Delhi High Court
Beoworld Private Limited vs Bang & Olufsen Expansion on 28 July, 2020
Equivalent citations: AIR 2021 (NOC) 213 (DEL.), AIRONLINE 2020 DEL 1060
Author: Rajiv Shakdher
Bench: Rajiv Shakdher
$~J-1
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgement reserved on 18.06.2020
Judgement pronounced on 28.07.2020
I.A. No. 3837/2020 & I.A. No. 4434/2020
in
+ CS(COMM) 122/2020
BEOWORLD PVT. LTD .....Plaintiff
Through Mr. Tanmaya Mehta, Ms. Gunjan
Tejwani, Mr. Gaurav Gupta, and Mr.
Nikhil Kohli, Advs.
versus
BANG & OLUFSEN EXPANSION .....Defendant
Through Ms. Nandita Rao and Mr. Jivesh
Chandrayan, Advs.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
RAJIV SHAKDHER, J.:
I.A. No. 3837/2020 & I.A. No. 4434/2020 Preface: -
1. These are the two applications filed before me by the plaintiff as well as the defendant. I.A. No. 3837/2020 has been filed by the plaintiff under Order XXXIX Rule 1 and 2 of the Code of Civil Procedure, 1908 [in short "CPC"] while I.A. No. 4434/2020 has been filed by the defendant under Order XXXIX Rule 4 of the CPC for vacating the interim order dated 11.05.2020.
1.1 Order dated 11.05.2020 was a conditional order in as much as it Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 1 of 28 KUMAR RAI signing date29.07.2020 10:19 restrained the defendant, in effect, from entering into an agreement with another person or an entity qua the subject territory i.e. India till the next date of hearing subject to the plaintiff furnishing an unconditional bank guarantee of a nationalized bank amounting to Euro 1,134,430/-. In other words, parties were directed to maintain status-quo provided that the aforementioned condition was met.
1.2 This order has continued up until now. Concededly, the plaintiff has not furnished the bank guarantee, which, it voluntarily offered to furnish at the hearing held on 11.05.2020 with the avowed purpose of making a course correction.
2. The plaintiff, via its counsel Mr. Tanmaya Mehta, on 29.05.2020, expressed inability to furnish a bank guarantee due to financial difficulty.
However, to demonstrate its earnestness, a reference was made to the communication addressed to its bank i.e. Yes Bank.
3. Despite the plaintiff having, failed to comply with the condition based on which the interim order was passed in its favour, I decided to hear Mr. Mehta on the merits of the interlocutory application filed, on account of his insistence, that the plaintiff had a good chance of succeeding in the suit.
4. Therefore, let me briefly touch upon the broad contours of the action which has been preferred by the plaintiff.
Prefatory facts: -
5. The plaintiff entered into a Master Dealer Agreement dated 19.03.2014 [hereafter referred to as "MDA"] with the defendant. Under the MDA, the plaintiff was appointed as the exclusive dealer qua the products manufactured by the defendant in the subject territory i.e. India for an initial period of five (5) years.
Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 2 of 28 KUMAR RAI signing date29.07.2020 10:195.1 The MDA contained a renewal clause i.e. Clause 12.2 based on which the plaintiff asserts its right to have its tenure extended for another period of five (5) years.
5.2 Since the defendant terminated the MDA vide notice of termination dated 23.04.2020 [in short "Termination Notice"], the plaintiff has approached this Court with a suit for declaration, specific performance and mandatory injunction.
5.3 The plaintiff, inter alia, seeks a declaration that the Termination Notice is bad in law and is liable to be recalled and/or set aside. At this juncture, I must also indicate that the defendant vide communication dated 20.12.2018, had informed the plaintiff that it would not be renewing the MDA for the reason that it, generally, was wanting to update its agreements executed with its dealers globally.
5.4 It is in this context that, when, the MDA could not be renewed a Prolongation Agreement dated 02.09.2019 [hereafter referred to as the "PA"] was executed between them.
5.5 Therefore, the reliefs that have been sought by the plaintiff in the suit for declaration and specific performance are directed, both, towards the MDA as well as the PA.
5.6 It may also be pertinent to note that just before the expiry of the MDA, by efflux of time [which had an end date of 30.06.2019], not only was correspondence exchanged between the parties but also a Framework Agreement dated 26.07.2019 [hereafter referred to as "Framework Agreement"], was delivered, the terms of which, were found to be onerous by the plaintiff.
5.7 The plaintiff claims that while under the PA, it was required to Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 3 of 28 KUMAR RAI signing date29.07.2020 10:19 purchase from the defendant, products of a minimum value of Euro 1,400,000/- in the balance period available in the financial year 2019-2020, it purchased products worth Euro 634,447/- and placed orders worth Euro 1,600,000/-.
5.8 It is also averred by the plaintiff that via email dated 14.04.2020 it had conveyed to the defendant that in India lockdown had been extended throughout the country till 03.05.2020.
6. It is in this background that the plaintiff claims that the grounds given in the Termination Notice for bringing the MDA to an end i.e. that the business was not being carried out or that the minimum stock level of its products as provided in Clause 7.14 of the MDA was not available or that there was a failure to fulfil the annual minimum purchase obligation as set out in Clause 9.1 of the MDA, were not made out.
6.1 The plaintiff, accordingly, articulated its stand vis-à-vis the Termination Notice dated 23.04.2020 via its reply dated 29.04.2020. 6.2 Since parties failed to resolve the disputes between themselves, the plaintiff decided to approach this Court.
6.3 It would be pertinent to note that the condition provided in the order dated 11.05.2020, to furnish an unconditional bank guarantee by the plaintiff for an amount of Euro 1,137,430/- came about upon perusal of the contents of the Termination Notice.
6.4 As would be evident upon perusal of the said notice, the defendant had taken the position that in terms of Clause 7.14 read with Clause 9.1 of the MDA that the plaintiff's annual minimum purchase obligation for the financial year 2019-2020 stood at Euro 1,771,875/- and that after adjustment was made for the value of the product purchased by the plaintiff i.e. Euro Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 4 of 28 KUMAR RAI signing date29.07.2020 10:19 634,447.16/- there was a deficit of Euro 1,137,427.84/-. Since the plaintiff, via its counsel, had expressed its desire to continue the subsisting arrangement with the defendant, a voluntary offer was made to furnish an unconditional bank guarantee to demonstrate the plaintiff's bona fides in the matter.
Submissions on behalf of the plaintiff: -
7. Mr. Mehta, who, as noted above, appeared for the plaintiff made the following the following submissions.
i. As per Clause 9.1 of the MDA, the minimum purchase obligation which was placed on the plaintiff required it to purchase goods worth Euro 1 million with an increase of 12.5% in the subsequent years. Thus, although the plaintiff was required to purchase goods worth Euro 6.75 million over 5 years, it purchased goods more than Euro 8 million.
ii. Clause 10.1 of the MDA cast an obligation on the defendant to supply goods to the plaintiff once an order was raised in that behalf. Therefore, in the event, the defendant was unable to supply the goods, as ordered, within 90 days, the ordered quantity was required to be included in the minimum purchase obligation placed on the plaintiff under the MDA.
iii. The contention advanced on behalf of the defendant based on Clause 11.2 of the MDA that payment had to be made within 45 days of the shipment or that goods ordered were required to be dispatched only if the plaintiff furnished a bank guarantee or obtained a credit insurance policy did not comport with a mode and manner in which the transactions were carried out between the parties in the past 6 years.
Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 5 of 28 KUMAR RAI signing date29.07.2020 10:19The submission based on the provisions of Clause 11.2 was an afterthought and, therefore, does not even find a reference in the written statement or other pleadings filed on behalf of the defendant. If an averment had been made by the defendant in its pleadings, the plaintiff would have demonstrated the falsity of the assertion by referring to the fact that it had been furnishing a corporate guarantee in favour of the defendant.
iv. Under Clause 12.2 of the MDA, after the expiry of the initial period of 5 years, the defendant is mandatorily required to renew its tenure for another 5 years and that refusal to renew could only take place for "valid reasons". Valid reasons would be material breaches of the obligations cast under the MDA on the plaintiff. The defendant, in such a situation, was required to give at least 6 months prior notice. v. Because the plaintiff was hopeful of the MDA running tenure of 10 years, it had invested Euro 15 million towards the creation of channels and infrastructure for carrying of sales of defendant's products. vi. The Termination Notice which sets out "cessation of business" as one of the grounds is flawed. Firstly, there was no cessation of business by the plaintiff before 23.03.2020. Secondly, the closure of business after 23.03.2020 occurred on account of lockdown ordered by the Government of India and, hence, plaintiff's circumstances thereafter will come within the ambit of Clause 17.2 of the MDA which relieves parties of their respective obligations if circumstances occur which are beyond the control of parties.
vii. The submission advanced on behalf of the defendant that the plaintiff concealed the fact that defendant had issued an email dated Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 6 of 28 KUMAR RAI signing date29.07.2020 10:19 20.12.2018 wherein an intention was expressed that it would not renew the MDA on the ground that it was wanting to generally update such like agreements executed with other dealers was incorrect as a pleading to that effect had been made in paragraph 24 to 28 of the plaint and paragraph 8 of the interlocutory application i.e. I.A. No. 3837/2020.
viii. Besides this, on page 25 of the documents filed by the plaintiff, the relevant portion of the said email has been extracted. In any event, this email does not record any reasons, much less set out valid reasons, for not renewing the MDA. On the contrary, assurance was given via the said email that a revised draft agreement would be dispatched to the plaintiff.
ix. Furthermore, if the defendant was not desirous of renewing the arrangement then the PA would not have been executed. The PA was a temporary arrangement arrived at between the parties till such time a revised MDA was executed. This intention of the defendant also gets established by reference to that part of the said email whereby the plaintiff was asked to submit a business plan for the next 5 years. The defendant, in fact, via a subsequent email i.e. email dated 23.07.2019 called upon the plaintiff to submit its business plan for the next 5 years. Therefore, if the plaintiff, as alleged, had been in breach of its obligations the defendant would not have made such a request. x. It is relevant to note that email dated 20.12.2018 was authored by the same officer of the defendant i.e. one, Mr. Niels Moller Nielsen who gave a glowing commendation to the plaintiff as recently as on 04.06.2020.
Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 7 of 28 KUMAR RAI signing date29.07.2020 10:19xi. The plaintiff could not execute the revised draft [i.e. Framework Agreement] dated 26.07.2019 as the terms were onerous. The result was that while no business can be carried out between 01.07.2019 and 31.08.2019 the plaintiff incurred huge expenses. xii. After the execution of the PA i.e. on 02.09.2019 and till its expiration on 31.05.2020 the plaintiff purchased goods worth Euro 6,34,447/-, raised orders for goods worth Euro 1.6 million which were cancelled unilaterally by the defendant without furnishing any reasons. Furthermore, after the issuance of the Termination Notice, the plaintiff placed an order for goods worth Euro 8,70,000/-. Therefore, the plaintiff under the PA has placed orders of a value of Euro 3.1 million which is more than twice the minimum purchase obligation cast on it i.e. Euro 1.4 million.
xiii. Although the plaintiff had surpassed its minimum purchase obligation, given the lockdown ordered by the Government of India, it sent out an email dated 23.03.2020 seeking relaxation in the minimum purchase obligation by 30%. The defendant, however, unreasonably via a return email dated 24.03.2020 refused the request for relaxation as, according to it, the event i.e. COVID-19 did not fall within the purview of the force majeure clause. There was no reference to the alleged breaches of the MDA by the plaintiff in the defendant's reply dated 24.03.2020, although, in the written statement it has been averred that the plaintiff's breaches took place even before the lockdown on account of COVID-19 kicked in.
xiv. The Termination Notice was premeditated and contrary to the facts.
Not only did the plaintiff discharge its obligation to purchase the Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 8 of 28 KUMAR RAI signing date29.07.2020 10:19 prescribed minimum value of goods offered by the defendant, but also, it held, in stock, goods worth Euro 2,00,000/- which were more than the prescribed minimum stock level. The allegation that the plaintiff had closed its stores/outlets was also false. The Delhi store located in Emporio Mall was temporarily closed in January 2020 to undergo scheduled maintenance and renovation. The Delhi store along with the Mumbai store located in Phoenix Mall closed in March 2020 due to the lockdown ordered by the Government of India. Thus, the ground taken for termination of the MDA that there was a cessation of business was false and unsustainable. xv. The defendant had hardly any business in India. It is because of the plaintiff's efforts that the defendant has acquired a foothold in India. At present, the defendant has 6 stores in India. The plaintiff, through its hard work, has been able to obtain a single order of 20,000 products from a Multi-National Corporation i.e. Hewlett Packard [in short "HP"]. Therefore, the defendant's refusal to renew the MDA is illegal. The defendant has adopted predatory practices qua the plaintiff because it is a "small local dealer".
xvi. Given the aforesaid circumstances and the nature of the transactions, it cannot be said that the MDA and PA are determinable and, hence, no relief under Section 14 of the Specific Relief Act, 1963 [in short "SRA"] can be granted.
xvii. Only those contracts are determinable which can be terminated without cause by one of the two parties to the contract. In support of this submission, reliance was placed on the following judgements.
Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 9 of 28 KUMAR RAI signing date29.07.2020 10:19a) KSL & Industries Ltd. vs. National Textiles Corporation Ltd., 2012 SCC OnLine Del 4189. [in short "KSL & Industries Ltd. case"]
b) Jumbo World Holdings Limited vs. Embassy Property Developments Private Limited, 2020 SCC OnLine Mad 61. [in short "Jumbo World Holdings Limited case"]
c) T.O. Abraham vs. Jose Thomas & Ors., 2017 SCC OnLine Ker 19872. [in short "T.O. Abraham case"]
d) Narendra Hirawat and Co. vs. Sholay Media Entertainment Pvt.
Ltd. and Anr., 2020 SCC OnLine Bom 391. [in short "Narendra Hirawat case"] xviii. The aforementioned judgements distinguish the decisions rendered in Indian Oil Corporation Ltd. vs. Amritsar Gas Service and Others, (1991) 1 SCC 533 [in short "Amritsar Gas Service case"]; Rajasthan Breweries vs. Stroh Brewery Co., AIR 2000 Del 450 [in short "Rajasthan Breweries case"]; and Judgement dated 16.03.2020, passed in CS (COMM) 732/2017, titled M/S Paul Sales Pvt. Ltd. vs. M/S Hari Darshan Sevashram Pvt. Ltd.
xix. The plaintiff, despite its best efforts, was unable to furnish to the bank guarantee, although, an endeavour in that behalf had been made. Reference in that behalf was made to Yes Bank's email dated 11.06.2020.
xx. Although the lockdown has been lifted, there is very little footfall in the malls. The demand for luxury goods is especially low. xxi. The assertion of the defendant that it had lost confidence in the plaintiff is an afterthought and is not borne out from the Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 10 of 28 KUMAR RAI signing date29.07.2020 10:19 correspondence exchanged between the parties before the filing of the written statement. There is no reference to this even in the termination notice. Since the defendant has raised this contention for the first time in the written statement, the Court should discard the same. Reliance in this behalf was placed on the following judgements.
a) Mohinder Singh Gill vs. Chief Election Commr., (1978) 1 SCC 405. [in short "Mohinder Singh Gill"]
b) T.P. Senkumar vs. Union of India, (2017) 6 SCC 801. [in short "T.P. Senkumar"]
c) Dipak Babaria vs. State of Gujarat, (2014) 3 SCC 502. [in short "Dipak Babaria"] xxii. There is no remedy of specific performance under the Danish law and, therefore, if the plaintiff is relegated to the jurisdiction of courts in Denmark it would be denuded of its right to seek enforcement of the MDA.
xxiii. Parties having, agreed to the jurisdiction of Indian Courts in terms of Clause 18.3 of the MDA the defendant cannot now contend that this Court has no jurisdiction. Reliance in this behalf was placed on the following judgements.
a) Spentex Industries Ltd. v. State Bank of India, 2018 SCC OnLine Del 8763.
b) Hadia Abdul Latif Jameel Co. Ltd. v. Punj Lloyd Ltd., 2017 SCC OnLine Del 6933.
xxiv. The balance of convenience is also in favour of the plaintiff since it is incurring a cost of Rs. 30,00,000/- per month with virtually no sales only to keep the defendant's brand alive. Besides this, the plaintiff Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 11 of 28 KUMAR RAI signing date29.07.2020 10:19 holds an inventory, as indicated above, worth Euro 2,00,000/- which it would not be able to sell if it ceases to be the defendant's dealer. The termination of dealership will cause not only irreparable damage to the plaintiff on account of monies invested by it but would also impact the lives of persons [which are 50 in number] employed by it.
Submissions on behalf of the defendant: -
8. On the other hand, Ms. Nandita Rao, who appeared for the defendant, made the following broad submissions.
i. The plaintiff had failed to comply with the assurance given to the Court on 11.05.2020, which is, that it would furnish a bank guarantee valued at Euro 1,137,430.00 [rounded off from EUR 1,137,427.84]. At the plaintiff's request, the order dated 11.05.2020 was modified and it was provided that the bank guarantee instead of favouring the Registrar General of this Court could be drawn up in favour of the defendant only to enable the plaintiff to save costs. Despite such assurance and indulgence being given by the Court, the plaintiff failed to come through and, hence, the injunction ought not to continue in its favour being in the nature of equitable relief.
ii. As per Clause 12.2 of the MDA, either party could take a decision not to renew the same provided it notified the other party via registered mail, of its decision. The decision, though, had to be predicated on valid grounds and communicated 6 months before the expiration of the initial term of the MDA. The defendant's decision not to renew the MDA was communicated via email dated 20.12.2018. The said email stated its reasons for not renewing the MDA, which was, on Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 12 of 28 KUMAR RAI signing date29.07.2020 10:19 account of a requirement to update such like agreements executed with dealers across jurisdictions. The condition prescribed in Clause 12.2 of the MDA having been fulfilled the plaintiff's contention that it had an automatic right of renewal was flawed. There is no challenge by the plaintiff to the email dated 20.12.2018.
iii. The grounds given in the Termination Notice are sustainable. The plaintiff failed to open the stores/outlets despite subsistence of the PA. The plaintiff has not placed on record any rent receipts or the record concerning payment of salaries and wages to its staff in support of its claim that it has been incurring expenses to keep alive the brand of the defendant. Furthermore, the plaintiff, as asserted by the defendant, has failed to meet the minimum purchase obligation and also failed to maintain a minimum stock level.
iv. Even as per the plaintiff, the minimum purchase obligation placed upon it was Euro 1.4 million. As against this, the plaintiff had raised orders and, thus, received goods of a value of Euro 6,34,447.16/- out of which goods worth Euro 4,89,125/- were purchased to fulfil an order raised by HP i.e. a global partner of the defendant. Thus, the plaintiff's efforts, in reality, were made only qua goods worth Euro 1,45,332.16/-.
v. The plaintiff's contention that orders raised, which were cancelled, should be factored in to ascertain as to whether it had fulfilled the minimum purchase obligation under the MDA is erroneous. A holistic reading of Clause 10.1, 10.2 and 11.2 of the MDA would show that only when orders are 'agreed to' and 'postponed' do they form part of Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 13 of 28 KUMAR RAI signing date29.07.2020 10:19 the minimum purchase obligation. 'Cancelled' and 'unconfirmed' orders are not counted towards minimum purchase obligation. vi. The plaintiff raised an order of Euro 8,70,000/- after issuance of the Termination Notice. Had the plaintiff been serious about the order, he would have also provided either a credit insurance policy or a bank guarantee as required under Clause 11.2 of the MDA. The order raised was not genuine and thus cannot be factored in to ascertain as to whether or not the plaintiff met the minimum purchase obligation. vii. The MDA and PA are based on personal qualifications of the plaintiff, both financial and commercial. Since there is a loss of confidence, the defendant cannot be forced to continue the arrangement it had with the plaintiff. The plaintiff's objection is to destroy the market of the defendant so that it is unable to do business in India. viii. The plaintiff will not suffer any financial harm on termination of the MDA since as per the terms of Clause 13.1 and 13.5 of the MDA the stock lying with the plaintiff can be repurchased by the defendant. ix. The plaintiff has attempted to mislead the Court in stating that it has in stock goods worth Euro 2,00,000/-. The falsity of this claim is established by the fact that in the relevant period it had made sales worth Euro 1,45,332.16/- exclusive of the goods sold to HP. Thus, even if the plaintiff had not made a single sale to customers other than HP, it could not have had in stock goods worth Euro 2,00,000/-. x. The defendant despite the loss of faith in the plaintiff had made a without prejudice offer for an amicable settlement which envisaged extension of dealership qua the subject territory i.e. India for 6 months, albeit, on a non-exclusive basis. This offer was made to give Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 14 of 28 KUMAR RAI signing date29.07.2020 10:19 the plaintiff a chance to establish its bona fides. The plaintiff, however, refused the offer made by the defendant.
xi. Assuming, without admitting, the termination of the MDA as alleged is illegal, the plaintiff's remedy would lie in claiming damages. On the other hand, if the defendant was forced to continue its arrangement with the plaintiff it would have no avenue for claiming compensation in respect of persistent default and mala fide conduct of the plaintiff. Furthermore, the continuation of the plaintiff's dealership under an interim order of this Court would create uncertainty for both parties. xii. Clause 18.1 of the MDA states that the Danish law would govern the said agreement. The Danish law bars the grant of relief of specific performance; a fact which is known to the plaintiff. xiii. Clause 18.2 vests exclusive jurisdiction in Danish courts. The plaintiff, in ignorance of this clause, has sought to trigger the jurisdiction of this Court by making averments to the effect that its registered office and the store/outlet opened by it are located within the jurisdiction of this Court. The submission made, in this behalf, on behalf of the plaintiff is flawed as the defendant is located in Denmark. Contrary to the submission made on behalf of the plaintiff, Clause 18.3 of the MDA which gives the discretion to the defendant to take legal action against the plaintiff where it is located does not set at nought Clause 18.2 of the MDA. Clause 18.2 is a valid clause which aligns with the provisions of CPC.
xiv. In support of the submissions, reliance was placed by Ms. Rao, on the following judgements.
Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 15 of 28 KUMAR RAI signing date29.07.2020 10:19a) Indian Oil Corporation Ltd. vs. Amritsar Gas Service and Others, (1991) 1 SCC 533.
b) Rajasthan Breweries vs. Stroh Brewery Co., AIR 2000 Del 450.
c) Judgement dated 12.06.2020, passed in OMP (I) (COMM) 254/2019, titled Overnite Express Limited vs. Delhi Metro Rail Corporation.
d) Judgement dated 16.03.2020, passed in CS (COMM) 732/2017, titled M/S Paul Sales Pvt. Ltd. vs. M/S Hari Darshan Sevashram Pvt. Ltd.
e) Mauritius Commercial Bank Limited vs. Hestia Holdings Limited Sujana Universal Industries Limited, (2013) EWHC 1328 (Comm.).
Analysis and Reasons: -
9. I have heard learned counsel for the parties and perused the record.
10. For the adjudication of the captioned applications, I will assume, as contended by the plaintiff, that this Court has jurisdiction to deal with the action. The reason I say so is as arguments were primarily addressed by counsel for the parties as to whether interim order dated 11.05.2020 as modified by order dated 22.05.2020 should continue or not. 10.1 Furthermore, the defendant has filed an application under Order VII Rule 10 of the CPC i.e. I.A. No. 4174/2020 for return of the plaint on the ground that the Court has no jurisdiction to entertain the suit given the provisions of Clause 18 of the MDA. Pleadings in the said application are complete and arguments on the same are yet to be heard by me.Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 16 of 28 KUMAR RAI signing date29.07.2020 10:19
11. That being said, what emerges from the record qua which there is hardly any dispute is as follows.
i. The parties executed the MDA on 19.03.2014 under which the plaintiff was appointed an exclusive dealer for the subject territory i.e. India for an initial period of 5 years.
ii. The MDA by efflux of time expired on 30.06.2019. iii. Before the 5-year period came to an end, the defendant via an email dated 20.12.2018, informed the plaintiff that it did not wish to renew the MDA for the reason that it was in the process of updating, globally, all dealer agreements including the MDA entered into with the plaintiff. The defendant went on to state that the updated dealer agreement was under preparation and as soon it was ready it would present the "proposed agreement and the set up for the future" to the plaintiff. The defendant emphasized that the future set up will also depend on the plaintiff's "ability and willingness" to further develop the market.
iii (a) It is in this context that the defendant asked the plaintiff to submit its 5-year business plan including its strategy and how it intended to execute the said plan of furthering the defendant's market position in India.
iv. On 26.07.2019, the defendant presented its framework/proposed agreement [i.e. revised MDA] to the plaintiff. The plaintiff, however, did not execute the same as it found the terms to be onerous. v. The parties, while seeking to firm up the terms of the new agreement, on 02.09.2019, entered into a PA to extend the initial expiration date Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 17 of 28 KUMAR RAI signing date29.07.2020 10:19 under the MDA. The PA provided that the initial expiration date would stand extended till such time parties executed a mutually agreed "new agreement". The recital in the PA was indicative of the fact that the parties hoped to execute the new agreement by 01.11.2019. Furthermore, it provided that provisions of Clauses 18.1 to 18.3 of the MDA would apply mutatis mutandis to the PA as well. A perusal of the recital in the PA shows that there were accounts to be settled between the parties. Besides this, the plaintiff committed itself to purchase at the very minimum goods worth Euro 1.4 million from the defendant in the financial year 2019-2020.
vi. On 23.04.2020 the defendant served the Termination Notice on the plaintiff with which pictures were attached of September 2019 and March 2020 to establish that the stores/ outlets operated by the plaintiff were closed.
vii. The defendant, thus, adverted to Clauses 2.7, 3.1.2 and 7.2 to make out a case for termination of the agreement on the ground of cessation of business under Clause 12.4 of the MDA. According to the defendant, the plaintiff's stores/outlets were not open for business for several months causing harm to the defendant's interests and thereby violating the terms of the MDA. There is a reference in the very same notice to the fact that the plaintiff had failed to maintain a minimum stock level as provided in Clause 7.14 and fulfil minimum purchase obligation. It was indicated that the minimum purchase obligation for the financial year 2019-2020 after factoring in an increase of 12.5% as per Clause 9.1 of the MDA was Euro 17,71,875/-. Therefore, according to the defendant, after adjustments for the products Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 18 of 28 KUMAR RAI signing date29.07.2020 10:19 purchased by the plaintiff worth Euro 6,34,447.16/- during the financial year 2019-2020 was made the minimum purchase obligation of the plaintiff would be Euro 1,137,427.84/-.
viii. It was, thus, based on this assertion that the defendant had made in its Termination Notice that the plaintiff at the hearing held on 11.05.2020 offered to furnish an unconditional bank guarantee favouring the Registrar General of this Court amounting to Euro 1,137,430/-. The bank guarantee was required to be furnished within 10 days from the date of the order. The matter was made returnable on 29.05.2020. However, on 22.05.2020, an application was moved by the plaintiff whereby it sought modification in the order dated 11.05.2020. The modification sought concerned furnishing a bank guarantee in favour of the defendant as against the Registrar General of this Court. This offer was made by the plaintiff ostensibly to save expenses that it would otherwise incur to obtain a bank guarantee from a nationalised bank. Admittedly, the bank guarantee has not been furnished by the plaintiff.
12. Ms. Rao has sought vacation of the interim order passed by this Court effectively on the ground that since no final relief can be granted to the plaintiff, assuming that this Court has jurisdiction, as it seeks not only a declaration that the Termination Notice is bad in law but also seeks specific performance of the MDA and PA which are, by their very nature, determinable, no interim relief can be granted as it can be granted only in aid of the final relief.
13. On the other hand, Mr. Mehta contends that since the MDA contains a Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 19 of 28 KUMAR RAI signing date29.07.2020 10:19 "mandatory" renewable clause, the plaintiff is entitled to the relief of specific performance and, therefore, the Court could in such like circumstances grant interim relief. Mr. Mehta has, in this behalf, submitted that only those contracts can be construed as determinable where one party to the contract has the right to terminate the contract, albeit, without cause.
14. Therefore, what is required to be ascertained are principally two issues. First, did Clause 12.2 of the MDA vest an indefeasible right in the plaintiff for renewal of the MDA? Second, whether the MDA and PA are, by their very nature, determinable?
15. As noticed above, Clause 12.21 of the MDA gives either party a right to opt-out of the obligation to renew the MDA by serving on the other party prior notice of 6 months. The clause obliges the party giving the notice to furnish "valid reasons". Clause 12.42 on the other hand sets out various 1 "12.2 Except as provided for below and subject to total purchase by the Master Dealer from B&O of no less than Euro 6,750,000 over [ the] initial term; upon expiration of the initial term; this Agreement shall be (first) renewable for five (5) years, unless either party notified the other party for valid reasons, by registered mail sent at least six months before the expiration of the current term, that it does not intend to renew this Agreement. Should the total purchase by the Master-dealer from B&O be less than Euro 6,750,000 in the initial term then the first renewal term shall only be two (2) years. Upon expiration of the first renewal term, this Agreement shall be renewable for successive terms of two (2) years, unless either party notified the other party, by registered mail sent at least six months before the expiration of the current term that it does not intend to renew this Agreement."
2"12.4 B&O may terminate this Agreement Immediately and without further notice to the Master Dealer if:
i) the Master Dealer's aggregated purchase of Products fails to fulfil the minimum purchase obligations for that year as defined in clause 9.1;
(ii) the Master Dealer shall misuse in whatever way, or shall challenge the validity of the Trade Name, Trade Marks and Symbols or any intellectual property rights of B&O;
(iii) the Master Dealer becomes insolvent, enters into liquidation, whether compulsory Or voluntarily, other than a genuine solvent reconstruction or amalgamation in which the new company assumes (and is capable of assuming) all the obligations of that other Party, or makes any arrangement or composition with its creditors or shall have a Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 20 of 28 KUMAR RAI signing date29.07.2020 10:19 circumstances under which the MDA could be terminated.
15.1 As noted above, the defendant did indicate on 20.12.2018, which was 6 months before the expiration date i.e. 30.06.2019 that it was not willing to renew the MDA. The reason given was that it was wanting to update its dealer agreement across jurisdictions. Insofar as the plaintiff was concerned it was put to notice that the execution of the new agreement would depend upon the viability of its business plan and future set up.
16. Mr. Mehta seems to contend that valid reasons can only be those where specific instances of a breach, are pointed out. To my mind, there is a fallacy in this argument. The defendant's arrangement with the plaintiff was to enhance its market share in the Indian market. That could only happen if the plaintiff were to purchase a larger quantity of the defendant's products. The defendant, it appears, made it amply clear that only if it was satisfied with the plaintiff's business plan and future set up for the next 5 years would it be interested in renewing the MDA and that too by entering into a new agreement.
17. To my mind, this was a valid reason and, therefore, prima facie receiver appointed of all or any part of its assets or if the Master Dealer takes any similar action In consequence of debtor;
(iv) the Master Dealer assigns this Agreement without the prior written consent of B&O;
(v) the Master Dealer ceases to do business;
(vi) the Master Dealer undergoes any material change in its ownership, management or control, or if any person or company, in all foregoing situations which in the reasonable opinion of B&O is a competitor of B&O owns or acquires any interest under what-ever form in the Master Dealer's business or company;
(viii) the Master Dealer neglects or fails to perform or observe any other condition of this Agreement and more particularly any terms and conditions in respect of sale towards the End Users within the Territory, and shall not remedy such failure - where capable of remedy - within an appropriate period of time which shall be fixed by B&O and which shall not be shorter than 15 days but shall not have to be longer than 30 days following the service of a written notice to such effect, or shall commit such failures, even dissimilar and even remedied, repeatedly."
Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 21 of 28 KUMAR RAI signing date29.07.2020 10:19satisfied the pre-requisites of Clause 12.2 of the MDA. Therefore, in my view, the plaintiff did not have an indefeasible or a "mandatory" right to seek renewal of the MDA.
17.1 As a matter of fact, the defendant did furnish to the plaintiff its proposal for a new agreement which the plaintiff did not execute as it considered the terms and conditions provided therein as onerous. While parties were, as it appears, trying to negotiate the terms of a new agreement, the PA was executed between them.
17.2 It is during the period when the PA was in existence that the defendant, apparently came across incidents which made the defendant believe that the plaintiff's energies were not geared to promote its products in the Indian market. It is in this background that the defendant served upon the plaintiff the notice of termination.
18. Which brings me to the other aspect, that is, whether the temporary arrangement whereby the expiration period of the MDA was extended via the PA could be brought to an end by the defendants? In other words, was this arrangement not determinable?
18.1 Once one concludes that Clause 12.2 of the MDA did not confer any unfettered right on the plaintiff to seek renewal of the MDA, the temporary extension of the initial expiration date to enable parties to arrive at a new agreement, in my view, could not have metamorphosed Clause 12.2 of the MDA from a non-mandatory clause to one which was mandatory. 18.2 The defendant was well within its right to determine the temporary arrangement as reflected in the PA and, thus, bring to an end the efficaciousness of the MDA as well.
18.3 Clause 12.4 of the MDA provides, so to speak, a second string to the Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 22 of 28 KUMAR RAI signing date29.07.2020 10:19 bow. The said clause provides events for termination. The defendant has taken recourse to this clause as well and triggered the events captured in Subclause (i), (v) and (viii) i.e. failure to fulfil minimum purchase obligation, cessation of business and failure to perform or observe any other condition of the agreement including maintenance of minimum stock.
19. The argument of Mr. Mehta that the MDA and PA were not in the nature of determinable contracts because it could only be terminated for a cause by the defendant is also flawed. The reason being that a determinable contract is not only one which can be terminated or brought to an end at will by a party against whom specific performance is sought by giving a reasonable notice, albeit, without cause but is also one which can be terminated on account of the conduct of the party which is seeking specific performance. Both in Rajasthan Breweries case as well as in Amritsar Gas Service case termination was sought to be made for a cause. 19.1 Statement of law, on this aspect, is set forth in Treitel "The Law of Contract" [7th Edition; G.H. Treitel] at page 797:
"Terminable Contracts If a party against whom specific performance is sought is entitled to terminate the contract, the order will be refused as the defendant could render it nugatory by exercising his power to terminate. This principle applies where the contract is terminable under its express terms or on account of the conduct of the parties seeking specific performance."
19.2 The instant case is representative of both circumstances. Clause 12.2 of the MDA imbues the arrangement obtaining between the parties as one which was by its very nature determinable. Either party, by serving upon the other, six months' notice [which, in this case, was perhaps considered reasonable] could bring the arrangement to an end.
Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 23 of 28 KUMAR RAI signing date29.07.2020 10:1919.3 Furthermore, under Clause 12.4 of the MDA, the defendant is empowered to terminate the contract if the plaintiff's conduct came within the circumstances set forth therein. Therefore, either way, it cannot be said that the contract obtaining between the parties is not determinable in nature. An injunction in these circumstances which is a mirror image of relief for specific performance is also refused by courts3 unless there is a negative covenant4 obtaining in a contract. Courts have also refused injunctions, where contracts are commercial, in nature and in the event of a breach the consequent damages suffered, could be compensated monetarily. 19.4 The exception to this principle has been carved out where the defendant is a State or instrumentality of the State, coupled with the fact that compensation is difficult to quantify. In a contract involving the State or its instrumentalities, aspects having a hue of fairness and reasonableness5 come into play triggering a full panoply of the parameters associated with Article 14 of the Constitution.
19.5 That being said, it cannot be stated that the State cannot or does not enter into commercial arrangements/transactions. If the State enters into commercial transactions, the parameters of scrutiny may be somewhat different although the fact that wrongful termination can be compensated in monetary terms is relevant for such contracts as well. Judgements cited on behalf of the plaintiff: -
20. The judgements cited on behalf of the plaintiff are distinguishable on facts.
3Section 41(e), The Specific Relief Act, 1963.
4Section 42, The Specific Relief Act, 1963.
5See: Mahabir Auto Stores & Ors. vs. Indian Oil Corporation & Ors., 1990 AIR SC 1031.
Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 24 of 28 KUMAR RAI signing date29.07.2020 10:1920.1 KSL & Industries Ltd. case concerned execution of MOUs qua sick industrial units owned by a public sector undertaking. The MOUs were to be followed by parties executing definitive agreements. Since the MOUs were terminated, a petition under Section 9 of the Arbitration and Conciliation Act, 1996 [in short "1996 Act"] was filed to seek interim relief. Inter alia, KSL's submission was that if definitive agreements were executed it would acquire 49% shareholding and, thus, a substantial control in the management of sick industrial units. It was argued that the arrangement between parties was not purely a commercial contract and that it involved privatization of sick industrial units. According to KSL, the respondent, which was an instrumentality of the State, had acted unfairly and unreasonably and, thus, failed to meet the standards of fairness provided under Article 14 of the Constitution. The Court agreed with KSL inter alia for the reason that damages could not be quantified as what was envisaged was the acquisition of controlling interest in the entities the value of which, at that juncture, could only be speculative. Clearly, the facts obtaining in the KSL & Industries Ltd. case are distinguishable from the instant case. 20.2 The T.O. Abraham case is a judgement of the Division Bench of the Kerala High Court which was hearing an appeal against final judgement and decree. Here again, the issue involved was the acquisition of controlling shares in a private limited company whose only asset was a rubber plantation. The Court returned a finding of fact that the contract was not determinable and since shares were of special value and not traded freely the bar under the Section 10(ii) [as obtaining prior to the 2018 amendment to SRA] would not apply. To my mind, this case is also distinguishable on facts.
Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 25 of 28 KUMAR RAI signing date29.07.2020 10:1920.3 Likewise, the Narendra Hirawat case concerned the exploitation of rights under a license concerning films. The Court concluded, based on the terms of the license, that it was not determinable. Thus, much would turn, as it seems, on the terms of the contract obtaining between the parties. 20.4 Similarly, in the Jumbo World Holdings Ltd. case, the Court concluded that the contract could not be unilaterally terminated. [See paragraph 24 of the judgement] This judgement as well, given the facts obtaining in the instant case, would not help the cause of the petitioner. 20.5 This brings me to the remaining three judgements cited by Mr. Mehta i.e. judgements rendered in Mohinder Singh Gill, T.P. Senkumar and Dipak Babaria. These judgements were relied upon by Mr. Mehta to buttress his argument that the stand taken by the defendant in the written statement that it had lost confidence in the plaintiff had neither been foregrounded in the communications exchanged between the parties nor in Termination Notice served upon the plaintiff. The argument was that the defendant could not be permitted to set up new ground in the pleadings which did not form part of the communications exchanged before the filing of the written statement.
20.6 According to me, the aforementioned judgements do not enunciate any such principle. The judgements simply reiterate the following principle that was articulated, for the first time, in Commissioner of Police, Bombay vs Gordhandas Bhanji, 1952 SCR 135.
"... public orders, publicly made, in the exercise of statutory authority cannot be construed in the light of explanation given by the officer making the order of what he meant, or of what was in mind or what he intended to do...".
20.7 In other words, the emphasis was on the fact that public orders made Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 26 of 28 KUMAR RAI signing date29.07.2020 10:19 by public authorities have public effect and, therefore, cannot be explained away by affidavits filed in Court; the orders have to stand their own. To extend this principle to a private lis would be erroneous as parties are entitled to lead, apart from documentary evidence, oral evidence in support of their case. Therefore, these judgements, which are in the realm of public law, in my opinion, have no applicability to the instant case.
21. Given the foregoing discussion, there is, to my mind, next to no chance in the plaintiff obtaining the relief of specific performance. Therefore, in my view, the interim protection ought not to continue any further. If the plaintiff is right in establishing as it contends that the termination was bad in law, it could seek recompense by way of damages.
22. Mr. Mehta's contention that the plaintiff has invested Euro 15 million in developing the Indian market for the defendant's brand or that if the MDA had been renewed the plaintiff would have benefitted out of the investment made are claims which can be easily monetarily quantified and compensated. Therefore, if relief of that kind is claimed and proved, it can be awarded by the Court of competent jurisdiction.
23. Besides what is stated hereinabove, there are several factors which would go against the continuation of the interim order in the facts of the instant case.
23.1 First, the MDA has come to an end by efflux of time. 23.2 Second, the extension of the initial expiration date via the PA was for the execution of a "new agreement" and not for renewal of the existing MDA.
23.3 Third, the relationship between the parties has frayed to an extent that it can't be repaired and certainly not by the continuation of the interim order.
Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 27 of 28 KUMAR RAI signing date29.07.2020 10:1924. Before I conclude, I must also emphasize that since the plaintiff had attempted to trigger this Court's equitable jurisdiction, it ought to have, shown its bona fides by furnishing the bank guarantee which it had offered to give not once but twice i.e. on 11.05.2020 and, thereafter, on 22.05.2020. Conclusion: -
25. Thus, for the reasons given hereinabove, I tend to agree with Ms. Rao that interim order ought not to continue in this matter. Accordingly, I.A. No. 4434/2020 filed by the defendant is allowed and I.A. No. 3837/2020 filed by the plaintiff is dismissed. Accordingly, the interim order dated 11.05.2020 as modified by 22.05.2020 is vacated.
26. I must make clear though that nothing stated hereinabove will impact the merits of the case or the decision in the pending interlocutory applications.
RAJIV SHAKDHER, J JULY 28, 2020 KK Click here to check corrigendum, if any Signature Not Verified digitally signed byVIPIN I.A. No. 3837/2020 & I.A. No. 4434/2020 in CS (COMM) No. 122/2020 Page 28 of 28 KUMAR RAI signing date29.07.2020 10:19