Delhi District Court
Seagull Pharmaceuticals Pvt. Ltd vs Medi Xpert India Ltd on 24 January, 2022
IN THE COURT OF SH. VIPIN KHARB: ADJ-04
NORTH WEST: ROHINI COURTS : DELHI
CS DJ - 576685/16
Seagull Pharmaceuticals Pvt. Ltd.
305 - 306, Imperial Tower,
C-Block, Community Center,
Naraina Vihar,
New Delhi- 110028
.....Plaintiff.
Versus
Medi Xpert India Ltd.
Khasra No. 883,
Hall No-1, Nala Road,
Village- Rithala,
Rohini,
Delhi-110085
Also at :
L-76, First Floor,
Lajpat Nagar-II,
New Delhi-110048
.....Defendant.
Date of institution : 23.05.2014
Date of decision : 24.01.2022
Final Order : Decreed
JUDGMENT
1. The plaintiff is a private limited by shares incorporated under the Companies Act, 1956 having its registered office at 305 - 306, Imperial Tower, C-Block, Community Center, Naraina Vihar, New Delhi-110028.
Page 1 of 14Mr. Rishabh Singhal is a Director and a Principal Officer of the plaintiff company. The defendant is a public company limited by shares incorporated under the Companies Act, 1956 having its registered office at Khasra No. 883, Hall no- 1, Nala Road, Village-Rithala, Rohini, Delhi- 110085. The defendant is into manufacturing, marketing and selling of pharmaceutical products. The plaintiff is in the business of manufacture and sale of ethical and generic pharmaceutical products. The defendant's earlier name was Roussel Pharma Ltd. The defendant approached the plaintiff and pursuant to negotiations between the plaintiff and the defendant, the plaintiff agreed to the defendant's request to manufacture and market generic pharmaceutical products. The plaintiff and the defendant entered into agreement dated 11.09.2008. This agreement, inter alia, provided that the defendant would pay Rs. 1,00,000/- per month with annual increase of 5 %. The term of the agreement was 5 years w.e.f. 01.10.2008. This agreement was an exclusive arrangement as the plaintiff was required not to have any arrangement with any other company during the term of this agreement for manufacture of generic products. The defendant was allowed to use the name "Seagull Pharma" and was also permitted to use the packing, color of the existing generic brands of the plaintiff. The plaintiff and the defendant entered into an agreement dated 17.09.2008 wherein, inter alia, it was provided that the defendant would manufacture the existing generic brands of the plaintiff and new brands developed by the defendant. The plaintiff and the defendant entered into a supplementary agreement dated 01.07.2010 and in this agreement it was specifically noted that the entire terms conditions and covenants of the agreement dated 11.09.2008 and 17.09.2008 will form part of this Page 2 of 14 agreement dated 01.07.2010 unless superceded by any of the terms and conditions contained in this agreement dated 01.07.2010.
2. The trade marks owned by the plaintiff was clarified to have been only licensed to the defendant during the tenure mentioned in the agreement dated 11.09.2008. In the event of breach of clauses 1, 2 & 3 of the agreement dated 01.07.2010 the plaintiff had the option to terminate the agreements dated 11.09.2008, 17.09.2008 and 01.07.2010. However, the defendants were liable to pay the balance amount of license fee as mentioned in the agreement dated 11.09.2008 for the remaining period of the agreement to the plaintiff. The defendant failed to abide by the terms of the agreement. In view of several breaches of agreements dated 11.09.2008, 17.09.2008 and 01.07.2010 the plaintiff issued legal notice dated 27.04.2011. Pursuant to this legal notice the defendant replied to the same and the defendant agreed to execute a fresh agreement with the plaintiff. Both executed agreement dated 01.06.2011 as per which agreements dated 11.09.2008 and 01.07.2010 were to be treated as null and void and agreement dated 17.09.2008 was to remain valid for purpose of licensing only. On 25.04.2012, the name of the defendant changed from M/s Roussel Pharma Ltd. to M/s Medi Xpert India Ltd. and because of which the plaintiff and the defendant entered into a fresh agreement dated 26.04.2012 and this agreement provided that the defendant will pay the plaintiff a royalty of Rs. 1.5 lakhs for the month of May, 2012 and from June, 2012 the monthly royalty was payable with 5% annual increase. The defendant failed to make payment of royalty as mentioned in the agreement dated 26.04.2012 and did not make any payment since April, 2013 onwards. The defendant also stopped manufacturing and supplying the branded generic Page 3 of 14 pharmaceutical products to the market. This stoppage of production and supply of branded generic pharmaceutical products to the market. This led to total paucity of plaintiff's branded generic products in the market and seriously eroded the goodwill of the plaintiff and the value of plaintiff's brand / trade marks suffered immensely. The plaintiff issued legal notice dated 26.08.2013 to the defendant. The plaintiff demanded payment of Rs. 8,11,125/- towards royalty from April, 2013 to August, 2013 alongwith interest @ 18% per annum. Despite repeated requests and reminders the defendant has failed to make payment of Rs. 8,11,125/- towards royalty from April, 2013 to August, 2013 alongwith interest @ 18% per annum. The plaintiff also sought a sum of Rs. 10 lakhs towards damages, on account of loss of goodwill and reputation through present suit.
3. In the written statement, defendant submitted that the agreement executed between the parties was executed due to "Undue Influence" and so is not enforceable. The Agreement dated 26.04.2012 is one sided as no right, corresponding to that which has been conferred upon the plaintiff, has been bestowed upon the defendant. Admittedly, defendant was not in a position to bargain, so far its right is concerned, and was made to sign on the dotted lines. Besides determining the amount of royalty to be paid, that too, for the period, it empowers the plaintiff to exit from the Agreement, before it comes to an end, without any consequential liability but no such right has been conferred upon the defendant. The agreement per se is voidable and cannot be acted upon. The defendant was required to pay royalty at the rate fixed for the period, as agreed upon, in lieu of the right to market / manufacture / sell the products with Marks, registered in the name of plaintiff. The royalty determined can be said to be the consideration for Page 4 of 14 using the goodwill and reputation of plaintiff, relating to the products, by defendant. As a logical corollary, the obligation to pay royalty survives till the time the defendant markets / manufacture / sales the products, with Marks owned by plaintiff and once, it ceases to indulge in activities, as envisaged in the Agreement, the obligation to pay, royalty, does not survive and hence, it cannot be said that the obligation to pay is unqualified and survives till the shelf life of Agreement, as has been contended.
4. The defendant vide its letter dated 07.01.2013, informed the plaintiff of its intention to discontinue the arrangement so arrived at, in terms of Agreement dated 26.04.2012. The defendant has not indulged in activities, as envisaged in Agreement dated 26.04.2012, thereafter so as to make it liable for the amount allegedly claimed by plaintiff. The plaintiff has not specified the consequential loss, if any, as a result of defendant rescinding from Agreement. It has come to the notice of defendant that the plaintiff thereafter entered into Agreement with third party on terms beneficial to its interest and hence, does not suffer any losses. The defendant was under no obligation to pay the royalty as claimed by the plaintiff rather the same was linked with the activities, as contemplated in the Agreement, to be pursued by defendant. Since the defendant conveyed its unequivocal intention to discontinue the arrangement, after giving three months notice period, to plaintiff, the question of paying royalty for the period during which the defendant did not undertake the activities, as agreed, does not arise. Since the defendant discontinued the same from April, 2013 the question of paying royalty for the remaining period, i.e. from May 2013 to September 2013, does not arise. Moreover, the claim of the plaintiff towards interest is untenable and unsustainable as there is no stipulation to that effect in the Page 5 of 14 Agreement, referred to and relied upon by plaintiff. Therefore, plaintiff suit is liable to be dismissed.
5. In the replication to the written statement, it is submitted by plaintiff that both plaintiff and defendant companies are managed by educated commercial people who are aware of their rights and duties and the defendant has been dealing with the plaintiff since 2008. The defendant entered into an agreement dated 11.09.2008 with the plaintiff for manufacture and marketing of plaintiff's generic pharmaceutical products and the defendant paid royalty amount of Rs.1,00,000/- per month in terms of agreement dated 11.09.2008. Subsequently, defendant entered into agreements dated 17.09.2008, 01.07.2010, 01.06.2011 and the concerned agreement dated 26.04.2012 with the plaintiff for commercial purpose. The defendant, for commercial business wanted to continue the arrangement with the plaintiff as there was commercial benefit in this arrangement. The defendant being a commercial enterprise had the option to negotiate and enter into an agreement with the plaintiff or any other company, if it so desired. The defendant never challenged the validity of agreement dated 26.04.2013 and / or previous agreements dated 11.09.2008, 17.09.2008, 01.07.2010 and 01.06.2011. The defendant admits that it had no right to resile from the agreement dated 26.04.2012. The letter dated 07.01.2013 is forged and fabricated and the same has been done after receipt of summons in this suit from the Court.
6. After completion of pleadings, the following issues have been framed vide order dated 09.02.2015 (1) Whether the plaintiff is entitled for the recovery alongwith Page 6 of 14 interest as prayed for ? OPP (2) Any other relief.
7. Matter was then fixed for plaintiff's evidence.
8. To prove the case, plaintiff examined Sh. Rishabh Singhal as PW-1 who tendered in evidence his affidavit Ex.PW-1/A and relied upon documents Ex.PW-1/1 to Ex.PW-1/31. After examining PW-1, vide separate statement of counsel for plaintiff, plaintiff's evidence was closed on 30.09.2015 and matter was fixed for defendant's evidence.
9. Defendant examined Sh. Suresh Bhartia as DW1 who tendered in evidence his affidavit Ex.DW1/A and relied upon document i.e. Ex.DW- 1/1. After examining DW-1, evidence of defendant was closed on 09.02.2017 and matter was fixed for final arguments.
10. Final arguments heard through videoconferencing. After hearing final arguments, matter was then reserved for pronouncement of judgment.
ISSUE-WISE FINDINGS Issue No.1 : Whether the plaintiff is entitled for the recovery alongwith interest as prayed for ? OPP
11. The onus to prove this issue was on plaintiff. It is admitted by both the parties that they have entered into agreement dated 11.09.2008, 17.09.2008, 01.07.2010, 01.06.2011 and lastly 26.04.2012. The agreement Page 7 of 14 dated 26.04.2012 was the subsisting agreement between both the parties regarding which present suit has been filed.
Whether breach of contract dated 26.04.2012 occurred
12. It is admitted by the defendant that he had stopped manufacturing medicines as per the terms of agreement dated 26.04.2012 and intimated the same to the plaintiff through Ex.DW1/1. This alongwith pleadings of the defendant proves that defendant has admitted that he has not complied with the terms of the agreement dated 26.04.2012, so, breach of contract dated 26.04.2012 was committed by defendant. Defendant took the defence that the agreement dated 26.04.2012 was executed under undue influence, therefore, same was a voidable contract.
Whether agreement dated 26.04.2012 was executed under undue influence and so was a voidable contract and could not be enforced.
13. Sec.16 (1) of the Indian Contract Act 1872 defines the "undue influence" and as per which a contract is said to be induced by 'undue influence' where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. The agreement dated 26.04.2012 was not the first contract between both the parties rather it was the 5 th contract between them and all the five contracts were mostly having the same terms and conditions except regarding duration of agreement and royalty amount. The first agreement was executed on 11.09.2008 i.e. 43 months before the present contract. So, defendant has discharged his same duties under the same terms and conditions Page 8 of 14 for last 42 months before entering into the agreement dated 26.04.2012. Further, both plaintiff and defendant are companies and are represented by educated persons and there was no relation between both the parties or the persons, who were representing them, whereby, plaintiff can dominate the Will of the defendant. Therefore, the defence of the defendant that agreement dated 26.04.2012 was executed under undue influence have no legs and is a sham and is rejected outrightly.
Further, merely by being a voidable contract is does not mean that that contract could not be enforced. The party at the option of which the contract is voidable have to take necessary steps to get it rescinded. As per Sec.66 of the Indian Contract Act, 1872 the party has to communicate to the other party that it is revoking it in terms of Sec.6 of the Indian Contract Act and after that it has to take legal course by filing case in the court to get it rescinded. But no such steps has been taken by the defendant. Therefore, court has no hesitation to arrive at a conclusion that agreement dated 26.04.2012 was not executed under undue influence and was therefore a valid contract and could be enforced.
Whether plaintiff is entitled to compensation for the breach of contract committed by the defendant.
14. Perusal of the agreement dated 26.04.2012 i.e. Ex.DW-1/17 shows that it does not contain any stipulation for the payment of liquidated damages or penalty in case of breach of contract. Therefore, in present case Sec.73 of the Indian Contract Act is applicable.
"Sec. 73. Compensation for loss or damage caused by breach of contract.--When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and Page 9 of 14 indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract.--When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
Explanation.--In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the nonperformance of the contract must be taken into account."
15. So, plaintiff is entitled to receive from the defendant compensation for any loss or damage caused to him which naturally arose in the usual course of things or parties knew when they made the contract. The terms of the contract clearly shows that plaintiff has given all its intellectual property rights in medicines registered with it, exclusively to the defendant and have only allowed the defendant to manufacture and sell all the medicines owned by the plaintiff and to earn profit from it. Further, plaintiff was under the obligation not to manufacture the medicines himself or through any other party except the defendant. On the other hand, defendant along-with manufacturing the plaintiff's medicines can also manufacture his own medicines. This shows that plaintiff had no other means to earn anything from rights in the medicines registered with it except the royalty mentioned in the agreement dated 26.04.2012, whereas, on the other hand, defendant can earn from manufacturing other medicines also.
So, it was within the knowledge of the defendant that in case he did not pay any royalty to the plaintiff then plaintiff will have no means or mode to earn even a single penny from his intellectual property rights in medicines registered with it. Therefore, the amount of royalty payable will be equivalent to the loss that will be caused to the plaintiff, and it was known to both the parties when they entered into the contract.
Page 10 of 1416. Defendant took the ground that as defendant was paying royalty at fixed rate for manufacturing and selling the medicines registered in the name of the plaintiff, therefore, defendant was liable to pay royalty only till the time he manufactured and sold the medicines. As discussed above, the terms of the Ex.PW-1/17 clearly shows that plaintiff had given all his intellectual property rights in medicines owned by him exclusively to the defendant. But defendant can manufacture plaintiff's medicines and also his own medicines. Therefore, even if defendant did not manufacture plaintiff's medicines even then he will have source of earning but plaintiff will have no source of earning and that is why no right was given to the defendant in the agreement dated 26.04.2012 I .e. Ex.PW-1/17 to exit the contract.
If we read the previous contracts executed between the parties specially Ex.PW-1/6 i.e. agreement dated 01.07.2010, in that at para no.7 it was agreed between the parties that in case of cancellation of agreement the defendant shall be liable to pay balance amount of licence fee. So, it was within the knowledge of both the parties that plaintiff will have no source to earn from his intellectual property rights in the medicines registered with him except the royalty amount payable by defendant and defendant was made liable to pay royalty amount till the term of the agreement. So this defence of the defendant that he is liable to pay royalty amount only for the duration till it manufacture the medicines is rejected.
17. Another defence taken by the defendant was that vide Ex.DW-1/1 he has intimated the plaintiff in January 2013 that defendant will not manufacture the medicines in terms of agreement dated 26.04.2012 from April 2013, therefore, he is not liable to pay any royalty beyond April 2013.
Plaintiff has stated that no such letter as Ex.DW-1/1 was communicated or served upon it. In the cross-examination defendant has stated that they have filed postal receipts to show that Ex.DW-1/1 was served upon the plaintiff. Perusal of the postal receipt annexed on Ex.DW-1/1 shows that no detail of the Page 11 of 14 address on which it was send is mentioned and from it, it cannot be decided that Ex.DW-1/1 was sent to the address of plaintiff. Further, after 07.01.2013 i.e. date on which Ex.DW-1/1 was written, various communications were also done between the parties including Ex.PW-1/27 which is a letter dated 18.04.2013 written by defendant to the plaintiff. In Ex.PW-1/27 the defendant did not mention anything about terminating of contract from its side or about Ex.DW-1/1 but infact it contains the details about the sales done by the defendant from 01.04.2012 to 31.03.2013. In case, defendant was not intending to manufacture from April 2013 and have already intimated the plaintiff through Ex.DW-1/1 then in the opinion of the court, defendant should have mentioned this fact in Ex.PW- 1/17. After considering all these facts, court has no hesitation to arrive at a conclusion that Ex.DW-1/1 was never communicated or sent to the plaintiff.
Further, Ex.PW-1/17 i.e. agreement dated 26.04.2012 does not give any right to defendant to unilaterally exit the agreement dated 26.04.2012, in fact, right was only given to the plaintiff to cancel the agreement. Therefore, even if Ex.DW-1/1 was communicated or served upon the plaintiff and plaintiff had knowledge about it, still it will have no effect.
So, in view of the discussion above, court has no hesitation to arrive at a conclusion that defendant is liable to pay for the breach of contract i.e. Ex.PW- 1/17 and liable to compensate the plaintiff with the amount which is equivalent to the royalty, which defendant was liable to pay, for the remaining terms of the agreement dated 26.04.2012. Therefore, defendant is liable to pay Rs. 8,11,125/- to the plaintiff for not paying royalty from April 2013 till August 2013.
Whether plaintiff is entitled to damages of Rs.10 lacs
18. In the landmark case of "Hadley vs. Bexendale", it was held that in cases of breach of contract the damages should be such as may fairly and reasonably be considered as arising naturally or the damages may be such as may reasonably be supposed to have been in contemplation of both parties at the time they made the Page 12 of 14 contract as the probable result of the breach of it. The damages, however, cannot include compensation for any remote and indirect loss or damages sustained by reason of the breach.
Perusal of Ex.PW-1/17 shows that there is no mention of any damages to be paid or contemplated by the parties. There is no mention of any specific kind of loss that will occur to the plaintiff in case of breach of the contract by the defendant. Plaintiff has not adduced any evidence to show what special damages or loss he has suffered due to non manufacturing of medicines by the defendant from April 2013 to August 2013 or that he has made defendant aware about the special loss which plaintiff will suffer in case of non manufacturing of medicines by the defendant. Therefore, in the opinion of the court no special loss has been caused to the plaintiff and plaintiff has failed to prove that he has lost his goodwill due to breach of contract by the defendant. Therefore, he is not entitled to any damages.
19. Further, according to explanation to Sec.73, if any means to remedying the inconvenience caused by the non performance of the contract then same must have to be taken into account. It means that all the steps should have been taken by the party to reduce the loss which it will suffer in case of breach of contract by the other party.
In the present case, plaintiff knew that defendant is not following the terms of the contract and have stopped manufacturing its medicines since April 2013, so, plaintiff then could have take necessary steps like terminating the contract and entering into the contract with some other party for manufacturing its medicines but plaintiff has not taken any such steps. Therefore, he is not entitled to any damages.
Accordingly, issue no.1 is decided in favour of the plaintiff.
Page 13 of 14RELIEF
20. For the reasons assigned hereinabove, the suit of the plaintiff is decreed and plaintiff is entitled to receive a sum of Rs.8,11,125/- along- with interest of 12% from date of filing of the suit till its realization as compensation from the defendant for committing the breach of the agreement dated 26.04.2012.
21. Decree-sheet be prepared accordingly after deposit of appropriate court fees.
22. File be consigned to Record Room after due compliance.
VIPIN Digitally signed by
VIPIN KHARB
Announced through videoconferencing KHARB Date: 2022.01.24
16:50:22 +0530
on 24th day of January, 2022 (Vipin Kharb)
ADJ-04, North West
Rohini Courts, Delhi
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