These two original applications were filed by the applicant, who is also plaintiff in the main suit in C.S.No.270 of 2009.
2.O.A.No.275 of 2009 is filed seeking for an ad-interim injunction restraining the respondents from directly or indirectly in any manner copying, reproducing, reverse engineering, adapting, using, altering, tampering with or hacking into the original source code in part or full of the applicant's housing finance software KEN_HFS thereby amounting to infringement of copyright in the applicant's housing finance software KEN_HFS or in any other manner whatsoever.
3.O.A.No.276 of 2009 is filed seeking for an order of ad-interim injunction restraining the respondents from disclosing, divulging or in any manner dealing with the applicant's confidential information, technical know-how and trade secrets provided by the applicant to the respondents with regard to KEN_HFS housing finance software or disclosing the same by giving access or make available to any other person, third parties including the second respondent in any form or material and dealing in the software made on that basis without the applicant's consent, permission, license or authorization and from exploiting the unique features of the applicant's KEN_HFS software or doing any other thing including copying, selling, offering for sale or distributing the infringing version of the applicant's software or in any manner whatsoever.
4.The applicant filed a suit in C.S.No.270 of 2009 for a judgment and decree for a permanent injunction restraining the defendants from directly or indirectly in any manner copying, reproducing, reverse engineering, adapting, using, altering, tampering with or hacking into the original source code in part or full of the plaintiff's housing finance software KEN_HFS thereby amounting to infringement of copyright in the plaintiff's housing finance software KEN_HFS or in any other manner whatsoever and also for a permanent injunction restraining the defendants from disclosing, divulging or in any manner dealing with the plaintiff's confidential information, technical know-how and trade secrets provided by the plaintiff to the defendants with regard to KEN_HFS housing finance software or disclosing the same by giving access or make available to any other person, third parties including the second defendant in any form or material and dealing in the software made on that basis without the plaintiff's consent, permission, license or authorization and from exploiting the unique features of the plaintiff's KEN_HFS software or doing any other thing including copying, selling, offering for sale or distributing the infringing version of the plaintiff's software or in any manner whatsoever and also for a direction to defendants to pay to the plaintiff a sum of Rs.10,05,000/- as damages for the illegal activities committed by the defendants, etc.
5.The suit was admitted on 2.4.2009. Pending the suit, these two O.As. were taken out. Notice was ordered in both the applications on 3.4.2009.
6.The first defendant has taken out an application in A.No.1554 of 2009 seeking for arbitration pursuant to the agreements dated 30.1.2001, 29.01.2003, 20.2.2004 and 04.3.2005 as well as the Annual Maintenance Contract, dated 28.3.2008 in respect of all issues raised by the applicant against the first defendant.
7.The second defendant has filed an application in A.No.1643 of 2009 to strike out its name from being the second defendant to the suit.
8.The applicant/plaintiff in support of the two original applications has filed a common affidavit. It was stated that the plaintiff is a Software company engaged in development of application software for multinational corporations, financial institutions and the Government since 1992. It is certified under ISO 9001:2000. It is also a partner of ORACLE Corp, the global software giant, for over a decade. The applicant has many clientele including leading banks and financial institutions. The applicant's flagship product is an enterprise level housing financial software named as KEN-HFS and it is a housing finance software used by companies engaged in business of housing finance/home loans. It was originally developed by the applicant/plaintiff in the year 1992/94 on a dBase/clipper platform for the use at Bank of India. The said software has been in existence for more than 14 years. This software has also been licensed to the Bank of India in the year 1994 and GIC Housing Finance in the year 1996. It has been continuously upgraded in tune of technological developments. The said software is supplied in an executable format with no source code rights and with no rights to sell or alter or give to any third party. Some customarization on its software will be done by Kensoft for a customer based on changing business and user requirements. All design/documentation and source code are proprietary to Kensoft and not part of deliverables. Any form of copying/reverse engineering or third party access is prohibited. The copyright and confidential information of the applicant is asserted on the sign of screen of KEN-HFS and is accepted by the user before entering into and using the software.
9.It was further stated that the Kensoft-Housing Finance Software application consists of front end programs and back end programs. It is based on Oracle RDBMS developed by the employees of the plaintiff's company. All the copyright and the other intellectual property rights vest exclusively with the applicant. The applicant is the first owner of the Kensoft System comprising of the KEN-HFS home finance software. The Schema and the front end Graphical user interface/GUI constitute major intellectual property of the software product. The applicant is also undertaking continuous market research to know the demand of financial institutions. The application specific licence of the software was supplied by the applicant to the first respondent. The applicant had created various versions of the housing finance software on different platforms during the years. Each release is derived and adapted from a previous version of the software KEN_HFS on Oracle 9i was also released by the applicant. It was also supplied to other companies around 2003. The said software of Oracle 9i was given for use to the first respondent around 2006. Some customarisation was also done, which forms subject matter of vendor agreement, dated 4.3.2005 between the applicant and the first respondent. This version 8 of KEN_HFS on Oracle 9i with copyright vested exclusively on the applicant is currently used by the respondent.
10.It was further stated that the applicant came to know subsequently that the respondent had sought to prima facie infringe the copyright vesting in KEN_HFS version 8 on Oracle 9i and the complete access of KEN_HFS was given to the second respondent by the first respondent on servers which were in fact controlled by the second respondent. On being aware of such infringement and tampering of source code by the first respondent in collusion with the second respondent, the applicant bona fide sought an expert opinion. The expert report from the IIT, Mumbai, Computer Science and Engineering Department, confirmed the outright infringement by the first respondent. Such infringement was obvious from the conspicuous similarity between source code items, column names, object occurring in the applicant's proprietary source code amounting to several thousand instances of copying. After the release of KEN-HFS version 8 on Oracle 9i by the applicant, the applicant and the first respondent entered into various agreements, dated 20.3.2006, 7.3.2007, 28.3.2008 for the maintenance and usage terms of KEN_HFS version 8. These agreements enumerated the usage of the said software. Since the applicant is the first owner of the source code, any unauthorised use of the said software is prohibited under the Copyright Act. The applicant has only provided a mere licence to the respondents to utilize the product. The deliverables from applicant to the respondents are only the executables. The nature of the licence did not give any right over intellectual property of the software by the respondents.
11.It was further stated that the first respondent to escape from the legal liability, stating that the copyright of the software vest with the respondent itself as evident from an email, dated December, 2008 . The respondents claim was completely unreliable and cannot be substantiated by any documentary evidence. This dishonesty of the first respondent over the proprietary software over 7 years thus evident from the email sent by them. The applicant had suggested the first respondent to take full back up of server and keep it in their own custody for later reference by its various emails. This was not agreed by the first respondent as they wanted to hide infringement that can be discovered in case the applicant is given access and a full backup as a transparent reference point is taken and kept. The first respondent also did not agree by the offer made by the applicant to discuss and solve the issues of violation amicably in an open forum. The applicant later discovered that the first respondent are resorting to further dishonest acts of changing the copyrighted software name from KEN_HFS and referring to it as KEN-SHFL. This was evident from the email of the first respondent referring to the applicant's software KEN_HFS (Kensoft Housing Finance System) as KEN_SHFL (KEN-Sundaram Home Finance Ltd.). The first respondent was also denying the access by the applicant. There was also a clear violation of agreed terms by the respondents. The applicant had informed the first respondent to remove the unilateral denial of access by the applicant vide letter, dated 7.10.2008 and 13.10.2008 and followed by various reminders. The first respondent initially procured 35 named user ASFU (Application Specific Full Use Licences) Oracle software from the applicant on 20.8.2001 and subsequently, they procured additional 40 named user ASFU Oracle licence on 16.4.2003. Thus, the first respondent is authorised to use the total 75 named user licence.
12.It was further stated that it was now found that number of users have been increased unauthorisedly to 200 to 300 users in the last three years. Even though the first respondent had allegedly bought any further usage licence from Oracle, it did not give any right to the first respondent to increase the number of permited users of the applicant's proprietary software without due authorization. The Oracle was informed about the infringement of the Oracle ASFU licence supplied by the applicant. The first respondent instead of carrying out corrective measures, was indulging in dilatory tactics of avoiding their liability. Even though the first respondent had created hurdles, the applicant had taken intense care for effective functioning of the software. The applicant being aware of the error, sent senior representative to Chennai. The representative upon inspection saw that the actual time frame for logging in is merely 2 to 3 seconds. Therefore, the first respondent was informed that their allegations of blaming updates and patches were unethical. The applicant had attended to any error or bugs as per the contract and provided fast service inspite of problems created by them. The failure of the first respondent providing access to the computer system and network maintained in their premises to the copyright owner of the software and the further acts of altering the applicant's source code and scheme amount to committing an offence under the Information Technology Act.
13.It was further stated that The first respondent informed the applicant during April, 2008 that they tied up with BNP Paribas a year before. The applicant had also requested the first respondent not to use obsolete and desupported platforms and to upgrade to higher technology platforms. But the first respondent has not paid heed to their advice. Their intentions to reverse engineering and copy were pre-planned. The applicant wrote a letter, dated 11.4.2008 to the first respondent. The first respondent informed the applicant also upon the proposed migration to the new software on 25.7.2008. Their allegation of migration was only an eyewash and cover up. Various letters and correspondence assuring full cooperation from the applicant were on record. The respondents are showing scant regard for industry norms and transparency in carrying out the task of data migration. The first respondent had allowed the second respondent to use the software. This was an unauthorized use on Oracle ASFU licence in the premises of the second respondent with their knowledge and it is an infringement of copyright. The first respondent with a view to cheat the applicant and escape from then legal liability had withdrawn support of the applicant in migration process and falsely claim that they are doing data extraction work themselves by colluding with the second respondent Sundaram Infotech Solutions Ltd. The act of the first respondent to allow third party access is in violation of terms of the contract and amounts to infringement of copyright.
14.It was further stated that the action of the respondent of committing torts of trespass and misfeasance in the intellectual property rights vested in the applicant is deliberate and with dishonest intention and they should be restrained by an order of this court. The copyrighted products of the applicant were handed over to the first respondent in utmost confidence and it is a valuable trade secret, but the action of the first respondent providing the access to the second respondent was unlawful and without consent, permission and licence by the applicant. The respondents are liable for the acts of torts and misfeasance committed deliberately with dishonest intention and motive. In the agreement, dated 28.3.2008, it was specifically agreed that no third party access of copying or reverse engineering of the application of the software will be done. The first respondent has conspired with the second respondent with mala fide intention to crack and hack the source code of the applicant's original software.
15.It was further stated that a meeting was held with the first respondent at Chennai on 26.12.2008. It was attended by the Head of the Computer Science and Engineering Department of IIT, Bombay. In the meeting Dr.Phatak emphasized the need to avoid such insertion of external code and violations. Mr.Acharya, the Director of the first respondent stated that inclusion of external codes were due to some special reasons. Prima facie opinion given by the expert, IIT, Bombay will clearly show that the activities of the first respondent was illegal. The study conducted and the report from IIT Bombay, Computer Science and Engineering Department with Dr.N.L.Sarda, signatory to the report was also enclosed along with the plaint. The active involvement of the third party and the manner of infringement committed by the respondents in collusion with each other necessarily invalidates the option of arbitration between the parties. These issues can be resolved only the the Civil Court and not by resorting to arbitration. Therefore, the prayer as set out above was made by the applicant/plaintiff.
16.A common counter affidavit was filed by the first respondent. It was stated by the first respondent that the applications and the suit are not maintainable in view of the arbitration clause governing the dispute arising between the applicant and the first respondent and the subject matter of the suit is within the scope of arbitration agreement entered into between the applicant and the first respondent. It was also stated that the first defendant had taken out an application in A.No.1554 of 2009 for referring the dispute for arbitration. It was stated that the counter affidavit was filed only to meet the allegations raised by the applicant and they are not waiving their right to go for arbitration. It was stated that a proposal, dated 17.12.2007 submitted by the applicant was accepted and the software was to be modified to suit the unique requirement of the first respondent's business. It was contemplated in the proposal that the software would be developed with a central database situated at the first respondent's Headquarters and eah of the branches of the first respondent will be logging into the central database on leased lines. It was also contemplated that a comprehensive agreement detailing all system specification and responsibility will be executed between the parties and that will form guideline for smooth and speedy customization and implementation of the project. Therefore, the proposal itself contemplated the software development project as opposed to a licensing agreement. Pursuant to the proposal, a letter of intent was issued by them on 3.1.2001 in relation to the purchase of an integrated home finance package. The said letter of intent contemplated a detailed agreement entered into between the parties and did not bear any reference to the so claimed licence. The said project was a work done on hire. Hence the IPR subsisting in the product was to vest with the first respondent inasmuch as a significant component of the said software was based on the inputs provided by the first respondent that was peculiar to its business.
17.It was stated that an agreement was entered into between the first respondent and the applicant on 30.1.2001 which clearly stipulates the rights of the parties. The first respondent had also subsequently entered into three other agreements, dated 29.1.2003, 20.2.2004 and 4.3.2005 in respect of the development of additional modules to be integrated. It was denied that the applicant owned any intellectual property in respect of the software developed for the first respondent pursuant to the agreement. The averment that the front end and back end programs supplied to the first respondent by the applicant and are licensed for the use by the first respondent is also denied. The mere possession of the source code by the applicant did not confer him ownership. There is no copyright or IPR in respect of the software rest exclusively with the applicant. After the warranty period, an Annual Maintenance Contract (AMC) was executed between the applicant and the first respondent on 15.6.2004. Even prior to the said agreement, the applicant agreed to prove annual maintenance as part of the agreement, dated 29.01.2003. Subsequent to the agreement, Annual Maintenance Contracts were executed on 4.3.2005, 30.4.2005, 20.3.2006, 7.3.2007 and 28.3.2008. It only means that the said Oracle licence cannot be used with respect to any other application software other than Ken-HFS software.
18.It was further stated that the first respondent had applied for Oracle licence. The agreements referred to by the applicant are only AMCs and did not clothe on the applicant's any ownership right. In the AMC, dated 20.3.2006 entered into between the parties, there was a surreptitious inclusion of the word licence, which was done by the applicant. On notice by the firs respondent, it was immediately removed by the applicant. The allegation that the first respondent gave complete access of the software to the second respondent on servers controlled by the second respondent is also denied. The second respondent has no connection whatsoever to the software or with the date base administration. Such an allegation is made only to rope in the second respondent as a party to the suit so as to avoid the issue being settled through arbitration as agreed to by them. With reference to the expert report given by the applicant, it was a unilateral report and was not done in technical manner. It was further asserted that the first respondent need not require to do any reverse engineering to be aware of the table structures. There was no tampering with any software by extracting the data from the tables in which the data resides. The software itself was developed for the first respondent and the work for hire basis. The sharing of back up and log files, provided by the first respondent to the applicant for the purpose of attending to maintenance related issues with a third party is a clear violation of the confidentiality obligation of the applicant. The first respondent has adopted for quicker and efficient work by taking relevant portion of the test server in relation to the date is deleted and such data from the production sever are copied in its place. The software tables referred to as objects in the report submitted by the expert are listed in the log file and there was no need to do any reverse engineering to obtain this knowledge.
19.It was further stated that the code written for retrieving the critical customer data residing in the software tables for business continuity did not require or imply reverse engineering of the software. Further, objections were also pointed out regarding the loopholes in the report submitted by the applicant. It was stated that apart from the agreement referred to by the applicant, there were also agreements, dated 15.6.2004 and 30.4.2005. The first respondent had not committed any infringement of copyright. The allegations were made by the applicant for extracting illegal gains from the first respondent. The allegation that they were limited to have 75 authorised users of software is totally without any basis. Even in the email dated 17.1.2009, it was quoted out of context and there was no reference to any allegation of infringement by Oracle Corporation till date. The allegation of denial of access to the applicant was made without any basis.
20.The second respondent has no connection whatsoever for the alleged activities mentioned by the applicant in paragraph 28 of his affidavit. More than one occasion, the first respondent has pointed out that the new software belonged to M/s.Sundaram Finance Limited. There was no copyright infringement. There was also no modification of source code or software. The allegation that the first respondent had tampered with the schema and the source code of the software and has transferred confidential information for substantial imitation and adaptation of the software was also denied. It was further stated that the new software to which first respondent had migrated to belongs to Sundaram Finance Ltd. developed through its Software division, Sundaram Infotech Solutions (SIS). Sundaram Finance Ltd had its own software product providing solutions to non banking financial companies for more than a decade and had customize its software to cater to Home Finance companies. The second respondent is an independent company having no business transaction in any manner with the first respondent company. Therefore, the allegation that the first and second respondents have conspired to crack and hack the source code of the software supplied by the applicant was denied.
21.It was further stated that the report submitted by the applicant which was procured from the Professor of IIT cannot be accepted by the court without its author being subjected to cross examination. It was further stated that the issues raised in the suit are squarely covered by the arbitration clause in the agreement. This respondent had already filed an application under
Section 8 of the Arbitration and Conciliation Act, 1996.
22.As noted earlier, the first respondent had taken out an application in A.No.1554 of 2009 for referring the issue to arbitration in terms of the prayer made by him. In the affidavit, there is reference to clause 25 of the agreement, which provides for arbitration. Apart from this, in the vendor agreements, dated 30.1.2001, 29.1.2003, 20.2.2004 and 4.3.2005 also, there are clauses providing for arbitration. It is in the light of this, the first respondent requested that the parties must be directed to go for arbitration pursuant to the agreement entered into between the parties in respect of the issues raised by the plaintiff in the suit against the first defendant.
23.The second respondent has filed a memo, dated 23.6.2009, wherein it was stated as follows:
"Without prejudice to its contentions set out in the Application No.1643 of 2009, in the event that this Hon'ble Court refers the Applicant and the first respondent to resolve their disputes that are the subject matter of the present suit by way of Arbitration, then this respondent agrees to submit to such arbitration and raise all contentions in the present suit before the Arbitration Tribunal."
24.In response to this application, a counter affidavit has been filed by the plaintiff. It was stated that the agreement entered into between the plaintiff and the first defendant did not rope any third party and the agreement did not contemplate over the infringement of intellectual property right. The dispute relating to wrongful activities such as tampering of source code cannot be resolved through arbitration and hence the suit is the only remedy.
25.In A.No.1643 of 2009 filed by the second defendant, it was stated that since no allegation or cause of action has been borne out, the second defendant cannot be made as party. They have been wrongly impleaded. If there are no allegations or cause of action against a party, then court can strike out such a party from the suit. Even in the cause of action para of the plaint, there was no reference to the second defendant.
26.The plaintiff has filed a counter affidavit, stating that the second defendant is a proper and necessary party. It will be prejudicial to the plaintiff if the second defendant is deleted from the array of parties from the suit.
27.Copies of the agreements referred to by the parties have been produced along with the plaint by the plaintiff himself. Though arguments were advanced by the counsel for the plaintiff in support of his Original Application for a temporary injunction, his application can be disposed of depending upon the order to be made in A.No.1554 of 2009. Therefore, the arguments relating to grant of an injunction by the plaintiff are not gone into at this stage.
28.Opposing the application for arbitration, Mr.A.A.Mohan, counsel for the plaintiff referred to the following judgments:
1)2002 (2) LW 187 (H.G.OOMER SAIT AND ANOTHER VS. O.ASLAM SAIT).
2)2007 (5) SCC 510 (INDIA HOUSEHOLD AND HEALTHCARE LTD. VS. LG HOUSEHOLD AND HEALTHCARE LTD.)
3)2003 (5) SCC 531 (SUKANYA HOLDINGS (P) LTD. VS. JAYESH H.PANDYA AND ANOTHER)
4)2008 (3)ARBLR 445 (Delhi) (VIRENDER YADAV VS. AEROSVIT AIRLINES AND OTHERS)
29.The above judgments were referred to for the purpose of showing that in case certain reliefs claimed by the parties to the agreement falls outside the scope of the agreement and necessary parties affected by such claims are not parties to the arbitration agreement, in such a case, the issues cannot be referred to arbitration as the subject matter of the suit of the parties cannot be split up. Therefore, the suit is maintainable.
30.Per contra, Mr.A.L.Somayaji, learned Senior Counsel leading M/s.K.Vaitheeswaran and T.K.Bhaskar, learned counsel for defendants referred to the following decisions:
(a)2008 (4) CTC 360 (Mandali Ranganna & others vs. T.Ramachandra and others).
(b)156 (2009) DLT 406 (Ministry of Sound International Ltd. Vs. Indus Renaissance Partners Entertainment Pvt. Ltd.)
(c)2008 (4) CTC 1 (Kotak Mahindra Bank Ltd. Vs. Sundaram Brake Lining Ltd. and 2 others)
(d)1995(II) OLR 348 (Braja Kishore Sahu and others Vs. Smt. Sailabala Sahu and others)
(e)2007 (4) CTC 70 (Chinna Nachiappan and another Vs. PL.Lakshmanan)
(f)MIPR 2009 (1) 0304 (Astor Technologies and others Vs. L.B.Thiagarajan)
31.It was stated that if the issue is squarely covered by arbitration, then the question of split up of the issue did not arise. The arbitration clause was entered into comprehensively in the present case. Even the issue which is allegedly falling outside the agreement can be covered by the arbitration clause. In the present case, there is no need for any severability of the issues involved. Further, the second respondent himself had filed a memo agreeing to submit themselves to the jurisdiction of an arbitrator. Therefore, there will not any separate suit to be filed against the second defendant.
32.With reference to the broad arbitration clause in the agreement, this Court vide judgment in Kotak Mahindra Bank Ltd. Vs. Sundaram Brake Lining Ltd. and 2 others reported in 2008 (4) CTC 1 had held that (1) the arbitration clause are broad enough to cover the disputes relating to the validity of the contract itself even on the ground of fraud, misrepresentation, etc., in which case the jurisdiction of the arbitral Tribunal is not ousted and (2) if the arbitration clause is not broad enough to cover the disputes, even then the separability doctrine could be invoked to sustain an arbitration except in those exceptional cases pointed out as nagging exceptions in the aforesaid book. The 'broad arbitration clause' principle was accepted by the Supreme Court in ITC Ltd. Vs. G.J.Fernandes reported in AIR 1989 SC 839.
33.Therefore, the issue in the present case is squarely covered by the arbitration clauses, which is set out in the affidavits filed in support of A.No.1554 of 2009. In the light of the above, this court has no hesitation to reject the submissions made by the counsel for the plaintiff. The issues raised in the suit are squarely covered by the arbitration clause signed between the plaintiff and the first defendant. The second defendant had also filed a memo submitting themselves to the arbitration. That is permissible under the Arbitration and Conciliation Act, 1996. The plaintiff cannot draft a plaint in such a way so as to resile from an arbitration agreement. It is only for this purpose, they have made the second respondent as party to the suit. Since the second defendant have themselves agreed to abide by an arbitration, even that objection does not stand to legal scrutiny.
34.In the light of the above, A.No.1554 of 2009 stands allowed. So far as A.No.1643 of 2009 is concerned, since the second respondent agreed to abide by the arbitration and that A.No.1554 of 2009 being allowed, A.No.1643 of 2009 has become infructuous. Hence, A.No.1643 of 2009 will stand dismissed as infructuous.
35.So far as O.A.Nos.275 and 276 of 2009 filed by the plaintiff for injunction are concerned, since this court has allowed A.No.1554 of 2009, the very maintainability of the suit has become doubtful. But the issues of infringement of copyright and IPR are not gone into as any finding rendered herein will affect the future arbitration between the parties. Therefore, this Court cannot grant any injunction pending the suit. Hence both the original applications, i.e. O.A.Nos.275 and 276 of 2009 stand dismissed. The parties are allowed to bear their own costs.
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