Classic Motors Ltd. vs Maruti Udyog Ltd. And Ors.
1995 Latest Caselaw 109 Del

JUDGMENT

Usha Mehra, J.

(1) In the suit as well as in this application plaintiff has raised questions of far reaching public importance, concerning the rights of the franchisor to terminate the franchise/dealership agreement entered into with the franchisee "without assigning any cause". Beside challenging the legality of any such clause or term contained in the standardised form of contract, conferring right to take such action.

(2) In order to appreciate the challenge made by the plaintiff to the right ofthe defendant (hereinafter called the frenchiser) regarding terminating ofplaintiff's contract of dealership, we have to first muster facts of this case.

(3) In 1985, M/s. Maruti Udyog Ltd. (In short MUL) published an advertisement in various newspapers, inviting application for dealership for the vehicles manufactured by it in various at is of India including Union Territory ofDelhi. The criteria for selection and for the appointment of dealer was; (i) the ability of the dealer to provide standard of customer service which is comparable to that available in developed countries; (ii) to maximise the market for Maruti and to project and develop the highest possible image of the company; (iii) Wherenecessary, dealer was required to make suitable arrangements for the sale and service of vehicles in towns other than their head quarters but included within their territorial jurisdiction in a manner acceptable to MUL; (iv) Mul was to provide to the dealer with designs for the show room, layout and equipment and specifications for the workshop; (v) minimum spare parts stocks to be carried as well as; (vi) facilities for training of servicing engineers and mechanics.

(4) The partnership firm known as M/s Competent Builders of which Mr.Anand and Mr. Chopra were partners applied for grant of this dealership. Their offer was accepted and the dealership was granted. The automobile business was started in the name of M/s Competent Motors. This again was a partnershipconcern. M/s Competent Motors established its show room in Connaught Place and service station at Mathura Road, New Delhi, involving an investment of huge capital expenditure. While the workshop at Mathura Road and show room at F-14, Connaught Place, New Delhi, were in the process of completion, the defendant asked the said partners of the Competent Motors to execute a formal agreement called the dealership agreement. It is further the case of the plaintiff that the said agreement was executed on a standardised form of contract in the year 1983.Every dealer, whose offer was accepted in response to the advertisement, was called upon to sign identical agreement on the dotted lines. There was none gotiation with regard to any of the terms of the aforesaid standardised form ofthe contract between the defendant and the dealer.

(5) That for the purpose of carrying out the obligation enjoyed upon thedealer, the dealer had to engage large number of staff for the establishment of the show room and the service station. As per the Balance Sheet of CompetentMotors, as on 31/03/1985, an amount of Rs.43,19,598.79paise was spent on show room and service station. On 8/12/1985 another show room wasopenedat5, Bhikaji Cama Place with the consent of the defendant, there by further large sums were spent. The total value of the capital assets established by Competent Motors by way of show room, service station amounted to Rs.1,06,41,691.00 as per the Balance Sheet as on 31/03/1986. On the advertisement and publicity as well as on repair and maintenance of show rooms as well as service station from April, 1984 to 1987, Competent Motors spent worth crores of rupees details of which are given in para 74 of the plaint.

(6) In l986,dispute arose between the partners of M/s Competent Motors, as a result of which, they entered into an agreement for exploitation of the dealership on altogether new terms by separating the assets between themselves which were being used in connection with the dealership and for this purpose executed a modification deed dated 30/09/1986. By the said agreement, showroom at Bhikaji Cama Place was assigned to Mr. Anand. Whereas show room at Connaught Place was assigned to Mr. Chopra. Litigation which was startedbetween the two partners regarding the division of assets of their business ultimately culminated into dissolving the partnership business of CompetentMotors. On being approached, the Mul vide letter dated 9/01/1988agreed to allow these two partners to separate and establish independent dealership subject to following conditions: (A)The existing dealership will cease to exist w.e.f. a date to be determined by the MUL;(b) Separate agreement for dealership by Shri Raj Chopra and Shri Narender Anand will be executed with MUL;(c) Show room for sale and work shops for service facilities for both the dealerships would be approved by MUL;(d) Separate security deposits as applicable would be paid by both the dealerships to MUL;(e) Appropriate names for the dealership-would be approved by MUL.

(7) Fresh agreement was executed on the standardised form of contract,which the defendant had been entering with every other dealer only the names ofthe parties were changed. The question of having any negotiation capacity withthe defendant was much less at that time as huge amounts had already been invested by the plaintiff as partner of the Competent Motors. Thus on 20thJanuary, 1988 dealership which stood in the name of M/s. Competent Motors stood surrendered and separate dealership was granted by the defendant to the erstwhile two partners namely Shri Raj Chopra in the name of M/s Competent Automobiles (P) Ltd. and Shri Narender Anand M/s. Classic Motors.

(8) M/S. Classic Motors Ltd. (in short the Company) is a company incorporated under the Companies Act. This Company entered into a dealership agreement with Mul on 23/02/1988. The Mul is also a LimitedCompany. It came into existence as a result of collaboration between the Government of India and the manufacturers of Suzuki Cars in Japan, namely, Suzuki Motors Corporation. Mul is the manufacturer of Maruti Vehicles and enjoys the total and exclusive monopoly of production of Maruti Vehicles in India. The plaintiff is one of the dealers of the defendant having undertaken under thedealership agreement to provide entire infrastructure like show rooms, servicestations, publicity, the customer service, after sale service etc. of the said vehicles.By letter of 20/01/1988 the defendant approved the show room ofM/s. Classic Motors at Bhikaji Cama Place and its workshop at A-38,MohanCoop. Industrial Estate, Main Mathura Road, New Delhi. The Dealership Agreement executed between the Company and the Mul was also on the standardised form of contract which had been executed by Competent Motors and other dealers in 1983 onwards. Subsequently, by a letter it was requested that thedealership which had been granted to M/s Classic Motors should betransferred to the plaintiff. This was acceded to by the Mul vide letter dated 2 3/02/1988. Transfer was allowed on the condition that terms and conditions which were contained in agreement dated 15/01/1988 would apply to thedealership in favor of the plaintiff.

(9) From 1988 to 1994, the plaintiff made investments and created fixed as sets including the building and maintenance of show room worth crores of rupees. The plaintiff also raised loans worth lakhs by way of overdraft facilities from bank and other financial institutions in order to fulfill the above obligations. With the consent of the defendant, plaintiff established three additional show rooms at Connaught Place, Shahdara and Mathura Road respectively.

(10) That to augment the sale of the vehicles and to build better goodwill ofthe defendant, an "Action Plan" was given by the defendant for the year 1994-95.In compliance with this "Action Plan 1994-95" entered into by Mul with plaintiff,the plaintiff has already spent approximately thirty lakhs of rupees.

(11) That inspite of plaintiff fulfillling the obligations laid down in the advertisement inviting the offer as well as in the terms and clauses of thedealership agreement, defendant issued show cause notice alleging certain breaches against the plaintiff. Plaintiff filed petition under Section 20 of the Arbitration Act wanting that the matter be referred to arbitration and in themeantime, defendant be restrained from terminating his dealership agreement.Interim injunction was granted restraining the defendant from terminating the contract under Clause 21 of the agreement. Against this Special Leave Petition was filed in the Supreme Court. The Supreme Court remanded the case with observation that defendant would not be restrained from exercising the power under Clause,21of the agreement. Vide the impugned notice, alleged to be issued under Clause 21,the defendants have terminated the agreement without assigning any cause.Hence the notice is invalid, bad in law and so is the action of the defendant.

(12) That Mul in its defense took the plea that for termination of this contract,no reason is required to be assigned. Clause 21 of the Agreement makes it dear that no reasons are to be stated in the notice. The suit has, in fact, been filed with a malafide intention to circumvent the order passed by the Supreme Court dated 26/09/1994. Even otherwise this suit is barred by the principles ofresjudicata. Since the main suit is not maintainable, hence the inter locutory application would not lie. Principle of estoppel would apply because of acquiescence and delay. The challenge to the provisions of Clauses 21 and 3(c) ofthe Agreement cannot be at this belated stage i.e. almost after six years of having taken the advantage of this agreement. The suit is barred by 0rder2 Rule 2 C.P.C.These Clauses ought to have been challenged when plaintiff filed earlier twosuits. The action of the defendant is based on the specific, clear and categorical term of the agreement which gives right to either party to terminate the agreement without assigning any cause. This agreement being based on mutuality, therefore, the action of the defendant as per Clause 21 is neither Arbitrary nor malafide. It is based on just and good reasons. The allegation of unequal bargaining power for signing the standardised form of contract are afterthought. This plea is not available in such high commercial contract. The plaintiff after having taken full benefit of the entire dealership agreement now cannot turn round and ask this Court to declare the agreement as unconscionable or void. This being a commercial contract where both the parties are businesspersons, therefore, the principle of inequality or lack of bargaining power does notarise. It was never the intention of the parties that contract will continue till perpetuity, nor the contract or dealership can be superficially enforced in view of the fact that the said contract/dealership in its very nature is terminable. This relief in the main suit cannot be given, therefore, all the more a reason it cannot be given by way of interlocutory order. The plaintiff cannot pick and chose any clause of agreement for challenge. It is a composite agreement setting out mutual rights of the parties.

(13) 1 have heard the learned Counsel for the parties and perused the record.Mr. Madan Bhatia, Senior Advocate appearing for the plaintiff contended that the agreement in question has the coloring and flavour of a franchise agreement. The relationship between the franchisor and the franchisee has attributes of a partnership or at least a venture in common. A franchise agreement as observed by George Vesely is not a mere contract for the sale of goods. It possesses many unique features and creates goodwill which is effectively deprived by termination of the agreement Taking clue from the interpretation of the franchise agreement referred to above, Mr. Bhatia urged that the agreement of dealership in question is nothing but a venture in common. It was a condition precedent for the grant of dealership by the defendant that the dealer would have the ability,capacity and financial resources for the purpose of providing standard of customer service, maximise the market and to project and development the highest possible image of the defendant, make suitable arrangement for sale and service of vehicles, to establish show rooms and work shops according to the specifications of the defendant and to make investments. Thus the dealer was expected to invest capital expenditure worth crores of rupees and was also required to provide continuous running expenditure for maintenance of this bigestablishments, publicity, stocks of spare parts, advertisement, campaign,maximise of market for vehicles and after-sale-service to customers, projection of highest possible image for the defendant. Because of the expenditure involved in order to achieve these objects, it was expected that the dealership would be of permanent and perpetual in nature, not terminable at the Will of the defendant.From the nature of the obligations required to be performed by the dealer, it was evident that dealer would be part of the joint venture of the defendant. The defendant was to manufacture vehicles while its sale and other activities connected therewith were the responsibility of the dealer. The defendant was to confine its investment to the manufacture of the vehicles and spare parts which in turn were to be utilised by the dealer while making capital investments. Thedealer was also to create a market for the defendant and build a goodwill for the sale of vehicles. In terms it was a venture in common. There is an implied termination the franchise agreement that the power to terminate shall not be exercise darbitrarily or in bad faith.

(14) The terms, conditions and obligation which the dealer was required to fulfill and perform are specially stated in the contract, inter alia, as follows: "(A)The Dealer shall ensure that it, and where relevant its Sub dealersshall, vigorously promote, develop and maintain sales and service ofparts, vehicles and used vehicles within the territory to the satisfaction of and in the manner required by the company.12. Sales & Servicing The dealer shall make arrangements for sale and servicing of products at such locations and in such numbers as the company may from time tto timerequire.13. Premises Equipment Staff & Training(a) The number, location and the size, appearance and display facilities of the Dealer's premises and the equipment and facilities therein shall at all times comply with such requirements and standards as the company may from time to time indicate. In relation to parts andservicing, the dealer shall observe the minimum operating standards stipulated from time to time by the company.(b) The dealer shall employ at its place or places of business sufficient trained staff who are competent, efficient and Courteous.(c) To assist the dealer in discharging its obligations hereunder the company shall as and when it seem fit arrange training courses and the dealer shall at its own expense sent suitable representatives to such training courses as the company may reasonably require from time to time.(d) The company shall provide from time to time to the dealerinformation, advice, and literature to enable the dealer to givead equate attention to customers through a proper knowledge of the company's products and policies. The dealer shall pay for suchinformation, advice and literature etc.15. Stock(c) The dealer shall obtain, sell and deliver all parts from the company or such other sources as the company may approve in writing. Thedealer shall not deal in second hand parts.(d) The dealer shall not keep on his premises, or on the premises of any Other concern directly or indirectly related to the dealer, parts obtained from sources not approved by the company.(e) The company shall sell spare parts to the dealer at the company'scurrent Net prices. The company reserves the right at any time to change its prices without incurring any liability whatsoever.16. After Sale Service(a) The dealer shall give prompt attention to any vehicle, of the same make or mark as the vehicles covered by this agreement, produced by or for the Company whether the vehicle was sold by the Dealer ornot.(b) The Dealer shall establish or cause to be established in the Territory service premises which shall have such number of trained staff, servicetools, service equipment and all other facilities as the Company shall consider necessary for the provision of a quick and efficient Service of Products to the standards required by the Company.(e) The dealer shall carry out or cause to be carried out promptly and properly any modification to any product required or recommend ended by the company.17. Warranty(d) The Dealer shall provide 3 free services to the Retail customer.(e) The dealer agrees to take full responsibility for and to hold the Company harmless against any action or claim which may arise through the sale of standard or non-standard products for operation in conditions for which they were not intended or constructed.19. Publicity(a) The Dealer shall advertise and/or promote parts, vehicles used vehicles and Service facilities in such a manner as to secure a dequateand effective publicity to the satisfaction of the Company.(b) The minimum amount to be spent by the Dealer on publicizing parts,vehicles, used vehicles and Service facilities shall be that amount agreed between the Company and Dealer.(g) The Dealer shall employ at his own expense, such sales man as may,in the opinion of the Company, be considered necessary, to thoroughly cover his Territory."

(15) These terms and conditions show that the dealer was expected to in curheavy expenditure, labour efforts and skill, with the result it was clearly understood by the parties that the agreement in question was permanent and perpetual in nature. It could be determined only if the dealer committed any breach of the terms of the agreement. This intention was well understood by MUL when it issued show cause notice dated 16/04/1994 which is a matter of dispute in Suit No-1224/91.

(16) When the formal agreement was executed, defendant inserted in the standardised form of contract Clauses 3(c) and 21 which were not negotiated nor any chance was given to the plaintiff or its predecessor-in-interest to object thesame. By inserting these clauses in the formal agreement, the defendant arrogated to itself the right to terminate this franchise by giving 90 days notice without assigning any cause. These clauses were not there nor formed part of the term of advertisement which had been published by the defendant, pursuance to which the offer to take dealership was made by the plaintiff through its predecessor in intere stand which offer was accepted by the defendant. The advertisement conveyed that the dealership would be permanent and perpetual,if the dealer fulfillls and perform all the obligations quoted therein. The plaintiff has fulfillled all the obligations sofar. Clause 21 has been couched in such a fashion as if consent of the dealer was obtained for the same which in fact was never given by plaintiff of his free will or of his own volition. The parties did not stand on equal footing and did not enjoy the same bargaining power. Clause 21 conferred absolute and arbitrary and uncanalized power as it did not set out any guidelines for the exercise of thispower.

(17) The plaintiff has in fact incurred huge expenditure for example Rs.53,08,744.00and Rs. 50,06,682.00on repairs and maintenance. Besides the plaintiff invested in fixed assets like Building and Maintenance of show rooms, to the tune of Rs. 74,70,533.00 and Rs. 24,02,541.00. During this period also he made investment in fixed assets like machinery installed in the show room and workshop amounting to Rs. 1,00,36,419.00 and on advertisement Rs. 36,46,668.00. The payment made to the employees and various benefits and perquisites amounting toRs. 53,12,601.00. Plaintiff has spent crores of rupees beside it has taken loan worth crores of rupees from the bank and other financial institutions. If now defendant is allowed by simply issuing notice of termination without there being any cause,then such an action on the part of the defendant is nothing but a colourable exercise of arbitrary powers used in bad faith and with ulterior motive. This act is unjust and unconscionable. It cannot be sustained by any Court. If such an act is justified,the plaintiff would suffer irreparable loss and injury which cannot be compensated by costs. There were reasonable expectation by the plaintiff and it was sounder stood that this contract would continue unless some serious breach going to the roots of the contract were committed by the plaintiff. No sane person would have incurred huge expenditure and his life savings in this venture in order to earn goodwill for the defendant, had he any inclination that this contract is terminable at the Will of the defendant. In fact for terminating the contract two conditions must be satisfied (i) Breach and (ii) Notice of 90 days. In the absence of any breach the impugned notice is bad in law.

(18) Refuting the arguments of Mr. Arun Jaitley, that this Court has been debarred by Supreme Court from granting any interim relief, Mr. Madan Bhatia contended that the Supreme Court in its order dated 26/09/1994 was not concerned with the relief sought in this suit. In Suit No. 2005/94, the petition was under section 20 of the Arbitration Act. Mul had raised preliminary objection regarding the maintainability of that petition on the ground that after termination of the agreement arbitration clause did not survive. Moreover the dispute of termination of agreement was not referable to Arbitrator. It was in this background that the Supreme Court held that without passing any such interim orders,the Court would first determine the right of the parties and only after the final out come of the matter any order could be passed meaning thereby that Court should decide whether relief of specific performance can be a dispute referable toarbitration. How these observations are applicable in the present case, Mr.Jaitley has prima facie failed to explain. There appears to be a force in the submissions of Mr. Bhatia that since the Arbitrator could not grant the relief of specific performance, hence no relief on an interlocutory application could begranted. That would tantamount to exceeding the jurisdiction. But in a suitlike the present one where specifically Clauses 21 and 3(c) of the agreement are under attack on the ground of being in conscionable and bad in law, because it does not set out any guidelines for the exercise of that power. It was inserted in the agreement without the free consent of the plaintiff. The plaintiff had no bargaining power nor these clauses were negotiated. In view of these challenges it cannot be said that suit is not maintainable. A party has a right to challenge the term or clause of a contract, be that it a franchise or a simple sale contract on the ground of it being unfair, void and unconscionable.

(19) While deciding to grant or not to grant an interim relief we have to keep in mind three principles governing the grant of interim injunction; namely (i)prima facie case; (ii) Balance of Convenience and (Hi) Irreparable loss. In orderto find out whether the plaintiff has made out a prima facie case we have first to examine Clauses 21 and 3(c) of the agreement which are reproduced as under:- CLAUSE3(c):3. Duration/Cancellation of Previous Agreement(c) This Agreement shall be deemed to have commenced and taken effect from the day of one thousand nine hundred and eighty three and(subject to the other provisions for termination herein contained) shall continue until terminated by either party giving to the other 90 days prior written notice to that effect expiring on any date.Clause 21:21. Termination of Agreement This agreement shall remain and continue in force and govern all transactions between the parties hereto until cancelled or terminated in the manner here in after expressed. Notwithstanding the provisions of any Clause here of either party may by giving the other 90 days notice in writing terminate this Agreement without assigning any cause.

(20) What does the word "without assigning any cause" appearing in clause21 means? Does it mean that there should not be any cause whatsoever for terminating the contractor does it mean cause exists but need not be assigned? Mr.Jaitley contended that the termination under clause 21 can be without cause beingavailable. Since the power vest with the party under clause 21 of the agreement,therefore, irrespective of the cause such power can be exercised. Mr. Lalit Bhasin,appearing for defendant on 14/12/1994 when asked whether any cause exists on defendant's records other than shown in notice dated 6.4.91, he replied that cause 'was shown in the show cause notice dated 6/04/1991. Breaches are mentioned therein. No other breaches are thereafter available on the files. To show cause notice plaintiff did not reply, therefore, inference drawn that he accepted those breaches. Hence impugned notice is justified. Moreover, this is an independent action upheld by the Supreme Court thereby permitting the defendant to invoke clause 21 and accordingly Mul invoked Clause 21 and terminated the dealership.

(21) Refuting these arguments, Mr. Bhatia contended that reading of Clause 21does not indicate that there has not to be any cause for invoking it. The reason may not be assigned. But once the aggrieved party challenges the same, the Court shall go into the question as to whether there exists reasons or not. The words "without assigning any reason' came up for interpretation before the Supreme Court in the case of Bajaj Auto Ltd.,Poona v. NX. Finodia, . While interpreting these words, the Court held that it does not mean that there will be or cause no reason available. Assigning the reason is one thing, not to have the reason or cause is another thing. Therefore, in the present case not to assign the reason as stipulated under clause-21 is one thing but not to have any reason shows the arbitrariness on the part of the defendant. In the instant case breaches were communicated by the defendant when it issued the show cause notice dated 6/04/1991. Against that, the suit is already pending in this Court bearingS.No-1224/91. Once cause is shown it become subject to judicial review andclause-21 stand exhausted. Matter being subjudice the defendant cannot be allowed to circumvent the proceedings by issuing this notice without there being any fresh cause or reason available on the files. At first instance it was only a threat but now agreement has been terminated with a malafide and ulteriormotive.

(22) That the defendant for invoking clause-21 cannot take recourse to the order passed by the Supreme Court. The Supreme Court only upheld the right to invoke clause-21. The Apex Court never upheld the order of termination nor held that for issuing the impugned notice there need not be any cause or that the agreement could be terminated on the basis of alleged breaches as indicated in notice dated 6/04/1991. To appreciate the arguments of the Counsel for the parties we have to see the order of the Supreme Court passed in the Special Leave Petition on 1 8/08/1994- "ORDERLEAVEgranted. Heard. "Several arguments were advanced by the two sides in support of and against the impugned order made by the High Court. In view of the order we propose to make, we consider it unnecessary to refer to or decide any of them.It is sufficient to observe that all the points urged by the two sides would remain open for a fresh consideration by the High Court in the first instance while deciding the main matter on merits. The observations made on any ofthe points including Clause-21 of the agreement in the impugned order will be treated by the High Court as its tentative opinion only, which the two sides would be entitled to reagitate for obtaining a fresh decision at the final stage in the High Court.For the present appeal, it is sufficient to say that the order of injunction issued by the High Court against the appellants would not be construed as restraining the appellants from exercising the power they may have underClause-21 of the agreement and in case the appellants choose to exercise their power under Clause-21 of the agreement, the parties would be entitled to their respective rights as a result thereof as may be available to them inaccordance with law. The High Court's order dated 20/04/1991 read with the order dated 18th November,1991 shall be be construed and understood in the manner indicated herein by us."

(23) What the Supreme Court mentioned Mr. Bhatia contended is very dear that the defendant (appellant before the Supreme Court) could not be restrained from exercising the power under Clause-21. But at the same time the respondent(plaintiff herein) was given the right to challenge the same. Nobody can deny that the defendant may exercise the right under Clause-21 but it has to be seen as to under what circumstances. When such a right is challenged the defendant has to justify the same by proving breaches on the part of the plaintiff, which in the present case defendant has prima facie failed to prove. Hence it is a serious matter requiring adjudication. The contentions of the defendant that the right to terminate the contract is an independent right even though no cause is available, to my mind,prima facie cannot be appreciated. There cannot be any independent right to terminate. Right to terminate flows from the agreement. Breach has to be there to terminate the agreement. The Supreme Court, in fact, while accepting the power of Mul to invoke clause-21 permitted the aggrieved party to challenge such an action of course on the legal grounds of malafide or without reasons. Clause-21does not envisage that termination can be without cause. It only indicates that such cause may not be assigned. In Bajaj AutoLtd.'s case (Supra) Supreme Court observed that discretion does not mean a bare affirmation or negation of aproposal. Discretion implies just and proper consideration of the proposal on facts and circumstances of the case. Without stating the reason the Court will presume that the discretion was exercised reasonably and bonafide. Those who allege to the contrary would have to prove and establish the same by evidence.In this case evidence and proof has yet to come. Mr. Jaitley's contention that no reliance can be placed on Bajaj Auto Ltd.'s case because it was under Company'sAct where Directors were required to exercise statutory right merits no consideration because, the Court was interpreting the discretionary right and laid down the law which on all force apply. Prima facie, there is no independent right to terminate this agreement apart from Clause 21. The notice dated 6/04/1991was issued to elicit the explanation of the plaintiff. That matter is still subjudice in Suit No-1224/91. The question raised in this suit is the validity ofClause-21of the agreement. I have refrained from expressing any opinion with regard to the validity of the said clause at this stage while deciding this application. Mr.Bhatia's contention that even for the sake of arguments if we presume that the defendant exercised the right to terminate the contract by the impugned notice yet the exercise of this power became ineffective once the notice of show cause was issued on 16.4.1991 disclosing the reasons and causes on the basis of which the defendant intended to terminate the contract. Clause 21 as reproducedabove, clearly shows that notice terminating the agreement need not as signingany cause, but in the instant case, defendant did disposed the cause and the intention to terminate the contract which was clearly depicted in the notice issued on 6/04/1991. Having disposed the reason and cause on the basis of which it wanted to terminate the contract and that being subject matter in Suit No. 1224-A/91, validity of the impugned notice of termination is primafacie seriously indoubt. To my mind, the question involved in this suit cannot be called vaxatious,frivolous and malafide, rather the allegations being serious requires proof and are to be established by evidence.

(24) According to Mr. Bhatia this case raises question of far reaching public importance concerning the right of the parties to the contract. The issues involved in this case are global incharacter. In the context of the reality of the modem world for which big multi-national Corporations or gigantic manufacturing concerns enjoying the monopoly of production of different kinds of goods with popular brand names are keen to take advantage of the capital, the investment, the labour,the effort, the marketing knowledge and managerial skill of the franchisee for the purpose of avoiding the investment of their own capital on these matters and the franchisee are attracted by the prospect of permanent regular income from thefranchise. They may not be in a position to negotiate the terms of contract with such multinational corporations much less unequal bargaining power. The multinational companies with international brand names can dictate to the Indian enterprenures to sign standard form of contract, the terms of which are notnegotiated, i.e. take it or leave it. This Court in the case of M/s. Unikal Bottlers Ltd.v. M/s. Dhillon Kool Drinks was called upon to interpret almost similar clause regarding termination of the contract. The matter was left open because in that case parties had entered into a supplemental agreement superceding the original agreement. Moreover the term of the supplemental agreement was about to expire. In para 7 of the that judgment it was observed that: "THE francise cannot be made to stick to a party which does not come up to its standard and in the process ruin its goodwill and brand name. For these reasons commercial 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 bonafide."

In para 8 it was observed that: "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 thepart of the plaintiff."

(25) In that case plaintiff took full advantage of the supplemental agreement and thereafter, challenged the terms of original agreement as well as of supplemental agreement after it was almost over Court found that the supplemental agreement was fully negotiated and discussed. This supplemental agreement was arrived after the original agreement was terminated. Therefore, Court observed that supplemental agreement was duly negotiated agreement. Terms of the same were mutually agreed, the question of bargaining power, dures/coercion etc. did not arise. Instead of entering into supplemental agreement,plaintiff should have raised its voice and sought remedy in Court at that stage.Hence reliance on this judgment by defendant is misplaced. Rather observation of Arun Kumar, J. quoted above supports the plaintiff, that unless serious charges are levelled regarding breach against the plaintiff contract cannot be terminated.Whereas in the case in hand, as per defendant's own showing it has no fresh cause or reason against the plaintiff for terminating the agreement except what were stated in the show cause notice dated 6/04/1991. The impugned notice could not be issued on those breaches mentioned in notice dated 6/04/1991 because that matter is sub-judice and notice dated 6.4.91 is already under stay. If that be so, prima facie it can be said that exercise of such power without cause is arbitrary, unjust and unreasonable. In fact, exercise of power under Clause 21 has to be reasonable and bonafide.

(26) That Medieval notions of justice are no longer justified in the modern day global commercial realities, particularly in the developing countries and India in particular which has opened the policy of liberalisation and has opened its door to the free entry of gigantic multi-national corporations which are coming in and entering into franchise agreements with Indian enterprenures. Gelhom in his treatise "Limitations on Contract Termination Rights and Franchise Cancellation" stated at page 316 as follows:- "IF fairness is the concern, the effect, actual as well as expected, of no negotiated terms on the policies should also be a measure of theirenforcability. Disregarding inequalities in negotiating ability, latter needs in fairness may also cause negotiated provisions to operate unfairly. Nor isit any answer to contend as a freedom of contract that where the parties have freely elected the reasons, the terminated party should "leave that the bargain hehaspnade'' and not be the beneficiary of special judicial relief".

(27) From the advertisement given in the newspaper pursuance to which the offer was given by the plaintiff and accepted by Mul a franchise agreement came into existence. Even clause-2 of the agreement indicate it to be a Franchise agreement. In the context book "Equity - Doctrine and Remedies" by R.P.MeagherQC in Chapter 5 at page 124 it has been observed that a joint venture agreement creates a fiduciary relationship. The franchise agreement between a franchisor anda franchisee is in the nature of a joint venture. The franchisor manufactures the goods and enters into an agreement with the franchisee to utilise the latter'scapital, investment, marketing knowledge and expertise, managerial skill, local marketing knowledge, labour and efforts for the sale of its products and have generation of goodwill for itself without having to invest its own capital on theseactivities. The franchisee is induced to enter into such a contract by the lure of the fact that by performing the aforesaid activities and investing the capital, he will be assured a regular permanent income. The goodwill that is generated by the franchisee is not only the goodwill of the products of the franchisor but the goodwill of the business conducted by the franchisee as well. It was futher contended that in view of such relationship existing between the parties, it is not open to the Mul to exercise any contractual power to terminate franchise agreement in bad faith for corrupt motive and against equity, justice and good conscience and at the same time unjustly enrich itself with the goodwill generated by the plaintiff in which the plaintiff has proprietory interest, while completely atthe same time destroying the plaintiff and his business and leaving him financially high and dry. There was no bargaining power so far as the plain tiff was concerned.It was a standardised form of contract which he was asked to sign on the dotted lines on the basis of take it or leave it. Various clauses of the agreement if gone through would show the enormous obligations imposed on the plaintiff by the defendant. These clauses of the agreement which were got signed from all thedealers including the plaintiff would show that this was a common venture this is clear from the obligation imposed namely, the product of Maruti vehicle and their sale in the market to the public including the generation of the goodwill through after sales customer service, publicity etc. The main criteria for appointment of dealers was the ability of the dealer to provide standard of customer service which was to be comparable to that available in developed countries, to maximise the market for Maruti and to project and develop the highest image of the company. The plaintiff has complied with the criteria laid down and the obligations imposed, there cannot be any reason to terminate the contract unless breach committed and alleged. The agreement cannot be terminated unilaterally,arbitrarily or at the whim and fancy of the defendant so as to completely ruin and destroy the plaintiff, deprive him of his proprietory right in the goodwill much less that it is open to the defendant to act in bad faith. No party has a right to act the other against justice, equity and good conscience.

(28) Mr. Bhatia relying on the observation of the Lord Denning in Gillespic Brothers Ltd. v. Roy Bowls Ltd. 1973 I All England Reports 193 urged that the Judges have even sanctioned a departure of ordinary meaning of a clause in orderto make it reasonable. The agreement has to be construed as a whole. Clause-21 of the agreement has to be read in consonance with other clauses of the agreement.The harmonious construction of Clause-21 with other terms would show that this is a permanent contract.

(29) That the present case is a case of multi national company which while utilising the capital, material, services of Indian entrepreneurs wants to exercisethe power to repudiate when it deems fit, even though the contract stipulates long duration based on the economics of the project, by inserting such power in the contract. When the plaintiff has made his investment, built his infrastructure,incurred the expenses on building the goodwill for the product of the defendant,and when the contract stipulates its duration as permanent on the basis of economic implications, defendant now cannot turn around and terminate the contract purporting to act under one of its terms. Such a contract can only be the result of unequal bargaining power and not the results of mutual negotiations.TheCourt will strain the language of such clause or clauses giving power of termination to keep them within reasonable limits. Where, however, language vigilance cannot be stretched beyond a limit, there is the vigilence of the common law whichwhile allowing freedom of contract watches to see that it is not abused.

(30) In the instant case, reasons have already been disclosed in notice dated 6/04/1991. Judicial review has already been invoked by the plaintiff. The power to terminate the agreement under Clause 21 gets exhausted. It is circumscribed by the causes which are so assigned or disclosed by the defendant and unless and until those causes or reasons are decided no fresh action can be taken.Placing reliance on Section 39 of the Indian Contract Act (in short the Act) Mr.Bhatia contended that there is no power left with the defendant to terminate the agreement except for breach of contract. Alleged breaches are subject matter of show cause notice which is subject matter of adjudication. The jurisdiction of the Courts or judicial review cannot be ousted by again invoking clause 21 without assigning any reason. In the impugned notice no breach has been alleged nor cause is available with defendant, hence impugned notice is illegal and void. Even otherwise clauses 21 and 3(c) are void because they are in consisted with the other terms of the contract which make this contract permanent. Any clause in the contract which provide for termination without assigning any cause would be void under section 39 read with Section 28 of the Act. This case is not merely a case of the plaintiff beinga buyeror a seller. The vehicles are the monopoly of the multinational Mul which wanted to utilised the capital, labour and and services of Indian intreprenures for sale of its products in the Indian Market. Hence the termination is a very serious and drastic act. It requires adjudication.

(31) Mr. Jatley's reliance on the decision of this Court in the case of P.B.Ghayalord v. M/s. Maruti Udyog Ltd. & Ors. has no bearing on the facts of thiscase. In that case the Court merely dealt with the question as to whether the Maruti Udyog Ltd. was an instrumentality of the State as defined under Article 12 of theConstitution. Monopoly status vis-a-vis an employee. Monopoly of Maruti Car isin fact with the defendant. The plaintiff has built up its establishment, kept spareparts, specialised staff only for sale and after sale service of Maruti Cars, hence in this context it can be said defendant has a monopoly. Similarly reliance by Mr.Jaitely on the decision reported in 1993 Sup (4) Scc page 136 is of no help in the facts of this case. On the contrary Supreme Court in the case of Ibp CompanyLtd. v. Sh. Bal Kishan Mittal, 1993 (1) Uj Sc page 603 clearly observed that termination cannot be arbitrary. If it is based on justice and bonafide reason, in such an eventuality grant of injunction is not proper. But in the case in hand what to talk of arbitrary, malafide or otherwise, the defendant has taken the stand that it has no reason nor any cause available after April, 1991 and still terminated the contract because clause 21 of the agreement empowers it to do so. This exercise of the discretion, to my mind, without cause cannot be called justice, reasonable orbonafide. It is not the right of one party to push the other through the wall and the Courts be silent spectators nor the Courts are so powerless. It is the result of concentration of particular kind of business in one hand or in few hands. It is yet to be determined as to whether clause 21 was negotiated and valid. According to plaintiff this was not the term when offer was given and accepted by the defendant.A contract came into existence. By formal agreement this clause could not be purported to have been inserted with plaintiff's free will. These challenges require trial and cannot be dealt with in detail at this stage.

(32) The power to terminate a contract is a very drastic power and is justifiable.It is subject to various conditions which govern the judicial discretion. All these questions have to be determined because not to have a cause and still terminate the contract is subject to judicial review. It is a drastic right. The contracts are made to be performed and not to be avoided.

(33) Section 39 of the Act provides that a party must be guilty of failure to perform the contract in its entirety which alone will give the right to terminate the contract. The expression "in its entirety" to mean that the breach must be such as would go to the very root of the contract. Therefore,relying on the observations of the Supreme Court in , plaintiff wants this Court to declare Clauses 3(c) and 21 being void. Any term giving right to terminate the contract must spell out very specifically, precisely and expressly and the particular obligation, breach of which would give the right to terminate the contract. If this is not so, such a clause is hit by Section 39 on account of uncertainty and hence void. Mr.Jaitfey's challenge to the maintainability of the suit on the ground that the plaintiff filed two suits earlier in which these clauses were notchallenged, to my mind has no force. Since the defendant raised objections to the maintainability of the petition under Section 20 of the Arbitration Act against the impugned notice, this defense was accepted by the plaintiff. In such an eventuality prima facie Order 2, Rule 2,CPC,is not attracted. If arbitration clause cannot be invoked it does not mean that that party would be left remedyless.

(34) In support of their submissions and contentions the learned Counsel for the parties cited various judgments beside texts from renowned authors on thesubject.

(35) That the present suit cannot be said to be barred by the principle of acquiescence and delay. Admittedly, the existence of this clause was known to the plaintiff since 1983 when as a partner of Competent Motors he executed identicalagreement. He was also aware of these clauses when he entered into agreement on 15.1.88 as sole proprietor of Classic Motors, but the plaintiff could initiate the legal proceedings only when Clause-21 was invoked. It was only when the defendant exercised its power under Clause 21 that the right to challenge accrued in favor of the plaintiff. The challenge could not have been in vacuum. Both the parties have relied on the observations of Supreme Court in the case of Central Inland Water Transport Corporation, . In the said case the contract was of employment entered into in 1980. Termination notice was issued in 1983. The employee challenged 'the validity of the clause of termination being unjust and void in 1983. The Court upheld the contention of the employee and struck down the said clause as unconscionable. The question of delay was ignored because the cause of action arose in favor of that plaintiff only when the clause was invoked. There was no question of challenging it in vacuum. As regards the observation as to whether the principle of unconscionable is applicable to a private commercial contract or not, much can be said. But suffice it to say that observation of Supreme Court in the Central Inland Water case are not against the plaintiff as such. It has to be proved by evidence whether had the bargaining power or not and whether clause 21 was negotiated or not?

(36) In this case, to my mind, the right to challenge accrued when defendant served him with the impugned notice. The defendant, as rightly contended by Mr.Bhatia, was in full knowledge of the expectations of the dealer and his trust in thegood faith of the defendant that if plaintiff fulfill his obligations under the agreement then the agreement shall not be terminated arbitrarily. This fact has not been denied by defendants in their reply. Therefore, the challenge to the relief on the ground of acquiescence or delay, on the facts of this case is not prima facietenable. Clause 21 as understood by both the parties shows that the agreement could be terminated on just and reasonable cause. This was the stand taken by the defendant itself when it issued show cause notice to the plaintiff dated 6/04/1991. Inspite of directions no record was produced for Court scrutiny, rather the Counsel had stated that except the reasons given in the show cause notice dated 6.4.91 no other reason exists on the file and that on the basis of the breaches mentioned in the show cause notice dated 6.4.91 as well as on account of independent right available under Clause 21 that the impugned notice wasissued. This exercise of power, prima facie, to my mind is contrary to well settled principle of law that without just cause a commercial contract where huge investment has been made cannot be terminated. Moreover, defendant in reply had stated that there was bonafide reason and cause to terminate the dealership.That the defendant had cogent, bonafide and sound reasons to terminate the agreement. If the cogent reasons are given in the show cause notice, then on that basis the impugned notice would prima facie be bad in law, because that matter is subjudice and notice is under stay. In a franchise agreement there is an implied term that it will not be terminated arbitrarily or in bad faith. If these pleas of the plaintiff are accepted then Clauses 21 and 3(c) are liable to be declared void. These pleas arose in favor of the plaintiff when there was termination notice. Therefore,the question of acquiescence or delay, to my mind, could not have arisen earlier

(37) As regards the averment of frivolous litigation and reliance by Mr. Jaitley on Supreme Court judgment in the case of Bloom Dekor Ltd. v. Subhash Himatlal Desai 6 Ors. is of no help to defendant because of the facts of this case. Plaintiff's first case is still pending. Stay granted in that case has not been vacated as such by the Supreme Court. Matter being subjudice it does not lie in the mouth of the defendant to say that previous litigation isfriyolous. As regards the second suit that stood withdrawn on account of the legal objection raised by the defendant. Hence the principles of law laid down in BloomDekor Ltd.'s case (Supra) is of no help to the defendant.

(38) Mr. Bhatia contended that this agreement cannot be compared with an ordinary sales or Agency agreement. Moreover, the matter has not rested only in investment of expenses by the plaintiff at the time of execution of the agreement or there after as part of fulfillling the obligations under the agreement. The plaintiff has even now been made to incur an amount of approximately Rs. 30 lacs on the Action Plan 1994-95" given by the defendant. The "Action Plan for 1994-95"clearly show that by now i.e. till the "Action Plan" was given the defendant had no cause or grievance against the plaintiff. Plaintiff's dealership was to continue.Since the plaintiff on this Action Plan has incurred huge amount hence the defendant is estopped from terminating this agreement at its will.

(39) What were the intention of the parties, whether the contract was permanent or temporary in nature? These are the questions which require consideration and can be decided after recording evidence. On account of the interpretation given to Clause-21 read with defendant's admission that except the cause shown in the notice dated 6.4.91 there is no other cause available with the defendant, to my mind, a primafacie case has been made out by the plaintiff. Even the subsequent conduct of the defendant i.e. the "Action Plan 1994-95" having been executed by the defendant with the plaintiff, thereby letting plaintiff to in curhuge expenditure, to my mind, would lead to the conclusion that the agreement could not be terminated at the "will" of the defendant without there being any cause available. It can primafacie be said that the intention of the parties was not to terminate the contract at the whim and fancy of either party. So far as the grounds of breach alleged against the plaintiff vide show cause notice dated 6/04/1991 is concerned that matter is pending adjudication. Hence for that cause impugned notice could not have been issued. It was conceded by the Counsel for the defendant that the impugned notice is based on the allegations contained in the show cause notice which is under stay. If that be so and there are no other cause available then what prompted the defendant to terminate the contract? This require adjudication. It requires trial.

(40) Contentions of the defendant that dehorn the breaches or cause,defendant has power to terminate the contract at will, to my mind, is without force.It requires adjudication. This question is of far Teaching public importance effecting the relationship between the multinational corporations and the Indian entrepreneurs particularly when India has entered into new era of free trade and has lifted the barriers against the operation of multinational companies in Indianmarket. The legal questions involved in the case revolves around the role of judicial process to ensure fair trade in the aforesaid circumstances. The present case is not merely a case being of buyer and seller. The vehicles are the monopoly of the defendant which wanted to utilise the capital, labour and services of the plaintiff for sale of its products in Indian market. If it is allowed, this would give the multi-national company power to render all the expenses and trouble there by occasioned by an Indian entrepreneur wholly fruitless by revoking the agreement. Such power of termination contained in any term in the contract becomes much more invidious when a party is allowed to make investment ofcapital, labour and services on the understanding that he will have a contract in its favor to sell the products of the company. But when he has done all that, the party unilaterally frustrate the contract, this would be the result of domination of the will of the parties to obtain unfair advantage. The power to terminate a contract is very drastic power and is subject to various conditions, which govern the judicial discretion. All these questions will fall for determination after the evidence is recorded. Therefore, prima facie, to my mind, the plaintiff has made out a case for grant of injunction, because at the time of granting temporaryinjunction, the Court is not holding the trial of various issues. The Court is merely concerned to see whether the case involves bonafide contentions between the parties or a serious question to be tried. These principles have been elucidated in .

(41) As already observed, substantial questions have been raised whichrequires investigation and decision on merits, therefore, a prima facie case has beenmade out. If at this stage, the Court does not interfere, it would result in irreparableinjury, which may not be compensated by costs. Mr. Bhatia rightly contendedthat the goods sold by Maruti Udyog Ltd., i.e. the Maruti Cars is a monopoly of the defendants. These goods are not available elsewhere to the plaintiff. Plaintiffhas already spent huge amount in infrastructural plants and machinery,engagement of labour, managerial staff, ministrial staff and has also incurredexpenditures subsequently for the years 1994-95 on account of the "Action Plan"and has taken loan worth crores of rupees for building up the goodwill of the defendant-MUL. Now, if the defendant is allowed to terminate the contract, itwould not only be crippling the plaintiff, but would also amount to throwing thelabourers and the managerial staff on the road which will create human problem to a large extent. The people who would be retrenched and their families would be an added problem to the society. Machinery and plants, the infrastructure and the spare parts stocked by the plaintiff will be of no value and may not have market value. If the dealership is allowed to be terminated these things are going to go waste. On the other hand, if injunction is granted, no injury would be caused to the defendant because the defendant has not made any investment in the plaintiff's work. Defendant has only to appoint another dealer, which can wait till the decision of the suit. Hence the balance of convenience is also in favor of the plaintiff.For the reasons stated above the implementation of the impugned notice dated 31/08/1994is hereby stayed. The observation made above would have no bearing on the merits of the case. These are only tentative and prima facie.