Between the Lines | Supreme Court: Compensation in lieu of specific performance cannot be granted under the Specific Relief Act, 1963 unless specifically claimed in the plaint March 22, 2022
Published in: Between The Lines
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The Hon’ble Supreme Court of India (“SC”) has in its judgement dated February 18, 2022 (“Judgement”), in the matter of Universal Petro Chemicals Limited v. B.P. PLC and Others [Civil Appeal No.3128 of 2009], held that compensation in lieu of specific performance cannot be granted under the Specific Relief Act, 1963 (“SRA”) unless specifically claimed in the plaint.
Universal Petro Chemicals Limited (“Appellant”) entered into a collaboration agreement dated November 1, 1994 (“Collaboration Agreement”) with one of the respondents, a German company, by which the Appellant had to manufacture lubricants using the formulation of Aral and was given exclusive license regarding the distribution, blending, rebranding and marketing of Aral lubricants in India. Subsequent to this, necessary approvals were obtained from the Reserve Bank of India (“RBI”) under the Foreign Exchange Management Act, 1973 on November 25, 1994 (“Approvals”), which were incorporated in the Collaboration Agreement by a supplementary agreement dated January 3, 1995.
In 2002, Veba Oil, the holding company of the German company referred above was acquired by BP Public Limited Company, a UK entity (“Respondent(s)”). As the Approvals were lapsing, the Appellant applied to the Ministry of Commerce and Industry, Government of India for extension of the Approvals with respect to the Collaboration Agreement. On November 13, 2002, the Government approved the request of the Appellant and extended the Approvals. However, it was specified that the royalty was payable from January 1, 2003, to December 31, 2009 and that the duration of the extended Collaboration Agreement would be from January 1, 2003, to December 31, 2009. This updated approval was also made an integral part of the Collaboration Agreement by execution of yet another supplementary agreement dated December 27, 2002 (“Supplementary Agreement”).
Thereafter, a termination notice was issued by the Respondent on April 14, 2004 on the ground that the Collaboration Agreement would come to an end on October 31, 2004 as per Clause 5 of the Collaboration Agreement and that there would be no extension thereafter (“Termination Notice”). Against the Termination Notice, the Appellant filed Civil Suit No.214 of 2004 before the High Court of Calcutta (“High Court”). The High Court by an interim order dated August 19, 2004, restrained the Respondents from giving effect to the Termination Notice and from interfering with the Appellant’s usage of ‘Aral’. The interim order was extended on three occasions and was vacated thereafter by the High Court in its order dated January 10, 2005. The High Court refused to grant a decree of specific performance of the Collaboration Agreement. Aggrieved thereby, the Appellant filed an appeal which was dismissed by an order of the Division Bench of the High Court dated February 18, 2008. Hence, the present appeal was filed before the SC for compensation in lieu of specific performance.
Contentions raised by the Appellant:
The Appellant contended that the Collaboration Agreement stood extended till December 31, 2009 in view of the Supplementary Agreement. Further, the relief of specific performance of the Collaboration Agreement cannot be granted as the Collaboration Agreement expired on December 31, 2009, however, it was entitled for damages for the period from August 24, 2005 to December 31, 2009. Relying on various case laws, it was argued that the Appellant is entitled for damages even though such a relief was not specifically sought for either in the suit or in the appeal before the High Court. The Appellant referred to the proviso to Section 21(5) of the SRA to contend that the Appellant should be allowed to seek compensation at any stage of the proceeding and that on the basis of Section 73 of the Indian Contract Act, 1872 (“ICA”) it is entitled for compensation due to the breach of contract.
It was further submitted that specific performance of the Collaboration Agreement was a relief that could have been granted at the time when the Appellant approached the SC in 2008 but cannot be done at this point of time. Therefore, the Appellant is entitled for damages, especially after the Appellant succeeded before the High Court which declared the Termination Notice as illegal.
Contentions raised by the Respondent:
The Respondent contended that the judgments cited by the Appellant pertained to award of compensation under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, wherein the manner of calculation of compensation was either ascertainable or expressly agreed upon between the parties, and are not applicable to the facts of this case.
The Respondent submitted that the Appellant failed to plead relief for damages before the Civil Court, the High Court and even before the SC and even assuming that the Collaboration Agreement expired on December 31, 2009, the Appellant did not raise this ground or seek to amend the relief during the pendency of this appeal for the past 13 years.
The Respondent also referred to a judicial pronouncement of Shamsu Suhara Beevi v. G. Alex and Another ((2004) 8 SCC 569) (“Shamsu Case”) to contend that the plaintiff who has been remiss in expressly seeking the relief of damages under Section 21(5) of the SRA, is not entitled for any such relief. Lastly, as per Section 73 of the ICA, it contented that the damages can only be granted for the loss suffered and not for the loss of profits.
The Respondent further contended that approval granted by the RBI and the Government of India related only to payment of royalty which did not impinge on the power of the parties to terminate the agreement as provided under Clause 5 of the Collaboration Agreement.
Observations of the Supreme Court
The SC observed that the Appellant admitted to the fact that no relief for damages or compensation was claimed in the suit by the Appellant and such a relief was not sought for either before the Division Bench or before the SC. Further, the Appellant also did not take any steps to amend the appeal even after the date of expiry of the Collaboration Agreement.
The SC further examined the scope of sub-sections (4) and (5) of Section 21 of the SRA and stated that as per the judicial pronouncement of the Shamsu Case wherein the recommendations of the Law Commission of India (“Law Commission”) were discussed, in no case the compensation should be decreed, unless it is claimed by a proper pleading. It further stated that the Law Commission was of the opinion that it should be open to the plaintiff to seek an amendment to the plaint, at any stage of the proceedings in order to introduce a prayer for compensation, whether in lieu or in addition to specific performance. However, in this case, no claim for compensation for breach of agreement of sale was claimed either in addition to or in substitution of the performance of the agreement. It might be true that the Appellant was interested in the relief of specific performance of the Collaboration Agreement when it filed the Special Leave Petition in 2008 as the Collaboration Agreement subsisted till December 31, 2009. However, even thereafter no steps were taken by the Appellant to specifically plead the relief of damages or compensation.
Further, with respect to the judicial pronouncement cited by the Appellant, the SC stated that the judgments relied upon by the Appellant were not applicable to this case.
Decision of the Supreme Court:
In view of the above, the SC stated that the Appellant is not entitled to claim damages for the period between August 24, 2005 to December 31, 2009 and thus, refused the request of the Appellant for grant of damages.
The SC in this Judgement has correctly observed that, the Appellant had erred in asking for compensation under Section 21 of the SRA in addition to the relief of specific performance, in the absence of a prayer made to that effect either in the plaint or by amending the same at any later stage of the proceedings to include the relief of compensation in addition to the relief of specific performance.
On equitable consideration, the court cannot ignore or overlook the provisions of the statute and equity must yield to law. In light of this Judgement, the parties, while drafting their plaint for any dispute with respect to specific performance should explicitly mention to claim damages in lieu of specific performance.
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