Classic Motors LTD Vs Maruti Udyog LTD

MANU/DE/0586/1996
Equivalent Citation: 1997IAD(Delhi)190, 1(1997)C LT65, 65(1997)DLT166, 1997(40)DRJ462
IN THE HIGH COURT OF DELHI

Suit No. 2544 of 1994
Decided On: 13.12.1996
Appellants: Classic Motors Ltd.
Vs.
Respondent: Maruti Udyog Ltd.
Hon'ble Judges/Coram:
Dr. M.K. Sharma, J.
Counsels:
Madan Bhatia, R.K. Agarwal, Bobby Anand, Sanjay Dua, Arun Jaitley, T.K. Ganju, K.C.
Kalra, Neena Gupta, Naveen Chawla and Alok Prasad, Advs
JUDGMENT
M.K. Sharma, J.
(1) The present suit is instituted by the plaintiff against the defendant praying for
declaration and permanent injunction.
(2) In 1985, M/s. Maruti Udyog Limited (in short MUL) issued an advertisement in
various newspapers inviting applications for appointment of dealers in various cities
of India including Union Territory of Delhi for the vehicles manufactured by it.
Criteria for selection and appointment of such dealers was mentioned in the said
advertisement. In pursuance of the aforesaid advertisement the partnership firm
known as M/s. Competent Builders, of which Mr. Raj Chopra and Mr. Narendra Anand
were the partners, applied for grant of such dealership. The offer of the said firm was
accepted by Mul in pursuance of which the dealership was granted. The automobile
business was started in the name of M/s. Competent Motors which was a partnership
business between Mr. Raj Chopra and Mr. Narender Anand. M/s. Competent Motors
established its show room in Connaught Place and Service Station at Mathura Road,
New Delhi. It is stated in the plaint that Competent Motors made huge investments in
order to meet the criteria laid down by Mul for a dealer. Subsequent to the grant of
the aforesaid dealership an agreement was executed by and on behalf of Competent
Motors and also by and on behalf of Mul in the year 1983 on a standardised form of
contract. It is stated that every dealer who is appointed by Mul in response to the
advertisement issued by it was called upon to sign identical agreement and that there
was no scope of negotiations with regard to any of the terms of the aforesaid
standardised terms of the contract between the dealer appointed and MUL.
(3) It is also stated that in order to meet the criteria laid down by Mul a dealer has to
employ a large number of staff for the establishment of the show room and the
service station and that the total value of the capital assets of M/s. Competent Motors
amounted to Rs.1,06,41,691.00 as per the balance sheet as on 31.3.1986. It has
been further stated that on advertisements and publicity as well as on repairs and
maintenance of the show rooms as well as the service station Competent Motors
spent crores of rupees.
(4) In 1986, it appears that a dispute arose between the partners of M/s. Competent
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Motors, as a result of which, they arrived at a settlement for availing of the
dealership on altogether new terms by separating the assets between themselves
which were being used in connection with the dealership and for this purpose
executed a modification deed dated 30.9.1986. On being approached the Mul under
their letter dated 9.1.1988 agreed to allow these two partners to separate and
establish independent dealership subject to the conditions, inter alia, that the existing
dealership will cease to exist and that separate agreement for dealership by Mr. Raj
Chopra and Mr. Narender Anand will be executed with MUL. In terms of the same, a
fresh agreement was executed on the standardised form of contract between the
plaintiff and the defendant. Some of the relevant clauses of the dealership agreement
entered into between the plaintiff and the defendant having a bearing on the present
suit are extracted below for ready reference: 2. FRANCHISE: (a) Subject to the
following terms and conditions the Company appoints "the dealer" for the period of
this Agreement as its non-exclusive Dealer for its products in the Territory. (b)The
Company reserves the right to withdraw any portion or portions of this territory at its
sole discretion. 3. DURATION/CANCELLATION Of Previous AGREEMENT: (a) ... ... ...
... (b) ... ... ... ... (c) This Agreement shall be deemed to have commenced and taken
effect from the 15th day of January, one thousand nine hundred and eighty eight and
(subject to the other provisions for termination herein contained) shall continue until
terminated by either party giving to the other 90 days prior written notice to that
effect expiring on any date. 21. TERMINATION Of AGREEMENT: This Agreement shall
remain and continue in force and govern all transactions between the parties hereto
until cancelled or terminated in the manner hereinafter expressed. Notwithstanding
the provisions of any Clause hereof either party may by giving the other 90 days
notice in writing terminate this Agreement without assigning any cause. 22.
OBLIGATIONS Upon TERMINATION: (a) ... ... ... ... (b) ... ... ... ... (c) After the
giving of notice to terminate or the occurrence of any event which would entitle the
Company to terminate this Agreement forthwith the Company shall be entitled to
appoint a new dealer(s) for the Territory and to accept orders from and deliver
Products to such new dealer(s) notwithstanding that such Products may be delivered
before the date of termination of this Agreement provided that the Company shall
require any new dealer not to sell such Products in its capacity as a Dealer in the
Territory or any part thereof before such date of termination. 23. SUPPLY After
TERMINATION: If the Company continues to supply Products to the Dealer after the
termination of this Agreement, this shall not be construed as a waiver of termination
or as a renewal of this Agreement .Thus on 20.1.1988 the dealership which stood in
the name of M/s. Competent Motors stood surrendered and separate dealerships were
granted by the defendant to the erstwhile two partners namely Mr. Raj Chopra in the
name of M/s. Competent Automobiles Pvt. Ltd. and Mr. Narender Anand in the name
of M/s. Classic Motors (plaintiff).
(5) It is stated that from 1988 to 1994 the plaintiff made huge investments and
created fixed assets including the building and maintenance of show room worth
crores of Rupees. The plaintiff also raised loans worth lacs of rupees by way of over-
draft facilities from banks and other financial institutions in order to fulfill the criteria
and obligations laid down by the defendant.
(6) inspire of the plaintiff fulfilling the obligations laid down in the advertisement the
defendant issued a show cause notice dated 6.4.1991 alleging certain breaches
committed by the plaintiff in respect of sales policies of the defendant. The plaintiff
being aggrieved filed a petition under Section 20 of the Arbitration Act in this Court
registered as Suit No. 1224-A/1991 praying for reference of the disputes arising
between the parties to an Arbitrator. On the plaintiff seeking an injunction against the
defendant restraining it from terminating the dealership agreement, this court granted
an ex parte injunction which was later on confirmed on 18.11.1991.
(7) Being aggrieved by the aforesaid order dated 18.11.1991 passed by this court,
the defendant filed a Special Leave Petition in the Supreme Court, registered and
numbered as Special Leave Petition (C) No. 837/1992 on which while issuing notice
on 3.2.1992, the Supreme Court, stayed the order dated 18.11.1991 but observed
that it would be open to the plaintiff to file its reply to the show cause notice. The
Supreme Court further directed that the order of the High Court under appeal would
remain stayed subject to the undertaking of the defendant that pursuant to the show
cause notice no order of termination of the dealership would be made. The Supreme
Court by order dated 18.8.1994 finally disposed of the said Special Leave Petition (C)
No. 837/1992 directing that all the points urged by the two sides would remain open
for fresh consideration by the High Court in the first instance while deciding the main
matter on merits and that the observations made on any of the points including
clause 21 of the agreement in the impugned order dated 18.11.1991 would be treated
by the High Court as its tentative opinion only. It was further directed that the order
of injunction issued by the High Court against the defendant would not be construed
as restraining the defendant from exercising the power that they might have under
clause 21 of the agreement and in case the defendant chooses to exercise its power
under clause 21 of the agreement the parties would be entitled to their respective
rights as a result thereof as might be available to them in accordance with law. It was
made clear that this Court's order dated 20.4.1991 read with the order dated
18.11.1991 would be construed and understood in the manner indicated in the said
judgment.
(8) The defendants thereafter, by order dated 31.8.1994 terminated the dealership of
the plaintiff with 90 days notice. Being aggrieved by the aforesaid termination of the
dealership the plaintiff filed a petition under Section 20 of the Arbitration Act before
this court, which was registered as Suit No. 2005/1994. Along with the said petition,
the plaintiff also filed an application under Section 41 of the Arbitration Act on which
an interim order was passed on 9.9.1994 by this court permitting the plaintiff to book
the vehicles up to 29.11.1994. The said order was challenged in the Supreme Court
in a Special Leave Petition filed by the defendant and registered as Special Leave
Petition (C) No. 15796/1994. The Supreme Court by order dated 15.9.1994 while
issuing notice on the petition granted an interim stay in respect of the order 9.9.1994
passed by this court. Thereafter the Supreme Court after hearing the counsel for both
the parties by order dated 26.9.1994 set aside the order of this court and directed
that the matter be disposed of finally without any such interim orders being made in
the suit. The said petition filed in this court under Section 20 of the Arbitration Act, it
appears, was finally heard and the judgment in the said case was reserved. However,
by a subsequent application, which was registered as I.A. 10014/1994, the plaintiff
sought to withdraw the petition as he had taken recourse to another remedy namely -
filing of the present suit in this court. This court however, by order dated 22.11.1994
passed in Suit No. 2005 of 1994 held that since the plaintiff was not interested in
pursuing the petition under Section 20 of the Arbitration Act the same, accordingly,
stood dismissed as withdrawn.
(9) The plaintiff instituted the present suit where summons in the suit and notices on
the application were directed to be issued. By order dated 29.11.1994 this court
ordered that in the interest of justice status quo as of that day would continue till the
next date and on the next date i.e. on 30.11.1994 the interim order was continued
and finally by order dated 3.2.1995 this court stayed the implementation of the show
cause notice dated 31.8.1994 issued by the defendant.
(10) Being aggrieved by the aforesaid order the defendant approached the Supreme
Court through a Special Leave Petition which was registered as SLP(C) No.
4490/1995. By order dated 28.2.1995 the Supreme Court stayed the operation of the
order dated 3.2.1995 passed by the High Court and also stayed the further trial of the
present suit and to avoid any further confusion in the matter it was made clear that
no order of any kind be passed by the High Court during the pendency of the matter
in the Supreme Court. The Supreme Court by order dated 3.11.1995 remanded the
matter back to the High Court by setting aside the order of injunction granted by this
court on 3.2.1995 in the present suit leaving all questions of fact and law between
the parties open for decision by this Court at the time of disposal of the suit itself. It
was further directed that during the pendency of the suit and subject to its final
outcome, the dealership Code No.0807 which was assigned to the plaintiff, Classic
Motors, would be kept vacant by the Mul to enable it to give the same to the plaintiff
in case the plaintiff ultimately succeeds in the present suit pending in the High Court.
It was however, made clear that the aforesaid direction to the defendant would not
be understood or construed as permitting the plaintiff to hold itself entitled to use of
the same by virtue of the Supreme Court's order pending decision in the suit.
(11) Subsequent to the aforesaid direction of the Supreme Court, the suit was taken
up for further, trial by this court, during the course of which, the parties filed their
documents and on the basis of the pleadings of the parties the following issues were
framed:- 1. Whether the agreement in favor of the plaintiff is legally and validly
terminated by the defendant? 2. Whether the plaintiff is entitled to claim the decree
for specific performance of the agreement dated 15.1.1988 between him and
defendant No. 1? 3. Whether the plaintiff is entitled to get a decree for injunction as
sought for? 4. What order and decree?
(12) During the trial, on behalf of the plaintiff 2 witnesses were examined and on
behalf of the defendant also 2 witnesses were examined.
(13) The counsel appearing for the parties advanced lengthy and in depth arguments
on each of the issues arising for my consideration and also have painstakingly taken
me through the oral as well as the documentary evidence adduced by the parties. I
wish to put on record at this stage, my appreciation for their painstaking efforts and
assistance.
(14) Having considered the pleadings of the parties and the entire evidence on
record, let me now proceed to record my findings on each of the issues:- Issue NO.
1:
(15) The learned counsel for the parties state that the court at the time of framing of
issues framed issue No. 1 as a broad issue and assured the counsel appearing for the
parties that whatever connected issues the parties might seek to raise at the time of
arguments, even if the same is remotely connected with issue No. 1 would be
allowed to be argued and shall be considered by the Court. Accordingly, I allowed
both the counsel appearing for the parties to advance their arguments on all the
issues that might be connected with, even if remotely, with issue No. 1.
(16) Mr. Madan Bhatia, Senior Advocate, appearing for the plaintiff submitted that the
notice of termination dated 31.8.1994 issued by the defendant terminating the
dealership agreement of the plaintiff is liable to be set aside as illegal and void and
that the suit is liable to be decreed on ground of abuse of the process of Court. The
counsel for the plaintiff further submitted that even otherwise, Clause No. 21 of the
franchise agreement is void and is hit by Section 23 of the Indian Contract Act. It was
submitted that under Clause 21 of the agreement, the defendants could not have
terminated the franchise agreement entered into with the plaintiff without there being
a cause which could be found to be valid and strong and without there being such a
such cause which goes to the root of the agreement. He further submitted that the
agreement entered into by the defendant with the plaintiff is in the nature of
franchise agreement and is of permanent and indeterminable in nature and the same,
Therefore, could not have been terminated as was sought to be done in the present
case. To put the entire argument of the counsel for the plaintiff in a nut-shell, the
following points were mainly urged in respect of issue No. 1:- (i) Notice of
termination dated 31.8.1994 is illegal and void. (ii) No good commercial reason
and/or cause has been assigned by the defendant while terminating the agreement.
(iii) That no reason existed for termination of the agreement and even if any reason
existed for such termination, the same not being of such nature as would go to the
root of the agreement, the agreement could not have been cancelled on such reason.
(iv) That the agreement is a franchise agreement which stands on a different footing
from that of other agreements and that the present agreement is of a permanent
nature and indeterminable in character. (v) That Clause 21 of the agreement is void
being against the public policy and is hit by Section 23 of the Indian Contract Act.
(vi) The notice of termination on the ground that it was open to the defendant to
terminate the agreement by 90 days notice on the same causes and reasons as are
contained in the show cause notice dated 6.4.1991 is illegal and bad as against the
said show cause notice there was an interim order operating passed by this court and
sustained by the Supreme Court.
(17) Mr. Arun Jaitley, Senior Advocate assisted by Mr. T.K. Ganju, appearing for the
defendant not only strongly refuted the submissions of the counsel for the plaintiff
but also submitted that the suit against the defendant is itself an abuse of the process
of the Court. The counsel drew my attention to the conduct of the plaintiff in filing
the present suit with clear intention of wriggling out of the directions passed by the
Supreme Court in Special Leave Petition (C) No. 15796/1994 to the effect that the
matter be disposed of finally without any interim order being passed. According to
the learned counsel, the present suit was instituted by the plaintiff in order to by-
pass/evade the direction of the Supreme Court and, Therefore, an abuse of process of
law.
(18) It was further submitted that the present suit is barred under Order 2 Rule 2(3)
Civil Procedure Code and also under Order 23 Rules 1 and 3 CPC. The counsel
submitted that the defendant never intended the dealership agreement to be
permanent and it could not be held and said to be a perpetual agreement and that the
defendant was entitled to terminate the agreement at any time without assigning any
reason by giving 90 days notice or even without notice. The counsel submitted that
Clause 21 is legal and valid and is not in any manner hit by any of the provisions of
the Contract Act.
(19) Let me, Therefore, take up the submissions advanced by the counsel for the
parties one by one and record my findings on each of the aforesaid submissions
made before me. "Whether the notice of termination dated 31.8.1994 is liable to be
set aside as illegal and void in view of interim injunction granted by this court
restraining any action on the show cause notice."
(20) The counsel appearing for the plaintiff drew my attention to the pleadings of the
defendant in its written statement, wherein, it has been stated that the notice of
termination dated 31.8.1994 had been issued for valid and sufficient cause. In Para
126 of the written statement, it has been stated that the said notice of termination is
just and fair and has been issued for valid and sufficient cause. Further in Paragraph
122 of the written statement, it has been contended that the defendant had given
reasons for terminating the dealership. The counsel appearing for the plaintiff also
drew my attention to the order dated 14.12.1994, wherein it has been recorded thus:
"Yesterday, Ms. Kalra was asked whether there was any file showing the cause. Today
Mr. Lalit Bhasin appeared and states that there is no file indicating any cause after
6th April, 1991 except the breaches indicated in the notice dated 6th April, 1991 to
which the plaintiff did not reply. Hence, the defendant has exercised independent
right under Clause 21."
(21) Relying on the aforesaid order, the counsel submitted that the defendant having
not led any evidence at all to show that the aforesaid notice of termination was
issued for some other reason or cause than that mentioned in the show cause, it is
proved that the said notice was issued on the same grounds, reasons or causes as
are contained in the show cause notice dated 6.4.1991, as against which there was
an interim injunction order granted by the Court, injuncting the defendant and
restraining it from taking any action on the show cause notice and accordingly, the
aforesaid notice of termination having been issued in defiance of the Court's order,
the same is illegal and void and is, thus liable to be set aside.
(22) I have heard the learned counsel appearing for the defendant who also has
taken me through the various orders passed by this court and also by the Supreme
Court in connection with and subsequent to the issuance of the show cause notice
dated 6.4.1991 and the notice of termination dated 31.8.1994. As against the
aforesaid show cause notice dated 6.4.1991, the plaintiff filed a suit under Section 20
of the Arbitration Act, wherein, the plaintiff was granted an ex parte injunction which
was later on confirmed by this Court on 18.11.1991. The counsel for the plaintiff
submitted that in view of the aforesaid order passed by this court confirming the ex
parte order of injunction passed by this court, the defendant was restrained from
terminating the dealership agreement. It is stated that the Supreme Court also did
not interfere with the aforesaid restraint order passed by this court on the injunction
application.
(23) However, the records of the case appear to speak otherwise. The Supreme Court
in Special Leave Petition (C) 837/1992 while issuing notice on 3.2.1992 made it clear
that the petitioner could file its reply to the show cause notice. Besides, against the
order passed by this court on 18.11.1991, a Special Leave Application was preferred
by the defendant which was registered as Special Leave to Appeal No. 837/92 and by
order dated 3.2.1992 it was ordered that the order of the High Court under appeal
would remain stayed subject to the undertaking of the petitioner which was placed on
record, that pursuant to the show cause notice, no order of termination of the
dealership would be made. The aforesaid Application was finally heard and was
disposed of by the Supreme Court by order dated 18.8.1994 inter alia, as follows:-
"....In view of the order, we propose to make, we consider it necessary to refer to or
decide any of them. It is sufficient to observe that all the points urged by the two
sides would remain open for a fresh consideration by the Supreme Court in the first
instance while deciding the main matter on merits. The observation made on any of
the points including Clause 21 of the agreement in the impugned order will be treated
by the High Court as it is tentative opinion only ... ... ... ... ... ... ... ... ... For the
present appeal, it is sufficient to say that the order of injunction issued by the High
Court against the appellants would not be construed as restraining the appellants
from exercising the power that they may have under Clause 21 of the agreement; and
in case the appellants choose to exercise their power under Clause 21 of the
agreement, parties would be entitled to their respective rights as a result thereof as
may be available to them in accordance with law. The High Court order dated
20.4.1991 read with order dated 18.11.1991 shall be construed and understood in
the manner indicated herein by us."
(24) In view of the aforesaid directions of the Supreme Court, it is apparent that
there was no restraint on the defendant exercising its right to terminate the
dealership agreement of the plaintiff. The Supreme Court further observed that in
case the defendant chose to exercise the said right, the plaintiff would be entitled to
remedies in accordance with law. Under those circumstances, it cannot be said that
there was any restraint operating regarding cancellation/ termination of the
dealership agreement in favor of the plaintiff. The first submission of the learned
counsel for the plaintiff, Therefore, is held to be without any force. Whether clause
21 of the agreement is void and is hit by Section 23 of the Indian Contract Act:
(25) Clause 21 of the agreement stands extracted. By the aforesaid clause an option
was given to both the parties who may by giving the other 90 days notice in writing
terminate the agreement without assigning any cause. The counsel for the plaintiff
submitted that the aforesaid dealership agreement including clause 21 thereof is in
the nature of a standardised form of agreement and that the said clause 21 was not
part of the advertisement inviting offers for dealership and such power was not in the
contemplation of the plaintiff when the plaintiff applied for the dealership in response
to the invitation inviting such application. The counsel further submitted that the said
agreement is in the nature of a standardised form of agreement and the Chairman
and Managing Director of the plaintiff was compelled to sign the said agreement
containing clause 21 on dotted lines, on the basis of 'take it or leave it'. It is
submitted that the defendant having a bargaining power over the plaintiff and the
plaintiff being unequal in the aforesaid bargaining power as compared to the
defendant the Chairman of the plaintiff had no other option but to put his signature
on the dotted line although the said clause is unconscionable & against public policy.
(26) The counsel appearing for the defendant, on the other hand, submitted that
PW1, who is the Chairman and Managing Director of the plaintiff is a rich commercial
businessman and he had the best legal advice in relation to the dealership and that
he had never protested in writing against the termination clause contained in the
agreement. The further submission of the learned counsel for the defendant was that
the agreement in question is a commercial transaction between an affluent
businessman and the defendant company and the power of termination has been
mutually accepted. His submission was that the aforesaid clause 21 should be so
interpreted and given a meaning commensurate with private commercial transaction
and not interpreted in the light of the same expression occurring in Statutes or in
contract which are in the realm of public contract or law.
(27) In order to appreciate the contentions raised in this regard, let me consider the
oral evidence adduced by the parties. On behalf of the plaintiff, Mr. Narender Anand
the Chairman and the Managing Director of the plaintiff was examined as PW1 and he
stated on oath as follows:- "Maruti Udyog called us to execute the dealership
agreement. They called us at their office at 6th floor, 15, Hansalya, Barakhamba
Road, New Delhi. Myself and Mr. Raj Chopra went to execute the agreement; We said
we wanted to read the agreement. Mr. R.C.Bhargava, who at the time was looking
after marketing told us that this is a printed agreement for dealership and if we
wanted the dealership we had to sign the same on dotted lines. He said that no
change is possible in the dealership agreement. ... ... ... ... We did not see what was
the agreement. Both myself and Mr. Raj Chopra signed the agreement. P.W.1 further
stated in his evidence as follows:- "Classic Motors signed the dealership agreement
on 15.1.1988 and thereafter I changed the name to Classic Motors Pvt. Ltd. This new
agreement was signed at 25, Kasturba Gandhi Marg, on the 11th floor in the
defendant's office. ... ... ... ... ... I had asked him at that time whether there was any
change in the agreement after the one signed by us earlier. It was earlier said that
this was a printed agreement which they were obtaining from all the dealers from all
over India and there was no question of any negotiations about the same at that
stage. I had not read the clauses of the agreement. I had not read them as they had
not allowed the same saying that they were similar to the agreement signed in 1983.
... ... ... ... ... ... ... I have no bargaining power for executing the works as a dealer
of the defendant. Before signing the dealership agreement I was not told by the
defendant orally that the said agreement could be terminated with 90 days notice."
(28) In the cross-examination PW1 was asked as to whether at the time of signing
the dealership agreement on 2.11.1983 he wanted any change in the said agreement
to which he replied that as he was not allowed to read the dealership agreement he
did not want any change in the same. PW1 was again asked as to whether he had
made an attempt to read the dealership agreement before signing the same, to which
he replied that Mr. Bhargava told him that he should sign the last page of the
agreement and that he need not read the same and Therefore, he signed the same.
He further stated that even after signing the agreement he never read the dealership
agreement and that he read the dealership agreement for the first time after receiving
notice on 6.4.1991. He also stated that he did not read the same at the time when he
received a photo copy of the same from Mr. Raj Chopra in 1986 when Mr. Raj Chopra
and he got separated. He further stated that he had not read the photo copy of the
said agreement which he received from Mr. Raj Chopra even in 1986 and that he did
not even read the photo copy of the said agreement from 1986 to 1991 as there was
no occasion for him to read the same.
(29) The counsel for the plaintiff in support of his submission that the aforesaid
clause 21 is void relied upon the decision of the Supreme Court in Kumari Srilekah
Vidyarthi & others Vs . State of U.P.& Others; MANU/SC/0504/1991 : AIR1991SC537
and the decision of Central Inland Water Transport Corpn. Ltd. Vs . Brojo Nath
Ganguly and another; MANU/SC/0439/1986 : (1986)IILL J171SC and also the
decision of the Supreme Court in Lic of India & another Vs . Consumer Education and
Research Centre & Others; MANU/SC/0772/1995 : AIR1995SC1811 . In the light of
the aforesaid submissions of the counsel for the parties with the decisions of the
Supreme Court relied upon by them, I shall proceed to decide as to whether the said
clause is arbitrary and void.
(30) On a bare perusal of the said clause it appears that option had been given to
either of the parties to terminate the contract without assigning any cause but on a
condition that a notice in writing giving 90 days time to be communicated by the said
party desiring to terminate the contract. Therefore, the said clause is applicable and
available to both the parties to the agreement. The stand taken by PW1 that he never
read the aforesaid clause 21 of the agreement before 1991 although he had entered
into such agreement with the defendant in partnership with Mr. Raj Chopra, as far
back as 1983 and individually in 1988 after the dealership was given to him in his
personal own firm's name, cannot be believed. PW1, as it appears, is an educated
person and a successful commercial businessman. He has stated in his evidence that
his assets include several properties and that he has rental income, farm house,
motor workshop and business in real estate. It can never be believed that a person
like PW1 would not read the clauses of the agreement including clause 21 thereof till
the year 1991 when the definite evidence on record is that he had received a copy
thereof atleast in the year 1986 from Mr. Raj Chopra. The dealership agreement
further contains an endorsement just above the signature of PW1 to the effect that he
had read the contents of the agreement. It appears that PW1 has taken such an
extreme stand of not having gone through the contents of the aforesaid agreement till
1991 in order to wriggle out of the objection taken by the defendant in the suit that
there is inordinate delay in challenging the validity of the said clause 21. It is
apparent that the plaintiff has chosen to challenge validity of clause 21 of the
dealership agreement after a long lapse of time and that also after taking full
advantage of the benefits of the dealership agreement from 1983 onwards. Such a
challenge, in my opinion, is not permissible on the ground of waiver and estoppel as
has been held by the Supreme Court in Pdm Reddy Vs . P.A.Rao,
MANU/SC/0392/1974 : [1975]2SCR32 that the doctrine of waiver which the courts of
law would recognise is a rule of judicial policy that a person will not be allowed to
take inconsistent position to gain advantage through the aid of courts. It is further
held that the essential element of waiver is that there must be a voluntary and
intentional relinquishment of a right. The ratio of the aforesaid decision Application
to the facts of the present case with full force. The plaintiff by electing to reap the
benefits of the agreement and having enjoyed the same from the year 1983 could not
have challenged clause 21 thereof after a lapse of about ten years.
(31) The plea of the plaintiff that clause 21 is invalid because of unequal bargaining
power and duress and coercion also needs to be examined at this stage. My attention
is drawn to a decision of this Court in Unikol Bottlers Ltd. Vs. Dhillon Kool Drinks,
reported in 1994 (28) Drj 483. Paragraph 32 of the said judgment being relevant for
my purpose is extracted below:- "For a valid contract it is essential that the parties
have given their free consent for it. Section 10 of the Contract Act statutorily
recognises the requirement of free consent for a valid contract. Section 13 of the
Contract Act defines consent as follows:- 'two or more persons are said to consent
when they agree upon the same thing in the same sense'. Section 14 of the said Act
defines 'free consent' as 'consent is said to be free when it is not caused by :- (1)
Coercion, as defined in Section 15; (2) undue influence, as defined in Section 16; or
(3) fraud, as defined in Section 17 or (4) misrepresentation, as defined in Section
18; or (5) mistake, subject to the provisions of Sections 20,21, and 22. Consent is
said to be so caused when it would not have been given but for the existence of such
coercion, undue influence, fraud, misrepresentation or mistake,' Section 15 & 16
define coercion and undue influence. What follows from these statutory provisions is
that an agreement to be valid should be the result of free consent apart from other
requirements. While dealing with the question of duress/coercion and unequal
bargaining power one is really concerned with the question of free will i.e. did the
parties enter into the agreement with a free will? It is the plaintiff who has raised the
question of its will being dominated by the defendants and, Therefore, not being a
free agent. Therefore, the plaintiff is on test. It has to be ascertained whether the
plaintiff exercised a free will or not while entering into the Supplemental Agreement.
For this purpose there are several factors which need to be looked into. They are -
(1) Did the plaintiff protest before or soon after the agreement? (2) Did the plaintiff
take any steps to avoid the contract? (3) Did the plaintiff have an alternative course
of action or remedy? If so, did the plaintiff pursue or attempt to pursue the same? (4)
Did the plaintiff convey benefit of independent advice?"
(32) Let me now examine and apply the principle of the aforesaid factors in order to
test the plea of the plaintiff. The plaintiff admittedly did not make any protest before
entering into the agreement but on the other hand, went ahead with its performance.
The validity of a clause of the agreement is now being sought to be challenged when
it was terminated. Even in the earlier two petitions filed by the plaintiff under Section
20 of the Arbitration Act, the plaintiff did not challenge the validity of the agreement.
Thus the plaintiff has taken full advantage under the agreement and reaped benefits
from it and now when the same was terminated, the plaintiff immediately rushes to
this court challenging the validity of the agreement. Therefore, the first two questions
are to be answered in the negative i.e. the plaintiff did not raise any protest before
entering into or soon after entering into the agreement and also did not take any
steps to avoid the agreement. Rather it affirmed the agreement and reaped all the
benefits of the agreement from 1983 onwards till it was terminated. After having
done so, the plaintiff is not entitled to challenge the agreement. In North Ocean
Shipping Co. Ltd. Vs. Hyundai Construction Co. Ltd.; reported in1978(3) All. E.R.
170, it has been held that if the party complaining of an unfair contract does not do
anything to avoid it and accepts it then the complaining party cannot make a
grievance of the contract. Therefore, the third factor also stands answered. So far the
question of independent advice is concerned, from the facts delineated above, it is
apparent that PW1, the Chairman and Managing Director of plaintiff is a rich and
flourishing businessman having number of properties and various businesses. He,
Therefore, had full knowledge as to the implication of the terms of the agreement and
he also had access to the best of advices and suggestions. But inspire of being placed
at such an advantageous position PW1 did not react in any manner to the terms of
the agreement, rather continued to reap the benefits under the agreement.
(33) From the facts available before me, it is crystal clear that the defendant did not
exercise any duress on the plaintiff or that the agreement was arrived at with the
plaintiff without its free consent. At paragraph 37 of the judgment in Unikol Bottlers
Ltd. (Supra.) it has been held thus:- "The contracts are meant to be performed and
not to be avoided. Justice requires that men who have negotiated at arm's length, be
held to their bargains unless it can be shown that their consent was vitiated by fraud,
mistake or duress. The real test is to first establish that the means pursued were
illegitimate in the sense of amounting to or threatening a crime, tort or a breach of
contract (though possible not plausible breach of contract will suffice). Secondly, one
must establish that the illegitimate means were a reason, though not necessarily the
pre- dominate reason for the victim's submission. Applying these tests to the facts of
the present case. I am unable to persuade myself to hold that the consent of the
plaintiff to enter into the Supplemental Agreement was not free or was vitiated on
any of the grounds urged before me and discussed hereinbefore."
(34) The aforesaid tests when applied to the facts of the present case bear out that
the agreement was free and not vitiated by any coercion or duress. Accordingly,
clause 21 of the agreement cannot be held to be invalid on that count.
(35) The question of a clause being against the public policy and/or arbitrary or
unconscionable could definitely be advanced when the contract relates to the realm of
public law. However, when such a clause relates to a private contract the law
definitely would stand on a different footing. In a private contract a party can deal
with a party with whom he wants to, and such a party cannot be compelled to deal
with a person they are unwilling to do so. In Srilekah Vidyarthi case (supra) it has
been held by the Supreme Court that there is a fundamental difference between the
contract in the public law field and the private field. Upholding the appointment of
Public Prosecutors the Supreme Court held that the words 'without assigning any
cause' would still mean there exists reason even though the same is not
communicated. In Central Inland case (Supra) relied upon by the plaintiff the
Supreme Court while examining the question of economic duress and
unconscionability of contracts based the ratio of its judgment on the principle of
Article 14 and terms of the contract. The Supreme Court however, was conscious of
the fact that the law laid down therein would not be applicable when the case relates
to a commercial transaction, when it observed at page 216: "This principle however,
will not apply where the bargaining power of the contracting parties is equal or
almost equal. This principle may not apply where both the parties are businessmen &
the transaction is a commercial transaction". The Supreme Court further held at
paragraph 102 of the judgment thus:- "it is not possible to equate the employees
with goods which can be bought and sold. It is equally not possible for us to equate
a contract of employment with a mercantile contract between two businessmen and
much less to do so when the contract of employment is between a powerful employer
and a weak employee".
(36) Similarly the case of Lic of India (Supra) is a case relating to a contract entered
into by an instrumentality of a State in the realm of public law and in that context the
Supreme Court held in paragraph 29 of the said judgment that the actions of the
appellants (LIC of India) bear public character with an imprint of public interest
element in their offers regarding terms and conditions mentioned in the appropriate
table inviting the public to enter into contract of life insurance and that it is not a
pure and simple private law dispute without any insignia of public element. It was
further held that the actions of the State, its instrumentality, any public authority or
persons whose actions bear insignia of public law element or public character are
amenable to judicial review and validity of such an action would be tested on the
anvil of Article 14.
(37) The ratio of the aforesaid decisions, Therefore, cannot be said to be applicable
in a case of dealership agreement entered into by the defendant, purely on private
commercial transaction, who has been held to be not an instrumentality of State by a
Division Bench of this Court in P.B.Ghayalod Vs . Mul & others; MANU/DE/0021/1992
: AIR1992Delhi145 .
(38) While enforcing the contract for a gas dealership by Bharat Petroleum the
Allahabad High Court has held in the case of Shyam Gas Co. Vs . State; reported in
MANU/UP/0029/1991 : AIR1991All129 , that the principle of unconscionability of a
clause will not apply in case of commercial transaction where both the parties were
businessmen but carved out an exception only in the Scheduled Caste quota in order
to salvage the down-trodden and economically distressed.
(39) The Privy Council in the case of 1979 (3) All England Reports 65 (Vol. V), on the
question of economic duress leading to unconscionability, held that where the
businessmen are negotiating at arm's length, it is difficult to uphold the rule of public
policy.
(40) In the case of AlecLobb (Garages) Ltd. & others Vs. Total Oil G.B.Ltd.1983 (1)
All E.R. 944, it has been held that, "so far as there was no compulsion to enter into
any transaction with the defendant upon the plaintiff, merely because of financial
difficulties which were of his own creation, the plaintiff could not take the plea of
unequal bargaining power."
(41) In view of the aforesaid discussion, in my considered opinion the plea of
economic duress and the plea of unconscionability is not available in the instant case
where the transaction is purely a commercial contract between two private parties,
the defendant having been held by this court not to be a 'authority' under Article 12
of the Constitution of India in the case of P.B.Ghayalod (supra).
(42) Reference may be made to a decision of the Supreme Court in Bihar State
Electricity Board Vs . M/s.Green Rubber Industries & Others, reported in
MANU/SC/0075/1989 : [1989]2SCR275 . In the said case also the agreement was in
a standardised form of contract like the present case. In that context the Supreme
Court observed that the standard clauses of the contract have been settled over the
years and have been widely adopted because experience shows that they facilitate the
supply of electric energy & that such a contract is presumed to be fair and
reasonable. In that case it was further observed that it is settled law that a person
who signs a document which contains a contractual term is normally bound by them
even though he has not read them. To the similar effect is also the decision of the
Supreme Court in Bharathi Knitting Company Vs . Dhl Worldwide Express;
MANU/SC/0628/1996 : AIR1996SC2508 wherein it has been held that the parties to
an agreement are bound by the terms of the agreement.
(43) Under these circumstances, I , have no hesitation in my mind to hold that the
aforesaid clause 21 is a valid clause to which the parties hereto agreed upon to abide
by the same. Besides the said clause having been the part of the agreement entered
into between the plaintiff and the defendant for the first time in 1983 and thereafter
again in 1988 could not have been challenged in the present suit filed after several
rounds of earlier litigation.
(44) The next issue on which the learned counsel for the parties laboured hard and
advanced very elaborate arguments is as to whether the agreement is indeterminable
and permanent in character. Whether the agreement in question is indeterminable
and permanent in nature?
(45) The counsel appearing for the plaintiff submitted that clause 21 does not at all
give the power to the defendant to terminate the agreement without any cause.
According to the counsel by its very nature the agreement is indeterminable and
permanent in character. It was further submitted that clause 21 of the agreement on
which the defendant acted upon while terminating the contract cannot be read in
isolation and that it has to be read harmoniously with the rest of the agreement as a
whole. The counsel also submitted that the aforesaid clause 21 is to be interpreted in
the light of the factual matrix and the setting in which the agreement was executed.
According to him clause 21 is to be interpreted taking into consideration the
background and the context in which the parties entered into the agreement and also
taking into consideration the surrounding circumstances.
(46) The counsel drew my attention to the advertisement inviting applications for
dealership and submitted thereon that the contents of the said advertisement make it
crystal clear that the dealership was intended to be permanent. There was no time
limit fixed for the dealership at that time. The specific terms and obligations imposed
upon the plaintiff under the dealership agreement executed between the parties left
no manner of doubt that the agreement was intended to be permanent. In this
connection reference was also made to paragraph 55 of the plaint wherein it was
pleaded by the plaintiff that the defendant was in full knowledge of the expectations
of the dealers/ franchisees, their confidence and trust and the good-faith in the
defendant that if they fulfill and perform those obligations in accordance with the
dealership agreement or the agreement of franchise the franchise would not be
terminated arbitrarily. It was further pleaded therein that the defendants induced the
dealer including M/s. Competent Motors to sign the agreement on a dotted line and
thus said action resulting in detriment to the dealers or the franchisee could be
interpreted as an estoppel against the defendant from arbitrary termination, and there
was a duty cast on the defendant to act in good faith in the exercise of even
otherwise purported power of termination of the franchise.
(47) My attention was also drawn to the deposition of Shri Narender Anand, PW1
wherein he stated that Shri R.C.Bhargava, who at that time was looking after
marketing told him that the dealership agreement would continue as long as the
factory would run. He was told by Shri Bhargava that also said that this would be a
permanent income to him and his children. He was also told that this was a long term
agreement and a franchise agreement and that the dealership agreement would be a
professional agreement. In the examination-in-chief the said witness further stated
that Mr. R.C.Bhargava gave an assurance to the plaintiff that this was a long term
benefit for them provided they kept on spending money. He also deposed that
according to him the relation between the dealer and Maruti Udyog Limited was a
Joint Venture and that Maruti Udyog Limited were producing the vehicles and the
dealers were promoting their sale and maintaining their vehicles.
(48) The learned counsel also drew my attention to the observations of the House of
Lords in their judgment in Director, Llanelly Railway & Dock Company Vs. Directors,
London & North Western Railway Co.; reported in 1875 E& I A 500 at page 564, 565
and submitted that the said observations apply equally to the present dealership
agreement. The relevant portion of the said observation is extracted below:- "Then
my Lords, that being so, I am at a loss to see how it can be supposed that an
agreement of this kind, the subject matter being such as I have described it, namely -
the exercise of running powers over the Llanelly Railway which for all time would be
of use to the London and North Western Railway Company - how it can be supposed,
nothing being said in the agreement to that effect, that they entered into this
agreement only with this view; this will be an agreement which shall be valid and
binding on us and the Llanelly Company so long as we think fit on either side, and no
longer; we are to provide the clerks: if we start a traffic of our own, if we exercise
our running powers, we are to be compellable to carry the local passengers, and we
must accommodate our rolling stock for the purpose of carrying that extra amount of
traffic which we should otherwise not have had to carry; we must provide that stock,
and we must also provide the necessary staff of clerks, and when we have done all
that (I will not say this week, because it is not necessary to put the highest and most
improbable case, but), when we have done that and gone on for six months, then the
Llanelly Company may find the agreement, in some way or other, to be burdensome,
and may say: we do not care in the least for your additional rolling stock, or for the
additional staff or clerks that you have provided, but we give you notice to terminate
the agreement, and we shall terminate it accordingly. I have not said anything about
the pound 40,000, but I have confined myself strictly to the agreement. To suppose
any company would enter into an agreement of that kind seems to me to be an
entirely irrational supposition, and there is nothing which should induce your
Lordship to fix a limit when none can be fixed which is reasonable as between the
parties, and nothing is said as to such a limit from beginning to end of the contract".
Relying upon the ratio of some other judgments like Sherman Vs. British Leyland
Motors Ltd. reported in 601 Fed. Reporter 2d 429, wherein it was held that the
distributor dealership agreement between an automobile manufacturer and dealer is a
franchise agreement; and also to Canadian Law Journal and the case of United States
Supreme Court in United States Vs. Arnold, Schwin & Co. at all reported in(1967)
388 U.S. 365, the counsel submitted that clause 21 is a part of an agreement which
is a franchise agreement and has to be interpreted in a manner as would be in
consonance with the law relating to the power of the franch is or to terminate a
franchise agreement. Drawing support from the aforesaid decisions he submitted that
by now it is an established law that the franch is or cannot have arbitrary power to
terminate the franchise agreement at his sweet will and fancy without cause or in bad
faith and that the franch is or must exercise his right of termination in accordance
with the principles of justice, equity and good conscience.
(49) The counsel appearing for the defendant, on the other hand, drew my attention
to the different clauses of the agreement for the purpose of ascertaining the character
of the agreement. Referring to clause 21 of the agreement he submitted that the
power under clause 21 is a power available to both the parties who are entitled to
terminate the same without assigning any cause and that it is a power based on
mutuality. According to him if such a clause was not there and if the parties were not
allowed to terminate the contract at their will the same would have amounted to
interfering with the right of freedom of trade of either party in the realm of private
contract. He further submitted that the defendant is a private company and so held by
this court in the case of P.B.Gehlot Vs. M/s. Maruti Udyog Limited and others;
(supra). He submitted that the said clause - in the context of a private company
which is not an instrumentality of the State and not bound by the restraint and
constraint of Article 14 means that no cause need to exist for exercising power under
clause 21. Relying on the various clauses of the agreement the counsel submitted
that the agreement was never intended to be permanent and that in the context of
dealership sales agreement between two private parties agreement of the present
nature could never be perpetual and that any one of the said parties is entitled to
terminate the agreement upon the happening of an event and that either party may
terminate without assigning any reason by giving 90 days notice and that none of the
parties could be compelled to have the consent of the other party for terminating the
contract.
(50) In the backdrop of the rival submissions of the parties in respect of the nature
of the agreement let me consider and determine as to whether the agreement is
indeterminable and permanent in nature.
(51) The plaintiff entered into a dealership agreement with defendant on 15.1.1988
which is Ex.D-33. This dealership was given to the plaintiff as a special case as has
been delineated above. The plaintiff is seeking all its rights and basing all its claims
on the said agreement. The said agreement dated 15.1.1988 was signed by PW1, the
Chairman and Managing Director of the plaintiff. There appears an endorsement
above his signatures on the said agreement that - "We, M/s. Classic Matters, New
Delhi having carefully read all the clauses in this agreement hereby agree thereto". In
the context of the aforesaid endorsement made just above his signatures would belie
the contention of the plaintiff that PW1 had never read the clauses of the contract.
The counsel for the plaintiff drew my attention to the deposition of PW1 in support of
assurances given by Mr. R.C.Bhargava at the time of execution of the dealership
agreement in 1983 with Competent Motors to the effect that the agreement was
permanent and that it was to government income to the family members of the
Managing Director of the plaintiff and that the said agreement was franchise
agreement. DW1 appearing for the defendant categorically denied that any such
assurance was given by Shri R.C.Bhargava to PW1 at the time of entering into the
aforesaid agreement with the plaintiff. He also further stated that Shri R.C.Bhargava
had no such authority to give any such assurance. Besides, when the terms and
conditions of an agreement are clear and certain and do not suffer from any
ambiguity no extraneous evidence or oral evidence could be led by any of the parties
in respect of proving the intention of the parties in respect of such an agreement.
Moreover ,all the aforesaid statements of PW1 relate to the agreement entered into in
the year 1983 between Competent Motors and the defendant company which is not
the subject matter of the present suit.
(52) It is settled law that no oral evidence is admissible for interpreting the terms of
the contract. Sections 91 and 92 of the Evidence Act make the aforesaid position
clear. In this connection reference may also be made to the decision of Tsang Chuen
Vs. Li Po Kwai; reported in Air 1932 Pc 255. In the said decision the Privy Council
has held that where words of any written agreement are free from any ambiguity in
themselves and where external circumstances do not create any doubt or difficulty as
to the proper application of those words to claimants under the instrument or the
subject matter to which the instrument relates, such instrument is always to be
construed according to the strict plain common meaning of the words themselves and
in such case evidence de hors the instrument for the purpose of explaining it
according to the surmised or alleged intention of the parties to the instrument is
utterly inadmissible.
(53) That is the settled position of law in respect of admissibility of oral evidence in
respect of a written instrument followed by various courts of India. In this connection
reference can also be made to the decisions in Vellappa Gounden Vs. Palani Gounden
& another MANU/TN/0628/1915 : Air 1915 Mad 1079 and Panna Lal and another Vs.
Nihai Chand Air 1922 Pc 46. More recently, the Supreme Court has approved the
aforesaid principles of law laid down by the Privy Council in the decision of
R.Thangadurai Nadar Vs . Deivayanai Ammal, and others; reported in and in the case
of Tamil Nadu Electric Board Vs . N.Raju Chettiar; MANU/SC/0501/1996 :
AIR1996SC2025 . The same being the settled principles of law no oral evidence could
be led in respect of the contents of the documents by any of the parties. Therefore, I
am required to read the various clauses of the agreement and then come to a finding
by reading the aforesaid clauses as to whether the said agreement is indeterminable
and permanent in character.
(54) The plaintiff has entered into the dealership agreement dated 15.1.1988 of its
own free will and without any coercion as has been held by me in foregoing
paragraphs and which is also an admitted position by PW1 in his deposition recorded
in this court. He specifically stated that no force or coercion was used on him for
signing the dealership agreement either in the year 1983 or in the year 1988. He also
deposed that he was eager to get the dealership as the same was a profitable venture
and that he had also made profits out of the aforesaid venture. PW1 in his cross-
examination has further stated that he did not check as to whether Mr. Bhargava had
any such authority to give any verbal assurance.
(55) Clause 2 of the agreement uses the word 'Franchise'. Relying heavily on this
expression in the dealership agreement the counsel for the plaintiff submitted that
the same is in fact a franchise agreement. However, the said submission of the
learned counsel that because of the use of the expression 'franchise' in clause 2 of
the agreement the agreement itself is a franchise agreement cannot be accepted in
view of the contents of clause 32 of the agreement wherein it is stated that clause
headings are inserted for convenience only and shall not affect the interpretation of
this agreement. Clause 3 of the said agreement refers to duration of the agreement.
Sub-clause (c) of clause 3 specifically provides that the agreement would continue
until it is terminated by either party on giving of 90 days prior notice to that effect.
This power of 90 days notice as provided for in clause 3(c) however, is subject to the
other provisions contained in the agreement. Clause 21 of the agreement provides
that the agreement would remain and continue in force and govern all transactions
between the parties thereto until cancelled or terminated in the manner as expressed
thereafter and that notwithstanding the provisions of any clause either party may by
giving the other 90 days notice in writing terminate the agreement without assigning
any cause. Clause 22(c) further gives a power to the defendant that after giving of
notice to terminate or the occurrence of any event which would entitle the Company
to terminate this Agreement forthwith the Company shall be entitled to appoint a new
dealer(s). Sub-clause (c) of clause 22 read with clause 21, Therefore, implies that
two kinds of terminations of the agreement have been envisaged i.e. one under
clause 3(c) & 21 where a notice of termination could be given and second under
clause 22(c) on the occurrence of any event which would entitle the company to
terminate the agreement forthwith. It is pertinent to note that in the latter case even
the requirement of 90 days notice as provided for in clause 21 is not a condition
precedent for terminating the agreement under clause 22(c). Therefore, it is apparent
from the aforesaid clauses in the agreement, by which the parties were bound, that
the defendant is entitled to terminate the agreement without assigning any reason by
giving 90 days notice or upon the happening of an event without giving prior notice
of 90 days as provided for under clause 21 and clause 22.
(56) Having set out the various clauses of the present agreement, I may now proceed
to notice the laws relating to franchise agreement in U.K. and U.S.A. on which
extensive reliance was placed by the learned counsel for the plaintiff in support of his
submission that the present agreement is perpetual, permanent and indeterminable.
(57) On reappraisal of the various articles and the decisions relied upon by the
counsel for the parties it appears that the original scheme of franchise was under
Public Law. The right to use roads, waterways and other municipal amenities was
considered to be a franchise. But there also it is envisaged that a franchise agreement
could be terminated provided reasonable notice is given. Notice of termination may
be required either by the express terms of the franchise agreement or by Statute.
Franchise agreements commonly contain provisions for termination upon notice and
it has been held that cancellation in accordance with such a provision effectively
terminates the agreement and no damages can be claimed on account of such
termination. In Similar Vs. Western Men Inc.; 437 Pacific Reporter 2nd Series 1598,
on which the counsel for the plaintiff relied upon, it was held that where parties enter
into a contract involving the granting of a franchise and there is no express provision
that it may be cancelled without cause, it is fair and reasonable to assume that both
parties entered into the arrangement in good faith, intending that if the service be
performed in a satisfactory manner the contract would not be cancelled arbitrarily.
The ratio of this decision is not applicable to the agreement in hand which admittedly
contained an express provision that the agreement with the plaintiff could be
cancelled without assigning any cause. Another case relied upon by the plaintiff is the
case of Shell Oil Company Vs. Frank Marinello, 307 Atlantic Reporter, 2nd Series
page 598. The said case was decided by the Canadian Court in the context of a
legislation called Franchise Practices Act which prohibits a franch is or from
terminating, cancelling or failing to renew a franchise without good cause. Shell's
case however, stood superseded in U.S.A. by a Statute called Petroleum Marketing
Practices Act. This decision also, could not be made applicable to the facts of the
present agreement as in our country there is no such legislation regulating or
controlling a dealership agreement. On the other hand, section 14 of the Specific
Relief Act provides for law governing Specific Performance and lays down that a
Contract which is terminable cannot be enforced.
(58) The Supreme Court in Saghir Ahmed Vs . State of U.P., MANU/SC/0110/1954 :
[1955]1SCR707 noticed the doctrine of franchise as applicable in England and
America. It observed that "the doctrine of franchise or privilege has its origin in
English Common law and was bound up with the old prerogative of the Crown. This
doctrine continued to live in the American Legal World as a survival of the pre-
independence days, though in an altered form. The place of the royal grants under
the English common law was taken by the legislative grants in America and the grant
of special rights by legislation to particular individuals or companies is regarded as
franchise." The Supreme Court observed that the doctrine of franchise has no place in
our Constitution.
(59) A critical analysis of the various articles and decisions placed at the bar shows
that termination of a franchise agreement is possible provided reasonable notice is
given so that slight recoupment of profits is made by the party against whom such an
action is envisaged. It is thus apparent that the franchise agreements are terminable
in character. Besides it must be noticed that there are State Legislations in America
whereunder franchise agreements have been recognised and provisions have been
made therein for terminating such agreements at will terminable for good cause,
terminable with reasonable notice or terminable after profits have been recouped as
would appear from reappraisal of the following cases:-
(60) In the case of Gary H.Sharman Vs. British Leyland Ltd.601 Fed. Reporter 2d
429 (supra.) which was heavily relied upon by the counsel for the plaintiff in support
of his submissions appears to be a case rendered in the context of the local State
Legislation. In the said case it was held that a showing of coercion and intimidation
which produces unfair and inequitable results is essential to a valid claim of lack of
good faith.
(61) In Hill Oils & Sales Ltd. case reported in 1987 Lrc 468, on the ratio of which the
counsel for the plaintiff relied upon, appears to be a case where there was no
provisions for termination without cause. In the said case the court held that the
contract could not be terminated immediately without cause since there was no
provisions for immediate termination without cause. The court further held that the
rule requiring reasonable notice of termination should be implied as a reasonable
term of contract.
(62) Gillespie Brothers Ltd. reported in 1973(1) All E.R. 193 is a case based on
difference of opinion between the two Judges - wherein Lord Denning took a view
that an unconscionable term should not be enforced, while Lord Buckley took a view
that since the contract is between commercial businessmen, the contention and plea
of unconscionability does not arise.
(63) In Martin Baker Aircrafts Vs. Canadian Flight Equipment 1955(2) All E.R. 722 the
Queen's Bench decision distinguished the case of Llanelly Railway and Doc Co. by
holding that the Llanelly case was based on a peculiar agreement which did not
provide for a termination power and the statutory scheme under which there was an
indication of such an agreement being permanent. It was further held that mercantile
and commercial agreements were always intended not to be permanent.
(64) In 1928 (1) Cha 447 the case of Credit on Gas Company it was held that the
contract for supply and purchase of gas without determination and termination of the
contract was held not to be permanent in character.
(65) In Staffordshire Area Health Authority Vs. South Staffordshire Waterworks
Co.1978(3) All E.R. 769 the Court of Appeal held that the contract for water supply to
a Hospital at a given rate was terminable after giving reasonable notice.
(66) The law, Therefore, laid down by the aforesaid decisions rendered by the
various courts outside India did not intend to lay down a law that an agreement is
indeterminable and permanent in character. The judgments of United States were in
the context of the State Legislations therein and original scheme of such franchise
was under public law. However, the law governing specific performance in India is
covered under Section 14 of the Specific Relief Act, a provision similar to that does
not exist under the American law. The scheme of legislation in United States and
India is entirely different and unless and until there is Legislation on the similar line
as existing in the U.S.A, it is not possible to import the idea and concept of franchise
as exists in American law particularly in the realm of private contract arising out of
purely private commercial transaction.
(67) The counsel for the plaintiff also urged that the expression "without assigning
any cause" as appearing on clause 21 should be given a liberal interpretation
explaining that there could be no termination without a cause and that cause must
exist on record before a termination of an agreement could be effected although the
same may not be communicated. According to him not only cause must exist on
record but such cause must be valid and good cause going to the root of the matter.
In view of the aforesaid submissions it would be necessary to deal with this issue
specifically although the issue was discussed by me hereinabove as an ancillary
issue. Interpretation and meaning of the expression "without assigning any cause:"
(68) The aforesaid expression appears in clause 21 of the agreement which states
that either party to the agreement could terminate the contract after giving to the
other party a notice of 90 days 'without assigning any cause'. The present agreement,
it must be remembered, was entered into by the parties in the realm of private law as
a result of purely private commercial transaction. It is also to be remembered that in
a private contract a party is free to choose the person and the subject matter of the
transaction according to its own free will. No restriction or fetter could be imposed
on either of the parties to the manner, mode and the nature of the agreement that
they choose to enter into. But the law applicable would be different when such an
agreement is entered into in the realm of public law.
(69) The decisions that the learned counsel relied upon on this issue in support of his
aforesaid submission relate to the contracts in the realm of public law. The case of
Srilekah Vidyarthi (Supra) is a case on point in hand. In that case the Supreme Court
held that the expression 'without assigning any cause' means without communicating
any cause and that the said expression is not to be equated with 'without existence of
any cause' and that it only means the reason for which termination is made, need not
be assigned or communicated to the other party. Another case in which the Supreme
Court took similar view is the case of Liberty Oil Mills and others Vs . Union of India;
MANU/SC/0029/1984 : [1984]3SCR676 wherein it was observed that the expression
'without assigning any reason' implies that the decision has to be communicated but
for the reasons for the decision have not to be stated. It was held that the reasons
must exist otherwise, the decision would be arbitrary. The case of Liberty Oil Mills
(supra) was considered and referred to by the Supreme Court Along with other cases
in the case of Srilekah Vidyarthi (Supra). But it is to be noted that in Srilekah
Vidyarthi (Supra) the Supreme Court was also fully conscious of the difference
between a contract between private parties and a contract to which the State is a
party. It held "there is an obvious difference in the contracts between private parties
and contracts to which the State is a party. Private parties are concerned only with
their personal interest whereas the State while exercising its powers and discharging
its functions acts for public good, and in public interest". It further held in paragraph
17 thus:- "We are, Therefore, unable to accept the arguments of the learned
Additional Advocate General that the appointment of District Government Counsel by
the State Government is only a professional engagement like that between a private
client and his lawyer, or that it is purely contractual with no public element attaching
to it, which may be terminated at any time at the sweet will of the government
excluding judicial review." This decision, Therefore, envisages that reasons are
required to be recorded in a case where public element and the provisions of Article
14 of the Constitution may be attracted. In Lic Vs . Escorts Ltd.;
MANU/SC/0015/1985 : 1986(8)ECC189 , the Supreme Court held that the Life
Insurance Corporation of India cannot be restrained from calling an extraordinary
General Meeting of the company for moving a resolution nor it is bound to disclose
the reasons for moving the resolution. In paragraph 102 of the judgment it is held
that the court will not debate academic matters or concern itself with the intricacies
of trade and commerce and that if the action of the State is related to contractual
obligations or obligations arising out of the tort, the court may not ordinarily
examine it unless the action has some public law character attached to it. Similar
principle of law has also been laid down by the Supreme Court in M/s. Indian Oil
Corporation Ltd. Vs . Amritsar Gas Service & Ors. reported inMANU/SC/0513/1991 :
(1991)1SCC533 and in Central Inland Water Transport Corporation Ltd. (supra). In
M/s.Vijay Traders Vs . M/s. Bajaj Auto Limited; MANU/SC/0827/1995 :
(1995)6SCC566 , the Supreme Court has upheld a notice giving only 15 days time
holding that period of 15 days cannot be said to be unreasonable for termination of
distributorship.
(70) In view of long catena of decisions and consistent view of the Supreme Court, I
hold that in private commercial transaction the parties could terminate a contract
even without assigning any reason with a reasonable period of notice in terms of
such a clause in the agreement. The submission that there could be no termination of
an agreement even in the realm of private law without there being a cause or the said
cause has to be valid strong cause going to the root of the matter, Therefore, is
apparently fallacious and is accordingly, rejected.
(71) On an overall view of the entire matter, it appears to me that the present
agreement was never intended to be permanent and that in respect of dealership
sales agreements between private parties such agreements could never be held to be
perpetual unless so intended by the parties and specifically stated in the agreement
itself. On a reasonable construction of the agreement in hand I hold that either party
to the agreement was entitled to terminate the contract without assigning any reason
by giving 90 days notice or even without giving any notice upon the happening of an
event. Termination without cause in common law is a valid power which the parties
may give to themselves. Whether the notice of termination is liable to be held as
illegal and void as no cause exists for termination of dealership:
(72) The counsel for the plaintiff submitted that the defendant issued a show cause
notice dated 6.4.1991 spelling out various alleged breaches on the part of the
plaintiff and calling upon the plaintiff to show cause why its dealership should not be
cancelled. He also relied upon the averments made in the written statement that the
agreement had been cancelled for valid and sufficient cause and not arbitrary or
malafide reason. On the basis thereof, the learned counsel submitted that since the
termination of the agreement was based upon the same grounds for which show
cause notice was issued by the defendant the plaintiff is entitled to show that the said
grounds are false, non-existent, irrelevant ,malafide and if it is found by the court
that it is in fact so, the termination notice is required to be set aside by this court.
(73) The counsel for the defendant, on the other hand, submitted that no cause is
required to be shown for terminating the dealership agreement when the defendant
intended to take action under the provisions of Clause 21 which contains the
expression "without assigning any cause". The counsel further submitted that the
plaintiff has failed to lead any independent evidence to establish that the grounds on
which show cause notice was issued by the defendant was false and baseless.
(74) Since an extensive argument has been advanced on this aspect, I propose to
deal with the same although in fact in the context of my findings and decision above
it is not necessary to do so since the defendant is empowered to terminate the
contract without assigning any reason under Clause 21 of the agreement which power
has been invoked by the defendant in the present case. Let me, Therefore, look at the
grounds cited in the show cause notice dated 6.4.1991 which was issued to the
plaintiff by the defendant calling upon the plaintiff to show cause in respect of
various allegations of irregularities committed by the plaintiff to examine whether
they are false, irrelevant or non-existent as submitted on behalf of the plaintiff. It is
to be noted that no reply was filed by the plaintiff to the aforesaid show cause notice
inspire of the fact that the Supreme Court by its order dated 3.2.1992 in Special
Leave Petition No. 837/1992 permitted the plaintiff to file the reply to the said show
cause notice.
(75) The first ground on which the aforesaid show cause notice was issued to the
plaintiff relates to false reports of bookings, short-fall in deposit, delayed deposit of
payments etc. Under the sales policy dated 7.11.1990, the dealers are required to
accept bookings from customers by way of bank drafts in the name of Maruti Udyog
Limited A/c. dealer's name and deposit the same with Bank of America. The plaintiff
has accepted the payments, on his own admission, through cheques but the
payments of the customers were not deposited with the defendant on day to day
basis in the account of the defendant with the said Bank. There is yet another
allegation in respect of the same that there was a short-fall to the extent of Rs.7.81
Crores between the number of bookings reported by plaintiff as against the funds
remitted by it to the Bank of America as found out during reconciliation on or about
22.2.1991. That there were inaccurate daily booking reports submitted by plaintiffs to
the defendant reporting the number of bookings as 1229 as against only a figure of
490 is admitted by them. There was a further default and delay by plaintiff in
depositing the admitted shortfall amount of Rs.1.09 crores even in respect of the
actual 490 bookings as reported by the plaintiff.
(76) Sales Policy dated 7.11.1990 has been placed on record as Ex.D-1. The said
policy lays down that a dealer is required to accept bookings from customers by way
of deposit of a bank draft in the name of the defendant a/c. dealer name with Bank of
America on a daily basis. There was no change of policy in that regard under the
subsequent sales policy dated 1.1.1991 which is exhibited as Ex.PX-204 which was
issued as a further clarification to sales policy dated 7.11.1990. That payment was
received from customers by cheques instead of bank draft is admitted by PW-1. The
fact that there was a short-fall of Rs.7.81 crores upon reconciliation between the
bookings reported and payments received from the Bank of America is also admitted
by the plaintiff. Further, the plaintiff gave an Explanation to the aforesaid it was a
mistake as stated in their letter dated 11.3.1991 which was exhibited as Ex.D-35 in
reply to defendant's letter dated 28.2.1991 which is Ex.DW1/X1. In respect of
reported bookings of 1229 vehicles as against 490 actual bookings, it is stated by
PW1, that the same was a mistake and an error on the part of the staff of the
plaintiff. The defendant stated that the same could not be a case of error but is a
clear case of false reporting so as to receive a higher quota of vehicles as stated in
the show cause notice since the allocation of the vehicles depended upon the
bookings and payments reported by the dealers.
(77) However, it appears in the light of the aforesaid facts that there was, in fact,
violation of the conditions of the sales policy of the defendant by the plaintiff.
Besides reconciliation of accounts with the dealer based on statement of bank
remittances from Bank of America admittedly is done once in a quarter as admitted
by PW1 in his cross-examination. Apparently, during the course of such reconciliation
the aforesaid infraction and/or violation was detected which was subsequently on a
representation by the plaintiff stated to be an error on the part of the staff. The
Explanation sought to be given by the plaintiff that delay in depositing the money of
customers was because it was entitled to deposit the same within a period of 7 days,
for which no 3 evidence could be produced, cannot be held to be justified and proper
in view of the fact that the sales policy categorically lays down that the deposit of the
amount in respect of the bookings from customers should be deposited with the Bank
of America by way of bank drafts in the name of the defendant on day to day basis.
(78) In respect of the second part of the allegation as mentioned in para 1 of the
show cause notice, it appears, that the Income Tax Department informed the
defendant that after income tax raid on the premises of plaintiff they found 2273
FDRs as against the reported figures of 3637 FDRs given by them to the defendant in
their daily reports. The short-fall of 770 FDRs was sought to be explained as a
clerical mistake. However, the plaintiff informed the defendant that some of such
bookings were cancelled subsequently. Besides the sale policy dated 28.3.1990 which
was marked Ex.D/34 provides that all the FDRs for booking of vehicles must be free
from banker's lien/encumbrance. The Income Tax department in its letter dated
31.1.1991, which is Ex.D-3 brought to the notice of the defendant that about 500
FDRs of the plaintiff issued by Vyasa Bank were found by them. In the said letter it
was informed that the bank's Manager, Shri Ram Gopal had confirmed in writing to
the Income Tax Department that the bank had a charge/lien in the reported FDRs.
The plaintiff however, sought to explain away the same under its letter dated
15.12.1990 which is marked Ex.P-114 that all the aforesaid FDRs are not in their
possession and they cannot comment upon 90 FDRs which are still with the Income
Tax Department. plaintiff however, relies upon the certificate of Vyasa Bank which
however, has not been produced in evidence and was marked only for the purpose of
identification. Vyasa Bank admittedly is a tenant of the plaintiff and is also not a
nationalised bank. The fact that about 500 bookings were made over a short period
of one month only through Vyasa Bank itself raises doubt about the transactions. The
plaintiff also produced some FDRs to show that the Bank had no lien on the said
FDRs which would belie the allegation raised in the show cause. However, no
evidence has been led to show that the said FDRs are the same as that of the FDRs
referred to by the Income Tax Department.
(79) Para 3 of the show cause notice relates to delay in payment of interest and/or in
adjusting the same in the invoice. The sales policy of the defendant dated 7.11.1990
requires all dealers to pay interest to customers on their deposit after a period of 7
days from the date of booking till delivery and the amount of interest to be adjusted
in their invoice. It was alleged that the directions in the said policy are being
consistently violated by the plaintiff. In this connection, the defendant has cited the
case of Ambience Chit Fund and their complaint dated 11.3.1993 which was exhibited
in the suit as Ex.D-2. From the said complaint it appears that the interest payable to
customer was not paid at the time of delivery of vehicle and not adjusted in their
invoice. The aforesaid fact was explained by the plaintiff that the interest was paid to
the customer on 6.8.1991. According to the terms of the Sale Policy of the defendant
the interest was payable at the time of delivery of vehicle and handing over the
invoice to the customer. In the instant case the plaintiff paid the interest after six
months from the date of delivery of the vehicle and that also after long and
protracted correspondence.
(80) Similarly, in the case of Mr. R.N.Dhanda also, no interest was paid to him upon
delivery of the vehicle and delivery of the invoice on 4.3.1991. On 11.3.1991 when
said Mr. Dhanda visited the plaintiff, his original invoice was taken and destroyed and
a fresh invoice dated 26.2.1991 marked Ex.P/116 was given to him Along with
interest calculated up to 26.2.1991 although the car was delivered to him on
4.3.1991. The plaintiff tried to explain the said violation by stating that the car was
delivered to Mr. Dhanda on the basis of his authority letter Ex.P-117, wherein the
authority was only for delivery of the car and not for payment of money. Such an
Explanation appears to be baseless and unacceptable and it appears that the plaintiff
intentionally violated the terms of Sales Policy in order to make unwarranted gains
out of such transaction.
(81) Similarly, the allegations made in para 4 of the show cause notice relate to cut
off date. Mr. P.Nayyar's booking date was 11.5.1990, whereas cut off date at the
relevant time in October, 1990 was declared by the defendant as 3.5.1990. The
plaintiff accepted payment from Mr. Nair on 6.10.1990. According to the defendant
no dealer could accept any payment from the customer beyond the cut off date, and
Therefore, the defendant alleged that the plaintiff accepted the payment from Mr.
Nayyar on 6.10.1990 contravention of the Sales Policy of the defendant. However, it
appears, that the customer was going out of station and he intimated the said fact to
the plaintiff vide Ex.P-112, and Therefore, the said amount was accepted. The said
action in accepting the amount has also been explained by PW1 in his examination
that he did so after contacting the Regional Manager. Since acceptance of the amount
from Mr. Nayyar was at his request and after intimation to the Regional Manager, the
same in my considered opinion, cannot be faulted.
(82) Paragraph 5 of the show cause relates to failure to maintain reports properly.
The Inspection reports proved as Ex.DW1/12 and Ex.DW1/11 outline certain
violations in maintaining proper reports including furnishing false daily reports by the
plaintiff. It is also alleged that payment and delivery registers were also not properly
maintained. The plaintiff has explained the said lapses on its part by stating that the
allegations are vague and that Mr. Suresh who was examined as DW2 did not
specifically state in his deposition about the violations. Be that as it may, reports
against the plaintiff about his non maintaining the official procedure and proper
records do exist on record.
(83) Another allegation leveled against the plaintiff in paragraph 6 of the show cause
notice related to the plaintiff violating the instructions of the defendant for sending
notice by registered post to all customers intimating them about the change in the
purchase procedure. Admittedly, the said intimation was sent under certificate of
posting, which proves violation of the instructions of the defendant, which was
issued so as to enable the defendant and its dealers to prove service of letters on the
customers.
(84) The next allegation is in respect of charging higher price in respect of the Gypsy
Pickup delivered to Mrs. A. Then cho. Maruti's stockyard price for Gypsy Pickup at the
relevant time of its delivery to Mrs. Then cho was Rs. 1,52,894.00 but the customer
was given a proforma invoice (Ex.P/122) showing price of Rs.1,53,079.00 plus
Rs.1,000.00 as handling charge. According to the policy of he defendant, no dealer
was authorised to charge any amount as handling charge. When the plaintiff was
questioned about it, the same was explained as charge towards purchase of
accessories. Relating to price variation, the counsel for the plaintiff relied upon price
list (Ex.P-120), which according to the counsel for the defendant relates to Delhi and
is not relevant to show the stockyard price at Gurgaon. This allegation, Therefore,
appears to have strong basis.
(85) Some other violations by the plaintiff have been outlined in paragraph 8 of the
show cause notice. It appears that there were number of allegations against the
plaintiff as is reflected from the aforesaid allegations listed in the show cause notice.
plaintiff did not submit any reply to the show cause notice as stated above instead of
giving liberty by the Supreme Court to the plaintiff to file such a reply to the show
cause notice. It is not necessary for the court to find out the veracity of each of the
allegations made in the said show cause notice in the present suit. However, as
detailed above some of the allegations atleast, if not all are found to have strong
basis and reasons and Therefore, it cannot be said that they are totally non-existent
and baseless. The parties were private parties dealing in the realm of private
contract. Therefore, it is for the defendant to decide whether in view of such
allegations and evidence against the defendant the agreement should not be
terminated or not. It cannot be said that the allegations made in the show cause
notice are no reasons at all or false and/or malafide. As a matter of fact the said
grounds as delineated in the show cause notice are specific and definite reasons.
However, in view of the specific provision in the agreement that the defendant could
terminate the contract in accordance with clause 21 without assigning any reason,
which according to the defendant was resorted to in the present case, this finding
appears to be not very material for the purpose of answering issue No. 1. Was there
malafide in the action of the defendant in terminating the agreement?
(86) The counsel for the plaintiff also alleged malafide on the part of Mr.
R.C.Bhargava, the Managing Director of the defendant. According to him said Shri
R.C.Bhargava was very close to Mr. Raj Chopra who was the partner of Mr. Narender
Anand, the Chairman and Managing Director of the plaintiff at the time when their
earlier agreement was entered into in the year 1983 by the defendant with M/s.
Competent Motors. It is alleged that subsequently, said Mr. Raj Chopra and PW1 fell
out and as Mr. R.C.Bhargava had a very close intimate friendship with Mr. Raj
Chopra, he was inimical to PW1 and Therefore, the entire action of terminating the
dealership agreement with the plaintiff was the hindi work of Shri R.C.Bhargava. He
also submitted that an adverse inference should be drawn by the court for non-
examination of said Shri R.C.Bhargava in the present suit. PW1, during the course of
his examination has stated that he has a grievance only against Shri R.C.Bhargava
and not against the defendant.
(87) The defendant in its pleadings has categorically denied any malafide in the
instant case. The defendant has further denied that said Shri R.C.Bhargava was in any
manner inimically positioned against PW1.
(88) The facts of the present case disclose that when disputes arose between PW1 &
Shri Raj Chopra the defendant could have terminated the agreement and washed off
its hands from dealing with both of them or even with PW1. But the defendant did
not do so and in fact it entered into a separate fresh dealership license with the
plaintiff on 15.1.1988. Therefore, the very fact of entering into a fresh dealership
agreement with the plaintiff would prove and establish that there was no malafide on
the part of the defendant as against PW1 at any point of time. Besides, although
malafide has been alleged against Mr. R.C.Bhargava, he has not been made a party in
the present suit. It has been held that the person as against whom major grievance
and personal allegation is made is always to be made a party. It is settled law that to
prove malafide mere allegations are not enough and that higher proof is required and
it is for the plaintiff to prove its case. In E.P.Royappa Vs . State of Tamil Nadu;
MANU/SC/0380/1973 : (1974)ILL J172SC , the Supreme Court has held that the
burden of establishing malafide is very heavy on the person who alleges it and the
very seriousness of such allegations demands proof of a high order of credibility. The
evidence on record has been carefully perused by me on this issue. There is no
credible evidence available on record to come to a finding that there was any
malafide in the impugned action. Rather the factors delineated above prove and
establish that no case of malafide has been made out in this case. In my considered
opinion no adverse inference can also be drawn for non-examination of Shri
R.C.Bhargava in this case. Was there waiver on the part of the defendant?
(89) The plaintiff has further alleged that because in 1994 there was an action plan
issued by the defendant in pursuance of which the plaintiff made investment, the
show cause notice issued by the defendant should be held to be deemed to have
been waived by the defendant in view of investment made by plaintiff in pursuance of
the said action plan. The said contention of the plaintiff however, is without any
merit, inasmuch as, since the plaintiff, prior to introduction of the said action plan in
1994, approached this court and obtained an injunction in his favor the plaintiff
continued to be a dealer under the defendant and, Therefore, the defendant was
obliged to treat it as a dealer and all schemes that were made applicable to other
dealers were to be made also equally applicable to the plaintiff. Therefore, treating
the plaintiff as a dealer and making various schemes applicable to it in view of the
order of injunction passed by the court cannot be said to be an act of waiver on the
part of the defendant, for it is held by the Supreme Court in the case of P.Dasa Muni
Reddy Vs . P.Appa Rao; reported in MANU/SC/0392/1974 : [1975]2SCR32 , that any
act done which is under the injunction of a court can never be deemed to be an act of
waiver. .ls1 Is the conduct of the plaintiff in resorting to repeated litigation amounted
to circumventing orders of the Supreme Court?
(90) The defendant, on the other hand, laid much stress on the conduct of the
plaintiff in approaching this court through the present suit with the clear intention of
wriggling out of the directions passed by the Supreme Court in connection with the
petition filed by the petitioner under section 20 of the Arbitration Act to the effect
that "the entire matter has to be decided finally without any interim order being
passed." According to the defendant any proceeding launched in order to by-
pass/evade directions of a superior court is an abuse of the process of law as laid
down in Advocate General, State of Bihar Vs . Madhya Pradesh Khair Industries;
MANU/SC/0504/1980 : 1980CriL J684 ; Dda Vs . Skipper Construction;
MANU/SC/0686/1995 : 1995CriL J2107 ; Bloom Dekor Limited Vs . Arvind B.Seth &
Ors.; MANU/SC/0858/1994 : (1994)6SCC322 . As discussed above, it appears that
the Supreme Court passed an order that the entire matter has to be decided finally
without any interim order being passed in connection with the proceeding initiated by
the plaintiff under Section 20 which was subsequently withdrawn by the plaintiff after
filing of the present suit wherein it was granted an interim injunction. Of course, in
the present suit an additional issue has been raised i.e. validity of clause 21 of the
agreement which was not raised in the petition filed under Section 20. In view of the
order passed by the Supreme Court that no interim order shall be passed without
deciding the main matter, it appears that the present suit was filed although another
petition was pending which act does not appear to be justifiable. Whether the suit is
barred under Order 2 Rule 2(3) and Order 23 Rule 1(3) of the Code of Civil
Procedure:
(91) Another contention raised by the defendant was that the present suit is barred
under Order 2 Rule 2(3) of the Code of Civil Procedure and also under the provisions
of Order 23 Rule 1(3). Under the provisions of Order 2 Rule 2(3) Civil Procedure
Code it is provided that a person must sue for his entire claim and cause of action. If
however, he relinquishes any part of the same he cannot file a second suit without
seeking for and availing of leave of the court. In the present suit, according to the
defendant the plaintiff filed the second application under Section 20 of the Arbitration
Act challenging termination of the dealership without obtaining leave while
withdrawing the petition filed under Section 20 of the Arbitration Act seeking for
appointment of an arbitrator and referring the disputes between the parties to an
arbitrator in terms of the arbitration agreement. I have considered the submission
and find the same to be without merit. The plaintiff filed the earlier petition under
Section 20 seeking for reference of the disputes to an arbitrator. In the said petition
he did not seek to challenge the validity of clause 21 of the agreement, for the
purpose of filing the said petition was to get the entire dispute decided by the
Arbitrator. But the issue with regard to challenge to the validity of a clause of the
agreement could have been done only through the procedure of filing a civil suit in
the present case and it is only the court who could decide the said issue, if and when
raised. The plaintiff, Therefore, was not entitled to sue for the said issue in the said
petition and Therefore, entitled to raise the same through the present suit.
(92) The second submission in respect of the bar as provided for under the
provisions of Order 23 Rule 1(3) Cpc, it appears that the plaintiff withdrew the
second petition under Section 20 of the Code of Civil Procedure without the leave of
the Court to institute a fresh action. The plaintiff instituted the present suit on
16.11.1994 whereas the application to withdraw the petition under Section 20 was
filed on 15.11.1994 which was permitted to be withdrawn without any leave to
institute a fresh suit on 22.11.1994. Therefore, the date on which the earlier suit was
withdrawn the present suit was in fact pending in the court and Therefore, there was
no occasion for seeking leave to file a fresh action. Besides issues in both the
proceedings were also not the same, there being an additional issue namely -
challenge to the validity of clause 21 of the Arbitration Agreement. Therefore, the bar
as contemplated under Order 23 Rule (1) is not applicable to the facts of the present
suit. Whether Section 39 of the Contract Act is at all applicable in the facts of the
present suit?
(93) The counsel for the plaintiff further submitted that it is only in the case of
substantial failure on the part of a party going to the root of the contract that the
defendant would be entitled to terminate the contract under Section 39 of the
Contract Act. The counsel placed before me the provisions of Section 39 of the
Contract Act and on the basis thereof submitted that the expression occurring in the
aforesaid provision "failed to perform in its entirety" means a substantial failure
going to the root of the contract.
(94) The counsel appearing for the defendant, on the other hand, submitted that the
aforesaid submission of the learned counsel is fallacious and erroneous. Section 39
of the Indian Contract Act provides that if a person indulges in any fundamental
breach of the contract and the other party does not acquiesce to the breach, the
person not breaching is not bound under the liabilities of the contract. It is already
held by me in the foregoing paragraphs that either of the parties could terminate
agreement in terms of clause 21 and 22 of the agreement. I have also found the said
clause 21 to be valid. Accordingly, in my considered opinion, the provisions of
Section 39 of the Indian Contract Act have no application at all to the facts and
circumstances of the present case.
(95) In view of the aforesaid discussions I hold that the agreement in question was
legally and validly terminated by the defendant. Accordingly, the Issue No. 1 is
decided against the plaintiff and in favor of the defendant.
(96) the next two issues were argued at length and are important and Therefore, I
proceed to answer the said issues No. 2 & 3 as well. Issues No. 2 & 3:
(97) The aforesaid 2 issues being inter- connected they are taken up together for
consideration. The counsel appearing for the plaintiff submitted that the plaintiff is
entitled to seek for specific performance of the contract and that he is also entitled to
the injunction as prayed for in the suit. The counsel relied upon the provisions of
Section 10, 38 and also Section 42 of the Specific Relief Act in support of his
submission. According to the learned counsel the compensation in money in the
instant case would not be an adequate relief nor does there exist any standard for
ascertaining the actual damages which would be caused and are likely to be caused
to the plaintiff if the defendant is allowed to get away with the termination of the
dealership agreement. Counsel submitted that Section 10 specifically provides that
unless and until the contrary is proved the court would presume that contract to
transfer immovable property cannot be adequately relieved by compensation in
money, when it consists of goods which are not easily available in the market. It was
submitted that the plaintiff had incurred huge investment and had put in its labour,
expertise, manufacturing skill in sale promotion of the vehicles manufactured by the
defendant. Accordingly, if the injunction is not granted to the plaintiff the plaintiff
would be put out of business and would face utter financial ruin.
(98) On the other hand the counsel appearing for the defendant submitted that the
present agreement cannot be enforced under the provisions of Specific Relief Act. In
this connection, the counsel drew my attention to the provisions of Section 14 of the
Specific Relief Act and on the basis thereof submitted that the contract which is
terminable would not be enforceable under Section 14(1)(e) and accordingly the
question of enforcement of determinable contract under Section 10 of the Act does
not at all arise. It was further submitted that a contract which could be compensated
for damages in terms of money can not be enforced. The counsel also submitted that
in a contract where no specific performance can be granted the grant of declaration
and injunction as prayed for is not sustainable.
(99) Section 42 of the Specific Relief Act provides that notwithstanding anything
contained in clause (e) of Section 41, where a contract comprises of the affirmative
agreement to do a certain act, coupled with a negative agreement express or implied,
not to do a certain act, the circumstance that the court is unable to compel specific
specific performance of the affirmative agreement shall not preclude it from granting
an injunction to perform the negative agreement.
(100) In the present agreement, admittedly, there is no negative covenant and
Therefore, ex facie the provisions of Section 42 of the Specific Relief Act do not apply
to the facts and circumstances of the present case and reliance on the same by the
learned counsel for the plaintiff, in my considered opinion, is misconceived. The
provisions of Section 14 of the Specific Relief Act appear to be relevant. The
provisions of Section 14(1)(a) of the Specific Relief Act require that if a breach of
contract can be compensated on payment of damages the contract cannot be
specifically enforced. Sub-section (b) thereof provides that where enforceability of
the contract depends upon the personal qualifications or volition of the parties, the
court cannot enforce specific performance of its material terms. Sub- section (c)
appears to be very material and relevant on the facts and circumstances of the
present case. The said provision requires that determinable contracts cannot be
enforced by decree of specific performance. The provisions of sub- section (d) state
that a contract, performance of which involves the performance of a continuous duty
which the court cannot supervise cannot be enforced by such a decree. On a
discussion of the material terms of the clauses of the agreement it has already been
held by me that the present agreement is not permanent and indeterminable in nature
and Therefore, the present agreement is in its very nature determinable. Therefore, to
the facts and circumstances of the case the provisions of Section 14(1)(c) appear to
be applicable. Besides compensation in money in the present case could be an
adequate relief in the nature of the present case and Therefore, the present contract,
in my considered opinion, cannot be specifically enforced.
(101) In this context reference may also be made to the "Law of Contract" by
G.S.Treitel, 15th Edition at page 762. It states that if the 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 whether the contract is terminable under its express terms or on
account of the conduct of the party seeking specific performance
(102) In Pollock & Mulla's Contract and Specific Relief Act (11th Edition, Vol. 2) page
1271, it is stated that where distributorship contract could be terminated by the
Indian Oil Corporation in accordance with the terms of the agreement and the
arbitrator finding that there was no valid termination ordered the breach of the
contract to be remedied by restoration of the distributorship, the Supreme Court held
that the relief of restoration of the distributorship even on the finding that the breach
was committed by the Corporation was contrary to the mandate of Section 14(1) of
the Specific Relief Act since clause (c) thereof specifies that a contract which is in its
nature determinable cannot be specifically enforced. The decision of the Supreme
Court referred to therein is discussed below.
(103) Chitty on Contract (27th Edn. Vol.I) has stated that if a contract is expressed to
be revocable by the party against whom an order of specific performance is sought,
the order will be refused, and on this ground a contract to enter into a partnership at
will is not specifically enforceable.
(104) We may, Therefore, refer to the landmark decision of the Supreme Court in
M/s. Indian Oil Corporation Ltd. Vs . Amritsar Gas Corporation; reported in
MANU/SC/0513/1991 : (1991)1SCC533 . In the said decision the Supreme Court has
held in the following manner:- "Shri Salve is, Therefore, right in contending that the
further questions of public law based on Article 14 of the Constitution do not arise for
decision in the present case and the matter must be decided strictly in the realm of
private law rights governed by the general law relating to contracts with reference to
the provisions of the Specific Relief Act providing for non- enforceability of certain
types of contracts. It is, Therefore, in this background that we proceed to consider
and decide the contentions raised before us. .... .... .... .... .... .... .... .... .... Sub-
section (1) of Section 14 of the Specific Relief Act specifies the contracts which
cannot be specifically enforced, one of which is 'a contract which is in its nature
determinable'. In the present case, it is not necessary to refer to the other clauses of
sub-section (1) of Section 14, which also may be attracted in the present case since
clause (c) clearly applies on the finding read with the reasons given in the award
itself that the contract by its nature is determinable. This being so granting the relief
of restoration of the distributorship even on the finding that the breach was
committed by the appellant Corporation is contrary to the mandate in Section 14(1)
of the Specific Relief Act and there is an error of law apparent on the face of the
award which is stated to be made according to 'the law governing such cases.' The
grant of this relief in the award cannot, Therefore, be sustained.... .... .... .... .... ....
.... .... In such a situation, the Agreement being revocable by either party in
accordance with clause 28 by giving thirty days' notice, the only relief which could be
granted was the award of compensation for the period of notice, that is, 30 days. The
plaintiff-respondent No. 1 is, Therefore, entitled to compensation being the loss of
earnings for the notice period of third days instead of restoration of the
distributorship."
(105) In the light of the aforesaid decisions it is to be held that a contract which is in
its nature determinable can never be enforced. In the present case also the
agreement having been held by me to be determinable also cannot be enforced being
an agreement covered by Section 14(1)(c) of the Contract Act. Therefore, since I
have held that no specific performance of the agreement in question being
permissible no declaration and injunction as prayed for by the plaintiff in the present
suit could be granted to the plaintiff. The aforesaid two issues are, Therefore, held
against the plaintiff and in favor of the defendant.
(106) The aforesaid three issues having been held against the plaintiff and in favor of
the defendant the suit filed by the plaintiff stands dismissed with costs.
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Classic Motors LTD Vs Maruti Udyog LTD

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MANU/DE/0586/1996

Equivalent Citation: 1997IAD(Delhi)190, 1(1997)C LT65, 65(1997)DLT166, 1997(40)DRJ462

IN THE HIGH COURT OF DELHI

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