Holding

The Services Agreement remained in force and its arbitration clause was enforceable; the Letter of Intent did not novate the Tripartite Share Purchase Agreement, and the arbitration application was allowed.

Summary

Speech & Software Technologies (India) Pvt. Ltd. entered into a Services Agreement with Neos Interactive Ltd. on 15 July 2006 for monthly service fees. The respondent argued that the Services Agreement was a schedule to a later Tripartite Share Purchase Agreement (TSPA) and that, because the TSPA was automatically terminated for non‑fulfilment of conditions and later purportedly novated by a Letter of Intent, the Services Agreement ceased to exist, rendering the arbitration clause unenforceable. The applicant filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator. The Court examined whether the Services Agreement was dependent on the TSPA, whether the Letter of Intent could effect novation, and whether a valid arbitration agreement existed. It held that the Services Agreement was executed independently of the TSPA, the Letter of Intent was merely an agreement to enter into another agreement and could not novate or rescind the TSPA, and therefore the Services Agreement had not terminated. Consequently, the arbitration clause was enforceable, the application was within the limitation period, and the arbitrator was appointed.

Issues considered

The Services Agreement was dependent on the Tripartite Share Purchase Agreement and thus terminated upon the latter's termination.
The Letter of Intent dated 1 August 2006 could be treated as a novation, rescission or revocation of the Tripartite Share Purchase Agreement.
Whether a valid arbitration agreement existed under the Services Agreement.
Whether the arbitration application was filed within the prescribed limitation period.
Whether the court had jurisdiction to appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11(6), s. 11(9), s. 2(1)(b)
Companies Act, 1956

Subjects

ArbitrationArbitration agreementSection 11(6)NovationLetter of IntentServices AgreementTripartite Share Purchase AgreementJurisdictionLimitation period

Judgment

[2008] 17 S.C.R. 62
e
A SPEECH & SOFTWARE TECHNOLOGIES (INDIA) PVT. :
'
LTD.
v.
NEOS INTERACTIVE LTD.
(Arbitration Application No.22 of 2007)
B
DECEMBEB 5, 2008
[J.M. PANCHAL, J.]

Arbitration and Conciliation·Act, 1996:
c
ss.2(1)(b), 11(6) and (9) - International commercial
arbitration - Application for appointment of arbitrator -
SeNices Agreement containing arbitration clause -: Plea that
SeNices Agreement was made part of a later Tripartite Share
D Purchase Agreement which sto.od terminated and with that
SeNices Agreement ceased to exist and, the Tripartite Share
Purchase Agreement was novated, rescinded and revoked
on account of Letter of Intent, and, therefore the application ~

was liable to ·be rejected - Held: SeNices Agreement was
not dependent upon· Tripartite Share Purchase Agreement -
E
An agreement to enter into an agreement is not enforceable
nor does it confer any right upon parties - Letter of Intent
relied upon is n.othing but an agreement to enter into anotl)er
agreement which was not executed - The Services
Agreement has not ceased to exist - Applicant is entitled to
F invoke arbitration clause - Disputes exist between parties
r
relating to execution of SeN/ces Agreement - Application '\
allowed -. Arbitrator appointed - Contract - Agreement to
enter into an agreement.

G The applicant filed the instant application uls 11 (6) of
the Arbitration and Conciliation Act, 1996 for appointment ''I
of an arbitrator stating that the applicant and the .'r
respondent e~tere_d into a Services Agreement dated
15.7.2006 whel.-eunder the applicant was to provide
I
'
H 62 ~
...
SPEECH & SOFTWARE TECHNOLOGIES (INDIA) PVT. 63
. v. NEOS INTERACTIVE LTD.

service to the respondent on a monthly payment; that the A
respondent had also agreed to compensate the Director
of the applicant for coordination activities; that the
respondent refused to make any payment to the applicant
and insisted for execution of another agreement which
the-latter declined. The stand· of the respondent was that B
after the parties signed the Services Agreement dated
15.7.2006, a Tripartite Share Purchase Agreement was
executed on 1.8.2006 of which the Services Agreement
-.I..
formed· part. The latter agreement was contingent upon
·. certain events taking place by 31.7.2006 and since the c
said events did not .take place by the stipulated date, it
stood automatically terminated as a result of which the
Services Agreement dated 1~~7 .2006, which was part of
the tripartite agreement, ceased to exist and, therefore,
the applicant was not entitled to invoke the arbitration
D
clause thereof. It was further submitted by the respondent
that the Tripartite Share Purchase Agreement was
novated, rescinded and revoked. on account of Letter of
Intent dated 1.8.2006 and, therefore, the application
should be rejected.
E
Allowing the application, the Court
,. HELD: 1. Exercise of power under Section 11 (6) of the
Act is judicial power. The preliminary matters to be
considered by the court are (1) existence of arbitration F
1 agreement, (2) territorial jurisdiction, (3) whether there are
llt
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·
G
for referring the dispute to thearbitrator will
have to be
rejected. [Para 7] [68-C-D] _ -
'( ...

""' SBP ~nd Comparw vs. Patel. Engineering Ltd. (2005) 8
sec 618, relied on~. . . . .
H
·.
. .·
-"'-· .... ...
· ..
.... ·
. ;·-··
;
...
64 SUPREME COURT REPORTS [2008] 17 S.C.R.
e
A 2.1. From the record of the case it is evident that the
Services Agreement dated July 15, 2006 was never a
schedule to the Tripartite Share Purchase Agreement.
The Services Agreement had been executed before the
Tripartite Share Purchase Agreement was·executed. The
B existence of the Service Agreement was not dependent
upon the ·completion of events as contemplated by the
Tripartite Share Purchase Agreement and, therefore, it is
incorrect to say that the Services A.greement ceased to y
exist on termination of the Tripartite Share Purchase
c Agreement. [Para 10] [69;.E-F; 70-F-G]

2.2. The Letter of Intent dated August 1, 2006 under
no circumstances can be treated as .novating, rescinding
.....
or _revoking .the Tripartite Share Purchase Agreement.
The said Letter of Intent on a bare reading is nothing but
D an agreement to enter into another agreement because
it is provided in the said letter, "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
E confer any right upon the parties. The respondent ha~ 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 on behalf of the
F respondent that no such agreement was executed
)-
between the parties at all. Thus, it cannot be said that the
1-
agreement contemplated. by the said Letter of Intent had
novated, rescinded or superseded the Tripartite Share
Purchase Agreement. Further, the terms of the Tripartite.
G Share Purchase Agreement, the Services Agreement and
the terms contemplated by Letter of Intent dated August
1, 2006 are not consistent at all and, therefore, it cannot
be said that novatio.n of the Tripartite Share Purchase
)' ...
Agreement read with the Services Agreement had taken "'
.' '
place. [Para 11] [71-A-F]
H

~-
(

• SPEECH & SOFTWARE TECHNOLOGIES (INDIA) PVT. 65
v. NEOS INTERACTIVE LTD.

3. The Services Agreement dated July 15, 2006 has A
1 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 between the parties relating to the B
execution of the Services Agreement dated July 15, 2006,
which are arbitrable. The application is allowed and
arbitrator is appointed. [Para 12] [71-G-H; 72-A]

Case Law Reference:
c
(2005) a sec 618
- relied on para 7
CIVIL ORIGINAL JURISDICTION : Arbitration Application
No. 22 of 2007.

Ramesh Singh, K.S. Rama Rao and Bela Maheshwari, for D
the Appellant.

Ravi Prakash Mehrotra, Deepti R. Mehrotra and Garvesh
Kabra, for the Respondent.
E
The Judgment of the Court was delivered by

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 F
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 10f Services Agreement dated July 15,
2006. G
2. The relevant facts, which emerge from the record of the
case, are as under: - -·

_ , The applicant is a-company registered under the
~c-ompanies
_,. ·Act, 1956. Its registered office is situated at H
\

66 SUPREME COURT REPORTS [2008) 17 S.C.R.
e
t

A Chennai. ·The respondent is a company having its registered
office at London. The applicant and the respondent entered into r
. 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
B 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
c December, 2006 the respondent refused to make any payment
to the applicant and insisted for execution of another 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
D
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
E and called upon the respondent to appoint its arbitrator in the
event the respondent c:fid 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.
F
3. On receipt of the notice the advocate of the respondent r
addressed a letter dated March 15, 2007 urging the applicant
not to take any uni.lateral action for a period of two weeks so
as to· enable him to obtain comprehensive instructions in the
G matter in order to· effectively study and evaluate the issues
involved inthe matter. The case of the applicant is that the
respo_ndent did not give reply to the notice dated February 15,
)r
2007; nor concurred in the appointment of Mr; Justice Arvind
Sawant (Retd,) as sole arbitrator nor appointed its arbitrator. ~

H \The applicant has claimed that it is entitled to recover a sum
SPEECH & SOFTWARE TECHNOLOGIES (INDIA) PVT. 67
v. NEOS INTERACTIVE LTD. [J.M. PANCHAL, J.]
of £252,911-76 from the respondent for the services rendered. A
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 8
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 was executed on August 1, 2006,
of which Services Agreement dated July 15, 2006 formed part
c
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
A
t
respondent the said Tripartite Share Purchase Agreement D

-. 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 E
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
parties, which totally replaced the Tripartite share Purchase F
i 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
G
----1 in reply filed by the respondent. In the rejoinder affidavit, the
applicant has, by and large, reiterated what is stated in the
x application and, therefore, this,Court is-of the opinion that it is
I..;_
not n~cessary to make a detailed reference to the· rejoinder filed
by the applicant.
H
.,;:~-;

.. ·: .
68 SUPREME COURT REPORTS [2008] 17 S.C.R.

A 6. This Court has heard th"e learned counsel for the parties
at Jength and in great detail. This Court has also considered r
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
B
this Court in SBP and Company vs. Patel Engineering Ltd.
(2005) 8 SCC 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
c 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
D 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
E respondent that the Tripartite Share Purchase Agreement stood
automatically terminated because various events mentioned
therein .did no.t-take place and, therefore, the Services
Agreement dated July 15, 2006, which was part of the Tripartite
Share Purchase Agreement, ceased to exist, cannot be "'

F accepted.

9. In order to ascertain whether the Services Agreement
dated July 15, 2006 exists or not, it will be relevant to notiqe
salient features of two agreements, namely, .(1) Services
Agreement dated July 15, 2006 and (2) Tripartite Share
•
G Purchase Agreement executed on August 1, 2006. Clause (2)
of the Services Agreement dated July 15, 2qo6 requires the
applicant to supply services to the respondent on payment of y
consideration by the respondent. The services to be supplied
have been detailed in Schedule 2 to the agreeme~t. The }

H consideration to be paid by the respondent is mentioned in
SPEECH & SOFTWARE TECHNOLOGIES (INDIA) PVT. 69
v. NEOS INTERACTIVE LTD. [J.M. PANCHAL, J.]

Schedule 1 to the agreement. Clause 4 of the said agreement A
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 agreement if
payment for services rendered is not received by the applicant B
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 c
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. D
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.
E
~
10. From the record of the case it becomes at once
t

::::/ 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, F
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 G
""" 5. t 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 pompletion of the Tripartite Share Purchase H
--\
70 SUPREME COURT REPORTS [2008] 17 S.C.R.

A Agreement are mentioned in clause 5.2. Clause 5.2.5 of the
agreement reads as under: - \

·"SST and the Company shall enter into the Services
Agreement and Shareholders Agreement (SHA) as per
drafts given in Schedule A and B."
B
It is the specific case of the respondent that the Tripartite
Share Purchase Agr~ement 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-
e completion of the mat~rial condition~ 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
D 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
E of the respondent at all that the draft of the Services 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
F between the parties. The record would indicate that the
·Services Agreement was executed before the Tripartite Share
Purch8:se Agreem~nt 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
G Agreement ceased to exist on termination of t~e Tripartite Share
Purchase Agreement.

11. Similarly, the plea that .the Tripartite Share Purchase
,Agreement was novated; rescinded and· revoked on account
H of Letter of Intent dated August 1, 2006 and, therefore, the .,
.. ;
SPEECH & SOFTWARE TECHNOLOGIES (INDIA) PVT. 71
v. NEOS INTERACTIVE LTD. [J.M. PANCHAL, J.]
instant application should be rejected, has no force. The Letter A
of Intent dated August 1, 2006 under no circumstances can be
treated as novating, 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 B
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 c
September 15, 2006. It is not the case of the respondent that
any ag,reement 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 ·
0
of hearing of the instant application it was fairly conceded by'
the learned counsel for the respondent that no such agreement
was executed 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 E
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 F
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 G
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 d~ubl_ that .disputes are existff:\g between the parties H
72 SUPREME COURT REPORTS [2008] 17 S.C.R.

A 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
8
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.

C 14. There shall be no order as to costs.

RP. Arbitration application allowed.

y