QUANTUM INFORMATION SYSTEMS LIMITED Vs. ELECTRONICS TRADE AND TECHNOLOGY DEVELOPMENT CORPORATION LIMITED

JUDGEMENT

(1.) Petitioner filed this petition under section 9 of the Arbitration and Conciliation Act, 1996, interalia, alleging that it is pioneer in the field of Distance Education. Respondent is a Public Sector undertaking and was set up in the year 1974 by the Department of Electronics, Government of India. Respondent is engaged in the business of electronic components, equipments, information technology products, telecommunications, security systems, education and training etc. Both the parties entered into a "Quantum-ET&T Alliance Agreement" on 18th December 1997. Under clause (1) of this agreement, petitioner was to set up education centre to be known as "Quantum ET&T Centre". Under clause (5), respondent undertook to provide 3500 sq.ft of built up space at 16/4.8, Malcha Marg, Chanakyapuri after renovating, air-conditioning and installing furniture, fixtures, fittings and other utilities at a cost not exceeding Rs.1,000.00 per sq.ft according to the design approved by petitioner within 45 days of signing of agreement. It further undertook to provide additional 1500 sq.ft space in said premises by 1st January, 1999 and further space of 1500 sq.ft by 1st January 2001 after renovation and installation, of furniture, fixtures, fittings and other utilities at a cost not exceeding Rs.1,000.00 per sq.ft according to the design approved by petitioner by January 31,1999 and January 31,2001 respectively, while renovation work was being undertaken the respondent undertook to provide temporary facilities for camp office at the centre to the petitioner. Clause 6 of the agreement stipulated that respondent would at its own cost provide 128 Kbps leased lines at the said premises for Internet links with VSNL or any other Internet Service Provider (ISP) within 45 days of the signing of agreement. Additional 128 Kbps leased lines was to be provided by January 1999-2001 respectively. Under clause 9 of agreement the petitioner is required to pay to the respondent 15% of the Indian Rupee amount realised by petitioner from its students enrolled in the courses from University of Illinois at Urbana-Champaign, USA for the year 1998. Petitioner is further required to pay to the respondent @ 12% of the Indian Rupee amount realised by the petitioner from its students enrolled in the courses from said University for the year 1999 till expiry of the term of agreement. However, the Indian Rupee was pegged at Rs. 2.10 Lacs per student at the time of agreement subject to any change as agreed by the parties. Under clause 10 of agreement the petitioner is to make payments to the respondent as per clause 9 within 30 days of the receipt of fees each semester except for first spring semester of January /February 1998. For this particular semester payments were to be made in two instalments which were to include initial payment of Rs.4 lakhs to be paid within 30 days of its collection and balance alongwith payment of the fall semester. Under clause 11 of agreement the petitioner ensured minimum guarantee payment each year irrespective of its fee revenues to the respondent to cover the heads - (a) 128 Kbps lea9e lines rental as provided in said clause 6; (b) Proportionate rental outflow incurred by the respondent for the Centre at the said premises; and (c) 1/3rd of the total renovation cost incurred by the respondent to be adjusted over a period of three .years beginning with the year in which it is actually incurred by the respondent. It is alleged that minimum guarantee payment was payable in 30 days after the start of fall semester in September of each year after adjusting other sums that petitioner might have paid to the respondent earlier at the spring semester in January / February of that year. Under clause 13 of agreement the term of agreement was initially fixed for a period of 5 years subject to renewal thereafter for such further periods and on such terms as may be mutually agreed to between the parties. Clause 15 of agreement provides for termination thereof while Clause 17 contains arbitration clause. It is pleaded that agreement was entered into on the assurance given by respondent specially in regard to timely availability of space in the said premises duly renovated. However, respondent failed to make available space ad-measuring 3500 sq.ft duly renovated to the petitioner by 1st February 1998 as stipulated in clause 5 of agreement. It also failed to provide leased lines of 128 Kbps as stipulated in clause

(2.) Thus, the representative of petitioner approached the Chairman and Managing Director of respondent, both of whom had signed the agreement to ascertain as to when renovated space would be made available. Series of discussions between the parties were held. As the respondent was facing liquidity crisis the petitioner proposed to arrange funds to undertake the renovation of space and installation of leased lines from VSNL. Since funds were to be borrowed from market, the petitioner through the letter dated 3rd April 1998 intimated the respondent that interest payable on the amount to be borrowed will be 17.5% p.a. and interest adjusted against the payments to be made by the petitioner under the agreement. Subsequent to the meeting dated 13th April 1998, the respondent sent a letter dated 1.8th April 1998 to the petitioner agreeing to petitioner's proposal as contained in the said letter. In this letter respondent also mentioned that sum of Rs.4 lakhs which had already become due under the agreement, will be adjusted against the first advance to be received for renovation and balance would carry simple interest @ 17.5% p.a. which will be calculated from the date of realisation of amount till the date on which amounts become due and payable to the respondent on reducing balance basis. Respondent further reiterated to bear the renovation cost to the extent of Rs.1,000.00 per sq.ft. Petitioner also decided to meet the entire expenditure on air-conditioning. It is further alleged that petitioner wrote a letter dated 20th May 1998 to the respondent with regard to installation of leased lines in the said premises. As discussed between the parties the respondent had to apply for 64 Kbps leased lines for which application form had already been given to it. Petitioner enclosed a cheque for Rs.20,000.00 alongwith the said letter towards registration money for installation of 64 Kbps leased lines. Centre was inaugurated on 5th June 1998 and it began to function from this date from the said premises. In April 1998 the respondent had made available 5008.61 sq.ft space to the petitioner and out of which petitioner had renovated 4021.48 sq.ft. In the meeting dated 13th April 1998 between the Director, Marketing of respondent and the representative of petitioner, the respondent agreed to pay bills at the agreed rate of 1000 sq.ft for 4021 sq.ft of renovated space in addition to bearing the cost of VSNL leased lines. It is pleaded that subsequently the petitioner received a letter dated 31st May 1999 from the respondent stating, interalia, for the first time that its share of renovation was subject to ceiling of Rs.35 lakhs and it claimed payment of Rs. 4,48,488.00. This claim was repudiated by the petitioner by the letter dated 9th March 1999. Vide letter dated 14th June 1999 the respondent informed the petitioner that it would not accept the liability for cost of renovation over and above Rs.35 lakhs. According to petitioner's calculation it was the respondent which owed Rs.5,82,687.00 to the petitioner and by the letter dated 28th May 2000 the respondent was'intimated accordingly by the petitioner. It is alleged that petitioner was shocked to receive a notice dated 23rd January 2001 from the counsel of respondent informing that it has terminated the agreement with effect from 1st February 2001. Petitioner sent an interim reply to this notice through its counsel on 25th January 2001. On 27th January 2001 the advocate of respondent replied to the petitioner's advocate's said interim reply wherein it was stated that in case the petitioner pays a sum of Rs.24,77,263.00, the respondent would withdraw the termination and not take the proposed action. In sub para (z) of Para 6 of the petition alleged disputes which have arisen between the parties, have been enumerated. It is alleged that petitioner is in process for invocation of arbitration clause contained in clause 17 of the agreement and nominate its arbitrator in terms thereof. It is pleaded that purported termination of the agreement dated 18th December 1997 is unjustified. The period of notice provided in clause 15 of agreement is atleast 12 months. This clause further provides that agreement shall be deemed to have been rescinded till the conclusion of courses/programmes. Petitioner has admitted students for a period of another 2 years in December 2000 and,therefore, under said clause 15, the agreement is deemed to be extended for a period of another two years uptil 31st January 2003. Termination of said agreement would result in grave and drastic consequences to the students already admitted. Prayer made in the petition which is material, is reproduced as under:-

(3.) Respondent contested the petition by filing reply. Execution of the agreement dated 18th December 1997 between the parties is admitted. It is stated that as per this agreement the petitioner was to start programme leading to Degree of Master in Computer Science from the University of Ilinois (USA) and various other Degree, Diploma and Certificate courses. Under clause 5 of the agreement answering respondent was to provide 3500 sq. ft of built up area on first and second floors of the premises at 16/48, Malcha Marg, Chanakyapuri on rent with it for setting up Centre. Answering respondent was also to provide additional 1600 sq.ft by January 1999 and further 1500 sq.ft by 1st January 2001. It was also to arrange for renovation, air-conditioning, furniture and fixtures and other facilities at a cost of Rs.1,000.00 per sq.ft and renovation of 3500 sq.ft was to be completed within 45 days of the entering of agreement. In consideration thereof, under clause 9 of agreement the petitioner was to pay to the answering respondent 15% of the total amount realised from its students enrolled for the programmes for the year 1998 and 12% thereafter. In addition, the petitioner was to bear proportionate actual expenses towards telephone, electricity and water. Clause 11 of the agreement provides for minimum guaranteed payments. Entire renovation cost was to be reimbursed by the petitioner in 3 instalments. It is alleged that 3500 sq.ft plus additional 1500 sq.ft which was to be made available in 1999 had been duly handed over to the petitioner. In the meeting held on 2nd April 1998 answering respondent had agreed to the work of renovation being carried out by the petitioner directly. It was further agreed that the share of answering respondent towards renovation expenses which was to be paid by the petitioner, would carry interest @ 17.5% p.a. Further, cost of renovation was limited to Rs.35 lakhs. It is alleged that petitioner had also undertaken to arrange the leased lines from VSNL. It was felt that expenditure on air-conditioning should also be borne by the petitioner. It is alleged that designs and drawings for renovation were to be provided by the petitioner. Petitioner delayed the submission of drawings and designs and for that reason it was only in April 1998 that contract for renovation could be awarded. It was the petitioner who was negotiating with the contractors for renovation work and,therefore, no part of delay could be attributed to answering respondent. It is alleged that petitioner had assured the answering respondent that it would be able to enroll about 60 students for the first semester. However, it could enroll only 8. Issue raised by the respondent that it is liable to pay rent only from April 1998 as against January 1998 was against the terms and conditions of said agreement entered into between them. Claim of the petitioner for renovation upto 5008 sq.ft of area involving an amount of Rs.5,08,000.00 at the agreed rate of Rs.1000.00 per sq.ft, was again in violation of the terms agreed to as answering respondent was to pay only for renovation of 3500 sq.ft. It is claimed that the petitioner neither sent reply nor forwarded any account despite repeated reminders by answering respondent. It is admitted that the letter dated 27th January 2001 terminating the agreement was sent by the counsel of answering respondent to which petitioner got a reply dated 25th January 2001 sent. It is stated that petitioner has not taken effective steps to invoke the arbitration clause or nominate its arbitrator and has merely filed this petition which is not maintainable. It is asserted that clause 15 of the agreement would not cover the situation as there is blatant breach of the term thereof by the petitioner. It is alleged that answering respondent on 27th January 2001 wrote to the petitioner that it is willing to withdraw the said letter of termination in case the amount due was paid to it. However, instead of trying to resolve the matter the petitioner has rushed to the court. It is denied that the petitioner is entitled to the relief prayed for.