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2015 (6) TMI 1210

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....the termination order. Suffice to state, this Court had not stayed the termination of the License Agreement. Even though, the petitioner has not amended the petition incorporating the challenge to order dated April 30, 2015, as the order dated April 30, 2015 has been placed on record and the learned Senior Counsel for the respondent has no objection on this Court proceeding on the premise that the present Petition lay a challenge to order dated April 30, 2015, this Court has heard the arguments on the termination order as well. The Facts: 3. On September 27, 2005, the petitioner and the respondent entered into a License Agreement whereby the petitioner was granted a non-exclusive perpetual License to use the SAP software documentation and other SAP proprietary information to run the petitioner‟s internal operation and to provide internal training and testing. Clause 2.1 relates to the "License‟. Clause 3 relates to "Verification‟. Clause 5.1 defines the "Term‟ and Clause 11 is the "Arbitration‟ clause. According to the petitioner, the total Licenses available with the petitioner are 21,908 and it has made huge one time investment of Rs. 13,86,57,580/....

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.... a meeting with the representatives of the petitioner. It is their case that the representatives of the respondent could not satisfactorily explain all the queries raised by the petitioner as regards the abnormally high deviation in License usage of the petitioner reported by the respondent. On December 1, 2014, the respondent sought a written certification from the petitioner by December 10, 2014 confirming regularization of use of SAP proprietary information. The aforesaid communication was followed by letter dated December 13, 2014, wherein, it was pointed out by the respondent, the petitioner‟s failure to regularize the irregularities in usage of proprietary information, which according to the petitioner, was ignoring the fact that all this while, the petitioner was in constant touch with the respondent and seeking clarification and negotiating to amicably resolve the issue. It has been averred by the petitioner that the respondent realizing that the demand of Rs. 193,97,55,773/- for regularization of the alleged compliance gap was completely baseless, untenable and unjustified, offered a revised commercial proposal of Rs. 17,32,09,613/- for regularization of SAP Licenses....

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....se provided by the respondent and the petitioner paid towards regularization of License. The respondent has taken a stand that the present violation of the petitioner is of high magnitude and cannot be left undealt. It is the case of the respondent that the over usage/excess usage of License granted by the respondent as well as category mismatch/misuse is a material breach of the terms of the License agreement. The respondent has also pleaded that vide email dated November 20, 2014, the respondent extensively dealt with the compliance gap on the part of the petitioner and the email was concealed by the petitioner before this Court. The respondent would also plead the power to audit the usage of SAP proprietary information in terms of clause 3 relating to "verification‟ of the agreement and in the event an audit reveals that Licensee underpaid License and/or Maintenance Fees to SAP, Licensee shall pay such underpaid fees based on SAP's list of prices and conditions in effect at the time of the audit. It is the case, the petitioner has never categorically objected the contents of the audit report and the compliance gap as stated in the audit report except in its response da....

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....ade allegation of over usage of software and called upon the Petitioner to regularize the same. Further, the purported reason given for termination of the License Agreement in the alleged Notice of Termination dated April 30, 2015 is the alleged failure of the Petitioner to regularize the irregularities mentioned in the purported Audit Report. The alleged over usage of licensed software which is admittedly a mere irregularity and can be easily regularized by payment of money cannot be said to be a "material breach" in law or on facts situation obtaining in the present case. He would also state that the allegation is not that of diversion of licensed software or any third party use. He further states much after the expiry of 30 days notice in terms of Legal Notice dated December 30, 2014, the Respondent has, on February 26, 2015, accepted payment of Rs. 3 Crores (approx.) from the Petitioner towards AMC for current year 2015 in advance and thus undertaken to continue to provide support services for the licensed software in question. This clearly indicates that the alleged over usage of licensed software cannot be a material breach of the License Agreement. Fourthly According to Appe....

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....t even provided a formal audit report for the audit conducted in November 2014 and; (d) The Respondent did not conduct audit of the licenses by using Standard License Audit (LA) Tool and instead conducted the audit by running Scripps. 8. He would also submit that the Respondent having failed to provide the calculation and basis for the demand of Rs. 193,97,55,773 for regularisation of the alleged compliance gap had offered a revised commercial proposal of Rs. 17,32,09,613/- for regularisation of SAP licenses vide its email dated December 23, 2014. It is completely incomprehensible and defies all business logic that the Respondent within a span of few days reduced its original claim by more than 90% for regularization of licenses and had offered discount of 50% in that amount. This raises a serious doubt about the audit methodology, audit findings and the claims raised by the Respondent for the alleged over usage of software and apparently indicates to a design to coerce and armtwist the Petitioner to purchase extraordinarily high numbers of new software licenses, which the Petitioner otherwise would not at all need to purchase considering the sizable number of Licenses it already ....

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....the year 2011, the Petitioner's affiliate company, Jindal Power Limited had set up a new power plant in Chhattisgarh which gave rise to the need for purchase of additional licenses by the Petitioner. Therefore, in view of the growing business needs, the Petitioner purchased additional licenses on March 06, 2011 from the Respondent much prior to the alleged over usage pointed out by the Respondent vide its email dated July 04, 2011. It clearly establishes that the said purchase of additional licenses was not done to meet any compliance gap or for regularisation as alleged by the Respondent. Even otherwise, no non compliance report was issued and no claim was made by the Respondent or paid by the Petitioner in connection with the email dated J u l y 04, 2011. 12. Mr. Mehta states there is no concealment of any document as alleged by the respondent. It is submitted that in the email dated November 20, 2014 there is no reference to any attachments/enclosures and therefore it was an inadvertent error on the part of the Petitioner in not filing the attachments along with the email dated Novembe r 20, 2014. Even otherwise the minutes of meeting dated Nov e mbe r 13-14, 2014 attached ....

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....Claim of Rs. 193,97,55,773/- made by Respondent is vitiated by its own subsequent revised written proposal of Rs. 17,32,09,613/- and then by its offer of 50% discount thereon. * The fact as to whether or not a compliance gap has occurred has to be established upon leading evidence since the Petitioner has raised serious doubt about the methodology of audit, audit findings and the claim of Rs. 193 Crores (approx.) without providing any calculation till date. (ii) The balance of convenience is in favour of the Petitioner. This can be established from the following: * The Petitioner has been using the licensed SAP Software for the last 10 years since September 27, 2005 and there has never been issue of excess usage of licensed software except for a minor deviation in year 2011 for which no compliance report was issued nor any regularization claim was made by the Respondent. * The Petitioner has 21 908 licenses subsisting in its favour under the License Agreement which is very critical to run the internal business operation of the Petitioner. * The Petitioner has made huge investment of Rs. 32 crores (approximately) towards purchase of SAP software licenses and payment of AMC f....

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....the facts of the case, the contract is not by its very nature determinable. As per Clause 5.1, while it is open to the Petitioner to terminate the contract 'for any reason', it is not so for the Respondent. Respondent may only terminate by giving 30 days notice on occurrence of a 'material breach'. 15. His submission is also that petition is not rendered infructuous by virtue of the letter dated April 30, 2015 as according to him, the grant of a mandatory injunction so as to direct a party to continue with the status quo obtaining before the termination is permissible in law. The effect of such an order is that the operation of the termination notice is not immediate and is suspended during the pendency of the proceedings. It is submitted that this has been recognised by the Supreme Court in Adhunik Steels [supra]. Similar o r d e r o f injunction in a challenge to a termination order ha s also been granted by this Court in KSL & Industries (supra) and Old World Hospitality Pvt. Ltd.v. India Habitat Centre [73(1997)DLT 374]. 16. Mr. Mehta would argue that the respondent by accepting Rs. 3 Crores has waived its right of termination. A perusal of the letter dated A ....

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.... would state, it is settled law that even if the contract does not include a specific termination clause, all commercial contracts, except those which involve sale of immovable property, are contracts determinable by their very nature and therefore, no injunction can be given in such a case. He states, the present SAP agreement has a specific termination clause, namely clause 5.1. Such a contract in any case is determinable by its very nature. 20. It is also his submission that Section 14 (1) of the Specific Relief Act, 1963 specifically bars injunction sought for in the present case. The bar under Section 14 of the Specific Relief Act, 1963 contains sub- clauses (a), (b), (c) & (d) and each one of them apply to the present case. 21. The Section 14(1)(a) of the Specific Relief Act, 1963 is attracted, as assuming without admitting in the present case, that the termination by the Respondent is contrary to law, the present case would be the one where for any alleged non-performance of the SAP agreement, compensation of money would be adequate relief. According to him, it has not even been pleaded in the petition that compensation in money will not be adequate relief for non-performa....

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....nted to prevent the breach of the contract, the performance of which cannot be specifically enforced. 26. He also states that on the ground of concealment, this petition need to be dismissed. According to him, the Petitioner in support of its petition deliberately placed incomplete audit report on record and concealed the attachments thereto despite the same being in its knowledge and possession. The complete audit report together with the attachments was placed by the Respondent. The minutes of meeting dated November 13/14, 2014 clearly shows the admission of the Petitioner to the use of multiple logons and generic id's. The said minutes of meeting have never been denied by the Petitioner. 27. He also states that there is material and wilful breach of contract inasmuch as under clause 5.1 (ii) of the EULA, SAP has a right to terminate the EULA after giving 30 (thirty) days' notice to the Licensee of Licensee's material breach of any of the provisions of the EULA including more than thirty days delinquency or Licensee's payment of any money due hereunder, unless Licensee has cured such breach during such thirty days period. The said clause gives right to SAP to te....

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....ion of Delhi & Anr., 2011 (1) Arb LR 418 (Para 5, 6 & 12). (v) D.R. Sondhi & Ors. v. Hella KG Hueck & Co. & Ors., (2001) ILR (2) Delhi 679(Para 7 to 11 and 20) 30. He states, that, contract once terminated cannot be revived, on the following grounds: (i) The License Agreement between the Petitioner and the Respondent has been terminated by Respondent‟s termination letter dated April 30, 2015. Therefore the License Agreement having being terminated cannot be restored in the present proceedings or any directions can be passed to make the Respondent comply with the terms of the License Agreement. (ii) It is a principle of law that the scope and ambit of Section 9 is not to restore the contract which has already been terminated and no interim relief can be granted against termination. Further the court under Section 9 cannot give direction to a party for not terminating the contract or to continue with the contract. (i) Bharat Catering Corporation v. Indian Railway Catering & Tourism Corp. Ltd., 2009(162) DLT 219 (ii) Bharat Catering Corporation v. Indian Railway Catering & Tourism Corp. Ltd., 2009(164) DLT 530 (iii) VF Services (UK)Ltd. v. Union of India & Anr., 201....

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....) sub-license or rent the Software Documentation or Third-Party Database or (ii) use the SAP Proprietary Information to provide services to third parties (e.g. business process outsourcing service bureau applications or third party training) Business Partners may have screen access to the Software solely in conjunction with Licensee's Use and may not Use the Software to run any of their business operations. " "3. VERIFICATION: Sap shall be permitted to audit (at least once annually and in accordance with SAP standard procedures) the usage of the SAP Proprietary Information. In the event an audit reveals that Licensee underpaid License and / or Maintenance Fees to SAP Licensee shall pay such under paid fees based on SAP's list of prices and conditions in effect at the time of the audit. " "5.1 Term: This Agreement and the license granted hereunder shall become effective as of the date first set forth above an shall continue in effect thereafter unless terminated upon the earliest to occur of the following (i) thirty days after Licensee gives SAP written notice of Licensee's desire to terminate this Agreement for any reason but only after payment of all License and Ma....

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....titioner‟s material breach of any of the provisions of the agreement. It is conceded by the counsel for the petitioner that there is no negative covenant in the agreement which bars a termination. His submission is that the Court can stay the operation of the notice of termination dated April 30, 2015 to preserve the subject matter of the dispute till the adjudication of the Arbitral Tribunal. In other words, it is his submission, that on principle, the Courts recognize the stay of termination, provided, the petitioner satisfies, the well recognised principles of grant of interim relief in view of the judgment of the Supreme Court in Adhunik Steels Ltd (supra). In Adhunik Steels Ltd (supra), the Supreme Court was concerned with a case where the facts were, a company named OMM Pvt. Ltd. obtained the mining lease from the government of Orissa for mining manganese ore from certain extents of land situated in Sundergarh District in the State of Orissa. The OMM Co. entered into an agreement dated May 14, 2003 with Adhunik Steels, the petitioner/appellant before the Supreme Court, for raising the manganese ore on its behalf. The term of agreement was 10 years w.e.f. May 18, 2003. I....

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....interim injunction. 36. The High Court came to a prima facie conclusion, Rule 37 of the Mineral Concession Rules, 1960 has no application to the facts of the case. It was held, in view of clause 8.2 of the agreement, Section 14(1)(c) of the Specific Relief Act, 1963 was not attracted. But the High Court upheld the contention on behalf of OMM Co. that the loss, if any, that may be sustained by Adhunik Steels could be calculated in terms of money and in view of that and in the light of Section 14 (3)(c) of the Specific Relief Act, an injunction as prayed for by Adhunik Steels could not be granted. 37. Feeling aggrieved by the order of the High Court, the Adhunik Steels approached the Supreme Court. The OMM Co. also approached Supreme Court against a finding of the High Court that Rule 37 of the Mineral Concession Rules, 1960 has no application. Before the Supreme Court, the parties have argued on the scope of Section 9 of the Act. The Supreme Court considering various judgements and commentaries on arbitration as relied upon by the parties, was of view that the power of the Court under Section 9 of the Act is not totally independent of the well known principles governing the grant ....

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.... of his contention that the Supreme Court recognizes the stay of termination. 39. Insofar as the submission of Mr. Mehta that in terms of clause 5.1 which stipulates the petitioner to terminate the contract for any reason, it is not so for the respondent as the respondent may only terminate the contract by giving 30 days‟ notice on occurrence of material breach and the Contract is not covered by Section 10 (1) (a) to (d) of the Specific Relief Act, 1963 by relying on the judgment of this Court in KSL & Industries (supra) is concerned, in that case, the reliefs claimed by three petitioners under Section 9 of the Act, were inter alia, for stay of letter dated September 14, 2010 issued by the respondent NTCL, terminating the MOU dated November 14, 2008 entered into with the three petitioners and with a further direction, not to create any third party right/interest and not to dispose of any land, machinery and fixed assets of the eleven textile mills covered by each of the MOUs and for a direction to take such steps that are necessary to preserve the value of textile mills and to discharge all the obligations under MOUs. 40. Clause 2.1 of the MOU stipulated that the MOU shall ....

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....ing with the aforesaid question and referring to the judgment of the Supreme Court in Indian Oil Corporation Ltd. Vs. Amritsar Gas Service (supra), was of the view that the Supreme Court in para 12 of the decision noted that the award itself accepted that the agreement could be terminated in accordance with clauses 27 and 28 and the same was revocable in accordance with the said clauses. This Court had also observed that the Supreme Court did not go into the question of validity of question of agreement where the power to terminate is contingent and could not be exercised otherwise than on the happening of the contingency. The Court was of the view that the facts before the Supreme Court were that the agreement could be terminated by either of the parties by simply giving a notice. Therefore, the ratio of the said judgment cannot be extended to all cases where the contract could be determined only on the happening of a particular contingency. In para 80 in KSL & Industries case (supra), this Court had also observed that there is no provision akin to clauses 27 & 28. 44. Before I deal with the facts of this case, I deem it appropriate to consider here, the judgment of the Supreme C....

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....icensee i.e. the petitioner herein, of material breach of any provision of the agreement including more than 30 days delinquency in licensee‟s payment of any money due under the agreement unless the licensee, the petitioner herein, has cured such breach during such 30 days‟ period. That apart, para 80 of the judgment of this Court in KSL & Industries (supra), wherein this Court has referred to the fact that in the said case, there is no provision akin to clauses 27 & 28 as was in existence in Indian Oil Corporation Ltd. Vs. Amritsar Gas Service (supra), the judgment in KSL & Industries (supra), would not be applicable to the facts of this case. 47. On the other hand, I note, in Rajasthan Breweries Ltd. (supra), this Court was concerned with an appeal against the order of the learned Single Judge of this Court dated March 23, 1997, dismissing the application filed by the appellant under Section 9 of the Act, seeking ad interim temporary injunction staying the two notices of termination dated January 19, 1999, terminating the two agreements namely Technical knowhow and Technical Assistance executed between the parties. 48. The learned Single Judge dismissed the appellan....

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....om the Appellant the Respondent cancelled the License under the terms of the agreement between the parties. Therefore, the License stood terminated, as correctly observed by the learned Single Judge, in the impugned order, and the legality or illegality of termination would be a matter to be determined in arbitration. Further, the justification given by the Appellant for not paying the License fee will be examined in the arbitral proceedings. The case of the Appellant that, owing to the failure of the Respondent to perform obligations under the agreement, and the latter‟s refusal to decrease the number of LED screens in terms of clause 6 of the agreement, would also be considered by the Arbitral Tribunal. In this behalf, we, therefore, find considerable merit in the submission made on behalf of the Respondent that if the cancellation of the contract by the Respondent constitutes a breach of contract on their part, the Appellant would be entitled to damages. In other words, the questions whether the termination is wrongful or not or whether the Respondent was not justified in terminating the agreement, are yet to be decided. However, from the facts of the case there is no mann....

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....tware as an ordinary article available in the market. Insofar as the reliance placed by Mr. Mehta on the judgments of the Allahabad High Court in UP Electricity Board, Lucknow (supra) and of the Madhya Pradesh High Court in the case of Jabalpur Cable Network Pvt. Ltd. (supra) are concerned, in UP Electricity Board, Lucknow (supra), the Court was concerned with coal ash and wherein there is a finding that coal ash is a type of property which is not easily available in the market, it is a waste product. Bulk supply of coal ash is available only where, there is a thermal power station. Coal ash thus comes within the term "where the property is not an ordinary article of commerce". The Court was of the view, that if there is a breach of contract to transfer coal ash, the plaintiff cannot be compensated in terms of the money thereof and the money being not an adequate relief. 53. Similarly, in Jabalpur Cable Network Pvt. Ltd. (supra), the Court held that the electronic TV signals to be supplied by the respondent to the appellant under agreement were not ordinary articles of commerce and were of special value to the appellant and they were the goods not easily obtainable in markets and ....