9911796707
TMI Blog1994 (2) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... this purpose Pfl supplies the soft drinks concentrate to its bottlers. Defendant No. 3, i.e. Pepsi Inc. holds trade marks for its popular drinks known as 'Pepsi', '7 Up', 'Miranda' and 'Ever Vess'. Under the bottling agreements the license to use these trade marks is granted by defendant No. 3 to the bottlers. Defendant No. 2 further registered a trade mark 'Lehar' which is to be used by the bottlers appointed by it for its various soft drinks Along with popular trade marks Pepsi', '7 Up' etc. (2) Under an agreement dated 5.11.1990 Pfl appointed the plaintiff to bottle and market the soft drinks under various trade marks of defendants 2 and 3. On the same date separate license agreements were executed between defendant No. 3 and the plaintiff permitting the plaintiff to use the trade mark of defendant No. 3 in 'Pepsi', '7 Up' and 'Miranda'. Another license agreement was executed on 1.12.1990 between the plaintiff and defendant No. 3 regarding the soft drink 'Ever Vess'. Pfl had to supply the concentrate for the manufacture of the soft drinks by the plaintiff under the various popular brand names. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... May 1989 Pfl confirmed to plaintiff its intention to enter into the bottling agreement upon requisite pre conditions being met. In October 1989 plaintiff applied to the I.C.I.C.I. for financial assistance stipulating return of capital in seven years. The plaintiff further made arrangements for the empty bottles. It incurred huge expenses on advertisement. It also incurred a liability towards the electricity supply undertaking on account of minimum guarantee charges for the electricity load required for the plaintiffs factory. From this the endeavor of the plaintiff is to show that even before the actual agreement which was to be entered into between the parties was negotiated, the plaintiff had incurred heavy expenses and had also committed itself to heavy liability in order to prepare itself for the franchise which was going to be granted to it. According to the plaintiff it had already committed itself and had undertaken such a heavy financial burden in the hope of having a long term relationship which alone would have enabled the plaintiff to recoup its investment. It is further the case of the plaintiff that the proposed agreement was made available to the plaintiff only in ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ph shall include any individual or entity which directly or indirectly owns or controls the Bottler; (v) A change of the Bottler's management or control of the Bottler's bottling business by virtue of any law, decree, order, rule. regulation, ordinance or any other similar cause; (vi) The termination or expiration at any time of an agreement, license or arrangement, if any, where under the Bottler is authorised to bottle, sell and distribute another product under any other trade mark/s of Pfl in the Territory or elsewhere. (B)Upon the happening of any one or more the foregoing events the Seller shall also have the right to discontinue supplying the Bottler with Units and/or other materials for such length of time as the Seller may in its sole judgment deem necessary without Pfl thereby cancelling or terminating this Agreement and without thereby prejudicing PFL's right to cancel or terminate this Agreement for the same cause or for any one or more other causes; (C)In addition to and not in limitation of the foregoing, if, in the reasonable opinion of Pfl, the Bottler should at any time default under Clause Ii, Pfl may call the Bottler, attention to such failure by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d withheld reply to the two notices of Pfl dated 6th December 1991. Thus this letter which is not in dispute, prima facie belies the stand of the plaintiff that it had replied to the notice of Pfl relating to defect liability. In March 1992 the parties negotiated another agreement which was finally executed on 31st March 1992 which provides that by 30th September 1992 the original agreement dated 5th November 1990 will stand terminated and the rights and obligations of the parties under the said agreement would cease. The precise language of the relevant clause of the said agreement is Whereas in an effort to amicably resolve the issues, both parties have agreed to continue with the said Agreement up to September 30, 1992, subject to the condition that on September 30, 1992, the said Agreement shall terminate and expire as also certain further terms and conditions as hereinafter set out . The present suit was filed on 26th September 1992, i.e. just before the date of expiry of the Supplemental Agreement. (5) According to the plaintiff Pfl could not terminate the contract and clause 23 of the original agreement under which Pfl exercises its right to terminate the contract is ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement itself goes with it. If clause 23 goes, the supplemental agreement also goes. (3) Estoppel - In August 1992 the Pfl asked the plaintiff to introduce 500 ml bottles. From this the plaintiff submits that it was made to incur additional expense for purposes of introducing a new product. If the agreement was to stand terminated by the end of September 1992, there was no occasion to ask plaintiff to arrange 500 ltr. bottles. (4) Duress/coercion. The agreement is-product of unequal bargaining power. (6) The learned counsel for the plaintiff has laid special emphasis on the fact that the defendants' Bottlers' Economics encouraged the plaintiff to understand that the arrangement between the parties was going to be a long term affair. This is evidenced by the fact that the agreement itself provides for a period of ten years subject to renewal by another five years. This led the plaintiff to make heavy investments on its part-build its infrastructure, incur expenses on building goodwill for the product, the plaintiff undertook obligations involving long term financial burden. Thus the plaintiff was led up the garden path by defendants 2 and 3. After all this the defendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement dated 5th November 1990 by issuing two separate notices to the plaintiff under clause 23(c) and clause 23(e) of the agreement. In the notice under clause 23(c) certain defects and deficiencies were pointed out by Ppl and the plaintiff has been called upon to correct the same within three months. Failure to carry out the corrections gives the right to Pfl to terminate the agreement forthwith. The other notice's a 12 months notice of termination without assigning any reason for such termination under clause 23(e) of the agreement. It is really the defect notice under clause 23(c) which held out to the plaintiff immediate threat of termination of the agreement. Therefore, the counsel for the plaintiff has been at pains to point out that the alleged breaches/deficiencies pointed out in the notice by Pfl are trivial in nature and in any case cannot empower Pfl to terminate the contract. In this connection the learned counsel has raised various legal issues of great importance which need to be noticed at this stage. Power to terminate a contract is a very drastic power and is justiciable. It is subject to various conditions which govern the judicial discretion as to whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered into between a monopolistic multi-national company and an Indian entrepreneur whose capital, labour, enterprise and services for selling the product of the multinational have been utilised. Such clauses are also void being in contravention of Section 23 of the Contract Act. If these clauses are declared illegal and void, the notices issued by Pfl under these clauses fall automatically. (10) According to the learned counsel for the plaintiff these clauses of the contract are also hit by Section 39 of the Contract Act. No party can be allowed to be a judge in its own cause. No party can have the right to determine whether the other party has committed a particular default and on that basis assume to itself the power to terminate the contract. This will amount to ousting the jurisdiction of the Courts and will be hit by Section 28 of the Contract Act. None of the defaults alleged in the default notice can be brought within the ambit of Section 39. (11) In support of his aforesaid contentions learned counsel for the plaintiff has cited various judgments, besides texts from certain re-knowned authors on the subject. (12) In his reply the learned counsel for the defendants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial contracts can never be in perpetuity and even if in a contract there is no termination clause, the contract will be allowed to be terminated through a reasonable notice if the power to terminate is sought to be exercised bona fide. For this reliance is placed on Decro Wall International SA vs. Practitioners in Marketing Limited, (1971) 2 All E.R. 216: In this case the agreement was oral and, Therefore, there was no termination clause. The agreement was allowed to be terminated through a 12 months' notice which was considered to he a reasonable period. Here also the defendant was appointed as the sole distributor for the products of the plaintiff in England and for this purpose the defendant had made lot of investment and incurred huge expenses in advertising the product of the plaintiff in its territory. 8.The plaintiff committed defaults in performance of its obligations under the agreement, Therefore, as per the terms of the agreement Pfl was entitled to terminate the same. According to Pfl there were serious defaults on the part of the plaintiff. 9.The Supplemental Agreement was fully discussed and its draft approved before the final agreement was executed. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it. (14) According to the learned counsel for the defendants the Supplemental Agreement seals the fate of the plaintiffs case. The Supplemental Agreement was admittedly executed between the parties. It was fully negotiated and discussed in the background of the two termination notices whereby Pfl had exercised its right to terminate the original agreement. Therefore, there was no love lost between the two parties. Draft of the Supplemental Agreement was with the plaintiff and plaintiff made its suggestions thereon. Regarding the clause for putting an end to the original agreement by 30th September 1992 the only comment of the plaintiff was unless mutually extended . Termination as on 30th September 1992 was thus accepted. This leaves no scope for the argument that the original agreement subsists and should be allowed to operate. (15) I have given my careful consideration to this aspect of the case. If the Supplemental Agreement is upheld, all the arguments of the plaintiff in relation to the original agreement need not be gone into because the Supplemental Agreement terminates the original agreement by mutual consent. This aspect of the case to my mind is decisive at least ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome bound together by a bond of legal obligation, not one which releases them from such a bond. An agreement of dissolution is the consensual surrender and extinction of rights and obligations, and not, like a contract ,the consensual creation of them. It is true, indeed, that an agreement for the dissolution of a contract is often associated with a true contract made at the same time; for the parties, while dissolving their contract, may at the same time enter into a new contract in substitution for it, or as consequential on its dissolution. This, however, is not necessarily the case. An agreement may be one of dissolution implicate without any additional or accessory contractual element; and even when such an element does exist it remains true that the agreement, so far as it dissolves the contract, is not itself contractual in its nature, but is as distinct from a contract as a grant or assignment is. Law of Contracts by Salmond Win field. 1927 Ed. page 315. (17) Thus the parties can always agree to terminate an existing contract. If the Supplemental Agreement is valid, it will follow that the same puts an end to the original agreement. Nothing will survive. The quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 960]1SCR493 . In this connection the provisions of Section 62 of the Contract Act need be noticed . 62. The fact of novation, recession and alteration of contract - If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. Thus there can be no doubt that parties to a contract can agree to put an end to their respective rights and obligations under the contract. If such an agreement is valid, the consequence would be that the agreement which is sought to be terminated may come to an end. (23) This is precisely what the defendants have contended before me. They say that the Supplemental Agreement is a valid document admittedly executed between the parties which specifically and in so many words puts an end to the mutual rights and obligations of the parties under the original agreement dated 5th November 1990 with effect from 30th September 1992. (24) Before dealing with the specific points of attack by the plaintiff qua the Supplemental Agreement, it will be appropriate to say something about the agreement itself. It has already been noted that before the agreement was brought about, dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttedly executed between the parties. By this document parties agreed to terminate eir relationship with effect from 30th September 1992. In the face of this admitted document no injunction contrary to the document can be granted. Question is whether for purposes of grant of injunction something which is in controversy should prevail or something which is admitted should prevail? Answer has to be only one. There can be no two opinions. (29) The learned counsel for the plaintiff has contended that the Supplemental Agreement seeks to modify the original agreement and is, Therefore, by way of novation and as such it requires consideration. Through the Supplemental Agreement the defendants have only postponed their alleged right to terminate the original contract by six months. Forbearance to exercise the right of termination for a limited duration cannot be a valid consideration according to the learned counsel. This contention in relation to the facts of the present case appears to be totally misconceived. Section 62 of the Contract Act recognises the right of the parties to agree to put an end to a contract. The mutual agreement to put an end to existing rights and obligations of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the plaintiff that if clause 23 of. the parent agreement goes, the Supplemental Agreement goes along with it is, Therefore, totally untenable. Similarly the ground of estoppel raised by the plaintiff on the basis of the plaintiff being required to introduce 500 ml. bottles in August 1992 is without any substance. In this connection it has to be noted that according to defendant No. 1, the expenses on the 500 ml. bottles were incurred totally by defendant No. 1 and, Therefore, the plaintiff was not out of pocket on this account.' Secondly, when the relationship was continuing between the parties whatever exigencies of normal functioning may involve had to be carried out and this by itself does not mean that it creates any right in the plaintiff to urge that the contract ought to be continued. Equally this by itself does not stop the defendant from treating the contract as terminated with effect from 30th September 1992. (31) Coming to the point of duress/coercion unequal bargaining power, the relevant facts have to be seen to come to a conclusion one way or the other. First thing to be noted in this connection is that the pleadings of the plaintiff in this respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The above questions when examined in the light of the facts on record it appears that the plaintiff never made any protest before entering into the Supplemental Agreement or even thereafter. On the contrary the plaintiff affirmed the Supplemental Agreement and went ahead with its performance. The agreement was challenged only just before it was about to expire. Thus the plaintiff took all the benefits under the agreement and chose to attack it and raises all the questions now raised in the present suit after the agreement had been allowed to run its full course. While on protest it is also worth noting that the plaintiff did not even reply to the two notices of termination served on it by the defendant. The conduct of the plaintiff in challenging the Supplemental Agreement is further to be a decried for the reason that the plaintiff submits that it was not getting any great advantage under the agreement. Therefore, there was all the more reason that the plaintiff should have instead of entering into this agreement, raised its voice and sought the remedy in Court at that stage. Already there was no love lost between the parties. Pfl had already served notices of termination and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant and not the result of plaintiff's own necessities. From the material on record it is difficult to say that Pfl exercised any duress on the plaintiff. (35) In some of the English cases it has been held that some amount of pressure in commercial transactions is always there. Kerr J. observed in Occidental Worldwide Investment Coop. vs. Sky A/S Avanii, (1976) 1 LR 293, in a contractual situation commercial pressure is not enough. Legitimate pressure alone will be permitted and any illegitimate pressure will vitiate the consent. Was their illegitimate pressure on the plaintiff in the present case which compelled it to enter into the Supplemental Agreement? It appears that it was more out of plaintiff's own commercial necessities that the plaintiff entered into the Supplemental Agreement and the Supplemental Agreement was not the result of any legitimate pressure exercised on the plaintiff by PFL. If that was not so, the plaintiff should have challenged the threatened termination of the contract by Pfl, if necessary, by going to Court. There was nothing which prevented p73 the plaintiff from going to Court and seek its remedies against the threatened termination of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said circumstances were the result of coercive acts of the opposite party. In order to substantiate the allegation of economic duress or business compulsion, the plaintiff must go beyond the mere showing of a reluctance to accept and of financial embarrassment. There must be a showing of acts on the part of the defendant which produced these two factors. The assertion of duress must be proven to have been the result of the defendant's conduct and not by the plaintiff's necessities. (37) The Contracts are meant to be performed and not to be avoided. Justice requires that men who have negotiated at arm's length, be held to their bargains unless it can be shown that their consent was vitiated by fraud, mistake or duress. The real test is to first establish that the means pursued were illegitimate in the sense of amounting to or threatening a crime, tort or a breach of contract (though possible not plausible breach of contract will suffice). Secondly, one must establish that the illegitimate means were a reason ,though not necessarily the pre-dominate reason for the victim's submission. Applying' these tests to the facts of the present case. I am unable to pers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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