2018 (1) TMI 1673 - HC - Indian Laws

Doctrine of promissary estoppel - grant of injunctive relief - Applicability of clause (e) of Section 41 of the Specific Relief Act - Doctrine of legitimate expectation - HELD THAT - The position that emerges is that power to grant injunctive relief, under Section 9 of the 1996 Act, has to abide by the provisions of the Specific Relief Act. Injunction which cannot be granted under Section 41 of the Specific Relief Act, cannot be granted under Section 9 of the 1996 Act, either. Neither can relief be granted, under Section 9, as would amount to specific enforcement of a contract which, by nature, is determinable, in view of Section 41 of the Specific Relief Act. The power to grant injunctive relief, under Section 9 of the 1996 Act, is essentially intended to protect the subject matter of the contract, and to avoid frustration of arbitral proceedings which may be initiated with respect thereto. Such relief can be granted only if the three pre-requisites, governing grant of injunctive relief, i.e. existence of a prima facie case, balance of convenience being in favour of the claimant and possibility of irreparable loss that would ensue to the claimant were such relief not granted, stand fully satisfied. Even in cases where a contract is being sought to be terminated, in violation of the terms thereof, if it appears that the party who suffers as a result of such termination could be adequately compensated in terms of money at the stage of final adjudication of the dispute, no injunctive relief, under Section 9 of the 1996 Act, would be granted. Applicability of clause (e) of Section 41 of the Specific Relief Act - HELD THAT - In the present, there is no termination of the contract, no breach thereof is, consequently, alleged by the claimant, a decision not to renew the contract further beyond its expiry is taken prior to such expiry, and the only relief sought by the claimant, before this court, is to injunct the said decision being acted upon, and, consequently, for the contract to be renewed for a further period. Where no breach of contract is alleged by the petitioner before this court, the applicability of clause (e) of Section 41 of the Specific Relief Act appears, to my mind, to be excluded altogether. Section 14 of the said Act, however, still appears to be applicable, and would be addressed hereinafter. There is no question of exercising any equitable jurisdiction, continuing the said relationship, by grant of injunctive relief under Section 9 of the 1996 Act. No such exercise of power is contemplated, expressly or by necessary implication, in Section 9. This Court would be wildly transgressing the boundaries of its jurisdiction under Section 9, if it attempts to grant any such relief - Mr. Chetan Sharma has chosen to pitch his case on the principles of promissory estoppel and legitimate expectation, also relying for the said purpose, of Section 115 of the Evidence Act. Doctrine of legitimate expectation - HELD THAT - It is obvious that there is a distinction between legitimate expectation and mere hope or anticipation of an event occurring. The legitimacy of the expectation has to be established. Bona fide justification, for the action impugned, is an absolute defence, to a plea of legitimate expectation - the inadvisability of invoking the doctrine of legitimate expectation, in the area of contract, is also apparent from reading of the Indian Contract Act, 1872. Section 10 thereof clearly states, inter alia, that all agreements or contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Consent is defined, in Section 13, by stating that two or more persons are set to consent when they agree upon the same thing in the same sense . The terms of the contract, between the rival parties in the present case, are so transparent, and unequivocal, that it is not necessary to dilate further on the applicability, to them, of the doctrine of legitimate expectation. The contract between the petitioner and respondent states, quite clearly that it would come to an end on 31st December, and that renewal thereof would be subject to a decision in that regard by the respondent, on terms and conditions acceptable to it. The mere fact that the respondent may have renewed the contract in the past, cannot justify entertainment, by the petitioner, of any expectation that the respondent would continue to renew the contract in perpetuity - In view of the admitted position that, in 2016 and 2017, the petitioner was unable to meet the targets set by the respondent, in contradistinction to the position that existed prior thereto, it is impossible to comprehend how the petitioner can seek to contend that its expectation , even after it had failed to meet the targets, to have its contract renewed, can be regarded as legitimate . Any such expectation, on the petitioner's part, can only be regarded as thoroughly misguided. Doctrine of promissory estoppel - HELD THAT - The doctrine of promissory estoppel is not really based on principle of estoppel but is a doctrine evolved by equity in order to prevent injustice - no case for entertaining the present petition exists, is that, even assuming the decision of the respondent, not to renew the contract with the petitioner, suffers from any illegality, the petitioner could be adequately compensated by damages, should it choose to initiate any action in this regard. Applying clauses (a) and (c) of Section 14 of the Specific Relief Act, therefore, no case for injuncting the respondent, from acting on its decision not to renew the contract with the petitioner, is made out, as grant of any such relief would amount to specific enforcement, at the interim stage, of the agreement between the petitioner and respondent, which is determinable in nature; further, inasmuch as the case of the petitioner is that it had mobilised considerable resources, and incurred considerable expenditure, in setting up and operating its distributorship, the grievance of the petitioner could adequately be redressed by compensation, should the contentions of the petitioner be finally found to be acceptable. The petitioner has been able to make out a case justifying the grant, to it, of any window period to wind up its affairs beyond 31st December 2017, or for any other form of injunctive relief, against the respondent - The present petition, under Section 9 of the Arbitration and Conciliation Act, 1996, is dismissed.

Summary

Issues Involved:
1. Termination of dealership agreement.
2. Applicability of Section 9 of the Arbitration & Conciliation Act, 1996.
3. Doctrine of legitimate expectation.
4. Doctrine of promissory estoppel.
5. Applicability of Section 14 of the Specific Relief Act.

Detailed Analysis:

1. Termination of Dealership Agreement:
The petitioner, a dealer of BMW cars, had its dealership agreement terminated by the respondent, effective from December 31, 2017. The agreement, initially executed in January 2009 and renewed annually, explicitly stated that it would expire automatically unless renewed by the respondent. The petitioner argued that there was an understanding that the agreement would be renewed annually unless there was a major breach. However, this understanding was not supported by any clause in the agreement. The respondent's decision not to renew the agreement was communicated via a letter dated December 7, 2017.

2. Applicability of Section 9 of the Arbitration & Conciliation Act, 1996:
Section 9 allows for interim measures by the court to protect the subject matter of arbitration. The court noted that the jurisdiction under Section 9 should be exercised sparingly and only in appropriate cases. The principles of balance of convenience, prima facie case, and irreparable injury must be satisfied. The court referred to several precedents, including Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd., which emphasized that interim relief should not be granted if the harm can be compensated in monetary terms.

3. Doctrine of Legitimate Expectation:
The petitioner claimed a legitimate expectation of renewal based on past renewals and investments made. However, the court clarified that legitimate expectation is a public law concept aimed at preventing arbitrariness in executive actions by public authorities. The doctrine does not apply to private contracts. The court cited U.O.I v Hindustan Development Corporation and Ram Pravesh Singh v State of Bihar, which established that legitimate expectation cannot be based on mere hope or anticipation and must be grounded in law or established practice.

4. Doctrine of Promissory Estoppel:
The petitioner argued that the respondent was estopped from refusing renewal based on past conduct and investments made by the petitioner. The court, however, found no evidence of any promise by the respondent to renew the agreement perpetually. The doctrine of promissory estoppel, as explained in Mohd. Jamal v U.O.I., applies to prevent injustice when a promise has been relied upon to the detriment of the promisee. In this case, there was no such promise or detrimental reliance.

5. Applicability of Section 14 of the Specific Relief Act:
Section 14 specifies that contracts which are determinable in nature cannot be specifically enforced. The court held that the dealership agreement was determinable and that any breach could be compensated by damages. This principle was supported by precedents like Indian Oil Corporation Ltd. v. Amritsar Gas Service and Rajasthan Breweries Ltd. v Stroh Brewery Company, which emphasized that specific performance of a determinable contract is not enforceable.

Conclusion:
The court dismissed the petition under Section 9 of the Arbitration & Conciliation Act, 1996, finding no prima facie case for granting interim relief. The contract between the petitioner and respondent had expired by efflux of time, and no injunction could be granted to continue the contract or restrain the respondent from acting on its decision not to renew the agreement. The observations were made to express a prima facie view and would not prejudice any further proceedings.