:1: IN THE HIGH COURT OF JUDICATURE AT BOMBAY’ O.O.C.J. SUIT NO. 571 OF 1975 Saurashtra Chemicals Ltd ...Plfff vs. Indian Oil Corporation Ltd ...Defnd Kevil Sethalwal i/by. Mulla and Mulla for the plaintiffs. Shailesh Shah i/by. Malvi Ranchoddas & Co. for the defendants. CORAM: S.U. KAMDAR, J. DATED: 2ND MAY, 2006. JUDGMENT : 1. The present suit is filed for a declaration that the agreement dated 8.5.1967 read :2: with letter dated 3.10.1967 has been validly renewed for the period 1.9.1972 to 31.8.19777 on the same terms and conditions including the condition of rebate and the credit period. By prayer clause (b) the defendants are seeking specific performance of the said renewed agreement. Alternative to prayer (a) and (b) the plaintiff has claimed damages for a sum of Rs.5,61,487.66/-. Alternatively to the aforesaid claim for damages the plaintiffs have claimed compensation of a sum of Rs.24,84,297.19/- as set out in Exhibit J to the plaint. This claim for damages is based on a non-granting of a rebate of Rs.5/- inrespect of supplies effected subsequent to the expiry of the agreement dated 8.2.1967. The claim for compensation is in respect of the loss suffered for withdrawal of 30 days credit facility to the petitioner. Simultaneously the claim is also made for loss of interest by virtue of making payment in cash and without giving credit facility. The plaintiffs have also claimed further interest at the rate of 15% p.a. Some of the material facts of the present case are as :3: under : 2. The plaintiffs are a company carrying on activities of manufacturing chemicals in the name and style of Saurashtra Chemicals at Porbunder. The defendants are a government of India Undertaking and is carrying on business of supply and distribution of petroleum products including furnace oil. 3. It is the case of the plaintiffs that prior to November 1965 the plaintiffs were getting their requirement of furnace oil from one "Burmah Shell". After 1965 the plaintiffs started purchasing the furnace oil from the defendants. According to the plaintiffs there were protracted negotiations and discussions between the parties and ultimately a draft agreement was proposed by the defendants. There were further meetings and discussions after 8.2.1967 and in the meeting held on 4.9.1967 the representative of both the parties agreed that the plaintiffs will switch over the entire requirement of purchase of furnace oil from :4: the Burmah Shell to the defendants on the condition that the defendants will give Rs.6/- per metric tonne rebate on entire quantity of purchase of furnace oil. It was also agreed that out of the said rebate of Rs.6/-, the plaintiff will be entitled to rebate of Rs.5/- per metric tonne and Rs.1/- will be paid to M/s. Roberts Macleans and Co.Ltd who were the distributing agents. It was thus agreed that the final agreement would come into force on 1/9/1967. It is the case of the plaintiffs that subsequently on 3.10.1967 the defendants forwarded to the plaintiffs four copies of the final agreement pertaining to the supply of furnace oil dated 8.9.1967 and requested the plaintiffs to return the said four copies duly signed at Bombay. The letter dated 3.10.1967 provided for giving a rebate of Rs.6/- on the said supply of 125.5 metric tons. Ultimately an agreement was executed being dated 8.2.1967. The period of agreement was for five years with effect from 1.9.1967. Further there was a clause for renewal of the said agreement. The said clause for renewal reads as under : :5: " PERIOD: This agreement shall be for a period of 5 years from 1st of September 1967. This agreement can be renewed for such further period or periods as may be required on the same terms and conditions, provided the notice for renewal is given at least 2 months before the expiry of the contract." 4. Pursuant to the said agreement executed there is no dispute that the plaintiffs were supplying necessary furnace oil in terms of the agreement which included providing for a credit period of 30 days as well as rebate of Rs.6/- per metric tonne, Rs/5/- paid to the plaintiffs and Rs.1/- to the distributing agent. It is the case of the plaintiffs that in terms of Clause 1 of the said agreement the plaintiffs were entitled to renewal of the said agreement for a further period of 5 years at their sole discreation. Accordingly by a notice dated 5.6.1972 the plaintiffs informed the defendants that since agreement was about to expire on 31.8.1972 they were exercising their right of renewal of the said agreement. The plaintiffs thus state that they are entitled to :6: specific performance of the said agreement for a further period of five years on the same terms and conditions. It is the case of the plaintiffs that the plaintiffs have thus exercised their right of option to renew the said contract for a further period of 5 years on the same terms and conditions. It is the case of the plaintiffs that by virtue of giving notice of renewal a new agreement has come into existence from 1/9/1972 to 31.8.1977. 5. The defendants however by their letter dated 19.6.1972 denied their intention to renew the said agreement. The defendants made it clear that the defendants will not effect supply of furnace oil to the plaintiffs in accordance with the terms and conditions of the said agreement dated 8.2.1967 subsequent to the period 1.9.1972 when the said agreement was expiring. The plaintiffs thereafter addressed a letter dated 11.7.1972 expressing surprise that the defendants were not willing to renew the said agreement though the agreement specifically provides for the :7: same. After some correspondence a meeting took place between the plaintiffs and the defendants in Bombay and it was decided that the legal opinion would be obtained. The plaintiffs’ advocate obtained the legal opinion and forwarded to the defendants and sought a renewal of the agreement. However the defendants refused to renew the said agreement and expressed their inability to do so. The defendants made it clear that after the expiry of the period of 31.8.1972 and with effect from 1.9.1972 the defendants would not supply any material in accordance with the terms and conditions of the agreement which was to expire on 31.8.1972. The defendants also refused to continue to give rebate or any credit period to the plaintiffs herein. It is the case of the plaintiffs that on 3.6.1977 the plaintiffs gave another notice to the defendants for renewal of the agreement for further period of 5 years i.e. commencing from 1.9.1977 and ending on 31.8.1982. This notice has been given on the basis that after first renewal the plaintiffs were also entitled to the second renewal of five years. It is not in :8: dispute that even after the expiry of the period of the agreement i.e on 31.8.1972 the defendants have supplied the material to the plaintiffs and the plaintiffs have purchased the said material though the same has not been done on the same terms and conditions as provided in the earlier agreement dated 8.2.1967. The supplies for the subsequent period has been effected without giving any rebate and without giving any credit period and on the basis of cash payment against the delivery. 6. It is in these circumstances the plaintiffs after giving notice to the defendants have filed the present suit for specific performance of the said agreement for renewal of five years and also filed the suit for damages for committing breach of the said renewed agreement. The plaintiffs have also sought the relief of compensation in lieu of specific performance of the said agreement. The said suit has been defended by the defendants by filing the written statement. The defendants have in their written :9: statement inter-alia contended that there was no question of renewal of the agreement as Clause 1 of the contract only envisages that by mutual consent of the parties a renewed agreement can be entered into. It is the case of the defendants that the agreement was only for a period of five years and thus the defendants are not liable to effect supplies of the goods for any further period after 1.9.1977 on the terms and conditions of an agreement which stood expired on 31.8.1972. It has been further contended that if the contention of the plaintiffs is accepted then the said renewal clause would bind the defendants to supply the goods in perpetuity at the price which was fixed as on 8.2.1967. It is thus submitted that the same cannot be the intention of the parties in arriving at the said agreement. It was further submitted that no officer of the defendant had either express or implied authority to bind the defendant corporation to effect supply of the furnace oil to the plaintiffs on the terms and conditions as arrived at in the agreement dated 8.2.1967 for a indefinite period of time. It is :10: thus submitted that what Clause 1 to the agreement provides is mere intention of the parties that if both the parties mutually agree to continue the contract for a further period to be decided by the parties then the said contract can be renewed on such terms and conditions as may be agreed upon between the parties. It was thus submitted that there is no such provision in the agreement for binding the agreement for a further period of five years. In any event it has been further submitted that the said Clause 1 does not give any option to the defendant alone for a renewal of the said contract. It does not provide that merely on service of the notice of renewal the plaintiffs will be entitled to a fresh contract for the next period of 5 years. It has been further submitted that the Clause 1 only provides for a possibility of renewal and it does not give any vested right to the plaintiffs to renew the said contract at their unilateral option. The plaintiffs also denied any claim for damages or a claim that the plaintiffs were bound and liable to supply the material for a further period of 5 years the very :11: same goods on the very same terms and conditions. The defendants have also disputed the computation of the claim for damages as well as the computation of quantity supplied by the defendants to the plaintiffs for a subsequent period of time. On the aforesaid pleadings issues were framed by the learned judge on 28.7.2003 which reads as under : 1. Do the plaintiffs prove that they are entitled for declaration that the agreement dated 8.2.1967 read with letter dated 3.10.1967 was validly renewed on the same terms and conditions including condition giving rebate of Rs.5/- per metric tonne and 30 days credit to the plaintiffs ? 2. Whether the plaintiffs prove that the defendants were bound to supply furnace oil to the plaintiffs as per the agreement and they have failed to make necessary supply ? 3. Is the plaintiffs entitled for specific performance ? 4. Is the plaintiffs entitled for damages for breach of contract to the extent of Rs.5,61,487.60/- or in the alternative to which the plaintiffs are entitled for damages to Rs.24,84,297/- paise from the defendants and interest etc ? 5. Do the defendants prove that any term or provisions in the agreement dated 8.2.1967 which was not expressly :12: mentioned in the minutes of the meeting held on 4.9.1967 was not intended to form part of the said agreement ? 6. Do the defendants prove that the clause regarding renewal is vague, uncertain and incapable of performance and is therefore void ? 7. What order and decree ? 7. At the outset it is necessary to mention that the learned counsel appearing for the plaintiffs submitted that the plaintiffs are not pressing for the relief of specific performance simply because the period for which the renewed contract supposed to have been entered into i.e. from 1.9.1972 to 31.8.1977 has already expired. He further also brought to my attention that there is a second suit filed being Suit no. 1172 of 1980 for the further renewal of the said agreement for five years after first renewal i.e. from 1.9.1977 to 31.8.1982. However he submitted that in the light of the fact that the aforesaid periods have already expired he is not seeking the relief in terms of prayer clause (b) which inter-alia provides for specific performance. He :13: also submits that he also gives up the claim for specific performance since specific performance cannot be granted to the plaintiffs of agreement for supply of movable goods. However he submits that he is pressing the claim for damages for breach of the renewed contract which according to him is already being arrived at by merely giving a notice of renewal and thus the claim for damages is made on the basis of such a contract. 8. In view of the fact that the learned counsel for the plaintiffs is not pressing the claim for specific performance the answer to the Issue No. 3 must be negative and accordingly the Issue no.3 is answered in negative. In so far as the claim for damages is concerned learned counsel for the plaintiffs has pressed the same. He has contended that the plaintiffs are entitled to the said claim. In support of his contention he has taken me through the agreement which is at Exhibit D in the evidence. He has drawn my attention to Clause 1, Clause 2, Clause 6 and Clause 7 as amended. The said clauses read as under : :14: 1. PERIOD : 1. PERIOD : 1. PERIOD : This agreement shall be for a period of 5 years from 1st September 1997. This agreement can be renewed for such further period or periods as may be required on the same terms and conditions, provided the notice for renewal is given at least two months before the expiry of the contract. 2. QUANTITY : 2. QUANTITY : 2. QUANTITY : Subject to and in accordance with the provisions hereinafter contained the Sellers agree to sell and deliver the main Installation/Refineries/Depots and the Buyers agree to purchase, from the Sellers and no other source, their entire requirements at their works at Porbander amounting approximately to 44,000 tonnes of Furnance Oil during the period of this agreement. The sellers shall be required to supply this quantity at the rates of approximately 3700 tonnes per month. For any requirement which is in excess of the aforesaid monthly quantity of 3700 tonnes the Buyers shall give the Sellers a minimum notice of 30 days in advance of such requirement but if the Buyers require less than the aforesaid quantity of 3700 tonnes in any month or months they shall give the sellers prior notice of at least 15 days. This reduction will, however, not exceed 20%. The limit of reduction herein mentioned however is inoperative where Force Majeure Clause provided hereinafter becomes operative. 6. PRICE : 6. PRICE : 6. PRICE : The price for furnace oil to be supplied, shall be the Sellers’s day to day F.O.R./Ex Supply point price (Bulk). The Railway Freight siding charges and other charges if any, leviable by the Port Trust/ Railways will be on the account of the Buyers. Also, sales tax :15: and local taxes such as Municipal, Octroi etc., will be charged extra to the Buyers at the rates applicable from time to time. The sellers however, reserve the right to revise the aforesaid rate structure and the rates without notice. 7. PAYMENT : 7. PAYMENT : 7. PAYMENT : We are pleased to extend credit facility and accordingly our bills must be settled within 30 days from the date of despatch of the goods. 9. It has been contended that the agreement dated 8.2.1967 provides for purchase of the furnace oil on the aforesaid terms and conditions. It has been contended that in so far as the rebate of Rs.5/- is concerned he has drawn my attention to the minutes of the meeting which is at Exhibit B at page 36 and the letter dated 3.10.1967 which indicates that inrespect of the agreement dated 8.2.1967 it was agreed that the plaintiffs will be entitled to Rs.6/- rebate out of which Rs.1/- to be paid to the agent and Rs.5/- to be given to the plaintiffs. It is also brought to my attention that the defendants had agreed to give 30 days credit and that is incorporated by way of amendment in Clause 7 of the agreement. He has :16: thereafter submitted that in Clause 1 of the said agreement there is an absolute right vested in the plaintiffs for a renewal of the agreement for a further period of 5 years if the plaintiffs gives the renewal notice two months before the expiry of the said contract. He has submitted that in pursuance of Clause 1 of the said agreement a necessary notice was given on 5.6.1972 which is produced at Exhibit E in evidence. He has further submitted that a reply dated 19.6.1972 to the said notice was filed by the defendants which is at Exhibit F in evidence. He has further submitted that refusing to renew the said contract by the said letter was illegal and without any merits and contrary to the said Clause 1 thereof. It has been further submitted that the subsequent correspondence was also exchanged between the parties where the plaintiffs have insisted for granting of renewal for a further period of five years. Learned counsel for the plaintiffs while interpreting Clause 1 of the said agreement states that clause 1 of the agreement gives an absolute right in favour of the plaintiffs to renew the :17: agreement for a further period of five years and the defendants have no right to refuse the said renewal. He has also brought to my attention Exhibit A being the draft agreement which has been produced in evidence. He has drawn my attention to Clause 1 of the draft agreement being Exhibit A which reads as under : 1. PERIOD : This agreement shall be for a period of ...........from the date of commencement of supplies. This agreement can be renewed for such further period or periods as may be required by the parties on the same terms and conditions, provided the notice for renewal is given atleast two months before the expiry of the contract and provided further the sellers are ready and willing for such renewal. 10. He has submitted that Clause 1 of the draft agreement if read in jeuxtapostion with the final agreement arrived at between the parties indicates that the words " and provided further the sellers are ready and willing for such renewal" have been deliberately deleted which :18: indicates that under the draft agreement it was suggested by the defendants that they have a right of refusal to renew the said contract and because of the deletion of the aforesaid words that right has been expressly given up by the defendants while entering into final agreement between the parties. It is thus submitted that once it is so, it is only the plaintiffs who have an absolute right of exercising the option of renewal of the contract and once the said right is exercised the defendants are bound to accept the same in toto. It has been submitted that the defendants are not entitled to refuse the renewal of the contract and thus by giving notice of renewal by the plaintiffs the said new contract or the said new/renewed contract for a further period of five years i.e. 1.9.1972 to 31.8.1977 has been arrived at on the very same terms and conditions as mentioned in the said agreement dated 8.9.1967. He has submitted that once it is so than the plaintiffs were entitled to the supply of furnace oil for a further period of five years on the same terms and conditions as mentioned in the said agreement :19: dated 8.2.1967 which will include two conditions namely of giving rebate of Rs.6/- i.e. Rs.5/- to the plaintiff and Rs.1/- to the distributing agents and giving the 30 days credit period for making payment to the said supplies. It has been further submitted that however the defendants wrongfully contended that the plaintiffs are not entitled to renewal of the contract on the same terms and conditions and has refused to supply the goods accordingly. as of the contract dated 8.2.1967. It has been submitted that the defendants have been supplied the goods for a subsequent period of five years but the defendants have denied the benefits of the said terms and conditions of the agreement dated 8.2.1967 to the plaintiffs. It has been submitted that the defendants have refused to give credit period of 30 days and also not granted the rebate which was agreed upon in the said agreement dated 8.2.1967. It has been thus submitted that the plaintiffs are entitled to claim the said amount of rebate as well as the claim for interest of not giving credit for a period of 30 days and thus the :20: plaintiffs will be entitled to recovery of the said amount as and by way of damages. 11. In so far as the quantum of damages is concerned learned counsel for the plaintiffs has taken me through the evidence of one Mr. Sharma, P.W. no.2 and he has drawn my attention to para 3 and 4 of the said evidence to show that the plaintiff has proved the total quantity of the goods supplied to them by the defendant during the period of 1972 to 1977 that is a period which is claimed on the basis of renewed contract. He submitted that though they have not been able to prove the entire quantity as mentioned in the plaint but submitted that in any event they are entitled to the claim of damages for the amount of quantity proved in the evidence led by them. He has submitted that even in cross examination it has been an admitted position that the defendants have supplied the material even for a subsequent period of 5 years and therefore they are entitled to the said benefit. In view thereof learned counsel for the plaintiffs has sought a decree in :21: terms of prayer clause (d) and (e). He has submitted that though the rate of interest is claimed at 15% p.a. it is not the agreed rate of interest but they have claimed the rate of interest as current rate of interest prevailing in the market at the relevant time. 12. Learned counsel for the plaintiffs has submitted that the renewal clause gives an absolute right in the plaintiffs to renew the contract for a further period of five years. Learned counsel for the plaintiffs has in support of the aforesaid contention relied upon the judgment of the apex court in the case of State of State of State of U.P. and Ors vs. Halji Tandon (Dead) through U.P. and Ors vs. Halji Tandon (Dead) through U.P. and Ors vs. Halji Tandon (Dead) through Lrs. reported in (2004) 1 SCC 1, Lrs. reported in (2004) 1 SCC 1, Lrs. reported in (2004) 1 SCC 1, particularly para 13 of the judgment which reads as under : "13. In India, a lease may be in perpetuity. Neither the transfer of Property Act nor the general law abhors a lease in perpetuity. Where a covenant for renewal exists, its exercise is, of course a unilateral act of the lessee and the :22: consent of the lessor in unnecessary. Where the principal lease executed between the parties containing a covenant for renewal, is renewed in accordance with the said covenant , whether the renewed lease shall also contain similar clause for renewal depends on the facts and circumstances of each case, regard being had to the intention of the parties as displayed in the original covenant for renewal and in the surrounding circumstances.