GALATEA LTD. vs SHREE KRISHNA EXPORTS

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(Guj) 966

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
J.B.PARDIWALA, VAIBHAVI D. NANAVATI, JJ.
GALATEA LTD. - Appellant
Versus
SHREE KRISHNA EXPORTS - Respondent
APPEAL FROM ORDER NO. 30 of 2020 With CIVIL APPLICATION (FOR STAY) NO. 1 of 2020, APPEAL FROM ORDER NO. 30 of 2020 With CIVIL APPLICATION (FOR ORDERS) NO. 2 of 2020, APPEAL FROM ORDER NO. 30 of 2020 With CIVIL APPLICATION (FOR ADDITIONAL EVIDENCE) NO. 4 of 2020
Decided On : 24-12-2021

Advocates Appeared:
For The Appellant : MR SHALIN MEHTA SENIOR COUNSEL WITH MR DILIP B RANA
For The Respondent: MR MEHUL SURESH SHAH SENIOR COUNSEL WITH MR MANAN A SHAH

Headnote:
Arbitration and Conciliation Act, 1996 – Sections 2(2), 8 9, 11, 27, 37(1)(a), 37 (3), 50, 45 - Ordinance ("Arbitration and Conciliation (Amendment) Ordinance, 2015) - International Commercial Arbitrations - Partnership firms – Mischievously misrepresented new software to be an “upgrade” to purchased software – Termination of agreements - Scope Of Enquiry Under Section 45 - Power of judicial authority to refer parties to arbitration - Extent of judicial intervention - Jurisdiction - End User License Agreement - Whether Court below committed an error in passing the impugned order rejecting application filed by appellant herein under Section 45 of Arbitration Act - Whether arbitration agreement in case on hand could be said to be null and void, inoperative or incapable of being performed - Whether non-obstante clause contained in Galatea Purchase Agreement would override/oust arbitration agreement contained therein - Plaintiffs are partnership firms engaged in business of Diamond manufacturing. Plaintiffs entered into various agreements for purchase of Scanning Machines such as Solaris 100 Machine, Galaxy LR Hardware, Galaxy 1000 Machines, etc. Plaintiffs also entered into various agreements for purchase of Planning Machines with defendant herein - Dispute between parties arose with appellant - Defendant issuing notices terminating agreements of Scanning Products, which led to shut down of operations of machines - Held, Extent of judicial intervention is limited by non-obstante provision of Section 5 of Act. As per settled law, Court should not be obliged to bypass provisions of Act in exercise of its power and jurisdiction - The words “null and void” in Section 45 of Act may be interpreted or understood as referring to those cases where arbitration agreement is affected by some invalidity right from the beginning, such as lack of consent due to misrepresentation, duress, forgery or undue influence - Court view that few stray allegations of fraud, by one party against other, would not be sufficient to exclude subject matter of dispute from arbitration and decision thereof necessary by Civil Court. It may not be out of place to state at this stage that out of 450 machines with their respective operating software being used in Indian market as on date, only plaintiffs (holding a total of 33 machines) have termed dispute as a fraud - It is a settled position of law that a non-obstante clause in a particular provision of law or contract does not mean that whole of said provision of law or contract has to be made applicable or whole of other law or contract has to be made inapplicable. It is duty of court to avoid any conflict and construe provisions to that they are harmonious - The non-obstante clause only provides an option to either of parties to approach Court of competent jurisdiction under Section 9 of Arbitration Act and that is exactly parties understood at time of execution of agreements - Trial Court has failed to appreciate that agreement for Planning Product contains an arbitration clause which is evident from EULAs filed by appellant along with an application under Order LXI Rule 27 of C.P.C. - Said EULAs also contain clauses that would covers all versions of Planning Product - Said EULAs, which were deliberately concealed and suppressed by original plaintiffs, also contain an arbitration clause. Therefore, all disputes raised in relation to Planning Product, would also be arbitrable - Even if different forums are provided, recourse to one of them which is capable of resolving all their issues should be preferred, over a refusal of reference to arbitration - Impugned order passed by Small Cause Court (Commercial Court), in Commercial Civil Suit quashed and set aside - Appeal allowed and Civil Applications stand disposed of.

JUDGMENT :

J.B.PARDIWALA, J.

1. This appeal under Section 50 of the Arbitration and Conciliation Act, 1996 (for short, “the Act, 1996”) is at the instance of the original defendant No.1 and is directed against the order passed by the Small Cause Court (Commercial Court), Surat, dated 4th February 2020 below Exhibit : 24 in the Commercial Civil Suit No.14 of 2019 instituted by the respondents Nos.1 to 13 respectively (original plaintiffs), by which the application Exhibit : 24 filed by the appellant herein, under Section 45 of the Act, 1996 to refer the parties to arbitration, came to be rejected.

2. The facts giving rise to this appeal may be summarised as under:

3. For the sake of convenience, the parties before us shall be referred to as the plaintiffs and defendant.

4. All the plaintiffs are partnership firms engaged in the business of Diamond manufacturing. The plaintiffs entered into various agreements for the purchase of Scanning Machines such as the Solaris 100 Machine, Galaxy LR Hardware, Galaxy 1000 Machines, etc. The plaintiffs also entered into various agreements for the purchase of Planning Machines with the defendant herein.

5. The purchased machines are embedded and integrated with their respective software, such as Solaris 100 Software Infrastructure (in case of Galaxy LR Hardware machines), GalScan and Gal3D software (in case of various Scanning machines), and Advisor Software (in case of Planning machines). These software programs that form an integrated part of the purchased machines and its functionality, were also purchased along with the purchased machines. The purchased machines and purchased software are collectively referred to as the “purchased product” consisting of the “Scanning Product” (Scanning machines embedded with its respective software) and “Planning Product” (Planning machines embedded with its respective software).

6. It is the case of the plaintiffs that it is virtually impossible to use the purchased machines without the purchased software. The Scanning Product is also interlinked with the Galatea’s server (server of the defendant No.1) located in Israel that interfaces with the Scanning Product located in the premises of each of the plaintiffs at Surat. Although the purchase of the purchased product (both Scanning Product and Planning Product) and vide the End User License Agreements, the plaintiffs had secured perpetual licenses for the purchased software for the perpetual use of the purchased product, yet the perusal of the agreement would indicate that due to the very nature of the purchased product, there is an express duty cast upon the defendants to continue the purchased software (software programs embedded in the Scanning machines and Planning machines so that the plaintiffs can continue to use the purchased product.

7. It is the case of the plaintiffs that the defendants Nos.1 – 3 jointly known as ‘Sarine Group’, are in a dominant position in the diamond technology industry within the relevant market and are providing diamond support services world over, of which the majority share of business for the defendants Nos.1 – 3 resply originates from Surat. The defendants Nos.1 – 3 resply are alter egos of one another in India. The defendants Nos.1 and 2 resply have been acting through their Indian arm i.e. the defendant No.3 in order to provide support to the purchased product including the annual maintenance of the purchased product.

8. The dispute between the parties arose with the appellant - defendant issuing notices dated 16th August 2019 terminating the agreements of the Scanning Products, which led to the shut down of the operations of the machines.

9. It is the case of the plaintiffs that the defendant has come up with a new software for its own machines, which are the Scanning Machines. The defendant wants to replace the earlier purchased software included in the purchase machine with a new software. The new software, if replaced, with the old purchased software in the purchased machi

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2021 Supreme(Guj) 966

Cases Referred (25)