Seema Bhatia vs Yamaha Motor India Pvt. Ltd.
2007 Latest Caselaw 1727 Del

JUDGMENT

Sanjay Kishan Kaul, J.

1. A Dealer Sales Agreement ('DSA' for short) was entered into on 1.11.1996 between Escorts Yamaha Motors Limited (claim to be the predecessor-in-interest of the defendant) and the plaintiff for sale and service of Escorts Yamaha Motors Limited products. The agreement was operated and apparently some disputes arose between the parties inasmuch as the plaintiff owed amounts to Escorts Yahama Motors Limited.

2. On 8.12.2000, an agreement/Memorandum of Understanding ('MOU' for short)was entered into by exchange of letters. The matter did not get resolved even thereafter with the result that a legal notice was served by the plaintiff on the defendant dated 2.8.2004 pointing out the alleged failures of the defendant in complying with the terms of the MOU dated 8.12.2000. In view of these disputes, the defendant invoked the arbitration clause in the DSA dated 1.11.1996 being Clause 'L', which is as under:

L. ARBITRATION:

1. The PARTIES agree that any dispute arising out of or in connection with this Agreement shall be settled in accordance with the Rules of Indian Council of Arbitration. The venue of arbitration shall be New Delhi.

3. The plaintiff has thereafter filed the present suit for a decree of declaration and permanent injunction. The plaintiff seeks a decree of declaration that there is no subsisting arbitration clause between the parties and for injunction against the proceedings before the arbitrator so appointed by the Indian Council of Arbitration.

4. Summons in the suit and notice in the application were issued on 19.10.2006 when interim orders were granted in favor of the plaintiff. The defendant entered appearance on 8.1.2007. The defendant had been served much earlier but no written statement was found on record. The defendant was directed to file the written statement along with documents in accordance with law and the suit was listed for settlement of issues on 17.4.2007. The interim order was continued. A date was also fixed before the Joint Registrar for admission/denial of documents on 14.2.2007. The defendant failed to file any written statement or documents and thus no effective proceedings took placed on 14.2.2007. On 17.4.2007 when the matter was listed before the Court, in the absence of any reply the interim order was made absolute during the pendency of the suit. No written statement was again available on record but learned Counsel for the defendant stated that he had filed the written statement in the morning of the same date. The written statement was permitted to be taken on record on a concession of the learned Counsel for the plaintiff subject to the payment of Rs.5,000.00 as costs. The order also notes the statement of learned Counsel for the defendant that the copy of the DSA dated 1.11.1996 and the MOU dated 8.12.2000 are not disputed, the originals of which are with the defendant. The defendant was directed to file the two agreements to be exhibited as Exhibit D-1 and Exhibit D-2. The parties stated that the controversy revolved around the interpretation of the two agreements and no oral testimony would be required.

5. On the pleadings of the parties, the following issues were framed:

1. Whether the Memorandum dated 8.12.2000 was in abrogation of the earlier Sales Agreement dated 1.11.1996 or was supplemental in nature? Onus on parties

2. Relief.

6. Since no oral testimonies were required to be led and only the aforesaid two agreements were to be relied upon by the parties, the suit was set down for hearing. The suit was listed on 7.8.2007 when the counsel for the defendant was not available and thus was renotified for hearing today.

7. Learned Counsel for the plaintiff points out that the defendant has failed to pay costs till date and thus no written statement can be taken on record. The defendant has also failed to file the aforesaid two original documents, which were to be exhibited as Exhibit D-1 and Exhibit D-2.

8. In respect of the first aspect it is not even in dispute that the costs have not been paid and thus the written statement cannot be relied upon by the defendant. Insofar as the documents are concerned, learned Counsels for the parties agree that all the documents filed can be read in evidence without formal proof.

9. Learned Counsels for the parties have been heard and the findings on the issues are as under:

Issue No. 1:

Whether the Memorandum dated 8.12.2000 was in abrogation of the earlier Sales Agreement dated 1.11.1996 or was supplemental in nature? Onus on parties

10. It is the case of the plaintiff that the mode and manner of the DSA provided that the vehicles used to be handed over to the plaintiff and the account of the plaintiff used to be debited with the defendant. These vehicles were then sold to prospective customers on hire-purchase basis and were financed by a sister concern of the defendant, M/s. Escorts Finance Limited. As and when the amounts were remitted for clearance of the dues by the purchaser, a credit entry would take place in the account of the plaintiff with the defendant. The plaintiff claims that as collateral security blank cheques were also taken from the plaintiff even though the liability was of the hirer under the hire-purchase agreement to meet the commitment to the finance company. It is not necessary to go into the details of the transactions because the rights and obligations are undisputedly to be governed by the DSA dated 1.11.1996 and the MOU dated 8.12.2000.

11. It is the case of the plaintiff that the DSA no more governs the rights and obligations of the parties in view of the subsequent agreement/MOU dated 8.12.2000. In order to appreciate this controversy it is necessary to reproduce the said agreement.

A. PRESENT STATUS

1.STOCK AVAILABILITY AS ON DATE 125 UNITS 48 LAC APPROX.

2.TENTATIVE TOTAL OUTSTANDING AS ON DATE INCLUDING PRODUCT AND SPARE PARTS IS 204 LAC APAPROX. HOWEVER DEALER TO RECONCILE STATEMENT OF ACCOUNT AND REVERT BACK BY 30TH JAN 01 FOR EXACT OUTSTANDING.

B. RECOVERY PLAN

1. DEALER TO PROVIDE LIST OF OLD/EXCHANGED VEHICLES (ENG.NO./MODEL/MAKE/COST OF PURCHASE). YMEL TO ARRANGE FOR EVALUATION OF STOCKS BY TAKING TWO BROKERS FROM DELHI AS PER DEALER. THE STOCK VALUE OF RS.50 LAC APPROX. THERE ARE 157 NO. OF VEHICLES - YBX:65, RX:35, YD:20, RD:25, OTHERS:12.

DEALER TO TAKE TARGET OF 12 NOS. PER MONTH TO BE REPAIRED AND SOLD AND THE TOTAL AMOUNT RETRIEVED TO BE SUBMITTED TO YMEL.

2. TO HELP THE DEALER IN HAVING A EFFECTIVE MONItorING SYSTEM, YMEL TO LOOK INTO THE POSSIBILITY OF DEPUTING ONE PERSON WELL VERSED IN SALES AND FINANCE TO DEHRADOON ON A TEMPORARY BASIS. DEALER TO PROVIDE SITTING ARRANGEMENT AND LOGISTIC SUPPORT TO THE PERSON.

3. IN VIEW OF HEAVY OUTSTANDINGS DEALER HAS AGREED NOT TO EARN ANY PROFITS ON SALE OF VEHICLES AND INSTEAD WILL REDUCE THE OUTSTANDINGS BY PAYING THE MARGIN OF VEHICLE PURCHASED DURING THE MONTH BACK TO THE COMPANY IN THE LAST THREE DAYS OF THE MONTH ON MONTHLY BASIS. IN ADDITION TO THIS WHATEVER AMOUNT OF MONEY THE DEALER RECOVERS FROM VARIOUS HEADS COMPRISING OF OUTSTANDINGS, A MAJOR PORTION OF IT (ATLEAST 50%) SHOULD ALSO BE REMITTED TO US.

4. DEALER TO ADOPT SIMILAR POLICY AS DEFINED ABOVE WITH HIS SSO'S/BRANCHES (CASH and CARRY) FOR ARRESTING THE OUTSTANDING AND REDUCTION OF SAME.

5. DEALER TO GIVE YMEL COPY OF "REGISTRATION WITH SALES TAX AUTHORITIES" OF THE 18 OUTLETS AS BRANCH OFFICES OF M/S DOON MOtorCYCLES.

6. AT PRESENT DEALER HOLDS A STOCK OF 125 UNITS WHICH SHOULD REDUCE IN PROPORTION TO CLOSURE OF LOW VOLUME BRANCHES AND REDUCTION OF OUTSTANDINGS WITH MAJOR BRANCHES. MR.RAJIV CHADHA AND P.D. MARKAN WILL SUBMIT A SEPARATE PLAN ON SCALINGDOWN THE OPERATIONAL AREA KEEPING IN VIEW THE BREAKEVEN POINT OF THE RESPECTIVE BRANCHES.

7. YMEL TO DEFINE THE DEALERS AREA OF OPERATION AND TO CLOSE THE SSO'S/BRANCHES OUTSIDE THE STATE ONCE THE OUTSTANDING IS CLEARED UNDER VARIOUS HEADS INCLUDING EMI'S OF VEHICLES FINANCED THRU THEM.

8. DEALER TO DEALER BILLING TO BE STOPPED IMMEDIATELY.

9. SUPPLY OF CRUX WILL BE DONE BY YMEL WITH THE FOLLOWING CONDITIONS:

A) ONLY AGAINST ADVANCE PAYMENT AS IN CASE OF THE OTHER PRODUCTS.

B) NO DEALER RISK BASED FINANCING/EXCHANGE WILL BE DONE.

C) DEALER HAS AGREED TO MORTGAGE HIS PROPERTY TO YMEL.

10. THIS AGREEMENT SHOULD BE KEPT STRICTLY CONFIDENTIAL IN BETWEEN BOTH THE PARTIES.

12. It is the case of the plaintiff that once the liability of the plaintiff and the obligations of the parties were crystallised in terms of the agreement/MOU dated 8.12.2000, a fresh agreement came into existence novating the earlier agreement dated 1.11.1996.

13. In order to substantiate this plea learned Counsel relied upon the provisions of Section 62 of the Indian Contract Act, 1872 (hereinafter referred to as the said Act), which reads as under:

62. Effect of novation, rescission, and alteration of contract. - If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.

14. Learned Counsel for the plaintiff contends that a similar factual position came up for consideration before a learned single Judge of this Court in Saraswati Industrial Syndicate Ltd. v. Apollo Tyres Limited 2nd (1986) I Delhi 382. The facts of the said case were that the plaintiff therein entered into an agreement with the defendant for supply/erection and commissioning of boilers and the agreement contained an arbitration clause. Differences arose between the parties on the question of the amount due to the plaintiff and a settlement was arrived at. In pursuance to the settlement, the defendant also paid some amount and the balance amount, pursuant to the settlement remained unpaid. The plaintiff filed a suit for recovery of the said amount with interest. The defendant filed an application under Section 34 of the Arbitration Act, 1940 on the ground that the original agreement between the parties had an arbitration clause and thus the matter be referred to arbitrator. The question which thus arose for consideration was whether the agreement had been given a go by and the parties arrived at some mutual settlement whereby the parties were at liberty to revert to the original arbitration agreement. Learned single Judge of this Court found that once the arbitration agreement had been given a go by and the parties arrived at a mutual settlement, the arbitration agreement would be deemed to have been abrogated, abandoned or waived by the parties, the arbitration agreement stands discharged and could not thereafter be revived by any of the parties. It was, thus, held that consequently the arbitration provisions could not be invoked by the parties any longer and the disputes and differences between the parties would merge into the new settlement whereby the parties were not at liberty to revert back to the original arbitration agreement. It was held that the said case was one of waiver of the right under the arbitration agreement. It would be useful to reproduce the observations made in paragraph 9 of the judgment as under:

9. There could be no doubt that where the parties agreed to refer their disputes and differences to arbitration but subsequently ignoring the arbitration agreement the parties mutually through their representatives agree and arrive at a settlement and that settlement is acted upon as well in part, then only the subsequently arrived at settlement would govern the relations of the parties thereafter and the parties cannot be permitted to ignore such a settlement so as to have recourse to the original arbitration agreement. In these circumstances, the arbitration agreement stands discharged, abrogated and abandoned and the same becomes infructuous and cannot be revived by any of the parties. Such is the position in the instant case and in these circumstances the defendant would be estopped from invoking the provision of arbitration agreement and cannot be permitted to have recourse to it through the instrumentality of Section 34, Arbitration Act.

15. The judgment in M/s. Saraswati Industrial Syndicate Ltd. v. M/s. Apollo Tyres Limited case (supra) also found favor with the Division Bench in Jindal Aromatic v. South Coast Spices Exports Pvt. Ltd. 106 (2003) DLT 708 (DB). It was observed in paragraphs 22 and 23 as under:

22. A similar view was taken by a Single Judge of this Court in the judgment reported as 2nd (1986) 1 Delhi 382, Saraswati Industrial Syndicate Ltd. v. Apollo Tyres Limited. Parties were governed by an agreement which contained an arbitration clause. Disputes arose, resulting in a settlement arrived at pursuant to which a cheque was issued towards satisfaction of the settlement arrived at. The cheque was dishonoured. A suit for recovery was filed. An application under Section 34 of the Arbitration Act was filed praying that the suit be stayed in view of the arbitration clause between the parties. It was held that the dispute under the cheque did not relate to a dispute under the agreement. With the settlement arrived at, the dispute under the agreement between the parties stood settled. The agreement stood discharged and so did the arbitration clause. It was held that the cause of action was the settlement arrived at and not the contract.

23. The legal position which emerges from the aforesaid judgment is that an accord discharges the performance of obligations under the contract. A dispute pertaining to satisfaction furnishes a fresh and independent cause of action, until and unless it is provided that the performance of the satisfaction was a condition precedent for discharge under the contract. If promise is received in satisfaction, it is a good satisfaction, but if the performance and not the promise is intended to operate in satisfaction, then there will be no satisfaction without performance. Wherever there is an accord, obligations under the original contract would be discharged until and unless it is specifically provided that the performance of the satisfaction would discharge the obligations under the contract.

16. Learned Counsel for the defendant, on the other hand, contends that the MOU is only a mechanism to resolve the disputes under the DSA dated 1.11.1996 and there is neither any novation nor any abrogation of the original agreement. It is contended that since there were outstanding dues from the plaintiff, the defendant provided a recourse to the plaintiff for settling the dues by even showing some extra concession in the agreement/MOU dated 8.12.2000, which were not available in the DSA dated 1.11.1996. Learned Counsel referred to the judgment of the Apex Court in Lata Construction and Ors. v. Dr. Rameshchandra Ramniklal Shah and Anr. (2000) 1 SCC 586, where in paragraph 12 it was observedas under:

12. One of the essential requirements of `Novation'; as contemplated by Section 62, is that there should be complete substitution of a new contract in place of the old. It is in that situation that the original contract need not be performed. Substitution of a new contract in place of the old contract which would have the effect of rescinding or completely altering the terms of the original contract, has to be by agreement between the parties. A substituted contract should rescind or alter or extinguish the previous contract. But if the terms of the two contracts are inconsistent and they cannot stand together, the subsequent contract cannot be said to be in substitution of the earlier contract.

17. Learned Counsel also relied upon the observations of the Supreme Court in United Bank of India v. Ramdas Mahadeo Prashad and Ors. (2004) 1 SCC 252 where a MOU between the bank and the debtor was examined. The Supreme Court framed the primal question as one as to whether the MOU had been acted upon and complied with by the parties. The Supreme Court in the facts of the case found that there was, in fact, no concluded settlement or novation.

18. Learned Counsel further referred to the judgment of the learned single Judge of the Calcutta High Court in Juggilal Kamlapat v. N.V. Internationale Crediet- En-Handels Vereeninging 'Rotterdam' AIR 1955 Cal 65 where it was observed in paragraph 14 that in the facts of that case the modification did not go to the root of the first contract and does not change the essential character and thus would not amount to novation.

19. On hearing learned Counsels for the parties, I am of the considered view, there is no doubt that there were dues outstanding from the plaintiff to the defendant as acknowledged by the plaintiff. Such dues arose out of the DSA dated 1.11.1996. It was open to the defendant at that stage to institute proceedings for recovery of the dues and take recourse to the methods provided under the agreement for such recovery. In view of the existence of the arbitration clause, the disputes were liable to be referred to arbitration. The parties, however, did not refer the disputes to arbitration but entered into a fresh agreement on 8.12.2000. The agreement reproduced aforesaid shows that this was the result of the discussion between the representatives of the two parties and provided the then existing status of the stock and outstanding, the recovery plan and in default the consequence to flow to the plaintiff. The case of the defendant itself is that the larger concession was shown to the plaintiff than was envisaged under the DSA dated 1.11.1996. It is this agreement which crystallised the rights and liabilities of the parties.

20. It was open to the parties at that stage to have stated that this MOU/agreement dated 8.12.2000 was only in furtherance of the DSA dated 1.11.1996 and that the arbitration clause would continue to apply. It was also open to the parties to have incorporated an arbitration clause in the subsequent agreement/MOU dated 8.12.2000. Neither of the two things were done.

21. The observations made in Saraswati Industrial Syndicate Ltd. v. Apollo Tyres Limited case (supra), in my considered view, squarely apply to the facts of the present case. In fact, there is a similarity in the factual matrix of both the cases. An agreement having an arbitration clause and the arbitration clause not being resorted to but a subsequent agreement/MOU having been entered into between the parties for resolution of the disputes and even thereafter the disputes not being resolved. In both cases, the MOU was acted upon. The Division Bench of this Court in Jindal Aromatic v. South Coast Spices Exports Pvt. Ltd. case (supra) has approved the judgment in Saraswati Industrial Syndicate Ltd. v. Apollo Tyres Limited case (supra) and thus the legal proposition propounded in these two judgments are binding on this Court. The legal position has been succinctly set out that an accord discharges the performance of obligations under the contract and a dispute pertaining to satisfaction furnishes a fresh and independent cause of action, until and unless it is provided that the performance of the satisfaction was a condition precedent for discharge under the contract. There is no such stipulation in the present agreement in question.

22. The judgment in United Bank of India v. Ramdas Mahadeo Prashad and Ors. case (supra) would have no application since the judgment proceeds on the basis that there was no concluded settlement or novation. In the present case it is not even in dispute that there was a concluded settlement dated 8.12.2000. Similarly the observations in Lata Construction and Ors. v. Dr. Rameshchandra Ramniklal Shah and Anr. case (supra) show that there have to be alternations of the original terms of contract by agreement between the parties for a recession to take effect. In case the two contracts are inconsistent and they cannot stand together, the subsequent contract cannot be said to be in substitution of the earlier contract. There is no dispute that in the present case there are no such inconsistent contract but it is also simultaneously not in dispute that the subsequent agreement contained certain concessions not envisaged in the earlier contract, thus, this judgment would also not come to the aid of the defendant. The observations in Juggilal Kamlapat v. N.V. Internationale Crediet-En-Handels Vereeninging 'Rotterdam' case (supra), are on the facts of the case that the modifications do not go to the root of the contract and do not change its essential character and can hardly apply to the factual matrix of the present case more so in view of the judgment of the Division Bench in Jindal Aromatic v. South Coast Spices Exports Pvt. Ltd. case (supra).

23. Learned Counsel for the defendant states that the plaintiff owes amount to the defendant and is trying to take technical objection. Be that as it may, if such a technical objection is available to the plaintiff, the plaintiff cannot be precluded from taking such an objection. The objection is really about the forum, which would decide the controversy between the parties and it is not as if the defendant is left remediless since the defendant would be still free to file its suit for recovery against the plaintiff in accordance with law.

24. The issue is accordingly answered in favor of the plaintiff.

Relief.

25. A decree is passed in favor of the plaintiff and against the defendant declaring that there is no subsisting arbitration agreement between the parties and consequently the proceedings before the arbitral tribunal constituted by the Indian Council of Arbitration cannot be proceeded into. The defendant is left free to take recourse to proper civil remedy for recovery of dues from the plaintiff. Parties are left to bear their own costs.

26. Decree sheet be drawn up accordingly.