TMI Blog2015 (6) TMI 1210X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreements - Clause 5.1 of the MOU stipulated that the NTCL shall have the right to terminate the MOU forthwith upon serving written notice on the strategic partner in the event the definitive agreements are not executed to the full satisfaction of NTCL within 240 days of the date of execution of the MOU. Clause 5.2 of the MOU stipulated that either party shall have the right to terminate the MOU upon the happening of the following events by giving the other party 30 days‟ prior notice in writing; (i) should the other party become insolvent or a Receiver is appointed in respect of its properties (ii) should the other party commit a breach of any of the provisions of the MOU which is not remedied with 30 days of the receipt of written notice in this respect from the non-defaulting party. The reasons for terminating the MOU were, that in terms of clauses 2.1 and 5.1 of the MOU as the definitive agreements were not executed by KSL (Petitioner) NTCL had the right to terminate the MOU. Similarly, the MOUs entered into by the other two petitioners were also terminated by NTCL. Since we are concerned with (ii) of clause 5.1 (akin to clause 27) which contemplates 30 days noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cense Agreement dated September 27, 2005, vide order dated April 30, 2015, which compelled the petitioner to file an application seeking the stay of 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‟ claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter also, three emails were sent to the respondent. On November 25, 2014, the representatives of the respondent visited the Gurgaon office of the petitioner and held 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 ₹ 193,97,55,773/- for regularization of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent, the petitioner has concealed the fact that the petitioner is a repeated defaulter and even during the conduct of audit in year 2011, it was revealed that the petitioner misused the License 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreement between the parties, which is not the case in the present dispute. According to him, the respondent vide email dated November 20, 2014 and the Legal Notice dated December 30, 2014 made 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 ₹ 3 Crores (approx.) from the Petitioner towards AMC for current year 2015 in advance and thus undertaken to continue to provide support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner, which has been the usual/standard practice in the previous years; (b)The Respondent has not provided or explained the audit methodology applied by it in arriving at the findings; (c)The Respondent has not 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 ₹ 193,97,55,773 for regularisation of the alleged compliance gap had offered a revised commercial proposal of ₹ 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernal business operation of Petitioner and thus has special value to the Petitioner, which cannot be easily substituted by other software products. 11. Mr. Mehta, would deny the allegation of non-compliance in the year 2011. According to him, in 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Petitioner. The alleged over usage of Licensed software cannot be said to be a 'material breach' since even as per claim of Respondent, the same can be regularised by payment for the excess usage by Petitioner. License regularization Claim of ₹ 193,97,55,773/- made by Respondent is vitiated by its own subsequent revised written proposal of ₹ 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 ₹ 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 sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is his submission that none of the facts necessary to attract these provisions have been established by the Respondent in the present case. He would rely on the judgment of this Court in KSL Industries v. National Textile Corporation 2012 (3)ARB L R 470 Del. (iii) He states, in 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination has been given effect to. 19. According to him, in any event, even if the said SAP agreement had not been terminated, the prayers sought for in the Section 9 petition are contrary to law. This is so because the SAP agreement itself is clearly a contract determinable from its very nature. He 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the applicability of each of the sub-clauses of 14(1) of the Specific Relief Act, 1963, there can be no specific performance granted of the SAP Agreement. Therefore, in that view of the matter, Section 41 (1)(e) of the Specific Relief Act, 1963 clearly applies by which there can be no injunction which can be granted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice and Others, 1991 (1) Arb. LR 97. (Para 12, 14) (ii) Adhunik Steels Ltd. v. Orissa Manganese and Minerals Pvt. Ltd; (2007) 7 SCC 125 (Para 16, 23 27) (iii) Rajasthan Breweries Limited v. The Stroh Brewery Company, 2000 (55) DRJ 68 (DB) (Para 69, 73, 75 76) (iv) MIC Electronics Ltd. Anr. v. Municipal Corporation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 5 herein) license to Use the Software, Documentation, other Sap Proprietary Information at specifies site(s) within the Territory to run Licensee s internal business operations and to provide internal training and testing for such materia business operators and as further set forth in Appendices hereto. This license does not permit Licensee to (i) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of this Agreement. 34. A perusal of clause 5.1 of the license agreement, it is noted that the agreement contemplates, the licensee, the petitioner herein gives the respondent written notice of its desire to terminate the agreement for any reason, whereas, for the respondent to terminate the agreement, it contemplates, 30 days‟ notice of petitioner‟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 gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituation, an interim injunction ought not be granted. It was also contended that in terms of Section 14 of the Specific Relief Act, 1963 the agreement was not specifically enforceable as it was terminable and in any event, since Adhunik Steels could be compensated in terms of the money, even if its claim was ultimately upheld, it was not a case for grant of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OMM Co. from entering into a contract with a third party. It is also noted that the Supreme Court has approved that the agreement is liable to be terminated for which compensation would be the remedy on the principles well settled in that behalf. The reliance placed by Mr. Mehta on Adhunik Steels (supra) is totally misplaced and would not be applicable in support 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 direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s judgment in the case of Indian Oil Corporation Ltd. Vs. Amritsar Gas Service and Ors. (supra). This Court had in para 75 posed itself a question whether or not in all cases, where a contract is determinable specific performance shall not be ordered and whether the present contract was determinable or that prima facie, it was not legally determined. This Court, while, dealing 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 sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing provisions akin to clauses 27 and 28, are necessarily in its nature determinable and in view of Sub-section (1) of Section 14 of the Specific Relief Act, a contract cannot be specifically enforced. 46. Similar is the provision in the case in hand. Since we are concerned with (ii) of clause 5.1 (akin to clause 27) which contemplates 30 days notice by the respondent to the licensee 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 Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the Respondent that the contract between the parties was in its very nature determinable and consequently could not be specifically enforced by way of the present proceedings. In this behalf, it is observed that the Appellant did not pay the agreed License fee in terms of the License agreement. Consequently, after issuance of the show cause notice and calling for a reply from 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eded in para 7 of the petition, wherein, the petitioner has stated that the respondent is a third largest enterprise software in India with 6.2% of total market share. In other words, the software Licenses granted under the agreement is not unique to the respondent. There are other vendors available who can also cater to the needs of the petitioner with the same software and which makes such a software 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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