Sadeev Singh Sandhu vs Turk (Gmbh) Gutenbergstrasse And ...
1995 Latest Caselaw 793 Del

JUDGMENT

N.G. Nandi, J.

(1) In the suit for the relief of perpetual injunction, seeking the restraint of the defendants from engaging or entering into or agree to enter into any business/commercial arrangement with any other person in India or outside for carrying on commercial activities in India, directly or indirectly, in the field of computer software till July, 1997 and also for a perpetual injunction from carrying on business of computer software in India for a period of two years after the expiry of the present contract i.e. w.e.f. July,1995 to July,1997 and for a mandatory injunction directing the defendants to fulfill and comply with their commitments made in the joint venture agreement dated 5.5.1994, the plaintiff, by Ia No. 1211/95 prays for ad-interim injunction in identical terms pending hearing and disposal of the suit. By Ia 3080/95, under Rule 4 of Order 39 Cpc, the defendants pray for vacation of the ex parte injunction.

(2) It is not in dispute that the plaintiff and defendants entered into agreement dated 5.5.1994 for the Joint Venture Business thereby deciding to jointly work towards programming and development of the computers software in India for the International Market. The said joint venture company, as agreed, was to be called "KAUSAR-TURCK Software Factory Private Limited (KTSFPL)". In to the agreement, it is also admitted that the execution of the joint venture, would be fundamental in two stages, the first stage being the experimental stage for a period of one year up to July, 1995 and in the event of experimental stage being successful for both the parties, the second stage would commence from August, 1995. It is also not much in dispute that in the event of experimental stage proving unsuccessful to either party, Turck (the defendant) would take back its technology, equipments etc. and that the plaintiff and defendants will in this case, not, in any way, use the technology and know-how provided by Turck for any software development and that the defendants will in this case,not operate or have any activity in India directly or indirectly independently or with any other party/parties in the field of software for a time period of two years. The joint venture agreement dated 5.5.94 admittedly provides for reference of dispute to the arbitration, as provided in clause 23 thereof.

(3) It is the submission of Mr. Singh, counsel for the plaintiff that the defendant committed breach of agreement inasmuch as the shareholding has been changed from 50-50% to 51% (defendants) and 49% (plaintiffs) And that the representation to the Board of Directors is also changed from equal to 3-2 i.e. 3 (Defendants) and 2 (plaintiff); that the project started on 3.1.1995; that under clause 14, there is total ban of operation for a period of two years and that the relief in plaint para 31 is in accordance with the contract; that the defendant has been actually carrying on software business; that the persons in employment of the plaintiff by identical letters of resignations left the plaintiff and that the defendant has been committing breach of agreement, especially clause 14; that the letter dated 20.10.94, is procedural and does not bring the agreement within the improbability of performance and that the contract has not frustrated and that sections 14 and 41 of the Specific Relief Act do not apply as the contract does not provide for the consequences of the damages.

(4) It is submitted by Mr. Shankardas, counsel for the defendants that the prior permission of the Govt. of India/Reserve Bank of India would be necessary before the agreement dated 5.5.94 can be said to have come into force; that Reserve Bank of India did not give the permission and directed the plaintiff to approach the Govt. of India as the joint ventures of the plaintiff and the defendant did not fall within the automatic approval scheme; that the agreement can not be given effect to; that the object for the formation of the joint venture business did not materialise for want of valid contract; that even under Sections 14 and 41 of the Specific Relief Act, no injunction can be granted and that the damages is the remedy for the plaintiff, even if there is breach of the contract by the defendant; that the plaintiff would not be entitled to relief of injunction because Section 3 of Foreign Awards Enforcement Act as the parties have chosen forum of their choice vide clause 23 of the agreement; that in fact, no activity started when the joint venture company was not set up for want of permission by Reserve Bank of India; that the stage for clause 16 of the Agreement did not reach as before the completion of the experimental stage the contract had frustrated; that the defendant's activity did not change and continued as before; that clause 17 and onward would come into play only after the first phase i.e. experimental stage; that there is no violation during the subsistence of the agreement; that the profit sharing relationship would come after the company comes into being, i.e. after the completion of the experimental stage; that as experimental stage did not start, clause 14 would not come into operation; that the working by the defendant is dehors the agreement; that no commercial activity as envisaged in the agreement, has been done by the defendant and it is only buying and selling activity for the profit sharing which has been done by the defendant. As pointed outabove, clause 5 of the agreement provides that the execution of the joint venture will be fundamental in two stages and the first stage being the experimental stage for a period of one year up to up to July 1995.

(5) The agreement suggests that it would be on completion of first phase of experimental stage, the joint venture i.e. KTSFPL will go into the second phase from August, 1995. As per clause 9, during the experimental phase, plaintiff and defendant were to subscribe to the KTSFPL, a share capital of 4000 each and during the experimental stage, as per clause 12, the plaintiff had assured and undertaken to take all necessary steps to get KTSFPL incorporated and the Government approvals as required to set up KTSFPL and its operation in India. The letter dated 20.10.94 by R.B.I. in connection with foreign collaboration and approval under fera suggests that the application by the KTSFPL dated 23.6.94 on the said subject, does not fall within the purview of automatic approval and the same has been returned by the Rbi to enable KTSFPL to approach the Secretariat of Industrial Approval (SIA), Ministry of Industries, Govt. of India, New Delhi. Thus, the application by the proposed joint venture company did not fall within the automatic approval scheme and the same was returned by the RBI. It does not appear from the record that the plaintiff, who was supposed to get incorporation and the necessary government approval for setting up KTSFPL and its operation in India, pursued the matter further after the return of the application by the Rbi vide letter dated 20.10.94. However, it can not be said prima- facie that the contract had become impossible of performance since KTSFPL was required to approach the Ministry of Industries, Govt. of India and it can not be said that the incorporation of KTSFPL was rejected by the authority,as sought to be contended by the defendant.

(6) According to the plaintiff, the plaintiff has taken various steps in furtherance of the joint venture agreement and has acted upon its terms and conditions and has spent considerable amount and resources as for making the joint venture agreement, a success and that the defendant despite a successful phase, acted in violation of clause 14 of the agreement; that the plaintiff had arranged for an office at E-34, Greater Kailash-II, New Delhi after paying huge amount, as advance rental, interior and furnishing. In this regard, reliance has been placed on the decision in the case of Wellman Hindustan Limited versus N.C.R.Corporation reported in 49 (1993) Dlt page 569 wherein it has been held that "when parties have acted on the joint venture agreement dated 5.5.94, the parties should be held to be bound by the said agreement irrespective of the stages provided in the agreement" In the case (supra), the International Distribution Agreement was entered into on 9.6.1986 granting the distributor right of license to market and service of Ncr product in certain territories designated by NCR. On 10.6.1986, a letter of intent was duly executed between the parties with a view to jointly establish a company in India. Plaintiff had engaged Indian Market Research Bureau to commence market research for the defendant agreeing to bear and pay 50% of the costs, which would ultimately be adjusted in accordance with the equity participation in the joint venture company. Several sites in Delhi, Bangalore and Pune were considered and visited by the representatives of the plaintiff and defendants and ultimately, a three acres plot bearing no.47, for Rs.5,10,000.00 was selected mutually and was purchased in the name of the plaintiff and the plaintiff paid the same amount. On 18.1.1987, the plaintiff received from the Ministry of Industries, Govt. of India, a letter rejecting the application for approval to the proposed joint venture and thereafter, the plaintiff had begun the work of recruiting the new staff for joint venture and considering this fact, it was held in this decision that "a term of the letter of intent may of course negative the contractual intention, but it will be open to the courts to hold the parties bound by terms of such letter, especially, if the parties had acted on these terms for a long period of time or if they had expended considerable sums of money in reliance on them."

(7) In the instant case it has been said in the plaint that the plaintiff spent a considerable amount and had hired office premises in Greater Kailash-II, New Delhi by paying substantial amount by way of advance rent. It is not averred as to what amount the plaintiff paid for hiring the premises. In my opinion, the principle laid down in the decision (supra) would not be applicable to the facts of this case, as it prima facie does not appear that by putting reliance on the terms of the agreement dated 5.5.1994, the plaintiff altered its position to disadvantage.

(8) It may be seen that according to the plaintiff, the breach consists of the change in the equity holding from 50-50% by both to 49% of plaintiff and 51% of defendant and that the representation in the Board of Directors is also sought to be changed from equal to 3 Directors of defendant and 2 Directors of the plaintiff. It prima-facie appears that clause 4(a) of the agreement dated 5.5.94 provides for equal participation of the two groups i.e. the plaintiff and the defendant, both in the shareholding as well as on the Board of Directors i.e. shareholding will be divided on 50-50 basis. The letter dated 23.12.94 (page 34) is by S.R. Grover and Associates, Advocates for the defendant accompanied by the first draft dated 23.12.94 of the joint venture agreement between the plaintiff and the defendants at page 42 (74). Article 8 thereof deals with Board of Directors. Clause 8(1) thereof reads "that the Board of Directors shall initially consist of 5 (corrected in place of 4) members, 3 (corrected - original 2) of whom shall be nominated by Truck i.e. defendant No.1 and the remaining two shall be nominated by Kausar. Thus, according to clause 8(1), the Board of Directors would consist of 5 members instead of four originally provided and out of whom three shall be nominated by defendant No.1 and the remaining two shall be nominated by the plaintiff meaning thereby that originally the Board of Directors was to consist of four members to be nominated in equal proportion by plaintiff and defendant No.1 as provided in clause 4(a) of agreement dated 5.5.93 and the change is that Board of Directors would now consist of 5 members instead of 4 out of which 3 shall be nominated by defendant No.1 and the remaining 2 by the plaintiff. Letter dated 5.1.1995 by defendant No.1 (pages 94-95), suggests the change in the shareholding i.e. 51% shareholding by defendant No.1 and 49% by the plaintiff in the joint venture company. Thus, the deviation in the shareholding and the number of members of board of Directors and the representation to the same by the plaintiff and defendant No.1 as pointed out above, prima-facie suggests the change in the terms and conditions of the joint venture agreement, as regards equity holding and the representation in the Board of Directors by the plaintiff by defendant No.1.

(9) Taking prima-facie that the change in equity holding and the increase in the members and the representation to the Board of Directors, as aforestated, as the breach of the agreement dated 5.4.94 by defendant No.1, would at the most, entitle the plaintiff to the damages and the remedy for the plaintiff, in my prima-facie opinion, would not be by way of injunction, as prayed in the plaint but the damages would be the relief by which the plaintiff can be adequately compensated. Refusal to grant injunction against defendant No.1, as prayed in the Ia, would not cause any irreparable injury to the plaintiff, but the breach can at the most entitle the plaintiff to damages and when the plaintiff can be compensated adequately by awarding damages, the question of granting relief of injunction would not arise considering the provisions contained in Section 14 and 41 of the Specific Relief Act.

(10) In the above prima-facie view of the matter, the plaintiff would not be entitled to the relief of injunction, as prayed, and therefore, Ia 1211/95 is liable to be dismissed whereas Ia No. 3080/95 deserves to be allowed and the exparte injunction dated 15.2.1995 liable to be vacated. Ordered accordingly.