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Hindustan Antibiotics Limited v/s Hindustan Max GB Limited

    First Appeal Order (OS) Appeal No.78 of 2001

    Decided On, 19 March 2001

    At, High Court of Delhi


    For the Appearing Parties: Jay Savla, K. Kiran, Advocates.

Judgment Text


(1) THIS is an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the said Act'), filed by the original respondent, M/s Hindustan Antibiotics Ltd. , against the orders of the learned Single Judge dated 12/01/2001 and 19th February, 2001. By the order dated 12/01/2001, the learned Single Judge in the presence of Caveator/appellant (hereinafter referred to as 'hal') adjourned the matter to 24/01/2001 and directed that status quo be maintained in the meanwhile. By the subsequent Order dated 19th February, 2001 while continuing the order of status quo, the case was adjourned by the learned Single Judge to 20/03/2001 and the request of the appellant for an early hearing of the case was not entertained while noticing the plea raised by the respondent/petitioner (hereinafter referred to as 'max GB') that the appellant-HAL was in contempt and could not be heard unless and until it purged the contempt.

(2) THE facts of the case in brief according to the appellant are as follows: (a) The HAL markets and manufactures antibiotics and other life saving drugs and the respondent is in the business of manufacturing and marketing intermediates and bulk drugs in the field of Betalactam antibiotics and also markets Penicillin G in India. (b) On 6. 9. 1995 by an agreement (hereinafter referred to as 'joint Venture agreement'), 50-50 joint venture between HAL and the Max GB was formed and the respondent Company, i. e. , Max GB was formed. (c) Max GB entered into five other agreements including the Right to Use agreement with HAL for user of the facilities. Consequently HAL granted hindustan Max GB the Right to Use the facilities and consequently certain fermentors were given on lease to Max GB for manufacture of Penicillin G. Apart from the aforesaid Fermentors given on lease to Max GB for manufacture of Penicillin G, HAL also had 5 Fermentors which are used for manufacture of Streptomycin. (d) Pursuant to a decision taken on 19/09/1995, the HAL and Max GB agreed to negotiate the lease rent for the use of manufacture of 5 Streptomycin Fermentors but since the lease rent @ Rs. 64. 00 lacs per annum, offered by the Max GB was found by the HAL to be much lower than that available for a "similar arrangement", i. e. , Rs. 6. 53 crores per annum, fresh tenders were floated for leasing out those five Fermentors for manufacture of Streptomycin. After the advertisement was published for leasing of the Streptomycin Fermentors was issued, the respondent revised its offer from Rs. 64. 00 lacs per annum to Rs. 310. 00 lacs per annum. (e) On 8th of November, 1997 after the opening of the tenders for Streptomycin Fermentors, the Sub Committee of the Board of Directors of HAL could not reach any agreement with the respondent in respect of the said fermentors. (f) On 31st of March, 1997, the BIFR declared HAL as "sick" industrial company and appointed IDBI as the Operating Agency under Section 17 (3) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the 'sica'). (g) HAL communicated to the respondent-Max GB that as on 9th of October, 1998 a sum of Rs. 14. 13 crores was due from the respondent-Max GB to HAL/appellant which fact was not denied by the respondent-Max GB. (h) On 14th of December, 1998 an offer made by the RPG Life Sciences ltd. for leasing Streptomycin Fermentors owned by HAL, was accepted. The BIFR consequently approved the leasing of the Streptomycin Fermentors of HAL to RPG Life Sciences Ltd. as a part of the scheme which may be sanctioned by BIPR under Section 18 (4) read with Section 19 (3) of the sica. HAL in July 1999 informed the respondent about sharing of the common fermentation facilities pursuant to the Meeting of HAL, RPG Life sciences Ltd. and the respondent-Max GB on 19. 7. 1999.

(3) ON disputes having arisen on the HAL's claim of arrears of lease rental and other dues amounting to Rs. 3629. 60 lacs and Max GB's claim of Rs. 1. 48 crores said to be recoverable by the Max GB from the HAL, the Arbitration Clause was invoked by the HAL and the respective Arbitrators were appointed by both the appellant and the respondent. The appointment of the Arbitrator was the subject-matter of a. A. 280/2000 under Section 11 (6) (b) of the said Act and the said dispute relating to appointment of the Presiding Arbitrator pursuant to the appointment of the two respective Arbitrators by the appellant-HAL and the respondent-Max GB has concluded. Consequently Transfer Petition No. 10/2001 which in the meanwhile had been filed by HAL in the Hon'ble Supreme Court for transfer of A. A. 280/2000 filed under sec. 11 of the said Act was dismissed by the Hon'ble Supreme Court as infructuous.

(4) ON 7/12/2000, HAL filed an application under Section 9 of the said act in Pune seeking restraint against the respondent from withdrawing or disbursing the revenues of respondent-Max GB Ltd. unless dues of the HAL were cleared and further sought an injunction, restraining Max GB from disposing off any of its assets except in due course of business. Notice was issued on the aforesaid Section 9 application returnable on 12. 1. 2001.

(5) ON 11th of December, 2000, the appellant-HAL handed over the possession of the facilities in respect of Streptomycin Fermentors to RPG Life Sciences Ltd. , who are in the process of up-grading the plant and machinery and consequently placed orders of procuring machinery from Overseas Buyers.

(6) ON 10/01/2001, the respondent-Max GB filed an OMP. No. 6/2001 under Section 9 of the said Act in this Court leading to the impugned orders dated 12/01/2001 and 19th February, 2001, wherein pending arbitration, interim relief against the respondent was sought by way of an injunction restraining HAL from giving effect to Lease Agreement dated 11th of December, 2000, executed between hal and RPG Life Sciences Ltd. and a restraint against RPG Life Sciences Ltd. from utilising/sharing the Facilities leased by the appellant-HAL etc.

(7) ON 12th of January, 2001 the OMP. No. 6/2001 was listed when the counsel, appearing for the appellant on Caveat informed the Court that a Transfer Petition was listed in the Hon'ble Supreme Court on 19th of January, 2001 for transfer of A. A. No. 280/2000, filed by the respondent under Section 11 of the said Act. The learned Single judge passed the following Order on 12th of January, 2001:-

"omp No. 6/2001 it is not in dispute that in OMP No. 280/2000 filed by the petitioner against respondent seeking appointment of third arbitrator. 19th January 2001 is the dale fixed. Sh. Savla points out that respondent has filed a petition for transfer of said OMP to Supreme Court and that petition is listed for hearing on 19th January 2001. By filing this Petition under Section 9, the petitioner seeks to restrain the respondent from giving effect to lease agreement dated 11/12/2000 executed between the respondent and rpg Life Sciences Ltd. pending arbitration. Reply to petition be filed by respondent by 22/01/2001. List the matter on 24/01/2001 for hearing and in the meantime, status quo be maintained by the parties. ''

(8) THE Hon'ble Supreme Court passed the following Order on 19th of January, 2001:-

"learned Solicitor General states that the third Arbitrator will be appointed within two weeks by the Arbitrator and therefore the case be adjourned for two weeks. Order as prayed for. In the meantime, further proceedings in A. A. No. 280/2000 pending before the High Court of Delhi shall remain stayed. "

(9) ON 24th of January, 2001, the petition was again listed and at the request of the respondent-Max GB, time was given to file rejoinder affidavit and the matter was adjourned to 12th of February, 2001.

(10) ON 31st of January, 2001 the learned Single Judge appointed a Local Commissioner ex-parte with a direction to visit the STPT Plant at HAL Complex, Pimpri, pune for taking photographs etc. On the same afternoon the counsel for the appellant moved for recall of the aforesaid Order of appointment of Commissioner on the ground that the Commission cannot be executed in the absence of RPG Life Sciences ltd. , which was a necessary party and the factory being a "prohibited area" under official Secrets Act and the consequent ban on taking of photographs of any portion of the factory.

(11) THE said application for recall of the Order dated 31st of January, 2001, appointing a Local Commissioner ex-parte was listed on 2/02/2001. The respondent-Max GB was directed on that day to file its reply to said application.

(12) ON 12/02/2001, the petition was listed for arguments when the Local commissioner filed his report and the respondent-Max GB on the said basis pressed for issuance of a notice on its contempt petition and the appellant-HAL contended that the order of status quo should be lifted on the ground that the petition was filed after delay of more than three years and the respondent-Max GB was in gross breach of the agreement and owed approximately Rs. 3600 lacs to the appellant-HAL.

(13) ON 19th. of February, 2001 the learned Single Judge passed the following order:-

"omp 6/2001 ccp No. 14/2001 has today been posted for hearing to 20/03/2001. Shri Rohtagi states that as the status quo order is hurting the Respondent, a date prior to the said date be fixed for arguments in this petition. On the other hand, contention advanced by Shri Chidambaram is that unless the respondent purges the contempt, it cannot be heard in the Petition. List on 20. 3. 2001. "

(14) THE aforesaid order dated 19th February 2001 is also impugned in the present appeal.

(15) ON 23/02/2001 the Hon'ble Supreme Court issued notice on Transfer Petition No. 163/2001 seeking transter of OMP. No. 6/2001 from Delhi to Pune. Respondent-GB appeared on that day and sought time to file counter affidavit to the transfer petition. The Order of Supreme Court dated 23/02/2001 reads as under:-

"t. P. (C) No. 10/2001: the transfer petition is dismissed as having become Infructuous. T. P. (C) No. 163/2001: issue notice. Notice has been accepted by Mr. N. Ganpathy. He prays for and is allowed four weeks' time to file counter affidavit. Two weeks' time thereafter is granted to file rejoinder affidavit. List after six weeks. The interim matter shall be considered after the affidavits are exchanged. "

(16) THE appellant- HOL through Mr. Mukul Rohtagi, learned Addl. Solicitor general challenges the legality and validity of the Orders dated 12th of January, 2001 and 19th of February, 2001.

(17) THE plea of the appellant-HAL is that the impact of the said Orders of the learned Single Judge is highly prejudicial to the interests of HAL on the following grounds:- (a) that UK respondent-Max GB Ltd. sought restraint of leasing of Streptomycin Plant which leasing had already became effective from 11th of december 2000 and stood approved by B1fr by an Order dated 16th of august, 1999; (b) that under Section 26 of the Sick Industrial Companies (Special provisions) Act, 1985, an application filed for interim relief in this Court is not maintainable; (c) that the legal position which was put before the Learned Single Judge by affidavit dated 6. 2. 2001 made the aforesaid position clear and in spile of the said position the learned Single Judge has passed the impugned Order dated 11/02/2001; (d) that the Order of status quo also hurts the interest of the. HAL as well as rpg Life Sciences Ltd. who was required to pay lease money to honour its commitment and had consequently invested Rs. 6. 00 crores in the project; (e) that if the RPG Life Sciences Ltd. walks out of the leasing arrangement, the HAL may face huge claims of damages apart from the loss of substantial net income of Rs. 4. 5 to 5 crores per annum from the lease arrangements; (f) that the Learned Single Judge had erred in law in passing an order of status quo without giving a reasoned order contrary to the position of law laid down in Shiv Kumar Chadha v. MCD and Others, 1993 (3) SCC 161. (g) that the order of the Learned Single Judge is also contrary to the position of the law laid down in the judgment of the Hon'ble Supreme Court in slate of Jammu and Kashmir v. Mohd. Yaqoob Khan and Others, 1992 Supp. (1)SCR 43 @ 48;

(18) LEARNED Senior Counsel for the HAL has also relied upon the judgment of the Hon'ble Supreme Court in A. Venkatasubbiah Naidu v. S. Chellappan and Others, in civil Appeal No. 5102 of 2000 (Arising out of SLP (Civil) No. 19488 of 1999] on 1 9/09/2000 which has held that the application for interim orders should be disposed of within thirty days, failing which an appeal is maintainable, to plead, that the application for interim orders has not been disposed of within 30 days by the learned single Judge. The appellant's counsel also urged that in the guise of insistence on disposal of the contempt petition prior to the injunction order, the interim order first passed on 12/01/2001 continued to hold the field to the detriment of the appellant.

(19) THE respondent through Mr. P. Chidambaram, the learned Senior Counsel contends that in accordance with the ratio of this Court's judgment in M/s Niko resources Ltd. v. M/s Gujarat State Petroleum Corpn,, passed in FAO (OS) 250/2000 and cm. 1197/2000 on 6th of September, 2000, this appeal is not maintainable.

(20) IN particular the learned counsel for respondent-Max GB submitted that the order dated 19th of February, 2001 simply adjourned the matter to 20/03/2001 for grant of interim order and, therefore, in accordance with the ratio of Niko's Judgment, the appeal is not maintainable. For this purpose reliance has been placed on the following observations made in Niko's Judgement:-

". . . . . The order is simply an order of adjournment saying in express terms that at that stage, he was not inclined to grant any further order of restraint. Consequently, in our opinion, the order will not be appealable under Section 10 of Delhi High Court Act or under clause 10 of Letters Patent or under Section 37 of the Act. "

It was also submitted by the respondent that since the injunction application was listed before the learned Single Judge on 20/03/2001, no useful purpose would be served by the hearing of the appeal at this juncture and all the pleas being advanced before the Division Bench could be urged before the learned Single Judge on 20. 3. 2001.

(21) THE learned counsel has further relied upon certain provisions of the Agreement between the parties to suggest that prior written approval before entering into an agreement such as one entered into between the M/s RPG Life Sciences Ltd. and M/s hal was required. He submits that such approval was not taken by the appellant. In particular, reliance has been placed on the following clause:-

"except with the prior written approval of JVC, HAL shall not sell, encumber, in any way howsoever, whether by way of mortgage, lease, licence or otherwise the Land and Buildings, the Plan and Machinery or other assets comprised with the facilities nor shall it create any lien or charge on or over any said assets during the term hereof. "

(22) RELIANCE has also been placed upon the judgments of the Hon'ble Supreme court in Satyabrata Biswas v. Kalyan Kumar Kisku, AIR 1994 SC 1837 and Tayabbhai m. Bagasarwalla v. Hind Rubber Industries Pvt Ltd. , AIR 1997 SC 1240 and in particular Paragraph 23 of the later judgment which held as follows:-

"such being the nature of this obligation, two consequences will in general follow from its breach. The first is that anyone who disobeys an order of the court (and I am not now considering disobedience of orders relating merely to matters of procedure is in contempt and may be punished by committal or attachment or otherwise. The second is that no application to the Court by such a person will be entertained until he has purged himself of his contempt. "

(23) HE submitted that in accordance with the principle of law laid down in the above judgment the interim injunction application should and could not be heard till the contempt is purged.

(24) MR. Jay Savla, the Learned Counsel, appearing on behalf of the appellant-HAL in rejoinder, has contended that the Niko's Case is clearly distinguishable because the order impugned in that case was merely an order of adjournment and in the present case the impugned Order dated 12th of January, 2001 granted status quo which was not vacated on 19th of February, 2001 and the said two orders dated 12. 1. 2001 and 19. 2. 2001 are impugned in the present appeal. He, therefore, submits that niko's Judgment has no application to the facts of the present case. In any case he has further submitted that under Section 37 (1) (a) of the Arbitration and Conciliation Act, 1996 the impugned order 12. 1. 2001 is dearly appealable and present appeal is Filed only under Section 37 of the Arbitration and Conciliation Act, 1996. He has further relied upon Clause 1. 1 (h) of the Agreement to rely on the definition of 'facilities' to contend that the agreement between the parties contemplated of two kinds of facilities; one covering Penicillin G Potassium and the other covering Streptomycin which had 5 entirely different Fermentors. Facilities, defined in Article l. l (h) of the agreement between the parties are as follows:-

"facilities", shall mean, all land, buildings, plant and machinery located at Pimpri, Pune, Maharashtra, currently owned or used by HAL for and in connection with the manufacture of the Product [as described in detail in the Right to Use Agreement referred to below in Article XV];"

"product" shall mean; Penicillin G Potassium;" he accordingly submitted that the facilities contemplated by the agreement only covered plant and machinery used to manufacture Penicillin G Potassium and not streptomycin as wrongly contended by the respondent. He has further relied upon Clause 4. 5 to contend that the said clause is not applicable because (a) the leased plant was not competing with the respondent (b) that the party in default cannot insist on performance of other party's obligations and (c)what has been offered is under a similar arrangement.

(25) IN so far as the plea of delay and laches is concerned, the learned counsel, mr. Savla has contended that the tenders which led to the arrangement with RPG Life sciences were invited in June, 1997. On 9. 10. 1998 a sum of Rs. 14. 00 crores was outstanding which has now reached the figure of Rs. 36. 00 crores as outstanding amount and on 19/07/1997, the respondent-Max GB did attend a Meeting which shows that the cause of action arose in 1997 and the Section 9 application was filed by the lessee belatedly only in January 2001.

(26) IN so far as judgment in Satya Brata Biswas and Others v. Kalyan Kiski and Others, air 1994 SC 1837 relied upon by the respondent is concerned, it is contended that the said order was passed on the basis that a sub-lease was executed after the High court's Order and that decision was, therefore, clearly distinguishable on facts. In so far as Judgment in Tayabbhai M. Bagasarwalla v. Hind Rubber Industries Pvt. Ltd. , AIR 1997 SC 1240 is concerned, it is submitted by him that it is a judgment of 2 Hon'ble judges and the issue involved in the present case did not arise directly in that case and it is the judgment of 3 Hon'ble Judges reported as State of J and K (Supra) which lays down the applicable position of law. In so far as plea of Section 26 of SICA is concerned, learned counsel has submitted that no reply has been given by the respondent-Max GB Ltd. to the said plea and prayed that the appeal may accordingly be allowed and the impugned orders be set aside.

(27) WE have duly considered the respective submissions. A bare perusal of Section 37 (l) (a) of the Act clearly shows that an order passed under Section 9 is clearly appealable under Section 37 of the Act. Section 37 (1) (a) permits an appeal against an order granting or refusing to grant any measure under Section 9. In fact the present appeal has been preferred only under Section 37 of the Arbitration Act and the appeal against granting of status quo order is clearly maintainable. The judgment of this court in FAO (OS) 250 of 2000 and CM. 1197 of 2000 titled. M/s Niko Resources Lid. v. Mis Gujarat State Petroleum Corpn. is not applicable because in that case the impugned order of the learned Single Judge merely adjourned the case whereas in the present case the orders granting/continuing status quo have been challenged. But on the principles laid down in Shah Babulal Khimji v. Jayaben D. Kania and Another, (1981)4 SCC 8 read with two decisions of this Court in Mrs. Nisha Raj and Another v. Mr. Pratap K. Kaulu and Others, 1995 I AD (Delhi) 533 and Exports Unlimited v. Delhi State industrial Development Corporation, 1996 (37) DRJ (DB) appeal against an order granting order of status quo would be maintainable. Moreover in view of the decision of Hon'ble Supreme Court in A. Venkatasubbiah Naidu v. S. Chellappan and Others (Supra) where an application for vacation of interim orders is not disposed of within 30 days, an appeal is maintainable. The order granting status quo was passed on 1 2/01/2001 and it is not in dispute that while adjourning the case on 19th February 2001 the order of status quo was continued by the learned Single Judge. This ground fully justified the maintainability of an appeal against the order granting status quo dated 12/01/2001 which has continued beyond 30 days. The preliminary objection that the appeal is not maintainable thus cannot be sustained.

(28) IN Shiv Kumar Chadda v. MCD and Ors. , 1993 (3) SCC 161 the Hon'ble supreme Court has clearly laid down the requirement of expression of 'prima facie opinion' even while granting an ex parte order. The Supreme Court in the above matter while discussing the mandatory nature of Order 39 Rule 3 of the Code held as follows:-

"34. . . . . In this background, the requirement for recording the reasons for grant of ex parte injunction, cannot be held to be a mere formality. This requirement is consistent with the principle, that a party to a suit, who is being restrained from exercising a right which such party claims to exercise either under a statute or under the common law, must be informed why instead of following the requirement of Rule 3, the procedure prescribed under the proviso has been followed. The party which invokes the jurisdiction of the court for grant of an order of restraint against a party, without affording an opportunity to him of being heard, must satisfy the court about the gravity of the situation and court has to consider briefly these factors in the ex parte order. . . . . . . . "

"35. As such, whenever a court considers it necessary in the facts and circumstances of a particular case to pass an order of injunction without notice to other side, it must record the reasons for doing'so and should take into consideration, while passing an order of injunction, all relevant factors, including as to how the object of granting injunction itself shall be defeated if an ex parte order is not passed. . . . . "

The above requirement was clearly not met by the impugned orders dated 1 2/01/2001 and 19th February 2001. In fact in the present case the respondent was on caveat and the very purpose of caveat would be defeated if at least a speaking order granting injunction is not passed. If a Caveator is present, the requirement of expressing some reason for granting or extending an ex parte order will even be more necessary.

(29) COMING to the merits of the case, we are prima facie satisfied that the respondent was aware of the Agreement of the appellant with RPG Life Sciences Ltd. since 1997. Even otherwise possession was handed over to RPG

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Sciences Ltd. on 1 1/12/2000 and order of status quo in such a situation is bereft of any effective meaning and implementation. We are also prima facie satisfied that the requirement of prior written approval as submitted by Shri Chidambaram, learned senior counsel, appearing on behalf of the respondent, is not applicable to the Streptomycin Fermentors as the said Fermentors fall outside the facilities defined in the agreement between the appellant-HAL and the respondent-Max GB. Further more, we are prima facie of the view that in the facts of the present case the position of law applicable to facts of this case is that as has been laid down by the Supreme Court in State of Jammu and Kashmir (Supra) by 3 Hon'ble Judge and not that of Tayabbhai M. Baggasarwalla (Supra). The aforesaid judgment in State of Jammu and Kashmir (Supra) held as follows:- ". . . . . . The High Court should first take up the slay matter in the writ case and dispose it of by an appropriate order. Only thereafter it shall proceed to consider whether the State and its authorities could be accused of being guilty of having committed contempt of Court. " The hearing of the contempt petition cannot precede the disposal of the injunction application. This being so we are satisfied that in the first instance this is not a case in which not a case in which the order of status quo ought to have been passed and in any case it ought not to have been extended more particularly after the appellant had filed its reply. Furthermore, the respondent has not answered the plea relating to bar of proceedings predicated by Section 26 of SICA. The relevant portion of section 26 of the Sick Industrial Companies (Special Provisions) Act, 1985 reads us follows:-"26. Bar of Jurisdiction - No order passed or proposal made under this Act shall be appealable except as provided therein and no civil court shall have jurisdiction in respect of any matter which the Appellate Authority or the board is empowered by, or under, this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. " (30). THUS in view of the facts and circumstances of the case as stated above we are satisfied that the appeal deserves to be allowed. The impugned orders dated 12th january and 19th February 2001 in so far as they grant status quo are set aside. The hearing before learned Single Judge will go on and the learned single Judge will decide the mailer uninfluenced by any observation made in this order in the present appeal since the observations are prima facie in nature.