2018 (3) TMI 2053 - HC - Indian Laws

Termination of the License Agreement - the Arbitrator s order to maintain the status quo was appropriate under Section 17 of the Arbitration and Conciliation Act 1996 or not - HELD THAT - The Arbitrator has held that the respondent has been able to make out a strong prima facie case in its favour based on Clause 22.4 of the License Agreement which restricted the right of the appellant to terminate the License Agreement only in the event of three consecutive defaults by the respondent to pay the license fee. Even before me it is not contended by the counsel for the appellant that there was any default committed by the respondent in the payment of the license fee. In the present case the respondent has clearly made out a case which falls in the exception to the rule as provided in Section 14(1)(a) of the Specific Relief Act 1963. Conclusion - In the present case prima facie it does not appear that the agreement has been terminated in accordance with Clause 22.4 of the License Agreement. The respondent therefore is entitled to a relief of injunction as granted by the Arbitrator. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the termination of the License Agreement by the appellant was valid under the terms of the agreement, specifically Clause 22.4.
• Whether the Arbitrator's order to maintain the status quo was appropriate under Section 17 of the Arbitration and Conciliation Act, 1996.
• Whether the respondent is entitled to interim protection despite the nature of the License Agreement being determinable.
• Application of Section 14(1)(a) and 14(1)(c) of the Specific Relief Act, 1963 in the context of the License Agreement.
• Assessment of whether the respondent can be adequately compensated with damages if the termination is found wrongful.

2. ISSUE-WISE DETAILED ANALYSIS

Termination of the License Agreement:

• Relevant legal framework and precedents: The License Agreement under Clause 22.4 restricts termination to instances of three consecutive defaults in payment of the license fee. The appellant's termination notice did not cite such defaults.
• Court's interpretation and reasoning: The Court found that the appellant failed to demonstrate the requisite consecutive defaults by the respondent, rendering the termination notice invalid.
• Key evidence and findings: The appellant's notice of termination did not reference any defaults in license fee payment, and the respondent had not defaulted on such payments.
• Application of law to facts: The Court emphasized the specific prohibition in Clause 22.4 against termination without the specified defaults, indicating the appellant's termination was not justified.
• Treatment of competing arguments: The appellant argued that non-installation of a Diesel Generator set constituted a breach affecting revenue and thus license fee, but the Court found this irrelevant to Clause 22.4's requirements.
• Conclusions: The termination was not in accordance with the License Agreement, and the respondent's occupation of the premises should continue.

Arbitrator's Order to Maintain Status Quo:

• Relevant legal framework and precedents: Section 17 of the Arbitration and Conciliation Act, 1996 allows for interim measures to protect the subject matter of the dispute.
• Court's interpretation and reasoning: The Arbitrator's decision to maintain the status quo was based on the absence of valid termination grounds and the potential irreparable harm to the respondent.
• Key evidence and findings: The Arbitrator's order was supported by the lack of evidence of three consecutive defaults by the respondent.
• Application of law to facts: The Arbitrator's discretion under Section 17 was exercised to prevent unjust enrichment of the appellant and protect the respondent's interests.
• Treatment of competing arguments: The appellant's reliance on the determinable nature of the license was countered by the specific contractual restrictions on termination.
• Conclusions: The Arbitrator's order was upheld as it was a just exercise of power to preserve the status quo.

Entitlement to Interim Protection:

• Relevant legal framework and precedents: The Court considered Section 14(1)(a) and 14(1)(c) of the Specific Relief Act, 1963, which address contracts that are not specifically enforceable.
• Court's interpretation and reasoning: The Court held that the License Agreement's specific termination clause (Clause 22.4) created an exception to the general rule of determinability.
• Key evidence and findings: The respondent's substantial investment and established goodwill were factors against mere monetary compensation.
• Application of law to facts: The Court found that the respondent's interests could not be adequately protected by damages alone, justifying interim protection.
• Treatment of competing arguments: The appellant's argument that the license was determinable by nature was refuted by the specific contractual provisions.
• Conclusions: The respondent was entitled to interim protection due to the specific terms of the License Agreement and the nature of its investment.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"The Arbitrator has held that the respondent has been able to make out a strong prima facie case in its favour based on Clause 22.4 of the License Agreement which restricted the right of the appellant to terminate the License Agreement only in the event of three consecutive defaults by the respondent to pay the license fee."

Core principles established:

• Contracts with specific termination clauses, such as Clause 22.4, limit the general principle of determinability, requiring adherence to the specified conditions for termination.
• Interim protection is justified where a party's substantial investment and established business interests would not be adequately compensated by damages.
• The exercise of discretion in granting interim measures is subject to principles of equity and justice, particularly where contractual obligations are clear.

Final determinations on each issue:

• The termination of the License Agreement by the appellant was invalid due to non-compliance with Clause 22.4.
• The Arbitrator's order to maintain the status quo was upheld as a proper exercise of discretion under Section 17 of the Arbitration and Conciliation Act, 1996.
• The respondent is entitled to interim protection as the License Agreement's specific terms and the respondent's investments warrant such relief.