Aroha Labs Pte Ltd. vs Prem Dharmani

Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 2(2) and 9 - Copyright Act, 1957 - Section 19(1) - International commercial arbitration with seat outside India - Maintainability of petition for interim measures - Proviso to Section 2(2) provides that sections 9, 27, and 37(1)(b) and 37(3) apply to international commercial arbitrations even if the place of arbitration is outside India, subject to an agreement to the contrary - Mere designation of a foreign seat and governing law does not constitute an "agreement to the contrary"; such exclusion must be express. (Paras 10.6, 10.12)

(B) Arbitration - Non-signatory to arbitration agreement - "Alter ego" and "piercing the corporate veil" doctrines - Where a signatory holds nearly all shares and exercises de facto control over a non-signatory entity, the corporate veil may be lifted to bind the non-signatory for the purpose of granting interim measures, provided a strong prima facie case is made. (Paras 11.33, 11.36)

(C) Interim Relief - Section 9 - Mandatory injunction - Relief in the nature of a mandatory injunction, requiring the delivery of property, is generally not granted at the interlocutory stage, as it amounts to final relief and requires a higher degree of proof than a strong prima facie case. (Paras 12.16, 12.17)

Facts of the case:
An entity engaged consultants under agreements stating that all intellectual property developed would belong to the entity. The consultants subsequently incorporated a separate entity and claimed that the intellectual property of the developed software applications belonged to that entity. The petitioner sought interim relief to restrain the consultants and the newly formed entity from exploiting the applications and to compel the return of company property.

Findings of Court:
The petition is maintainable under the proviso to Section 2(2) of the Arbitration and Conciliation Act, 1996. The non-signatory entity is the alter ego of the lead consultant, justifying the grant of interim measures against it. A temporary injunction is warranted to protect the intellectual property, but a mandatory injunction for the return of assets is not appropriate at this stage.

Issues: Whether a Section 9 petition is maintainable in India for a foreign-seated arbitration; whether a non-signatory entity can be bound by the arbitration agreement through the alter ego doctrine; and whether the petitioner is entitled to the sought interim reliefs.

Ratio Decidendi: The court held that the 2015 amendment to Section 2(2) explicitly allows Indian courts to grant interim relief for foreign-seated arbitrations unless the parties expressly agree otherwise. Furthermore, the "alter ego" doctrine allows the court to pierce the corporate veil to prevent the misuse of a separate legal personality to evade contractual obligations, especially when one individual exercises total control over the entity.

Result: Arbitration petition partly allowed.

Legal Category Hierarchy

1. Petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim injunction against misuse of intellectual property developed under Master Service Agreements. (Para 1 , 2 )

2. Dispute centers on maintainability of Section 9 petition for foreign-seated arbitration, binding a non-signatory to arbitration, and entitlement to interim relief. (Para 4 , 5 , 6 , 7 )

3. Held: Section 9 maintainable absent express agreement to contrary; alter ego doctrine can bind non-signatory at interim stage; prima facie case for preservatory injunction established. (Para 8 , 9 , 10 , 11 , 12 , 13 , 14 )

4. Petition partly allowed: interim injunction granted restraining respondents from dealing with intellectual property; mandatory injunction refused; direction to raise arbitrability contentions before tribunal. (Para 15 )

ORDER :

M.G.S. KAMAL, J.

1. This Arbitration petition is filed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as `Act, 1996) seeking following reliefs:

''a. Grant an order of temporary injunction restraining the Respondents, their agents, servants, employees, representatives or any person claiming through or under them from using, copying, modifying, exploiting, operating, publishing, commercializing, licensing, transferring, assigning, disclosing or claiming any right, title or interest or otherwise dealing with or creating any third party rights in the Applications and materials relating to the applications more particularly described in the Schedule hereto, vide Annexure-D master service agreements dated 20.05.2024, 11.12.2025 pending disposal of the arbitral proceedings.

b. Grant an order of mandatory injunction directing Respondent Nos. 1 to 6 to forthwith hand over and deliver to the Applicant all laptops, computers, storage devices, documents, records, code, marketing, App Store credentials, related work product and other company property belonging to the Applicant and presently in their possession, custody or control.

c. Pass any other order as this Hon'ble Court may deem fit in the interest of justice and equity.''

2. Schedule to the application read as under:

Schedule ''All right, title, and interest in and to any copyrightable material (including but not limited to software source code and object code), trademarks, notes, records, drawings, designs, inventions, improvements, developments, discovery and trade secrets conceived, discovered, authored, invented, developed or reduced to practice by respondents, solely or in collaboration with others, arising out of, or in connection with the service under the master service agreement dated 13.05.2024, 20.05.2024, 30.11.2025 (produced at Annexure-D) including but not limited to the software applications by the name and style ''Amore'', ''Astha 247: AI Spiritual App'', and ''Creato'' and ''Astro'' and ''Astro 247'' and customers details in relation to the same, and any copyrights, patents, trade secrets, mask work, rights are other intellectual property rights relating to the foregoing.''

3. Brief facts of the case of the applicant:

3.1 That applicant is a Company incorporated under the laws of Singapore with its registered office at Singapore carrying on the business inter-alia of development, financing and commercialization of software applications, artificial intelligence products and technology platforms.

3.2 That applicant had engaged the services of respondent Nos.1 to 5 herein as independent consultants in terms of Master Service Agreements (hereinafter referred to as MSAs) to work on the development of multiple customer software applications. That the applicant has paid a sum of Rs.2.2 Crores to respondent Nos.1 to 5 towards development of applications and other services under the MSAs. Source code for these applications belong to the applicant. Besides, other development work was carried out on the applicant's platform with full assistance and its resources.

3.3. That in terms of the MSAs all intellectual properties including copyrighted source codes and trade secrets, developed, either solely or in collaboration during the tenure of MSAs and arising out of or in connection with the performing service under MSAs are the sole properties of applicant and are duly and wholly assigned to it.

3.4 That the applicant was looking for the ways to launch the applications that were developed in terms of MSAs including an application known as ''ASTRO 247''. That the respondent No.1 had suggested that in order to ease the regulatory issues, the developed applications could be launched through a company to be incorporated within India. In consideration, he had represented that the applicant would be provided 38% stake in the proposed company.

3.5 A Term Sheet in this regard was also executed on 07.09.2024, which indicate that subsequent to incorporati