EACOMS CONTROL INDIA LIMITED Vs. BAILY CONTROLS COMPANY

JUDGEMENT

(1.) This is a petition whereby the petitioner, Eacom's Controls (India) Limited, seeks a declaration to the effect that the arbitration agreement dated May 14, 1982 between the petitioner and the respondent No. 1, Bailey Controls Company, stands frustrated and resultantly ceases to have effect. The facts giving rise to the petition, briefly, stated, are as under : The petitioner and first respondent entered into an agreement dated May 14, 1982 whereby the respondent, inter alia, granted to the petitioner an exclusive, nontransferable licence under the Patent Rights and know-how utilised commercially by the said respondent to make licensed products systems in India and a non-exclusive, non-transferable licence to use and sell licensed products and systems in any country in the world except in countries where the said respondent established licensing arrangements for manufacturing in that country or where the said respondent had manufacturing facilities or activities of its own. Subject to and under the agreement, the first respondent agreed to provide know-how and technical assistance to the petitioner in connection with engineering, design, manufacture, assembly, packaging, use installation and operation of the licensed products and systems. All this was to be done in accordance with the Indian Government approved phased manufacturing program and consistent with the fee schedule laid down therein. As per Article 6, for the licensed products and systems as set forth on Exhibit B the petitioner was required to pay to the first respondent a sum of two million dollars in U.S. currency according to the following schedule:

(2.) The petitioner also agreed to pay to the respondent No. 1 a royalty in the amount of 5% of the net ex-factory sale price of all licensed products and systems on Exhibit B sold by the petitioner for ultimate installation or use outside India. It is the case of the petitioner that the respondent No. 1 failed to perform its part of the obligations in transferring the technology and know-how etc. within the time stipulated in the agreement despite the fact that the petitioner paid a fee of US $500,000 (U.S. Dollars five hundred thousand only) to the respondent No. 1. resulting in huge loss to the petitioner. It is the further case of the petitioner that the original schedule for the transfer of technology was revised by the respondent No. I in September, 1984 which also resulted in a serious set back to the petitioner. The cost of commissioning the first phase of the project worked out to Rs. 4,55,00,000.00 which necessitated the raising of funds by the petitioner through public issue and term loan. This however, had to be deferred as the first respondent expressed its desire to participate in the equity of the petitioner. Pursuant to the request of the first respondent in this behalf the petitioner secured the approval of the Government of India on September 29, 1987 for the equity participation of the first respondent to the extent of 25% in the petitioner company within 12 months. Thereupon subsequently, however the first respondent expressed its inability to do so immediately due to the decline of equity market in the U.S.A. The first respondent on March 3,1988/ September 9,1988 requested the petitioner to secure extension for a further period of 12 months for bringing in its equity share. But subsequently by telex dated September 1, 1988, the first respondent informed the petitioner that it lacked confidence in petitioner's capability to meet the latter's obligations for payment to the former and it would not be in a position to participate in the equity of the petitioner company until and unless a substantial "third partner" was included to revive the petitioner company to meet the objectives of the License and Technical Assistance Agreement. It also informed the respondent by a separate communication of the same date that representative of a company namely Vam Organics Chemical Limited had visited the first respondent when it was familiarised with the operation of the respondent. It also mentioned the following proposals for equity participation of Vam in the petitioner Company:

(3.) On receipt of the communications, the petitioner by its Fax dated September 4, 1988 lodged its protest with the first respondent and declined to enter into an agreement with an unknown party. The petitioner also informed the first respondent that in case the latter did not wish to participate in its equity, the petitioner would apply to the first respondent for permission to float the public issue to raise the funds. The first respondent reacting to the stand of the petitioner inter alia pointed out by its Fax of September 4, 1996 that Vam was actually introduced to the first respondent by the petitioner for its possible participation as a partner. Differences between the parties came to a head and the first respondent terminated the agreementn November 11,1988 with effect from November 15,1988. Subsequently on November 14, 1988, the first respondent informed the petitioner that the termination of the agreement would be effective from December 15, 1988 instead of November 15, 1988. The petitioner objected to the action of the first respondent by its letter dated December 14, 1988 in which it squarely blamed the first respondent for not fulfilling its obligations stipulated in the agreement dated May 14,1982. The petitioner also emphasised that it was not guilty of any act or omission justifying the termination of the agreement by the first respondent. It also accused the first respondent for not transferring the technology and extending the necessary technical support for manufacture of licensed Products and Systems. It also pointed out that there was inordinate and inexplicable delay in the equity participation promised by the first respondent. The petitioner concluded by requesting the first respondent to withdraw the termination. The petitioner also addressed letters to the Ministry of Industries and Finance and to the Prime Minister of India for their intervention in the matter. It also addressed a letter to the Exchange Control Department of Reserve Bank of India for protecting the interests of the petitioner. Besides, the petitioner addressed a communication to the Department of Industries requesting them not to allow any third party to enter into an agreement with the respondent for transfer of technology in respect of matters covered by the agreement dated 14th May, 1982. Finally on November 26,1991, the petitioner invoking clause 23 of the agreement, raised a claim of US$ 110,40,000 against the respondent and despatched the same to the International Chamber of Commerce (for short 'ICC') with a request for arbitration. Along with the request, the petitioner remitted 2,000 dollars representing advance on administrative expenses. On November 29, 1991, the ICC by means of a communication, acknowledged the receipt of the request of the petitioner for arbitration and at the same time informed the petitioner that one copy of the request for arbitration would be immediately forwarded to the respondent.