THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.194 of 2010 (Dated :22-07-2011) Between: P3 Technologies Private Limited …Applicant A n d Railtel Corporation of India Limited …Respondent THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.194 of 2010 ORDER: This application has been taken out by P3 Technologies Private Limited, under sub-sections (5) and (6) of Section 11 of the Arbitration & Conciliation Act, 1996 (for short, `the Act’) seeking appointment of an arbitrator for resolution of the disputes relatable to Memorandum of Understanding (`MoU’) dated 11.2.2009. 2(a). The applicant is a private limited company incorporated under the provisions of the Companies Act, 1956. The respondent-Railtel Corporation of India Limited is a company incorporated under the provisions of the Companies Act and it is represented by its Executive Director Mr. A.Seshagiri Rao. The applicant company is engaged in the business of providing International Long Distance Voice Calls and Data Services and to develop software and to carry on the business of consultancy and technology development in services in the area of electronics, computers, Telecommunications and their applications within and outside India. The applicant company obtained licence from the Department of Telecommunications, Government of India. The terms and conditions of the licence allows the applicant company to land any voice calls into India from any country and hand it off to a National Long Distance (“NLD”, for brevity) licence holder like Railtel and others. In turn, the NLD license holders will hand over the calls to the end carriers like Airtel, Idea, Reliance & Tata, who in turn terminate the calls to the end users. On 11.02.2009, the respondent had entered into an agreement with the applicant company for transmission of International Long Distance traffic of the applicant company on the National Long Distance facilities of the Railtel Corporation of India Limited-respondent company as well as to transmit the National Long Distance traffic of the respondent on the international Long Distance facilities of the applicant company. As per the said agreement, the applicant company shall land ILD voice calls in its Network Operating Centre and hand off the same the respondent company which will, with its NLD licence use its own infrastructure to carry the said ILD calls forward. The respondent company shall take Internet bandwidth from the applicant company at Cable Landing station (CLS) cost to cost basis and they would jointly negotiate for sourcing of Internet bandwidth International Operators. 2(b) On 20.3.2009, the applicant company received a communication through e-mail from the respondent asking whether the applicant is in a position to give internet bandwidth at its (Railtel Corporation of India Limited) landing place at Chennai/Mumbai and to land the said internet bandwidth in its (Railtel Corporation of India Limited) existing network for its distribution. The respondent also indicated the requirement of three to four Synchronous Transmission Modules (STM) of Internet Bandwidth immediately. Relying on the said communication and other verbal discussions, the applicant company had sent a proposal to the respondent on 16.6.2009 for purchase of 16 STMs from Telecom India Sparkle. The respondent granted approval of the proposal on 10.7.2009 and intimated the same through M.Seshagiri Rao, Executive Director of the respondent company vide e-mail message dated 10.7.2009. The applicant received final approval letter bearing No.RCIL/SR/SC/IBW-IRU/2009 dated 13.7.2009. The applicant and the respondent discussed about the STMs’ requirement for their internal usage as well as for the marketing purpose and finally decided to purchase 16 number of STMs IRB bandwidth from Telecom Italia Sparkle, out of which 2 STMs were for the internal usage of the applicant company and 6 STMs were to be marketed jointly by both the parties. The monthly instalments have to be paid by the Applicant company and the respondent together every month in the ratio of the usage of STMs by the respective parties, i.e., 6 STMs by the applicant company and 10 STMs by the respondent as per the final approval letter bearing No.RCIL/SR/SC/IBW-IRU/2009, dated 13.7.2009 of the respondent. Relying on the aforesaid approval, the applicant negotiated the price of IRU internet bandwidth with Telecom Italia Sparkle and proceeded to execute the IRU Internet bandwidth Agreement with Telecom Italia Sparkle for the purchase of IRU internet bandwidth for a period of 15 years for landing the international data capacity in Mumbai and hand it off to the respondent. 2( c). As the applicant did not have any international exposure, the foreign promoter of the applicant company who is also a President of Sola, 2000 a company incorporated under the laws of the United States of America provided a corporate guarantee to Telecom Italia Sparkle for the payments against the purchase of internet bandwidth. The applicant company also executed the Cable Landing Station (CLS) Agreement with TATA Telecommunications for the cable entry required to receive the internet bandwidth from Telecom Italia Sparkle. Relying on the approval of the respondent, the applicant company had invested huge amounts to acquire and set up/install the necessary infrastructure and equipments which are required to receive the internet bandwidth from Telecom Italia Sparkle and the same were air lifted from the United States of America to Hyderabad and installed at Mumbai, Chennai and Bangalore, Ernakulam and Secunderabad in order to meet the immediate requirements of the respondent company. The respondent company had also participated in the installation of the equipment. The respondent had started using IRU internet bandwidth from Telecom Italia Sparkle and CLS facilitation from TATA and received invoices raised by Telecom Italia Sparkle and TATA towards supply of Internet Bandwidth and utilization of Cable Landing Station facilitation charges respectively. The applicant, in turn, had raised invoices on different dates on the respondent company for it’s proportionate share of the cost of the internet bandwidth supplied and billed by Telecom Italia Sparkle and the CLS charges of TATA amounting to Rs.2,55,11,422,48/-. The respondent having received all 16 STMs provided by Telecom Italia Sparkle and having used the CLS facility from TATA failed to pay the amounts to the applicant company. The applicant sent several communications and reminders through RPAD and e-mails to the respondent for payment of the amount due to it. The efforts made by the applicant to recover the amounts due from the respondent did not yield any fruitful result. As per the terms of the MoU, the disputes between the parties are required to be settled by way of arbitration. The applicant issued notice to the respondent invoking the arbitration clause in the MoU and proposing a panel of retired High Court Judges, so as to enable the respondent to choose any one of the them as sole arbitrator. The respondent having received the notice failed to respond. Therefore, the applicant approached this Court invoking the provisions of Section 11 of the Act seeking appointment of sole arbitrator for resolution of the disputes between the parties. 3. Notice to the respondent came to be ordered on 30.12.2010. The respondent entered appearance through a counsel and filed counter. 3(b) Rakesh Aron, Executive Director of the respondent company has sworn to the counter affidavit. The counter affidavit, in brief, is :- Execution of the MoU dated 11.2.2009 is not disputed. The proposal of the applicant dated 16.6.2009 and the acceptance of the said proposal dated 10.7.2009 did not contain any arbitration clause and therefore, the application is not maintainable. The arbitration clause contained in the MoU cannot be invoked for seeking adjudication of disputes relatable to the proposal dated 16.6.2009 and the acceptance dated 10.7.2009. The MoU entered into between the applicant and the respondent contains only broad terms of understanding. Insofar as the taking of internet bandwidth is concerned, the MoU dated 11.02.2009 did not provide the terms and conditions for availing the same, rather only contained an understanding that preference would be given to the applicant if such a service is to be availed. The so-called approval contained in the email of 10.7.2009 makes it amply clear that the Managing Director of the respondent had granted approval with the observations of the Finance Department. The observation of the Finance Department were:- I) Economic justification to be given to the respondent provided the shifting is with minimum changeover time from VSNL IBW P.O with suitable notice of surrender in advance. II) Detailed marketing proposal be made taking into all technical/financial and other terms and conditions for agreement between the parties with the approval of the competent authority. The approval of the respondent was not to the proposal in same terms as proposed, but it required the applicant to do certain more acts, in terms of giving an economic justification to the respondent and preparing a detailed marketing proposal etc. before such proposal could be approved further. The respondent as on 13.7.2009 only called upon the applicant to negotiate with Telecom Italia for the EMIs. The applicant never involved respondent in negotiating with Telecom Italia and also TATA Telecommunications. The respondent is not a party to the agreement between the applicant and Telecom Italia or CLS. The expenses, if any borne by the applicant were not to be linked to the MoU dated 11.2.2009. The respondent never participated in the installation of the equipments as alleged by the applicant. The application is silent on specific details of the so-called participation of the respondent in installation of the equipment. The applicant raised bills on the basis of the bills raised by Telecom Italia Sparkle and TATA Telecommunications. The respondent cannot be made liable for the amounts raised by the applicant under the bills in question. The allegation in the application that the respondent has received 16 STMs or used the CLS facility from TATA is denied. There is no commitment on the part of the respondent to share the amounts allegedly paid by the applicant either to Telecom Italia Sparkle or TATA Telecommunications. The respondent is not legally, contractually or otherwise liable or responsible to bear the bills raised by the Telecom Italia Sparkle and the TATA Telecommunications. If there are any payments to be made, it is the responsibility of the applicant company. 4. The applicant filed reply affidavit. Para (7) and (8) of the reply affidavit need to be noted and they read thus:- “7. Still continuing in reply to Para 4 and 5, it is further submitted that the Arbitration Agreement is, so as to say, the “Mother Agreement” governing the relationship between the Applicant and the Respondent Party for the several services specified in Clause 3.00 therein under the heading “Scope of Work’ which clearly includes the ‘supply of internet Bandwidth” in sub-clause 3.4 therein. The provisions of Clause 9.3 and Annexure III clearly required that the financials for the supply of internet bandwidth were to be mutually decided by the parties to the Arbitration Agreement from time to time. It was this mutual decision, which was arrived at by the Applicant and the Respondent Company through the proposal and the Acceptance mentioned herein before. 8. Continuing in reply to Para 4 and 5, it is submitted that the Respondent Company cannot, for the reasons stated hereinabove, view the proposal and acceptance separately and in isolation from the Arbitration Agreement and claim that there is no arbitration clause therein. The proposal and Acceptance between the Applicant and the Respondent Company is nothing but an offshoot or continuation of the Arbitration Agreement and therefore the applicant had invoked the provisions of the arbitration clause to settle the disputes the Applicant and Respondent Company”. 5. Heard learned counsel appearing for the applicant and learned counsel appearing for the respondent. 6. Learned counsel appearing for the applicant submits that the scope of the work has been stated in the Memorandum of Understanding dated 11.2.2009 and the subsequent proposal and acceptance are relatable to the scope of work and since the MoU contains an arbitration clause and any dispute arising out of the scope of the work is required to be resolved by taking recourse to the Arbitration & Conciliation Act, 1996. Learned counsel refers Clause 3.0 of the MoU, which deals with the scope of the work. Since much emphasis has been laid on the above-referred clause, I deem it appropriate to extract the same for better appreciation, which is thus:- “3.0 Scope of Work: 3.1 Covers transmission of ILD traffic of P3 Tech on NLD of Rail Tel 3.2 Covers transmission of NLD traffic of RailTel on ILD of P3 Tech. 3.3 Covers VOIP and Video services to be delivered as a part of Railwire under the brand name “Railfone” 3.4 Covers supply of Internet bandwidth to Rail Tel and carriage of P3 Tech’s Internet bandwidth on NLD of Rail Tel. 3.5 Covers new services as per the Changing market needs as decided from time to time between RailTel and P3Tech.” 7. By referring the scope of the work, learned counsel contends that the disputes between the parties are relatable to Internet bandwidth and therefore, it falls within the purview of the MoU, in which case, the application deserves to be allowed. A further submission has been made that the applicant issued a notice dated 22nd October 2010 and the respondent having received the same on 25.10.2010 remained non-responsive and the conduct itself indicates that it does not chose to dispute the existence of arbitration clause with regard to resolution of disputes between the parties relatable to internet bandwidth. 8. Per contra; learned counsel appearing for the respondent submits that the applicant without consent of the respondent entered into contract with Telecom Italia Sparkle and TATA Telecommunications and the respondent is not a party to the said agreement and therefore, arbitration clause containing MoU cannot be imported to the agreement made by the applicant with Telecom Italia Sparkle and TATA Telecommunications. He would also contend that neither the proposal of the applicant dated 16.6.2009 nor its approval dated 10.7.2009 contains an arbitration clause in which case, the disputes between the parties relatable to securing of STMs and subsequent installation cannot be related to the scope of the work detailed in the MoU. In a way, his contention is procuring equipment from Telecom Italia Sparkle and CLS facility from TATA Telecommunications are independent contracts and it has no nexus with the scope of the contract enumerated in the MoU. 9. The applicant asserted in the petition that basing on the approval of the respondent, he secured the equipment and got the cabling done by TATA Telecommunications and provided service to the respondent. The scope of the work has been detailed in the MoU. Clause 3.4 covers supply of Internet bandwidth to RailTel and carriage of P3Tech’s Internet bandwidth on NLD of RailTel. The procurement of equipment from Telecom Italia Sparkle and also cable laying of Telecommunications are part and parcel of providing facility of internet bandwidth. It is well settled that an arbitration agreement is not required to be in any particular form. What is required to be gathered is the intention of the parties as to whether they had agreed for resolution of the disputes through arbitration. In order to determine whether there existed a valid arbitration agreement between the parties, the Court is required 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. That, in turn, may depend upon the intention of the parties to be gathered from the correspondence exchanged between the parties and the surrounding circumstances. 10. As can be seen from the material placed on record, the applicant sent a proposal on 16.6.2009 and the same has been approved by the respondent on 10.7.2009. The approval and acceptance are consequential to the scope of the work detailed in the MoU. Once it is a consequential one, the arbitration clause in the MoU operates in case of disputes between the parties. Hence, I find that the applicant has made out a valid ground for appointment of an arbitrator for resolution of the disputes between the parties that have arisen relating of the MoU dated 11.02.2009 and subsequent proposal dated 16.6.2009 and it’s approval dated 10.7.2009. 11. Accordingly, the arbitration application is allowed appointing Sri Justice C.Y.Somayajulu, former Judge of this High Court, as an Arbitrator to resolve the disputes between the parties. The arbitrator is at liberty to fix his own fee. _____________________ B.SESHASAYANA REDDY, J Dt.22-07-2011 RAR THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.194 of 2010 (Dated :22-07-2011)