IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

Arbitration Application No. 22 of 2007

Speech & Software Technologies (India) Pvt. Ltd. … Applicant

Versus

Neos Interactive Ltd.       … Respondent

J U D G M E N T

J.M. Panchal, J.

1. By filing the instant application under Section 11

(6) of the Arbitration and Conciliation Act, 1996 (“the

Act” for short), the applicant, i.e., Speech & Software

Technologies  (India)  Pvt.  Ltd.  has  prayed  to  appoint

Mr.  Justice  Arvind  Sawant  (Retd.),  former  Chief

Justice, High Court of Kerala, as sole arbitrator and to

refer the disputes to him, which have arisen between

the applicant and the respondent during the course of

execution of Services Agreement dated July 15, 2006.

2. The relevant facts, which emerge from the record

of the case, are as under: -

The applicant is a company registered under the

Companies Act, 1956.  Its registered office is situated

at Chennai.  The respondent is a company having its

registered  office  at  London.   The  applicant  and  the

respondent  entered  into  a Services  Agreement  dated

July  15,  2006.   Under  the  said  agreement,  the

applicant was to provide services to the respondent as

set  out  in  schedule  2  to  the  said  agreement.   The

respondent had agreed to make payment of ₤15,500

per month to the applicant and also to compensate the

Director of the applicant for coordination activities.  A

copy of the agreement dated July 15, 2006 is produced

by the applicant at Annexure ‘1’ to the application.  It

is the case of the applicant that since December, 2006

the respondent refused to make any payment to the

applicant  and  insisted  for  execution  of  another

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agreement as suggested by the principal shareholder

of the respondent.  The applicant has averred that the

applicant was not inclined to enter into new agreement

as suggested by the respondent and as the respondent

had failed  to  comply  with  the  terms of  the  Services

Agreement dated July 15, 2006, it terminated the said

agreement by sending notice dated February 15, 2007

in terms of Clause 19 of the agreement.  By the said

letter the applicant also appointed Mr. Justice Arvind

Sawant  (Retd.),  former  Chief  Justice  of  Kerala  High

Court,  as  the  sole  arbitrator  and  called  upon  the

respondent to appoint its arbitrator in the event the

respondent  did  not  agree  to  the  appointment  of  Mr.

Justice Arvind Sawant (Retd.) as the sole arbitrator.  A

copy  of  the  notice  dated  February  15,  2007  is

produced  by  the  applicant  at  Annexure  ‘3’  to  the

application.

3. On  receipt  of  the  notice  the  advocate  of  the

respondent  addressed  a  letter  dated  March 15,

2007  urging  the  applicant  not  to  take  any

unilateral action for a period of two weeks so as

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to  enable  him  to  obtain  comprehensive

instructions in the matter in order to effectively

study  and  evaluate  the  issues  involved  in  the

matter.   The  case  of  the  applicant  is  that  the

respondent did not give reply to the notice dated

February  15,  2007,  nor  concurred  in  the

appointment of Mr. Justice Arvind Sawant (Retd.)

as  sole  arbitrator  nor  appointed  its  arbitrator.

The applicant  has claimed that it  is  entitled to

recover  a  sum  of  ₤252,911-76  from  the

respondent for the services rendered.  Under the

circumstances the applicant has filed the instant

application and claimed relief to which reference

is made earlier.

4. On  receipt  of  notice  from  this  Court,  the

respondent has filed reply affidavit.  In the reply

affidavit  it  is mentioned by the respondent that

the Services Agreement dated July 15, 2006 was

signed on July 31, 2006 and August 1, 2006 by

the  applicant  and  the  respondent  respectively,

after which Tripartite Share Purchase Agreement

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was  executed  on  August  1,  2006,  of  which

Services Agreement dated July 15, 2006 formed

part  as  schedule  ‘A’  to  the  agreement.   It  is

averred  in  the  reply  that  Share  Purchase

Agreement,  inter-alia  provided  that  on  certain

events  not  taking  place  by  July  31,  2006,  the

Tripartite  Share  Purchase  Agreement  would

stand terminated.   According to the respondent

the  said  Tripartite  Share  Purchase  Agreement

stood  automatically  terminated  as  the  various

events mentioned therein did not take place by

July 31, 2006 and as Services Agreement relied

upon  by  the  applicant  was  part  of  the  said

agreement  the  same  also  stood  automatically

terminated  and,  therefore,  the  applicant  is  not

entitled to invoke arbitration clause incorporated

in  the  agreement  dated  July  15,  2006.   It  is

claimed  by  the  respondent  that  the  Tripartite

Share  Purchase  Agreement  stood  novated,

rescinded  and  revoked  on  account  of  Letter  of

Intent  dated  August  1,  2006,  executed  by  the

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parties,  which  totally  replaced  the  Tripartite

Share  Purchase  Agreement  and,  therefore,  also

the present application was not maintainable.  By

filing  the  reply,  the  respondent  demanded

dismissal of the application filed by the applicant.

5. The applicant has filed rejoinder affidavit to the

affidavit in reply filed by the respondent.  In the

rejoinder  affidavit,  the  applicant  has,  by  and

large, reiterated what is stated in the application

and, therefore, this Court is of the opinion that it

is not necessary to make a detailed reference to

the rejoinder filed by the applicant.

6. This Court has heard the learned counsel for the

parties at length and in great detail.  This Court

has also considered the documents forming part

of the application.

7. By now it  is well  settled that exercise  of  power

under Section 11(6) of the Act is judicial power.

After  the  decision  of  this  Court  in  SBP  and

Company vs. Patel Engineering Ltd. (2005) 8 SCC

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618,  the  Designated Judge  has to consider  the

claim of both the parties to the matter and pass a

reasoned  order.   It  is  also  well  settled  that

existence of arbitration agreement is a condition

precedent  before  exercise  of  powers  under

Section 11(6) of the Act.  The preliminary matters

to be considered by the court are (1) existence of

arbitration agreement, (2)  territorial jurisdiction,

(3) whether there are live issues to be referred to

the arbitrator, and (4) whether application is filed

within the period of limitation prescribed by the

law.   If  the  court  finds  that  the  arbitration

agreement does not exist or is rescinded then the

prayer for referring the dispute to the arbitrator

will have to be rejected.   

8. The contention raised by the learned counsel for

the  respondent  that  the  Tripartite  Share

Purchase  Agreement  stood  automatically

terminated  because  various  events  mentioned

therein  did  not  take  place  and,  therefore,  the

Services Agreement dated July 15, 2006, which

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was  part  of  the  Tripartite  Share  Purchase

Agreement, ceased to exist, cannot be accepted.   

9. In  order  to  ascertain  whether  the  Services

Agreement dated July 15, 2006 exists or not, it

will be relevant to notice salient features of two

agreements,  namely,  (1)  Services  Agreement

dated  July  15,  2006  and  (2)  Tripartite  Share

Purchase  Agreement  executed  on  August  1,

2006.  Clause (2) of the Services Agreement dated

July 15,  2006 requires  the applicant  to supply

services  to  the  respondent  on  payment  of

consideration by the respondent.  The services to

be supplied have been detailed in Schedule 2 to

the agreement.  The consideration to be paid by

the respondent is mentioned in Schedule 1 to the

agreement.   Clause  4  of  the  said  agreement

provides  that  invoicing  shall  be  done  at  the

beginning  of  each  calendar  month  and  the

amount due would be payable monthly.  Clause 9

of  the  Services  Agreement  dated July  15,  2006

confers right upon the applicant to terminate the

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agreement if payment for services rendered is not

received by the applicant within a period of fifteen

days  from  the  expiry  of  the  previous  month.

Clause  10  of  the  said  agreement  provides  for

consequences which would ensue on termination

of the agreement, whereas clause 19 enables the

aggrieved  party  to  approach  arbitrator  for

resolution of the disputes.  It is relevant to note

that  by  letter  dated  February  15,  2007  the

applicant had terminated the Services Agreement

and appointed its sole arbitrator as well as called

upon  the  respondent  to  concur  with  the  said

appointment or to appoint its arbitrator.  It is an

admitted  fact  that  no  reply  was  given  by  the

respondent to the said notice.  It is also relevant

to  notice  that  the  execution  of  the  Services

Agreement dated July 15, 2006 is not denied by

the  respondent.   What  is  claimed  by  the

respondent is that the Services Agreement ceased

to exist in view of termination of Tripartite Share

Purchase Agreement.

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10. From the record of the case it becomes at once

evident  that the Services  Agreement  dated  July

15, 2006 was never a schedule to the Tripartite

Share Purchase Agreement.  This becomes clear

from the contents of clauses 5.2 and 5.2.5 of the

Tripartite  Share  Purchase  Agreement  dated

August 1, 2006.  Clause 5 of the Tripartite Share

Purchase  Agreement,  which  is  to  be  found  on

running  page  99  of  the  short  counter  affidavit

filed  on  behalf  of  the  respondent,  provides  the

venue  where  completion  of  the  said  agreement

would  take  place  and  also  mentions  post

completion obligations.  According to clause 5.1

of  the  said  agreement,  completion  was  to  take

place  at  a  venue  to  be  agreed  between  the

applicant and Abela on the second business day

after the day on which the conditions stipulated

were satisfied.  The consequences which were to

follow on the completion of the Tripartite Share

Purchase Agreement are mentioned in clause 5.2.

Clause 5.2.5 of the agreement reads as under: -

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“SST and the  Company  shall  enter  into  the Services  Agreement  and  Shareholders Agreement  (SHA)  as  per  drafts  given  in Schedule A and B.”

It  is  the  specific  case  of  the  respondent  that  the

Tripartite Share Purchase Agreement dated July 15,

2006, of which Schedules A and B were intrinsic and

inseparable parts, stood automatically terminated on

July  31,  2006  owing  to  non-completion  of  the

material conditions as postulated in clause 3.4 of the

agreement, without any further obligations, liability or

claim between the parties under the agreement.  As

the  Tripartite  Share  Purchase  Agreement

automatically  stood  terminated  due  to  non-

completion of the conditions mentioned in clause 3.4

of  the  agreement,  there  was  no  obligation  on  the

applicant to enter into the Services Agreement, draft

of  which  was  annexed  to  the  Tripartite  Share

Purchase Agreement as Schedule A or Shareholders

Agreement, draft of which was produced as Schedule

B  to  the  agreement.   It  is  not  the  case  of  the

respondent  at  all  that  the  draft  of  the  Services

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Agreement was signed by the applicant at any point of

time.   Hence,  automatic  termination  of  Tripartite

Share Purchase Agreement has nothing to do with the

existence  of  the  Services  Agreement  dated  July  15,

2006, which was already separately executed between

the  parties.   The  record  would  indicate  that  the

Services Agreement was executed before the Tripartite

Share  Purchase  Agreement  was  executed.   The

existence  of  the  said  agreement  was not  dependent

upon the completion of events as contemplated by the

Tripartite Share Purchase Agreement and, therefore,

it  is  wrong to  contend that  the  Services  Agreement

ceased to exist on termination of the Tripartite Share

Purchase Agreement.

11. Similarly,  the  plea  that  the  Tripartite  Share

Purchase Agreement was novated, rescinded and

revoked  on  account  of  Letter  of  Intent  dated

August  1,  2006  and,  therefore,  the  instant

application should be rejected, has no force.  The

Letter of Intent dated August 1, 2006 under no

circumstances  can  be  treated  as  novating,

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rescinding  or  revoking  the  Tripartite  Share

Purchase Agreement.  The said Letter of Intent on

a bare  reading  is  nothing but  an agreement  to

enter  into  another  agreement  because  it  is

provided in the said letter that “both parties agree

to have set a deadline to sign this agreement by

15th September,  2006”.   It  is  well  settled  legal

position  that  an  agreement  to  enter  into  an

agreement  is not enforceable  nor does it confer

any  right  upon  the  parties.   The  agreement  in

terms of the said Letter of Intent was to be signed

on or before September 15, 2006.  It is not the

case of the respondent that any agreement was

executed  between  the  parties  on  or  before

September  15,  2006.   The  respondent  has  not

stated  in  its  counter  reply  that  the  agreement,

which  was  to  be  executed  by  September  15,

2006, was in fact executed.  During the course of

hearing  of  the  instant  application  it  was  fairly

conceded  by  the  learned  counsel  for  the

respondent that no such agreement was executed

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between  the  parties  at  all.   Hence,  as  the

agreement  contemplated  by the Letter  of  Intent

was never  executed,  it  cannot be  said that the

agreement  contemplated  by  the  said  Letter  of

Intent had novated, rescinded or superseded the

Tripartite  Share  Purchase  Agreement.   Further,

the scope/terms of the Tripartite Share Purchase

Agreement  as  well  as  those  of  the  Services

Agreement and the terms contemplated by Letter

of Intent dated August 1, 2006 are not consistent

at  all  and,  therefore,  it  is  difficult  to  hold  that

novation  of  the  Tripartite  Share  Purchase

Agreement read with the Services Agreement had

taken place, as contended by the respondent.

12. The net result of the above discussion is that the

Services Agreement dated July 15, 2006 has not

ceased  to  exist  and the  applicant  is  entitled  to

invoke  the  arbitration  clause  contained  in  that

agreement.  The application filed by the applicant

is within the time prescribed by law.  There is no

manner  of  doubt  that  disputes  are  existing

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between the parties relating to the execution of

the  Services  Agreement  dated  July  15,  2006,

which are arbitrable.  Under the circumstances,

the instant application will have to be accepted.

13. For  the  foregoing  reasons  the  application

succeeds.   Mr.  Justice  Arvind  Sawant  (Retd.),

former  Chief  Justice,  High  Court  of  Kerala,  is

appointed  as  the  sole  arbitrator.   The  learned

arbitrator is requested to enter on the reference

and  do  the  needful  in  the  matter  as  early  as

possible in accordance with law.

14. There shall be no order as to costs.

……………………….J. [J.M. Panchal]

New Delhi; December 05, 2008.

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