The liability for payment of royalties under an arbitration agreement is contingent upon the commercialization of the product, and claims for damages not included in initial pleadings cannot be awarded.

JUSTICE PRATHIBA M. SINGH

Prathiba M. Singh, J. (Oral)

1. This hearing has been done through hybrid mode.

2. The present petition under Section 34 of the Arbitration and Conciliation Act, 1996 has been filed by the Petitioners-National Research Development Corporation (hereinafter, ‘NRDC’) and the Department of Scientific and Industrial Research (hereinafter, ‘DSIR’) under the Ministry of Science and Technology, Government of India. NRDC is an enterprise of DSIR and is involved in the Technology Development and Demonstration Programme (hereinafter, ‘TDDP’).

3. The Respondent-company is engaged in manufacturing drugs and intermediates, established in 2006. Its director approached the Petitioners with a proposal to develop a rapid molecular diagnostics kit for malaria detection. A royalty agreement dated 18^th October, 2011 was entered into between the Petitioners and the respondent, outlining the development of the 1 malaria diagnostics kit, including design, standardization, validation, and expenses estimation. As per the said royalty agreement, the Respondent is also liable to transfer the ‘know-how document’ and other improvements if they fail to commercialize the technology within the specified timeframe. The Respondent is also obligated to pay interest and royalties as per the agreement. The relevant clauses of the said royalty agreement are as follows:

“11. UTILISATION OF TECHNOLOGY

a. CBPL will enter into an agreement with NRDC within 120 days from the date of first sanction letter by DSIR under the "Project" to enable NRDC to collect lumpsum royally as mentioned in clause 4.1(f) and 4.1(g) above, and will pay to NRDC a lumpsum royalty on the sale of the "Product" as per clauses 4.1(f) and

4.1(g) of this Agreement.

b. CBPL will have the right to utilize the technology developed or other IPRS generated through the "Project for production and sale of "Products on commercial basis. For such commercial utilization of technology by CBPL, CBPL will pay to NRDC, who will receive on behalf of DSIR, royalty/lumpsum premium as envisaged in clause 4.1(f) and/or 4.1(g) above.

c. After commercialisation of technology by CBPL as stated in clause 11(b) above, CBPL may do third party licensing, if CBPL and DSIR perceive that such a need arises. This third-party licensing and related terms and conditions would be finalised by CBPL with the approval of DSIR. The revenue so generated by such third-party licensing shall be shared between CBPL and DSIR in the ratio of their actual financial contributions towards the project as assessed at the end of the project.

d. CBPL may, if they so desire, utilise the services of NRDC for third party licensing as per mutually agreed 2 terms and in consultation with DSIR. The revenue so collected by NRDC on behalf of DSIR by way of third party licensing shall be shared between CBPL and DSIR in ratio of their actual financial contributions towards the Project as assessed at the end of the Project.

e. CBPL shall assign the technology proposed to be developed under this Project with right to license the intellectual property owned by them and transfer the know-how document to NRDC within 60 days from the occurrence of any of the following :

(i) If CBPL refuses to exercise its right, within one year of completion of the Project, its option to commercialise technology

(ii) If CBPL fails to commercialise technology within four years of completion of the project.

(iii) If fails to execute agreement referred to in clause 11(a) above.

NRDC will have an exclusive right to license the technology developed through the Project to third parties in case of occurrence of either of the events referred in clause 11(e) above. CBPL will provide to NRDC full details of any improve