Supreme Court Rules that Claims from Separate Agreements are Distinct and the Arbitration Clause Does Not Apply to the License Agreement

Supreme Court held that the claims arising from separate agreements are distinct and not part of a composite transaction, affirming that the arbitration clause does not apply to the License Agreement.

The Supreme Court Bench of Dr. Dhannanjaya Y. Chandrachud, CJI., Justice J.B. Pardiwala and Justice Manoj Misra reviewed an Arbitration Petition and held that the agreements between the petitioner and respondent no. 1 were distinct and not part of a composite transaction, thus the arbitration clause in the General Terms and Conditions Agreement did not apply to disputes from the License Agreement, making the claims time-barred. The court also found the petitioner's application for an arbitrator was not bona fide due to suppression of material facts.

In the Supreme Court judgment concerning the petitioner, a German company, the court examined a series of agreements and their implications under the Arbitration and Conciliation Act, 1996. Initially, the petitioner entered into a License Agreement with respondent No. 1 on December 14, 2010, which served as a prerequisite for engaging in any software agreements with the respondents. The petitioner later entered into three additional agreements concerning the SAP Hybris Software, with claims made regarding the software's compatibility and the timely completion of its implementation. The dispute arose when the implementation of the SAP Hybris Software faced significant delays, prompting the petitioner to escalate the matter to the respondents' parent company, leading to a contract rescission and subsequent claims of wrongful termination and non-payment.

The Supreme Court focused on the arbitration clause outlined in the General Terms and Conditions Agreement (GTC Agreement), which specified that disputes would be resolved through arbitration. The court scrutinized whether the various agreements constituted a composite transaction, as claimed by the petitioner, and whether the arbitration clause applied across the agreements. The court determined that the agreements did not share sufficient commonality, finding that the License Agreement and the SAP Hybris Software agreements were separate, thereby placing the disputes outside the purview of the GTC Agreement's arbitration clause. Consequently, claims arising from the License Agreement were deemed time-barred due to the failure to invoke the arbitration clause in a timely manner.

The court also noted the petitioner's lack of bona fides in pursuing the application, citing the suppression of material facts and the belated nature of the claims. It highlighted that previous rulings had established the petitioner's forfeiture of the right to appoint an arbitrator under the GTC Agreement. In evaluating the prima facie existence of an arbitration agreement, the court observed that while the respondents raised objections, none disputed the existence of the arbitration agreement itself. This led the court to allow the petition for the appointment of an arbitrator, specifically appointing Shri Justice Mohit S. Shah as the sole arbitrator, while maintaining that all parties’ rights and arguments remained open for consideration in the arbitral proceedings. The judgment underscored the complexities surrounding the involvement of the non-signatory parent company, which the arbitral tribunal was instructed to assess in due course, ultimately disposing of any related pending applications.

Mr. Hiroo Advani, the Advocate, represented the Appellant, while Mr. George Pothan Poothicote and Ms. Manisha Singh, the Advocates, argued on behalf of the Intervenors. Mr. Ritin Rai, Senior Advocate, represented the Respondent.

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REEDLAW 2024 SC 09519