INTRODUCTION
The Supreme Court of India, in its recent decision in the case of Universal Petro Chemicals Ltd. v. B.P. PLC & Ors.[1], asserted that damages in lieu of specific performance under Section 21(5) of the Specific Relief Act, 1963 (“Act”) cannot be granted, unless specifically claimed in the plaint.
FACTUAL BACKGROUND
The Appellant, Universal Petro Chemicals Ltd., entered into a collaboration agreement with a German company, Aral Aktiengesellschaft, being Respondent No. 3, on November 1, 1994, to inter alia manufacture lubricants using the formulation of Respondent No. 3 and market under the brand Aral lubricants in India (“Collaboration Agreement”). Thereafter, on January 3, 1995, the parties entered into a supplementary agreement to incorporate the necessary approvals obtained from the Reserve Bank of India (“RBI”), pursuant to the Collaboration Agreement.
On November 13, 2002, upon an application by the Appellant, the Union Ministry of Commerce & Industry extended the earlier approval granted by the RBI. The said approval specified inter alia that the duration of the extended Collaboration Agreement would be from March 1, 2003 to December 31, 2009. The said approval was also made an integral part of the Collaboration Agreement by executing another supplementary agreement dated December 27, 2002.
Subsequently, on April 14, 2004, Respondent No. 3 issued a termination notice on the ground that the Collaboration Agreement would come to an end on October 31, 2004, which was specified under Clause 5 of the Agreement. The Appellant challenged the termination notice by way of a Civil Suit, filed before a Single Judge of the Calcutta High Court, praying inter alia for specific performance of the Collaboration Agreement as modified by the two supplementary agreements, and for perpetual injunction restraining Respondent No. 3 from marketing finished automotive and industrial lubricant under the trade mark ‘Aral’ or using the design of ‘Aral’ in India.
The Single Judge passed an interim order in the Suit restraining Respondent No. 3 from giving effect to the termination notice and from interfering with the Appellant’s usage of ‘Aral’. In a challenge before the Division Bench of the Calcutta High Court, the said interim order was continued, while the appeal was dismissed. Thereafter, in a challenge to the Division Bench order, the Supreme Court vacated the interim order and directed that the Suit be heard expeditiously.
The Single Judge of the High Court thereafter heard the Suit and held that the letter of termination was issued in violation of the terms agreed between the parties and was not in accordance with law. The Single Judge also held that the relief of specific performance could not be granted in view of the bar in Section 14(1)(b) of the Act, inter alia observing that the Court would not be able to enforce specific performance of the material terms of the Collaboration Agreement. The Single Judge, however, passed a decree of injunction against Respondent No. 3 and its subsidiaries and affiliates, restraining them from marketing or distributing ‘Aral’ products in India until December 31, 2009. In an appeal before the Division Bench against the said order, the judgment of the Single Judge was upheld on all counts.
Consequently, both the Appellant and Respondent No. 3 filed separate Special Leave Petitions before the Supreme Court, against the said order of the Division Bench, challenging the denial of the relief of specific performance and the grant of a decree of injunction, respectively.
POINT OF DETERMINATION
The Supreme court made two clear observations as regard to the appeals by Respondent No. 3 and Appellant. In case of the former, the Supreme Court observed that the appeal filed by Respondent No. 3 deserved to be dismissed as the High Court had given cogent reasons for granting injunction. With respect to the latter, the Supreme Court noted that the only point of determination was whether the Appellant was entitled to damages between August 24, 2005 and December 31, 2009, which was the period between vacation of the interim order passed in its favour by the Supreme Court and the expiry of the Collaboration Agreement.
ARGUMENTS ADVANCED
On behalf of the Appellant, it was inter alia argued/ submitted that:
(a) the Court could have granted relief of specific performance of the Collaboration Agreement when the Appellant approached the Court in 2008 but not after the expiry of Agreement on December 31, 2009. It was, therefore, submitted that the Appellant is entitled to damages, especially considering the termination of the Collaboration Agreement was declared illegal by the High Court;
(b) the Appellant was entitled to damages for the period from August 24, 2005 until December 31, 2009, even though such a relief was not specifically sought for either in the Suit or in the Appeal;
(c) in view of the proviso to Section 21(5) of the Act[2], the Appellant should be allowed to seek compensation at any stage of the proceedings; and
(d) the Appellant is entitled to compensation due to the breach of contract under Section 73 of the Indian Contract Act, 1872.
On behalf of the Respondent, it was inter alia argued/ submitted that:
(a) the Appellant failed to plead a relief for damages both in the High Court and before the Supreme Court;
(b) even assuming that the Collaboration Agreement expired on December 31, 2009, the Appellant did not raise the ground of damages or seek to amend the relief during the pendency of the appeal;
(c) the plaintiff, who had been remiss in expressly seeking the relief of damages under Section 21(5) of the Act, is not entitled to any such relief;
(d) damages under Section 73 of the Indian Contract Act, 1872 can only be granted for the loss suffered and not for the loss of profits; and
(e) the termination of the Collaboration Agreement was valid, as the same was in accordance with the terms thereof, and not in contravention of the approval granted by the Union Ministry of Commerce & Industry and RBI.
FINDINGS
The Supreme Court observed that the Single Judge had expressly mentioned in his judgment that the Appellant did not claim any relief for damages. The Supreme Court also observed that even in the appeal filed by the Appellant before the Division Bench, no relief for damages was claimed and in fact, the Appellant had specifically submitted that no relief in the nature of damages and/or compensation could be granted.
The Supreme Court further noted that the Appellant was interested in the relief of specific performance when the Special Leave Petition was filed in 2008. However, even after the expiry of the Collaboration Agreement on December 31, 2009, the Appellant did not take any steps to specifically plead/ seek the relief of damages or compensation.
In the circumstances, the Supreme Court held that the Appellant is not entitled to claim damages for the period between August 24, 2005 and December 31, 2009. The Supreme Court accordingly disposed of the Appeal filed before it by the Appellant and dismissed the Appeal filed by the Respondents.
CONCLUSION
While it is proper that the court should have full discretion to award damages in any case it thinks fit, one cannot overlook the question of unfairness and hardship caused to the defendant, if a decree is passed against him without a proper pleading by the plaintiff and without the defendant being provided with an opportunity to adequately defend the same.
Section 21(5) of the Act explicitly provides that no compensation shall be awarded unless specifically claimed. The proviso thereto provides the plaintiff with an opportunity to amend the plaint at any stage of the proceedings to claim compensation in lieu of or in addition to specific performance, on just terms. Consequently, it is only appropriate for the Courts to deny a party the grant of such reliefs which are in the teeth of the express provisions of the statue. When a statutory provision clearly and unequivocally provides for the requirement to plead a relief which is sought, the court cannot ignore or overlook the provisions on equitable considerations. Equity must yield to law[3].
*The authors were assisted by Intern, Ananya Nair.
For further information, please contact:
Aditya Mehta, Partner, Cyril Amarchand Mangaldas
aditya.mehta@cyrilshroff.com
[1] Civil Appeal No. 3127 of 2009
[2] The proviso to Section 21(5) of the Act provides for amendment of the plaint at any stage of the proceedings, in order to inter alia claim compensation, when the same has not been claimed in the plaint.
[3] Shamsu Suhara Beevi v. G. Alex and Anr. [(2004) 8 SCC 569].
