JUDGMENT Badar Durrez Ahmed, J.
1. This is a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the said Act') for the appointment of an arbitrator. According to the petitioner, the arbitration clause is contained in the Memorandum of Understanding entered into between the petitioner on the one hand and the respondent on the other on 01.08.2005. The arbitration clause reads as under:
This memorandum of understanding and the Agreement shall be governed by and construed in accordance with the laws of India.
All disputes and differences which may arise between the parties with respect to the performance, interpretation or execution of this memorandum of understanding and the Agreement shall be referred to arbitration before a sole arbitrator in accordance with the provisions of the Indian Arbitration and Conciliation Act, 1996 as amended. Such arbitration shall be conducted in the English language and the seat of such proceeding shall be at New Delhi.
2. The learned Counsel for the petitioner referred to the notice dated 11.10.2006 invoking the arbitration clause. The said notice has been received by the respondent as is evident from the reply dated 06.11.2006. The respondent, instead of agreeing on arbitration, raised the issue that no agreement has been entered into between the parties and, therefore, there can be no cause for calling any party thereto to arbitration. The learned Counsel appearing on behalf of the respondent has amplified on that stand and submitted that the Memorandum of Understanding does not constitute a binding agreement. He referred to Section 29 of the Indian Contract Act, 1872 which relates to agreements void for uncertainty. He submitted that the Memorandum of Understanding, as indicated by the third recital therein, was actually an arrangement whereby the parties had agreed to explore the possibilities of the petitioner licencing the use of its software referred to as AIRS to the respondent w.e.f. 01.08.2005. Referring to the same recital, he submitted that the parties had in good faith agreed to negotiate and enter into a definitive licencing agreement for this purpose. However, the agreement was never entered into. He also referred to Clause 'F' of the Memorandum of Understanding which reads as under:
F. TERMS OF THE AGREEMENT TO BE EXECUTED The Agreement shall initially remain in effect for a minimum term of two (2) years from the date of execution of the Agreement. Thereafter the Agreement to be executed shall automatically be extended for Subsequent Term of Five (05) years each on the same terms and conditions (except for charges which may be revised as per provisions mentioned above) without any further documentation, unless a party serves written notice of 120 days to the other party of its decision to terminate the Agreement.
3. Reading the aforesaid clause, he said that the terms of the agreement, which was to be executed, were inconclusive and, therefore, there was uncertainty and as such the Memorandum of Understanding was void on account of uncertainty and that being the case, the arbitration clause which found place in the Memorandum of Understanding was also void. The learned Counsel for the respondent also submitted that from the tenor of the Memorandum of Understanding one can discern the intention of the parties that they were not wanting to bind themselves until and unless the definitive licencing agreement was executed. He submitted that it is also not so stated anywhere in the agreement.
4. I have heard the counsel for the parties and I do not agree with the submissions made by the learned Counsel for the respondent. The Memorandum of Understanding was entered into between the parties and the same had been admittedly executed by them. There is also no doubt that clause 'H' of the Memorandum of Understanding contains the arbitration clause which clearly stipulates that all the disputes and differences which may arise between the parties with respect to the performance, interpretation or execution of "this Memorandum of Understanding" and the agreement shall be referred to arbitration before a sole Arbitrator. Therefore, the clause clearly stipulates that if there are disputes or differences which may arise between the parties with respect to the performance, interpretation or execution of, inter alia, the memorandum of understanding, then those disputes and differences would be referable to arbitration. The factum of the non-execution of the definitive licencing agreement would not come in the way of referring the disputes to arbitration if the disputes arise between the parties with respect to what is stated and agreed upon in the Memorandum of Understanding.
5. The learned Counsel for the respondent is also not correct in saying that the Memorandum of Understanding is void on the count of uncertainty. While it is true that the definitive licencing agreement has not been executed, it is also true that certain terms for the operation of the arrangement between the parties prior to the execution of the definitive licencing agreement had been agreed upon and, indeed, had even been acted upon. As an illustration, one can examine clause 'B' which talks about setup of AIRS. Clause B.2 of the said MoU clearly indicates that the commercial components/resources which are required for the one time setup of AIRS would be borne and paid for by the respondents. The commercial components included Internet bandwidth costs, network components, running network costs, telecom links setup and running costs, etc. Clause 'C' of the MoU is also quite definitive in the sense that it says that the airline (the respondent herein) shall pay bids (the petitioner herein) the charges net of taxes. The charges include segment booking fee. Clause C.1 of the MoU clearly stipulates that the segment booking fee shall be payable monthly for total number of net bookings made. Net booking for this purpose would mean bookings made during one calendar month, minus bookings cancelled during the same calendar month. There are other clauses in the MoU which clearly stipulate the mode and manner of payment and the extent of payment for the services rendered by the petitioner to the respondent. Consequently, I do not agree with the learned Counsel for the respondent that the MoU is in the nature of an uncertain agreement and is, therefore, void for uncertainty.
6. It may also be pointed out that the claim made by the petitioner includes a claim which has reference to segment booking fee as would be clear from paragraph 7 of the notice dated 11.10.2006. Sub-para (a) of paragraph 7 clearly mentions the charges in respect of Clause C(1.1) of the MoU. The extent of claim is Rs 25 lakhs in respect of this clause.
7. In any event, there is no uncertainty with regard to the arbitration agreement contained in clause H of the Memorandum of Understanding. Clause H constitutes an arbitration agreement as defined in Section 7 of the said Act. Even though the definitive licencing Agreement may not have been executed by and between the parties, differences and disputes having a reference to the Memorandum of Understanding are also, by virtue of the said clause, arbitrable. Section 7(1) of the said Act speaks of disputes in respect of "a defined legal relationship, whether contractual or not". The relationship between the parties under the Memorandum of Understanding is certainly a defined legal relationship. This is irrespective of the respondent's argument that the Memorandum of Understanding does not constitute a binding agreement (i.e., a contract).
8. The consequence of this discussion is that there is an arbitration agreement as defined in the said Act and that the petitioner is a party to the agreement. It is also true that the petitioner invoked the arbitration clause and sought the appointment of the sole arbitrator. The respondent failed to act as required under the arbitration clause. These circumstances fully justify the invocation of the powers under Section 11 of the said Act for the appointment of an arbitrator and, as a result, this petition is liable to be allowed. Justice S.S. Chadha, a former Judge of this Court, is hereby appointed as the sole Arbitrator to arbitrate on the disputes arising between the parties. He shall fix his own fee which shall, in the first instance, be borne by both the parties in equal measure.
A copy of this order be sent to the learned Arbitrator so that he may take up proceedings in arbitration.