Nasir Husain Films (P) Ltd. vs Saregama India Ltd. and Another

F.I. Rebello, J

Admit. By consent of the parties heard forthwith.

A learned Single Judge by his order dated 4 May 2007 dismissed the application for interim relief filed by the Appellant herein by recording a finding that considering the purport of Section 9 of the Arbitration and Conciliation Act 1966 (hereinafter referred to as the ''Act''), he prima facie was of the opinion that there was no binding arbitration agreement between the parties as non-signing of the basic documents between the parties as reflected from the record just cannot be over ruled. The learned judge observed that the parties were at liberty to raise all their objections while submitting their contentions in the pending application u/s 11 of the Act, if necessary. After having so said, the learned judge observed that the Respondents herein have been using some copyright materials of the Petitioners based on an earlier agreement till the date of the judgment and as such the Respondents were exploiting Appellants'' right to copyright and they are entitled to make payment atleast damages to the Appellants. Then he proceeds to observe that even if it is not a fit case to grant relief; arbitrator or mediator needs to be appointed to settle the dispute between the parties.The application as filed by the Appellants was rejected. It is this order which is the subject matter of the present appeal.

On behalf of the Appellants, their learned Counsel in the oral arguments and supplemented by the written submissions, contends that the learned judge proceeded on the basis that there was no agreement in writing between the parties containing an arbitral clause in terms of Section 7(4)(a). It is the submission of the learned Counsel that what in fact the Appellants had contended is that there was an arbitral agreement in writing by exchange of correspondence in terms of Section 7(4)(b) as admittedly there was no document signed by the parties. In that context the order of the learned judge suffers from failure to consider this aspect. It is also submitted that the learned judge having come to the conclusion that this is a fit case for appointment of mediator or arbitrator ought to have granted the relief prayed for in the application. The correspondence exchanged up to 10 March would clearly indicate that there was an arbitration agreement in writing and in these circumstances the interim relief sought for by the Petitioners ought to have been granted. The exchange of correspondence between the parties must result in holding that there was a concluded contract in writing, as parties were at ad idem on the terms of the contract. The mere fact that on some of the papers there were remarks as draft for discussion of the parties would be of no consequence, if otherwise parties were on the verge of consenting to an agreement and parties in fact had entered into an agreement. Based on the conduct of the parties, it is submitted that there is a concluded arbitral agreement.

On the other hand, on behalf of the Respondents, their learned Counsel both in the oral arguments and written submissions has argued that the Appellants had moved the petition as can be ascertained from the petition on the basis that there was an arbitral term in the agreement dated 8.5.2006. It is, therefore, submitted that the contention now raised on behalf of the Appellants, that the correspondence terminating in the communication of 10 March 2006 constitutes an arbitration agreement is contrary to the pleadings and the Appellants cannot be allowed to raise a plea inconsistent with their pleadings. In the alternative, it is open to the Appellant to raise the contention, that there was no agreement between the parties on material terms. The exchange of correspondence can be considered to find out if there be a valid and binding concluded agreement for the purpose of Section 7 of the Act. In paragraph 5(i) of the pleadings the Appellants have pleaded that various e-mails were also exchanged between the advocates for the parties with drafts of the final agreement which were being (sic)gotiated to finalise the agreement and keep ready for signing. This expressly would indicate that exchange of correspondence between the parties were negotiations. The correspondence would further indicate that material terms have been unilaterally changed by the Appellants more so pertaining to payment of dues between the purported date of termination of the past agreement and the new agreement. By the side letter which was annexed to e-mail dated 2.3.2006, the Appellants unilaterally for the first time fixed rate of 50% of the gross amount received/receivable by the Respondents in respect of the non-physical exploitation of the assigned sound recordings and underlying works. The period for payment of past dues also was unilaterally altered from 31.3.2006 to 30.6.2006. Even otherwise the draft side letter varies from the earlier side letter. The provisions for payment of past royalty dues was never finally decided or agreed by the parties and as it forms a material part of agreement, in the absence of a concluded agreement in respect of such term, there was never any final and binding agreement as between the parties. There is no correspondence or pleadings to show that the parities intended to enter into arbitration agreement independent of the deed of assignment. For the reasons aforesaid, it is submitted that no interference is called for with the view taken by the learned Single Judge.

We may firstly consider the language of Section 9 of the Arbitration and Conciliation Act, 1996. u/s 9(ii) the interim measures that can be granted are spelt out. Section 9 there uses the expression, ''and the court shall have the same power of making orders as it has for the purpose of and in relation to any proceeding before it''. This would contemplate civil proceedings before it. The power, therefore, which it exercises in granting relief in civil proceedings, can be exercised by the court in granting interim relief u/s 9. An application u/s 9 is a proceeding for granting interim relief prior to or in the course of and or pursuant to an award till it becomes a decree of the court The Supreme Court in S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, , has held that when a party approaches the court u/s 9 for grant of interim relief, asserting that there was a dispute liable to be arbitrated upon in terms of the agreement and the opposite party disputes the existence of the arbitration agreement as defined in the Act or raises a plea that the dispute involved was not covered by the arbitration clause considering the terminology of Section 9 of the Act, that court necessarily has jurisdiction to decide whether there is an arbitration agreement which is valid in law and whether the dispute sought to be raised is covered by the agreements. There is no indication in the Act that the powers of the court are curtailed on these aspects. On the other hand, Section 9 insists that once approached in that behalf, ''the court shall have the same power for making orders as it has for the purpose of and in relation to any proceeding before it''. The court then observed ''Surely, when a matter is entrusted to a civil court in the ordinary hierarchy of courts without anything more, the procedure of that court would govern the adjudication''. A petition u/s 9 is not a suit but a civil proceeding. Considering Section 141 of the Code of Civil procedure, the procedure governing suits will be applicable, as far as it can be made applicable, in all civil proceedings. It will, therefore, be open to the court to frame issues on these aspects and decide the same. On such issue being decided, the findings on the issues would conclude the issue between the parties on those issues and the said finding cannot be reopened in any proceeding between the parties either on application u/s 11 of before an arbitral tribunal: The only remedy would be in an appeal filed u/s 37 of the Act.

While considering Section 9 of the English Arbitration Act in Nigel Peter Albon (trading as N.A. Carriage Company) and Naza Motor Trading. SDN BHD. and Ors. (2007) 2 All ER 1075 a division bench of the England and Wales High Court, in the context of their law referred to the judgment of the, Court oil Appeal in Fiona Trust v. Prialov (2007) EWCA 20, that, if the construction of an arbitration agreement is in issue, that issue has to be decided u/s 9 of the 1996 Act, before a stay can be granted under that section. Reference in support was made to the guidelines laid down in Brise v. St. David (1999) BLR 19, which judgment though reversed in appeal the guidelines were approved by the Court of Appeal again in Al Naimi v. Islamic Press Agency (2000) 1 LLLR 522. The directions are

(1) Where it is possible to do so, to decide the issue on the available evidence presently before the court that the arbitration agreement was made and grant the stay;

(2) To give directions for the trial by the court of the issue;

(3) To stay the proceedings on the basis that the arbitrator will decide the issue, and

(4) Where it is possible to do so to decide the issue on the available evidence that the arbitration agreement was not made and dismiss the application for the stay.

6.1 Considering these guidelines a court can try and subject to one qualification should decide the issue whether the arbitration agreement was concluded. The qualification is in a case where there is an issue which the court cannot resolve on the available evidence on the application as to whether the arbitration agreement was concluded the court indeed can stay the proceedings so that the arbitrator can decide the issue. In England also, the issues of existence of arbitral clause or whether the dispute falls with the arbitration clause can in circumstances be decided u/s 9 of this Act.

In our opinion, under the Act of 1996 and considering the judgment in Patel Engineering, supra, and Section 141 of the Code of Civil Procedure, the issue of existence of an arbitral agreement as also the issue as to whether the subject matter is covered by the arbitral clause will have to be decided as an issue when such issue arises before a court entertaining the petition u/s 9 of the Act. A similar view has been taken by us in another unreported judgment of this Court in Oberoi Construction (P) Ltd. v. Worli Shivshohi Co-op. Hsg. Society Ltd., decided on 30 January 2008 in Appeal No. 619 of 2007. To that extent the finding by the learned judge that his finding is prima facie and leaving the issue open for consideration in the proceeding u/s 11 would, in our opinion, not be the correct statement of law under the Act. A court considering an application and or petition u/s 9 of the Act has jurisdiction to decide whether there is an arbitral clause and secondly whether the dispute raised falls within the scope of the arbitral clause.

Having said so we may gainfully reproduce Section 7, which reads as under.

"Arbitration agreement-(l) In this part ''arbitration agreement'' means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in-

(a) document signed by the parties; or provide

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract."

8.1 u/s 7(2) the arbitration agreement may be in the form of an arbitration clause in the contract or in the form of a separate agreement. Then Sub-section (3) states that an arbitration agreement shall be in writing and Sub-section (4) then states that when an arbitration agreement can be said to be in writing. Thus, the arbitration agreement can be contained as a clause in a contract or in the form of separate agreement as set out in Section 7(4) of the Act.

We now address ourselves to the pleadings of the Appellants in the arbitration petition to consider the case as set out therein and the contentions now urged as to the arbitral clause. Paragraph -3 reads as under:

The present petition has been filed u/s 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ''the said Act'') for interim reliefs pending the constitution of the arbitral tribunal as per the terms agreement dated 8.5.2006 between the Petitioner and the Respondent No. 1 (hereinafter referred to as ''the agreement''), pending the making of the award in such proceedings and till the implementation of such award''''. (Emphasis supplied)

9.1 In paragraph 4 it is set out that disputes and differences have arisen between the Petitioner and the Respondent No. 1 which are within the scope of the arbitration clause as contained in the agreement. It is further set out that by advocate''s letter, dated 2.3.2007, the Appellants had terminated the agreement and had invoked the arbitration clause.

9.2 In paragraph 5(h) this is what has averred.

In view of the negotiations referred to below and thereafter agreement being reached between the parties, the Petitioner exercised in initiating legal proceedings.

9.3 In communication of 14 July 2006 addressed on behalf of the Appellants to Respondent No. 1, in paragraph 5, reference is made to the agreement dated 8 May 2006 entered into between the Appellants and the Respondents. By letter of 2 March 2007 addressed by the Appellants to Respondent No. 1 they referred to the agreement dated 8 May 2006 and in terms of paragraph 3 of the letter, terminated the said agreement.

9.4 It is therefore, clear from the pleadings and the correspondence, that the Appellants had filed the petition u/s 9, contending that the agreement between the parties was the agreement dated 8 May 2006 and approached the court praying for interim relief pending constitution of the arbitral tribunal in terms of the agreement dated 8 May 2006. There can therefore, be no doubt that when the Appellants had approached the court and advanced arguments before the learned judge it was on the basis that the arbitral clause was contained in the agreement dated 8 May 2006. Considering the pleadings, the Appellant really cannot now plead a case contrary to the pleadings: see Bhikaji Narain Dhakras and Others Vs. The State of Madhya Pradesh and Another, . The purport behind the rule is that the other side must have notice of the case of the Plaintiff/ Petitioner.

Inspite of these specific pleadings and the correspondence, the learned Counsel for the Appellants contends that their case is not based on the arbitral clause as contained in the agreement of 8 May 2006, but in the correspondence exchanged culminating in the letter of 10 March 2006 and for that purpose sought to place reliance on sub-paragraphs (i) and (j) of paragraph 5. A reading of the pleadings in both the paragraphs does not result in drawing a conclusion that it was the Petitioner''s case that the correspondence exchanged between the parties resulted into an arbitration agreement. The court in such circumstances must consider the pleadings in totality and not in isolation. The entire correspondence is in respect of an agreement containing terms of contract, one of terms being the arbitral clause. What the court u/s 9 apart from deciding whether there is arbitral clause would consider is whether the dispute is referable to the subject matter of the arbitral clause. In our opinion, it will not be open to a party to lead evidence contrary to their pleadings. In the instant case, no oral evidence has been lead. What me parties have relied upon are the documents including correspondence exchanged. The parties also did not seek any opportunity to lead any evidence before the learned Single judge or make such request before this Court.

The Respondent No. 1 herein had filed reply of one Gautam Chatterji. At the threshold they have raised a plea that there is no arbitral agreement between the parties. It is further averred that there is no agreement in writing between the parties either signed or otherwise. It is also pleaded that agreement is illegal, null and void and not binding on the Respondent No. l and the Respondent No. 1 avoids the same. This pleading could lead to an inference that there is an agreement and the Respondent seeks to avoid the agreement for the reasons set out in paragraph 9. The pleadings of avoiding the agreement are in answer to the agreement pleaded by the Petitioner on 8 May 2006. In the alternative, however, the Respondents have averred that the draft agreement was for discussion purpose only and that there had been only negotiations but no concluded contract. The submission, therefore, on behalf of the Respondent No. 1 is that the question for determination of the court is, as to whether the correspondence exchanged between the parties has resulted in agreement containing an arbitral clause and the provisions of Section 7(4)(b) will not arises as there was no independent exchange of letters as to an arbitral clause. The entire exchange of correspondence and pleadings is that there is a contract, containing an arbitral clause. The Appellants in their written submissions have specifically submitted that there is no document signed by the parties. After orally contending that they place reliance on Section 7(4)(b), in the written submissions the issue is pleaded as under.

The issue arising for determination of the Hon''ble Court is whether correspondence reveals an agreement in general and agreement on the arbitral. clause in particular. We may broadly state that whether formation of a contract occurs prior to the signing of a document is one of inter action which is a question of fact.

When can a contract be said to be in writing. In Jugal Kishore Rameshwardas Vs. Mrs. Goolbai Hormusji, the issue was as to what would constitute an arbitration agreement under Arbitration Act 1940. Considering the language used there, the apex court while answering the issue observed as under.

But it is settled law that to constitute art arbitration agreement in writing it is not necessary that it should be signed by the parties, and that it is sufficient if the terms are reduced to writing and the agreement of the parties thereto is established.

12.1 In that case the contract notes exchanged between the parties contained an agreement in writing. The court held that the arbitral proceedings commenced were competent.

12.2 In the instant case the correspondence exchanged does not disclose that the parties are at ad idem on an independent arbitral clause in terms of Section 7(4)(1). The correspondence exchanged at the highest may result in considering the Appellants'' contention as contained in the pleadings that there was an agreement in writing, containing an arbitral clause.

Let us now consider the judgments relied upon before answering the issue. In Dresser Rand S.A. Vs. BINDAL Agro Chem Ltd. and K.G. Khosla Compressors Ltd., , the court was considering the provisions of the Foreign Awards (Recognition and Enforcement) Act, 1961. The Supreme Court referred to Article II of the Schedule to the Foreign Awards Act which contains the convention on the Recognition and Enforcement of Foreign Arbitral Awards. The relevant portion reads as under:

(2) The term ''agreement in writing'' shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

13.1 The court then noted that the court has to be satisfied that the agreement is valid, operative and capable of being performed; this relates to the satisfaction about the ''existence and validity'' of the arbitration agreement. Preceding further the court observed as under:

It is clear from Clause (2) of article II that an ''agreement in writing'' includes not only an arbitral clause in a contract or a separate arbitration agreement, signed by the parties but a term contained in an exchange of letters or telegrams agreeing to submit their differences to arbitration. The question therefore, is whether there is an ''agreement in writing'' under which parties have agreed to submit their differences to arbitration.

13.2 In M/s. Rickmers Verwaltung GMB H Vs. The Indian Oil Corporation Ltd., , the Supreme Court held, that from the correspondence it must unequivocally and clearly emerge that the parties were at ad idem as to the terms otherwise it cannot be said that an agreement had come into existence between them through correspondence. The test, therefore, is whether parties are at ad idem on the material terms of the contract including the arbitral clause.

The learned Counsel for the Appellants has placed before us some English authorities for our consideration. In Perry v. Suffields (1916) 2 Ch 187 a judgment of the Chancery Division where it was held, that when a contract is constrained in letters, the test to be applied is as under:

Though when a contract is alleged to be contained in letters the whole correspondence should be looked at, yet if once a definite offer has been made and accepted without qualification, and it appears that the letters of offer and acceptance contain all the terms agreed on between the parties at the date of the acceptance, the complete contract then arrived at cannot be affected by subsequent negotiation. When once if is shown that there is a complete contract, further negotiations between the parties cannot without the consent of both get rid of the contract already arrived at.

14.1 In Pagnan S.P.A. v. Feed Products Ltd. (1987) LLR 601, the court observed that we need not look into actual intent in a man''s mind. You look at what he said and did. A contract is formed when there is, to all outward appearances, a contract. A man cannot get out of a contract by saying ''I did not intend to contract'' if by his words he has done so. His intention is to be found only in the outward expression which his letters convey. If they show a concluded contract, that is enough. Where the parties have not reached agreement on terms which they regard as essence for binding contact, it naturally follows that there cannot be a binding agreement until they do agree on those terms. The test, therefore, would be to examine all the documents and decide from them whether the parties had agreed upon all material terms. In such circumstances, the proper inference is that they agreed to be bound by those forms from that time onwards. From the judgment of Lord Justice Lloyd, the test for determining whether there is a written contract in existence may be set out.

As to the law, the principle to be derived from the authorities, some of which I have already mentioned, can be summarized as follows:

(1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole (see Hussey v. Home Payne).

(2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary ''subject to contract'' case.

(3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed: see Love and Stewart v. Instone, where the parties failed to agree the intended strike clause, and Hussey v. Home Payne, where Lord Selborne said p. 323. The observation has often been made, that a contract established by letters may sometimes bind parties who, when they wrote those letters, did not imagine that they were finally setting the terms of the agreement by which they were to be bound; and it appears to me that no such contract ought to be held established, even by letters which would otherwise be sufficient for the purpose, if it is clear, upon the facts, that there were other conditions of the intended contract, beyond and besides those expressed in the letters, which were still in a stage of negotiation only, and without the settlement of which the parties had no idea of concluding any agreement.

(4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled: see Love and Stewart v. Instone per Lord Loreburn at p.476.

(5) If the parties fail to reach agreement on such further terms; the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty.

(6) It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word "essential" in that context is ambiguous. If by "essential" one means a term without which the contract cannot be enforced then the statement is true; the law cannot enforce an incomplete contract. If by "essential" one means a term which the parties have agreed to be essential, for the formation of a binding contract, then the statement is tautologies. If by "essential" once means a term which the court regards as important as opposed to a term which the court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the judge, ''the masters of their contractual fate''. of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is, no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day which parties enter into so called ''heads of agreement''.

The next issue is what reliance can be placed on the documents which had been forwarded as ''draft for discussion purpose only''. It is submitted on behalf of the Appellants that remark was not inserted into the draft as per the instructions of either party, but it is merely a template used routinely and hence, it is of very little significance in deciding about the intention of the parties. The remark is akin to drafts of agreements which carry remarks such as ''subject to contract'' or ''subject to solicitor approving final contract''. Being analogous, the apparent meaning of such remarks is to not bind the parties to the agreement the judicial treatment accorded to such remarks would be relevant and instructive. Reliance is placed on the judgment in Alpenstow Ltd. and Ans v. Regalin Properties (1985) WLR 721. In the matter of using the words ''subject to contract'' it was held they have a clear prima facie meaning, being in themselves merely conditional. But there might be a very strong and exceptional context which ''Would induce the court not to give them that meaning in a particular, case.'' The court though observed, speaking generally, you would expect to find the words ''subject to contract'' at the preliminary stage of a negotiation.

15.1 In North v. Percival (1897) 2 Ch 128 considering the expressions ''subject to approval of conditions'' and ''form of agreement by purchase solicitor the court observed relying upon earlier judgments;

I think the decisions settle that it is question of construction whether the parties finally agreed to be bound by the terms, though they were subsequently to have a formal agreement drawn up.

15.2 In Filby v. Hounsell (1896) 2 Ch 737 there also the words subject to contract as agreed'' were contained in the correspondence. Addressing itself the court observed that

Now, that form of contract was in writing, and was definitive in all its terms clearly identified by the offer. It left nothing to be agreed upon thereafter. The signing it was a form. The contract between the parties was complete on acceptance of the offer, whether the form of the auction particulars was signed or not.

To arrive at a finding whether there is a contract in writing, another relevant aspect would be the conduct of the parties. It is sought to be contended on behalf of the Appellants that in the present case the conduct of the parties exchanging documents and commenting on the drafts prepared by the Appellants was not that of a party who was merely contemplating through negotiations whether to enter into an agreement or not. The conduct at the stage of approving draft sent by the Appellants was one of a party who was on the brink of a commitment, not one who was unsure about committing to any agreement. The conduct can also be seen in another aspect namely, Respondents were already exploiting the Appellants'' copyright even during the stage of negotiations in the present case. The aforesaid conduct of the Respondents during the stage of the negotiations is reconcilable with only one view of the matter, that the Respondents were on the brink of committing to an agreement during the course of negotiations and from the correspondence it clearly emerges that the agreement was clearly arrived at. It is pointed out that the previous agreement did not pertain to and did not authorise non physical exploitation of copyright namely, exploitation by way of ring tones downloads etc. While purporting to act under the previous agreement the Respondents have denied any obligation to pay for non physical exploitation of the Appellants copyright. In the new agreement dated ( 8.5.2006), it is for the first time expressly dealt with non physical use of copyright and the royalty to be paid thereupon. In the matter of conduct of the parties the learned Counsel relying on the judgment in F & G Sykes Ltd. v. Fine Fare Ltd. (1967) I Linds Ref. 53 of the Court of Appeal Denning LJ. comments on the parties having acted upon an agreement held as under.

In a commercial agreement the further the parties have gone on with their contract, the more ready are the courts to imply any reasonable term so as to give effect to their intentions. When much has been done the courts will do their best not to destroy the bargain. When nothing has been done, it is easier to say there is no agreement between the parties because the essential terms have not been agreed. But when an agreement has been acted upon and the parties, as here, have been put to great expense in implementing it, we ought to imply all reasonable terms so as to avoid any uncertainties.

16.1 In Ramji Dayawala and Sons (P) Ltd. Vs. Invest Import, , the Supreme Court observed as under:

Once it is admitted and established that the letter and the cable were received by the Respondent, ordinarily if the contents of the letter and cable are not acceptable to Respondent, a reply to that effect is naturally expected.

Considering the various tests as to when an agreement in writing has been arrived at, let us examine the documents on record and which have been relied upon. Firstly the previous agreement between the parties had been terminated and in respect of which there was a dispute on the issue of termination. That agreement contained no arbitral clause. The first document placed on record is a communication dated 10.11.2005 forwarding draft agreement and setting out that the points raised and other points which required further discussion. This first draft forwarded contained an arbitral clause. On behalf of the Respondents a communication was addressed on 4.1.2006 setting forth various subjects which required to be considered. On 24.1.2006 on behalf of the Appellants a draft deed of assignment was forwarded. This contained Clause 6(j) which reads as under:

The company shall pay all amounts payable to the producer pursuant to the exploitation of the Sound Recordings and/or Underlying Works prior to the execution of this agreement on or before 31 March 2006.

17.1 Next is letter of dated 8.2.2006 from Appellants to the Respondents regarding payment of royalties to artists/composer and what further contained a draft of the side letter for comments. It was specifically mentioned that Mansoor (for the Appellants) has not had an opportunity to review the side letter and the same is subject to his comments. The said side letter set out the amount to be paid as royalty for the use after termination and before signing of the new agreement. The correspondence dated 9.2.2006 also indicates that it was subject to verification of the details by the parties. Next is the communication dated 2.3.2006 forwarding a clean version of the draft deed of assignment as also side letter to be exchanged between the parties in respect of the applicable rates for pas dues. In this letter the amount to be paid for past dues was set out. As noted earlier this amount was not reflected earlier. Then there Was the letter dated 10.3.2006 and the relevant portion of the said letter is as under.

I await confirmation of your acceptance entire agreement and the indication of the date on which you are willing to sign.

17.2 It also contained revised draft in terms of royalty (clause-b). Then on 8.5.2006 the Appellants wrote to the Respondents wherein they set out that after extensive negotiations, all the terms therefore had been agreed and the deed of assignment was awaiting execution by both the: parties. The relevant portion reads as under:

Please note that since the agreement was not formally executed before 30 March 2006 and our outstanding dues have not been fully settled as yet, in Clause 6(j) we have changed the date from 30 March 2006 to 30 June 2006.

17.3 The royalty rates put off to be agreed have been set out. A board resolution of the Appellants was also forwarded. The deeds forwarded contained also an amended Clause 10(c). A reminder was sent to the Appellants on 31.5.2006 as also thereafter. On 7.6.2006 the Respondent No. 1 wrote to advocates for the Appellants. The relevant portion is-

This subject is receiving the attention of our CFO Mr. G.B. Aayeer who, for the past few weeks, is overseas on official business. We shall revert to you after his return shortly.

17.4 One more letter was addressed by Appellants on 14.6.2006 to clear all outstanding dues. In the subsequent letter of 14.6.2006 reference was made to the Respondent No. l''s letter dated 7.6.2006. Then another letter dated 2.3.2007 terminating the agreement. Between 7.6.2006 and 2.3.2007 there is no exchange of correspondence disclosing whether the parties had agreed to pay royalty and the period (?). The material on record would show that during the period the parties had not acted on the basis of the purported concluded contract.

Considering the correspondence on record including communication of the Respondent No. 1 to advocates for the Appellants on 7.6.2006 and the subsequent non-signing of the agreement and not acting on the same till the purported termination of 2.3.2007, is there an agreement in writing evidenced by the exchange of correspondence either as an independent arbitral agreement or as a term in the contract. Insofar as an independent arbitral agreement is considered there is no such exchange of correspondence. The oral correspondence is in respect of exchange of documents as to an agreement which contains an arbitral clause. From the documents, it appears that most of the material terms were settled. The major issue not settled is the payment of royalties for the past dues which was a requirement before the agreement could be signed, for the earlier period between the termination of the earlier agreement and the new agreement. The contention of the Respondents is that the provisions of payment of their dues were never agreed to and decided by the parties as would emerge from the documents on record and consequently a material part of the agreement had not been concluded and in the absence of the concluded agreement in respect of such terms there was no final binding agreement. It may also be mentioned that the parties have also not acted in terms of the agreement dated 8.5.2006, in the matter of payment of royalties, to arrive at a finding that the agreement had been acted upon and, therefore, the Respondent No. 1 should be held by their conduct. There is also no other material to indicate that after the communication by Respondent No. 1 by their letter dated 2.6.2006, they had related back to the Appellants nor is there any correspondence from Appellants to Respondent No. 1 setting out that the issue of royalty for the past period has been settled. In the absence of parties arriving at an agreement on a material term of the contract even assuming that there was no dispute between the parties on the other terms of the agreement can it be said that there was an agreement in writing. In our opinion, an agreement for the payment of royalty between the date of termination and the date of the new agreement was a material term. Postponing the date from 31.3.2006 to 30.6.2006 may not be relevant as it only relates to the date of signing of the agreement but agreement as to on payment of royalty was an essential prerequisite. In our opinion, therefore, there was no concluded agreement. The very fact that the Appellants contend that there is an arbitral agreement evidenced by communication upto 10.3.2006 must negate the contention of the Appellants that there was a concluded agreement on 8.5.2006. We, therefore, hold that there was no concluded agreement and if there being no concluded agreement merely because there was an arbitral clause in the documents exchanged and there was no dispute about the arbitral clause would not result in holding that there was an contract containing an arbitral clause. The arbitral clause was not independent of the agreement to be entered into.

Independently, insofar as an arbitral clause is concerned, the correspondence does not show that the parties were discussing an arbitral clause independent of the agreement. It is, therefore, not possible to accept the argument of the learned Counsel for the Appellants that the learned judge erred in holding and not addressing himself to the issue of Section 7(4)(b). Such an argument appears not to have been advanced before the learned judge. Secondly there is no pleading by the Appellants in their petition to that effect. Thirdly, and independently, there was no exchange of correspondence by e-mail, letters on the issue of an independent arbitral agreement. The observations of the learned judge that the arbitrator or the mediator shall be appointed are in the context of the Respondents using the Appellants'' copyright and the need to settle the disputes. It has nothing to do with the finding recorded by the learned judge that there was no agreement in writing. It was merely in the nature of a suggestion.

For all the aforesaid reasons, we find no merit in this appeal which is consequently dismissed.