Equity must yield to Law: No Claim, No Compensation

In a recent judgment in the case titled Universal Petro Chemicals Ltd. Vs. BP PLC and Ors.1, the Supreme Court, when considering an appeal relating to contractual disputes, refused to award Universal Petro Chemicals compensation in lieu of specific performance of a contract because the plaintiff did not claim for damages specifically in the plaint.

Facts of the case leading to the appeal:

Universal Petro Chemicals Ltd. (hereinafter referred to as the “Appellant“) entered into a collaboration agreement with a German company, Respondent No. 3, under which the Appellant was required to manufacture and market lubricants based on Aral’s formulation in India. Subsequent to the Collaboration Agreement, necessary approvals were obtained from the Reserve Bank of India (RBI) under the Foreign Exchange Management Act, 1973 on November 25, 994 which were then incorporated in the Collaboration Agreement vide a supplementary agreement in1995.

In 2002, Veba Oil, Respondent No. 3’s holding company, was acquired by the first respondent, BP Plc., a UK entity that was also the holding company for Respondent No. 2, Castrol India Limited. As the RBI approval was lapsing, the Appellant applied to the Ministry of Commerce and Industry, Government of India, for approval with respect to the royalty and extension of the Agreement’s term. The Government granted the Appellant’s request and extended the RBI’s approval on November 13, 2002. The RBI approval extension letter also mentioned that the royalty was payable from January 1, 2003 to December 31, 2009 and that the duration of the Collaboration Agreement was from January 1, 2003 to December 31, 2009.

Thereafter, Respondent No. 3 issued a termination notice, claiming that the Collaboration Agreement would expire in 2004 and that there would be no extensions thereafter. The Appellant filed a Civil Suit in response to the termination notice, and the High Court issued an interim order prohibiting the Respondents from giving effect to the termination notice and interfering with the Appellant’s use of ‘Aral’ (“Interim Order“). The Interim Order was extended on three occasions and was ultimately vacated by the Single Judge on January 10, 2005. A stay in the operation of the judgment was granted for 10 days. In an appeal filed against the said order, the Division Bench passed an interim order directing the continuance of the Interim Order.

The learned Single Judge was confronted with nine issues for consideration. One of the issues for consideration before the High Court was regarding the kind of reliefs that the Appellant was entitled to.

In so far as the issues with respect to the relief were concerned, the High Court held that, due to the bar in Section 14(1)(b) of the Specific Relief Act, 1963, specific performance relief could not be granted. The Court also observed that the Collaboration Agreement was an open-ended agreement involving a continuous flow of technology for innovating and overhauling products that are upgraded from time to time to meet world-class standards. Therefore, though the termination agreement was found to not be in accordance with law but the specific performance of the Collaboration Agreement was not granted. However, Respondent 3 and its subsidiaries and affiliates were issued an injunction prohibiting them from marketing or distributing ‘Aral’ products in India until December 31, 2009.

The Appellant’s contention in its appeal before the Supreme Court was that the relief of specific performance of the Collaboration Agreement cannot be granted as the same expired on December 31, 2009, however, they are entitled to damages for the period from August 24, 2005 till December 31, 2009.

The Appellant relied upon various judgments of the Supreme Court to argue that the Appellant was entitled to damages even though such a relief was not specifically sought for in the suit or the appeal. The Appellant also referred to the proviso to Section 21 (5) of the Specific Relief Act, 1963 to contend that the Appellant should be allowed to seek compensation at any stage of the proceeding.

The Respondent submitted that the Appellants failed to plead relief for damages either in the Civil Court, before the High Court or even before the Supreme Court. The Respondent submitted that even assuming that the Collaboration Agreement expired on December 31, 2009, the Appellant did not raise this ground or seek to amend the relief during the pendency of the appeal for the past 13 years. The Respondent referred to a Supreme Court judgment in Shamsi Suhara Beevi v. G. Alex and Another2, to contend that the plaintiff who has been remiss in expressly seeking the relief of damages under Section 21(5) of the Specific Relief Act, 1963 is not entitled for any such relief. The Respondent also contended that damages can only be granted for the loss suffered and not for loss of profits as per Section 73 of the Indian Contract Act, 1872.

The Appellant was relying on Section 21 (5) of the Specific Relief Act, 1963 which says: “No compensation shall be awarded under this section unless the plaintiff has claimed such compensation in his plaint. Provided that where the plaintiff has not claimed any such compensation in the plaint, the court shall, at any stage of the proceeding, allow him to amend the plaint on such terms as may be just, for including a claim for such compensation.”

The Supreme Court examined the scope of Section 21 (4) and (5) in Shamsu Suhara Beevi v. G. Alex and Another (supra). The Court referred to the Law Commission of India’s recommendation that in no case should compensation be decreed, unless it is claimed by a proper pleading. However, the Law Commission was of the opinion that it should be open to the plaintiff to seek an amendment to the plaint, at any stage of the proceedings in order to introduce a prayer for compensation, whether in lieu or in addition to specific performance. In this case, admittedly, the Appellant did not claim any compensation and there was no amendment to the plaint for compensation. The Court held as follows,

In our view, the High Court has clearly erred in granting the compensation under Section 21 in addition to the relief of specific performance in the absence of prayer made to that effect either in the plaint or by amending the same at any later stage of the proceedings to include the relief of compensation in addition to the relief of specific performance. Grant of such a relief is in the teeth of express provisions of the statute to the contrary is not permissible. On equitable consideration court cannot ignore or overlook the provisions of the statute. Equity must yield to law”.

The Court therefore held that the Appellant was not entitled to claim damages for the period between August 24, 2005 and December 31, 2009.

1 Civil Appeal No. 3127 of 2009 with Civil Appeal No.3128 of 2009

2 (2004) 8 SCC 569