Enercon (India) Ltd vs 2 Wobben Properties Gmbh on 5 October, 2012

Bombay High CourtBombay High CourtEnercon (India) Ltd vs 2 Wobben Properties Gmbh on 5 October, 2012Bench: R. M. Savantwps-7804.09 & 7636.09

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

CIVIL APPELLATE JURISDICTION

WRIT PETITION NO.7804 OF 2009

WITH

WRIT PETITION NO.7636 OF 2009

1 Enercon (India) Ltd. ]

a company incorporated and ]

existing under the laws of ]

India and having its ]

registered office at Plot No. ]

33, Daman- Patalia, ]

Bhimpore, Daman-396 210 ]

India ]

]

2 Yogesh J. Mehra ]

being Indian Inhabitant ]

residing at 101, Hare ]

Krishna, Residency Society, ]

J.V .D. Scheme, North

.P ]

South Road No.8, Vile Parle (W) ]

Mumbai 400 049 ]

]

Enercon (India) Ltd vs 2 Wobben Properties Gmbh on 5 October, 2012

Indian Kanoon - http://indiankanoon.org/doc/9004705/ 1

3 Ajay J. Mehra ]

being Indian Inhabitant ]

residing at 101, Hare ]

Krishna, Residency Society, ]

J.V .D. Scheme, North

.P ]

South Road No.8, Vile Parle (W) ]

Mumbai 400 049 ]..... Petitioners. Versus

1 Enercon GmbH ]

a company duly ]

incorporated and existing ]

under the law of Germany ]

and having its registered ]

office at Dreekamp 5, ]

D26605, Aurich, Germany. ]

]

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2 Wobben Properties GmbH ] a company duly ]

incorporated and existing ]

under the laws of Germany ]

and having its office at ]

Dreekamp-5 D26605, ]

Aurich, Germany. ]..... Respondents. Dr.Veerendra Tulzapurkar, Senior Advocate, with Mr.ViragTulzapurkar, Senior Advocate, with Mr.Nikhil Sakhardande, Ms.Sonali Mathur & Ms. Swagata Naik i/byM/s. AZB & Partners for the Petitioners in both the Petitions.

Mr. S.U.Kamdar, Senior Advocate with Mr. Zubin Behramkamdin, Ms.Naira Variava-Jejeebhoy, Mr.RohanCama, Mr. Vivek Vashi, Ms.Anusha Jegadeesh, Ms.Devika Deshmukh, and Ms.Kanika Sharma i/by Bharucha& Partners for the Respondents in Writ Petition No.7804 of 2009. Mr. Navroze Seervai, Senior Advocate withMr. Zubin Behramkamdin, Ms.Naira Variava-Jejeebhoy, Mr.Rohan Cama, Mr. Vivek Vashi, Ms.Anusha



Jegadeesh, Ms.Devika Deshmukh, and Ms.Kanika Sharma i/by Bharucha & Partners for the Respondents inWrit Petition No.7636 of 2009. CORAM : R. M. SAVANT, J.

Judgment Reserved on :- 6th August 2012.

Judgment Pronounced on :- 5th October 2012.

JUDGMENT :-

1 The above Writ Petitions have been filed invoking the Writ Jurisdiction of this Court under Article 227 ofthe Constitution of India challenging the order dated 27th August 2009 passed by the learned District Judge,Daman by which order the Appeals being Misc. Civil Appeal Nos.1/2009, 2/2009, 3/2009 and 4/2009 came tobe allowed and resultantly the order passed by the Trial Court dated 9 th January 2009 came to be set aside,resulting in the Application filed under Section 45 of the Arbitration and lgc 2 of 124 wps-7804.09 & 7636.09

Conciliation Act, 1996 being allowed in terms of prayer clause 28(a) thereof, and the Injunction Applicationof the Petitioners above-named, who are the original Plaintiffs, came to be rejected.

2 The issue that arises in the above Petitions is therefore in two parts viz. Whether the parties are to bereferred to arbitration, and Whether the Petitioners are entitled to an anti-suit injunction in the facts andcircumstances of the present case. The impugned order is therefore also in two parts; first part deals with theaspect of whether the parties are to be referred to arbitration, and second part is, whether the Petitioners areentitled to an anti- suit injunction. Since both the Petitions involve common facts and are interconnected, thesame are, therefore, heard together. For the sake of brevity the Arbitration and Conciliation Act, 1996 of Indiaand, the Arbitration and Conciliation Act, 1996 of England would be referred to as the "Indian ArbitrationAct" and "English Arbitration Act". FACTUAL MATRIX :-

3 The Petitioner No.1 herein carries on business of manufacturing and marketing of the Wind TurbineGenerators (WTG's) and components in India, and is also in the business of setting up wind power projects onturnkey lgc 3 of 124 wps-7804.09 & 7636.09

basis. The Petitioner Nos.2 and 3 herein are the Directors of the Petitioner No.1 and are arrayed as thePlaintiff Nos.1 to 3 in the Suit in question. The Respondent No.1-Enercon GmbH is a Company incorporatedunder the laws of Germany and is having its registered office at Aurich, Germany. One Dr.Alloys Wobben isa Director of the Respondent No.1. The Respondent No.2 - Wobben Properties GmbH is a Companyincorporated under the laws of Germany and is also having its registered office at Aurich, Germany. TheRespondent No.1 is engaged in mechanical engineering and possesses technical knowledge and equipment formanufacturing and marketing the Wind Turbine Generators and components. The Respondent No.1 carries onthe said business all over the world. The Respondent Nos.1 and 2 are arrayed as the Defendant Nos.1 and 2 tothe Suit in question. The Petitioners and the Respondents are running the joint venture business through thePetitioner No.1-Company at Daman in India. Accordingly the parties have entered into various Agreements infurtherance of the said business. The Petitioner Nos.2 and 3, on 12/01/1994 entered into a ShareholdingAgreement. In terms of the said Agreement the Respondent No.1 was holding 51% shares of the PetitionerNo.1-Company, and the Petitioner Nos.2 and 3 were holding 49% shares. The said Shareholding Agreementwas subsequently amended by two Supplementary Shareholding Agreements dated 19/05/1998 and19/05/2000. Pursuant to the said Supplementary Shareholding Agreements, the Respondent No.1 became a56% shareholder in the Petitioner No.1-Company whilst the shareholding of the Petitioner Nos.2 lgc 4 of 124wps-7804.09 & 7636.09

and 3 was reduced to 44%. On the same day i.e. on 12/01/1994, the Petitioner No.1 and the Respondent No.1entered into a Technical Know-How Agreement by which the Respondent No.1 had agreed to transfer to thePetitioner No.1 the right and the technology to use the technical know-how for the manufacture of E-26 Wind



Turbine Generators specified therein and their components. A Supplementary Technical Know-HowAgreement amending the earlier Technical Know-How Agreement was executed on 19/05/2000 by which afurther licence to manufacture the E-30 and E-40 Wind Turbine Generators was conferred by the RespondentNo.1 to the Petitioners. Under the terms of the Technical Know-How Agreement, the Respondent No.1 has tocontinuously supply special components to the Petitioner No.1. In April 2004 the period of the TechnicalKnow-How Agreement expired, however, the Respondent No.1 continued to supply the Wind TurbineGenerators and components. The Respondent No.2 has the patent of the said windmill technology; whereasthe Respondent No.1 is a licensor to supply the said windmill technology, and the Petitioners are the licenseesto use the said windmill technology. It appears that from the year 2000 onwards and till date the Petitionersare manufacturing the said Wind Turbine Generators and continue to use the patents that were licensed bythese agreements. On 29/09/2006 the Petitioners and the Respondent No.1 entered into what is known as the"Agreed Principles" for the use and supply of the windmill technology. Under the said Agreed Principles thePetitioners and the lgc 5 of 124 wps-7804.09 & 7636.09

Respondents agreed to enter into what is known as the Intellectual Property License Agreement ("IPLA" forshort), which is the subject matter of the Suit in question. It is the case of the Petitioners that the AgreedPrinciples are the binding principles agreed between the parties, and which records an agreement that alldefinitive agreements between the parties that were to be prepared and finally executed would be on the basisof the binding principles agreed therein. One of the agreements contemplated by the said Agreed Principleswas the IPLA. The Petitioner Nos.2 and 3 are the parties to the IPLA. It seems that the Petitioner No.2 hassigned the IPLA on behalf of the Mehra family. At the time of the signing of the IPLA the Petitioners werealready aware of the five models of the WTG's being E-26, E-30, E-40, E-48 and E-53. It is the case of thePetitioners that the IPLA was merely a draft of the oral terms and not a concluded contract between theparties. It was their case that the said document was an unincorporated and inchoate document and was not aconcluded contract. It appears that one Mr.Ketwigg , the Managing Director of Respondent No.1 in a letterdated 02/10/2006, addressed to Petitioner No.2 stated therein that all the necessary contracts between theparties should be completed by 19/10/2006. Further in the e-mail dated 04/10/2006 Ms.Nicole Fritsch of theRespondent No.1 stated that she would try her best to prepare/adapt the agreements according to the AgreedPrinciples by 19/10/2006. It is the case of the Petitioners that to their utter shock and surprise, on 18/10/2006Ms. Nicole Fritsch of the Respondent No.1 totally lgc 6 of 124 wps-7804.09 & 7636.09

turned around and addressed a letter to the Petitioner No.2 falsely alleging that the draft IPLA which wassigned on 29/09/2006 was a final document. Thereafter correspondence ensued between the parties and acontentious issue arose as to whether the IPLA can be called final or not. Thereafter spate of litigation ensuedbetween the parties. This was as a result of the Respondent No.1 stopping supplies which resulted in thePetitioner Nos.2 and 3 filing a derivative Suit on the Original Side of this Court being Short Cause SuitNo.2667 of 2007 seeking resumption of supplies. This Court has, by an interim order dated 31/10/2007without prejudice to the individual contentions of the parties, directed resumption of supplies by theRespondent No.1 to the Petitioner No.1 until further orders of this Court. In view of the fact that the said orderwas not complied with by the Respondent No.1, there is a Contempt Petition which has been filed by thePetitioners, which is pending. 4 The Respondent No.1 has also filed a Company Petition being No.121 of2007 against the Petitioners before the Company Law Board, Principal Bench, New Delhi some time inAugust 2007. The said Petition has been filed under Sections 397 and 398 of the Companies Act. The reliefssought in the said Company Petition inter alia included removal of the Petitioner Nos.2 and 3 as Directors ofPetitioner No.1, transfer of the Mehras shareholding in the Petitioner No.1 as well as associate and subsidiarycompanies of Petitioner No.1 to Respondent No.1, and investigation to lgc 7 of 124 wps-7804.09 & 7636.09

ascertain the conduct of Mehras in dealing with properties, monies and management of the Petitioner No.1. Inview of the non-compliance of the order passed by the Company Law Board, contempt proceedings have beeninitiated by the Petitioners against Dr.Wobben and Mr.Ketwigg. The Mehras i.e. the Petitioner Nos.2 and 3filed Company Petition No.74 of 2008 against the Respondent No.1, Dr.Wobben and Mr. H D Ketwiggalleging oppression and mismanagement by the Respondents. The said Petition was also filed under Sections



397 and 398 of the Companies Act.

5 The Respondent No.1 had filed a Petition against the Petitioner No.1 and others alleging that Petitioner No.1had been supplying Wind Turbine Generators to third parties in Germany thereby infringing the trademarksbelonging to Respondent No.1. The same was filed in the Hamburg District Court which Court had initiallygranted an ex-parte ad-interim order dated 17/09/2007 restraining the Petitioner No.1 from effecting suppliesto such third parties in Germany. The Hamburg District Court thereafter dismissed the claim of theRespondent No.1 on the ground that there was no evidence to suggest Petitioner No.1's involvement in thematter. The aforesaid facts therefore disclose the diverse litigation in which the parties are involved. 6 TheRespondent No.1 addressed a letter dated 13/03/2008 stating therein that it was desirous of having all disputesrelating to the IPLA settled, lgc 8 of 124 wps-7804.09 & 7636.09

including whether there is a binding agreement between Petitioner No.1 and Respondent Nos.1 and 2 inrespect of the IPLA. The Respondents also informed the Petitioners that it had appointed Mr. V V Veeder QCas its . .

nominee arbitrator and called upon the Petitioners including Petitioner Nos.2 and 3 to nominate theirarbitrator in accordance with the IPLA, which according to the Respondent Nos.1 and 2 was a concludedcontract. The Petitioner No.2, on behalf of the Petitioners, replied to the said letter by his letter dated31/03/2008 stating therein that since the IPLA was not a concluded contract, there was no question of a validArbitration Agreement between the parties and as such, there was no question of appointing any arbitrator inthe matter. It was further stated that in any event, the past conduct and attitude of the Respondent No.1established that it had waived the Arbitration Agreement. The UK Solicitors of the Respondent Nos.1 and 2addressed a letter to the Petitioners dated 02/04/2008 stating therein that in the event the Petitioners did notnominate their arbitrator within seven days of the receipt of the said letter, the Respondent Nos.1 and 2 shallproceed under the English Arbitration Act, 1996 to appoint their nominee arbitrator Mr. V . . V

Veeder QC, as the sole arbitrator. The said letter was received by the Petitioner No.1 in Daman on03/04/2008, along with the said letter was annexed `Arbitration Claim Form' dated 27/03/2008 issued by theRespondent Nos.1 and 2 seeking several declaratory reliefs from the English Court in relation to the IPLAwhich according to the Respondent Nos.1 and 2 is a concluded lgc 9 of 124 wps-7804.09 & 7636.09

contract. The said declaratory reliefs inter-alia include injunctive relief from the English Court to restrain thePetitioner Nos.2 and 3 from continuing with independent proceedings before this Court, i.e. the Suit whichwas already filed by the Petitioner Nos.2 and 3 in a derivative capacity as shareholders of the Petitioner No.1.The said 'Arbitration Claim Form', which had been filed before the English Court, was also served upon thePetitioner No.1 in Daman 04/04/2008 and seems to have triggered off the filing of the Regular Civil Suit No.9of 2008 before the learned Civil Judge, Senior Division, Daman on 08/04/2008 inter-alia for the followingreliefs viz. for a declaration that the IPLA was not a concluded contract and correspondingly that there was noArbitration Agreement between the parties; for a declaration that the initiation of proceedings before theEnglish Court by the Respondents was void and illegal; and for a permanent injunction restraining theRespondents from continuing with the proceedings before the English Court. In the said Suit the Petitionersmoved an Application for temporary injunction and for other interim reliefs. The Trial Court, it seems, passeda status quo order on 08/04/2008 directing the Respondents to maintain status quo as regards the proceedingsinitiated before the English Court till their appearance in the Suit and to show cause why an interim ordershould not be passed against them. The Respondents appeared in the Suit and filed an Application underSection 45 of the Indian Arbitration Act contending therein that the Suit before the Trial Court ought to bereferred to arbitration pursuant to the arbitration clause lgc 10 of 124 wps-7804.09 & 7636.09

contained in the IPLA. The Respondents also sought a vacation of the status quo order. It appears that in theinterregnum on 11/04/2008, the Petitioner No.1 had appointed Mr. Justice B. P. Jeevan Reddy (Retd.) as itsarbitrator. This, according to it, was necessitated in view of the threats of the Respondents that the arbitrator



appointed by them could be nominated as a sole arbitrator under the English Law, in the event the PetitionerNo.1 failed to nominate its arbitrator. It seems that the arbitrator appointed by the Petitioners by his letterdated 24/04/2008 stated that there were inherent defects in the arbitration clause contained in the IPLA andtherefore the same was unworkable and expressed the inability of the arbitrators to appoint a third arbitrator.Thereafter a joint letter was addressed which is dated 05/08/2008 by both the arbitrators i.e. Mr. V . VeederQC and Mr. Justice B. P . V . Jeevan Reddy (Retd.) asking the parties to take necessary steps as may beadvised. 7 The Plaintiffs i.e. the Petitioners herein had moved an application for temporary injunction ex-partein the said suit, wherein the Trial Court directed the parties to maintain status quo. The Trial Court hadgranted an exparte injunction restraining the Defendants i.e. the Respondents herein from proceeding with theproceedings they had filed in the English Court. The Application for interim reliefs and the Application filedby the Respondents under Section 45 of the said Act was heard by the Trial Court, and by the order dated09/01/2009, the learned Civil Judge, Senior Division, Daman, allowed lgc 11 of 124 wps-7804.09 & 7636.09

the said Application for interim reliefs filed by the Petitioners, and rejected the Application for referring theparties to arbitration filed under Section 45 of the said Act by the Respondents, i.e. the Trial Court confirmedthe ex-parte ad interim order of status quo granted by it on 8/4/2008 till decision of the suit. The Defendantsi.e. the Respondents herein were restrained not to constrain the Plaintiffs i.e. the Petitioners herein to go forarbitration till the final decision of the suit by invoking the IPLA.

8 The gist of the reasoning of the Trial Court was to the effect that the document in question i.e. the IPLA wasnot on a stamp paper and it does not bear the signature and seal of the Public Office in authentication that thedocument is enforceable in law; that the Plaintiff No.2 had signed the document under the influence ofDr.Alloys Wobben. The Trial Court, on the basis of the material on record, recorded a finding that the IPLAwas not a concluded contract for want of free consent, and was executed due to undue influence, fraud,mis-representation and mistake, that the Plaintiffs would suffer heavy economic loss if the arbitration is heldat London. In so far as the jurisdictional aspect is concerned, the Trial Court recorded a finding that the Courtat Daman would have jurisdiction as the Plaintiff No.1 was a joint venture between the Plaintiff No.1 and theDefendants which had its factory at Daman.

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9 Aggrieved by the order dated 09/01/2009 passed by the Trial Court, the Defendants i.e. the Respondentsherein filed four Appeals which were Civil Misc. Appeal Nos.1/2009, 2/2009, 3/2009 and 4/2009. The saidAppeals were filed by the Respondents covering two aspects as to the grant of the anti Suit injunction, and asto the rejection of the Application filed by them under Section 45 of the said Act. The said Appeals wereheard by the learned Principal District Judge, Daman, who by the order dated 27/08/2009 allowed the saidfour Appeals, and consequently set aside the orders passed by the Trial Court granting the anti Suit injunction,and referred the parties to arbitration by allowing the Application filed under Section 45 of the said Act.However, the Lower Appellate Court has directed the Trial Court to first decide the jurisdiction point beforeproceeding with the Suit. The Lower Appellate Court has inter alia considered the enforceability of theArbitration Agreement, the case of the Plaintiffs that the IPLA was not a concluded contract, which thePlaintiffs had sought to support by both intrinsic as well as extrinsic material, and also the case of thePlaintiffs that the said Clause-18.3 was unworkable in view of the methodology mentioned therein for theappointment of the arbitrators. The Lower Appellate Court as can be seen from its order has on the basis ofthe fact that the IPLA was signed by the Plaintiff No.2, reached a conclusion that there was an agreementbetween the parties to refer the disputes to arbitration which intention of the parties, according to the Lowerlgc 13 of 124 wps-7804.09 & 7636.09

Appellate Court, was required to be given effect to. The Lower Appellate Court held that assuming that therewas some defect in the methodology for appointment of the arbitrators, that would not come in the way ofenforcement of the Arbitration Agreement. The Lower Appellate Court held that since the parties had agreedto London being the seat of arbitration, the Plaintiffs could not make a grievance as regards the jurisdiction of



the English Courts. The Lower Appellate Court has by its order dated 27/08/2009, as indicated above, hasallowed the said four Appeals.

10 It is the order passed by the Lower Appellate Court in the said four Appeals which is the subject matter ofthe above two Petitions. In so far as Writ Petition No.7804 of 2009 is concerned, the same challenges theorder to the extent of referring the parties to arbitration; whereas Writ Petition No.7636 of 2009 concerns thechallenge to the setting aside of the anti Suit injunction. 11

SUBMISSIONS ON BEHALF OF THE PETITIONERS BY THE LEARNED SENIOR COUNSEL DR.VEERENDRA TULZAPURKAR

IN WRIT PETITION NO.7804 OF 2009:-

i] That the Lower Appellate Court failed to decide the important issue, as to whether the IPLA was aconcluded contract and that there is a valid subsisting Arbitration Agreement.

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ii] Since the Lower Appellate Court has failed to decide the very important jurisdictional fact, namely theexistence of a concluded contract before referring the parties to arbitration, the exercise of the WritJurisdiction of this Court under Article 227 of the Constitution of India is warranted. The learned SeniorCounsel relied upon the Judgments of the Apex Court reported in (2006) 3 SCC 312 in the matter of KishoreKumar Khaitan and Anr. V/s. Praveen Kumar Singh and; (2008) 14 SCC 58 in the matter of Ramesh ChandraSankala V/s. Vikram Cement.

iii] That the IPLA is not a concluded contract and is only a draft. The learned Senior Counsel sought tobuttress the said submission by referring to the clauses mentioned in the IPLA, regarding the grant of licences,finance, tenure of the IPLA;

iv] That the patents in respect of which the licences were to be given to the Petitioners were not finalized, thetenure of the IPLA was also indefinite, and since the royalty is to be paid on the patents, and since the fixationof the royalty was also not finalized; the IPLA could not be said to be a concluded contract.

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v] That assuming the IPLA is a concluded contract, the arbitration clause 18.1 is vague and isunimplementable in view of the fact that the arbitrator of the licensor is to don two hats, two roles, one beingthe arbitrator of the licensor and second being the presiding arbitrator;

vi] That the arbitration clause is unworkable is borne out by the fact that both the arbitrators i.e. Mr V VVeeder, QC and Mr.Justice B P Jeevan Reddy (Retd.) have expressed that the arbitration clause as it stands isunworkable and would require clarification. vii] That no steps were taken for registration of the patents asrequired by Section 69 of the Patents Act, as both the parties treated it as not a concluded contract.

viii] That the IPLA cannot be said to be a concluded contract in view of the fact that as per the AgreedPrinciples all the four agreements mentioned therein were to be executed at one time and the IPLA thereforecould be said to be finalized only after the said four documents which were inclusive of the IPLA wereexecuted. ix] The extrinsic evidence which is in the nature of the lgc 16 of 124 wps-7804.09 & 7636.09

correspondence exchanged between the parties shows that the IPLA was not a concluded contract. Thelearned Senior Counsel would rely upon the letters dated 11/3/2006, 10/4/2006, as also the letters date30/09/2006, 2/10/2006 and 24/11/2006 which are post the signing of the IPLA on 29/09/2006 which



according to the learned Senior Counsel ex-facie point out that the IPLA was not a concluded contract, andthat it was only a draft; x] That since the main contract cannot be said to have come into existence, therefore,the clause providing for arbitration has also necessary to be held as not having come in existence. The learnedSenior Counsel would rely upon the judgment of the Apex Court reported in (1960) 1 SCR 493 in the matterof Union of India v/s. Kishorilal Gupta and Brothers and, two Division Bench Judgments of this Courtreported in 2010 (2) Company Law Reporter 393 in the matter of Nasir Husain Films (P) Ltd. v/s SaregamaIndia Ltd and anr.; and 2008 (4) Arbitration Law Reporter 179 in the matter of Oberoi Construction P Ltd v/s .

Worli Shivshahi Co-op Hsg. Society Ltd. ;

xi] That since the underlying contract has not come into existence, in view thereof the arbitration clause in thecontract is inoperative. lgc 17 of 124 wps-7804.09 & 7636.09

The learned Senior Counsel would rely upon the judgment of the Apex Court reported in (1996) 2 SCC 667 inthe matter of U.P .

Rajkiya Nirman Nigam Ltd Vs. Indure Pvt. Ltd. & ors. xii] That the IPLA is not a concluded contract, sincethe subject matter being absent as the portfolio regarding the patents was not finalized. The parties were alsonot ad-idem as regards commencement of the IPLA and its duration. The IPLA is therefore vague, ambiguousand uncertain, and is therefore, void under Section 29 of the Indian Contract Act. The learned Senior Counselwould place reliance on the judgment of a Division Bench of the Karnataka High Court reported in AIR 1966Mysore 118 in the matter of Coffee Board, Bangalore v/s. Janab Dada Haji Ibrahim Halari, the judgment ofthe Apex Court reported in (1990) 3 SCC 1 in the matter of Mayawanti v/s. Kaushalya Devi; reported in(2004) 1 SCC 252 in the matter of United Bank of India v/s Ramdas Mahadeo Prashad & others; reported inAIR 1949 Nagpur 286 in the matter of The Central Bank, Yeotmal Ltd. V/s Vyankatesh Bapuji; and reportedin (1976) 1 WLR 591 in the matter of Bushwall Properties Ltd v/s Vortex Properties Ltd.

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Since there was uncertainty about the duration of the IPLA, the said agreement was void on account ofuncertainty. Since the portfolio of the patents was not finalized, there was uncertainty as regards the patentsand their duration, and since the duration of the IPLA was contingent upon, the expiry of the last patents theduration of the IPLA was not certain. The learned Senior Counsel in support of the said contention relied uponthe judgment of the Apex Court reported in (2008) 5 SCC 58 in the matter of Vimlesh Kumari Kulshresthav/s. Sambhajirao and anr.

xiii] That the extrinsic evidence which has been referred to in the Application for temporary injunction provesthat the said IPLA was not a concluded contract. The reply filed by the Respondents to the said Applicationfor temporary injunction was contradictory to their letter dated 24/11/2006 wherein they had agreed that therewas some uncertainty and that they would try to resolve it by having a in-house meeting.

xiv] That there can be no arbitration if there is no concluded contract. Since in the instant case the IPLA is nota concluded contract, the parties therefore cannot be referred to arbitration. The learned Senior Counsel, insupport of the said submission, sought to rely lgc 19 of 124 wps-7804.09 & 7636.09

upon the following judgments of the Apex Court reported in (1) (2006) 1 SCC 751, Dresser Rand S.A. v/s.Bindal Agro Chem Ltd and K. G. Khosla Compressors Ltd.; (2) (2010) 5 SCC 425, Andhra Pradesh TourismDevelopment Corporation Ltd & Anr. V/s. Pampa Hotels Ltd.; (3) AIR 1962 SC 378, Jawahar Lal BurmanVs. Union of India and (4) (1999) 1 SCC 9 M/s. Rickmers Verwaltung GmbH v/s. The Indian Oil CorporationLtd.



xv] That the judgment in Shin-Etsu Chemical Co. Ltd. v/s. Aksh Optifibre Ltd and anr cannot be placedreliance upon as the proposition laid down by Justice B.N.Srikrishna that the Court under Section 45 of theIndian Arbitration Act has only to take a prima facie view, cannot be said to be a majority view, in view of thediscordant note sounded by Justice D.M.Dharmadhikari in Para 112 of the said judgment.

xvi] That in the facts and circumstances of the case the exercise of writ jurisdiction under Article 227 of theConstitution of India is warranted.

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12 SUBMISSIONS ON BEHALF OF THE RESPONDENTS BY THE LEARNED SENIOR COUNSELSHRI S U KAMDAR IN WRIT PETITION NO.7804 OF 2009 :-

[a] That exercise of the Writ Jurisdiction under Article 227 of the Constitution of India is not warranted in thefacts of the present case; as the view taken by the Lower Appellate Court on the aspect of the parties beingreferred to arbitration, cannot be said to be a view which could not be taken in the facts and circumstances ofthe case.

[b] That the Petitioners have not pointed out as to how there has been a failure to exercise the jurisdiction orthe Lower Appellate court has exceeded its jurisdiction in passing the impugned order which is a pre-requisiteto warrant the exercise of the writ jurisdiction; [c] That the Lower Appellate court has passed the impugnedorder considering the relevant material on record, which the Trial Court had failed to do, and therefore itcannot be said that the order passed by the Lower Appellate Court directing the parties to arbitration isperverse. In support of the said submission, the learned Senior Counsel relied upon the judgments of the ApexCourt reported in (1) (2001) 8 SCC 97, Estralla Rubber v/s Dass Estate (P) Ltd. (2) (2003) 6 SCC 641, StateThrough Special lgc 21 of 124 wps-7804.09 & 7636.09

Cell, New Delhi v/s. Navjot Sandhu alias Afshan Guru and ors. and (3) (2010) 9 SCC 385, Jai Singh and

ors v/s. Municipal

Corporation of Delhi and ors.

In so far as aspect of perversity is concerned, the learned Senior Counsel relied upon the judgment of theApex Court reported in (2009) 10 SCC 206 in the matter of Arulvelu and anr v/s. State Represented by thePublic Prosecutor and anr.

The said judgments inter alia lay down the scope of interference under Article 227 of the Constitution ofIndia. The said judgments inter alia lay down that the power under Article 227 of the Constitution of India isto be exercised to keep the inferior Courts within their bounds. It is not in the nature of an appellate power andcannot be exercised for correcting a mere error. The said judgments lay down that if there is a failure toexercise jurisdiction or jurisdiction is exercised in excess of the powers or the findings recorded are soperverse that no reasonable man could have arrived at such a finding that the exercise of the writ jurisdictionunder Article 227 of the Constitution of India is warranted.

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[d] That the Court whilst considering the application under section 45 has only to arrive at a prima facie viewas regards the existence of the Arbitration Agreement and the arbitrability of the dispute and is not concernedwith any dispute as regards the underlying contract. The learned Senior Counsel for the said purpose reliedupon the judgment of the Apex Court reported in (2005) 7 SCC 234 in the matter of Shin-Etsu Chemical Co.Ltd. v/s. Aksh Optifibre Ltd and anr.



[e] For the proposition that the Court has to only arrive at a prima facie view as regards ArbitrationAgreement and the arbitrability of the dispute. The learned Senior Counsel for the Respondents, apart fromthe judgment of the Apex Court in Shin-Etsu' case s

(supra) relied upon another judgment of the Apex Court reported in (2009) 2 SCC 134 in the matter of ShaktiBhog Foods Limited V/s Kola Shipping Limited and the Division Bench Judgment of this Court reported in2007(5) Bom.C.R. 227 in the matter of Caribjet Inc v/s Air India Limited and the judgment of a learnedSingle Judge of this Court reported in 2012(3) Bom. C.R. 36 in the matter of Olive Healthcare v/s. LannettCompany Inc. & anr. lgc 23 of 124 wps-7804.09 & 7636.09

[f] That the documents in question unmistakably lead to a conclusion that the IPLA was a concluded contract.The learned Senior Counsel sought to rely upon the correspondence between the parties prior to the agreementbeing executed on 26/9/2006. The said correspondence starts with the e-mail dated 25/6/2006 and the e-mailand letters exchanged thereafter;

[g] That the fact that IPLA is a concluded contract is borne out by the fact that the parties have signed thesame, and therefore, in terms of the requirements as mentioned in Section 44 of the said Act, the LowerAppellate Court was right in referring the parties to arbitration.

[h] That all along it has been the stand of the Respondents that the Petitioners have executed the IPLA whichwas not disputed by the Petitioners herein. The dispute started on account of the payment in respect of theequity shares which were to be purchased by the Respondents. The said fact is borne out by the letter dated 3rd November 2006 of the Petitioners and it is only thereafter that the Petitioners started raising a dispute asregards certain aspects of the IPLA;

lgc 24 of 124 wps-7804.09 & 7636.09

[i] That the aspect of the main/underlying contract and the Arbitration Agreement are separable. In a givencase, even if the main contract can be said to be suffering from some infirmity but that would not have anyeffect on the Arbitration Agreement. The Court has only to prima facie see whether there is a valid ArbitrationAgreement.

[j] That the conclusivity that is required to be seen is only as regards the Arbitration Agreement. Therequirement for which finds a place in Section 44 of the Indian Arbitration Act. The requirement being thatthe Arbitration Agreement has to be in writing and signed by the parties. In the instant case both theconditions are satisfied. The learned Senior Counsel for the Respondents in support of the said submissionrelied upon the judgment of the Apex Court reported in (2012) 2 SCC 93 in the matter of Reva Electric CarCompany Private Limited v/s. Green Mobil and (2008) 14 SCC 240 in the matter of Great Offshore Limitedv/s. Iranian Offshore Engineering and Construction Company. [k] That the facts in Kishorilal Gupta's case areclearly distinguishable from the facts of the present case, as in Kishorilal Gupta's case the contract itself wassuperseded and therefore in the said fact lgc 25 of 124 wps-7804.09 & 7636.09

situation the Court held that no reliance could be placed on the arbitration clause in the superseded contract.For the said purpose, the learned Senior Counsel relied upon the judgment of the Apex Court reported in(2009) 10 SCC 103 in the matter of Branch Manager, Magma Leasing and Finance Limited and Anr. v/s.Potluri Madhavilata and anr. wherein the judgment in Kishorilal Gupta has been distinguished by the ApexCourt. [l] That whilst considering the application under Section 45 of the said Act there can only be a primafacie examination of the material on record so as to arrive at a conclusion whether there is an ArbitrationAgreement between the parties. In so far as other aspects are concerned, the issue can be raised before theArbitral Tribunal. In support of the said submission, the learned Senior Counsel for the Respondents reliedupon the judgment of the Apex Court reported in (2007) 7 SCC 120 in the matter of Aurohill GlobalCommodities Ltd. v/s. Maharashtra STC Ltd. and (2009) 2 SCC 134 in the matter of Shakti Bhog Foods



Limited v/s. Kola Shipping Limited.

[m] That the infirmity if any in the main contract would not impinge upon the Arbitration Agreementencompassed in the said contract. lgc 26 of 124 wps-7804.09 & 7636.09

The position in law in that respect in India as well as in England is the same. Hence the contention of thelearned Senior Counsel for the Petitioners that in view of the fact that the annexure to the IPLA or othergrounds on which the Petitioners contend that the IPLA was not a concluded contract would have no bearingon the Arbitration Agreement as it is well settled that the Arbitration Agreement stands apart from the maincontract. In support of the said submission the learned Senior Counsel relied upon the English judgmentreported in (2007) UKHL 40 in the matter of th

Premium Nafta Products Limited (20 Defendant) and others th

v/s. Fili Shipping Company Limited (14 Claimant) and others and also relied upon the judgment of a learnedSingle Judge of this Court reported in 2003 CLC 601 in the matter of GTC Limited v/s Royal Consulting RVand anr.

[n] That merely because there is a challenge to the main underlying contract, the said fact would not impingeupon the validity of the Arbitration Agreement. The learned Senior Counsel for the Respondents relied uponthe judgment of the US Federal Court reported in 546 US 440 in the matter of Buckeye Check Cashing Inc. v.Cardegna. The said view of the US Federal Court has been affirmed by the Apex Court in the judgmentreported in (2009) 2 lgc 27 of 124 wps-7804.09 & 7636.09

SCC 494 in the matter of P Manohar Reddy & Bros. v/s. .

Maharashtra Krishna Valley Development Corporation and others and para 28 thereof.

[o] That it is only when the main underlying contract is vitiated on account of fraud, coercion, etc, that theArbitration Agreement can be said to be affected, such is not the case in the instant matter. (p) That it is wellsettled even if there is any uncertainty or ambiguity in the underlying contract, it can be looked into and ifnecessary corrected by relying on extrinsic evidence. The learned Senior Counsel in support of the saidcontention sought to place reliance on Paras 11-123, 12-117, 12-118 and 13-008 from the learned AuthorChitty on Contract.

[q] That there is no uncertainty as regards the terms of the underlying contract. The date of execution of theIPLA is certain and is referable to page 46. The date 17/09/2006 appearing on IPLA is referable to the letterdated 17/09/2006 of Yogesh Mehra by which he has communicated his inability to remain present inAurich-Germany on the said day;

lgc 28 of 124 wps-7804.09 & 7636.09

[r] That the contention of the learned Senior Counsel for the Petitioners that the agreement is not a concludedcontract as it does not contain the annexure in respect of the patents which have been granted to thePetitioners is only a bogey raised on behalf of the Petitioners, as the Petitioners are using the patents from1994 to 2004 and two more patents were used since 2004, the Technical Know-How Agreement andSupplemental Technical Know-How Agreement spelt out which patents have been given to the Petitioners.

[s] That all questions relating to the agreement in any event have to be decided by the Arbitral Tribunal. Thatsince the agreement has been signed, the requirement under Section 7 of the Indian Arbitration Act issatisfied. For the said purpose the learned Senior Counsel relied upon the judgment of a learned Single Judgeof this Court reported in AIR 2000 Bombay 108 in the matter of Keval Krishna Balakram Hitkari v/s Anil



Keval Hitkari and others and the judgment of the Apex court reported in (1995) 6 SCC 571 in the matter ofJ.K.Jain and others v/s. Delhi Development Authority and others.

That in so far as the issue as to whether the contract is concluded lgc 29 of 124 wps-7804.09 & 7636.09

or not, the signing of the contract is one of the defining aspects which test is laid down by the Apex Court inthe judgment reported in (2010) 1 SCC 83 in the matter of Grasim Industries Limited and Anr v/s. AgarwalSteel

[t] That the contention of the learned Senior Counsel for the Petitioners that the judgment of the LowerAppellate Court is bereft of any findings is not correct. Findings have been recorded on the basis that theparties have signed the IPLA as also on the basis of the correspondence entered into between the parties whichcan be seen from the impugned order.

[u] That even if a part of the arbitration clause is unworkable, the same is severable as in the instant case thegrievance of the Petitioners is only as regards the number of arbitrators who are to be appointed. The saiddispute can therefore be said to be a dispute only as regards the machinery provision but not as regards theagreement between the parties to go for arbitration. [v] That even if part of the agreement is bad, the partwhich can be sustained will have to be enforced. The learned Senior Counsel relied upon the judgment of theApex Court reported in AIR 1997 lgc 30 of 124 wps-7804.09 & 7636.09

SC 605 in the matter of M.M.T.C. Limited v/s. Sterlite Industries (India) Ltd. which is followed in (2002) 3SCC 572 in the matter of Narayan Prasad Lohia v/s. Nikunj Kumar Lohia and others. [w] That the letter of thearbitrator appointed by the Petitioners cannot be conclusive of the fact that the Arbitration Agreement is notworkable. The correspondence preceding the said letter does not indicate that the said Arbitration Agreementis unworkable. [x] That the defining aspect as it were, is the intention of the parties to go for arbitration whichis clearly manifest. For the said purpose the learned counsel relied upon the judgment of the Allahabad HighCourt reported in AIR 1954 Allahabad 750 in the matter of A H Bhiwindiwala and Co. v/s. R B LakshmanDass Mohan Lal and Sons Ltd and anr. , and the judgment of the Apex Court reported in (2009) 4 SCC 495 inthe matter of Nandan Biomatrix Limited v/s. D 1 Oils limited.

(y) That there is no merit in the contention of the learned counsel for the Petitioners that the second reliefsought in the suit of injunction cannot go to arbitration. That the said relief can only said to be referable to theIPLA as it is the contention of the lgc 31 of 124 wps-7804.09 & 7636.09

learned Senior Counsel that since the IPLA is not a concluded contract, the Arbitration Agreement is notenforceable. The test would therefore be whether the Arbitration Agreement as contained in IPLA can beenforced. For the said purpose the learned Senior Counsel relied upon the judgment of the Apex Courtreported in (2006) 7 SCC 275 in the matter of Rashtriya Ispat Nigam Ltd v/s. Verma Transport Co as also thejudgment reported in (2008) 16 SCC 774 in the matter of Everest Holding Limited v/s. Syam KumarShrivastava and others.

[z] The learned Senior Counsel sought to distinguish the judgments cited by the learned Senior Counsel forthe Petitioners in the context of the facts of the present case. The learned Senior Counsel for the Respondentswould contend that in the context of the facts of the cases in the judgments cited by the learned SeniorCounsel for the Petitioners that the Apex Court has held that the parties were not ad-idem, and therefore, thecontract was not concluded, but the same is not the case in the instant matter. CONSIDERATION - WRITPETITION NO.7804 of 2009

13 Heard the learned counsel for the parties and also perused the Written Submissions filed on behalf of theparties. lgc 32 of 124 wps-7804.09 & 7636.09



14 Since clause (18) of the IPLA is at the fulcrum of the controversy involved in both the Petitions, it wouldbe apposite to reproduce sub-clauses 18.1 to 18.3 of clause 18 of the IPLA.

(18.1) All disputes, controversies or differences which may arise between the parties in respect of

this Agreement including without limitation to the

validity, interpretation, construction, performance and enforcement of alleged breach of this Agreement, theparties shall, in the first instance attempt to resolve such dispute, controversy or difference through mutualconsultation. If the dispute, controversy or difference is not resolved through mutual consultation within 30days after

commencement of discussions or such longer period as the parties may agree in writing, any party may referdispute(s) controversy(ies) or difference(s) for resolution to an arbitral tribunal to consist of three (3)arbitrators of whom one will be appointed by each of the Licensor and the licensee and the arbitratorappointed by Licensor shall also act aas the presiding arbitrator.

18.2) The arbitrators shall have powers to award

and/or enforce specific performance. The award of

the arbitrators shall be final and binding on the parties. In order to preserve its rights and remedies, eitherparty may seek preliminary injunctive relief or other temporary relief from any court of competent jurisdictionor from the arbitration tribunal pending the final decision or award of the arbitrator(s). Any such application toa court of competent jurisdiction for the purposes of seeking

injunctive relief shall not be deemed incompatible

with this agreement to arbitrate or as a waiver of

this Agreement to arbitrate.

18.3) All proceedings in such arbitration shall be conducted in English. The venue of the arbitration

proceedings shall be London. The arbitrators may

lgc 33 of 124 wps-7804.09 & 7636.09

(but shall not be obliged to ) award costs and reasonable expenses (including reasonable fees of

counsel) to the party(ies) that substantially prevail on merit. The provisions of the Indian Arbitration

and Conciliation Act, 1996 shall apply.

15 It would also be apposite to reproduce the relevant provisions of the Indian Arbitration and ConciliationAct, 1996 namely Sections 7, 44 and 45 (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 whichmay 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.

(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 arbitrationagreement if the contract is in writing and the reference is such as to make that arbitration clause part of thecontract.

(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 forcein India, made on or after

the 11th day of October, 1960 -

lgc 34 of 124 wps-7804.09 & 7636.09

(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the FirstSchedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have beenmade may, by notification in

the Official Gazette, declare to be territories to which the said Convention applies.

(45) Power of Judicial authority to refer parties

to arbitration - Notwithstanding anything

contained in Part I or in the Code of Civil Procedure, 1908 (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 partiesor 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.



16 As can be seen, Section 45 provides that an application may be made to a judicial authority to refer anyproceeding before it to Arbitration, where the parties have entered into an Arbitration Agreement ascontemplated under Section 44 of the said Act. It further provides that such reference must be made by theCourt unless it finds that the Agreement is null and void, inoperative or incapable of being performed. Thereference therefore in Sections 44 and 45 is to an Arbitration Agreement. If the Arbitration Agreement is inthe form of a clause in the main contract, then reference in Sections 44 and 45 would be to that clause whichis an Arbitration Agreement contained as and by way of a clause in the main contract. lgc 35 of 124wps-7804.09 & 7636.09

17 In so far as the scope of the inquiry under Section 45 of the Indian Arbitration Act is concerned, the sameis well settled by the authoritative pronouncement of the Apex Court in the Judgment reported in 2005(7)SCC 234 in the matter of Shin-Etsu Chemical Co. Ltd. & Ors. vs Aksh Optifibre Ltd. Paragraph 72 to 75 ofthe said Judgment are material and are reproduced herein under:

"72. True, that there is nothing in Section 45 which suggests that the finding as to the nature of the arbitralagreement has to be ex facie or prima

facie. In my view, however, this is an inescapable

inference from an ex visceribus interpretation of

the statute. Sub-section (3) of Section 8 in Part I of the Act envisages that even in a situation where anapplication to the court has been made

under sub-section (1), the arbitration may commence, continue and even an arbitral award

be made. This was obviously meant to cut down

delay in the conclusion of the arbitral proceedings. There is conspicuous absence of a corresponding provisioneither in Section 45 or in

the rest of the provisions in Part II. This legitimately gives rise to an inference that once the arbitral agreementhas been subjected to scrutiny before the court under Section 45 of the

Act, conceivably, the arbitral proceedings could be stayed till the decision of the court on the nature of thearbitral agreement. If it were to be held that the finding of the court under Section 45 should be a final,determinative conclusion, then

it is obvious that, until such a pronouncement is

made, the arbitral proceedings would have to be

in limbo. This evidently defeats the credo and ethos of the Act, which is to enable expeditious

arbitration without avoidable intervention by judicial authorities.

73. The absence in Part II of the Act of a provision corresponding to Section 5 in Part I has

lgc 36 of 124 wps-7804.09 & 7636.09

been highlighted as supportive of the view that greater judicial intervention is contemplated in Part II of theAct. The question that has arisen before the Court is not the presence or absence of



judicial intervention; it is one with regard to the manner in which the said judicial intervention should proceedwhether on a final view or prima

facie view of the factors enumerated in Section 45

of the Act.

74. There are distinct advantages in veering to

the view that Section 45 does not require a final

determinative finding by the Court. First, under

the Rules of Arbitration of the International Chamber of Commerce (as in force with effect from 1.1.1998), asin the present case, invariably

the arbitral tribunal is vested with the power to

rule upon its own jurisdiction. Even if the court

takes the view that the arbitral agreement is not

vitiated or that it is not invalid, inoperative or unenforceable, based upon purely a prima facie view, nothingprevents the arbitrator from trying

the issue fully and rendering a final decision thereupon. If the arbitrator finds the agreement

valid, there is no problem as the arbitration will

proceed and the award will be made. However, if

the arbitrator finds the agreement invalid, inoperative or void, this means that the party who

wanted to proceed for arbitration was given an opportunity of proceeding to arbitration, and the

arbitrator after fully trying the issue has found that there no scope for arbitration. Since the arbitrator's findingwould not be an enforceable

award, there is no need to take recourse to the

judicial intercession available under Section 48(1)(a) of the Act.

75. The finding of the court that the arbitration

agreement is valid, operative and enforceable, if

in favour of the party setting up the arbitration

agreement, is not appealable under Section 50 as

a matter of legislative policy. Refusing to refer parties to arbitration under Section 45, is however, madeappealable under Section 50(1) lgc 37 of 124 wps-7804.09 & 7636.09



(a) of the Act. Even after the court takes a prima

facie view that the arbitration agreement is not vitiated on account of factors enumerated in Section 45, andthe arbitrator upon a full trial holds that there is no vitiating factor in the arbitration agreement and makes anaward, such

an award can be challenged under Section 48(1)

(a). The award will be set aside if the party against whom it is invoked satisfies the court inter alia that theagreement was not valid under the

law to which the parties had subjected it or under

the law of the country where the award was made. The two basic requirements, namely, expedition at the pre-reference stage, and a fair

opportunity to contest the award after full trial,

would be fully satisfied by interpreting Section 45 as enabling the court to act on a prima facie view."

18 A useful reference could also be made to the judgment of a Division Bench of this Court in Caribjet Inc v/sAir India Limited (supra). Para 6 of the said judgment is material and is reproduced herein under :-

6. As rightly submitted by the learned Counsel

for the appellant, the issue which is sought to

be raised is no more res integra and has been

well-settled by the decision of the Apex Court

in Shin-Etsu Chemical Company's case (supra).

By a majority decision in the said case, the Apex Court has held 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 isrequired to be objectively lgc 38 of 124 wps-7804.09 & 7636.09



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 a 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."

19 The inquiry contemplated under Section 45 is therefore of a prima facie nature of the existence of anArbitration Agreement. If the Court comes to a prima facie conclusion that there is an Arbitration Agreementand the same is legal and valid the matter must be referred to the Arbitral Tribunal for further considerationwhich can thereafter conclusively decide either way. If the Court comes to the prima facie conclusion thatthere is either no Arbitration Agreement or that the same is not valid in law, the Court must then proceed todetermine the same finally and conclusively.

lgc 39 of 124 wps-7804.09 & 7636.09

20 The issue which requires to be addressed at the threshold is whether the view expressed by JusticeB.N.Shrikrishna in Shin-Etsu Chemical Co. Ltd (supra) is the majority view. The said issue arises in view ofthe submission of the Learned Senior Counsel for the Petitioners relying upon paragraph 112 of the said



Judgment of Shin Estu Chemical Co. Ltd. (Supra) that Justice D.M.Dharmadhikari has not concurred with theview of Justice B.N.Shrikrishna. In paragraph 111 of the said Judgment Justice D.M.Dharmadhikari expresslyconcurs with the view of Justice Shrikrishna and therefore there can be no dispute that the proposition laiddown by Justice Shrikrishna has been accepted by Justice D.M.Dharmadhikari, and is the majority view in thesaid judgment. The said paragraph 111 is reproduced herein under :-

"With utmost respect to both of them, I am inclined to agree with the view expressed by learned BrotherSrikrishna J. but only with a rider and a partly different reason which may I state below:-

The main issue is regarding the scope of power of any judicial authority including a regular civil court undersection 45 of the Act in making or refusing a reference of dispute arising from an international arbitrationagreement governed by the provisions contained in Part III Chapter-I of the Act of 1996. I respectfully Agreewith learned Brother Srikrishna J only to the extent that if on prima facie examination of the documents andmaterial on record, including the arbitration agreement on which request for reference is made by one of theparties, the judicial authority or the court decides to make a reference, it may merely mention the submissionsand 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 lgc 40 of 124wps-7804.09 & 7636.09

prima facie view of the matter, which is required to be objectively taken on the basis of material and evidenceproduced by the parties on the record of the case, the judicial authority including a regular civil court, isinclined 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 courtmust afford full opportunities to the parties to lead whatever documentary or oral evidence they want to leadand then decide the question like trial of a preliminary issue on jurisdiction or limitation in regular civil suitand pass an elaborate reasoned order. Where a judicial authority or the court refuses to make a reference onthe grounds available under section 45 of the Act, it is necessary for the judicial authority or the court which isseized of the matter, to pass a reasoned order as the same is subject to appeal to the appellate court undersection 50(1)(a) of the Act and further appeal to this Court under sub- section (2) of the said section."

(emphasis supplied)

In so far as paragraph 112 which has been relied upon by the Learned Senior Counsel, the same deals with asituation where the Award is passed in spite of/ and/or prior to the decision holding that such an ArbitrationAgreement does not exist. The Apex Court in the said case of Shin Estu Chemical Co. Ltd. (supra) was notconcerned with such a case, neither is this Court, in the present Petition.

21 The Judgment in Shin Estu Chemical Co. Ltd (supra) has been followed by the Apex Court in Shakti BhogFoods Ltd, (supra) as also by a Division Bench of this Court in Caribjet Inc. Vs. Air India Ltd. (supra), as alsolgc 41 of 124 wps-7804.09 & 7636.09

by a Learned Single Judge of this Court in Olive Healthcare Vs. Lannet Company Inc. (supra). Hence, in thelight of the aforesaid Judgments, the Court for the purpose of determination of the existence or validity of anagreement under Section 45 of the Indian Arbitration Act, has to restrict its enquiry to the ArbitrationAgreement and not the underlying contract. It is required to be noted that there is a substantial change in lawfrom the one that existed under the Indian Arbitration Act 1940. In the 1940 Act under Section 33 thereof, theCourt had the power and jurisdiction to determine the existence or validity of Arbitration Agreement.However, under the provisions of the Indian Arbitration Act, the said power of the Court has been taken awayand is now expressly vested with the Arbitral Tribunal under Section 16 of the Indian Arbitration Act. UnderSection 16, the Arbitral Tribunal can rule on its own jurisdiction including ruling on any objection withrespect to the existence or validity of the Arbitration Agreement. Thus the power to determine finally andconclusively the existence and validity of an Arbitration Agreement has been conferred on the Arbitral



Tribunal under Section 16 of the 1996 Act. It is the Arbitral Tribunal therefore which will determine whetherthere is an Arbitration Agreement or not for that purpose the Arbitration Agreement will be a totallyindependent agreement dehors the other terms of the contract and such an agreement would not ipso-jurebecome null and void or invalid even if it has been held that the under lying contract is void. Another aspectwhich is to be noted is that the severability and separability of the Arbitration lgc 42 of 124 wps-7804.09 &7636.09

Agreement though being a clause in the same contract, has now a recognition not only under Section 16 of the1996 Act but by a catena of the Judgments of the Apex Court. A useful reference could be made to theJudgment reported in 2009(2)SCC 494 in the matter of P Manohar Reddy & Bros. Vs. .

Maharashtra Krishna Valley Dev. Corp. & ors., The Apex Court has recognized that the ArbitrationAgreement is separate and independent from the main Agreement. It has been held that the Arbitration clausethough being a part of the contract is a collateral term which need not in all situations perish with coming toan end of the underlying contract and it may survive the same. Paragraphs 27 and 28 of the said Judgment arematerial and are reproduced herein under :

"27. An arbitration clause, as is well known, is a part of the contract. It being a collateral term need not, in allsituations, perish with coming to an end of the contract. It may survive. This concept of separability of thearbitration clause is now widely accepted. In line with this thinking, the UNCITRAL

Model Law on International Commercial

Arbitration incorporates the doctrine of separability in Article 16(1). The Indian law - The Arbitration

and Conciliation Act, 1996, which is based on the

UNCITRAL Model Law, also explicitly adopts this approach in Article 16 (1)(b), which reads as under:-

"16. Competence of arbitral tribunal to rule

on its jurisdictional. - (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on anyobjections with respect to the existence or validity of the arbitration agreement, and for that purpose, (a) Anarbitration clause which forms part of a contract shall be treated as an agreement lgc 43 of 124 wps-7804.09 &7636.09

independent of the other terms of the contract; and (b) A decision by the arbitral tribunal that the contract isnull and void shall not entail ipso jure the invalidity of the arbitration clause.

(Emphasis supplied)

Modern laws on arbitration confirm the concept.

28. The United States Supreme Court in the recent judgment in Buckeye Check Cashing, Inc. v.

Cardegna 546 US 460 acknowledged that the separability rule permits a court "to enforce an arbitrationagreement in a contract that the arbitrator later finds to be void." The Court, referring to its earlier judgmentsin Prima Paint Corporation v. Flood & Conklin Mfg. Co. 388 U. S.

395, and Southland Corporation v. Keating 465 U.

S. 1, inter alia, held:



Prima Paint and Southland answer the

question presented here by establishing three propositions. First, as a matter of substantive federal arbitrationlaw, an arbitration provision is severable from the remainder of the contract.

But this must be distinguished from the situation where the claim itself was to be raised during the subsistenceof a contract so as to invoke the arbitration agreement would not apply."

The said Judgment as can be seen approves the Judgments of United States Supreme Court reported in 546 US460 in the matter of Buckeye Check Cashing Inc. Vs. Cardegana and, reported in 388 US 395 in the matter ofPrima Paint Corporation Vs. Floor and Conkling Manufacturing Company

lgc 44 of 124 wps-7804.09 & 7636.09

22 A reference could also be made to the Judgment of the Apex Court reported in 2009(10) SCC 103 in thematter of Branch Manager Magma Leasing and Finance Ltd. & Anr. Vs. Potluri Madhavilata & Anr. TheApex Court in the said Judgment has approved the proposition laid down in P. Manohar Reddy's case (supra)and once again referred with approval the judgment of the United States Supreme Court in Buckeye CheckCashing Inc. The aforesaid Judgments of the Apex Court as well as the United States Supreme Court, make itclear that the Arbitration Agreement would survive even in case of invalidity of the main agreement or theunderlying contract. It is only in cases where the underlying contract is vitiated by fraud, coercion ormisrepresentation that the same would impact the Arbitration Agreement. 23 The principles of severabilityand separability of the Arbitration Agreement is common both under the English Arbitration Act, 1996 andthe Indian Arbitration Act 1996, as evidenced by the following Judgments of the Apex Court and the House ofLords reported in :-

1] 2003 CLC 601, GTC Ltd. Vs. Royal Consult R.V. & Anr. 2] 2009(2) SCC 134, Shakti Bhog Foods Ltd.Vs. Kola Shipping Ltd.

3] Judgment of the House of Lords reported in 2007 UKHL 40, Premium Nafta Products Ltd. & Ors. Vs. FiliShipping Co. Ltd. & Ors.

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24 It is in the context of the settled law as afore stated that the facts of the present case would have to be seen.The Learned Senior Counsel for the Petitioners laid much store on the correspondence post 29-9-2006 i.e. thedate when the IPLA was signed, to contend that the IPLA was not a concluded contract. However, thecorrespondence prior thereto between the parties indicates otherwise. If the said correspondence is seen, towhich my attention is drawn by the Learned Senior Counsel appearing for the Respondents, the samediscloses that it was on 27-6-2006 i.e. a good three months prior to its execution, that the draft IPLA was sentto the Petitioners. The said IPLA had already undergone changes on the basis of the suggestions of both theparties and the final document was kept ready on 29-9-2006 as the Petitioner No.2 had shown his inability tocome to Aurich on 17-9-2006 when it was to be executed. The other three agreements namely the SuccessiveTechnological Transfer Agreement, Name Use Licence Agreement and the Shareholders Agreement were notexecuted on 29-9-2006 because they were not finalised as certain issues were still required to be finalised. Themost important letter if it can be said so, is the letter dated 30-9-2006 which is addressed by the PetitionerNo.2 Yogesh Mehra in his own handwriting stating therein that he has executed not one but more than oneagreement on 29-9-2006. Pertinently in paragraph 2 of the said letter, the Petitioner No.2 has in fact referredto the patent of E-82 being the subject matter of the IPLA and not the Agreed lgc 46 of 124 wps-7804.09 &7636.09



Principles. The fact that the letter dated 30-9-2006 refers to the execution of two agreements on 29-9-2006and also refers to the E-82 patent, further indicates that by the said letter dated 30-9-2006 the Petitioner No.2admitted to the execution of the IPLA. In so far as the email dated 4-10-2006 is concerned, the said emailrefers to the preparation and adoption of the agreements according to the "Agreed Principles". The said emailrefers to the other three agreements. It seems that only after the claim for royalty was made by theRespondents, that on 3-11-2006 the Petitioners purportedly incorporated an indirect denial of the execution ofthe IPLA. In so far as the email dated 24-11-2009 is concerned, the said email as can be seen from its subjectrefers to the final IPLA the Shareholders Agreement and other Successive Agreements. The email which dealtwith the outstanding drafts of the Agreements obviously did not refer to the final IPLA but refers to the otherSuccessive Agreements because as far as the IPLA was concerned, the same itself stated that it was already afinalised agreement. The email therefore, did not refer to any draft of the IPLA or the ShareholdersAgreement and therefore the said email does not in any manner aid the case of the Petitioners that the IPLAwas not a concluded contract. Further the email dated 15-12-2006 from the Petitioners to the Respondentswherein also the Petitioners dealt with the draft agreements but the subject of the said email as can be seenwas the same as that of the email dated 24-11-2006. Thereafter the email dated 10-1-2007 dealt with a furthervisit to Germany and revised "Drafts of Outstanding lgc 47 of 124 wps-7804.09 & 7636.09

Contracts". Thereafter, the email dated 29-1-2007 sent by the Petitioners, in fact mentions the amendedversion of the Shareholders Agreement which is outstanding and not executed, Name Use Licence Agreement,and the Successive Technological Transfer Agreement. The aforesaid material therefore leaves no manner ofdoubt that the draft agreements referred to therein were only the other three agreements and not the IPLA.Therefore, a perusal of the documents on record discloses that not only is the Arbitration Agreementcontained in clause 18.1to the IPLA legally and validly executed, but it is in writing and signed by the parties.

25 The contentions of the Learned Senior Counsel for the Petitioners as regards the unenforceability of theArbitration Agreement all revolve around the alleged uncertainty and ambiguity in the underlying or thematrix contract. It was contended that since the IPLA is vague, ambiguous and uncertain, the same is voidunder Section 29 of the Indian Contract Act, 1872. Consequently the Arbitration Agreement as contained inclause 18 of IPLA, is also void. The contention therefore of ambiguity and uncertainty is as regards theunderlying contract and not in respect of the Arbitration Agreement. Assuming it to be so, applying theprinciple of separability and severability of the Arbitration Agreement from the main agreement, thesubmission of the learned Senior Counsel for the Petitioners does not have merit and cannot impede the Courtfrom referring the parties to arbitration.

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26 Now coming to the contention of the Learned Senior Counsel for the Petitioners that since on the IPLAthree dates are appearing, the commencement date and the duration of the IPLA is therefore uncertain andtherefore the IPLA is not a concluded contract on account of the said uncertainty and ambiguity. In so far asthe said three dates are concerned, the first date i.e. 27-6-2006 is referable to the first email dated 27-6-2006under which the draft IPLA was forwarded to the Petitioner No.2. The Petitioner No.2 can therefore be said tobe aware that 27-6-2006 is referable to the date on which the draft was forwarded and therefore it could neverbe the date of execution. The date 17-9-2006 appearing on the third page of the IPLA is the date on which theIPLA was proposed to be executed. Since the Petitioner No.2 cancelled his visit to Aurich-Germany by itsemail dated 16-9-2006, the said date 17-9-2006 remained to be cancelled /altered. The third date is 29-9-2006which also appears on the first page of the IPLA. There is no dispute that the signatures on the IPLA havebeen affixed by the parties on 29-9-2006. In the light of the aforesaid and since it is not disputed by thePetitioners i.e. the IPLA has been executed on 29-9-2006, the question of taking into consideration any otherdate would not arise. In any event, the said dispute can only be relatable to the underlying contract and can beraised before the Tribunal and if raised, it is for the Arbitral Tribunal to adjudicate upon the same. lgc 49 of124 wps-7804.09 & 7636.09



27 Now coming to the judgments cited by the learned Senior Counsel for the Petitioners in support of hiscontention that since the underlying contract cannot be said to have come into existence, therefore, the clauseproviding for arbitration has also necessary to be held as not having come into existence. In so far asKishorilal Gupta's case (supra) is concerned, in the said case, the contention was that even after supersessionof an earlier contract, the Arbitration Agreement contained in the superseded contract continues in spite of theadmitted position that under the new contract, there was no arbitration clause. It is in the said fact situationthat the Apex Court held that with the supersession of the whole contract, the Arbitration Agreement alsostood superseded and does not survive. The said judgment has been distinguished by the Apex Court in thecase of Branch Manager, Magma Leasing and Finance Ltd, by holding that the new contract entered into wasa novation under Section 62 of the Indian Contract Act and thus no reliance can be placed on the ArbitrationAgreement contained in such a superseded contract. In the case of U.P. Rajkiya Nirman Nigam Ltd., (supra)the facts were that the counter proposal was not signed at all and thus, no concluded contract was arrived atbetween the parties. It was in the said context that the Apex Court held that there was no concluded contract.Para 19 of the said judgment is material and is reproduced herein under :- "In view of the fact that Section 2[a] of the Act envisages a written agreement for arbitration and lgc 50 of 124 wps-7804.09 & 7636.09

that written agreement to submit the existing or future differences to arbitration is a pre-condition and furtherin view of the fact that the original contract itself was not a concluded contract, there existed no arbitrationagreement for reference to the arbitrators. The High Court, therefore, committed a gross error of law inconcluding that an agreement had emerged between the parties, from the correspondence and from submissionof the tenders to the Board. Accordingly it is declared that there existed no arbitration agreement and that thereference to the arbitration, therefore, is clearly illegal. Consequently arbitrators cannot proceed further toarbiter the dispute, if any. The conclusion of the High Court is set aside."

In the case of Nasir Husain Films (P) Ltd. (supra) the facts were that reliance was placed on a draft document.The Division Bench of this Court held that the major issues on which negotiations were still in progress werenot settled. The contract could not be said to be concluded. In the case of Oberoi Const. Pvt. Ltd (supra) thefacts were that the General Body Resolution passed by the society did not accept the concluded agreement andstated that the same will be subject to circulation of the draft and finalization thereof. It was in the said contextthat the Division Bench held that since the document was not accepted or signed or executed by the society,there was no conclusivity of the contract. However in the instant case, the IPLA has admittedly been executedon 29/09/2006 by the parties signing on each page and also in the lgc 51 of 124 wps-7804.09 & 7636.09

execution clause, therefore, the said judgments (supra) cited by the learned Senior Counsel for the Petitionerswould have no application. In the case of United Bank of India (supra) the issue before the Apex Court wascentered around as to whether the MOU entered into between the parties on 18-5-1994 and forwarded byletter dated 20-5-1994 has been acted upon and complied with by the parties . One of the conditions for theMOU to come into force was withdrawal of the suit by the Respondents filed by them against the United Bankof India. Since the suit was not withdrawn, the Apex Court held that the MOU cannot be said to have comeinto existence. Para 7 of the said judgment is material and is reproduced herein under :- "Undisputedly, therespondents did not withdraw the suit filed by them against the United Bank of India, which is the conditionprecedent stipulated in clause (1) of the MOU. The respondents also did not pay the guarantee liability of Rs.2.33 lacs. No compromise petition was filed before an appropriate court. Therefore, by no stretch ofimagination it can be said that the terms and conditions stipulated in the MOU had been complied with andacted upon by the parties. Apart from what has been said, subsequent to the MOU there was also a lot ofcorrespondence between the parties by exchanging letters giving offers and counter- offers, as would berevealed in the letters dated 16.6.94,23.12.94,12.6.95,15.6.95 and 19.6.95. All these correspondence would goto show that the parties failed to arrive at a consensus even on what were the terms of the MOU. Thus, it isclear that there was no concluded contract nor was there any novation."

In the case of Vimlesh Kumar Kulshrestha (supra) the agreement in question was held to be void foruncertainty as there was no proper lgc 52 of 124 wps-7804.09 & 7636.09



description of the property given in the agreement by annexing a map, though map was referred to in theagreement, nor the description was satisfactorily proved in a suit for specific performance. It is the saidcontext that the Apex Court held that the agreement if read was uncertain. Para 24 of the said report ismaterial and is reproduced herein under :-

"Reference to the said legal maxim, in our opinion, is not apposite in the facts and circumstances of this case.By reference to the boundaries of the premises alone, the description of the properties agreed to be sold didnot become certain. For the purpose of finding out the correct description of the property, the entire agreementwas required to be read as a whole. So read, the agreement becomes uncertain."

In the case of Coffee Board, Bangalore (supra), the facts were that the defendant had to specify the quantity ofcoffee which he intended to purchase, those quantities were omitted to be specified and those portions wereleft blank in the tender form. It is in the said context that the Division Bench of the Karnataka High Court heldthat the offer was vague for uncertainty and indefiniteness on the acceptance of which no contract is ever bornor comes into being. Paras 30 and 31 of the said report are material and are reproduced herein under :-

"30 Now, in this case the defendant did only one of those two things. He stated the prices, but he did not statethe quantities which he wanted. If a person is told that goods of more than one description are available forsale and he is asked to state what prices he would be willing to offer for those goods and which of those goodshe would be willing to buy at those prices, and that person states only his prices but never indicates the lgc 53of 124 wps-7804.09 & 7636.09

goods required by him, it is, I think, Impossible for any one to suggest that there was any acceptable offermade by him. I do not find it possible to accede to the argument that in a case in which a tenderer who had tosubmit his tender in the form Exhibit A-3 which was sent in this case, does not fill in the blanks in the lastparagraph of that tender, the necessary and inevitable inference is that he is willing to buy all the goods towhich the tender form referred."

31 The fact that paragraph 3(a) of Exhibit A-1 required the tenderer to state the quantities and the fact thatExhibit A-3 contains separate columns for the price and the quantity, makes the position abundantly clear thatunless a tender like Ex. A-3 not only states the prices but also states the quantities, the tender is no offer whichin law can be accepted. In my opinion, the specification of the quantity required by the tenderer was anessential term of the offer, and if that term was not to be found in the offer his offer was vague for uncertaintyand indefiniteness, on the acceptance of which no contract is ever born or comes into being." The aforesaidjudgments were relied upon by the learned Senior Counsel for the Petitioners to buttress his submission thatthe IPLA was void on account of ambiguity and uncertainty.

Reading of the said judgments discloses that all the said judgments are concerning the validity of theunderlying contract and not the Arbitration Agreement. In the said judgments the underlying contract has beenheld to be void or has not come into existence on account of the reasons mentioned therein. However, theinstant case arises under Section 45 of the Indian Arbitration Act, the infirmity, if any, in the underlyingcontract cannot therefore lgc 54 of 124 wps-7804.09 & 7636.09

be looked into. It is well settled that even if there is any uncertainty or ambiguity, it can be looked into and ifnecessary corrected by relying on extrinsic evidence, as rightly contended by the learned Senior Counsel forthe Respondents, by placing reliance on the extracts from the learned Author Chitty on Contract. Thereforethe said judgments cannot aid the Petitioners to further their case that the parties cannot be referred toarbitration. 28 In so far as the submission of the Learned Senior Counsel for the Petitioners that all theagreements were to be executed simultaneously, the same is not borne out by any document. The compositearrangement referred to pertains only to the fact that the said arrangement will govern the subsequentrelationship of the parties in a composite manner and not that each of the documents must be executedsimultaneously.



The issue as to whether the IPLA is a concluded contract can also be looked at from the angle of the samebeing signed by the parties. There is no dispute that the Petitioner No.2 has signed the IPLA on 29-9-2006 byaffixing his signature on every page of the IPLA including the execution clause. The presumption whicharises on the execution of the documents is enunciated by the Judgment of the Apex Court reported in 2010(1) SCC 83 in the matter of M/S. Grasim Industries Ltd. vs M/S. Agarwal Steel. Para 6 of the said report ismaterial and is reproduced herein under : lgc 55 of 124 wps-7804.09 & 7636.09

"In our opinion, when a person signs a document, there is a presumption, unless there is proof of force orfraud, that he has read the document property and understood it and only then has has affixed his signaturesthereon, otherwise no signature on a document can ever be accepted. In particular, businessmen, being carefulpeople (since their money is involved) would have ordinarily ready and understood a document before signingit. Hence the presumption would be even stronger in their case. There is no allegation of force or fraud in thiscase. Hence it is difficult to accept the contention of the respondent while admitting that the document, Ext.D-8 bears his signatures that it was signed under some mistake. We cannot agree with the view of the HighCourt on this question. On this ground alone, we allow this appeal, set aside the impugned judgment of theHigh Court and remand the matter to the High Court for expeditious disposal in accordance with law."

In the said context the Judgment of a Learned Single Judge of this Court is also relevant, which Judgment isreported in AIR 2000 BOM 108 in the matter of Keval Krishna Balakram Hitkari v/s Anil Keval Hitkari. Para8 of the said Judgment is relevant and is reproduced herein under :-

8. So far as the objections raised by respondent No. 1 that the agreement of arbitration was not signed on theday on which it is shown to have been signed and it was signed on the day on which the award was made isconcerned in my opinion even if it is assumed that the arbitration agreement was not signed in November,1994 as claimed and that it was signed on 3rd April, 1995 the conduct of the parties of signing that agreementand accepting the award and executing further documents pursuant to that award has to be construed asexistence of an arbitration agreement between the parties. The observations of the Supreme Court in para 6 ofits judgment in the case of Vaidya Harishankar Laxmiram Rajyaguru of Rajkot are pertinent which reads asfollows :

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"6. The main objection to the award is that there was no written agreement signed by both the parties to referthe disputes to arbitration. It is clear from the narration of facts that the

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