Delhi High Court
Ascot Hotels And Resorts Pvt. Ltd & Anr. vs Connaught Plaza Restaurants Pvt. Ltd. on 20 March, 2018
Author: Navin Chawla
Bench: Navin Chawla
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 13th February, 2018
Date of decision: 20th March, 2018
+ ARB. A. (COMM.) 12/2017
ASCOT HOTELS AND RESORTS PVT. LTD & ANR.
.... Appellants
Through: Mr. Rajat Arora and Ms.
Vishalakshi Singh, Advs.
versus
CONNAUGHT PLAZA RESTAURANTS PVT. LTD.
..... Respondent
Through Mr.Sandeep Sethi, Sr. Adv. with
Ms.Kanika Agnihotri, Mr.Preet
Singh Oberoi, Advs.
CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
1. This appeal has been filed by the appellant under Section 37(2) of
the Arbitration & Conciliation Act, 1996 challenging the order dated 12 th
April, 2017 passed by the Sole Arbitrator in arbitration proceedings No.
DAC/1476/12-16, Connaught Plaza Restaurant vs. Ascot Hotels &
Resorts Ltd. & Anr. The Arbitrator vide his impugned order has directed
maintenance of status quo with respect to the 'license area' that is an area
of approximately 2500 sq.ft, covered area along with terrace in the
building constructed on Khasra No.656/1 and Khasra No.621 in Mauja
Gahi, Tehsil Kasauli, District Solan, Himachal Pradesh along with
storage area of 450 sq.ft in the basement of the said property.
ARB. A. (COMM.) 12/2017 Page 1
2. The disputes between the parties arise out of the License
Agreement dated 19th December, 2006 by which the license area along
with the storage area in the basement was given on a license basis by the
appellant to the respondent for running of a restaurant in the name of
McDonald's Family Restaurants. The license was for a period of 20
years with an option to renew the same for a further term of 5 years.
Some of the terms and conditions of the License Agreement that are
relevant for the purposes of present appeal are reproduced herein under:-
"2. GRANT OF LICENSE
2.1. In consideration of the license fees, covenants and
agreements herein contained, AHRL agrees to give
on license basis to CPRL and CPRL agrees to take
on license from AHRL the Licensed Area along with
storage of 450 sq ft built up covered area in the
basement at a mutually agreed area, for a period of
20(Twenty years) with an option to renew the
license for a period of one further term of 5 (Five)
years upon serving a three months notice in advance
prior to the expiry of the license and subject to the
provisions of this agreement, with the right to use
the common facilities in the Complex and for lawful
purposes only including the right to ingress and
egress into the Licensed Area.
4. TERM
4.1 PRIMARY TERM
This agreement is for a term commencing from the
date of restaurant being opened to the public
(hereinafter referred to as the effective date) for
business and ending 20 years from the effective date
subject to the renewal of the agreement between
AHRL and KK Ropeways Limited and renewal of the
lease of the Licensed Area in favour of K.K.
Ropeways. However, in the event the Lease in
ARB. A. (COMM.) 12/2017 Page 2
respect of the Licensed Area is not renewed in
favour of KK Ropeways, AHRL / K.K Ropeways
shall provide a suitable alternative location in the
said property.
4.2 OPTION TERM
At the end of the Primary Term, the parties can
renew for further period of 5 years on the same
terms and conditions thereafter on the basis of
mutually agreed terms.
6. LICENSE FEES
6.1 "CPRL" in consideration for using and operating
the Licensed Area for the purpose of running the
restaurant shall pay to AHRL subject to withholding
of taxes, License fee at the rate of 8% (Eight
Percentage) of the Gross Sales (as defined below),
generated every month from "McDonald's Family
Restaurant" operated by CPRL from the Licensed
Area or a minimum guaranteed amount of Rs.
1.50,000/- whichever is higher. The ·Minimum
Guaranteed amount shall be increased by 15%
every 5 years from the effective date.
6.2 The gross sales for the purpose of determining the
revenue share shall mean all receipts (cash, cash
equivalent, credit or redeemed gift certificates)
made exclusively from the Licensed area but shall
not include any sales tax and/or Excise Duty or any
Value Added Tax (VAT) imposed and collected or
such taxes that may be imposed and collected in
future by the Central, State, Municipal or other
Public Authority on sales made to customers, from
the licensed area. It is further agreed between the
parties, that the gross sales shall not include the
sale of gift certificates, employee sales, non-edible
non-profitable promotional items sold from the
licensed, area by the "Second Party".
6.3. CPRL shall pay to AHRL the above mentioned
license fees (fixed as well as variable license fees)
ARB. A. (COMM.) 12/2017 Page 3
on or before 10th day of the succeeding month
starting from the effective date. In the event. CPRL
defaults in making payment of the License Fee, on
the due date of 10th working day if shall be liable to
pay interest@ 12% per year to AHRL for the
delayed period. CPRL shall furnish to AHRL for
each quarter on or before 10th working day from the
close of the quarter, a statement of quarterly gross
sales at the restaurant for the purpose of
accounting.
6.4. AHRL shall acknowledge and give valid receipts for
receipt of license fees and such receipts shall be
duly stamped and signed by AHRL or their duly
authorized agents respectively, which shall be the
conclusive proof of such payments.
7. DEPOSIT
7.1 "CPRL" has paid AHRL a sum of Rs. 1.75 crores
(Rupees One crore seventy five lakhs only) as
security deposit on the date of signing of the
agreement. Out of the said sum of Rs. 1.75 crores,
Rs. 25 lakhs will stand as interest free refundable
security deposit, and the balance amount of Rs. 1.5
crores will be refunded with interest to CPRL by
AHRL in the following manner.
7.2 AHRL shall pay interest on the sum of Rs. 1.5 crores
from the date of receipt of the said sum at the rate of
3% over and above the Bank Rate of 6% prevailing
on the date of signing the agreement. Interest will be
paid by AHRL to CPRL quarterly from the date of
commencement of the commercial operation of the
restaurant. The Principal amount of Rs. 1.5 crores
shall be refunded by AHRL to CPRL at the end of
period of two years from the date of commercial
operations of the restaurant. The balance amount of
Rs. 25 lakhs shall be repaid by AHRL to CPRL on
the termination of the Agreement.
ARB. A. (COMM.) 12/2017 Page 4
7.3 In the event of the earlier termination of agreement
after the Lock in period, AHRL shall refund the
entire refundable security deposit. AHRL is however
entitled to recover any of its agreed dues, if any, out
of the security deposit and refund the balance.
7.4 In the event of failure on the part of AHRL to refund
the amount of Rs. 1.5 crores at the time mentioned
above or or failure on the party of AHRL to pay
Interest as mentioned in this agreement, CPRL will
be entitled to adjust the said amounts with interest
from the License Fee payable to AHRL every month.
22. TERMINATION
22.1 Save as otherwise provided under this agreement,
this Agreement cannot be terminated before the
expiry of 3 (Three) years from the effective date by
CPRL. However, 90 days before the expiry of 3
(Three) years as mentioned above, CPRL may give a
notice in writing to AHRL to terminate the
agreement. However during the said period of 3
(Three) years if the Licensed Area or the main
complex is closed or ceases to operate, there from
for a continuous period of three months or more for
any reason other than renovations i.e. on account of
Force Majeure conditions including but not limited
on account of any Government directives or/any
other authority, which might disable CPRL from
obtaining requisite licenses for operating the
restaurant and thereby cause the closure of the
restaurant, then CPRL at its option has the right to
terminate this agreement by serving advance
written· notice of 90 days on AHRL and this
Management Agreement shall stand terminated after
the expiry of 90 days notice, without being liable to
continue operations of the restaurant for the
remainder of the lock in period.
22.2 CPRL may terminate this License Agreement at any
time after 3 (Three) years by serving advance
ARB. A. (COMM.) 12/2017 Page 5
written notice of 90 days on the Developer. In the
event of the termination of the License Agreement
CPRL shall have no ·further rights, duties or
obligations under this License Agreement except
that all commissions taxes and other monetary
obligations that may have been pre-paid by CPRL to
AHRL shall be pro-rated for the applicable period
and refunded simultaneously with handing over
vacant possession to AHRL at the expiry of the
notice period upon termination, subject to the
adjustment of dues, if any of AHRL.
xxxxxx
22.4 AHRL cannot terminate this agreement except in the
event of any three consecutive defaults by CPRL to
pay the license fees. Notwithstanding the above,
AHRL shall be entitled to terminate the Agreement
only in the event of CPRL failing to make good the
default as mentioned above within a grace period of
30 days after receiving a notice from AHRL in this
regard. CPRL will pay interest at the rate of 12%
per annum for each days delay in paying the License
fees beyond the 10th day of the month."
3. As certain disputes arose between the parties in relation to the
Common Area Maintenance (hereinafter referred to as 'CAM') charges,
the respondent filed an application under Section 9 of the Act before the
Additional District Judge, Patiala being Arbitration No.154/2016. The
Additional District Judge vide ad interim order dated 20.05.2016 directed
the appellant to immediately restore the water and electricity supply to
the respondent, subject to the respondent continuing to pay to the
appellant the usage charges for electricity and water and such other dues
as per the terms already agreed. The application was finally disposed of
by order dated 7th October, 2016, extending the interim protection by a
ARB. A. (COMM.) 12/2017 Page 6
further period of two weeks, while giving liberty to the respondent to
approach the Delhi International Arbitration Centre (DIAC) for seeking
appointment of a Sole Arbitrator in terms of the arbitration agreement
between the parties.
4. The respondent thereafter filed an application under Section 11 of
the Act being ARB P. 643/16 seeking appointment of a Sole Arbitrator.
This Court, vide its order dated 30.11.2016 appointed the Sole Arbitrator
to adjudicate all the disputes, including their claims and counter claims.
5. On an application seeking modification of the above order filed by
the appellant, this Court vide its order dated 16.12.2016 clarified that
even with respect to CAM charges and water charges the appellant shall
be free to lead evidence before the Arbitrator.
6. The appellant claims that the direction issued by this Court on
30.11.2016 remained uncomplied with by the respondent.
7. On 27.01.2017 the appellant claims to have sent, by e-mail and
speed-post, a Show Cause Notice to the respondent alleging therein that
as the respondent had failed to take steps to ensure that sales are
maximized and in installing the Diesel Generation sets, it was in breach
of the terms of the agreement and had caused loss to the appellant. The
Show Cause Notice gave thirty days time to the respondent to Show
Cause why the License Agreement be not terminated for such breach.
8. Appellant submits that as no response to the above Show Cause
Notice was received from the respondent, by notice dated 01.03.2017 the
appellant terminated the License Agreement and called upon the
respondent to hand over the vacant possession of the license area to the
appellant.
ARB. A. (COMM.) 12/2017 Page 7
9. The appellant further contends that it was only upon the issuance
of the Notice of Termination of the License Agreement, that the appellant
received the reply sent on behalf of the respondent to the Show Cause
Notice.
10. The Arbitrator, on an application under Section 17 of the Act filed
by the respondent, vide order dated 04.03.2017, while issuing notice on
the application, directed the parties to maintain status quo. This order has
been confirmed by the Impugned Order dated 12.04.2017.
11. The Arbitrator in the Impugned Order, after relying upon various
Clauses of the agreement has held that the appellant has been unable to
show the three consecutive defaults in the payment of license fee by the
respondent as required in Clause 22.4 of the License Agreement. Even
the notice of termination dated 27.01.2017 does not refer to any such
default. The Arbitrator therefore, holds that in the absence of such ground
being made, the respondent is able to make out a prima facie case and
cannot be compensated in terms of money in case interim protection is
not granted in its favour. The Arbitrator further holds that the balance of
convenience is also in favour of the respondent and against the appellant.
As far as Section 14(1)(c) of the Specific Relief Act, 1963 is concerned,
the Arbitrator holds the same would not apply in the facts of the present
case as the contract was not determinable unilaterally at the instance of
the appellant, but only for specific defaults. He further holds that grant of
interim relief would, in the present case be a "Just" exercise of the power
of the Tribunal under Section 17(1)(e) of the Arbitration and Conciliation
Act, 1996. He further holds that in the present case the respondent is not
seeking specific performance of the agreement and is only challenging
ARB. A. (COMM.) 12/2017 Page 8
the wrongful termination of the same by the appellant. The Arbitrator
relying upon the judgment of this Court in Upma Khanna & Anr. v.
Tarun Sawhney & Ors. MANU/DE/2558/2012 held that in the present
case denial of the interim protection to the respondent would in fact,
amount to allowing the party committing the wrong to take advantage of
its own neglect and default.
12. The grievance of the appellant is that the agreement between the
parties being that of a grant of license, the same by its very nature was
determinable and in any case, even if the termination of the License
Agreement was later found to be incorrect, the respondent could always
be compensated in the form of damages. Relying upon Section 41(e) read
with 14(1)(a) and 14(1)(c) of the Specific Relief Act, 1963, it is
submitted that an injunction against the appellant for seeking recovery of
the licensed premises could not have been granted by the Arbitrator.
Reliance has also been placed on the judgment of the Supreme Court in
Indian Oil Corporation Ltd. v. Amritsar Gas Service & Ors. (1991) 1
SCC 533 as also in judgment of this Court in Planet M Retail Ltd. v.
Select Infrastructure Pvt. Ltd. 2014 (145) DRJ 654 to contend that
whether the determination of the license is contrary to the terms of the
agreement or is illegal, is a question to be decided by the Arbitral
Tribunal in its final Award, however, no interim protection can be
granted in favour of the respondent on this ground.
13. It is further submitted that the Arbitrator has completely
misdirected himself in holding that the relief claimed by the respondent is
not for the specific performance of the agreement, but for declaring that
the termination of the License Agreement is illegal and unlawful. The
ARB. A. (COMM.) 12/2017 Page 9
learned counsel for the petitioner submits that the nature of the relief
claimed by the respondent is one of specific performance and in fact,
there is no averment in the Statement of Claim challenging the
termination of the License Agreement by the appellant. He submits that
the Arbitrator has completely misconstrued the pleadings of the
respondent in the Statement of Claim and in absence of such pleadings,
no relief could have been granted to the respondent on mere oral
submissions. In this regard he relied upon the judgment of the Supreme
Court in Bachhaj Nahar v. Nilima Mandal & Ors. AIR 2009 SC 1103.
14. On the other hand, the learned senior counsel for the respondent
submits that the License Agreement between the parties, in form of
Clause 22.4 thereof, contains a negative covenant which prohibits the
termination of the agreement "except in the event of any three
consecutive defaults" by the respondent in the payment of the license fee.
He submits that in the Show Cause Notice dated 27.01.2017 or the
Termination Notice dated 01.03.2017 there is no allegation made that the
respondent has not paid the license fee in accordance with Clause 6.1 of
the License Agreement for three consecutive months. He submits that in
view of the above, the Termination Notice, ex facie is illegal and cannot
be given effect to. He further submits that in the present case, the
respondent had made a huge investment in the form of the Security
Deposit of Rs. 1.75 crores and also otherwise in setting up the restaurant
at the licensed premises. He submits that the respondent has acquired
goodwill for the place of business and has made such investment on an
express promise that the License Agreement shall not be terminated
except for the reasons mentioned in the Clause 22.4 of the License
ARB. A. (COMM.) 12/2017 Page 10
Agreement. Relying upon the judgment of this Court in Old World
Hospitality Pvt. Ltd. v. India Habitat Centre 1998 (73) DLT 374, he
submits that in such a case it cannot be said that the respondent can be
compensated in the form of damages. He further submits that once the
right of the appellant to terminate the contract has been restricted in the
form of Clause 22.4 of the License Agreement, it could not also be said
that the contract in its very nature is determinable. He therefore, submits
that in the present case, Section 14(1)(a) and Section 14(1)(c) of the
Specific Relief Act, 1963 shall have no application and on the other hand,
the injunction is rightly being granted in favour of the respondent in
terms of Section 42 of the Specific Relief Act, 1963. On being queried if
the license by its very nature is revocable as it does not create any right in
the property in favour of the licensee, the learned senior counsel for the
respondent, relying upon the judgment of the Supreme Court in Ram
Sarup Gupta (Dead) by Lrs. V. Bishun Narain Inter College & Ors.
AIR 1987 SC 1242 submits that the Supreme has held that Section 60 of
the Indian Easement Act, 1882 is not exhaustive and there may be a case
where a grantor of the license may enter into the agreement with the
licensee making the license irrevocable, even though none of the two
clauses as specified under Section 60 are fulfilled; the present is one such
case.
15. I have considered the submissions made by the counsel for the
parties. Before dealing with the same, I must emphasize that the power
being exercised by me is one under Section 37(2)(b) of the Act. In
Wander Ltd. And Anr. vs Antox India P. Ltd., 1990 Supp (1) SCC 727,
the Supreme Court while examining the power of the Appellate Court to
ARB. A. (COMM.) 12/2017 Page 11
examine the validity of the interim order passed by the Trial Court held
as under:-
"14. The appeals before the Division Bench were against the
exercise of discretion by the Single Judge. In such appeals, the
appellate court will not interfere with the exercise of discretion of
the court of first instance and substitute its own discretion except
where the discretion has been shown to have been exercised
arbitrarily, or capriciously or perversely or where the court had
ignored the settled principles of law regulating grant of refusal of
interlocutory injunction. An appeal against exercise of discretion
is said to be an appeal on principle. Appellate court will not
reassess the material and seek to reach a conclusion different from
the one reached by the court below if the one reached by that court
was reasonably possible on the material. The appellate court
would normally not be justified in interfering with the exercise of
discretion under appeal solely on the ground that if it had
considered the matter at the trial stage it would have come to a
contrary conclusion. If the discretion has been exercised by the
trial court reasonably and in a judicial manner the fact that the
appellate court would have taken a different view may not justify
interference with the trial court's exercise of discretion. After
referring to these principles Gajendragadkar, J. in Printers
(Mysore) Private Ltd. v. Pothan Joseph: (SCR 721)
"... These principles are well established, but as has been
observed by Viscount Simon in Charles Osenton & Co. v.
Jhanaton '... the law as to the reversal by a court of appeal
of an order made by a judge below in the exercise of his
discretion is well established, and any difficulty that arises
is due only to the application of well settled principles in an
individual case'."
The appellate judgment does not seem to defer to this principle."
16. In the present case, as observed above, the Arbitrator has held that
the respondent has been able to make out a strong prima facie case in its
favour based on Clause 22.4 of the License Agreement which restricted
the right of the appellant to terminate the License Agreement only in the
ARB. A. (COMM.) 12/2017 Page 12
event of three consecutive defaults by the respondent to pay the license
fee. Even before me, it is not contended by the counsel for the appellant
that there was any default committed by the respondent in the payment of
the license fee.
17. It is the contention of the counsel for the appellant that the license
fee payable under Clause 6.1 of the License Agreement is on a revenue
share basis and provides for a "minimum guarantee" amount, whichever
is higher. He submits that as the respondent had failed to install the
Diesel Generator set as obligated on it under Clause 9.1 of the License
Agreement, there was a loss of revenue earned by the respondent, which
resultantly leads to a loss of license fee in favour of the appellant. He
therefore submits that this itself would mean that the respondent has not
paid the license fee in accordance with Clause 6.1 of the License
Agreement.
18. Though on first blush this argument seems attractive, however,
cannot be accepted at this stage to set aside the discretionary order passed
by the Sole Arbitrator under Section 17 of the Act. As narrated in the
brief facts above, it is admitted case of the appellant that the respondent
had not installed the Diesel Generator set in discharge of its obligation
under Clause 9.1 of the License Agreement and in fact, it was the
appellant who was supplying electricity from its own Diesel Generator
set till some time in 2016. Thereafter there were certain disputes that had
arisen between the parties in relation to payment of CAM charges and
had culminated in the order dated 30.11.2016 passed by this Court in
ARB P. 643/2016, referring the parties to arbitration. The said order had
extended this arrangement and granted eight weeks' time to the
ARB. A. (COMM.) 12/2017 Page 13
respondent to install its own Diesel Generator set. This period would
have expired only in January, 2017. The appellant, however, vide its
notice dated 27.01.2017 issued notice of default to the respondent.
Therefore, two questions would arise:-
(i) Whether failure to install the Diesel Generator set can be construed to
be a failure to pay license fee in terms of Clause 6.1 of the License
Agreement;
(ii) Even assuming that the answer on the first issue is in the favour of the
appellant, where, in view of the order dated 30.11.2016 passed by this
Court, as on 27.01.2017 the respondent can be said to be in default for
three consecutive months.
19. Prima facie, the submissions of the appellant therefore do not seem
to be correct that purportive loss of revenue due to non installation of the
Diesel Generator set would also amount to a failure of payment of license
fee for purposes of Clause 22.4 of the License Agreement.
20. The counsel for the appellant further contended that the last recital
of the License Agreement and Clause 2.1 thereof, clearly provide that the
grant of license itself is subject to the respondent complying with its
obligations under the License Agreement. He submits that once the
respondent fails to discharge its obligations under the License
Agreement, it will lose its right to occupy the licensed premises under
the License Agreement and cannot, therefore, be granted any protection
by way of an injunction. Prima facie, I find no merit in the said
contention. Clause 22.4 of License Agreement has restricted the right of
termination of the License Agreement by the appellant only to a case of
three consecutive defaults in payment of the license fees. There is a
ARB. A. (COMM.) 12/2017 Page 14
specific prohibition by use of the word "Except". It seems that the parties
intended that for other defaults of the obligations under the License
Agreement, damages would be an adequate remedy for the appellant, but
the appellant would not be entitled to terminate the License Agreement
for such defaults. In any case, this will be an issue to be determined by
the Arbitrator upon analyzing the evidence and submissions made before
him. At this stage, in my opinion, Clause 22.4 of the License Agreement
is itself sufficient to establish a prima facie case in favour of the
respondent.
21. It is further contended by the counsel for the appellant that even
assuming that the termination of the agreement by the appellant is illegal,
as the respondent can be compensated in terms of money, respondent
would not be entitled to grant of injunction in its favour. On the other
hand, the learned senior counsel for the respondent submits that the
respondent had made huge investment in the property based on the
assurance of the long period of license as provided in the License
Agreement. He further submits that the property was being used for
commercial purposes and the respondent has acquired a goodwill in the
same. He submits that the respondent, therefore, cannot be compensated
in terms of money.
22. In Old World Hospitality Pvt. Ltd. (Supra) this Court had rejected
a similar contention as raised by the appellant, observing as under:-
"114. In the Law of Contract by Hugh Collins 2nd End. 1993 the
learned Author has posited as under:
"Although the Courts still repeat the rule that damages must be
inadequate before they will award an order for compulsory
ARB. A. (COMM.) 12/2017 Page 15
performance, the" rule has been subtly modified in recent
years. In Beswick v. Beswick, ( 1968 Ac 58), an elderly and
ailing coal merchant sold his business to his nephew in return
for various promises including a promise to pay his widow
Pond 5 per week after his death. When the nephew refused to
pay, the widow in her capacity as administratrix of her
husband's estate claimed specific performance of the contract.
Since the estate had lost nothing by the nephew's breach of
contract, because the payments were owed to the widow
personally, it was likely that the measure of damages would be
nominal. The House of Lords ordered specific performance of
the contract even though an award of nominal damages would
have covered all the losses of the estate. The Court made the
award of compulsory performance because they though that it
achieved a just result, for otherwise the nephew would have
been unjustly enriched by being entitled to hold onto his uncle's
business without paying his aunt penny. The modern judicial
test asks the question: is it just in all the circumstances that the
plaintiff should be confined to his remedy in damages?"
This test squarely raises the issue of describing the circumstances
which induce a Court to find the award of the remedy of specific
performance more just than damages.
The key to the law of compulsory performance lies in recognizing
that such a remedy is not designed to compensate the injured party
for the losses, but to force performance of the contract. Normally a
Court declines to order performance because damages provide a
sufficient incentive to complete most contracts except where the
defendant hopes to achieve unusual economic benefits from
breach, in which case to compel performance would only serve to
discourage contracts and to reduce the combined wealth of the
contracting parties. A remedy of compulsory performance,
therefore, deliberately overrides these normal considerations
concerning remedies in order to serve different policies. Courts
use orders of compulsory performance to resist exploitation of
relations of domination and to prevent unfair outcomes arising
from break of contract.
ARB. A. (COMM.) 12/2017 Page 16
In amplifying further, the learned Author has pointed out the
question of fairness would also arise. Again the Author has said :
"A concern for fairness has also motivated the use of
compulsory performance in a few cases. We saw
considerations of distributive justice influence the Court in
Beswik v. Beswick, to prevent the nephew from being unjustly
enriched at his widowed aunt's expense. The order for specific
performance of the payment of an annuity prevented the
nephew from obtaining the business without having to pay for
it. The most common kind of case where compulsory
performance is ordered for distributive purposes involves
transactions for the transfer of an asset which will provide an
opportunity to earn an uncertain income. If the injured party
cannot prove his losses with sufficient certainty to satisfy the
compensatory principle, a Court may order specific
performance. For example, an injured party may be able to
enforce a sale of shares which would give him control over a
Corporation, because damages for his loss of the right to
control the Corporation arc too speculate to be compensatable.
Similarly, the loss of the right to be an exclusive distributor of
a product may lead to the loss of goodwill and trade
reputation, items which are hard to quantify under the
compensatory principle, but which can be protected by an
injunction. The fundamental problem here is not that damages
are inadequate to cover these kinds of losses but that the losses
cannot be proven, and in order to overcome these evidentiary
difficulties, the Courts are prepared to order compulsory
performance where this will lead to a fair distributive
consequence.
These examples of oppression through bilateral monopoly and
dependence, and injustice in the outcome of awards of
damages, do not exhaust the occasions when an order for
specific performance may achieve what the Court perceives to
be more complete justice between the parties. The Courts
reserve a discretion to award compulsory performance
whenever it seems appropriate to do justice in the case."
ARB. A. (COMM.) 12/2017 Page 17
115. In Halsbury's Laws of England Vol. 44 4th Edn., the
statement of law is in the following terms:
"In certain circumstances the Court may even grant a
mandatory injunction directly requiring a party to the contract
to perform his contractual obligations either on an
interlocutory application or at the trial of the action." The
footnote given in this Volume there is considerable law on the
point and the same is in the following terms:
"Smith v. Peters, (875) Lr 20 Eq 511, where a vendor was
ordered to give a valuer access to premises; Sky Petroleum
Ltd. v. Vip Petroleum Ltd., (1974) I All Er 954, (1974) I WLR
567, where the defendants were ordered not to withhold
supplies of motor fuel from the plaintiffs; filling stations, no
alternative sources of supply being available; Astro Exito
Navegacion S.A. v. Southland Enterprise Co. Ltd. (Chase
Manhattan Bank N. Aintervening).The Messinikai Tolmi
(1982)3 All ER 335, (1982) 3 WLR 296, Ca (cited in Practice
And Procedure, Vol. 37, para 361), where the buyers of a ship
were ordered to sign a notice of readiness in order to enable
money secured by a confirmed letter of credit to be paid out
before the expiration of the letter. See also Acrow (Automation)
Ltd. Rex Chainbelt Inc (1971) 3 All Er 1175, (1971) I WLR
1676, CA. Puddephat v. Leith (1916) I Ch 200, where a
shareholder was ordered to exercise voting rights in
accordance with a contractual undertaking (Greenwell v.
Porter (1902) I Ch 530, where an injunction was granted
restraining shareholders from voting contrary to their
undertakings): Bourne v. Me Donald, (1950) 2 Kb 422, (1950)
2 All Er 183, Ca, where the defendant was ordered to carry out
his contractual undertaking to build a fence in an action
commenced in a country Court but not within the Court's
statutory jurisdiction relating to specific performance."
116. In Chave v. Breamer, 1976 Q.B. 76, Rosekill learned Judges
said "In principle contracts are made to be performed and not to
be avoided according to whims of the market fluctuations where
there is a free choice between the two possible constructions of a
ARB. A. (COMM.) 12/2017 Page 18
contract, I think the Court should tend to prefer the construction
which will infer performance and not encourage avoidance of
contractual obligations."
23. In the present case, the respondent has clearly made out a case
which falls in the exception to the rule as provided in Section 14(1)(a) of
the Specific Relief Act, 1963.
24. Similarly, reliance of the appellant on Section 14(1)(c) of the
Specific Relief Act, 1963 is also ill-founded. In the License Agreement,
there is a specific prohibition on the appellant from terminating the
agreement "except" in the case of three consecutive defaults in the
payment of the license fee by the respondent. In view of the prohibition,
it cannot be said that the agreement is determinable by its very nature.
This Court in Upma Khanna & Anr. (Supra) after analyzing Section
14(1)(c) of the Act has held as under:-
"15. What is the meaning of the expression: a contract which is in
its nature determinable.
16. The New Shorter Oxford English Dictionary defines
"determinable" to mean, if used as an adjective, fixed, definite. As
a general meaning, to mean: "liable to come to an end". The
dictionary by Jowitt's, Second Edition explains determinable: "an
interest is said to determine when it comes to an end, whether by
limitation, efflux of time, merger, surrender or otherwise". Thus, it
is possible to argue that for whatever reasons it may be the cause
for, if an interest comes to an end by efflux of time, a contract
would be determinable in nature. This would be an argument in
support of the appellants, and as urged.
17. But, the argument overlooks the concept of a fault liability and
a fault effect and a no fault liability and a no fault effect. It
ARB. A. (COMM.) 12/2017 Page 19
overlooks the point that one should not rush to conclusions. Clause
(c) uses the expression "in its nature determinable" and does not
throw any light whether the determination contemplated embraces
a fault effect determination.
18. If a defence by a contracting party that the sufferance of the
default and hence the determination of the contract is to be
accepted, it would amount to allowing the party committing the
wrong to take advance of its own neglect and this would ex-facie
not be acceptable to a court of equity."
25. In fact, Clause 22.4 of the License Agreement would also amount
to a negative covenant, which can be enforced under Section 42 of the
Specific Relief Act, 1963. In M/s Gujarat Bottling Co. Ltd. and others v.
Coca Cola Company and others (1995) 5 SCC 545, Supreme Court has
held as under:-
"47. In this context, it would be relevant to mention that in the
instant case GBC had approached the High Court for the
injunction order, granted earlier, to be vacated.
Under Order 39 of the Code of civil procedure, jurisdiction of the
Court to interfere with an order of interlocutory or temporary
injunction is purely equitable and, therefore, the Court, on being
approached, will, apart from other considerations, also look to the
conduct of the party invoking the jurisdiction of the court, and may
refuse to interfere unless his conduct was free from blame. Since
the relief is wholly equitable in nature, the party invoking the
jurisdiction of the Court has to show that he himself was not at
fault and that he himself was not responsible for bringing about
the state of things complained of and that he was not unfair or
inequitable in his dealings with the party against whom he was
seeking relief. His conduct should be fair and honest. These
considerations will arise not only in respect of the person who
seeks an order of injunction under Order 39 Rule 1 or Rule 2 of the
CPC, but also in respect of the party approaching the Court for
ARB. A. (COMM.) 12/2017 Page 20
vacating the ad-interim or temporary injunction order already
granted in the pending suit or proceedings.
48. Analyzing the conduct of the GBC in the light of the above
principles, it will be seen that GBC, who was a party to the 1993
Agreement, has not acted in conformity with the terms set out in
the said agreement. It was itself, prima facie, responsible for the
breach of the agreement, as would be evident from the facts set out
earlier. Neither the consent of Coca Cola was obtained for transfer
of shares of GBC nor was Coca Cola informed of the names of
persons to whom the shares were proposed to be transferred. Coca
Cola, therefore, had the right to terminate the agreement but it did
not do so. On the contrary, GBC itself issued the notice for
terminating the agreements by giving three months notice.
49. It is contended by Shri Nariman and in our opinion, rightly,
that the GBC, having itself acted in violation of the terms of
agreement and having breached the contract, cannot legally claim
that the order of injunction be vacated particularly as the GBC
itself is primarily responsible for having brought about the state of
things complained of by it. Since GBC has acted in an unfair and
inequitable manner in its dealings with Coca Cola, there was
hardly any occasion to vacate the injunction order and the order
passed by the Bombay High Court cannot be interfered with not
even on the ground of closure of factory, as the party responsible,
prima facie, for breach of contract cannot be permitted to raise
this grievance."
26. Reliance of the petitioner on the judgment of the Supreme Court in
Indian Oil Corporation Ltd (Supra) and of this Court in Planet M Retail
Ltd. (Supra) also cannot be accepted. In both Indian Oil Corporation Ltd
and Planet M Retail Ltd. the contract provided for a right in the parties to
terminate the agreement on giving a notice without cause. As noted
above, in view of Clause 22.4 of the agreement, in the present case such a
right cannot be said to be vested in the appellant.
ARB. A. (COMM.) 12/2017 Page 21
27. In Ram Sarup Gupta (Dead) by Lrs. (Supra), Supreme Court after
analyzing Section 60 of the Easement Act, 1882 has held that, apart from
the two circumstances mentioned in the said section, there may be a case,
where the grantor of the license may enter into an agreement with the
licensee making the license irrevocable. Present may be one such case. In
Corporation of Calicut v. K. Sreenivasan (2002) 5 SCC 361, Supreme
court has held as under:-
"16. It is true that a licensee does not acquire any interest in the
property by virtue or grant of licence in his favour in relation to
any immovable property, but once the authority to occupy and use
the same is granted in his favour by way of licence, he continues to
exercise that right so long the authority has not expired or has not
been determined for any reason whatsoever, meaning thereby so
long the period of licence has not expired or the same has not been
determined on the grounds permissible under the contract or law.
Occupation of the licensee is permissive by virtue of the grant of
licence in his favour, through he does not acquire any right in the
property and the property remains in possession and control of the
grantor, but by virtue of such a grant, he acquires a right to
remain in occupation so long the licence is not revoked and/or he
is not evicted from its occupation either in accordance with law or
otherwise."
28. In the present case, prima facie it does not appear that the
agreement has been terminated in accordance with Clause 22.4 of the
License Agreement. The respondent, therefore, is entitled to a relief of
injunction as granted by the Arbitrator.
29. In view of the above, I find no merit in the present appeal and the
same is accordingly dismissed, with no order as to costs.
ARB. A. (COMM.) 12/2017 Page 22
30. I may hasten to add that any of my above observations would not
bind or influence the Arbitrator while adjudicating the disputes between
the parties on their merit.
NAVIN CHAWLA, J.
MARCH 20, 2018/Rekha/rv ARB. A. (COMM.) 12/2017 Page 23