Satwant Singh & Anr. vs Allied Beverages Company Pvt. ...
1998 Latest Caselaw 499 Del

ORDER

S.N. Kapoor, J.

1. This order shall dispose of IAs 7776/97, 8000/97, 3798/98 & 3333/98 for all the applications are inter-connected.

2. The plaintiff filed a suit for declaration and injunction. The plaintiff No.1 claims himself to be the Chairman and Managing Director of Pure Drinks (New Delhi) Limited ("PDND" for short). Two plaintiffs seek following reliefs against defendant No.1 Allied Beverages Company Pvt. Ltd. ("ABCL" for short) and defendant NO.2 Cadbury Schweppes Beverages India (P) Ltd. ("CSBL" for short):

a. pass a decree of declaration declaring that any arrangement/agreement entered into between CSBIL and Allied Beverages permitting Allied Beverages to manufacture/fill the Products in the Territory is in breach, inter alia, of Clause 2 of the Agreements dated 17th/22nd November, 1994 entered into between PDND and CSBIL;

b. pass a decree of permanent injunction restraining CSBIL, its servants and or agents from supplying any concentrate to Allied Beverages so that Allied Beverages is prevented from carrying out any manufacturing, filling, selling and/or distributing activity in respect of the Products in the Territory;

c. pass a decree of permanent injunction restraining Allied Beverages from manufacturing, filling, selling and distributing the Products in the Territory in terms of the Agreements dated 17th/22nd November, 1994 entered into between PDND and CSBIL.

4. The case of the plaintiff is that on 22nd November 1994 PDND had entered into three following agreements with CSBIL (para 5):

i. Bottling Agreement in respect of Crush Orange and Crush Lemon; (hereinafter referred to as the "Crush Agreement")

ii. Bottling Agreement in respect of Canada Dry; (hereinafter referred to as the "Canada Dry Agreement")

iii. Bottling Agreement in respect of Schweppes Bitter Lemon, Schweppes Tonic Water, Schweppes Ginger Ale and Schweppes Soda. (hereinafter referred to as the "Schweppes Agreement")

5. Under the agreement, CSBIL granted PDND exclusive right to manufacture and fill the products into authorised containers concentrate extract filled material provided by CSBIL and to sell the same in following territories:

i) Union Territory of Delhi

ii) Haryana (all districts excluding Ambala and Kurukshetra)

iii) Uttar Pradesh - Ghaziabad including Sahibabad, Noida and Dadri.

6. There was complete embargo on CSBIL authorising any other person to do so in the exclusive territory as mentioned above for a period of ten years on certain conditions. According to the plaintiff's case in first weeks of August 1997 in breach of the agreement between the parties CSBIL entered into an agreement/arrangement with Allied Beverages allowing them to manu-facture and fill the products at Allied Beverages bottling plant situated at Dharu Hera (Distt. Rewari) using the concentrated extract of CSBIL within the territory exclusively reserved for PDND. CSBIL now had terminat-

ed the agreement with the PDND w.e.f. 21st February 1998. Plaintiff moved initially IA 7776/97 seeking following interim reliefs in the injunction application (para 10 page 16)

a. pass an ad interim order restraining CSBIL, its servants and/or agents from directly or indirectly supplying concentrate/extract in respect of CSBIL's entire range of Products to Allied Beverages in breach of the terms of the Agree-ments dated 17th/22nd November, 1994;

b. pass an ad interim order restraining Allied Beverages, its servant and/or agents from directly or indirectly accepting and/or using any concentrate/extract supplied by CSBIL, its servants and/or agents for the manufacture, filling, sale and distribution of the Products in the Territory;

c. pass an ad-interim order restraining Allied Beverages, its servants and/or agents from directly or indirectly supplying for sale the Products manufactured and filed in contravention of the Agreements in the market;

d. pass an ad-interim order restraining CSBIL, its servants and/or agents from supplying the concentrate/extract to Allied Beverages in respect of "Sports Cola";

7. In IA 3798/97 the plaintiff further seeks the following reliefs:

(a) pass an interim order restraining Defendants from giving effect to the letters of termination dated 21.2.1998.

(b) pass ex-parte, ad interim orders in terms of prayer (a)

(c) pass such further order/s that this Hon'ble Court may deem fit in the given facts and circumstances of the case.

8. I have heard the learned parties counsel at length and gone through the record. These applications are being contested by the defendants on the ground that the plaintiff No.1 has no right in law and on facts to repre-sent plaintiff No.2 in view of the pending litigation between Harjeet Kaur and Ajit Singh on the one hand and Satwant Singh on the other. Harjeet Kaur and Ajit Singh are two Directors of PDND apart from Satwant Singh. After termination now situation is that plaintiff No.2 and his wife Reema Satwant Singh have directed the plaintiff No.1 to continue to proceed with the present suit while the two other Directors have accepted termination of the agreement. The plaintiff is guilty of suppression of material facts by withholding information relating to two suits filed earlier. The PDND had accepted the termination of the three agreements by defendant No.2 and plaintiff No.2 PDND had restarted manufacturing the Campa orange 300 ml which is the competing product. PDND has returned the empty bottles bearing trade mark of defendant No.2 in its possession and received payment in full amounting to Rs.20 lakhs towards the return of empty bottles. In addition to the payment of Rs.28,75,876 as compensation. Moreover, plaintiff No.2 had no exclusive right to manufacture. The reason for termination is said to be that the plaintiff No.2 failed and defaulted in accumulating the annual minimum aggregate sales (AMAS) of the products specified in the agreements which adversely affected the business of defendant No.2 which led to the termination of the three agreements vide notice dated 21st February 1998. The agreement was terminated in terms of clause 20.1 which provides as under:

"Either party shall be entitled at any time by notice in writing to the other to terminate this agreement forthwith in any of the following or analogous events:

(i) if the other party shall commit any serious or persistent breach of any of the provisions of this Agreement

(ii) if the other party shall fail to rectify any other breach of any of the provisions of this Agreement within thirty days of written notice thereof

(iii) if the other party shall enter into liquidation or shall have a receiver appointed over any part of its undertaking other than for the purpose of reconstruction or reorganisation or shall become insolvent or make any arrangement or composition with its creditors

(iv) if any government or agency having jurisdiction should require directly or indirectly any material alteration or modifi-cation of any term or condition of this Agreement either to the detriment of such party or thereby affecting the performance of either of the parties hereunder to the detriment of such party or

(v) if the affairs of the other party shall cease to be under the effective control of its ultimate owners at the date hereof. For the purposes of this sub-section "effective control" shall mean the possession direct or indirect of the power to direct or influence the management and policies of the company."

9. THE CONTRACT

Both the parties have made allegations and counter allegations against each other for committing breach of the agreement. From a perusal of clause 1.1 and clause 2.1 it is apparent that the CSBIL granted exclusive right to sell and distribute the products in the exclusive territory undisputedly by virtue of clause 2.1 and 2.3 of the agreement in between the parties. The plaintiff company is also recognised by virtue of clause 27 that CSBIL entered into agreements, similar to the agreement with other parties out-side the territory. Under clause 2.1 the defendant No.2 granted "the exclu-

sive right and obligations on the terms and conditions of this agreement (and subject in particular to the reservations contained in clause 2.5) to manufacture, fill into authorised containers and sell the products under a trade mark in the territory". However, supplies "for consumptions in ships, aircrafts or vessels for delivery at any part or airport whether into or outside the territory and whether directly or indirectly, airline and shipping line were exempt from the operation of clause 2.1 by virtue of clause 2.5 and by virtue of clause 19, the agreements were to continue for a term of 10 years and for further successive period of five years unless and until terminated by either party giving to the other not less than 12 calender months notice to terminate the same expiring at the end of initial term or any such subsequent period. On these conditions the PDND has com-plied with its obligations and prior agreement of parties in writing on the plan to come into effect at the start of such subsequent period and at the level of minimum annual aggregate sales which shall apply during such subsequent period. However, clause 20.1 provides that either party shall be entitled at any time by notice in writing to the other to terminate this agreement forthwith "if the other party shall commit any serious or persistent breach of any of the provisions of this Agreement."

10. BREACH OF THE CONTRACT

Both the parties have made allegations and counter allegations about the breaches by the parties. According to the plaintiffs admittedly CSBIL has entered into an agreement with defendant Nos..1 for manufacturing and bottling of same products at Dharu Hera within the exclusive territory granted by CSBIL to PDND and thus the plaintiff could not enter into any other manufacturing or distributing agreement within the exclusive territo-ry granted to PDND.

11. According to the plaintiff's case, PDND had invested heavily and incurred substantial expenditure to perform its obligation which included expenditure in freight of delivery trucks and other product distribution and marketing assets. The entire business of PDND was to sell the products of CSBIL. Under the agreement, PDND could not manufacture other than items specified in Appendix 6 of the Agreement. In such circumstances, in breach of the agreement, CSBIL entered into an agreement with other parties in the territory leading to sell of CSBIL's products manufactured by other bottlers in the territory.

12. The response of the defendant NO.2 is that the plaintiff had no exclu-sive right to manufacture. It is submitted that on open interpretations of clause 2.1 and clause 2.3 of the agreements of 17th November 1994 it would be apparent that the plaintiff had no exclusive right to manufacture as wrongly allowed the right of defendant No.2. It would also appear from the order of Hon'ble Supreme Court dated 10th July 1997 in CA 4427/97 and Annexure A at p.19 of the reply on behalf of defendant No.2 to the interim application. It may be mentioned that in that judgment that order was a consent order and the Supreme Court passed that order "without expressing any opinion on the merits of the interim relief prayers in the main injunc-tion application" and the order under appeal was set aside. None of the clauses were referred to in the Supreme Court order and the respondents could supply the requisite concentrate and "other raw materials to respond-ent NO.3 for manufacturing the items to be sold outside the territory", and that too on the undertaking and on the assurance given by Mr. Pawan Chopra that from the products manufactured out of the concentrate supplied to him by the respondent No.3 shall not sell any of its finished products in the territory assigned to plaintiff No.2. The defendants have not filed the copy of the agreement with the Allied Beverages to enable this court to appreciate whether the agreement was in total breach of the agreement with PDND. It is apparent that the defendants are also equally guilty of commit-ting breach of agreement or entering into agreement with CSBIL and Allied Beverages in the territory exclusively meant for the PDND.

13. The other limb of the argument was that the PDND failed and defaulted in achieving the annual minimum aggregate sale of products specified in the agreements which would be evident from the following:

Product AMAS Actual Sales Shortfall (as per Contract) (Y/E 1997) (% age) ('000 ltrs) ('000 ltrs) "Crush" 2,528 1,519 39.9 "Schweppes" 485 44 90.9 "Canada Dry" 891 791 12.0

14. It appears that probably the annual minimum aggregate sales were modified in favour of the PDND but in any case it is not disputed that the actual sales did not reach the target and rather it is claimed that the sales could not reach for the other bottlers who manufactured these three brands in the exclusive territory had sold in the territory. It gives an impression that by both the parties have failed to honour their commitments and both are blaming each other so far as breaches are concerned. But at the same time, one could not forget that when Directors are quarrelling among themselves and working at cross purposes, it should not be surprising if the sales could not be promoted to the desired extent.

15. Satwant Singh filed a suit No. 102/97 against Ajit Singh and another on 15th March 1997 for permanent njunction restraining defendant from taking any decision or action regarding PDND and its management affairs and business singly and for declaration to the effect that the plaintiff No.1 is the Chairman of PDND. It is not disputed that under orders of the Government of India, the plaintiff Satwant Singh became Chairman of PDND for a period of five years. After expiry of the period of five years, there is no such order. However, there is no dispute at all that he continues to be a Director. A Resolution was passed by two other directors Harjeet Kaur and Ajit Singh withdrawing all authority given to Satwant Singh to act on behalf of PDND. It is undisputed fact that Reema, wife of Satwant Singh was not a Director earlier. Satwant Singh made her a Director; how, when and in what circumstances, is not known and Satwant Singh and Reema Satwant Singh passed another resolution authorising Satwant Singh to continue to prose-cute and proceed with the case.

16. However, there are certain undisputed facts and that is Shri Ajit Singh and Smt. Harjit Kaur the two other Directors are on one side. Shri Satwant Singh who is the third Director is on the other side. Now his wife Smt. Reema Satwant Singh has also allegedly been joined as Director. There was direction from the Court that in the meeting of the Board of the plain-tiff company all the three Directors, namely, Ajit Singh, Harjit Kaur and Satwant Singh would be invited to attend the meeting. But it appears that probably no such meeting has been held where all the three parties were present. Harjit Kaur and Ajit Singh in a meeting have passed a resolution that the plaintiff No.1 Satwant Singh is not entitled to represent the company and notice was also sent to the learned counsel for the plaintiff in this connection not to prosecute the suit on behalf of the company. Now a resolution has been filed nullifying the aforesaid resolution withdrawing the authority of the plaintiff to represent the company. It is said to have been revised in a meeting of the Board of Directors of the company. But that meeting was admittedly attended only by Satwant Singh and his wife Smt. Reema Satwant Singh who was allegedly inducted in May 1988. There are several suits in between Shri Satwant Singh and Shri Ajit Singh relating to their right, title and interest in the plaintiff company. It is evident that Shri Satwant Singh was appointed Executive Director for a period of five years on 1.7.1991 by the Ministry of Company Affairs but there is no further extension. Though it is claimed by the plaintiff that he still continue to be the Executive Director yet it may be difficult to accept the situation especially in view of the Resolution dated 25.3.1997 in the meeting of the board comprising of Shri Ajit Singh and Smt. Harjit Kaur. In such circumstances it is evident that for an outsider it may be very diffi-cult to deal with a company whose two different sets of Directors are speaking in different terms and languages, who are at loggerheads with each other, and the suits are pending in between the two.

17. It is also an undisputed fact that the defendant had already terminat-ed all the three agreements dated 17.11.1994 with the plaintiff company relating to Crush, Cadbury Schweppes and Canada Dry for non-achievement of the targets of supplies vide notices dated 21.2.1998. On the other hand the plaintiffs have blamed the defendant company impinging on the plaintiffs territory by granting licences to others and unreasonably expecting the plaintiff company to achieve the targets. According to the plaintiff compa-ny the agreement was irrevocable at least during its period of ten years and the defendants are estopped from terminating it for the plaintiff had not only stopped its competing products but also diverted all infrastruc-ture of the company for the purpose of fulfillling the target and it would take at least one year for the plaintiff company to put its business back to its earlier normal position. As such the plaintiff should be given at least one years time and during this period the contract could not be deemed to be terminated and the defendant should be bound to fulfill their part of the contract for a period of one year. However it is submitted on the other hand that plaintiff No. 1 does not seem to know/pretends ignorance of facts that plaintiff No.2 as accepted the termination of three agreements by the defendant No.2 and that plaintiff No.2 has restarted manufacturing of "Campa Orange" (300ml) which is a competing product. Moreover they also returned the empty bottles earing trade mark of defend-ant no.2 in his position and received payment in full amounting to Rs. 20 lacs towards the return of empty bottles from defendant No.2 alongwith compensation of Rs. 28,75,876/-. The learned counsel for the plaintiff is neither in a position to admit nor deny the submission of Shri Ashok Desai, learned Senior counsel appearing on behalf of defendant in this regard.

18. In the aforesaid circumstances it is very difficult for this Court to accept the proposition that this court should accept the words of the plaintiff No.1 as that of the plaintiff company. The acceptance of termina-tion of the contract or entering into in a contract or business policy decisions of the company ordinarily the Court should not interfere and the matter must be left to be decided by duly held meetings of the Board of Directors. The individual Directors ordinarily have only such power as are vested in them either in the company's memorandum or articles or therwise authorised by the Board of Directors. This Court cannot force defendant No.2 to continue with the contract for in the aforementioned circumstances the interest of the plaintiff company could be protected otherwise also.

19. The submissions of Shri Ashok Desai, learned Senior counsel appearing on behalf of defendant company is that the defendant has already lost ground to a great extent by delay on one hand and on the other on account of serious infighting amongst Directors of the plaintiff company. Shri Ashok Desai further submits that in order to compensate the plaintiff in case the suit is decided in their favour the defendant may be directed to keep the accounts of the sales and may ultimately decide the question on the basis of those accounts whether the plaintiff is entitled to any sum etc. finally or not.

20. Taking into overall facts and circumstances and submissions made by the learned counsel I feel that supposing I accept all the contentions of the plaintiff even then there is no appropriate answer for one of the main contention as to why a person should deal with a person whose decisions are not certain and it is not known who is authorised or who is not authorised to take business policy decisions on behalf of the company The contract has already been terminated. Shri Ajit Singh and Smt. Harjit Kaur have taken the amount of security as well as compensation. They have not been made a party to the suit. The plaintiff company has also started manufacturing of a competing cold drink in the market by the name of Campa Cola Orange". The fact that plaintiff company has started manufacturing "Campa Cola Orange" indicates acceptance of the termination of the contract. The fact that amounts has already been taken away by the plaintiffs it reaffirms that the first set of plaintiffs are said to be in control of the company.

21. It is thus apparent that the uncertainties which have been created on account of serious infighting amongst two brothers and aunt has led the company to such an impasse where any businessman would be in doubt who is required to be contacted to ensure implementation of the agreements in between the concerned parties including plaintiffs. In such circumstances it may look incongruous to continue with the injunction granted on 13.8.1997 and the interest of the plaintiffs as Directors and shareholder of the company as well as that of the company shall be appropriately protected if the defendants are asked to (a) file regular quarterly statements of accounts during the pendency of the suit, indicating quantity manufactured during the quarter, quantity sold during the quarter and sale proceeds thereof every quarter and (b) that the defendants furnish their undertakings that in case the suit is decreed ultimately in favour of the plaintiff both the defendants would pay to the plaintiff company 20% of the sale proceeds of the three products under the three contracts in the Union Territory of Delhi, Haryana - all Distt. excluding Ambala and Krukshetra, Uttar Pradesh - Ghaziabad including Sahibabad, Noida and Dadri after adjusting the amount already paid towards compensation within six weeks.

22. The stay order dated 13.8.1997 is vacated subject to above said condi-tions. I.As. 7776/97, 8000/97 3798/98 and 3333/98 stand disposed of.

23. List I.A. 3798A/98 for arguments on 3rd September 1998.