The Delhi High Court in a recent decision dated May 18, 2020[1]dismissed the suit filed by INOX Leisure Limited against PVR Limited being barred by law and further imposed costs to the tune of INR 5,00,000/- (Rupees Five Lakh Only) for indulging in judicial adventurism.
Plaintiff’s case
a) Plaintiff is engaged in the business of running and operating multiplex cinemas at multiple locations in India and the Defendant is a competitor.
b) In its endeavour to expand to various locations, it learnt of a property in Amritsar ‘Suraj Chanda Tara Cinemas’ and found that it would be a financially profitable business opportunity. Following which, it entered into negotiations with the developer and held various meetings for a long term agreement in this regard.
c) The Defendant was also found to be negotiating with the developer w.r.t. the same property.
d) However, ultimately, Plaintiff entered into a binding term sheet with the developer wherein the property was leased for a period of 15 years.
e) The term sheet provided for a main Transaction Document to be subsequently executed, but the same was a mere formality and the term sheet was otherwise binding on the plaintiff and the developer and the plaintiff also paid security deposit to the developer. Thereafter, Plaintiff started making investments in the project.
f) The Plaintiff found through market sources that the defendant still pursuing the developer for the same property.
g) Immediately after the Plaintiff learned about the previous transactions, the developer informed the plaintiff that the term sheet stood automatically terminated on account of plaintiff’s failure to execute the main Transaction Document within the stipulated time.
Allegations
a) The Defendant had indulged in similar acts of interfering in agreements entered into or proposed to be entered into by the plaintiff with others, especially w.r.t. property at at Juhu, Mumbai where the Plaintiff had already entered into a term sheet and paid the security deposit and was in the process of obtaining possession.
b) The plaintiff believes that it was the defendant who interfered and illegally induced the developer at Amritsar to terminate the term sheet executed with the plaintiff.
c) the plaintiff has apprehension that the defendant would interfere with the legal rights of the plaintiff with respect to the non-functional property of the plaintiff at Juhu, Mumbai also.
Reliefs sought from Court
a) Permanent injunction, to restrain the defendant from attempting to procure and/or induce a breach/termination of any agreement/arrangement between the third parties and the plaintiffin respect of non-functional properties of the plaintiff across India.
b) Permanent injunction, to restrain the defendant from entering into any agreementor arrangement with any third party in relation to any right/interest of the defendant with respect to non-functional properties across India i.e. where an agreement/arrangement for grant of property rights to the plaintiff has been executed but multiplex operations have not commenced.
c) Recovery of damages of Rs. 2,25,00,000/-.
Defendant’s Case
1. Relief of injunction barred by Sections 41(e) and (j)[2]of the Specific Relief Act.
2. That the defendant did not have a dominating position in the multiplex market as it has 767 screens in 164 properties while the Plaintiff has 583 in 245 properties so can’t ‘stifle competition’.
3. The Defendant had a term sheet dated earlier than that of the Plaintiff in reference to the Juhu, Mumbai property, and even otherwise, it was the owner’s discretion to enter into the agreement with whoever he preferred and a claim of exclusivity cannot be made.
4. That the developer at Amritsar informed the Plaintiff that the term sheet had automatically lapsed and refunded the security deposit received from the Plaintiff. Once this was accepted by the Plaintiff, there ceased to be any binding contract between the Plaintiff and the developer of the property and therefore the former is not entitled to seek relief before the Court.
5. It was even argued that the term sheet signed by the Plaintiff for the Amritsar property was not binding in nature. Same for the Juhu, Mumbai property.
6. That the Plaintiff has initiated the suit only to stifle competition.
The Judgment
The allegations made by the Plaintiff had no cause of actionfor the relief claimed against the defendant and the same is barred by law. Additionally, since the Plaintiff indulged in judicial adventurism, it is burdened with costs of Rs.5,00,000/- payable to the defendant within 90 days thereof.
Specific Performance
The Plaintiff was not entitled to restrain the Defendant even if it believed that its contracts at Amritsar and Juhu, Mumbai were binding in nature and that the Defendant was trying to continuously interfere and cause breach in its matters. If according to the Plaintiff it had a binding lease with the developer of the properties at Amritsar and Juhu, Mumbai, but it had not been put into possession of the property, the remedy was to seek to be put into possession of the property. While, if it did not have a binding agreement or a lease but only an agreement to lease, the remedy was to sue for specific performance. Further, if there was only a promise from the developer of the properties in question to grant a license and there was a violation, the remedy was to claim damages from them.
Absence of Necessary Parties
The Court expressed displeasure at the Plaintiff for not impleading the developers of the properties in question to the suit. It found that since the necessary parties were not impleaded, it refused to do the Plaintiff’s job and it had no option but to dismiss the suit.
Blanket Injunction
The law, as enacted entitles the plaintiff in such case to the reliefs of specific performance if entitled thereto against those with whom the plaintiff has contractual relationship and with which contractual relationship the defendant is alleged to be interfering. Hence, the plaintiff cannot be permitted to expand its remedies beyond what is provided in law. There cannot be a general injunction that the Plaintiff seeks, as it claims w.r.t. properties across India are vague and a blanket injunction cannot be sought against the defendant i.e. injunction cannot be made in vacuum.
Barred by Law
The Court considered Section 27 of the Indian Contract Act which is titled as contracts in restraint of trade. It was compared with the legislation in the UK as well as precedents under Article 19 (1)(g). It relied on a number of cases[3]to Plaintiff’s claim for the ‘liability for unlawful interference in business and contracts of others’ was dismissed citing the fundamental right of the Defendant to carry on trade and business within the meaning of Article 19(5) of the Constitution of India.
Stifling Competition
The basic economic rule is that competition is not only lawful but a mainspring of the economy.
A directive principle is, that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment and the monopoly sought to be created by the plaintiff by seeking the injunction in this suit, to exclude the defendant from its forays to procure real estate for its business across India, would be against the said directive principle of State Policy.
Imposition of fine for judicial adventurism
The Indian courts have time and again imposed fines on parties that approach the court with frivolous pleas and waste the precious time of the court. This imposition of costs is to act as a deterrence for future petitioners to not be a burden on the judiciary and approach the Court with genuine issues.
In a recent writ petition[4]seeking closure of liquor shops in light of COVID-19, the Court held that it was a frivolous plea filed to gain publicity and thus imposed a fine of Rs. 1 lakh on the petitioner.
The Indian courts are thus effectively using imposition of heavy costs as tool for creating deterrence among litigants who approach the court with frivolous claims which not only deters the litigants from embroiling in unnecessary litigation proceedings but also reduces pendency of cases with Courts.
[1]CS(OS) No.196/2018; Order can be accessed here [2]Section 41 Injunction when refused - (e) – to prevent the breach of a contract the performance of which would not be specifically enforced. (j) – when the plaintiff has so personal interest in the matter. [3]Modicare Ltd. v. Gautam Bali2019 SCC OnLine Del 10511; Taprogge Gesellschaft MBH v. IAEC India Ltd. AIR 1988 Bom 157; Sharp Business System v. The Commissioner of Income Tax 2012 SCC OnLine Del 5639 [4]Prashant Kumar v. Union of India, Writ Petition (Civil) Diary No. 11130/2020
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