2012 (8) TMI 1219 - HC - Indian Laws

Summary

Issues Involved:
1. Nature and enforceability of the Memorandum of Understanding (MOU).
2. Specific enforceability of the MOU under Section 14 of the Specific Relief Act.
3. Arbitrary termination of the MOU by the respondent.
4. Interim protection under Section 9 of the Arbitration and Conciliation Act, 1996.

Summary:

1. Nature and Enforceability of the MOU:
The court examined whether the MOU dated 14.11.2008 constituted a binding contract or was merely an "agreement to agree." It was observed that the MOU included forms of definitive agreements, indicating that the essential terms were already known to the parties. The court, referencing clauses 4.1(ii) and 11.1 of the MOU, and the conduct of the parties, prima facie found that the MOU was intended to be a binding agreement. The court cited precedents such as *Kollipara Sriramulu v. T. Aswatha Narayana* and *Trimex International FZE Ltd. v. Vedanta Aluminium Ltd.*, concluding that the MOU constituted a binding contract between the parties.

2. Specific Enforceability of the MOU:
The respondent argued that the MOU was not specifically enforceable under Section 14 of the Specific Relief Act, claiming it was determinable and monetary compensation would suffice. The court disagreed, noting the speculative nature of estimating the value of the petitioner's 49% shareholding in the proposed JV companies and the unique business opportunity. Citing *Old World Hospitality v. Indian Habitat Center* and *Atlas Interactive (India) Pvt Ltd v. BSNL & Anr.*, the court found that specific performance would do more complete justice than monetary compensation.

3. Arbitrary Termination of the MOU:
The respondent terminated the MOU citing clauses 2.1 and 5.1, which the petitioner challenged as arbitrary. The court observed that the respondent had continued to act under the MOU even after the expiration of the 240 days period, indicating a mutual extension. The court found that the respondent's conduct constituted a waiver of the right to terminate under clause 5.1, and the termination was prima facie arbitrary and irrational. The court referenced *P. D'Souza v. Shondrilo Naidu* and *Panchanan Dhara v. Monmatha Nath Maity (dead)* to support its conclusion.

4. Interim Protection under Section 9 of the Arbitration and Conciliation Act, 1996:
The court granted interim protection to preserve the subject matter of the dispute, noting that the petitioners would suffer irreparable loss if the textile mills were alienated or disposed of during the pendency of the arbitral proceedings. The court emphasized the need to maintain the status quo to ensure that the arbitral award, if in favor of the petitioners, would not be rendered meaningless. The court confirmed the interim order dated 01.10.2010 till the making of the arbitral award and awarded costs of Rs. 25,000/- in each petition.