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Section 9 in The Arbitration Act, 1940
Adhunik Steels Ltd vs Orissa Manganese And Minerals ... on 10 July, 2007
Section 9 in The Specific Relief Act, 1963
The Specific Relief Act, 1963
THE ARBITRATION AND CONCILIATION ACT, 1996

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Delhi District Court
Shri Kailash Chand vs General Manager on 15 March, 2011
Author: Sh.Reetesh Singh
                  IN THE COURT OF SH. REETESH SINGH
               ADDITIONAL DISTRICT JUDGE-03 (NORTH-EAST)
                      KARKARDOOMA COURTS, DELHI

                                                                      CS No. 18/11

IN THE MATTER OF:-


      SHRI KAILASH CHAND
      S/O LATE SH. BHAGWAT PRASHAD,
      R/O F-1/340, SUNDER NAGRI,
      DELHI-110093

                                                         ........Appellant

                                      Versus

      GENERAL MANAGER
      MOTHER DAIRY FRUITS & VEGETABLE PVT. LTD.
      REGISTERED OFFICE AT:
      PATPARGANJ, DELHI-110092
                                            .......Respondent


      Date of Institution of Appeal                :     03.03.2011
      Date on which Reserved for Judgment          :     10.03.2011
      Date of Judgment/Order                       :     15.03.2011
      Case I.D. Number                             :     02402C0071972011


JUDGMENT

1. By this order, I shall decide the application of the petitioner filed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinabove referred to as CS No. 18/11 Page No.1/13 the said Act) by which the petitioner is seeking grant of an interim order for directing the respondent to restore supply of milk to the milk booth of the petitioner and also to restrain the respondent from transferring the petitioners' franchisee to any other person and from removing the equipment in the booth of the petitioner. Respondent has filed a short affidavit in reply to the petition.

2. Ld. Counsel for petitioner has argued that the petitioner and the respondent entered into an agreement dated 09.12.2009 titled as "agreement with franchisee" by which the respondent granted a franchise to the petitioner for a period of two years w.e.f. 25.01.2010 to 31.01.2012. As per the agreement the petitioner was granted franchisee to sell the products such as milk, Ice-cream, curd, lassi etc. of the respondent under the brand name Mother Dairy for the said period. As per clause 3.1 of the said agreement, the petitioner had deposited Rs. 1,00,000/- with the respondent as security and respondent installed certain machinery and equipment required for storing of milk and milk products of the respondent at the premises of the petitioner.

3. As stated in the petition and argued by the Ld. Counsel for petitioner, in terms of the agreement, the petitioner opened a bank account with ECS facility from which the respondent was entitled to periodically withdraw the costs / charges of its products supplied to the petitioner. Ld. Counsel for petitioner submits that in term of the said ECS facility, the respondent was regularly withdrawing three amounts i.e. Rs.9940.50, Rs.12,784/- and Rs.1284.00/- every CS No. 18/11 Page No.2/13 month from the accounts of the petitioner. Counsel submits that on 03.01.2011, petitioner came to know that the respondent had withdrawn the said amounts twice over i.e. all the three amounts were withdrawn twice. Shocked by such illegal withdrawals the petitioner wrote a letter on 04.01.2011 to the Branch Manager, SBI, Dilshad Garden, Delhi-95 inquiring as to how the amounts have been withdrawn twice in the same day. Ld. Counsel for petitioner submits that the Branch Manager verbally informed the petitioner that the bank was not responsible for the same and petitioner ought to approach the respondent.

4. Accordingly, petitioner on 04.01.2011 itself made a representation to the General Manager of the respondent requesting to close ECS facility and handed over cheques of the said amounts for future transactions. Petitioner also claimed to have made an oral complaint to the respondent to take action on the employees who were responsible for the withdrawal of the amounts twice over.

5. Ld. Counsel for petitioner submitted that the respondent on 06.01.2011 returned of the cheques submitted by the petitioner and also reversed the transactions by which amounts were withdrawn twice. Counsel for petitioner submits that the respondent, instead of taking any punitive action against the officials of the respondent company for withdrawal, abruptly stopped supply of milk to his booth w.e.f. 18.01.2011. Petitioner submits that when representations of the petitioner to restore the milk supply fell on deaf ears, he filed a civil suit before the Court of Ld. Civil Judge, North-East. The same was however, disposed CS No. 18/11 Page No.3/13 off on an application of the respondent under Section 8 of the Act on the ground that contract between the parties had an arbitration clause. Counsel for petitioner submits that the respondent has malafidely stopped supply of milk to the booth of the petitioner and such an action is contrary to the terms of the contract entered into between the parties.

6. Counsel for the petitioner draws the attention of this Court to clause 6.4 of the agreement dt.9.12.2009 in which it is provided that in case cheque of the franchisee is returned dishonoured, the franchisee would be liable to fine of Rs. 200/-. However, no corresponding liability is imposed on the respondent in case of overdrawal of money from the ECS facility. Counsel submits that clause 8.1 of the agreement dt.9.12.2009 provides for a three day notice period for either side for termination of the agreement and that clause 8.4 of the contract which empowered the respondent to terminate the agreement forthwith in case franchisee is found to indulge any activities harmful to reputation of respondent. Counsel submits that the respondent has not taken any action against the petitioner under clauses 8.1 and 8.4 of the agreement but has malafidely stopped supply of milk as petitioner had made complaints against their officials. Counsel therefore states that the petitioner is entitled for the interim measure as prayed for.

7. Counsel for respondent on the other hand submits that the franchisee of the respondent was terminated under clause 7.2 of the franchise agreement on CS No. 18/11 Page No.4/13 02.02.2011 since it was found that the sample of milk drawn from booth of the respondent on 18.01.2011 had failed the quality test. Counsel for respondent submits that on 18.01.2011 officials of the respondent in a routine manner took samples of the milk supplied by them being sold from the booth of the petitioner. These samples were taken in the presence of the petitioner in two bottles out of which one bottle was sealed. The milk contained in the other bottle was analyzed in the laboratory and it was found that percentage of fat as well as SNF content was 2.90% per cent and 8.14% as compared to 3.06% and 8.59% in the milk originally supplied by respondent.

8. Thereafter, notice dated 19.01.2011 was served on the petitioner calling upon him to appear before the respondent on 20.01.2011 to provide him an opportunity of getting the second sealed bottle containing sample milk to be tested in his presence. Despite service of the notice dated 19.01.2011, petitioner did not appear before the respondent on 20.01.2011. Since upon testing the milk samples drawn from the booth of the petitioner it was found that there was variation in the quality of milk, the petitioner rendered himself liable to action of termination of the agreement under clause 7.2 of the agreement.

9. Counsel for respondent has further argued that petitioner has concealed all these material facts despite the same being within his knowledge and is therefore the petitioner not having approached this Court with clean hands was not entitled to the discretionary relief / interim measure under Section 9 of the Act.

CS No. 18/11 Page No.5/13 Counsel for respondent has also argued that before Ld. Civil Judge petitioner had also filed an application under Section 9 of the Act which was dismissed on 25.02.2011 as being not maintainable.

10. Counsel for respondent submits that the allegations of petitioner regarding double withdrawal of amounts by way of ECS facility and franchisee being terminated on account of complaints made by petitioner are contrary to the record. Counsel for respondent has drawn the attention of this Court to the contents of the communications of the petitioner dated 04.01.2011. In the letter dated 04.01.2011 to the bank, petitioner has only stated that he wishes to close ECS facility due to some unavoidable circumstances. In the latter dated 04.01.2011 to the respondent, petitioner has stated that ECS facility be closed because amounts were withdrawn twice. He has not made any complaint or any allegation against any official of the respondent or asked for taking any action against them. Counsel submits that the story set up by petitioner has been cooked up in order to create some ground for seeking interim relief.

11. In rejoinder, counsel for petitioner has argued that samples may have been taken from his premises on 18.01.2011 but no notice dated 19.01.2011 was received by the petitioner for testing of samples on 20.01.2011. Counsel for petitioner has relied upon the judgment of the Hon'ble High Court in the following cases:-

CS No. 18/11 Page No.6/13

(a) Sumer Arora Vs. Domino's Pizza India Ltd. reported in 2000 Vol. 6 VI AD (DELHI) 494.

(b) Vindhya Telelinks Ltd. Vs. Mahanagar Telephones Nigam Ltd. & Anr. Reported in 2002 Vol. II AD (DELHI)778.

12. Heard the parties. Perused the record. By franchisee agreement dated 09.12.2009, respondent had granted franchisee to the petitioner for sale of its products which included milk and milk products. For the same, respondent had installed machinery at premises of petitioner who had deposited Rs.1,00,000/- with respondent as security deposited. By way of this application petitioner is seeking an interim order to the effect that the milk supplied of respondent which was withdrawal w.e.f. 18.01.2011 be restored. Respondent has placed on record copy of termination notice dated 02.02.2011 by which franchisee agreement of the parties was terminated under the provisions of clause 7.2 of the agreement.

13. Issue before this Court is that when an agreement has been terminated, whether by way of an application under Section 9 of the Act the petitioner can seek an interim measure by which the contract though terminated would continue pending arbitration proceedings. In other words where an order can be passed restraining respondent from giving effect to its notice of termination dated 02.02.2011 pending arbitration proceedings. In this regard, in a similar situation Hon'ble Supreme Court in the case of Adhunik Steels Ltd. v. Orissa Manganese CS No. 18/11 Page No.7/13 and Minerals (P) Ltd. reported in (2007) 7 SCC 125 was pleased to hold as under:

"21. It is true that the intention behind Section 9 of the Act is the issuance of an order for preservation of the subject-matter of an arbitration agreement. According to learned counsel for Adhunik Steels, the subject-matter of the arbitration agreement in the case on hand, is the mining and lifting of ore by it from the mines leased to OMM Private Limited for a period of 10 years and its attempted abrupt termination by OMM Private Limited and the dispute before the arbitrator would be the effect of the agreement and the right of OMM Private Limited to terminate it prematurely in the circumstances of the case. So viewed, it was open to the court to pass an order by way of an interim measure of protection that the existing arrangement under the contract should be continued pending the resolution of the dispute by the arbitrator. May be, there is some force in this submission made on behalf of Adhunik Steels. But, at the same time, whether an interim measure permitting Adhunik Steels to carry on the mining operations, an extraordinary measure in itself in the face of the attempted termination of the contract by OMM Private Limited or the termination of the contract by OMM Private Limited, could be granted or not, would again lead the court to a consideration of the classical rules for the grant of such an interim measure.

Whether an interim mandatory injunction could be granted directing the continuance of the working of the contract, had to be considered in the light of the well-settled principles in that behalf. Similarly, whether the attempted termination could be CS No. 18/11 Page No.8/13 restrained leaving the consequences thereof vague would also be a question that might have to be considered in the context of well- settled principles for the grant of an injunction. Therefore, on the whole, we feel that it would not be correct to say that the power under Section 9 of the Act is totally independent of the well- known principles governing the grant of an interim injunction that generally govern the courts in this connection. So viewed, we have necessarily to see whether the High Court was justified in refusing the interim injunction on the facts and in the circumstances of the case."

"22.********"

"23. The question here is whether in the circumstances, an order of injunction could be granted restraining OMM Private Limited from interfering with Adhunik Steels' working of the contract which OMM Private Limited has sought to terminate. Whatever might be its reasons for termination, it is clear that a notice had been issued by the OMM Private Limited terminating the arrangement entered into between itself and Adhunik Steels. In terms of Order 39 Rule 2 of the Code of Civil Procedure, an interim injunction could be granted restraining the breach of a contract and to that extent Adhunik Steels may claim that it has a prima facie case for restraining OMM Private Limited from breaching the contract and from preventing it from carrying on its work in terms of the contract. It is in that context that the High Court has held that this was not a case where the damages that may be suffered by Adhunik Steels by the alleged breach of contract by OMM Private Limited could not be quantified at a future point of time CS No. 18/11 Page No.9/13 in terms of money. There is only a mention of the minimum quantity of ore that Adhunik Steels is to lift and there is also uncertainty about the other minerals that may be available for being lifted on the mining operations being carried on. These are imponderables to some extent but at the same time it cannot be said that at the end of it, it will not be possible to assess the compensation that might be payable to Adhunik Steels in case the claim of Adhunik Steels is upheld by the arbitrator while passing the award."

14. Perusal of the judgment of the Hon'ble Supreme Court in the case referred to above reveals that exercise of power under Section 9 of the Act is analogous to Order 39 Rule 2 CPC. Hon'ble Supreme Court has been pleased to hold that under Order 39 Rule 2 CPC, an order can be passed for restraining a party to commit breach of contract. However, such power is to be exercised keeping in view the provisions of Specific Relief Act, 1963 by which the Court has to see whether the authority complaining of the breach can be compensated in terms of money. In the said case, the Hon'ble Supreme Court declined to grant any interim order in favour of the party who had complained that his contract for mining had been terminated in violation of the terms of the contract by holding that in case, the party succeeded in arbitration proceedings, he could be awarded damages for loss of profits.

15. The issues raised by the petitioner, would in the opinion of this Court, be CS No. 18/11 Page No.10/13 squarely covered clearly by the decision of the Hon'ble Supreme Court in the case of Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd. (Supra). In the present case, the petitioner was granted a franchisee agreement on 09.12.2009 for a period of two years w.e.f. 25.01.2010 to 31.01.2012. Damages suffered by the petitioner by way of termination of the contract can be ascertained in proceedings before the Ld. Arbitrator in case it was found that the termination of the agreement was illegal.

16. Further, in order to obtain an order for an interim measure under Section 9 of the Act, being analogous to the provisions of Order 39 Rules 1 and 2 of the CPC, the petitioner would have to satisfy the following three ingredients:

(a) existence of a prima-facie case in his favour;
(b) balance of convenience in his favour;
(c) chances of irreparable harm and injury being caused to him;

17. In the present case, franchisee of petitioner was terminated under Clause 7.2 of the agreement which reads as under:-

"7.2 In the event of any variation, so found in the quality or quantity, the company shall have right to terminate the present agreement forthwith, notwithstanding anything contained in the present agreement in respect of notice of termination."

18. The agreement was terminated by the respondent on 2.2.2011 after it was CS No. 18/11 Page No.11/13 found that the samples of milk taken from the booth of the petitioner had failed the quality tests and when despite grant of opportunity, the petitioner did not appear before it for having the second sealed sample of milk tested in his presence. Copy of the termination notice dt.2.2.2011 has been placed on record. The version put forward by the petitioner that supply of milk was stopped w.e.f. 18.01.2011 due to his complaint for over withdrawal of money from his account by the respondent when related to the admitted lifting of samples of milk from his booth on 18.1.2011 does not seem to be bona fide. The petitioner has himself admitted that the amounts overdrawn were restituted in his account on 06.01.2011. No written complaint has been placed on record by the petitioner evidencing that he had asked the respondent to take action against officials responsible for overdrawal.

19. As regards the case law relied upon by counsel for petitioner, in the case of Sumer Arora Vs. Domino's Pizza India Ltd. (supra), the interim order was passed in favour of the petitioner in view of the offer of the respondents in the said petition to the effect that they would not enforce clause 18.2 of the agreement (as recorded in para 16 of the judgment). In the case of Vindhya Telelinks Ltd. Vs. Mahanagar Telephones Nigam Ltd. & Anr (supra), the said matter pertained to invocation of a bank guarantee. There was no question before the Court with regard to continuance of an agreement which had been terminated. The judgments relied upon by counsel for petitioner, in the opinion of this Court, do CS No. 18/11 Page No.12/13 not come to his aid.

20. For the reasons recorded above, petitioner has not been able to make out the necessary ingredients for grant of interim measure under Section 9 of the Act. As regards chances of irreparable harm and injury being caused to him, in case it is found in the arbitration proceedings, which are yet to be instituted, that the termination was illegal, petitioner can certainly be compensated by way of damages.

21. Accordingly, the petitioner is not entitled to grant of interim measures as prayed for. Petition is dismissed.

22. Nothing stated hereinabove, shall be considered as an observation on the merits of the cases of the parties.

23. File be consigned to Record Room.

Dictated to the Steno and announced in the Open Court today i.e. 15.03.2011.

                                                        (REETESH SINGH)
                                                     Addl. Distt. Judge-03 (NE)
                                                    Karkardooma Courts, Delhi




CS No. 18/11                                                      Page No.13/13