LawFarm- Advice & Lawyers Online

Share on facebook
Share on linkedin

Damages in Lieu of Specific Performance

Damages in Lieu of Specific Performance must be specifically claimed. In the recent case of Universal Petro Chemicals Ltd. v. B.P. PLC & Ors.’s, the Supreme Court of India confirmed that damages in place of specific performance under Section 21(5) of the Specific Relief Act, 1963 (“Act”) can be granted only if specifically claimed in the plaint.

FACTUAL BACKGROUND

The Appellant, Universal Petro Chemicals Ltd., collaborated on an agreement with a German company, Aral Aktiengesellschaft, Respondent No. 3, on November 1, 1994, to manufacture lubricants using the formulation of mentioned company and market under the brand name of Aral Lubricants in India (“Collaboration Agreement”). Hence, on 3rd January 1995, the parties collaborated on a supplementary agreement to incorporate the required approvals acquired from the Reserve Bank of India (“RBI”), according to the Collaboration Agreement.

On 13th November 2002, the Union Ministry of Commerce & Industry extended the prior approval issued by the RBI, after considering an application submitted by the Appellant. The mentioned approval specified that the length of the extended Collaboration Agreement would be from 1st March 2003 to 31st December 2009. By executing another supplementary agreement dated 27th  December 2002, the mentioned approval was also made an integral part of the Collaboration Agreement. 

Following, on 14th April 2004, Respondent No. 3 furnished a termination notice on the grounds that the Collaboration Agreement would come to an end on 31st  October 2004, which was in agreement with the Clause 5 of the Agreement. The Appellant filed a suit before the Single Judge of the Calcutta High Court, challenging the termination notice with the help of a Civil Suit, praying for specific performance of the Collaboration Agreement as modified by the two supplementary agreements, and for perennial injunction obstructing Respondent No. 3 from marketing industrial lubricant and finished automotive under the trademark ‘Aral’ or using ‘Aral’s design in India.

The Single Judge passed a provisional order in the Suit obstructing Respondent No. 3 from executing the termination notice and from interfering with the usage of ‘Aral’ by the Appellant. The Division Bench of the Calcutta High Court was challenged but the said provisional order was continued, and the appeal was dismissed. Hence, in a challenge to the Division Bench order, the Supreme Court vacated the provisional order and ordered that the suit be heard swiftly.

The Single Judge of the High Court thereafter heard the suit and held that the termination letter issued violated the terms agreed to between the parties and hence did not comply with the law. The Single Judge also held that the relief of a given performance could not be granted in view of the bar in the Act’s Section 14(1)(b), observing that the Court would not be able to execute specific performance of the Collaboration Agreement’s material terms. However, the Single Judge passed an order of injunction against Respondent No. 3 and its subsidiaries and affiliates, restraining them from distributing or marketing ‘Aral’ products in India until 31st December 2009. When appealed before the Division Bench against the mentioned order, the judgment of the Single Judge was upheld on all fronts.

Simultaneously, both the Appellant and Respondent No. 3 filed separate Special Leave Petitions in the Supreme Court, against the 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 observed two things regarding the appeals made 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 compelling 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 24th August 2005 and 31st December 2009, which was the period between vacation of the provisional order passed in its favour by the Supreme Court and the expiration of the Collaboration Agreement.

ARGUMENTS ADVANCED

On the Appellant’s behalf, the argument made was that:

(a) The relief of specific performance of the Collaboration Agreement could have been granted by the Court in 2008,when the Appellant approached it but not after the Agreement expiration on 31st December 2009. It was, hence, 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 24th August 2005 until 31st December 2009, even though such a relief was not sought specifically for either in the Appeal or in the Suit;

(c) Considering Section 21(5) of the Act, the Appellant should be allowed to seek compensation at any stage of the proceedings; and

(d) the Appellant is entitled to compensation because of the breach of contract under Indian Contract Act’s Section 73, 1872.

On the Respondent’s behalf, it was argued that:

(a) the Appellant did not plead damages’ relief both before the High Court and the Supreme Court;

(b) Even supposing that the Collaboration Agreement expired on 31st December 2009, the Appellant failed to raise the ground of damages or seek to amend the relief during the pendency of the appeal;

(c) the plaintiff, who had been negligent in specifically seeking the relief of damages under the Act’s Section 21(5), is not entitled to any such relief;

(d) damages under Indian Contract Act’s Section 73, 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 it was in agreement with the terms and not in contravention of the approval granted by the RBI and Union Ministry of Commerce & Industry.

FINDINGS

The Supreme Court realized that the Single Judge had specifically mentioned in his judgment that any relief for damages was not claimed by the Appellant. The Supreme Court also noticed 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 or compensation could be granted.                                                            

The Supreme Court further observed that the Appellant was interested in the relief of specific performance when the Special Leave Petition was filed in 2008. Even though after the expiry of the Collaboration Agreement on 31st December 2009, the Appellant did not take any steps to specifically seek the relief of damages or compensation.

In the above circumstances, the Supreme Court directed that the Appellant is not entitled to claim damages for the period between 24th August 2005 and 31st December 2009. The Supreme Court accordingly rejected the Appeal filed before it by the Appellant and dismissed the appeal filed by the Respondents as well.

CONCLUSION

While it is due process that the courts should have full caution to award damages, in any case, it thinks fair, one cannot miss the question of unfairness and hardship caused to the defendant, if a decision is passed against him without a proper pleading by the plaintiff and without the defendant being provided with an opportunity to adequately defend it.

Section 21(5) of the Act specifically provides that no compensation shall be awarded unless it is specifically claimed. This provides the plaintiff with an opportunity to amend the appeal at any stage of the proceeding to claim compensation in place of or in addition to a specific performance, on fair terms. Simultaneously, it is only fair for the Courts to deny a party the grant of such reliefs which are directly against the express provisions of the statute. When a statutory provision clearly and undoubtedly provides for the requirement to plead a relief which is sought, the court cannot ignore the provisions on equitable considerations. Equity must yield to law.

By Anoushka Amar