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Nasir Husain Films Pvt. Ltd. v. Saregama India Pvt. Ltd. & Anr.
Structured Summary of the Opinion — Mohta Anoop V., J.
Factual and Procedural Background
The petition under section 9 of the Arbitration and Conciliation Act, 1996 was filed by a film producer (the petitioner) arising from dealings with Respondent No. 1 (a music company) and Respondent No. 2 (a copyright society). The petitioner alleges that respondent No. 1, through respondent No. 2, unlawfully exploited the petitioner’s songs, music, lyrics and sound recordings (notably by ringtones and related modes) without authorization under prior agreements and without paying royalties. The petitioner produced an agreement draft titled "Assignment Deed" dated 8 May 2006, which the petitioner asserts was agreed upon and sent to respondent No. 1 for signature; the respondents did not return a signed original despite requests. The petitioner sent further notices and ultimately by an advocate’s letter dated 2 March 2007 terminated the Assignment Deed, called for outstanding royalties and invoked arbitration under an arbitration clause contained in the draft Assignment Deed.
Before the Court, the respondents disputed that a signed Assignment Deed ever existed and contended that mere negotiations, exchange of drafts and correspondence do not constitute a binding arbitration agreement under section 7 of the Arbitration Act. The petition sought interim reliefs, including disclosure of royalties and deposit of royalties in Court (prayer clauses (a) and (b) were not pressed), and relief under clause (c) (which was ultimately rejected). The Court heard restricted submissions and addressed whether prima facie a binding arbitration agreement existed for the purpose of section 9 relief.
Legal Issues Presented
- Whether there exists a binding arbitration agreement between the parties capable of supporting interim relief under section 9 of the Arbitration and Conciliation Act, 1996.
- Whether exchange of drafts, correspondence and negotiations (including a draft Assignment Deed not physically signed by the respondents) can be construed as an agreement in writing for arbitration under section 7.
- Whether the Court should grant the interim reliefs sought by the petitioner under section 9 in the absence of a prima facie binding arbitration agreement.
Arguments of the Parties
Petitioner's Arguments
- The petitioner contended there was an agreement dated 8 May 2006 (Assignment Deed) agreed by the parties and that the respondents had been exploiting the petitioner’s copyrights and owed royalties; accordingly, interim relief under section 9 was sought (disclosure of royalties and deposit in Court, etc.).
- The petitioner relied on the case Shin-etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. (2005) 7 SCC 234 to support the submission that an agreement existed between the parties (the Court records that the petitioner relied on this case, but the Court found the facts distinguishable).
Respondents' Arguments
- The respondents disputed that any Assignment Deed was ever signed by them; thus, there was no concluded arbitration agreement.
- They placed emphasis on section 7 of the Arbitration Act to argue that mere negotiations, correspondence and exchange of drafts do not suffice to form a binding arbitration agreement.
- The respondents relied on authorities such as Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd. and a Bombay decision in Pramod Chimanbhai Patel v. (name incomplete in text) to argue that written arbitration agreements must be signed to be binding and that negotiations alone are insufficient.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd. (1998 DGLS 1062 : 1999) 1 SCC 1 | The proposition that mere negotiations cannot be treated as a concluded agreement; consideration must be given to facts, circumstances and correspondence to determine intention. | Cited by respondents; Court considered it in assessing whether correspondence/drafts established a meeting of minds and concluded negotiations alone did not establish a binding arbitration agreement here. |
| Pramod Chimanbhai Patel v. ??? Constructions (2002 (6) Bom. C.R (O.O.C.J) 72 : 2002 (3) Mh. L.J 846) | Authority emphasising that arbitration agreements in writing must be signed by both parties to have binding force (as relied upon by respondents). | Relied upon by respondents to argue that non-signing of the basic document prevented formation of a binding arbitration agreement; Court treated this as supporting the proposition that signature/acceptance is material. |
| Dresser Rand S.A v. ??? Agro Chem Ltd. (2006 DGLS 18 : 2006) 1 SCC 751 | Interpretation of section 7: the Court must construe correspondence to see if there was a meeting of minds; correspondence alone can give rise to a contract only if it unequivocally shows ad idem on all material terms. | The Court quoted paragraph 24 and applied the principle: it examined correspondence and concluded there was no unequivocal meeting of minds here to create a binding arbitration agreement. |
| Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram (1954 DGLS 26 : 1954 A.I.R (S.C) 236) | Observation that letters setting out terms do not create a contract until an order is placed and accepted; correspondence alone may not create binding obligations absent the final act. | The Court found these observations apposite and used them to support the conclusion that correspondence/drafts did not, by themselves, constitute a binding agreement in the present facts. |
| Rajasthan Coop. Dairy Federation Ltd. v. Maha Laxmi Mingrate Marketing Service (P) Ltd. (1996 DGLS 1422 : (1996) 10 SCC 405) | Letter of intent indicates intention to enter into a contract in future but is not intended to bind the parties to enter into the ultimate contract. | The Court relied on this principle to observe that letters or drafts expressing intent are not necessarily binding, reinforcing the conclusion that a binding arbitration agreement was not prima facie established. |
| Shin-etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. (2005 DGLS 519 : (2005) 7 SCC 234) | Authority relied upon by petitioner to support existence of agreement (as per petitioner's submissions). | The Court noted the petitioner's reliance but found the facts and circumstances of Shin-etsu distinguishable; the Court did not treat it as controlling for granting section 9 relief on the present record. |
Court's Reasoning and Analysis
The Court proceeded by examining the documentary record and the parties' conduct to determine whether there was a prima facie binding arbitration agreement sufficient for relief under section 9. Key elements of the reasoning were:
- The record showed that the draft Assignment Deed dated 8 May 2006 was sent to respondent No. 1 and that the respondents did not return a signed original despite requests. The respondents disputed that they signed the Deed.
- Applying section 7 jurisprudence (as explained in Dresser Rand and other authorities), the Court emphasised the duty to construe correspondence to determine if there was a meeting of minds (ad idem) on all material terms. Correspondence can only give rise to a binding contract if it unequivocally shows such agreement.
- The Court accepted respondents' submission that mere negotiations, exchange of draft documents and correspondence — without acceptance signified by signing the basic document — could not be treated as a binding arbitration agreement in the present circumstances. The Court considered precedents (Rickmers, Chatturbhuj, Rajasthan Coop. Dairy) that support the proposition that letters/drafts or letters of intent are not necessarily binding until final acceptance is communicated or completed.
- Although the petitioner relied on Shin-etsu, the Court found that the facts and circumstances of that case were distinguishable and insufficient, on the present record, to establish a binding arbitration agreement for the purpose of section 9 relief.
- The Court observed procedural avenues available: parties could raise objections under section 11 when an arbitral appointment is sought, and if both parties agreed to appoint an arbitrator the objection as to absence of agreement would become futile. The Court invited parties to pursue appropriate steps or applications before the appropriate forum.
- The Court recognised that respondents have been using the petitioner’s copyrighted material under earlier agreements and that the petitioner may have claims for payments/royalties or damages; however, such claims are subject to proof and cannot be adjudicated in the present section 9 petition absent a binding arbitration agreement.
Holding and Implications
Holding: The petition under section 9 of the Arbitration and Conciliation Act, 1996 is dismissed. No costs.
Implications:
- Direct effect on the parties: The interim reliefs sought in this petition (including prayer Clause (c) at the stage canvassed) were refused, and the petition was dismissed. No costs were awarded.
- The Court concluded that there was no prima facie binding arbitration agreement on the basis of the material before it; as a result, the section 9 application could not succeed. The parties remain free to take appropriate procedural steps, including invoking section 11 for the appointment of an arbitrator and to raise their rival contentions before the arbitral tribunal if constituted.
- The Court noted that the respondents' exploitation of the petitioner’s copyrighted material (based on earlier arrangements) could give rise to claims for royalties or damages, but such claims require proof and appropriate adjudication; the present stage was not suitable to decide those issues.
- No new legal precedent was asserted to be laid down by this order; the Court applied established principles about correspondence, letters of intent and the necessity for a meeting of minds to form a binding contract/agreement for arbitration.
Note: This summary strictly reflects the content and conclusions stated in the provided opinion. Sections of the original text contained typographical omissions or incomplete names; such lacunae have been preserved and not supplemented by extraneous information.
Mohta Anoop V., J.:— The present petition which is under section 9 of the Arbitration and Conciliation Act 1996 (for short Arbitration Act).
2. Based on the agreement dated 8th May, 2006 for assignment and exploitation of copy rights and sound recording and underlying works, the petitioner has sought an interim order upon initiation hearing and final disposal of the arbitration proceedings and making of the award and/or implementation thereof, respondent No. 1 be ordered to disclose within 15 days on affidavit complete details of the royalties due to the petitioners and deposit in Court all royalties payable to the petitioners under the Assignment Deed including those dues under clauses 6(a) and 6 (a) of the Assignment Deed. The petitioners have not pressed prayer Clauses (a) and (b). Therefore, made restricted submissions by the counsel for the parties. Respondent No. 1 is a company incorporated and registered under the provisions of the Companies Act, 1956 with its registered office at 33, Jessore Road, Dum Dum, Kolkata-700028. Respondent No. 1 is carrying on the business inter alia, as a music company. Respondent No. 2 is a copyright society as per the provisions of the Copy Rights Act, 1957 (hereinafter referred to as the “Copy Right Act) and represents the interests of its member music companies and inter alia, assists its member music companies in the exploitation of copyrights and the collection and administration of royalties in respect thereof. Respondent No. 1 is a member of respondent No. 2. Respondent No. 2 also assists respondent No. 1 in the exploitation of copyrights and the collection of royalties for and on behalf of respondent No. 1.
3. The petitioner is a famous and well known producer of Hindi cinematograph films and film songs. The petitioner has produced various blockbuster films. The petitioner has inter alia produced films which are listed in Exhibit A hereto and owns all copyrights in such films, film songs, sound recordings in respect thereof and all its underlying works.
4. In or around the latter part of the year 2004, the petitioner was shocked to know that respondent No. 1 through respondent No. 2, was exploting the petitioner's songs, music, lyrics and sound recordings thereof by various modes to specify ring tone though they were not authorised to do so under any previous agreements. Such unauthorised exploitation was, inter alia, through ring tones was not contemplated by the previous agreements. Such unauthorised exploitation not only amounted to breach of the terms of the previous agreements but also is in violation of the petitioner's copy rights in the songs and the music and the lyrics comprised therein and the sound recordings thereof. As alleged, not only did the respondents make unauthorised use and exploitation of the petitioner's songs but also did not make any payment or give compensation for such unauthorised use and exploitation.
5. The petitioners, therefore by various notices/letters called respondent No. 1 to clear of the outstanding amount/royalties due to the petitioners under the previous agreement and further to cease and desist from making use and exploiting the petitioner's works/songs/music/lyrics, inter alia through or by way of ringtones/ringtone down loadings thereof. The respondents denied the petitioner's claim. Respondents failed to clear the petitioner's dues and continued to wrongfully and unauthorisedly exploit the petitioner's copy rights.
6. However, there were various negotiations and agreements reached between the parties. Various correspondences have been exchanged between the parties including e-mails. A draft of fresh agreement as negotiated have been exchanged between the parties as alleged and respondent No. 1 agreed to all the terms of the fresh Assignment Deed. Admittedly, by letter dated 8th May 2006 sent to respondent No. 1 two originals of the Deed of Assignment agreed by them with a request to return to the petitioners one original ??? the letter and the Deed of Assignment duly signed by respondent No. 1. The Assignment Deed in question has been sent to letter dated 10th May, 2006. Respondent No. 1 however failed to return the Assignment Deed duly executed by them though requested. The receipt of the said acknowledgment is not disputed. However, there was no response from respondent No. 1. The petitioners, therefor by letter dated 14th June, 2006/14th July 2006 requested respondent No. 1 to complete with the various Clauses of the said Assignment Deed. Respondent No. 1 did not respond to the same again.
7. As respondent No. 1 failed to ??? to the petitioner's letter dated 14th July 2006, the petitioner by its Advocate's letter on 2nd March, 2007 terminated the Assignment Deed and once again called respondent No. 1 to clear all the outstanding royalties and invoke the arbitration between the parties as disputes and differences had ??? out of and connected with the Assignment Deed. There is an arbitration clause in the draft assignment Deed between the parties.
8. Learned Counsel appearing for the respondents however, disputes the fact of ??? of such a Assignment Deed and/??? agreement for arbitration basically on the foundation that the Assignment Deed was never signed by the respondents. ??? has been placed on section 7 of the Arbitration Act. The submission that there is signed agreement between the parties ??? therefore, invocation of arbitration clause ??? done in the present case itself is wrong. The was no agreement for arbitration between the parties as the Assignment Deed itself was never signed by the parties at any point time. Exchange of letters/correspondence e-mails itself cannot be the foundation treat those correspondences or communication as the agreement for arbitration as the is no agreement between the parties for arbitration, therefore, there is no question granting any relief under section 9 of the Arbitration Act, 1996.
9. He has strongly relied on (Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd.)1, reported in 1998 DGLS 1062 : (1999) 1 SCC 1. The submission is that mere negotiations cannot be considered as agreement between the parties. The same judgment itself spells out that the facts, circumstances and correspondences exchanged between the parties need to be considered together with he intention of the parties. Correspondence as shown admittedly reflects that the assignment Deed was never signed physically. Therefore, the question is whether here is an arbitration agreement between he parties.
10. Strong reliance has been placed further by learned Senior Counsel appearing in behalf of the respondents that in view case in (Pramod Chimanbhai Patel v. ??? Constructions)2, reported in 2002 (6) Bom. C.R (O.O.C.J) 72 : 2002 (3) Mh. L.J 846 the Arbitration agreement in biting must be signed by both the parties ??? have a binding force.
11. The Apex Court in (Dresser Rand S.A v. ??? Agro Chem Ltd.)3, 2006 DGLS 18 : (2006) 1 SCC 751 interpreting section 7 of the arbitration Act, 1996 has observed as under:
“24. ………..In this connection the cardinal principle to remember is that it is the duty of the Court to construe correspondence with a view to arrive at a conclusion whether there was any meeting of mind between the parties, which could create a binding contract between them but the Court is not empowered to create a contract for the parties by going outside the clear language used in the correspondence, except in so far as there are some appropriate implications of law to be drawn. Unless from the correspondence, it can unequivocally and clearly emerge that the parties were ad idem to the terms, it cannot be said that an agreement had come into existence between them through correspondence. The Court is required to review what the parties wrote and how they acted and from that material to infer whether the intention as expressed in the correspondence was to bring into existence a mutually binding contract. The intention of the parties is to be gathered only from the expressions used in the correspondence and the meaning it conveys and in case it shows that there had been meeting of mind between the parties and they had actually reached an agreement upon all material terms then and then alone can it be said that a binding contract was capable of being spelt out from the correspondence.”
30. The following observations of this Court in (Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram)4, 1954 DGLS 26 : 1954 A.I.R (S.C) 236 though in a different context, are apposite:
“The letters merely set out the terms on which the parties were ready to do business with each other if and when orders were placed and executed. As soon as an order was placed and accepted a contract arose. It is true this contract would be governed by the terms set out in the letters but until an order was placed and accepted there was no contract.”
39. It is now well settled that a letter of intent indicates a party's intention to enter into a contract with the other party in future. A letter of intent is not intended to bind either party ultimately to enter into any contract. The Court while considering the nature of a letter of intent, observed thus in [Rajasthan Coop. Dairy Federation Ltd. v. Maha Laxmi Mingrate Marketing Service (P) Ltd.), 1996 DGLS 1422 : (1996) 10 SCC 405 : 1997 A.I.R (S.C) 66.
“The letter of intent merely expressed an intention to enter into a contract….. There was no binding legal relationship between the appellant and respondent 1 at this stage and the appellant was entitled to look at the totality of circumstances in deciding whether to enter into a binding contract with respondent 1 or not.”
12. Learned Counsel appearing for the petitioner has relied on case reported in (Shin-etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd.)6, 2005 DGLS 519 : (2005) 7 SCC 234 to support his submissions that there was agreement between the parties. The facts and circumstances are totally distinct and distinguishable. I am of the view that prima facie at this stage, without going into further details of the matter for the purpose of section 9 of the Arbitration Act, 1996 and considering the scope and purpose of the Act, there is no binding arbitration agreement between the parties. Non-signing of the basic document between the parties as reflected from the record just cannot be overlooked. Mere sending of final draft of assignment deed based on some correspondences that itself, cannot be treated as binding agreement between the parties. The other party admittedly, though requested, yet not signed the same, till this date. Therefore, unless such draft/or proposal, though negotiated by mutual discussion, cannot bind the other party unless accepted and signed, as contemplated under the Arbitration Act.
13. I am of the view that parties at liberty to raise all these objections while submitting their rival contentions under section 11 of the Arbitration Act, 1996 if necessary.
14. Both the parties if agreed to appoint any Arbitrator then the submition that there was no agreement between the parties for arbitration or even otherwise, would be futile and of no use. Therefore, at this stage I am inclined to accept the submissions raised by learned Counsel appearing for the petitioner that there is no binding arbitration agreement.
15. The settlement of draft itself cannot be treated as valid and binding agreement. Unless accepted in writing or communicated accordingly. Such draft of agreement cannot be treated as final and agreed agreement of arbitration as sought to be contended by the Senior Counsel for the petitioner.
16. However, Admittedly, the respondents have been using same copy right materials of the petitioners based on earlier agreements till this date. The respondents who are exploiting such copyrights of the petitioners is entitled to make the payment and/or royalties atleast damages to the petitioner even if they are not agreeing to the Assignment Deed but it is subject to proof. It is a fit case where the arbitrator or the mediator need to be appointed to settle the dispute and difference between the parties.
17. In this background, grant of prayer Clause (c) at this late stage is rejected. The petitioner is entitled to claim and raise all issues before appropriate forum including arbitral tribunal if constituted. The parties are at liberty to take out appropriate steps or application if any case is made out. The respondents and said persons are utilising and using the said copyright material since long. The agreement itself is of November, 2006. Present petition is dated 5 March, 2007. The averments are that the respondents are using the said copyright material initially based on the agreement between the parties. There is dispute between the Assignment Deed between the party. Therefore, unless the issue is decided, ploitation of copy rights by the respondent at this stage, cannot be adjudicated or decided upon including royalties as claimed.
18. Taking all these into account, I am ??? inclined to grant any relief as prayed for the present petition. The petition is dismissed. No costs.
19. Petition dismiss.
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