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2011 DIGILAW 555 (DEL)

Indraprastha Gas Ltd. v. Sap India Systems, Applications and Products in Data Processing Pvt. Ltd.

2011-05-19

VIPIN SANGHI

body2011
ORDER Vipin Sanghi, J. 1. This petition has been preferred by the Petitioner under Section 11 of the Arbitration and Conciliation Act, 1996 to seek appointment of a Sole Arbitrator for settlement of disputes between the parties. The Petitioner is Indraprastha Gas Ltd. (IGL); Respondent No. 1 is SAP India, Systems, Applications and Products in Data Processing Pvt. Ltd. also known as SAP India Ltd; Respondent No. 2 is Tata Consultancy Services (TCS). The Petitioner had issued a Request for Proposal (RFP) for supply and implementation of Enterprise Resource Planning (ERP) package at IGL. This tender document contains an arbitration clause in Clause 3.21, which reads as follows: 3.21 Arbitration/resolution of disputes IGL and the Bidder shall make every effort to resolve amicably by direct informal negotiations, any disagreement or dispute arising between them under or in connection with the contract. If any dispute or difference of any kind whatsoever shall arising out of this contract (and whether before or after the termination or breach of this contract) parties thereto shall promptly and in good faith negotiate with a view to its amicable resolution and settlement. In the event, no amenable resolution or settlement is reached within a period of 30 days from the date on which dispute or difference arose, such dispute or difference shall be referred to single arbitrator who will be mutually acceptable to both the Bidder and IGL. 2. The Respondent s formed a consortium vide consortium agreement dated 14.5.2004 where under the Respondent No. 2-TCS was authorized to market and distribute SAP Software in India. TCS was authorized to quote for SAP products for IGL's tender in question for supply and implementation of ERP package at IGL. 3. The tender document defined the expression ladder' to mean both ERP Software Vendor and the System Implementation (SI) partner. It is not disputed that, in the present case, the ERP Software Vendor was Respondent No. 1, whereas System Implementation Partner was Respondent No. 2. The consortium/partnership/joint venture is defined as an association of two or more parties participating jointly in bidding and execution of the contract. 4. The Petitioner has placed on record the communication dated 24.5.2004 issued by Respondent No. 2 to the Petitioner in response to the aforesaid tender inquiry. The consortium/partnership/joint venture is defined as an association of two or more parties participating jointly in bidding and execution of the contract. 4. The Petitioner has placed on record the communication dated 24.5.2004 issued by Respondent No. 2 to the Petitioner in response to the aforesaid tender inquiry. Vide this communication, the Respondent No. 2 submitted its unpriced bid for the supply of goods and services in accordance with terms and conditions and within the time mentioned in the RFP. Respondent No. 2 further undertook 'to perform the services and supply the goods in accordance with the contract as derived from the terms of the tender document and accept the terms and conditions as laid down in the RFP'. 5. Respondent No. 2 also agreed to the terms and conditions as per Annexure 1-A. It also provided information about SAP vide Annexure 1-C. Various other annexures to the tender were filled in and submitted by Respondent No. 2 while making its bid. 6. According to the Petitioner, the Fax of Intent (FOI) was issued, thereby accepting the bid made by the Respondent s as a consortium, on 21.3.2005. On 23.3.2005, the Petitioner and Respondent No. 1 entered into an End User License Agreement (EULA) and maintenance service contract as well as professional services schedule. On 31.3.2005, the Petitioner issued the letters of acceptance in the name of Respondent No. 2. 7. The Petitioner claims that it had paid to Respondent No. 2 the license charges for using the computer software provided by it from the year 2006 to 2010. According to the Petitioner, Respondent No. 1 demanded charges for additional usage and required the Petitioner to purchase additional SAP license. Another communication dated 23.4.2010 was issued by Respondent No. 1 indicating that the cost of additional license would be Rs. 1,26,83,105/-. On 9.9.2010, Respondent No. 1 claimed that the Petitioner did not purchase any SAP license for the CFM Module and EDM Module and that the license for one lakh users was only in respect of CRM Billing Module. On 23.9.2010, the Petitioner sent its response to the aforesaid communications to Respondent No. 1 claiming that the additional software components are integral part of the utility software provided as a single software component under the license agreement and demanded proper justification for the demand. On 23.9.2010, the Petitioner sent its response to the aforesaid communications to Respondent No. 1 claiming that the additional software components are integral part of the utility software provided as a single software component under the license agreement and demanded proper justification for the demand. The Petitioner sent various communications such as on 18.11.2010, 23.11.2010 and 25.11.2010 to Respondent No. 2 calling upon Respondent No. 2 to intervene in the matter as Respondent No. 2 had acted as the lead consortium partner while making the bid in the year 2005. 8. From the aforesaid, it is evident that disputes have arisen which need to be resolved through arbitration. 9. I may also note that the license agreement (EULA) between the Petitioner and Respondent No. 1 also contains an arbitration clause under Clause 11 which reads as follows: 11. Arbitration--Except for the right of either party to apply to a Court of competent jurisdiction for an injunction or other equitable relief available under applicable law to preserve the status quo or prevent irreparable harm pending the selection and confirmation of a panel of arbitrators and for the right of SAP to bring suit on an open account for any payments due SAP hereunder, any controversy or claim arising out of or relating to this Agreement, or the breach thereof, the parties shall be promptly and in good faith negotiate with a view to bring out an amicable resolution and settlement within 30 days from the date which such dispute or differences arise, failing which such disputes or differences shall be settled by arbitration in New Delhi, India, in accordance with the Indian Arbitration and Conciliation Act, 1996 and in accordance with the procedures laid down under the Rules of Conciliation and Arbitration of the ICC and judgment upon the award rendered by the arbitrators may be entered in any Court having jurisdiction thereof. Arbitration shall be conducted in the English language by a panel of three (3) members, one member selected by SAP, one member selected by Licensee and the third member, who shall be chairman, selected by agreement between the other (2) members. The chairman shall be a solicitor, and the other arbitrators shall have a background or training in computer law, computer science, or marketing of computer industry products. The chairman shall be a solicitor, and the other arbitrators shall have a background or training in computer law, computer science, or marketing of computer industry products. The arbitrators shall have the authority to grant injunctive relief in a form substantially similar to that which would otherwise be granted by a Court of law. The parties agree that the arbitration proceedings and the outcome shall be kept strictly confidential and that obligations under this Section 11 shall survive termination or expiration of this Agreement. 10. There is no notice of invocation issued prior to the invocation of the jurisdiction of the Chief Justice under Section 11 of the Act. However, in the light of the fact that the arbitration agreement does not prescribe any particular procedure for constitution of the Arbitral Tribunal, the said lapse is not fatal to the maintainability of this petition (See Haldiram Manufacturing Co. Ltd. v. SRF International, 139 (2007) DLT 142; Indian Potash Ltd. v. Bohr a Industries Ltd., Arb.P. No. 24/2010decided on 7.1.2011.) 11. Upon issuance of notice, the Respondents have appeared and made their respective submissions. So far as Respondent No. 1 is concerned, it is not disputed by Respondent No. 1 that disputes have indeed arisen between the Petitioner and Respondent No. 1. 12. However, the stand of Respondent No. 2 is that no dispute has arisen in relation to and arising out of the contract entered into between the parties pursuant to the Request for Proposal/Tender dated 7.4.2004, in respect whereof the Petitioner had issued its Letter of Intent dated 31.3.2005. It is submitted by Respondent No. 2 that the disputes have arisen only out of and relating to the license agreement (EULA) entered into between Petitioner and Respondent No. 1. It is submitted by Mr. Bhakru, learned Counsel for the Respondent No. 2, that the license agreement entered into between Petitioner and Respondent No. 1 is a subsequent agreement inasmuch, as the Petitioner had already issued the Fax of Intent on 21.3.2005. This license agreement (EULA) states in Clause 12.9 that 'this agreement and each Schedule and Appendix hereto constitute the complete and exclusive statement of agreement between SAP and Licensee, and all previous representations, discussions, and writings are merged in, and superseded by this Agreement. This Agreement may be modified only by a writing signed by both parties. This license agreement (EULA) states in Clause 12.9 that 'this agreement and each Schedule and Appendix hereto constitute the complete and exclusive statement of agreement between SAP and Licensee, and all previous representations, discussions, and writings are merged in, and superseded by this Agreement. This Agreement may be modified only by a writing signed by both parties. This Agreement and each Appendix hereto shall prevail over any additional conflicting or inconsistent terms and conditions which may appear on any purchase order or other documents furnished by Licensee to SAP.' He submits that the said license agreement, therefore, supersedes the agreement arising out of the RFP dated 7.4.2004 13. Having heard learned Counsel for the parties, I am of the view that, at this stage, it would be premature to conclude whether or not the Respondent No. 2 is a necessary party for the purpose of resolution of disputes which have arisen primarily between the Petitioner and Respondent No. 1. The Petitioner has invoked the arbitration agreement contained in the RFP. The parties to that agreement are the Petitioner and the Respondent s No. 1 and 2 as a consortium /bidder. Therefore, at this stage, it cannot be said that the Respondent No. 2 is, at least, not a proper party. Whether or not the Petitioner is able to maintain a claim against Respondent No. 2 would have to be examined by the Arbitral Tribunal. It would be for the Tribunal to examine whether the dispute falls within the scope of the agreement arising out of the RFP dated 7.4.2004 or under the license agreement (EULA) dated 23.3.2005. Prima-facie, the (EULA) license agreement dated 23.3.2005 cannot supersede the agreement arising out of the RFP because all the parties to the earlier agreement arising out of the RFP are not parties to the (EULA) license agreement dated 23.3.2005. The Petitioner is, in its correspondence, holding Respondent No. 2 responsible for the conduct/stance/demand of Respondent No. 1, as Respondent No. 2 was the lead partner/bidder in response to the RFP. What was the scope of the responsibility and the rights and obligations of the respective parties vis-a-vis each other can be ascertained only upon interpretation of the contractual terms, which would squarely fall within the domain of the Arbitral Tribunal. 14. In National Insurance Co. What was the scope of the responsibility and the rights and obligations of the respective parties vis-a-vis each other can be ascertained only upon interpretation of the contractual terms, which would squarely fall within the domain of the Arbitral Tribunal. 14. In National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., VIII (2008) SLT 368 : (2009) 1 SCC 267 , the Supreme Court has considered the nature of issues that the Chief Justice or his designate while dealing with an application under Section 11 of the Act should decide; may decide or may leave it to the Arbitral Tribunal to decide, or should leave for the decision of the Arbitral Tribunal. I may quote the relevant paragraphs from this decision below: 22. Where the intervention of the Court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP and Co. this Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is (i) issues which the Chief Justice or his Designate is bound to decide; (ii) issues which he can also decide, that is issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide. (22.1) The issues (first category) which Chief Justice/his designate will have to decide are: (a) Whether the party making the application has approached the appropriate High Court? (b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement? (22.2) The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the arbitral Tribunal) are: (a) Whether the claim is a dead (long barred) claim or a live claim? (b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection? (22.3) The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral Tribunal are: (i) Whether a claim made falls within the arbitration Clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration)? (ii) Merits or any claim involved in the arbitration. (22.3) The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral Tribunal are: (i) Whether a claim made falls within the arbitration Clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration)? (ii) Merits or any claim involved in the arbitration. 23. It is clear from the scheme of the Act as explained by this Court in SBP and Co., that in regard to issues falling under the second category, if raised in any application under Section 11 of the Act, the Chief Justice/his designate may decide them, if necessary by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice of his designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot reexamine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/ his designate decides the issue. 24. What is however clear is when a Respondent contends that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no-claim certificate, and the claimant contends that it was obtained by fraud, coercion or under influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under Section 11 of the Act or by the arbitral Tribunal as directed by the order under Section 11 of the Act. A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant. 15. There is no dispute raised by Respondent No. 2 with regard to the jurisdiction of the Chief Justice of this High Court or his designate to deal with the present petition. 15. There is no dispute raised by Respondent No. 2 with regard to the jurisdiction of the Chief Justice of this High Court or his designate to deal with the present petition. There is no dispute that the parties have entered into the agreement arising out of the RFP dated 7.4.2004 and that it contains an arbitration agreement to which the parties herein are signatory. The issue whether the Petitioner is a necessary party in relation to the dispute raised, or whether the dispute falls within the scope of the arbitration agreement contained in Clause 3.21 of the RFP or it falls within the realm of the license agreement dated 23.3.2005 (EULA) can only be decided after delving into source depth and after the parties have taken their respective positions before the Tribunal. This would require interpretation of the contractual terms as well. Therefore, it would be most appropriate to leave these issues to be decided by the Arbitral Tribunal, so as to save the time of the parties and have speedy adjudication of the disputes. 16. The Petitioner and Respondent No. 1, on instructions, state that even if the Tribunal comes to the conclusion that their disputes fall within the scope of the license agreement dated 23.03.2005 (EULA), they are agreeable to the conduct of arbitration by the Arbitral Tribunal consisting of a sole member, appointed by this Court despite their said agreement providing for a three-member Arbitral Tribunal, so as to expedite the resolution of their disputes. 17. In the light of the above discussion, prima facie, at this stage, I am not inclined to allow the plea of Respondent No. 2 as the Petitioner has invoked the arbitration agreement contained in the agreement arising out of the RFP to which Respondent No. 2, admittedly, is a party. Accordingly, I allow this petition and appoint Mr. Justice A.P. Shah, Retired Chief Justice of this Court, to be the Sole Arbitrator. The Sole Arbitrator shall have jurisdiction to decide all the disputes which have arisen between the parties not only under the contract arising out of the RFP dated 7.4.2004 but also under the license agreement dated 23.3.2005 entered between the Petitioner and Respondent No. 1. 18. Justice A.P. Shah, Retired Chief Justice of this Court, to be the Sole Arbitrator. The Sole Arbitrator shall have jurisdiction to decide all the disputes which have arisen between the parties not only under the contract arising out of the RFP dated 7.4.2004 but also under the license agreement dated 23.3.2005 entered between the Petitioner and Respondent No. 1. 18. Needless to say that it shall be open to Respondent No. 2 to raise all its objections, including under Section 16 of the Act, and to urge before the Tribunal that it is not necessary or a proper party to the arbitral reference. The parties agree that the fees of the learned Arbitrator shall be payable as per the Schedule of Fees prescribed under the Rules of the Delhi High Court Arbitration Centre. 19. The Petitioner may file its statement of claim before the Arbitral Tribunal within four weeks. The Respondent s may file their respective counter statement of fact/counter-claims within four weeks thereafter. Documents shall also be filed by the parties before the Arbitral Tribunal within the same period. The parties shall appear before the learned Arbitrator on 25.7.2011 at 4:30 p.m. However, in case the said date is not convenient to the learned Arbitrator, the same may be changed in consultation with the parties. 20. A copy of this order be communicated to the learned Arbitrator. 21. The petition stands disposed of.