Kush Dairy Limited vs H.P. Printers Pvt Ltd
2013 Latest Caselaw 1579 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+      CS(OS) 2553/2012

       KUSH DAIRY LIMITED                ..... Plaintiff
                    Through:             Mr. P.D.Gupta, Advocate with
                                         Mr. Kamal Gupta, Advocate.

                          versus

       H.P. PRINTERS PVT LTD             ..... Defendant
                      Through:           Mr. Kirti Uppal, Senior Advocate
                                         with Ms. Abhilasha Nautiyal and
                                         Mr. Gurpreet Singh, Advocates.


                                   Reserved on: 19th March, 2013.
%                                  Date of Decision: 08th April, 2013.

CORAM:
HON'BLE MR. JUSTICE MANMOHAN
                              JUDGMENT

MANMOHAN, J:

I.A. 17807/2012

1. The present application has been filed by the defendant under Section 8 of Arbitration and Conciliation Act, 1996 read with Section 151 CPC.

2. Mr. Kirti Uppal, learned senior counsel for the defendant relied upon the arbitration clause contained in the Agreement dated 9th September, 2010 and submitted that the present suit ought to be referred to arbitration.

3. Mr. P.D. Gupta, learned counsel for the plaintiff, though did not deny the existence of the arbitration clause but submitted that the present

application is not maintainable inasmuch as the defendant has already filed a suit being CS (OS) 1016/2011 against the plaintiff herein with respect to the same agreement dated 9th September, 2010.

4. Having heard learned counsel for both the parties, this Court is of the view that the action of the defendant in filing its own aforesaid suit amounts to waiving its right to invoke or enforce the arbitration clause.

5. Consequently, the present application is dismissed. I.A. 18584/2012

1. Present application has been filed by the defendant under Order 37 Rule 3(5) read with Section 151 CPC seeking unconditional leave to defend the present suit.

2. The relevant facts of the present case are that the present suit has been filed by the plaintiff for recovery of Rs. 50,00,000/- under Order 37 of Code of Civil Procedure, 1908.

3. The plaintiff and the defendant entered into an agreement dated 9th September, 2010 in accordance with which the plaintiff was licensed to use the brand name INDANA for manufacturing, marketing and selling dairy and milk products including desi ghee and other food products on payment of monthly license fee for a period of two years. The plaintiff paid a refundable security deposit of Rs. 50,00,000/- to the defendant as interest free security deposit in terms of the said agreement, which was to be refunded at the time of determination of the aforesaid agreement.

6. Mr. Kirti Uppal, learned senior counsel for defendant/applicant stated that with a few months of execution of the agreement dated 9th September, 2010 the defendant started receiving various complaints from the traders as well as customers that the ghee, being sold by the plaintiff, was of poor

quality. Mr. Uppal further stated that on 13th April, 2011, the District Supply Office of Alwar, Rajasthan, along with officials of the Food Departments and others raided the plaintiff's premises at Alwar and one Lakh liter of spurious ghee was seized from plaintiff's premises. An FIR was lodged by the District Supply Officer, Alwar against the plaintiff for selling spurious material. He stated that following number of tests conducted by the Public Health Laboratory, Allahabad, the plaintiff's certificate from the Ministry of Agriculture (Agmark License) was suspended on 31st May, 2011 and finally cancelled on 6th June, 2011.

7. Mr. Uppal also stated that in terms of the Clause 5 of the Agreement, the defendant sent three warnings dated 11th January, 2011, 20th January, 2011 and 28th February, 2011 and pursuant to these warnings terminated the agreement with immediate effect. Mr. Uppal submitted that despite notice of termination and calling upon the plaintiff to stop using the brand name INDANA, the plaintiff still continued to use the mark, compelling the defendant to file a suit CS(OS) 1016/2011 against the plaintiff on account of infringement of trade mark, passing of, rendition of accounts, damages etc. In the said suit, Mr. Uppal stated that, this Court by order dated 29 th February, 2011 restrained the plaintiff from using the trade mark INDANA. Subsequently, the injunction order was confirmed on 30th August, 2011.

8. Mr. Uppal stated that the plaintiff made no demand upon the defendant prior to filing the suit and that in any event the defendant was claiming damages to the tune of Rs. 1,00,00,000/- and the present demand was liable to be set off against the damages claimed.

9. Mr. Uppal lastly submitted that as the dispute in the present suit was directly and substantially the same as raised by the defendant in its earlier

suit being CS(OS) 1016/2011, the proceedings in the present suit was liable to be stayed in accordance with Section 10 CPC.

10. Per contra, Mr. P.D. Gupta, learned counsel for plaintiff relied upon Clause No. 3 of the agreement dated 9th September, 2010 and submitted that the interest free security deposit had to be refunded by the defendant on termination of the said agreement for any reason whatsoever. He further submitted that the defendant had neither disputed the factum of the security amount being deposited by the plaintiff nor denied existence of said clause. In fact, the plea of set off taken by the defendant inherits admission on the part of the defendant. He submitted that in view of the aforesaid, the present application was liable to be dismissed and the suit was liable to be decreed forthwith in favour of the plaintiff.

11. Mr. Gupta further submitted that Section 10 CPC was not applicable to Order 37 proceedings as the latter was a Code within a Code.

12. Having heard learned counsel for the parties and perused the suit file, this Court is of the opinion that Section 10 of CPC would be applicable only if trial commence i.e. after leave to defend, is granted. In Indian Bank Vs. Maharashtra State Co-operative Marketing Federation Ltd., AIR 1998 SC 1952, the Supreme Court has held as under:-

10. Considering the objects of both the provisions, i.e., Section 10 and Order 37 wider interpretation of the word 'trial' is not called for. We are of the opinion that the word 'trial' in Section 10, in the context of a summary suit, cannot be interpreted to mean the entire proceedings starting with institution of the suit by lodging a plaint. In a summary suit the 'trial' really begins after the Court or the Judge grants leave to the defendant to contest the suit. Therefore, the Court or the Judge dealing with the summary suit can proceed up to the stage of hearing the summons for judgment and passing the judgment in favour of the plaintiff if (a) the defendant has not applied for leave to defend or if such application has been made and refused or if (b) the defendant

who is permitted to defend fails to comply with the conditions on which leave to defend is granted.

13. As far as scope and parameters of Order 37 is concerned, the Supreme Court in M/s. Mechalec Engrs. & Manufacturers Vs. M/s. Basic Equipment Corn., AIR 1977 SC 577 has held as under:-

"7. In Smt. Kiranmoyee Dassi & Anr. v. Dr. J. Chatterjee(1), Das. J., after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by order 37 C.P.C. in the form of the following propositions (at p. 253):

(a) If the Defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the Defendant is entitled to unconditional leave to defend.

(b) If the Defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the Defendant is entitled to unconditional leave to defend.

(c) If the Defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, yet, shows such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the Plaintiff is not entitled to judgment and the Defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security.

(d) If the Defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the Plaintiff is entitled to leave to sign judgment and the Defendant is not entitled to leave to defend. (e) If the Defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the Plain- tiff is entitled to leave to sign judgment, the Court may protect the Plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give

leave to the Defendant on such condition, and thereby show mercy to the Defendant by enabling him to try to. prove a defence".

14. Some of the clauses of the agreement dated 9th September, 2010 which are relevant for the present controversy are reproduced hereinbelow:-

"NOW THIS AGREEMENT WITNESSETH AS FOLLOWS

1. That the Second Party shall be authorised to use brand name INDANA for manufacturing & marketing of Desi Ghee, Skimmed Milk Powder, Dairy Whitener, other Dairy Products & Food Products.

2. That the Second Party has agreed to pay to the First Party, for using the brand name of "INDANA" for the above said period, a sum of Rs. 2,00,0000.00 (Rupees Two Lacs only) inclusive of the service tax at the current rate, on monthly basis to be paid on the 1st day of every month in advance, towards trade mark user charges. However the Second party shall be authorised to deduct TDS as per IT Act and rules.

3. That the second party shall pay to first party a sum of Rs.

50,00,000.00 (Rs Fifty Lacs only) as interst free security deposit for due performance of the agreement & shall be refunded by the first party to second party at the time of determination of this agreement for any reason whatsoever.

4. That the Second Party shall be fully authorised to advertise or publicise in any manner it likes the above products to be marketed by it in the brand name of "INDANA". However it will be ensured by the second party that in all advertisement material & packing material following legend is prominently appears.

Trade Mark Owners - M/s. H.P. Printers Pvt. Ltd., New Delhi 110048

5. That the Second Party shall ensure with their contract manufacturer that the products being marketed by them

meet prescribed specifications under Agmark & BIS as applicable & also various provisions of PFA Act. It is further agreed that the first party shall be authorised to depute its personnel for ensuring quality adherence at the premises of the contract by first party. However it is agreed and understood by both the parties that the first party shall not be liable for any actions from any quarter in the event of any quality defects in the products even after they have under gone quality check by the quality control team of the first party."

(emphasis supplied)

15. After going through the agreement, this Court is of the view that the sole emphasis of the plaintiff on the second part of the Clause 3 - ".....& shall be refunded by the first party to second party at the time of determination of this agreement for any reason whatsoever", is misplaced.

Every agreement has to be read as a whole and the meaning of a clause has to be gathered from a reading of the entire agreement. The first part of the same clause mentions that Rs. 50,00,000/- is deposited as "security deposit..... for due performance of the agreement". At this stage all the court has to examine whether if the facts as alleged by the defendant if duly proved, would afford a good and plausible defence to the plaintiff's claim.

16. Admittedly, the defendant herein has filed a suit CS (OS) 1016/2011 against the present plaintiff alleging non-compliance of the terms and conditions of the Agreement by the plaintiff and praying for permanent injunction as well as damages amongst other reliefs, which is pending adjudication in this Court. Moreover, the present plaintiff has also alleged violation of the agreement by the defendant in the abovesaid suit and has even challenged the validity of termination of the contract.

17. Further, in the opinion of this Court, if the submission of the plaintiff is accepted the very purpose and meaning of the security amount for due performance would lose its significance and would get nullified. The refund of security amount cannot be divested from due performance of the agreement. The relevant question would be whether the security amount has secured its end and is liable to be refunded/returned. The answer to this lies in the adjudication of dispute, i.e., whether there was due performance and/or violation of the agreement by plaintiff or defendant and its consequential effect on the rights and liabilities of both the parties inter se. All these issues are questions of fact which can only be established by way of trial once both the parties have led their evidence.

18. Consequently, in view of above, present application is allowed and defendant is granted unconditional leave to defend the suit. CS(OS) 2553/2012 Since this Court has granted unconditional leave to defend to defendant, the mandate of Section 10 CPC is now applicable. As admittedly all the ingredients of Section 10 CPC are satisfied, the present suit is stayed till the outcome of CS(OS) 1016/2011.

MANMOHAN, J APRIL 08, 2013 rn