:1: IN IN IN THE THE THE HIGH COURT OF JUDICATURE AT BOMBAY HIGH COURT OF JUDICATURE AT BOMBAY HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.457 OF 2007 IN ARBITRATION PETITION NO.81 OF 2007 Nasir Husain Films Pvt. Ltd. ..Appellants. Vs. Saregama India Ltd.and anr. ..Respondents. Mr.M.H.Seervai, Sr.Counsel i/by DSK Legal for the Appellant. Mr. Janak Dwarkadas,Senior Counsel with Mr. Sharan Jagitani, Mr. Chakrapanni Misra, Mr. Vishal Maheshwari, Mr. Aditya Khanna and Ms. Nandini Khaitan i/by M/s. Khaitan & Co. for the Respondent. CORAM : F.I. REBELLO & R.S. MOHITE, JJ. DATE : Reserved on 21.2.2008 Pronounced on 07.4.2008 ORAL ORDER ( PER F.I. REBELLO, J.) 1. Admit. By consent of the parties heard forthwith. 2. A learned Single Judge by his order dated 4th May,2007 dismissed the application for interim relief filed by the appellant herein by recording a finding that considering the purport of Section-9 of the Arbitration and Conciliation Act 1966 (hereinafter referred to as the "Act"), he prima facie was of the opinion that there was no binding :2: arbitration agreement between the parties as non signing of the basic documents between the parties as reflected from the record just cannot be over ruled. The learned Judge observed that the parties were at liberty to raise all their objections while submitting their contentions in the pending application under Section-11 of the Act, if necessary. After having so said, the learned Judge observed that the respondents herein have been using some copyright materials of the petitioners based on an earlier agreement till the date of the judgment and as such the respondents were exploiting appellants’ right to copyright and they are entitled to make payment atleast damages to the appellants. Then proceeds to observe that even if it is not a fit case to grant relief, Arbitrator or Mediator needs to be appointed to settle the dispute between the parties. The application as filed by the Appellants was rejected. It is this order which is the subject matter of the present appeal. 3. On behalf of the appellants, their learned counsel in the oral arguments and supplemented by the written submissions, contends that the learned Judge proceeded on the basis that there was no agreement in writing between the parties containing an arbitral clause in terms of Section 7(4)(a). It :3: is the submission of the learned counsel that what in fact the appellants had contended is that there was an arbitral agreement in writing by exchange of correspondence in terms of Section 7(4) (b) as admittedly there was no document signed by the parties. In that context the order of the learned Judge suffers from failure to consider this aspect. It is also submitted that the learned Judge having come to the conclusion that this is a fit case for appointment of Mediator or Arbitrator ought to have granted the relief prayed for in the application. The correspondence exchanged upto 10th March, 2006 would clearly indicate that there was an Arbitration Agreement in writing and in these circumstances, the interim relief sought for by the petitioners ought to have been granted. The exchange of correspondence between the parties must result in holding that there was a concluded contract in writing, as parties were at ad idem on the terms of the contract. The mere fact that on some of the papers there were remarks as draft for discussion of the parties would be of no consequence, if otherwise parties were on the verge of consenting to an agreement and parties in fact had entered into an agreement. Based on the conduct of the parties,, it is submitted that there is a concluded arbitral agreement. :4: 4. On the other hand on behalf of the respondents their learned counsel both in the oral arguments and written submissions, has argued that the appellants had moved the petition as can be ascertained from the petition on the basis that there was an arbitral term in the agreement dated 8.5.2006. It is therefore, submitted that the contention now raised on behalf of the appellants that the correspondence terminating in the communication of 10th March,2006 constitutes an arbitration agreement is contrary to the pleadings and the Appellants cannot be allowed to raise a plea inconsistent with their pleadings. In the alternative, it is open to the appellant to raise the contention, that there was no agreement between the parties on material terms. The exchange of correspondence can be considered to find out if there be a valid and binding concluded agreement for the purpose of Section-7 of the Act. In Para 5(i) of the pleadings the Appellants have pleaded that various E-mails were also exchanged between the advocates for the parties with drafts of the final agreement which were being negotiated to finalise the agreement and keep ready for signing. This expressly would indicate that exchange of correspondence between the parties were :5: negotiations. The correspondence would further indicate that material terms have been unilaterally changed by the Appellants more so pertaining to payment of dues between the purported date of termination of the past agreement and the new agreement. By the side letter which was annexed to E-mail dated 2.3.2006, the appellants unilaterally for the first time fixed rate of 50% of the gross amount received/receivable by the respondents in respect of the non physical exploitation of the assigned sound recordings and underlying works. The period for payment of past dues also was unilaterally altered from 31.3.2006 to 30.6.2006. Even otherwise the draft side letter varies from the earlier side letter. The provisions for payment of past royalty dues was never finally decided or agreed by the parties and as it forms a material part of the agreement, in the absence of a concluded agreement in respect of such term, there was never any final and binding agreement as between the parties. There is no correspondence or pleadings to show that the parties intended to enter into arbitration agreement independent of the Deed of Assignment. For the reasons aforesaid, it is submitted that no interference is called for with the view taken by the learned Single Judge. :6: 5. We may firstly consider the language of Section-9 of the Arbitration and Conciliation Act, 1966. Under Section 9(ii) the interim measures that can be granted are spelt out. Section 9 there uses the expression, "and the court shall have the same power of making orders as it has for the purpose of and in relation to any proceeding before it". This would contemplates civil proceedings before it. The power therefore, which it exercises in granting relief in civil proceedings can be exercised by the court in granting interim relief under Section-9. An application under Section 9 is a proceeding for granting interim relief prior to or in the course of and or pursuant to an award till it becomes a decree of the court. The Supreme Court in SBP & Co. Vs. Patel Engineering Ltd. and another reported in (2005) 8 S.C.C. 618, has held that when a party approaches the court under Section 9 for grant of interim relief, asserting that there was a dispute liable to be arbitrated upon in terms of the agreement and the opposite party disputes the existence of the arbitration agreement as defined in the Act or raises a plea that the dispute involved was not covered by the arbitration clause, considering the terminology of Section 9 of the Act, that court has necessarily has jurisdiction to decide whether there is an arbitration agreement :7: which is valid in law and whether the dispute sought to be raised is covered by the agreement. There is no indication in the Act, that the powers of the court are curtailed on these aspects. On the other hand, Section 9 insists, that once approached in that behalf, "the court shall have the same power for making orders as it has for the purpose of and in relation to any proceeding before it". The Court then observed, "Surely, when a matter is entrusted to a civil court in the ordinary hierarchy of courts without anything more, the procedure of that court would govern the adjudication." A Petition under Section-9 is not a suit but a civil proceeding. Considering Section 141 of the Code of Civil Procedure, the procedure governing suits will be applicable, as far as it can be made applicable, in all civil proceedings. It will therefore, be open to the court to frame issues on these aspects and decide the same. On such issue being decided, the findings on the issues would conclude the issue between the parties on those issues and the said finding cannot be reopened in any proceeding between the parties either on application under Section -11 of before an arbitral Tribunal. The only remedy would be in an appeal filed under Section 37 of the Act. :8: 6. While considering Section 9 of the English Arbitration Act in Nigel Peter Albon(trading as N.A. Carriage Co.) and Naza Motor Trading SDN BHD and ors. [2007] 2 All ER 1075 a Division Bench of the England and Wales High Court, in the context of their law referred to the judgment of the Court of Appeal in Fiona Trust Vs. Prialov [2007] EWCA 20, that, if the construction of an arbitration agreement is in issue, that issue has to be decided under Section-9 of the 1996 Act, before a stay can be granted under that section. Reference in support was made to the guide-lines laid down in Brise Vs.St. David (1999) BLR 19, which judgment though reversed in appeal the guide-lines were approved by the Court of Appeal in [2000] 1 LILR 522 and again in Al Naimi Vs. Islamic Press Agency (2000) 1 LLLR 522. The directions are 1) where it is possible to do so, to decide the issue on the available evidence presently before the court that the arbitration agreement was made and grant the stay; 2) to give directions for the trial by the court of the issue; 3) to stay the proceedings on the basis that the arbitrator will decide the issue and 4) where it is possible to do so to decide the issue on the available evidence that the arbitration agreement was not made and dismiss the application for the stay. Considering these guide-lines a Court can try :9: and subject to one qualification should decide the issue whether the arbitration agreement was concluded. The qualification is in a case where there is an issue which the court cannot resolve on the available evidence on the application as to whether the arbitration agreement was concluded, the court indeed can stay the proceedings so that the arbitrator can decide the issue. In England also, the issues of existence of arbitral clause or whether the dispute falls with the arbitration clause can in circumstances be decided under Section-9 of this Act. 7. In our opinion, under the Act of 1996 and considering the judgment in Patel Engineering (supra) and Section 141 of the Code of Civil Procedure, the issue of existence of an arbitral agreement as also the issue as to whether the subject matter is covered by the arbitral clause will have to be decided as an issue when such issue arises before a court entertaining the petition under Section-9 of the Act. A similar view has been taken by us in another unreported judgment of this court in Oberai Construction Pvt. Ltd. Vs.Worli Shivshahi Co.op. Hsg.Society Ltd. decided on 30th January,2008 in Appeal No.619 of 2007. To that extent the finding by the learned Judge that his :10: finding is prima facie and leaving the issue open for consideration in the proceeding under Section 11 would in our opinion not be the correct statement of law under the Act. A Court considering an application and or petition under Section 9 of the Act, has jurisdiction to decide whether there is an arbitral clause and secondly whether the dispute raised falls within the scope of the arbitral clause. 8. Having said so we may gainfully reproduce Section 7, which reads as under. 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 in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. :11: (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. . Under Section-7(2) the arbitration agreement may be in the form of an arbitration clause in the contract or in the form of a separate agreement. Then sub-section (3) states that an arbitration agreement shall be in writing and sub section (4) :12: then states that when an arbitration agreement can be said to be in writing. Thus, the arbitration agreement can be contained as a clause in a contract or in the form of separate agreement as set out in Section 7(4) of the Act. 9. We now address ourselves to the pleadings of the appellants in the arbitration petition to consider the case as set out therein and the contentions now urged as to the arbitral clause. Paragraph -3 reads as under. . "The present petition has been filed under Section 9 of the Arbitration and Conciliation Act, 1996, (hereinafter referred to as "the said Act") for interim reliefs pending the constitution of the Arbitral Tribunal as per the terms of the agreement dated 8.5.2006 between the Petitioner and the Respondent No.1 (hereinafter referred to as "the Agreement"), pending the making of the award in such proceedings and till the implementation of such award".(emphasis supplied). . In Paragraph-4 it is set out that disputes :13: and differences have arisen between the petitioner and the respondent No.1 which are within the scope of the arbitration clause as contained in the agreement. It is further set out that by Advocate’s letter dated 2.3.2007 the appellants had terminated the agreement and had invoked the arbitration clause. . In Paragraph 5(h) this is what has averred. "In view of the negotiations referred to below and thereafter agreement being reached between the parties, the petitioner exercised restraint in initiating legal proceedings." . In communication of July 14, 2006 addressed on behalf of the appellants to respondent No.1, in Paragraph-5, reference is made to the agreement dated May 8, 2006 entered into between the appellants and the respondents. By letter of March 2, 2007 addressed by the appellants to Respondent No.1 they referred to the agreement dated May 8, 2006 and in terms of Paragraph-3 of the letter, terminated the said agreement. . It is therefore, clear from the pleadings and the correspondence, that the appellants had filed :14: the petition under Section 9, contending that the agreement between the parties was the agreement dated May 8, 2006 and approached the court praying for interim relief pending constitution of the arbitral tribunal in terms of the agreement dated May 8, 2006. There can therefore, be no doubt that when the appellants had approached the court and advanced arguments before the learned Judge it was on the basis that the arbitral clause was contained in the agreement dated May 8, 2006. Considering the pleadings, the Appellant really cannot now plead a case contrary to the pleadings. See K.K. Kochani Vs. State of Madras reported in A.I.R. 1955 S.C. 781. The purport behind the rule is that the other side must have notice of the case of the plaintiff/petitioner. 10. Inspite of these specific pleadings and the correspondence, the learned counsel for the appellants contends that their case is not based on the arbitral clause as contained in the agreement of May 8, 2006, but in the correspondence exchanged culminating in the letter of March 10, 2006 and for that purpose sought to place reliance on sub paras (i) and (j) of Para-5. A reading of the pleadings in both the paragraphs does not result in drawing a conclusion that it was the petitioner’s case that :15: the correspondence exchanged between the parties resulted into an arbitration agreement. The Court in such circumstances must consider the pleadings in totality and not in isolation. The entire correspondence is in respect of an agreement containing the terms of contract, one of the terms being the arbitral clause. What the court under Section-9 apart from deciding whether there is arbitral clause would consider is whether the dispute is referable to the subject matter of the arbitral clause. In our opinion, it will not be open to a party to lead evidence contrary to their pleadings. In the instant case, no oral evidence has been lead. What the parties have relied upon are the documents including correspondence exchanged. The parties also did not seek any opportunity to lead any evidence before the learned Single Judge or make such request before this court. 11. The respondent No.1 herein had filed reply of one Gautam Chatterji. At the threshold they have raised a plea that there is no arbitral agreement between the parties. It is further averred that there is no agreement in writing between the parties either signed or otherwise. It is also pleaded that agreement is illegal, null and void and not binding on the respondent No.1 and the respondent No.1 :16: avoids the same. This pleading could lead to an inference that there is an agreement and the respondent seeks to avoid the agreement for the reasons set out in Paragraph-9. The pleadings of avoiding the agreement are in answer to the agreement pleaded by the petitioner on 8th May, 2006. In the alternative, however, the respondents have averred that the draft agreement was for discussion purpose only and that there had been only negotiations but no concluded contract. The submission therefore, on behalf of the respondent no. 1 is that the question for determination of the court is, as to whether the correspondence exchanged between the parties has resulted in agreement containing an arbitral clause and the provisions of Section-7(4) (b) will not arises as there was no independent exchange of letters as to an arbitral clause. The entire exchange of correspondence and pleadings is that there is a contract, containing an arbitral clause. The Appellants in their written submissions have specifically submitted that there is no document signed by the parties. After orally contending that they place reliance on Section 7(4)(b), in the written submissions the issue is pleaded as under. "The issue arising for determination of the :17: Hon’ble Court is whether correspondence reveals an agreement in general and agreement on the arbitral clause in particular.We may broadly state that whether formation of a contract occurs prior to the signing of a document is one of inter action which is a question of fact". 12. When can a contract be said to be in writing. . In Jugal Kishore Rameshwardas Vs. Mrs. Goolbai Hormunsji reported in A.I.R.1955 S.C.812 the issue was as to what would constitute an arbitration agreement under Arbitration Act,1940. Considering the language used there, the Apex Court while answering the issue observed as under. "But it is settled law that to constitute an arbitration agreement in writing it is not necessary that it should be signed by the parties, and that it is sufficient if the terms, are reduced to writing and the agreement of the parties thereto is established". In that case the contract notes exchanged between the parties contained an agreement in writing. The :18: Court held that the arbitral proceedings commenced were competent. . In the instant case the correspondence exchanged does not disclose that the parties are at ad idem on an independent arbitral clause in terms of Section 7(4)(1). The correspondence exchanged at the, highest may result in considering the appellants contention as contained in the pleadings that there was an agreement in writing, containing an arbitral clause. 13. Let us now consider the judgments relied upon before answering the issue. In Dresser Rand S.A. Vs. Bindal Agro Chem Ltd. and anr. in (2006) 1 S.C.C. 751, the court was considering the provisions of the Foreign Awards (Recognition & Enforcement) Act,1961. The Supreme Court referred to Article-II of the Schedule to the Foreign Awards Act which contains the convention on the Recognition and Enforcement of Foreign Arbitral Awards. The relevant portion reads as under. "(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 :19: letters or telegrams". The Court then noted that the court has to be satisfied that the agreement is valid, operative and capable of being performed; this relates to the satisfaction about the "existence and validity" of the arbitration agreement. Proceeding further the Court observed as under. "It is clear from clause (2) of Article II that an "agreement in writing" includes not only an arbitral clause in a contract or a separate arbitration agreement, signed by the parties but a term contained in an exchange of letters or telegrams agreeing to submit their differences to arbitration. The question therefore, is whether there is an "agreement in writing" under which parties have agreed to submit their differences to arbitration". In Rickmers Verwaltung Gmbh Vs. Indian Oil Corporation Ltd. reported in (1999) 1 S.C.C. 1, the Supreme Court held, that from the correspondence it must unequivocally and clearly emerge that the parties were at ad idem as to the terms otherwise it cannot be said that an agreement had come into :20: existence between them through correspondence. The test therefore is whether parties are at ad idem on the material terms of the contract including the arbitral clause. 14. The learned counsel for the appellants has placed before us some English authorities for our consideration. In Perry Vs. Suffields reported in (1916) 2CH.187 a judgment of the Chancery Division where it was held, that when a contract is contained in letters, the test to be applied is as under. "Though when a contract is alleged to be contained in letters the whole correspondence should be looked at, yet if once a definite offer has been made and accepted without qualification, and it appears that the letters of offer and acceptance contain all the terms agreed on between the parties at the date of the acceptance, the complete contract then arrived at cannot be affected by subsequent negotiation. When once it is shown that there is a complete contract, further negotiations between the parties cannot without the consent of both get rid of the contract already arrived at". :21: . In 601 Pagnan S.P.A. Vs. Feed Products Ltd. 1987 Lloyd’s L.R.601, the court observed that we need not look into actual intent in a man’s mind. You look at what he said and did. A contract is formed when there is, to all outward appearances, a contract. A man cannot get out of a contract by saying "I did not intend to contract" if by his words he has done so. His intention is to be found only in the outward expression which his letters convey. If they show a concluded contract, that is enough. Where the parties have not reached agreement on terms which they regard as essence for binding contract, it naturally follows that there cannot be a binding agreement until