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Section 9 in The Arbitration And Conciliation Act, 1996
The Arbitration And Conciliation Act, 1996
Section 17 in The Arbitration And Conciliation Act, 1996
Section 36 in The Arbitration And Conciliation Act, 1996
Article 12 in The Constitution Of India 1949

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Delhi High Court
Softline Media Ltd., Soft Lines ... vs Delhi Transport Corp. on 25 January, 2002
Equivalent citations: 2002 IIAD Delhi 849
Author: A Sikri
Bench: A Sikri

JUDGMENT

A.K. Sikri, J.

1. All these petitions are filed by the petitioners under Section 9 of the Arbitration and Conciliation Act (hereinafter referred to as the Act, for short) whereby the petitioners have prayed for ad interim relief. All these petitions involve similar facts and same question of law. They were accordingly heard together and are being disposed of by this common Order.

2. In order to appreciate the controversy facts of OMP.185/2001 may be noticed. It is stated in this petition that the respondent - Delhi Transport Corporation (hereinafter referred to as DTC, for short), from time to time invites tenders from reputed advertisement companies, firms and concerns, for grant of advertisement rights on the various bus queue shelters under its jurisdiction. In 1997 DTC also devised a scheme whereby it invited tenders for construction of bus queue shelters known as "Build Operate and Transfer Scheme" (hereinafter referred to as but Scheme, for short). The underlying object of but Scheme was to invite parties to construct, erect and build bus queue shelters entirely at their costs as and when required by the respondent and same was allotted to the successful party. The upkeep and maintenance of the same was entrusted to the successful party and the successful party was further permitted to erect/display advertisements upon such bus queue shelters inter alia to enable such parties to recover the costs incurred by it and generating revenue. Further, the respondent also charges amounts on a monthly basis from such parties who are awarded such contracts. Upon expiry of the period of the contract, the bus queue shelters so constructed/built by the successful party to whom the contract was awarded were to vest and become the property of the respondent i.e. till the expiry of the agreement, the property 'built' continues to be the property of the successful party/petitioner.

3. Around July 1997 the respondent invited tenders for construction of 277 bus queue shelters under the but Scheme. The petitioner submitted his bid. After consideration of the bid and holding negotiations, the DTC vide its letter dated 11th February, 1998 informed the petitioner that its competent authority had accorded its approval for 'Work of construction of 30 bus queue shelters as per list at Annexure 'A' and 28 bus queue shelters as per list at Annexure'C'." This communication, inter alia, specified as under:-

1. The Bus Queue Shelters will be constructed as per the existing design of DTC with a provision of gutter in the back side of drainage of rainy water;

2. A space measuring 9" high all around the bus queue shelters painted with yellow color will be provided/spared for writing the routes and name of the bus stop etc;

3. To deposit the earnest money of Rs.10,000/- per shelter as per the condition of the tender;

4. Construction of 30 Bus Queue Shelters as per list attached at Annexure 'A' at the rate of Rs.1500/- per month per shelter to be paid to DTC for a period of 3 years with allowing 2 months period for the construction without any payment;

5. Construction of 28 Bus Queue Shelters as per list attached at Annexure 'C' at the rate of Rs.500/- per month per shelter with 10% increase every year to be paid to DTC for a period of five years with construction period of two months without license fee."

4. Thereafter Agreement dated 4th March, 1998 was executed between the parties. The petitioner deposited with the respondent earnest money of Rs.5.80 lakhs @ Rs.10,000/- per bus queue shelter.

5. According to the petitioner, in execution of the contract, namely, construction of the aforesaid shelters, the petitioner faced various difficulties occasioned by the respondent and/or because of the dispute between the MCD and respondent-DTC. However, after initial hic-cups, the work could commence and the petitioner ultimately built/constructed the said bus queue shelters as per required specifications and to the satisfaction of the respondent. According to the petitioner, more than Rs.1 lakh per bus queue shelter was spent by them on this construction and in this way the total amount spent by the petitioner was Rs.58 lakhs. As per the Agreement entered into between the parties, after the construction of these shelters, the earnest money of Rs.5.80 lakhs was to be converted into security deposit. 30 bus queue shelters (as per Annexure A) were to be given to the petitioner for a period of three years on payment of Rs.1500/- per month/per shelter and 28 bus queue shelters (as per Annexure C) were to be given @ Rs.5000/- per month per shelter for a period of five years with 10% increase every year. The petitioner submits that after the construction of these shelters and the amount spent by the petitioner on them, a legitimate expectation accrued to the petitioner to retain the possession and rights over the said shelter for the aforesaid period of three years and five years respectively. The only obligation of the petitioner, during this period, was to maintain these shelters for the respondents.

6. It is the allegation of the petitioner that owing to the pressure of lobbying of various advertisement contractors including the petitioner's competitors, to abandon the but Scheme the respondent-DTC thought of ways to terminate the existing contracts under the but Scheme so that sites could be allotted to other parties. With this motive in mind the respondent-DTC arbitrarily started to sending communication dated 22nd January, 2001 to the petitioner raising vague and ambiguous allegations alleging that the petitioner was not maintaining the bus queue shelters in good condition and had also not done painting work annually and therefore it violated the terms and conditions of the tender document/Agreement. Although the petitioner refuted the allegations vide its reply dated 27th February, 2001 maintaining that all the 58 shelters were well maintained, painted and were kept in good condition and the respondent was requested to inspect the same and reiterated the stand by its subsequent letters dated 19th April, 2001, 10th May, 2001 and 4th June, 2001. The respondent belatedly and as an after-thought sent another fax dated 8th June, 2001 alleging that the bus queue shelters were got checked and it was found that the defects/deficiencies have not been rectified and the respondent sought to take recourse to Clause 20 of the Agreement dated 4th March, 1998 with threat to terminate the said Agreement w.e.f. 9th June, 2001.

7. At this stage the present petition was filed on 12th June, 2001 under Section 9 of the Arbitration and Conciliation Act, 1996 as is an arbitration clause no.22 in the Agreement dated 4th March, 1998, Among others, the following prayers are made:-

(a) restrain the respondent, its employees, officers, staff, representatives and agents from, in any manner, acting in furtherance of the alleged notice dated 8.6.2001 and from, in any manner, removing, obstructing, damaging and/or causing any interference, in any manner, with the advertisement displays erected by the petitioner upon the said 28 bus queue shelters subject matter of the said Agreement dated 4.3.98 (category 'B') executed between the petitioner and the respondent and/or from dispossessing the petitioner from any of the said 28 bus queue shelters;

(b) restrain the respondent, its employees, officers, staff, representatives and agents from awarding and/or allotting the said 28 bus queue shelter sites forming part of the said Agreement dated 4.3.98 (category 'B') to any other third party;

8. By Order dated 13th June, 2001 interim order for maintaining status quo in respect of the possession of the sites and the advertising boards displayed thereon was passed after noticing the contention of the learned counsel for the petitioner that the respondent was seeking to cancel the license agreement on flimsy ground and that the impugned action was arbitrary and fraudulent and further that the petitioner had entered into license contract with the advertisers and had taken money from them and in case the petitioner is not protected he will suffer irreparable injury and there will be multiplicity of proceedings.

9. After issuance of notice the respondent-DTC appeared and filed reply controverting various allegations made by the petitioner in the petition. The petitioner filed rejoinder thereto and the matter was heard from time to time and finally on 11th January, 2002 after hearing the arguments the judgment was reserved.

10. Almost similar allegations are made in the other four petitions which relate to some other shelters constructed by the petitioners in those petitions for which different agreements were entered into with the said petitioners; albeit with same terms and conditions.

11. Mr.A.K. Vali, learned counsel for the DTC submitted that as per Clause 17 of the terms and conditions on which the Agreement dated 4th March, 1998 was entered into, it was the responsibility of the petitioners to maintain the bus queue shelters in good condition and also undertake denting/painting work annually during the contract period. Learned counsel also referred to Clause 20 relating to 'Termination of Contract on Breach', which reads as under:-

"In case of breach by the tenderer of any terms and conditions of the offerer/applicant or that of agreement, the

Chairman-cum-Managing Director or his authorised representative shall have absolute right to terminate the contract without notice to the offerer/applicant."

12. It was his submission that even if these bus queue shelters were constructed by the petitioners, the property rights therein remained with the DTC which was clear from Clause 15 of the terms and conditions stipulating as under:-

PROPERTY TITLE OF BUS QUEUE SHELTERS.

The Bus Queue Shelters constructed by the party under this Build, Operate and Transfer Scheme will be the Sole Property of Delhi Transport Corporation and the party will be licensee as per terms of agreement.

13. He also relied upon Clause IX in Agreement dated 4th March, 1998 as per which the security deposit was liable to be forfeited in case of improper maintenance with three months notice and submitted that as per this Clause three months notice was given to the petitioners but inspite of that notice petitioners did not rectify the defects and therefore the contract was terminated. He referred to communication dated 6th January, 1999, 31st March, 2000, 16th May, 2000, 20th June, 2000 and 29th September, 2000 addressed to the petitioners informing the petitioners about the defects in the maintenance of the bus queue shelters which were not rectified and submitted that in these circumstances notice dated 21st December, 2001 was served upon the petitioners and as the petitioners failed to rectify the defects which was discovered on inspection after the expiry of the aforesaid notice, the respondent treated the same as breach of the terms and conditions under Clause 20 and terminated the Agreement w.e.f. 9th June, 2001 vide notice dated 8th June, 2001. The submission of the Mr.A.K. Vali was therefore that the property in question was that of the respondent and the petitioners were only given the license to maintain these shelters on certain conditions and as the conditions were not fulfillled it was within the right of the respondent to terminate the said license. In these circumstances, there was no right of the petitioners to continue to possess the bus queue shelters. He relied upon the judgment of this Court in the case of Rajasthan Breweries Ltd. versus the Stroh Brewery Company reported in 2000 VI AD (Delhi) 741 in support of his submission. It was also submitted that the petitioners had not invoked arbitration clause and instead filed application under Section 9 of the Act which was not permissible.

14. On the other hand, Mr. A.S. Chandhiok, learned senior counsel appearing on behalf of the petitioners in some OMPs emphasised the allegations made in these petitions and was vociforous in his submission that the entire exercise was malafide with an intention to deprive the petitioners of their legitimate right to continue to have the license of the bus queue shelters for the period specified in the Agreement when the petitioners had spent substantial amounts on the construction of the said shelters. To buttress this submission the learned senior counsel argued that allegations of trivial nature were levelled in the notice issued to the petitioners viz. not doing the painting work on the underneath side of MS Bench, replacing of damaged gutters, etc. His submission was that maintenance was an ongoing process. The bus queue shelters were being used by members of public for over 18 hours a day and normal wear and tear was expected. As and when the petitioners were receiving complaint of minor nature the petitioners were attending to the same. These bus queue shelters being at public place the damage to the gutter i.e. removal of the cover by thieves was a normal happening and the petitioners, whenever notice was received from the DTC, were attending to the same. He referred to the various letters written by the petitioners to the respondent informing the respondent about the needful was done and that the petitioners were maintaining the same properly. In these letters, particularly letters dated 27th February, 2001, 19th April, 2001, 10th May, 2001 and 4th June, 2001 written after notice dated 21st January, 2001 of the respondent, the petitioners asked for joint surveys/inspection. Instead of paying any heed to these letters which were not even replied to, all of a sudden termination notice dated 8th June, 2001 was foisted upon the petitioners. His further submission was that unless there was fundamental breach of substantial nature it was not permissible for the respondent to terminate the contract. Even as per the respondent's own showing the alleged breaches although not admitted, were of trivial nature which did not permit the respondent to terminate the contract and such an action on the part of the respondent amounted to colourable and arbitrary exercise of power. He also relied upon the passages from the book entitled 'Breach of Contract' authored by J.W. Carter also the judgment of English Court of Appeal in the case of reported in (1961) 2 All E.R. 257.

15. In a case of this nature where the dispute between the parties relating to validity of the termination of the Agreement has to be decided by the Arbitrator ultimately, the Court would refrain from expressing any opinion on merits so as not to influence the proceedings before the Arbitrator which may ultimately result in. However, at the same time it would be necessary to examine as to whether the petitioners have made out any case for ad interim injunction, keeping in view the parameters laid down under Section 9 of the Act which is to the following effect:-

. Interim measures, etc. by court. - A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court:-

(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:-

(a) the preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the court to be just and convenient,

and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it

16. A proposition advanced by the learned counsel for the respondent that in case of a license the same can be terminated by the licensor in terms of license agreement cannot be disputed (Refer to 2000 VI AD 741). It also cannot be disputed that even if such a termination is invalid the general rule is that injunction should not be granted and the remedy of the licensee whose license is terminated illegally is to sue for damages. However, it cannot be treated as absolute principle of law to govern all types of cases. In the present case, the important factor which has to be borne in mind is that the respondent had only given site for construction of bus queue shelters to the petitioners and it is the petitioners who had constructed the same out of their own funds. In the process the petitioners spent substantial amounts. Nodoubt even after the construction of the bus queue shelters, the title in the property would vest and remain with the DTC. However, the fact remains that such a huge investment was made by the petitioners with legitimate expectation to have the license of the bus queue shelters for a period of 3/5 years so that during this period they are able to earn by displaying the advertisements of the prospective advertisers and not only recover the cost of construction but make some profits out of these investments. It is not a case where some premises/structures, already existing and exclusively belonging to the respondent, are given on license basis to the petitioners. But a case where the petitioners have themselves raised the construction on various sites. In such a case, unless the respondents are able to show fundamental breach it may not be permissible for the respondents to terminate the contract. After all the respondent is a statutory body/"another body" within the meaning of Article 12 of the Constitution of India and therefore being instrumentality and/or agency of the State it is expected to act fairly. The breach has to be fundamental as narrated by J.W. Carter in his afore-quoted book after dealing with the judgment in the case of Telfair Shipping Corp. versus Athos Shipping Co,S.A. reported in (1983) 1 Lloyd's Rep.127. The relevant portion reads as under:-

17. Scope of express agreements. Once an express agreement has been found in the terms of a contract a question may arise as to the scope of the agreement. In this respect a distinction can be drawn between a general agreement and a specific agreement. A general agreement, such a "any breach of a term of this contract shall give rise to a right to terminate the performance of the contract" may be effective to make all promissory terms operative as conditions. On the other hand, a specific agreement, such as "any breach of this term shall give rise to a right to terminate the performance of the contract" will be effective to make only the particular term a condition.

18. Once the above distinction is drawn problems arise with respect to terms such as cl.5 of the New York Produce Exchange form referred to earlier. The clause is not, in its express terms, restricted to the payment of hire since it contains the words "or on any breach of this charterparty". Taken literally these words would be effective to make all terms stating the charterers' obligations conditions. The question then arises whether the words have to be limited by their context. This matter was considered by the Court of Appeal in The Athos where Stephenson L.J. said:

"It would be surprising to find in a clause dealing with the payment of hire and withdrawal of the vessel from the service of the charters a provision that any breach of any clause of the charterparty, without restriction, would entitle the owners to take the extreme step of withdrawing their vessel from the service of the charterers. It is so unreasonable a construction that it must make a court search for some other possible meaning of the clause, in order to avoid making the clause arbitrary, capricious or fantastic."~

19. The breach alleged in The Athos was the failure of the charterers to reimburse the shipowners extra war risk insurance, "following receipt of invoices and supporting vouchers on payment of next hire", as required by cl.35 of the contract. The Court of Appeal was unanimous in upholding Neill J.'s decision that there was no breach of cl.35. Nevertheless, because of the importance of the matter, and the fact that Neill J. had disagreed with the construction of cl.5 suggested by Kerr J. in an earlier decision, each member of the court dealt with the question of whether a breach of cl.35 would have entitled the shipowners to withdraw in reliance on cl.5. Stephenson and Kerr L.JJ. expressed the view that the breach would not have justified withdrawal. Stephenson L.J., as the passage quoted above indicates, was of the view that some restriction on cl.5 was necessary. Kerr L.J. agreed, but Purchas L.J. reached a different conclusion. The view subsequently taken by the House of Lords in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. is that cl.5 must be read, in its application to breaches other than failure to pay hire, as requiring a "repudiatory breach".

20. Similarly in the case of Hongkong Fir etc. versus Kawasaki Kisen etc. reported in (1961) 2 All E.R. 257 the Q.B. made the following observations:-~ It may be that on principle it is difficult, as counsel for the charterers contends, to see why any breach of so important an obligation as that relating to seaworthiness should not by itself give the charterers the right to rescind as soon as they become aware of it. On the other hand, it would be strange if, for example, a charterer after receiving satisfactory service from a vessel could repudiate the charterparty on learning that she was in fact unseaworthy in some minor particular and had been so at the date of delivery under the time Charter notwithstanding that she could easily and speedily be rendered seaworthy. However this may be, the authorities which I have reviewed any by which I am bound in my judgment clearly establish that unseaworthiness by itself gives the charterers no right to rescind, and I accordingly so hold. A fortiori a breach of the condition to maintain the vessel in a thoroughly efficient state cannot by itself entitle the charterers to rescind.

21. It follows that the charterers cannot succeed in their defense unless the delay in making the vessel seaworthy was or appeared likely at the date of the repudiation to be so great as to frustrate the commercial purpose of the charter."

22. In the present case, keeping in view the nature of breach alleged coupled with the most influencing fact namely it is the petitioners who have spent substantial amounts on the construction of the shelters with legitimate expectation to run the same for specified period I am of the view that they have made out a case for ad-interim injunction which can be given subject to certain conditions to balance the equities. Interim Order dated 13th June, 2001 is accordingly continued subject to the following conditions:-

(1) The respondent shall appoint an Arbitrator immediately and in any case within 15 days of the receipt of the copy of this Order in terms of Clause 22 of the Agreement dated 4th March, 1998. This direction is issued in view of the statement given by counsel for both the parties that the disputes be referred for arbitration immediately. For this purpose, the petitioners shall spell out the specific disputes to the persona designata within three days of the receipt of the copy of this Order.

(2) It would be open to the Arbitrator to have a fresh look into the matter on the basis of pleadings, documents and other materials placed before him without in any way being influenced by the observations made in this judgment. The Order of status quo passed would remain valid for a period of two months from the date of initiation of the proceedings by the Arbitrator. It would be open for the petitioners to seek extension of this Order and for the respondents to oppose such a prayer and the Arbitrator shall be entitled to pass appropriate interim order in terms of Section 17 of the Act.

(3) On appointment of Arbitrator, the Arbitrator shall immediately enter upon reference and shall try to dispose of the entire matter as expeditiously as possible and preferably within four months from the date of initiation of proceedings.

23. The petitions are disposed of in the aforesaid terms leaving the parties to bear their own costs.