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2005 DIGILAW 220 (CAL)

Universal Petro-chemicals Ltd. v. BP p. l. c.

2005-03-30

PINAKI CHANDRA GHOSE, PRAVENDU NARAYAN SINHA

body2005
JUDGMENT This application has been filed by the appellant/petitioner, against an order dated January 10th, 2005 rejecting the application filed by the appellant/petitioner for granting an injunction. The facts of the case are summarised as hereunder. 2. With an intention to introduce and for marketing 'Aral' Brand in India in relation to the automotive and industrial, lubricants in India and sale of lubricants under the said brand name, a technical collaboration agreement was entered into between the respondent No.3 and the appellant herein. It was agreed between the parties that the said respondent No.3 shall provide technical know how for manufacturing of lubricants to the petitioner/appellant and the petitioner/appellant was to manufacture the said product with such technical know how of the respondent No.3 and further to market the same in India under the brand name of 'Aral'. The Castrol Ltd. UK, is the holding company of the respondent No.3 herein. The respondent No.1 is marketing worldwide business of various petroleum products. The respondent No.2 ,Castrol India Ltd. is the holding company of Castrol L1d. UK and the respondent No.1 BP p.l.c. is the holding company of Castrol Ltd. The said respondent No. 1 through the respondent NO.2 was marketing various brands of lubricants under brand name of Castrol in India. 3. The said collaboration agreement between the petitioner/appellant and the respondent No.3 was executed on November 1st, 1994. The said collaboration agreement was subject to the condition and in terms of the policy of the Reserve Bank of India under Foreign Exchange Regulation Act, 1973. On the basis of such collaboration agreement, an agreement was also executed between the parties whereby the petitioner/appellant was entitled to use the said Trade Mark 'Aral'. 4. According to the petitioner/appellant, the approval granted by the Reserve Bank of India by its letter dated November 25, 1994 was also formed an integral part of the collaboration agreement dated November 1, 1994. The said letter of approval and/or permission was valid for a period of two years. Accordingly, a supplementary agreement was executed by the parties on January 3, 1995. 5. Pursuant to and in terms of the said collaboration agreement the petitioner/appellant started manufacturing lubricants and marketing the said product in India under the brand name of 'Aral'. 6. The petitioner/appellant duly paid royalty at the rate approved by the Reserve Bank of India, which was duly accepted by the respondent No.3. 7. 5. Pursuant to and in terms of the said collaboration agreement the petitioner/appellant started manufacturing lubricants and marketing the said product in India under the brand name of 'Aral'. 6. The petitioner/appellant duly paid royalty at the rate approved by the Reserve Bank of India, which was duly accepted by the respondent No.3. 7. It is submitted that the duration of the collaboration agreement was 10 years or seven years from the date of actual production which ever, was earlier in accordance with the said approval of the Reserve Bank of India. 8. The actual production of lubricants under the said collaboration agreement had commenced on and from January 1, 1996. Subsequently, on November 13, 2002 the Government of India granted its approval. According to the petitioner/appellant the duration of agreement fixed by the said approval was extended till December 31, 2009 with effect from January 2003 and the said approval letter was made part of the collaboration agreement. The parties have also executed supplementary agreement on December 27, 2002, treating the same as an integral part of the collaboration, agreement dated November 1, 1994. 9. The further case of the petitioner/appellant, the respondent No.1 was marketing their product in joint venture with Tata under the brand name of Tata B.P. Subsequently, the said Tata BP merged with respondent No.2 and respondent No.1 acquired the majority shareholding in Burmah Castrol Holdings Ltd. U.K. and further in or about February 2002, the respondent No. 1 become majority share holder of Velba Oil, which is the parent company of the respondent No.3. 10. At the instance of the respondent Nos. 1 and 2 the respondent No.3 issued a notice dated April 3, 2004 to the petitioner/appellant whereby the said respondent gave six months notice of termination of collaboration agreement dated November 1, 1994 and the respondent No.2 wrongfully started making arrangements for marketing the lubricants under the brand name 'Aral' in India. 11. Hence the grievance of the petitioner/appellant that the respondent No.3 is obliged to allow the petitioner/appellant to use the said trade mark and design 'Aral' and to market the said product exclusively in India and further the respondent No.3 in breach of the negative covenant is threatening to allow the respondent No.2 to use the said trade mark and design 'Aral' in India. 12. 12. The petitioner/appellant instituted a suit in this Hon'ble Court and in the said suit the petitioner/appellant filed an application for injunction restraining the respondent numbers 1 and 2 from marketing the said lubricant under the brand name of 'Aral' or using the said design of 'Aral' in India. 13. The case of the respondents before the Hon'ble First Court that the agreement was terminable; the duration of the -contract was never extended by the approval of the RBI or by the approval of the Government of India. The petitioner/appellant had a right of extension twice for a period of two years and during the said extension. The notice of termination was served before six months in accordance with the Clause 5 of the agreement. 14. According to the respondents, the Reserve Bank of India was only concerned with the payment of royalties in relation to the Foreign Collaboration Agreement and the approvals granted by the Reserve Bank of India and the Government of India has to be read in that context only. The duration suggested in the approval letter by the Reserve Bank of India or Government of India was only for that purpose and the appellant/petitioner got the approval for payment of Royalties to the respondent for the period mentioned in the said approval letters. It is also pointed that permission was granted till the validity of the duration. It was also pointed out that the supplementary agreements did not amend the original agreement in any manner from its letter and spirit. Therefore, since it is a terminable contract, after giving six months notice before the said extended period of two years and the respondent duly served such notice in time. It is further the case of the respondent No.3 that the petitioner/appellant cannot contend that the extension was granted up to 2009 in terms of the approval granted by RBI and Government of India. Neither the RBI or Government of India is a party in respect of the agreement entered into between the petitioner/appellant and the respondent No.3. Even if there is any breach, if at all, the petitioner/appellant could be adequately compensated by pecuniary damages, in the event it is proved at the trial that the order of termination is bad in law. Neither the RBI or Government of India is a party in respect of the agreement entered into between the petitioner/appellant and the respondent No.3. Even if there is any breach, if at all, the petitioner/appellant could be adequately compensated by pecuniary damages, in the event it is proved at the trial that the order of termination is bad in law. The case of the respondent No.2 before the First Court there has been no breach of agreement nor there is any breach of negative covenant as alleged by the petitioner/appellant. The supplemental agreement were executed on the basis of the Reserve Bank India's approval which was admittedly applied by the petitioner/appellant and in fact, the same is only for the purpose of payment of royalty to the foreign collaborator. 15. On these facts and after hearing the learned Counsel for the parties, the Hon'ble First Court came to the conclusion that the three conditions have to be fulfilled by the petitioner/appellant (a) to make out a prima facie case; (b) balance of convenience lies in favour of the petition; (c) the petitioner would suffer irreparable loss and injury. It has also been held that the petitioner insisted that they are enjoying their rights, which is valid till 2009, on the basis of the supplementary agreements and which treated as an integral part of the collaboration agreement. On the contrary the Hon'ble First Court found that the contract was valid up to October 2004 and the respondent duly terminate the said contract by giving six months prior notice, which was issued in April 2004 and the Hon'ble First Court on such ground prima facie held that the respondent No.3 acted within its right and respondent No.1 or respondent No.2 did not procure the said notice and further petitioner/appellant admitted that 'Aral' is controlled and managed by its executives and the respondent No.3 is a separate and an independent juridical entity and further if the petitioner/appellant succeeds in the suit, it would be compensated by pecuniary damages. It is also an admitted position, which Hon'ble First Court found that the Universal is manufacturing multi grade engine oils under the brand name 'Haritshakti' and there is no bar on the part of the Universal to sell the same under its brand name. Hence the application for injunction was rejected. 16. Mr. It is also an admitted position, which Hon'ble First Court found that the Universal is manufacturing multi grade engine oils under the brand name 'Haritshakti' and there is no bar on the part of the Universal to sell the same under its brand name. Hence the application for injunction was rejected. 16. Mr. Aninda Mitra learned Senior Advocate appearing on behalf of the appellant/petitioner submitted that drew our attention to Clause 5 of the said agreement, which is reproduced hereunder. Term and termination: After the initial three years term, the Agreement may be terminated by UPCL, or Aral by registered letter (six months has also been held that the petitioner insisted that they are enjoying their rights, which is valid till 2009, on the basis of the supplementary 'agreements and which treated as an integral part of the collaboration agreement. On the contrary the Hon'ble First Court found that the contract was valid up to October 2004 and the respondent duly terminate the said contract by giving six months prior notice, which was issued in April 2004 and the Honble First Court on such ground prima facie held that the respondent No.3 acted within its right and respondent No. 1 or respondent No. 2 did not procure the said notice and further petitioner/appellant admitted that 'Aral' is controlled and managed by its executives and the respondent No.3 is a separate and an independent juridical entity and further if the petitioner/appellant succeeds in the suit, it would be compensated by pecuniary damages. It is also an admitted position, which Hon'ble First Court found that the Universal is manufacturing multi grade engine oils under the brand name 'Haritshakti' and there is no bar on the part of the Universal to sell the same under its brand name. Hence, the application for injunction was rejected. 17. Mr. Aninda Mitra learned Senior Advocate appearing on behalf of the appellant/petitioner submitted that drew our attention to Clause 5 of the said agreement, which is reproduced hereunder:- "Term and termination; After the initial three years term, the Agreement may be terminated by UPCL or Aral by registered letter (six months notice) if the objectives mutually agreed upon are not reached for what reason ever. After the initial term the Agreement shall be prolonged for a term of additional five years and shall be extended automatically for periods of two years if notice of termination is not given by registered letter six months before the date of termination by either party. At any time during the term, either Aral or UPCL may terminate the Agreement in the event of either party fails to fulfil this agreement, after written notice and giving an opportunity to cure the failure within a time given. Aral may terminate this agreement if major changes in the majority of shareholders of UPCL occur. This is in order to safeguard Aral interest and Aral should given good reason for any objection." 18. He contended that the respondent NO.3 has no right to terminate the contract with such notice without giving an opportunity to the petitioner to cure the failure within a time given. According to him no such written notice was given in respect of failure on the part of the respondent 'Aral' herein and hence no chance was granted to cure any failure. Therefore, no effect could be given to the said notice. He further submitted that the duration of the agreement would be evident from the letter addressed by the Government of India dated November 13. 2002, which specifically stated that duration of the technical collaboration agreement shall be seven years from the date of expiry of the earlier agreement i.e. till 1st January, 2009. He further submitted that the royalty shall be payable during the extended period of collaboration agreement. He further drew our attention to Clause 14 of the said letter of approval and submitted that this approval of the Government of India is made a part of the collaboration agreement executed between the parties. Accordingly, parties entered into the supplemental agreement by which the time was extended. He also drew our attention to the approval of the Reserve Bank of India dated November 24, 1994 and the extension by the department of Industrial Policy and permission dated November 13, 2002 and he submitted that the letters/approval or permissions are part of the said supplementary agreement whereby the duration was extended. He further contended that all steps were taken at the instance of the respondent Nos. 1 and 2, by the respondent 3. He further contended that all steps were taken at the instance of the respondent Nos. 1 and 2, by the respondent 3. Accordingly, he submitted that Hon'ble First Court was wrong in holding that there was no prima facie case made out by the petitioner/appellant. Mr. Mitra further submitted that there was no ambiguity In respect of contract and/or its terms as entered into between the parties and he further contended that the duration clause was modified by the approval of the Reserve Bank of India and entering the supplementary agreement. He further submitted that balance of convenience is not applicable in the case since there is a negative covenant in favour of the petitioner/appellant and the petitioner/ appellant is bound to get an injunction. In support of his contention he relied upon- 1995 (5) SCC 545 , Gujarat B. Co. Ltd. v. Coca Cola and Others. AIR 1996 Cal 67 , Vijaya Minerals Pvt. Ltd. v. Bikash Chandra Deb, AIR 1954 SC 345 , Chunchun Jha v. Ebadat Ali and Another, AIR 1998 (7) SCC 348 , L.I. C. of India and Another v. Dharam Vir Anand. He further contended that the agreement is enforceable and an injunction should have been granted to prevent multiplicity of under Section 42 of the Specific Relief Act and he relied upon AIR 1996 Calcutta page 67 (supra). 19. Mr. Sudipto Sarkar Senior Advocate appearing on behalf of the respondent NO.3 drew our attention to Clause 5 of the said agreement and submitted the termination clause has to be read. The agreement is terminable on three ways, one termination by breach; one termination by notice on six months and the other is change of shareholding of the petitioner/appellant. He submitted the first termination within six months from date of execution of the agreement. Thereafter, if there is no complain by the respondent No.3 it will continue for five years, again there will be an extension for two years, then again an extension of two years, if no termination notice is served prior to six months before completion of such term, then again it will go for two years. The petitioner/appellant will continue thereafter automatically under the clause and if there is any breach by the appellant/petitioner and if fail, then to be terminated. Here there is no question to such chance, as the said period has not yet reached. The petitioner/appellant will continue thereafter automatically under the clause and if there is any breach by the appellant/petitioner and if fail, then to be terminated. Here there is no question to such chance, as the said period has not yet reached. He submits the first period of the agreement was concluded and thereafter extended period was expired on 31st October, 2002, i.e. first two years under the said clause. The second extension was valid till 31 st October, 2004 and during that period on 14th April, 2004 notice of termination was served on the ground that the agreement is terminable on notice under the said clause and that is the reason six months notice was served. When six months notice has been served within the stipulated time, then it has to be accepted that the respondent No.3 will not agreeable to grant further extension. It is not necessary to say that a chance to be given to cure the defects. Such period has not arrived at all. He further drew our attention to Reserve Bank of India first approval and submitted that the Reserve Bank of India cannot control the business of the parties, the duty of the Reserve Bank only to regulate Foreign Exchange. Since here is a clause to make payment to royalty and for the sake of controlling foreign exchange, such permission was required by the petitioner/appellant. Therefore, it is not necessary for the Reserve Bank of India to control the agreement entered into between the parties or to control the affairs/business of the parties. He further drew our attention to the said letter dated 22nd of December 1998 and 25th of November 1994 and submitted that the Reserve Bank of India is not entering any collaboration agreement or tripartite agreement, it is only for the purpose of regulating the foreign exchange for payment of royalty and nothing else. He further submitted that the supplementary agreement which was executed only for the purpose of payment of royalty and nothing else. Hence he submitted that there is no violation or breach by serving such notice to the petitioner/appellant in terms of the contract. The contract is terminable upon notice and the respondent No.3 duly took steps accordingly. The petitioner/appellant, if at all, has suffered any loss that should be decided in the suit and not before. Hence he submitted that there is no violation or breach by serving such notice to the petitioner/appellant in terms of the contract. The contract is terminable upon notice and the respondent No.3 duly took steps accordingly. The petitioner/appellant, if at all, has suffered any loss that should be decided in the suit and not before. He further drew our attention to the Clause 8 of the Government approval and submitted that same fully for the purpose of royalty. Hence he submitted that there is no negative covenant is lying in favour of the petitioner/appellant. He also relied on the following decisions reported in 81 CWN 646, AIR 1983 SC 1272 , 1995 (5) SCC 545 , 1999 (7) SCC 1 , 1972 (1) AER 513 in support of his submission. 20. Mr. P.C. Sen learned Senior Advocate on behalf of the respondent Nos. 1 and 2 contended that the contract was terminable under Clause 5 of the agreement. He further drew our attention to Section 14 of the Specific Relief Act and submitted that the case of the petitioner/appellant also hit by the said section. He further relied upon the decision cited by Mr. Sarkar and contended that the appeal should be dismissed. According to him if an injunction is granted at this stage it would be nothing but a decree without a trial. 21. After hearing the parties and after going through the facts of the case and further the documents which were placed before us. We find that the approval was granted by the authorities on application filed by the petitioner/appellant. We also find that the letter was addressed to the Deputy Director PABII Section. The approval letter was also produced before us. It further appears that the petitioner/appellant themselves stated in the said letter dated July 2002 as follows:- "Yes, as mentioned above an approval of the RBI was obtained. Copies of all the RBI approvals are attached. Kindly note that we have been and intend to continue using the RBI approval and adhere to its conditions as regards royalty and duration of the agreement." 22. From the said letter it appears that the approval was granted by the RBI only for the period mentioned in the said approval letter and only for the purpose of royalty and nothing else. From the said letter it appears that the approval was granted by the RBI only for the period mentioned in the said approval letter and only for the purpose of royalty and nothing else. Since the RBI is not a party in 'I the said contract, and it is unthinkable that at the dictate of the RBI the parties would decide their term and would continue for the period to be mentioned by the RBI. It appeals to us that the said duration has been mentioned only for the purpose of royalty to be paid by the petitioner/appellant to its collaborator at such rate as dictated by the RB I and the validity of the approval is mentioned in the said letter as duration. Therefore, there cannot be any hesitation to hold that the RBI not is controlling the affairs or the terms of the contract between the parties between the parties and we do feel that the Hon'ble First Court has rightly held so, and accept the contention of Mr. Sarkar and Mr. Sen. It further appears to us that the contract was terminable and it can be terminated by giving six months notice as has been correctly held by the Hon'ble First Court. We accept the contention of Mr. Sarkar on such point and we hold that there is no question arises at this stage to grant a chance to Mr. Mitra's client to cure the defect. That situation has not arrived at all. Therefore, we reject the contention of Mr. Mitra. We do not find any merits on the other points put forward by Mr. Mitra on behalf of the petitioner/appellant and further it also struck us that the Hon'ble First Court did not find any material available on records to show that before the termination of the agreement universal ever asserted that the contract was valid till 2009 nor do we find any such document before us also. We further find that the Hon'ble First Court was right in holding that the petitioner failed to make out a case to show that either respondent No.1 or 2 procure breach of any covenant at this stage. We are also not convinced by the submissions made on behalf of the petitioner/appellant that there was any negative covenants were lying in favour of petitioner/appellant to have an injunction in these facts. We are also not convinced by the submissions made on behalf of the petitioner/appellant that there was any negative covenants were lying in favour of petitioner/appellant to have an injunction in these facts. On the contrary we find that the petitioner/appellant failed to make out such case before the Hon'ble First Court. We have also perused the decision of the Hon'ble Judge and after hearing the learned Senior Advocates for the parties and after analysing the decision cited before us. We do not find any reason to interfere with the judgment delivered by the Hon'ble First Court and accordingly we dismiss this application and the appeal. All undertakings given by the appellant are discharged. All interim orders in the stay petition an also vacated. Later-Mr. Pratap Chatterjee learned Senior Advocate for the appellant/petitioner prays for stay of operation of the order. Since the application and the appeal are being dismissed, we do not feel at this stage any stay should be granted by us. Hence the stay asked for is refused.