Bombay High Court
Pepsico India Holding Pvt.Ltd vs Nishiland Park Ltd on 8 August, 2013
Author: S.C. Gupte
Bench: D.Y.Chandrachud, S.C. Gupte
This Order is modified/corrected by Speaking to Minutes Order
sat 1/9 arbp 521-2012
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 521 OF 2012
IN
ARBITRATION PETITION NO. 788 OF 2010
Pepsico India Holding Pvt.Ltd. ..Petitioner
vs
Nishiland Park Ltd. ..Respondent
.....
Mr.Gautam Ankhad with Mr.Ajay Panicker i/b. M/s.Ajay Law Associates for the
Petitioner.
Mr. I.M. Chagla, Senior Advocate with Mr.Riaz Chagla i/b. Mr.Rajeev V. Talasikar
for the Respondent.
ig .....
CORAM : DR.D.Y.CHANDRACHUD, AND
S.C. GUPTE, JJ.
JUDGMENT RESERVED ON : 01 AUGUST 2013
JUDGMENT PRONOUNCED ON : 08 AUGUST 2013
ORAL JUDGMENT (PER S.C. GUPTE, J.) :
1 The appeal arises from an order of a learned Single Judge setting aside and partially modifying an arbitration award.
2 The Appellant runs and manages a water park called "Nishiland".
The Respondent is a soft drinks produces, engaged in the business of manufacture and sale of beverages, inter alia, under the brand name 'Pepsi'. On 6 February 1998, the Appellant and Respondent entered into an agreement ("the 1998 Agreement") whereby the Appellant granted an exclusive licence to the Respondent to sell/promote Pepsi products at Nishiland for a licence fee of Rs.
47 Lac for a period of 3 years upto 17 January 2001. As a part of the consideration, the agreement also required the Respondent to promote Nishiland ::: Downloaded on - 27/08/2013 21:16:08 ::: This Order is modified/corrected by Speaking to Minutes Order sat 2/9 arbp 521-2012 by advertising its inauguration on 50 truck backs for at least 30 days and publicize monthly events held at Nishiland on 25 truck backs for 15 days for each event. It is the case of the Appellant that before the expiry of the 1998 Agreement, the parties re-negotiated the contract and a new agreement dated 1 February 1999 was entered into between the parties ("the 1999 Agreement"), whereunder the licence fee payable by the Respondent was reduced to Rs. 5 Lac per annum and the method of promotion was altered to affixation of suitable labels advertising Nishiland on 3 Lac PET non-returnable bottles of 1.5 litres or 500 ml. It is the case of the Appellant that the 1999 Agreement was orally extended for a further period of 3 years i.e. upto 31 January 2003. The Appellant claims that the Respondent has failed to pay a substantial part of licence fees or promote Nishiland as required under the 1999 Agreement so renewed. The Respondent disputes the execution of the 1999 Agreement and its renewal and denies the claims. The disputes were referred to arbitration by this court appointing a sole arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 ("the Act").
3 The Sole Arbitrator accepted the Appellant's case of both execution and renewal of the 1999 Agreement. The Arbitrator awarded licence fees, damages for non-promotion of the water park by the Respondent and the costs of the arbitration to the Appellant.
4 The learned Single Judge, in a petition under Section 34 of the Act, set aside the award of licence fees as well as damages for non-promotion of the water park. As for the award of costs of the arbitration, the learned Single Judge ordered the costs quantified by the Arbitrator to be shared equally by both the ::: Downloaded on - 27/08/2013 21:16:08 ::: This Order is modified/corrected by Speaking to Minutes Order sat 3/9 arbp 521-2012 parties. The learned Single Judge held that the Appellant failed to prove that the 1999 Agreement was executed between the parties or was extended for a further period of 3 years. The learned Single Judge held that the claim was barred by the law of limitation. The learned Single Judge also found fault with the assessment of damages by the Arbitrator and held that the principle and formula used by the Arbitrator for such assessment were wholly unsustainable. The award was thus held by the learned Single Judge to be contrary to both the contract and law and liable to be set aside.
5Appeal:
The Appellant made the following submissions at the hearing of the
(i) The Arbitrator's conclusion regarding the 1999 Agreement and its renewal was correct, as it was acted upon by the parties (as shown in the various communications addressed by the Appellant to the Respondent), and could not have been faulted by the Learned Single Judge;
(ii) The claims were within time and the interference of the learned Single Judge in that behalf was not justified; and
(iii) The evidence for the measure of damages produced by the Appellant was the best that could be produced in the facts of the case and ought to be accepted in proof of damages.
6 Counsel for the Respondent, on the other hand, submitted that:
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(i) The 1999 Agreement was not executed between the parties, as the Respondent never signed it;
(ii) There is no evidence that the parties have acted on it; none of the communications in this behalf has been addressed by the Appellant to the Respondent's address of communication referred to in the 1998 Agreement or the alleged 1999 Agreement; as a matter of fact, the entire correspondence is addressed to the C & F Agent of the Respondent and is not received by the Respondent at any time;
(iii) In any event, there is absolutely no case of renewal of the alleged 1999 Agreement;
(iv) The claims are barred by limitation; and
(v) There is no proof whatsoever of loss or damages incurred by the
Appellant for the alleged non-promotion of the Appellant by the Respondent.
7 The principal questions for consideration in the matter concern (A) the execution of the 1999 Agreement, (B) the renewal thereof, (C) the bar of limitation, if any and (D) the measure of damages.
8 Though there is no evidence of the execution of the 1999 Agreement by the Respondent, the award of the Sole Arbitrator demonstrates that there is some evidence that the parties have acted on the 1999 Agreement.
To that extent it may well be said that the Respondent has by its conduct ::: Downloaded on - 27/08/2013 21:16:08 ::: This Order is modified/corrected by Speaking to Minutes Order sat 5/9 arbp 521-2012 assented to the 1999 Agreement. The conclusion of the Arbitrator in this behalf, being thus based on some evidence, could not have been faulted by the learned Single Judge in a petition under Section 34 of the Act.
9 However, as for the purported renewal of the 1999 Agreement, there is no evidence whatsoever except a solitary letter dated 26 February 2001 addressed by the Appellant to the Respondent. The letter is addressed at the address of the Agent of the Respondent in Thane and not at the address of communication of the Respondent mentioned in the 1999 Agreement. Unilateral addressing of a communication (purportedly recording an oral renewal) at an unauthorized address of the Respondent there being no proof that the Respondent was aware of such communication, is no evidence of renewal of a written contract. The conclusion of the Sole Arbitrator that the 1999 Agreement was renewed for a period of 3 years solely on the basis of this communication cannot be said to be a possible view. The learned Single Judge was right, in the premises, in setting aside the award as regards the claims under the extended period of the 1999 Agreement.
10 The claims of licence fees and damages for non-promotion of the water park by affixing labels on PET bottles of Pepsi under the 1999 Agreement, which expired on 31 January 2000, are clearly barred by limitation even if one were to go by the purported letter dated 16 January 2004 of the Appellant as the letter of invocation of arbitration reference. (It was the Respondent's case though, that the letter of 16 January 2004 was not addressed at the Respondent's address of communication and not received by the Respondent.) Even the so called part payments of Rs. 3 Lac and Rs. 2 Lac on 9 March 2000 ::: Downloaded on - 27/08/2013 21:16:08 ::: This Order is modified/corrected by Speaking to Minutes Order sat 6/9 arbp 521-2012 and 16 March 2000 under the 1999 Agreement, respectively, cannot save limitation. The learned Single Judge cannot be said to be in error in setting aside the award as regards the payments allegedly due under the original period of the 1999 Agreement on the ground of bar of limitation.
11 That brings us to the last, and perhaps the most important, aspect of the challenge to the impugned award, namely, the measure of damages considered by the Sole Arbitrator.
12The Appellant has claimed a sum of Rs. 180 Lac per year for four years. The Appellant has produced a witness, said to be an expert, who opined that if the Respondent had advertised the name of the Appellant's water park on 3 lac non-returnable PET bottles of 1.5 ltr. or 500 ml., the same would have generated additional 3 to 4 lac visitors to the water park annually. The witness relied on an estimate that average 10 persons were expected to see the Pepsi bottle bought by the guest at the water park and applying a thumb rule of 10% conversion, at least 10% of them were expected to visit the park. Affixation of labels of Nishiland on 3 lac bottles would boost the potential visitorship by 3 lac people per annum. Based on this analysis, the witness justifies the claim on account of loss of business to the tune of Rs. 180 lac per year. The four years' loss is thus worked out to Rs. 720 lac. The witness has also given a comparative statement of data showing turnover and advertisement spending by M/s Hindustan Lever Ltd., M/s Videocon Industries Ltd. and the Respondent and tried to establish that quantum of sales/turnover has a direct link with advertisement spending. According to this witness, the expected return from advertising expenditure by way of enhanced turnover is taken as 10 times the ::: Downloaded on - 27/08/2013 21:16:08 ::: This Order is modified/corrected by Speaking to Minutes Order sat 7/9 arbp 521-2012 expenditure.
13 The Sole Arbitrator, whilst holding that "the insertion of the labels on the 3 lac bottles of Pepsi by the Respondent was definitely intended to boost the turnover" of the Appellant, "though how much it would have boosted, cannot be ascertained with exactitude", proceeded to consider the measure of damages in the following terms.
"63. I have given serious consideration to the question of assessment of damages. Admittedly, the Claimant has lost a sum of around 10 lakh per year on account of reduction of the license fee in lieu of the insertion of labels of its park on three lakh bottles of Pepsi by the Respondent. According to Mr.Gulrays, the expert witness, the expected return from such expenditure by way of enhanced turnover is generally taken as 10 times of the expenditure. If that is taken, the damages can be estimated at Rs.100 lakh per year and 400 lakh for 4 years. If the multiplier is reduced to 5, the figure of loss will be about Rs.50 lakh per year and Rs.200 lakh for 4 years. If the assessment of the claimant is taken, it would be 180 lakh per year for 4 years. If and average of all these figures i.e. Rs.100 lakh, 50 lakh and 180 lakh is taken, it comes to Rs.110 lakh per year and Rs.440 lakh for 4 years. To be on the safer side, I take the lowest of the above four figures, i.e. Rs.50 lakh per year. At this rate, the quantum of loss suffered during the 4 years period will come to Rs.200 lakh. In the premises, I hold that the Claimant is entitled to a sum Rs.200 lakh on account of damages for the failure of the Respondent to insert the labels on 3 lakh bottles of Pepsi per year as stipulated in the 1999 Agreement. The Claimant has claimed interest at the rate of 18 per cent per annum. I, however, allow interest on the above amount at the rate of 12 per cent per annum from 1st February, 2004, i.e. the first day of the month preceding the date of the commencement of the arbitration, till the date of the award." "
14 The three estimates of loss, i.e. (i) 10 times the expenditure working out to Rs. 100 lac per year, (ii) reducing the multiplier to 5 the loss ::: Downloaded on - 27/08/2013 21:16:08 ::: This Order is modified/corrected by Speaking to Minutes Order sat 8/9 arbp 521-2012 calculated as Rs. 50 lac per year and (iii) the loss of Rs. 180 Lac according to the Appellant, are nothing but a guesswork. In the first place, the assumption that the Appellant has lost Rs. 10 lac per year on account of reduction of licence fees in lieu of insertion of labels on 3 lac bottles and therefore, incurred an advertisement expenditure of Rs. 10 lac per year, is itself wholly arbitrary. The multipliers of 10 and 5 are further instances of figments of imagination and can have absolutely no basis or justification. The estimate of Rs. 180 lac per annum, based on the thumb rule of 10% as explained by the witness is yet another guesswork. Averaging of these three guessworks to work out a mean figure of Rs. 110 lac per year, cannot take the case any further. The damages granted can only be termed as imaginary and have no justification whatsoever in law. The award based on such an estimate cannot be said to be a possible view. The learned Single Judge was perfectly justified in holding the claim to be hypothetical and terming the testimony as 'based on assumption and presumption', and 'without actual material on record'. The award of damages is rightly set aside by the learned Single Judge.
15 The Appellant has cited the cases of P. R. Shah, Shares & Stock Broker (P) Ltd. V/s M/s.B. H. H. Securities (P) Ltd. 1, M/s.Kwality Manufacturing Corporation V/s Central Warehousing Corporation 2, and State of Rajasthan V/s Puri Construction Co. Ltd. 3 to contend that it is not permissible to the court to sit in appeal over an award by re-assessing or re-
appreciating evidence, or set aside an award because, on the court's own assessment, an alternative view is possible. This is not a case where the learned Single Judge has either re-assessed or re-appreciated the evidence or held an 1 AIR 2012 SC 1866 2 AIR 2009 SC (Supp) 2276 3 (1994) 6 SCC 485 ::: Downloaded on - 27/08/2013 21:16:09 ::: This Order is modified/corrected by Speaking to Minutes Order sat 9/9 arbp 521-2012 alternative view as possible. The three cases cited by the Appellant are of no assistance to the Appellant.
16 In that view of the matter, there is no merit in the Appeal and the same is dismissed with no order as to costs.
(Dr. D.Y.Chandrachud, J.)
ig (S.C. Gupte, J.)
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