IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 24-02-2010 CORAM THE HONOURABLE MR.JUSTICE M.CHOCKALINGAM AND THE HONOURBLE MR.JUSTICE T.MATHIVANAN O.S.A.Nos.431 to 433 of 2009 Kensoft Infotech Limited 'D' Wing, 4147-8, Oberoi Garden Estate Chandivali Farm Road Andheri East, Mumbai 400 072 rep. By its Director V.P.Singh ..Appellant in all appeals/Plaintiff vs 1.Sundaram BNP Paribas Home Finance Ltd., 46, Whites Road Chennai 600 014. 2.Sundaram Infotech Solutions Ltd. 901-906, Raheja Towers 177 Anna Salai Chennai 600 002. ..Respondents in all appeals/Defendants Original side appeals preferred under Clause 15 of Letters Patent and Order XXXVI Rule 9 of the O.S. Rules against the order of this Court dated 16.9.2009 made in O.A.No.275 and 276 of 2009 respectively and A.No.1554 of 2009 in C.S.No.270 of 2009. For Appellant : Mr.T.R.Rajagopalan Senior Counsel for Mr.A.A.Mohan For Respondents : Mr.A.L.Somayaji Senior Counsel for Mr.T.K.Bhaskar for R1 https://hcservices.ecourts.gov.in/hcservices/ Mr.T.K.Seshadri Senior Counsel for Mr.Vaitheeswaran for R2 COMMON JUDGMENT (Judgment of the Court was delivered by M.CHOCKALINGAM, J.) These three intracourt appeals have arisen from a common order of the learned Single Judge of this Court made in O.A.Nos.275 and 276 of 2009 and A.No.1554 of 2009. 2.The Court heard the learned Senior Counsel for the appellant and also the learned Senior Counsels for both the respondents and looked into all the materials available including the order under challenge. 3.These appeals have arisen under the following circumstances: (a) The appellant/plaintiff filed the suit for permanent injunction against the defendants jointly and severally and also for a decree for payment of Rs.10,05,000/- as damages for the alleged illegal activities and other reliefs. At the time of the filing of the suit, the plaintiff filed O.A.Nos.275 and 276/09 seeking for two interlocutory orders of injunction. The second defendant filed A.No.1643 of 2009 to strike out the second defendant as party to the suit. (b) While the matter stood thus, the first defendant filed A.No.1554 of 2009 seeking to refer the first defendant and the plaintiff to arbitration pursuant to the agreements dated 30.1.2000, 29.1.2003, 20.2.2004 and 4.3.2005 as well as the annual maintenance contract dated 28.3.2008 in respect of all the issues raised by the plaintiff as against the first defendant. (c) The defendants filed their counter affidavits on the applications filed by the plaintiff for injunction. Equally, the plaintiff also filed the counter affidavit in the application filed by the defendants. (d) On enquiry, the learned Single Judge took the view that the matter was to be referred to arbitration and hence made an order allowing A.No.1554 of 2009. Since that application was allowed, the learned Single Judge took the view that the other two applications for interim injunction made by the plaintiff, were to be dismissed and accordingly dismissed the same and also dismissed A.No.1643 of 2009 as infructuous since the parties were referred to arbitration. Aggrieved over the dismissal of O.A.Nos.275 and 276 of 2009 and and also the order allowing A.No.1554 of 2009, the plaintiff has brought forth all these three appeals. https://hcservices.ecourts.gov.in/hcservices/ 4.Advancing arguments on behalf of the appellant, the learned Senior Counsel Mr.T.R.Rajagopalan would submit that the alleged arbitration clause in the agreements is pertaining only to the disputes arising out of commercial transactions and not to copyright infringement; that the acts of infringement committed by the first respondent in collusion with the second respondent are entirely outside the scope of rights and remedies stated in the agreements and are continuing till date which could be effectively adjudicated by way of a civil suit and not by arbitration; that since the plaintiff has sought relief against both the respondents jointly and severally, it cannot be split; that the respondents have not disputed IIT Mumbai report and have therefore, admitted acts of infringement committed by them; that the alleged memo filed by the 2nd respondent submitting themselves to the arbitration was an after thought exercise; that in spite of the memo, the second respondent is not bound by the arbitration clause and the arbitration award cannot be enforced against the second respondent; that as the real controversy between the parties being infringement and collusion in committing acts of piracy with a third party, it is outside the scope of arbitration and should not have been referred to arbitration; that it is apparent on the face of the records that the adjudication of copyright infringement of computer software involves complex technical issues to be corroborated by documentary and oral evidence; and that under the circumstances, the order of the learned Single Judge has got to be set aside. 5.In order to substantiate his contentions, the learned Senior Counsel relied on the following decisions: (i) (2003) 5 SCC 531 (SUKANYA HOLDINGS (P) LTD. V. JAYESH H.PANDYA AND ANOTHER); (ii) (2008) 2 SCC 602 (ATUL SINGH AND OTHERS V. SUNIL KUMAR SINGH AND OTHERS); (iii) 2007 (4) CTC 284 (CHENNAI CONTAINER TERMINAL PVT. LTD. V. UNION OF INDIA AND OTHERS) and (iv) 2008 (4) ARBLR 218 (MADRAS) (UC MAS MENTAL ARITHMETIC (INDIA) PVT. LTD. V. BANU ARJUN AND OTHERS). 6.Contrary to the above contentions, the learned Senior Counsels for the respondents Mr.A.L.Somayaji and Mr.T.K.Seshadri, in their sincere attempt of affirming the order of the learned Single Judge apart from reiterating the contentions put forth before the learned Single Judge, would submit that the entire grievance ventilated by the plaintiff was only against the first defendant; that even in the cause of action, no reference is made to the second defendant; that in the absence of any relief being granted against the first defendant, no relief could be granted against the second defendant; https://hcservices.ecourts.gov.in/hcservices/ that in the instant case, when an application was filed by the first defendant to refer the matter to arbitration, the plaintiff has filed a counter stating that the agreement entered into between the plaintiff and the first defendant contained an arbitration clause and the second defendant was not a party to that agreement and hence the plaintiff could not compel the second defendant to be a party to the arbitral proceedings; that the averments made in paragraph 8 of the counter affidavit in A.No.1554 of 2009 that the acts of infringement, source code tampering and third party access committed by the applicant and the second respondent in collusion with each other was entirely outside the purview and scope of the arbitration clause and that the arbitration clause was envisaged to settle any dispute arising out of the third party involvement and the second respondent could not be subjected to arbitration proceedings as they were not parties to the agreement was not at all denied by the respondents; that though the plaintiff has enumerated 17 documents in the list, not even one document was related to the second defendant and not even a notice was issued before filing the suit to the second defendant; that the averments made in the plaint that there was an infringement of copyright by the defendants by collusion and fraud was nothing but a deliberate act by the plaintiff to add the second defendant as party to the proceedings and also to wriggle out of the arbitral clause; that the learned Single Judge has considered the aspects both factually and legally and has taken a correct view, and hence the order of the learned Single Judge has got to be affirmed. 7.In support of their contentions, they relied on the following decisions: (i) 2008 (4) CTC 360 (MANDALI RANGANNA AND OTHERS V. T.RAMACHANDRA AND OTHERS); (ii) 156 (2009) DLT 406 (MINISTRY OF SOUND INTERNATIONAL LTD. V. INDUS RENAISSANCE PARTNERS ENTERTAINMENT PVT. LTD.); (iii) 2008 (4) CTC 1 (KOTAK MAHINDRA BANK LTD. V. SUNDARAM BRAKE LINING LTD. AND TWO OTHERS); (iv) 1995(II) OLR 348 (BRAJA KISHORE SAHU AND OTHERS V. SAILABALA SAHU AND OTHERS); (v) 2007 (4) CTC 70 (CHINNA NACHIAPPAN AND ANOTHER V. PL.LAKSHMANAN) and (vi)MIFR 2009 (1) 0304 (ASTOR TECHNOLOGIES AND OTHERS V. L.B.THIAGARAJAN). 8.This Court paid its anxious consideration on the submissions made. https://hcservices.ecourts.gov.in/hcservices/ 9.As could be seen above, the appellant/plaintiff filed the suit in C.S.No.270 of 2009 for the following reliefs: (a) A permanent injunction restraining the defendants from directly or indirectly in any manner copying, reproducing, reverse engineering, adapting, using, altering tampering with or hacking into the original source code in part or full of the plaintiff's housing finance software KEN_HFS thereby amounting to infringement of copyright in the plaintiff's housing finance software KEN_HFS or in any other manner whatsoever; (b) A permanent injunction restraining the defendants from disclosing, divulging or in any manner dealing with the plaintiff's source code confidential information, technical know-how and trade secrets provided by the plaintiff to the defendants with regard to KEN_HFS housing finance software or disclosing the same by giving access or make available to any other person, third parties, in any form or material and using or dealing in the software made on that basis without the plaintiff's consent, permission, license or authorization and from exploiting the unique features of the plaintiff's KEN_HFS software or doing any other thing including copying, using selling, offering for sale or distributing the infringing version of the plaintiff's software or in any manner whatsoever; and from using any other software with any other name, supplied by defendant 2, which would amount to an infringing version of plaintiff's software or having the illegal proceeds from the infringed version of the plaintiff's software. (c) The defendants be ordered and decreed to pay to the plaintiff a sum of Rs.10,05,000/- for the illegal activities committed by the defendants; (d) The defendants be ordered to purchase the source code rights which would be required for avoiding the infringement and the breach of confidentiality by the defendants at a price that would be decided by the plaintiff; (e) A preliminary decree directing the defendants to render a true and faithful account of all profits earned by them, by unauthorizedly using and infringing the plaintiff's housing finance software KEN_HFS and a final decree be passed in favour of the plaintiff. (f) The defendants be directed to pay to the plaintiff damages for hacking, making unauthorized use and altering the source code of the plaintiff in KEN_HFS software; https://hcservices.ecourts.gov.in/hcservices/ (g) The defendants be directed to surrender to the plaintiff for destruction all CDs, hard disks or any other electronic storage media containing the infringing software with the tampered/hacked source code or unauthorised KEN_HFS software of the plaintiff; (h) for costs. 10.The above reliefs were sought for against both the defendants on the averments and also the causes of action stated in the plaint. It would be fit and proper to reproduce the following averments in the plaint. "7.The plaintiff is the first owner of the Kensoft system comprising of the KEN_HFS home finance software...... .... 9...... Hence, the plaintiff is first owner of the said software. The source code of the said computer programs and the schema being a highly confidential document is in the possession of the plaintiff. The copyright and other intellectual property rights for the said software vest exclusively with the plaintiff and none else. 10.The plaintiff is the creator of KEN_HFS software and hence the copyright and other intellectual property rights vests exclusively with the plaintiff alone..... .... 12.The plaintiff has created various versions of the housing finance software KEN_HFS on different platforms over the years..... ....The complete access of KEN_HFS was given to the 2nd defendant by 1st defendant on servers which were in fact controlled by the 2nd defendant. Upon becoming aware of such infringement and tampering of source code by the first defendant in collusion with the 2nd defendant, the plaintiff bonafide sought expert opinion from one of the foremost technical institutions in the country, the reputed Indian Institute of Technology, IIT Bombay. The expert report from the Computer Science and Engineering Dept IIT Bombay, confirmed the outright infringement by the 1st defendant by tampering with KEN_HFS source code, insertion of external source code, alterations tampering of schema and copying and reverse engineering of KEN_HFS. Such infringement was obvious from the conspicuous similarity between source code items column names, objects, etc occurring in the https://hcservices.ecourts.gov.in/hcservices/ plaintiff's proprietary source code amounting to several thousand instances of copying. ... 14.As the plaintiff is the first owner of the source code of the KEN_HFS software, any unauthorised use of the said software is prohibited under copyright statute. The plaintiff is exclusively vested with right to access the source code, right to adapt, right to reproduce, right to resale, right to licence, right to make derivatives and adaptations, etc. The plaintiff states that any unauthorized exercise of aforementioned rights of the plaintiff would infringe both the statutory and common law rights solely vested with plaintiff. The plaintiff has provided merely a licence to the defendants to utilize the product. The deliverables from plaintiff to the defendants are only the executables (Source code, design documentation and any API are not provided). The software provided to the defendant no. 1 is in the nature of executables with no source code rights. This is in the nature of license and does not give any right over the intellectual property of KEN_HFS software on the defendants. 15.The 1st defendant in order to escape from the legal liability has gone to the extent of saying that the copyright of KEN_HFS software vest with the defendant itself which is evident by its e-mail dated December 2008...... .... 17.The 1st defendant in order to escape from legal liability for obvious infringement has continuously denied access to the plaintiff for the various bonafide purposes including auditing, error/bug resolution, maintenance, upgradation, etc. These actions of the 1st defendant is obvious proof of their intention to hide the acts of infringement of reverse engineering and hacking into the plaintiff's software, which would be discovered very obviously if plaintiff were provided access bonafidely as per the relationship and agreement between the parties..... ... 29.The plaintiff came to know the fraudulent activities and tampering of source code committed by the defendants and was shocked to know that the software which was provided by plaintiff to the 1st defendant Sundaram Home Finance Ltd, was being misused by a third party viz., 2nd defendant, https://hcservices.ecourts.gov.in/hcservices/ Sundaram Infotech Solutions Ltd. The plaintiff software is for use with ORACLE ASFU license and is limited to the licenses purchased. It was found that the defendants were allowed access to more than 300 named users to the application software whereas the plaintiff has provided access to only 75 users to the application. The unauthorized use of ORACLE ASFU liense in the premises of the second defendant with their knowledge amounts to copyright infringement. The plaintiff is well aware of the unauthorized use and have deliberately committed acts of copyright infringement. Immediately knowing about the unauthorized activities, the plaintiff has reported to the Managing Director, Director and other officials of the defendants to take steps to impede from continuing further infringing activities. The defendants with an intent to cheat the plaintiff and to escape from the legal liability has withdrawn the support of plaintiff in migration process and falsely claims to do the data extraction work themselves by colluding with the 2nd defendant Sundaram Infotech Solutions Ltd. Thus, the 1st defendant have allowed third party access which is violation of the agreed terms of the contract and which would also amount to copyright infringement. ... 31.The plaintiff states that the defendants' access to the backend program (schema) which converts and stores the raw inputs of user into data information in proprietary programs of the plaintiff is restricted. As merely a user with no source code rights, the defendants does not have any right over the backend programs of the plaintiff's KEN_HFS software. As stated earlier, as the plaintiff being the original creator of the KEN_HFS software, access by any third party including the defendants would amount to unlawful encroachment into the copyright vested with the plaintiff. 32.The defendants reverse engineered the plaintiff's software KEN_HFS and hacked the source code of the same. The defendants has altered/modified/inserted various external source codes into the plaintiff's original software and are involved in manufacture of tampered software by reverse engineering of plaintiff software thereby violating the terms and conditions on the agreement. The defendants developed a tampered software by lifting substantial portion of source code from plaintiff's original software and exploited it commercially. The plaintiff states that this unauthorised commercial exploitation of source code would amount to the copyright https://hcservices.ecourts.gov.in/hcservices/ violation. The adaptation and modification of the source code as well as KEN_HFS software, ORACLE AFSU software by the plaintiff amounts to infringement of copyright, the exclusive rights vested in the plaintiff in the software developed and maintained by them. .... 45.The cause of action for the present suit arose at Chennai when the plaintiff and 1st defendant had entered into a Vendor's Agreement dated 30th January 2001 for providing license to the 1st defendant to use KEN_HFS software developed by the plaintiff, on 29th January 2003, 20th February 2004 and 4th March 2005, when the plaintiff and the 1st defendant has entered into subsequent Vendor's Agreement for providing license to the 1st defendant to use KEN_HFS Software, on 20th March 2006, when an Annual Maintenance Contract-Application Software was entered into between the plaintiff and 1st defendant for maintenance of the application software developed by the plaintiff and licensed to the 1st defendant, which was subsequently renewed on 7th March 2007 and 20th March 2008, which was valid till 31st March 2009; during October 2008, when the plaintiff became aware that the 1st defendant has hacked/tampered with the source code of the software 'KEN_HFS' developed by the plaintiff and has used the pirated software in a number of systems more than that has been authorised/licensed; on various dates when the same was brought to the knowledge of the 1st defendant, which the 1st defendant has failed to remedy and subsequently when the defendants continues to commit acts of infringement of copyright. The continuous use of the pirated source code/software by the defendants being a recurring one, it continues to accrue everyday de die in diem until the defendants are restrained permanently from infringing the copyright of the plaintiff and from tampering with the source code of the plaintiff's original 'KEN_HFS' software." 11.A reading of the above averments in the plaint would clearly indicate that though an agreement was entered into by the plaintiff and the first defendant on different dates mentioned in the plaint, there was an infringement of the copyright by the unauthorised exercise by the defendants 1 and 2. Hence the contentions put forth by the respondents that the averments which were made by the plaintiff including the relief, were only against the first defendant and the second defendant was not a party cannot be accepted. Apart from that, the contention that no cause of action is shown against the second defendant has to be rejected in view of the specific averments in paragraph 45 speaking of causes of action as follows: https://hcservices.ecourts.gov.in/hcservices/ "The continuous use of the pirated source code/software by the defendants being a recurring one, it continues to accrue everyday de die in diem until the defendants are restrained permanently from infringing the copyright of the plaintiff and from tampering with the source code of the plaintiff's original 'KEN_HFS' software." 12.Another contention that though number of documents were listed, no one was related to the second defendant cannot be accepted since the documents including the exchange of notices, would speak of the infringement of the copyrights by the defendants, and the plaintiff came to know from the prima facie opinion given by the expert from the IIT, Bombay. It remains to be stated that a reading of the relief clause would clearly indicate that all the reliefs sought for were against the defendants jointly and severally. Hence the contentions put forth by the respondents' side in this regard are liable to be rejected. 13.The arbitration clause contained in the first agreement entered into between the plaintiff and the first defendant on 30.1.2001, reads as follows: "25 ARBITRATION Any dispute, claim and differences arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Chennai in accordance with the provisions of the Arbitration and Conciliation Act, 1996, or any statutory amendments thereof or under any other statute in force passed by the Indian State to govern the Arbitration Proceedings." 14.The above clause would clearly indicate and display that the disputes and claims arising out of or in connection with the agreement could be referred to arbitration. Admittedly, the second defendant was not a party to this agreement. Equally, the second agreement entered into between the parties also contained an arbitration clause. To this agreement also, the plaintiff and the first defendant were the parties. The second defendant was not at all a party to this agreement also. Hence it is contended by the learned Senior Counsel for the appellant that so long as the second defendant is not a party to the agreements, the arbitral clause found in the agreements between the plaintiff and the first defendant, could neither be invoked, nor the parties could be referred to arbitration. On the contrary, it is contended by the learned Senior Counsels for the respondents that it is true that the arbitral clause was between the plaintiff and the first defendant, and in the suit, the first defendant has also filed a memo stating that if the parties https://hcservices.ecourts.gov.in/hcservices/ were referred to arbitration, he was ready to submit the jurisdiction to arbitrator. The memo filed by the second defendant reads thus: "Without prejudice to its contentions set out in the Application No.1643 of 2009, in the event that this Hon'ble Court refers the Applicant and the first respondent to resolve their disputes that are the subject matter of the present suit by way of Arbitration, then this respondent agrees to submit to such arbitration and raise all contentions in the present suit before the Arbitration Tribunal." 15.Now the question that would arise would be whether the filing of the above memo by the second defendant who was not a party to the original agreement containing the arbitration clause, would suffice to refer the parties to arbitration. The answer could only be in the negative. As stated above, the reliefs were asked for against both the defendants jointly and severally on the causes of action referred to above alleging that there was a collusive piracy of copyright. The Apex Court in a case reported in (2003) 5 SCC 531 (SUKANYA HOLDINGS (P) LTD. V. JAYESH H.PANDYA AND ANOTHER) has held as follows: "11. For appreciating the contentions raised by the learned counsel for the parties, we would refer to the relevant provisions, namely, Sections 5 and 8 of the Act, which are as under: "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. * * * 8. Power to refer parties to arbitration where there is an arbitration agreement.—(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. (2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. https://hcservices.ecourts.gov.in/hcservices/ (3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made." (emphasis supplied) 12. For interpretation of Section 8, Section 5 would have no bearing because it only contemplates that in the matters governed by Part I of the Act, the judicial authority shall not intervene except where so provided in the Act. Except Section 8, there is no