Supreme Court Denies Damages in Contract Dispute: Universal Petro Chemicals Ltd. vs. B.P. PLC (2022)

Date of the Judgment: 18 February 2022

Citation: (2022) INSC 129

Judges: L. Nageswara Rao, J., B.R. Gavai, J.

Can a party be awarded damages for breach of contract, even if they did not explicitly ask for it in their initial lawsuit? The Supreme Court of India addressed this critical question in a recent case involving a dispute over a collaboration agreement. The Court had to determine whether a party could be compensated for losses when they had primarily sought specific performance of a contract and failed to amend their pleadings to include a claim for damages. The judgment was delivered by a two-judge bench comprising Justice L. Nageswara Rao and Justice B.R. Gavai, with Justice L. Nageswara Rao authoring the opinion.

Case Background

Universal Petro Chemicals Ltd. (the Appellant) entered into a collaboration agreement on 01 November 1994 with Aral Aktiengesellschaft (Respondent No. 3), a German company, to manufacture and market lubricants in India using Aral’s formulations. This agreement granted the Appellant an exclusive license for distribution, blending, rebranding, and marketing of Aral lubricants in India. The agreement was supplemented on 03 January 1995 to incorporate approvals from the Reserve Bank of India (RBI) under the Foreign Exchange Management Act, 1973. In 2002, BP Plc (Respondent No. 1), a UK entity, acquired Veba Oil, the holding company of Respondent No. 3, and became the holding company for Castrol India Ltd. (Respondent No. 2). The Appellant sought and received an extension of the RBI approval from the Ministry of Commerce & Industry on 13 November 2002, which extended the agreement’s duration and royalty payments from 01 January 2003 to 31 December 2009. This extension was formalized in a supplementary agreement on 27 December 2002.

On 14 April 2004, Respondent No. 3 issued a termination notice, claiming the agreement would end on 31 October 2004, based on Clause 5 of the original agreement. In response, the Appellant filed a suit seeking a perpetual injunction, a declaration that the agreement was valid until 31 December 2009, and specific performance of the collaboration agreement. The Appellant sought to restrain the respondents from marketing lubricants under the ‘Aral’ brand in India and also sought to declare the termination notice void. The High Court initially granted an interim order restraining the Respondents from interfering with the Appellant’s use of ‘Aral’, but this order was later vacated. The Appellant’s appeal against the vacation was dismissed, leading to a Special Leave Petition before the Supreme Court, which directed an expedited hearing of the suit.

Timeline

Course of Proceedings

The Single Judge of the High Court of Calcutta refused to grant specific performance of the collaboration agreement, citing Section 14(1)(b) of the Specific Relief Act, 1963, which bars specific performance of contracts involving continuous duties that the court cannot supervise. However, the High Court granted a perpetual injunction restraining Respondent No. 3 and its affiliates from marketing ‘Aral’ products in India until 31 December 2009. The Division Bench of the High Court upheld the Single Judge’s decision. The Appellant then filed a Special Leave Petition (SLP) before the Supreme Court, which was disposed of with a direction for an expedited hearing of the suit. The Supreme Court had also granted an interim order during the pendency of the SLP which was vacated on 24.08.2005.

Legal Framework

The case primarily revolves around the interpretation of the Specific Relief Act, 1963, and the Indian Contract Act, 1872. Key provisions include:

• Section 14(1)(b) of the Specific Relief Act, 1963: This section states that a contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot specifically enforce its material terms cannot be specifically enforced.
• Section 21 of the Specific Relief Act, 1963: This section deals with the power of the court to award compensation in certain cases related to specific performance. Sub-section (5) states that no compensation shall be awarded unless the plaintiff has claimed such compensation in the plaint, but allows for amendments to include such a claim.
  
  (5) 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.
• Section 73 of the Indian Contract Act, 1872: This section outlines the principles for awarding compensation for losses or damages caused by a breach of contract.

These provisions are interpreted within the framework of contract law, which emphasizes the importance of explicit claims for relief and the limitations on court intervention in ongoing contractual obligations.

Arguments

Appellant’s Submissions:

• The Appellant, represented by Mr. Rakesh Dwivedi, argued that although specific performance of the collaboration agreement was no longer possible due to the expiry of the agreement on 31 December 2009, the Appellant was entitled to damages for the period from 24 August 2005 (when the Supreme Court vacated the interim order) to 31 December 2009.
• Mr. Dwivedi cited the proviso to Section 21(5) of the Specific Relief Act, 1963, contending that the Appellant should be allowed to seek compensation at any stage of the proceeding, even if it was not initially claimed in the plaint.
• He further argued that the Appellant was entitled to compensation under Section 73 of the Indian Contract Act, 1872, due to the breach of contract by the Respondents.
• Mr. Dwivedi relied on a letter dated 03 July 2003, from the Finance Director of Castrol India Limited, to support his claim for damages, suggesting that the profit margins of Respondent No. 3, as discussed in the letter, could be used to calculate the compensation owed to the Appellant.
• The Appellant contended that the High Court had declared the termination notice as illegal, and therefore the Appellant was entitled to damages.

Respondent’s Submissions:

• Ms. Debolina Roy, representing the Respondents, argued that the judgments cited by the Appellant pertained to land acquisition cases where the compensation was either ascertainable or expressly agreed upon, and were not applicable to the present case.
• She contended that the Appellant had failed to plead a relief for damages in the Civil Court, before the High Court, or even before the Supreme Court, and had not sought to amend the relief during the pendency of the appeal for the past 13 years.
• Ms. Roy pointed out that the email dated 03 July 2003, relied upon by the Appellant, was only an estimate of profits and that another email dated 07 April 2004, mentioned different amounts, thus making them unreliable for determining compensation.
• She referred to the judgment in Shamsu Suhara Beevi v. G. Alex and Another [CITATION], to argue that a plaintiff who has failed to expressly seek the relief of damages under Section 21(5) of the Specific Relief Act is not entitled to any such relief.
• The Respondents further argued that damages can only be granted for the loss suffered and not for the loss of profits as per Section 73 of the Indian Contract Act, 1872.
• Respondent No.3 contended that the approval granted by the Reserve Bank of India and the Government of India related only to payment of royalty and did not impinge on the power of the parties to terminate the agreement as provided under Clause 5 of the Collaboration Agreement.
• It was also contended that the termination notice issued on 15 April 2004 was in accordance with Clause 5 of the Collaboration Agreement, and was therefore valid.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the Appellant is entitled to damages for the period between 24 August 2005 and 31 December 2009, given that no relief for damages or compensation was claimed in the suit, before the Division Bench, or before this Court.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ Jagdish Singh v. Natthu Singh [CITATION]: The Court distinguished this case, noting that compensation was allowed because the amount was ascertainable by determining market value, unlike the present case.

✓ Urmila Devi & Ors. v. Deity, Mandir Shree Chamunda Devi [CITATION]: The Court distinguished this case, noting that the amount of compensation was already determined, unlike the present case.

✓ Sukhbir v. Ajit Singh [CITATION]: The Court distinguished this case, noting that the amount of compensation was already determined by the parties, unlike the present case.

✓ Shamsu Suhara Beevi v. G. Alex and Another [CITATION]: The Court relied on this case to hold that compensation cannot be granted in the absence of a prayer made to that effect, either in the plaint or by amending the same.

✓ Section 14(1)(b) of the Specific Relief Act, 1963: The Court referred to this provision to justify the High Court’s refusal to grant specific performance of the collaboration agreement.

✓ Section 21 of the Specific Relief Act, 1963: The Court examined this section to determine whether the Appellant could be awarded damages, particularly sub-section (5) and its proviso.

✓ Section 73 of the Indian Contract Act, 1872: The Court referred to this section to discuss the principles for awarding damages, noting that damages are for loss suffered, not loss of profits.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the procedural lapse on the part of the Appellant in not specifically claiming damages in their pleadings. The Court emphasized that while Section 21(5) of the Specific Relief Act, 1963, allows for amendments to include a claim for compensation, the Appellant failed to do so at any stage of the proceedings. The Court also distinguished the cases cited by the Appellant, noting that in those cases, the compensation was either readily ascertainable or had already been determined. The court also emphasized the importance of adhering to the statutory requirements for claiming damages.

Fact:Law Ratio

The Court’s reasoning was heavily based on the legal principle that a party must specifically plead the relief they seek, and the Court cannot grant relief not explicitly claimed. The factual aspects of the case, such as the collaboration agreement and its termination, were secondary to the legal requirement of pleading damages.

The Court considered the arguments for awarding damages in lieu of specific performance, but rejected them because the Appellant did not follow the required procedure. The Court emphasized that it could not overlook the provisions of the statute on equitable considerations. The final decision was reached based on the principle that equity must yield to law.

“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 Appellant admits that no relief for damages or compensation was claimed in the suit. Admittedly, such a relief was not sought for either before the Division Bench or before this Court. No steps were taken by the Appellant to amend the appeal even after the date of expiry of the Collaboration Agreement, i.e., 31.12.2009.”

“We are afraid that the request of the Appellant for grant of damages cannot be accepted.”

Key Takeaways

• A party seeking damages in a suit for specific performance must explicitly claim such damages in their pleadings.
• Courts cannot award damages if they have not been specifically claimed, even if there is a breach of contract.
• While amendments to pleadings are allowed to include a claim for damages, the party must take the necessary steps to amend the pleadings.
• The principles of equity cannot override the express provisions of the statute.
• The ruling underscores the significance of procedural compliance in litigation, particularly the need to clearly articulate the relief sought.

Directions

No specific directions were given by the Supreme Court in this case.

Development of Law

The ratio decidendi of this case is that a party seeking damages in a suit for specific performance must explicitly claim such damages in their pleadings, and the court cannot award damages if they have not been specifically claimed. This judgment reinforces the principle that courts must adhere to statutory requirements and cannot grant relief not explicitly sought by the parties. There is no change in the previous positions of law, but the judgment reinforces the importance of procedural compliance in seeking remedies.

Conclusion

The Supreme Court dismissed the appeal of Universal Petro Chemicals Ltd., holding that the Appellant was not entitled to damages for the breach of contract because they had failed to specifically claim such damages in their pleadings. The Court upheld the High Court’s decision to deny specific performance and emphasized that the Appellant’s failure to amend their pleadings to include a claim for damages was fatal to their case. The judgment underscores the importance of procedural compliance and adherence to statutory requirements in seeking legal remedies.