent seeking return of an amount of Rs.9,00,00,000/- apart from damages and compensation for wrongful abandonment and breach of confidentiality. The applicant also indicated in the notice with regard to invocation of arbitration clause and reference of disputes to Mr.Bharat B. Jain, Advocate, as sole arbitrator. The respondent received the notice and remained non-responsive. Thereupon, the applicant by notice, dated 21.01.2010, invoked the arbitration clause 14.2 of the agreement for services and appointed Justice H.Suresh, Retd. Judge of Bombay High Court and sought for consent of the respondent. The respondent did not respond to the notice. I will complete the narration of facts set out in the application by referring Paras.2-s and 5 of the affidavit filed in support of the application, which read as hereunder: “2. s. The applicant states and submits that all previous attempts of an amicable settlement and negotiations between the parties have failed. The Applicant states that the Respondent has failed to honour the said Confidentiality Agreement. The Applicant states that the Respondent has also failed to carry out proper and timely services in respect of MySAP implementation for the Applicant and have failed to resolve the numerous issues arising out of their faulty services and therefore, disputes and differences have arisen between the parties. The Applicant submits that there is no formal written signed contract between the parties. An agreement was reached between the parties, but no document was executed by the parties. Though there is no written signed document, the agreement came into existence, as the parties have acted upon the agreement. The deponent is advised to state that a formal written signed document not being present and available does not ipso facto disentitle the applicant to invoke the Arbitration Clause in the present case.” “5. The applicant states and submits that the said Agreement was abandoned by the Respondent in or around December, 2008. The said Agreement was rescinded by the Applicant vide its advocates’ Notice dated 4th January, 2010. The Applicant invoked arbitration by its Notice, dated 21st January 2010 and the same was received by the Respondent on 25th January, 2010 and the Respondent till date has not replied to the same. Therefore, the Applicant has filed this Application for appointment of sole Arbitrator for adjudication of disputes between the parties. The cause of action of the present case arose on 23rd November, 2007 when the Applicant appointed the respondent for implementation of MySAP ERP ECC 6.0 and on 26th November, 2007 when the Respondent sent the said Agreement to the Applicant and on 19th February 2008 when the applicant signed the Confidentiality Agreement and sent to respondent and on 30th September 2008 when the Applicant pointed out the defects to the Respondent and on 23rd November 2008 when the Applicant requested the respondent to solve the pending issues pertaining to the services and on 28th November, 2008 when the Applicant submitted the list of pending issues to the Respondent and on 18th November, 2009 when the Applicant once again pointed out the deficiencies to the respondent and on 4th January 2010 when the advocates for the Applicant issues a legal notice to the Respondent and on 21st January 2010 when the counsel for the Applicant issued notice under section 21 of the Arbitration and Conciliation Act, 1996 and the cause of action is continuing. Hence, within limitation.” Hence, this Arbitration Application. 3. Notice to the respondent came to be ordered on 07.09.2010. The respondent entered appearance through a counsel and filed counter-affidavit. 4. It is stated in the counter-affidavit that the application is not maintainable as there exists no arbitration agreement between the parties as contemplated under Section 7 of the Act. It is further stated in the counter-affidavit that mutual discussions with regard to implementation of SAP project has been culminated into a purchase/work order, dated 23.11.2007 placed by the applicant with the respondent. The said purchase/work order records that the applicant intended to sign a MSA (Master Service Agreement) and a detailed SOW (Statement of work) in the coming days. Pursuant to the said purchase/work order, dated 23.11.2007, the respondent sent a standard MSA template vide its mail dated 26.11.2007 to the applicant and clearly conveyed that the applicant would require to separately prepare SOW and incorporate the same with the pricing and payment terms. No agreement was ever executed for implementation of SAP project due to urgency shown by the applicant and the respondent proceeded on the basis of the purchase/work order, dated 23.11.2007. As the project progressed, the applicant sought undertaking from the respondent to maintain confidentiality of proprietary information. A letter of such a nature was required by the applicant for the reason that the proposed MSA which was desired to be executed between the parties did not fructify. If any such MSA was executed between the applicant and the respondent, there was no occasion to give such type of undertaking in as much as a confidentiality clause in an integral part of any such MSA and would have covered the confidentiality terms. Therefore, the respondent had sent a letter to the applicant on 19.02.2008 for maintaining confidentiality. The said letter does not refer to any agreement much less arbitration agreement as alleged by the applicant. Various allegations made by the applicant against the respondent attributing lapses on its part have been denied. The various mails referred in the application are in relation to maintenance support, for which AMS was to be executed, but was not executed. The applicant resorted to choosing arbitral proceedings over a suit because of the heavy court fees required to be paid for such type of claims. In the present case, there is neither any arbitrable dispute nor any mandate providing for arbitration. Therefore, the Arbitration Application is liable to be dismissed. 5. The applicant filed a rejoinder. It is stated in the rejoinder that the arbitration agreement or agreements containing arbitration clause are valid and subsisting even if the same are not formally executed by the parties thereto and arbitration would lie there under. The respondent by e-mail, dated 26.01.2008 forwarded the Master Services Agreement incorporating the arbitration clause at Clause No.14 therein. Therefore, it is clear that it was the intention of the respondent, in case of any dispute, to refer the same to arbitration. The respondent carried out the work for the applicant and accepted the payment in respect of the same and therefore, the respondent cannot dispute the existence of a contract between the parties, which contains an arbitration clause. 6. Heard Sri C.Kodandaram, learned senior counsel appearing for the applicant and M/s Shireen Sethana Baria, learned counsel appearing for the respondent. 7. Learned senior counsel appearing for the applicant submits that e-mails emanating from the respondent indicate that it is the respondent who prepared the agreement for services and sent for consent. The respondent having sent the agreement for services for consent of the applicant and having acted upon it and received an amount of Rs.1,01,12,400/- cannot be permitted to resile from the terms of the agreement, which included an arbitration clause. In a way, his contention is that the e-mail correspondences between the parties are enough indication that the parties acted upon the terms of the agreement for service. The learned senior counsel took me to the e- mail message, dated 26.11.2007. In elaborating his arguments, learned senior counsel contends that the correspondence between the parties and conduct of the respondent clearly establish that the terms of Agreement for service have been acted upon and therefore, even in the absence of signature of the parties on the agreement for service, the terms therein binds the parties. His contention is that there is an agreement in writing though not signed by both the parties, but by the course of conduct of the parties, it can be spelt out that such an agreement is enough to rely upon the arbitration clause referred to therein. Learned senior counsel by referring Clause 14.2 of the agreement for services, contends that disputes between the parties are required to be resolved by taking recourse to the provisions of the Act and indeed the applicant issued a notice, dated 04.01.2010, adverting to the attention of the respondent to the above referred clause. But the respondent having received the notice failed to reply. Learned senior counsel also refers the notice, dated 21.01.2010 addressed to the respondent where under the respondent is requested to give consent for appointment of Justice H.Suresh, Retd. Judge of High Court of Bombay. Learned senior counsel, apart from placing reliance on the judgments of the Supreme Court and Karnataka High Court, laid much stress on Section 7 (4)(b) of the Act to buttress his submissions. 8. Section 7 of the Act reads as hereunder: “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. (2) An arbitration agreement may be in the form of an arbitration clause 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.” 9. The judgments on which learned senior counsel placed reliance are: 1) Indowind Energy Ltd. v. Wescare(I) Ltd. & Anr.[1] 2) Jindal Thermal Power Company Ltd. v. Karnataka Power Transmission Corporation Ltd.[2] 3) Smita Conductors Ltd. Euro Alloys Ltd.[3] 4) Great Offshore Ltd. v. Iranian Offshore Engg. & Construction Co.[4] 5) Shakti Bhog Foods Ltd. v. Kola Shipping Limited[5] 6) Trimex International Fze. Ltd. v. Vedanta Aluminium Ltd.[6], and 7) Kollipara Sriramulu (dead) by his L.R. v. T.Aswatha Narayana (dead) by his L.Rs. & Ors.[7] 10. In Indowind Energy Ltd.’s case (1 supra), the Supreme Court while interpreting the provisions of Section 7(4) of the Act, has observed that a contract can be spelt out from correspondence or conduct. But an arbitration agreement is different from a contract. An arbitration agreement can come into existence only in the manner contemplated under Section 7 of the Act. If Section 7 of the Act says that an arbitration agreement should be in writing, it will not be sufficient for the petitioner in an application under Section 11 of the Act to show that there existed an oral contract between the parties. I deem it appropriate to refer para.19 of the cited judgment, which reads as hereunder: “19. The scope of examination of the agreement dated 24.2.2006, by the learned Chief Justice or his Designate under Section 11(6) is necessarily to be restricted to the question whether there is an arbitration agreement between the parties. The examination cannot extend to examining the agreement to ascertain the rights and obligations regarding performance of such contract between the parties. This Court in SBP and Co. v. Patel Engineering Limited [2005 (8) SCC 618] and in National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. [2009 (1) SCC 267] has held that when an application is filed under section 11, the Chief Justice or his Designate is required to decide only two issues, that is whether the party making the application has approached the appropriate court and whether there is an arbitration agreement and whether the party who has applied under section 11 of the Act, is a party to such agreement. Therefore, the Chief Justice exercising jurisdiction under section 11 of the Act has to only consider whether there is an arbitration agreement between the petitioner and the respondent/s in the application under section 11 of the Act. Any wider examination in such a summary proceeding will not be warranted.” 11. In Jindal Thermal Power Company Ltd.’s case (2 supra), a Division Bench of the Karnataka High Court while interpreting the Karnataka Electricity Reform Act, 1999, has observed that concluded contract in terms of Explanation to Section 19 and proviso to Section 27(2) of the Karnataka Electricity Reform Act, 1999, need not be in writing; it need not be in any particular form for the Act does not prescribe any particular form; it need not be a formal agreement; it need not be a PPA and it is restricted to tariff determination only. In this judgment, the Division Bench of the Karnataka High Court referred the judgment of the Supreme Court in Kollipara Sriramulu’s case (7 supra), wherein the Supreme Court in para.3 of the judgment held: “We proceed to consider the next question raised in these appeals, namely whether the oral agreement was ineffective because the parties contemplated the execution of a formal document or because the mode of payment of the purchase money was not actually agreed upon. It was submitted on behalf of the appellant that there was no contract because the sale was conditional upon a regular agreement being executed and no such agreement was executed, we do not accept this argument as correct. It is well-established that a mere reference to a future formal contract will not prevent a binding bargain between the parties. The fact that the parties refer to the preparation of an agreement by which the terms agreed upon are to be put in a more formal shape does not prevent the existence of a binding contract. There are. however, cases where the reference to a future contract is made in such terms as to show that the parties did not intend to be bound, until a formal contract is signed. The question depends upon the intention of the parties and the special circumstances of each particular case. As observed by the Lord Chancellor (Lord Cranworth) in Ridgway v. Wharton, the fact of a subsequent agreement being prepared may be evidence that the previous negotiations did not amount to a concluded agreement, but the mere fact that persons wish to have a formal agreement drawn up does not establish the proposition that they cannot be bound by a previous agreement”. The Supreme Court in the said judgment has extracted the observations of Parker, J. in the case of Alexander, supra, extracted by lis supra, with approval. Further, the Supreme Court has also referred to the following observation of Lord Cairns in Rossiter v. Miller, with approval: “if you find not an unqualified acceptance subject to the condition that an agreement is to be prepared and agreed upon between the parties, and until that condition is fulfilled no contract is to arise then you cannot find a concluded contract”. 12. In Smita Conductors Ltd.’s case (3 supra), the Supreme Court held that existence, validity or effect of an arbitration agreement can be determined by the court at three stages: 1)before the arbitration proceedings commence, (2) during their pendency, and (3) after the award is made and filed in the court. 13. I n Great Offshore Ltd.’s case (4 supra), the Supreme Court while interpreting Section 7 of the Act, held that plain language of Section 7 does not require that the parties stamp the agreement and nothing in Section 7 of the Act suggests that the parties must sign every page of the agreement. The Supreme Court also observed that technicalities like stamps, seals and even signatures are red tape that have to be removed before the parties can get what they really want – an efficient, effective and potentially cheap resolution of their dispute. It would be improper and undesirable for the courts to add a number of extra formalities not envisaged by the legislation. The Courts’ directions should be to achieve the legislative intention. 14. In Shakti Bhogi Foods Ltd.’s case (5 supra), the Supreme Court observed that the existence of an arbitration agreement can be inferred from the document signed by the parties or an exchange of letters, telex, telegrams or other means of communication which provide a record of the agreement. 15. In Trimex International Fze Ltd.’s case (6 supra), the Supreme Court observed that once the contract is concluded orally or in writing, the mere fact that a formal contract has to be prepared and initialed by the parties would not affect either the acceptance of the contract so entered into or implementation thereof, even if the formal contract has never been initialed. 16. Learned counsel appearing for the respondent submits that the respondent acted on the purchase order, dated 23.11.2007. The purchase order does not contain any arbitration clause and therefore, the question of reference of disputes that have arisen between the parties relatable to the purchase order does not arise. He would also contend that what is communicated to the applicant by the respondent is only a model form of agreement for services. It neither contained the name of the applicant nor signature of the respondent to infer that the agreement has become a concluded contract. He would also contend that this template agreement sent to the applicant never fructified and even the confidentiality agreement, dated 19.02.2008, does not refer to the agreement for services i.e. Master Service Agreement. The learned counsel appearing for the respondent copiously refers the contents of the purchase order and confidentiality agreement, dated 19.02.2008, to buttress his submissions that there is no clause under which parties are required to get their disputes adjudicated by taking recourse to the provisions of the Act. He would also contend that agreement for services of MySAP ERP ECC 6.0 is dated 14.11.2008. By that time, the purchase order, dated 23.11.2007, came into existence and therefore, it is beyond a comprehension that purchase order is pursuant to the agreement for services. The learned counsel by referring the decision of the Supreme Court in Trimex International Fze Ltd.’s case ( 6 supra), on which reliance has been placed by the learned senior counsel appearing for the applicant, submits that in the said decision, purchase order contains an arbitration clause and whereas, purchase order issued by the respondent herein does not contain any arbitration clause and therefore, the cited decision does not in any way helpful to the applicant. Learned counsel also submits that the decision in Great Offshore Ltd.’s case (4 supra) is not applicable to the facts of the case since the Supreme Court was dealing with a case where the agreement was signed by the parties. Coming to the facts of the case on hand, it is only model form that has been communicated to the applicant by the respondent and the name of the applicant is not indicated in the model form and therefore, it cannot be inferred that the receipt of model form by the applicant amounts to a concluded contract between the parties. Learned counsel would also submit that mere reference to MSA document in the e-mail sent to the applicant is not sufficient to infer that there is a concluded contract pursuant to the agreement for services. In support of his submissions, reliance has been placed by the learned counsel on the following judgments of the Supreme Court and the decision of the Bombay High Court: 1) Shakti Bhog Foods Ltd. vs. Kola Shipping Ltd. (5 supra) 2) National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd.[8] 3) SBP & CO. v. Patel Engineering Ltd.[9] 4) Jagadish Chander v. Ramesh Chander & Ors.[10] 5) M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders Ltd.[11] 6) Rajesh V. Choudhary v. Kshitij R. Torak & Ors.[12] 17. In SBP & Co.’s case (9 supra), the Supreme Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories viz., 1) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide. 18. In National Insurance Company Ltd. v. Boghara Polyfab Pvt. Ltd.’s case (8 supra), the Supreme Court referred the SBP & Co.’s case (9 supra) with approval. 19. In Jagdish Chander’s case (10 supra), the Supreme Court held that existence of an arbitration agreement as defined under Section 7 of the Act is a condition precedent for exercise of power to appoint an Arbitrator/Arbitral Tribunal, under Section 11 of the Act by the Chief Justice or his designate. It is not permissible to appoint an arbitrator