Madras High Court
Vivek Automobiles Private ... vs Eicher Motors Limited on 28 October, 2022
C.M.A.No.2338 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 28.10.2022
CORAM
THE HONOURABLE Ms. JUSTICE P.T.ASHA
C.M.A.No.2338 of 2022
and C.M.P.No.18212 of 2022
Vivek Automobiles Private Limited,
Kanipath Kathmandu, Nepal
and also having its branch office at
11, Allenby Road, Kolkata-700 020. ... Appellant
Vs.
Eicher Motors Limited
3rd Floor, Select City Walk,
A-3 District Centre, Saket,
New Delhi-110 017
alo having its branch office at
Thiruvottiyur High Road,
Thiruvottiyur,
Chennai-600 019. ... Respondent
PRAYER : Appeal filed under Section 37(2)(b) of the Arbitration and
Conciliation Act, 1996, against the orders of the learned Arbitral Tribunal
dated 12.09.2022 passed in M.A.No.21 of 2022 in Arbitration Case No.4 of
2022 received by the Appellant on 22.09.2022.
1/20
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C.M.A.No.2338 of 2022
For Petitioners : Mr.A.R.Ramanathan
for Mr.S.Karunamoorthy
For Respondent :Mr.Vijay Narayan
Senior Counsel
for Mr.Arun C.Mohan
Caveator counsel for sole respondent
JUDGMENT
The appellant has filed the above appeal challenging the dismissal of
their Section 17 application by the learned Arbitrator.
2. The brief facts which are necessary for considering the above
application are herein below narrated:
(i) The appellant is engaged in the business of marketing, selling,
distributing and servicing of automobiles in the State of Nepal. They were
appointed as a dealer of the respondent, who in turn is engaged in the
business of manufacturing, marketing, distributing and servicing of Motor
Vehicles in the name of Royal Enfield. The Distributor Agreement was
entered into on 09.02.2016. The distributorship was a non-exclusive one.
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As per Clause 3 of the Agreement, the term of contract was fixed for a
period of 2 years from the effective date of the contract and thereafter, the
parties were free to extend the agreement from time to time on such term as
may be mutually agreed in writing. If however on expiry of the term of
agreement, the same is not extended in writing or neither party notifies to
the other party that it does not wish to extend the term of the agreement,
there is a deemed extension for a period of 3 months for each instance until
the same is terminated in writing by either party or when an agreement is
executed. The terms of agreement further provided that the party would
agree upon a business plan immediately on signing of the agreement and
such business plan should be executed atleast 3 months prior to the expiry
of the term of the business plan every year. Therefore, the parties had to
necessarily agree to a business plan every year and such business plan shall
be in writing in the form specified in Annexure 3 of the agreement. Unlike
in the case of the extension of the agreement, the business plan has to be
extended in writing. Clause 15 of the Agreement provided for the
termination of the contract.
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C.M.A.No.2338 of 2022
(ii) It is the case of the appellant that pursuant to the execution of
the agreement, they have been selling, marketing and distributing the
products of the respondent and had increased the sales of the respondent's
product. The original Agreement had come to end on 08.02.2018. Since
neither party had intimated any intention to terminate the agreement or to
extend it, the agreement was periodically extended by a period of 3 months
each. The business plan was also being exetended every year. The parties
were adhering to the yearly business plan as contemplated under Clause 4
of the Agreement.
(iii) It is the case of the appellant that they had incurred substantial
expenses and costs for setting up the infrastructure, professional manpower,
plan development etc., for effectively selling the respondent's products in
the state of Nepal and also to ensure the growth and popularity of the
respondent's brand. The annual sale of units of motorcycles of the
respondent increased from 35 units in the FY (Financial Year) 2016 to 5200
units in the FY 2021, which would speak volumes about the work put in by
the appellant. The agreement was being extended after the initial period for
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C.M.A.No.2338 of 2022
about 4 years. However, all of a sudden and out of the blue, the respondent,
by a letter dated 07.03.2022 informed the appellant that they were not
willing to continue the agreement and that the same would expire by
08.05.2022. In the said letter, the respondent had also stated that the
appellant had misrepresented itself as an exclusive distributor of the
respondent in the market, defaulted in payment of the requisite excise duty
for importing motorcycle 400 CC category and raised inflated and forged
invoices for stall charges at NADA Auto Show 2011 which had also
prompted the termination.
(iv) The appellant would contend that the respondent itself had
represented that the appellant was their sole and the exclusive distributor for
the territory of Nepal. In a meeting held in March 2019, the respondent had
agreed to the claimant using the expression “Sole Distributor” and requested
the appellant to focus on market development and network expansion. The
appellant would deny the allegations that had been raised in the letter dated
07.03.2022. The appellant would submit that the termination was in
violation of Clause 15 of the Agreement as no prior notice has been issued
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C.M.A.No.2338 of 2022
and the appellant would further submit that there were ulterior motives in
the termination, since the Officers of the respondent-Company had alloted
the same to the third party. Since the disputes and differences have arisen in
relation to the distributorship agreement dated 09.02.2016, the appellant had
invoked the arbitration in terms of the Arbitration clause contained in the
Distributor Agreement. The appellant had also filed an application in
O.A.No.162 of 2022 under Section 9 of the Arbitration and Conciliation Act
seeking an order of injunction restraining the respondent, their men, agents
and assigns from giving effect to the purported letter of termination dated
7.03.2022.
(v) This Court, by order dated 28.03.2022, was pleased to direct
the parties to maintain status quo and in the same order, this Court was
pleased to appoint Mr.Kannan.J (Retd) as sole Arbitrator for adjudication of
the disputes and differences between the parties.
(vi) By order dated 08.04.2022, the learned Arbitrator was pleased
to extend the order of status-quo dated 28.03.2022. The appellant would
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C.M.A.No.2338 of 2022
fairly concede that during the pendency of the proceedings before this
Court that they on a wrong legal advice, simultaneously approached the
District Court at Katmandu, Nepal in relation to the very same disputes.
Therefore, the respondent had taken out an application under Section 17 of
the Arbitration and Conciliation Act before the learned Arbitrator to vacate
the order of status-quo granted on 08.04.2022. By order dated 12.09.2022,
the learned Arbitrator had dismissed the said Section 17 application filed by
the appellant and it is against the said order the appellant is before this
Court.
3. The learned counsel appearing on behalf of the appellant would
contend that as per Clause 15, the respondent is bound to give three months
notice before terminating the contract. However, the impugned letter
terminates the contract forthwith, which is breach of the terms of Clause 15
of the said contract. He would further submit that under Clause 3, the
contract was for a period of 2 years and thereafter, there is a deemed
extension, if the agreement is not extended in writing or either party to the
contract does not notify the other party that they do not have an intention to
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C.M.A.No.2338 of 2022
continue the contract. Such a deemed extension is for a period of 3 months.
He would submit that the contract has been extended in this fashion for over
4 years only on account of the excellent work that has been done by the
appellant who has expanded the footprint of the respondent in Nepal. The
learned counsel would further submit that this Court in its order dated
28.03.2022 in O.A.No.162 of 2022 had granted an order of status-quo,
which has been continued till the impugned order. He would submit that
the basis on which the letter of termination has been issued is totally
contrary to the terms of the agreement. He would submit that the
allegations had to be substantiated by the respondent and till such time it
will only remain an allegation. Therefore, taking into account the good
work that has been done by the appellant and which has not been
controverted by the respondent, the Arbitral Tribunal ought not to have
dismissed the application, but should have continued the interim order till
the disposal of the Arbitral proceedings.
4. Per contra, the learned senior counsel appearing on behalf of
the respondent would at the outset submit that the argument that the
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C.M.A.No.2338 of 2022
appellant has to be given 3 months time is totally contrary to the terms of
Clause 15, since the termination is one under Clause 15.3, which does not
contemplate issuance of a prior notice. Learned counsel would further
submit that each and everyone of the reasons for termination has been
substantiated with the prima-facie proof which has nudged the Tribunal to
vacate the interim order. Further, the order of status-quo that has been
granted is not the interim order that was sought for by the appellant in
Section 17 application. The interim order that was being extended by the
Tribunal was the order of status-quo that was granted by this Court in
O.A.No.162 of 2022. He would draw the attention of the Court to
paragraph 8 of the said order, wherein, this Court has clarified the status-
quo that was granted was confined to the respondent not appointing any
further distributor, except for M/s.Alpha Motors, Kathmandu, who had
already been appointed. It was this interim order that was being extended.
The learned counsel would further submit that the conduct of the appellant
who has come to this Court seeking an order of status-quo is far from
appreciable. Not only has the appellant obtained orders of status-quo from
this Court, but has also approached the Court at Kathmandu, which clearly
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amounts to forum shopping. That apart, despite given an undertaking that
all the proceedings in the High Court, Nepal would be withdrawn, the
appellant had failed to do so and continued to keep the suit pending till the
dismissal of their appeal at High Court, Nepal. He would submit that
taking note of the above, the learned Arbitrator had dismissed the interim
application.
Discussion:
5. Heard the learned counsel on either side and perused the
materials available on record.
6. The challenge is to the order of the learned Arbitrator
dismissing the Section 17 application filed by the appellant. In the
application before the Arbitral Tribunal, the appellant has sought the
following relief:- an order of interim injunction restraining the respondent,
its men, agents and any persons acting on its behalf from acting upon and
giving effect to the termination letter dated 07.03.2022 pending disposal of
the adjudication of the disputes between the parties. The case of the
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C.M.A.No.2338 of 2022
appellant is that the termination without issuing a prior notice is bad in the
light of Clause 15.1 of the contract. In this regard, useful reference can be
made to the said clause in the contract entered into between the appellant
and the respondent.
15. TERMINATION
15.1
This Agreement and the appointment herein may be
terminated by RE on 30 days written notice at any time
after the occurrence of any of the following events:
(i) If Distributor and RE fall to agree upon any Business
Plan as specified in Article 4 of this Agreement or if the
Distributor attempts to unilaterally modify the same.
(ii) If controlling shareholding, voting control or
management in Distributor is transferred, directly or
indirectly to any other person.
(iii) If the Distributor commits a breach of any term of this
Agreement which is incapable of remedy, or in the case of
a breach capable of remedy, any such breach should
continue without remedy after 30 days ("Cure Period")
written notice thereof, provided that no additional notice
period beyond the Cure period shall be required to be
served.
(iv) In the event:
A. At least 30% of the projected revenue for any
Year as set out in the Business Plan is not achieved
within first 6 months of such year, or
B. At least 85% of the projected revenue for any
Year as set out in the Business Plan is not achieved
within such year
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C.M.A.No.2338 of 2022
15.3 Either Party may terminate this Agreement without
notice if:
15.3.1.1 A receiver is appointed for the other Party or its
property;
15.3.1:2 The other Party becomes insolvent or unable to
pay its the benefit of its creditors;
15.3.1.3 Proceedings are commenced under any
bankruptcy, insolvency or debtor's relief law and such
proceedings shall not be vacated or set aside within 30
days from the date of admission thereof; BHAT
15.3.1.4 The other is liquidated or dissolved.
Further, RE may terminate this Agreement if:
(i) Conduct of the Distributor and /or any person
acting on his behalf or instructions is likely to
damage the interest of RE.
(ii) Conviction of Distributor of a serious criminal
offence.
(iii) Distributor represents/acts as an agent/dealer/
distributor for any two-wheeler manufacturer/
dealer/ agency/ representative, without the due
acknowledgement and permission from RE under
Articles 2.4 and 2.5 herein above.
7. A perusal of the above clauses indicate two kinds of
termination. (i) termination by issuing a 30 days notice and (ii) termination
without any notice. The termination with a 30 days written notice is
contemplated in the following instances:
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a) Where the parties failed to agree upon a
business plan as specified in Article 4 of the Agreement
or if the distributor (appellant herein) attempts to
unilaterally modified the same.
b) If the management of the distributor get
transferred either directly or indirectly to any other
person.
c) Where the distributor commits a breach of
any of the terms of the contract, which is incapable of
remedy or in the case of a breach, which is capable of
remedy, the breach continues without remedy after the
30 day written notice thereof expires.
8. The termination without notice can be done in the following
circumstances:
a) Where a receiver is appointed for the
other party or its property
b) The other party becomes insolvent or is
unable to pay its debts.
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c) Proceedings are commenced for
bankruptcy, insolvency or debtor's relief law and
such proceedings has not been vacated or set aside
within 30 days from the date of admission thereof.
d) The other party gets liquidated or
dissolved.
This termination can be made by either party.
9. There are additional grounds of termination provided only for
the respondent herein, which are in the following circumstances:-
(a) Where the conduct of the distributor
and / or any person acting on his behalf or
instructions is likely to damage the interest of the
respondent
b) Conviction of distributor of a serious
criminal offence.
c) Distributor represents / acts as an
agent / dealer / distributor for any two wheeler
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manufacturer.
d) Distributor represents any other
manufacturer without acknowledgment or
permission from the respondent.
10. It is the case of the respondent that a termination notice is not
required, since the termination has been made on ground(a) of the additional
grounds available only to the respondent. No doubt, these allegations have
to be proved by the respondent. This can be done only during the hearing of
the main arbitration proceedings. That apart, the appellant would seek to
have the order of injunction on the ground that he had the benefit of status-
quo till the dismissal of Section 17 application. As rightly pointed out by the
learned senior counsel appearing for the respondent, the status-quo was only
with reference to the appointment of an additional dealer other than the
dealer already appointed, namely, M/s.Alpha Motors, Kathmandu. The
status-quo was not with reference to the impugned notice, which is the
subject matter of challenge in the Arbitral proceedings. Therefore, from
28.03.2022, the appellant has only been enjoying the status-quo order with
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reference to the appointment of new distributor.
11. It is an axiomatic principle of law when a person seeks a relief
for an injunction, he has to come to Court with clean hands. Unfortunately,
the conduct of the appellant, after the order of status-quo granted by this
Court in O.A.No.162 of 2022 leaves much to be desired. After obtaining
orders and initiating arbitration proceedings, the appellant has filed a suit
before the District Court at Kathmandu on 18.04.2022 and obtained an ex-
parte order restraining the respondent from carrying any activity that affects
the distributor Agreement. This was followed by the appellant representing
to the Ministry of Transport at Nepal to refrain the respondent from
transferring ownership rights of the vehicle sold by Alpha Automotive who
had been appointed as distributor even before the order of status-quo being
granted by this Court. Such a representation to the Ministry was in total
violation of the orders of this Court, particularly, when this Court had
recognised the appointment in is order dated 28.03.2022, where this Court
had observed as follows:
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“6. On instructions, learned senior counsel for
respondent submits that a distributor (Alpha Motors,
Kathmandu) has since been appointed in and by a
stamped agreement dated 25.02.2022. It was further
submitted that the first Letter of Intent is dated 03.02.2022
and the first billing was on 18.02.2022. It was also
submitted that the first consignment has left for
Kathmandu. Learned senior counsel for applicant, on
instructions submits that these facts are subject to
disputation. Therefore this Section 9 Court refrains itself
from expressing any view or opinion on these submissions.
This is more so as both sides have agreed that the
captioned application can now be presented before the
agreed sole Arbitrator, who will constitute the 'Arbitral
Tribunal' [AT] so that AT can examine the captioned
application as one under Section 17 of A and C Act.”
Therefore, this communication is in total disdain of the order of this Court.
Thereafter, the respondent has filed M.A.No.18 of 2022 before the
Arbitrator for an anti-enforcement order since the appellant was re-agitating
the same issue before the District Court, Kathmandu at Nepal on
29.04.2022. The learned Arbitrator was pleased to pass the anti-
enforcement injunction on the very same day, ie. 29.04.2022. The appellant
also undertook to withdraw the proceedings before the Court at Kathmandu,
which they failed to do. Simultaneously, the appellant was contesting the
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arbitration proceedings as well as the suit before the District Court at
Kathmandu, Nepal. On 08.05.2022, the appellant had filed a contempt
petition against the respondent, its directors and its new distributor stating
that they were in violation of the order dated 18.04.2022 passed by the
District Court at Kathmandu, Nepal. On 30.05.2022, the respondent had
moved a vacate application, which was allowed on 30.05.2022. On
31.05.2022, the appellant had filed a appeal before the High Court, Nepal,
despite the anti-enforcement injunction passed by the Arbitral Tribunal on
29.04.2022.
12. On 26.06.2022, during the pendency of the Arbitration
proceeding before the Arbitral Tribunal, the senior counsel for the appellant
gave an undertaking to withdraw the appeal filed before the High Court at
Nepal, which was reiterated on 01.07.2022 before the High Court at Nepal
that the appellant had withdrawn the proceedings before the High Court at
Nepal. However, this undertaking was observed in breach. Therefore, this
is a clear case of forum shopping on the part of the appellant and an abuse
of process of Court. The Arbitral Tribunal has considered all these aspects
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and held that the conduct of the appellant herein in an attempt to over reach
the order of this Court as well as the Arbitral Tribunal and declined to grant
the order of injunction as prayed for. I see no reason to interfere with this
detailed and well considered order of the Arbitral Tribunal. Accordingly,
the Civil Miscellaneous Appeal is dismissed. There shall be no order as to
costs. Consequently, connected miscellaneous petition is closed.
28.10.2022
Index : Yes/No
Internet: Yes/No
srn
https://www.mhc.tn.gov.in/judis
C.M.A.No.2338 of 2022
P.T. ASHA, J,
srn
C.M.A.No.2338 of 2022
and
C.M.P.No.18212 of 2022
28.10.2022
https://www.mhc.tn.gov.in/judis
