G.A. Nos. 174, 175, 176, 117 of 2017 and C.S. No. 2 of 2017. Case: Lindsay International Pvt. Ltd. and Ors. Vs Laxmi Niwas Mittal and Ors.. High Court of Calcutta (India)

Case NumberG.A. Nos. 174, 175, 176, 117 of 2017 and C.S. No. 2 of 2017
CounselFor Appellant: S.K. Kapoor, S.N. Mookherjee, Joy Saha, Sr. Advs., Ravi Kapoor, Saunak Mitra, Priyanka Prasad, S.R. Kakrania, Sanjeeb Seni and Souvik Kundu, Advs.
JudgesSoumen Sen, J.
IssueArbitration and Conciliation Act, 1996 - Sections 8, 9, 9(ii)(e); Indian Evidence Act, 1872 - Sections 91, 92, 92(4); Sale of Goods Act, 1930 - Section 58; Specific Relief Act, 1963 - Sections 14(1), 14(1)(c), 19, 41, 41(e), 42
Judgement DateFebruary 17, 2017
CourtHigh Court of Calcutta (India)

Judgment:

Soumen Sen, J.

  1. The apparent conflict between the shareholders of the plaintiff No. 1 has resulted in the institution of a suit by the plaintiffs seeking specific performance of several agreements between the petitioners and the respondent Nos. 1 to 38 and a declaration that the petitioner-Company is exclusively entitled to be the sole purchasing representative in perpetuity of the respondent Nos. 2 to 38 for procurement of the goods and services from India. The petitioners have also claimed perpetual injunction restraining the respondent Nos. 39 to 42 from acting in breach of negative covenant as pleaded in Paragraph 42 of the Plaint.

  2. The reliefs in the suit as well as in this application are based on a plea of pre-incorporated contracts, oral agreements, collaboration agreement and a shareholder's agreement followed by conduct of the parties for almost 20 years giving a special right in favour of the plaintiff to exclusively supply materials to Arcelor Mittal Companies (hereinafter referred to as "AM Companies") outside India after procuring the materials, inter alia, from the respondent Nos. 39 to 42. The plaintiff claims that apart from the agreements pleaded in the last 20 years, the parties have proceeded on the basis that the plaintiff No. 1 shall act exclusively as a sole purchasing representative of the respondent Nos. 2 to 38 for procurement of goods and services from India and the petitioner No. 1 in performance of the terms of the agreement have identified the respondent Nos. 39 to 42 as vendors for export of goods and services to the Arcelor Mittal Group of Companies. Commercial relationship with each of the said defendants was established by the plaintiff Company in the first instance and after being assured that the said defendant companies would be qualified to service the things and requirement of the M Companies. Such relationship between the plaintiff Company and the said defendants has been continuing for decades and the said defendants amongst others are four of the existing suppliers through whom the plaintiffs affect supply of re-factory materials and other allied goods to the ArcelorMittal Companies. The plaintiff No. 1 owes its origin to an agreement entered into between the petitioner No. 2 and the first respondent whereby the respondent No. 2 appears to have agreed that for the purpose of sourcing supply of goods and services from India for various companies belonging to the first respondent, a joint-venture Company would be set up in India. The petitioner Company was, thereafter, incorporated and started carrying on business of supplied goods to the companies controlled worldwide by the first respondent on and from 1996.

  3. Under the arrangement, it is alleged that the proposed company would have the exclusive right to purchase for and on behalf of the ArcelorMittal Group of Companies, all their requirements from India, and no other party would be permitted or authorized to perform any such function whatsoever. The proposed company would be permitted to earn and retain a net profit not to be in excess of 5% of the modalities for disbursement of any excess profit over and above 5% would be decided by the first defendant at his absolute discretion. Following such arrangement, it is alleged that on 12th August, 1996, the plaintiff company was promoted, established and incorporated at Calcutta. Between the years 1996 and 2003, the total sales in terms of the aforesaid arrangement by the plaintiff company were Rs. 292 crores approximately. All the said sales were made to the ArcelorMittal Companies only. The process of procurement of the materials under the aforesaid arrangement as pleaded is:-

    (a) The Mittal Companies would exclusively forward all their enquiries (RFQs) for supply of goods or services to the plaintiff company at its said office at Kolkata upon receipt of which the plaintiff company would select the local vendor to supply the requirement product;

    (b) A quotation from the chosen supplier or vendor would be forwarded to the overseas buyer, and if approved it was followed by a supply agreement being executed between the purchaser and the plaintiff company;

    (c) The orders placed would be on a principal-to-principal basis between the plaintiff company and the prospective purchaser only, there being no contractual privity between the purchaser and the manufacturer, with whom the plaintiff company would enter into a separate and independent contract together;

    (d) All steps taken in India to make the export from different parts in India to the overseas customers would be responsibility of the plaintiff company who would then perform the export in conjunction with the concerned vendor;

    (e) All customs and excise benefits arising from any transaction of export done following the aforesaid procedures would be to the credit and entitlement of and be appropriated by the plaintiff company;

  4. The defendant Nos. 39 to 42 are amongst the suppliers selected by the plaintiff company to make exports to the ArcelorMittal Group of Companies.

  5. The learned Senior Counsel has referred to the collaboration agreements, the shareholders agreements and the amendment to the shareholders agreements to show that the ArcelorMittal Group of Companies have all throughout recognized that all their requirements are to be procured only through and from the petitioner No. 1 only. The respondent Nos. 1 to 38, however, in derogation of their obligation under the said agreement initiated discussions with respondent Nos. 39 to 42 for procuring the materials directly through them. In few cases, the vendors remonstrated such direct approach and raised questions with regard to the modalities being suggested by the ArcelorMittal Group of Companies for direct procurement of the materials disregarding the existing arrangement and in this regard, the learned Senior Counsel has referred to the e-mails dated 5th May, 2015 from the respondent No. 40 to Arcelor Mittal, 14th July, 2016 and 13th November, 2016 from Vesuvius Group to Arcelor Mittal.

  6. The e-mail dated 24th May, 2016 in which the respondent No. 40 raised question marks with regard the e-mail received by them from Arcelor Mittal requesting to discuss and negotiate the price for the Ukraine project directly with them and to send a direct code from TRL To DAV Kryvyi Rih.

  7. The learned senior Counsel has referred to various charts disclosed in this proceeding to show that, in fact, substantial purchases have been made by the Mittal Group of Companies through the petitioner No. 1 and the vendors being the defendant Nos. 39 to 42 have all along recognized that all purchases of the Mittal Group of Companies are to be routed through the defendant No. 1. The recent communications between the respondent No. 4 and Arcelor Mittal was completely flabbergasted the petitioner as the said respondent Nos. 1 to 38 are now acting in derogation in their obligation with a view to completely ruin the petitioner No. 1. The petitioner No. 1 was formed solely to cater to the needs of the Mittal Group of Companies and the shareholders agreements clearly recognize the role of the petitioner as the only procurement agent for the respondent Nos. 1 to 38. In fact, the respondent No. 3 is a shareholder of the respondent No. 1 and is duty bound to ensure that the existing arrangements are not being disturbed. It is submitted that although the collaboration agreement and the shareholders agreement contemplate termination on the happening of certain events, but, in effect, the agreement is in perpetuity inasmuch as the respondent No. 3 or for that matter none of the other respondents have served any notice of termination of the existing arrangement.

  8. The agreement contemplates a separate agreement to be entered into between the petitioner No. 1 and the suppliers. After the said supplier is identified and its terms and conditions are accepted and the said agreement has nothing to do with the principal agreement existing between the petitioner No. 1 and the Mittal Group of Companies.

  9. The learned Senior Counsel has submitted that there are two distinct obligations, one is with regard to the agreement between the petitioner and the Mittal Group of Companies and the other is supply agreements between the vendors and the petitioner No. 1. The arrangement is such that the suppliers cannot directly make supplies to the respondent Nos. 1 to 38 and at the same time, the respondent Nos. 1 to 38 are not entitled to obtain supplies directly from the respondent Nos. 39 to 42.

  10. The learned Senior Counsel has referred to the observations made by this Court in AP No. 1034 of 2016 (Arcelor Mittal Design & Engineering Centre Pvt. Ltd. Vs. Lindsay International (P) Ltd. & Ors.) in which it was observed that Arcelor Mittal do not allege that the petitioner herein has failed to ensure supply of materials to the Mittal Companies on the basis of the orders placed by them from time to time.

  11. The main thrust of the argument of the petitioner is that all the agreements are required to be read as a whole and a fair reading of all the agreements together would unmistakably show that for all intents and purposes, the petitioner No. 1 Company was and is to act as the sole selling agent for the Mittal Group of Companies.

  12. It is submitted that on a true and proper construction of the various agreements between the parties coupled with the manner in which the parties have conducted themselves in relation to the transactions, there would be any doubt that the contract is a permanent one. The very fact that the Mittal Group of Companies are directly negotiating with the respondent Nos. 39 to 42 for the purpose of procuring the materials disregarding the existing arrangement is a clear breach of the implied negative covenant and a breach of implied covenant can be restrained by injunction although it may contain in a contract for the sale of goods. In the event such things happened, it would...

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