IN THE HIGH COURT OF GUJARAT AT AHMEDABAD FIRST APPEAL NO.3109 OF 1999 WITH CIVIL APPLICATION NO.4841 of 1999 WITH CIVIL APPLICATION NO.6068 OF 1999. For Approval and Signature: Hon'ble MR.JUSTICE M.H.KADRI ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO 1 to 5 : No. JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ -------------------------------------------------------------- APS-STAR INDUSTRIES LTD. FORM KNOWN AS SUESSEN TEXTILE BEARI Versus SKF TEXTILMASCHINEN - KOMPONENTEN GMBH -------------------------------------------------------------- Appearance: Mr. Sudhir Nanavati, Senior Advocate, with Mr. V.K. Bhatt, Mr. Satyen Thakkar and Mr. Devang Nanavati, Advocates, for M/s. Nanavati Associates, for the appellant Mr. Dushyant Dave, Senior Advocate, with Mr. Dinjar Madon and Mr. Ashir Amin, Advocates, with Mr. Kartikey Thakar, Advocate, for M/s. Trivedi & Gupta, for the respondent. -------------------------------------------------------------- CORAM : MR.JUSTICE M.H.KADRI Date of decision: 19/07/1999 C.A.V. Judgment: 1. Appellant has filed this First Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 ('Act' for short) read with Rule 217 of the Gujarat High Court Rules, 1993, challenging the judgment and order dated May 12, 1999, rendered by the learned District Judge, Vadodara, in Misc. Application No.70 of 1999, by which order, the learned District Judge has dismissed the Misc. Application filed by the appellant under Section 9 of the Act for interim measures. 2. The appellant is a company incorporated in the year 1957 under the Companies Act, 1956, having its registered office at Makarpura, Vadodara. The main business of the appellant is manufacture of highly specialised proprietary nature textile machinery components known as components of drafting systems and components of spindle drives used in ring spinning machines, such as Spindle Inserts, Spindle Bolsters, Top Rollers, Top Arms, Cradles, Bottom Roller Bearings, Jockey Pulleys, etc. The respondent is a company incorporated under the laws of Germany having its registered office at Loewentorstrasse 68, D-70376 Stuttgart, Germany. 3. In the year 1989, the appellant and the respondent entered into a Technical Collaboration Agreement (hereinafter referred to as 'Collaboration Agreement") dated September 12, 1989. The Collaboration Agreement between the parties was a wide-ranging one, which covered various items and their modifications/improvements under 11 Product Group I to XI. Product Group Nos. I, II, III, IV consisted of products/items that formed the core business of the appellant since its inception. The other Product Groups Nos. V to IX and XI were for other sophisticated components in the textile and computer field manufactured by the respondent which were not hitherto part of the business of the appellant such as computer spindles, open end machine bearing assemblies, integral shaft bearing assemblies, etc. 4. The appellant and the respondent commenced executing the objects/terms of the said Collaboration Agreement for provision of technical know-how, etc. as per the schedule drawn up in the Collaboration Agreement, by which in a phased manner, the items under Product Group Nos. I to IV and X were to be first commenced. As per the say of the appellant, it changed over completely to the manufacture of respondent's design products making large investment in the machinery, manufacturing processes, and manufacturing activities for the same. The appellant was solely dependent on the respondent to provide necessary know-how, etc. for the said purpose. 5. After some time, it was realised that, with respect to Product Group Nos. V to IX and XI which contained items of diversification that were not within the existing manufacturing set-up of the appellant-company having regard to international situation for these products, world-wide competition in respect thereof, demand in India, costs and viability for manufacture in India, it would not be feasible within the term of the Collaboration Agreement for manufacture of those products by the appellant. Accordingly, the parties entered into Amendment Agreement to the Collaboration Agreement on September 23, 1991 to delete the said Product Group Nos. V to IX and XI from the scope of the Collaboration Agreement. While entering into amendment agreement, the respondent also specifically represented to the appellant that with respect to the items falling under the Product Group X, i.e. improved components of drafting systems, i.e. Top Arms, Apron Guiding Devices,Top Rollers, etc. although this product group was vital to the business of the appellant and was part of its core activities since its inception, since no new or improved technology was available or likely to be available in the near future for these items, the said product group came to be deleted from the scope of the Collaboration Agreement. As per the say of the appellant, since the appellant till then had been receiving technical cooperation from the respondent, the appellant agreed to delete Product Group X from the scope of Collaboration Agreement, since its collaboration with the respondent had been for 'new and improved items' and it had been represented to them by the respondent that there were no new or improved items under this Product Group likely to be there within the life of the Collaboration Agreement. Therefore, Product Group X was deleted by clause (v) of the Amendment Agreement. 6. It is alleged by the appellant that the representations made by the respondent incorporated in clause (v) of the amendment agreement with respect to items falling under Product Group X, turned out to be deliberate and fraudulent misrepresentation to deny the appellant the new and improved items falling in Product Group X which were subsequently introduced by the respondent first for exhibition and display purposes then for commercial sale in the international market, and subsequently for marketing/sale and potential manufacture in the territory of the Collaboration Agreement. The said fraud in the Amendment Agreement was compounded by further series of fraudulent misrepresentations over the years, to conceal the true nature of the fraud from the appellant. The appellant having realised the fraud perpetrated upon them by the respondent and having the fraud become known to them had immediately filed Regular Civil Suit No.211 of 1998 in the Court of 3rd Joint Civil Judge (S.D.), at Vadodara, for declaration and injunction. In the suit, the appellant also submitted application Exh.5 for ad-interim injunction under the provisions of Order 39 Rule 1 & 2 and Section 151 of the Code of Civil Procedure, 1908, ('Code' for short). 7. In the suit, the respondent appeared and filed its objections to the appellant's prayers of ad-interim injunction. The respondent filed application Exh.13 and raised a preliminary objection with regard to maintainability of the suit in view of arbitration clause in the Collaboration Agreement. The respondent also submitted application Exh.23 on April 6, 1998 under Section 8 of the Act and prayed to the Court to refer the dispute to arbitration in terms of clause 20.1 of the Collaboration Agreement. In the said application, the respondent also prayed to stay hearing of the suit. 8. As per the version of the appellant, during the pendency of application Exh.5, the appellant learnt from a press release issued by the respondent's holding company, SKF of Sweden, dated October 21, 1998, on the internet, that a decision had been taken by SKF Group of their intention to withdraw from the textile machinery components business. According to the appellant, it also received various confirmation of the same with respect to closure of the respondent's operations/activities from December 31, 1998 and retrenchment of all its workers and its intention to sell of its assets related to the textile machinery components business. The appellant, therefore, filed applications for interim relief, being Exh.33, on November 23, 1998, and Exh.34 on December 16, 1998, under Sections 94, 151 and Order 39 of the Code. Along with the abovestated applications, the appellant produced documentary evidence with regard to respondent's intention to sell its assets including press reports from German newspapers, and letters of confirmation from newspapers. 9. Learned 3rd Joint Civil Judge (S.D.), at Vadodara, who heard applications Exh.13 and 23 in Regular Civil Suit No.211 of 1998, on January 2, 1999, passed the following order:- "Indo-German Chamber of Commerce is appointed as a Sole Arbitrator to decide this dispute. The question of interim injunction will be decided by this Court. The arbitrator is directed to file the award after proceedings in accordance with the Arbitration and Conciliation Act, 1996, within four months from the receipt of this order. A yadi be sent to the Arbitrator. The defendant is directed to deposit Rs.25,000/- towards arbitration costs at the first instance in the Court within 7 days." (Emphasis supplied) Thus, the disputes between the appellant and the respondent came to be referred to the arbitration as per the above-quoted order. It may be stated that the respondent, pursuant to the above order, also deposited Rs.25,000/- towards arbitration costs at the first instance within time fixed by the Court. 10. Learned 3rd Joint Civil Judge (S.D.), Vadodara, who heard applications Exh.5, 33, 34, 58, filed by the appellant for interim injunction and interim measures, disposed them by his common order dated March 30, 1999, inter alia, holding that interim measures prayed for by the appellant were covered under Section 9 of the Act, and that the Court having power under Section 9 of the Act is the principal court of original civil jurisdiction and that the Civil Court (S.D.) had no jurisdiction since it is not a Court under Section 9 of the Act. 11. The appellant, thereafter, filed Misc. Application No.70 of 1999 in the District Court, Vadodara, for interim measures as per the provisions of Section 9 of the Act. In paragraph 30, the appellant prayed, inter alia, for the following reliefs:- (a) restrain the respondents by themselves, their servants, agents, etc. from in any manner selling, transferring or assigning including to their group/parent/associate/licensee company/ies, the assets both intangible and tangible, including intellectual property rights, know-how, drawings, toolings/machinery, etc. and rights attached thereto, that are the subject matters of arbitration till final disposal of arbitration proceedings; (b) pass necessary interim orders for preserving and protection of the properties in dispute which are the subject matters of arbitration." 12. The respondent contested the application for interim measures by filing affidavit in reply, inter alia, contending that no ground has been made out in the application for the reliefs as prayed for and the application was misconceived and required to be dismissed in limine, as the same suffered from gross delay and laches. It was averred that the appellant had no genuine desire to go to arbitration and was filing Misc. Application after Misc. Application only with a view to pressurize or blackmail the respondent. It was further averred that the application for interim measures/injunction was filed nearly after eight years of having come to know of the alleged fraud committed by the respondent and the appellant has not come to the Court with clean hands and has suppressed vital documents. It was also contended in the reply that the application for interim reliefs/measures proceeded on the basis that the appellant was entitled to mandatory reliefs directing the respondent to perform obligations under the agreement ignoring the settled principle that the mandatory relief of this nature can never be granted at the ad-interim stage and can only be granted at the time of decree. It was also averred that no prima facie case was made out by the appellant and the balance of convenience was also not in its favour. The respondent also averred that it has completed sale of textile machinery component division and, therefore, the application has now become infructuous and the only remedy of the appellant for its alleged claim is to claim damages. It was denied by the respondent that it had made any deliberate and/or fraudulent misrepresentation to the appellant. In the reply it was further contended that the appellant was aware of the alleged new designs of Product Group No.X on September 24, 1991 and, in fact, it had specifically sought supply of this very component as far back as in the year 1994. With regard to sale of respondent's textile machinery components business, it was stated in the reply that it had sold all its intangible and tangible assets of its ring-spinning business as per contract dated March 26/31,1999 with transfer effect April 6, 1999 and the assets of its textile machinery components business in Singapore will be sold in due course. That the respondent's division of SKF Bearings India Ltd will not be affected but continues its present business for the time being. The purchaser of the German assets is the German-based company TEXparts GmbH,SKF TMC reserved the right to use a certain range of the ring-spinning production know-how. That, except India, there is no further business of the respondent in this field, but the company still continues to exist on a solid financial basis. It was further averred that the respondent had challenged the order dated January 2, 1999 of the learned Civil Judge (S.D), Vadodara, by way of revision proceedings in the High Court, which came to be rejected on January 27, 1999, and the said decision of the High Court was challenged in the Supreme Court by way of Special Leave Petition. It was stated that the said order was challenged in higher forums because as per the legal provisions, grant of any relief under the Act would be by way of a petition under Section 9 of the Act and not otherwise. It was stated that, as this position was disputed by the appellant, the respondent had to challenge the said order of the Civil Court in the High Court as well as in the Supreme Court. It is submitted that, ultimately, the learned Civil Judge (S.D.), Vadodara, had passed order on March 30, 1999 that the Civil Court had no jurisdiction to pass orders for interim measures and the correct procedure was to file application under Section 9 of the Act. Lastly, it was contended that the appellant had no prima facie case nor balance of convenience in its favour and no irreparable loss would be caused to it. It is further contended that the application suffers from the vice of gross delay, laches, and acquiescence and, hence, the application be dismissed. 13. The appellant filed its rejoinder to the affidavit in reply filed by the respondent on April 28, 1999, inter alia, denying all the allegations and the claims made in the affidavit in reply, and reiterated the averments made in the application filed under Section 9 of the Act. In the rejoinder, the appellant contended that the amendment agreement was entered into between the parties as a result of misrepresentation and fraud committed by the respondent. It was further contended that the respondent, with deliberate and mala fide intention, was disposing of its textile component business with a view to deprive the appellant of the monetary claims, which may be awarded in the arbitration proceedings. It was stated that the appellant's factory is not shut down as wrongly stated by the respondent. However, it was true that the appellant-company is financially 'sick' as a result its Baroda and Dharwad Units are functioning at a bare minimum capacity utilisation and the appellant is registered with BIFR since February 1998. 14. Learned District Judge, Vadodara, who heard Misc. Application No.70 of 1999, by his judgment and order dated May 12,1999, dismissed the application filed under Section 9 of the Act holding that the appellant had no prima facie case and the balance of convenience was not in its favour and the appellant had not come with clean hands and the appellant was not going to suffer any irreparable loss which cannot be compensated in terms of money and, hence, it was not entitled to any equitable and discretionary relief of injunction, which order has given rise to filing of this appeal. 15. Civil Application No.4841 of 1999 is filed by the appellant for ad-interim reliefs pending hearing and final disposal of the First Appeal. In this application, order of status quo which was granted by the District Court, Vadodara, came to be extended till the pronouncement of the judgment of this appeal. 16. Civil Application No.6068 of 1999 is filed by the appellant for production of documents and has prayed for following reliefs: "A. Your Lordships may be pleased to direct that any and all assets, both tangible and/or intangible and rights attached thereto relating to Product Groups I, II, III, IV and X of the Collaboration Agreement, dated 12.9.1989, including in particular those items specifically mentioned in the statement of claims raised in arbitration, including all products/product rights know-how/intellectual property rights, patents/patent rights, trade marks/trade mark rights, designations/ nomenclatures, machinery, tools and dyes, testing equipment, etc. that have in any manner, directly or indirectly, been sold/transferred/assigned/disposed of etc. to TEXParts GmbH and/or to any other party including their group's Indian subsidiary, SKF Bearing India Ltd, to the extent that such sale/transfer etc. in any manner affects any of the claims/demands in arbitration, be detained under the custody of this Honourable Court, and no transfer and/or use of the same be permitted by TEXParts GmbH and/or its nominees/agents, licensees, etc. that may affect any of the rights of the applicant under dispute in arbitration. (B) Your Lordships may be pleased to direct the respondent to disclose on affidavit before this Hon'ble Court the complete details and particulars of its sale/transfer etc. to TEXParts GmbH, including item-wise and designation-wise details of all products/product rights, know-how/intellectual property rights, patents/patent rights, trademarks/trademark rights, nomenclatures, machinery, tools and dies, testing equipment, etc. related to Product Groups I, II, III, IV and X of the Collaboration Agreement, including their improvements and modifications, minor and major in particular all items specifically mentioned in the statements of claims raised in arbitration; (C) Your Lordships may be pleased to direct the opponents to state on affidavit before this Honourable Court whether any manufacturing and/or marketing rights connected to any of the assets mentioned in prayers A, and B, above have been sold/transferred/disposed off, etc. within the geographical territory of India and neighbouring countries, as defined in the Collaboration Agreement dated 12.9.1989. (D) Pending the hearing and final decision of the aforesaid First Appeal No.3109 of 1999, the opponent company and/or persons claiming rights pursuant to the agreement dated 26.3.99, on such other agreement, and also their nominees/agents/licensees, etc. be restrained from marketing any of the products mentioned in A and B above in the geographical territory defined in the said Collaboration Agreement dated 12.9.1989." Both the applications were ordered to be heard along with the First Appeal and, therefore, they are disposed of by this judgment. 17. Learned Senior Counsel for the appellant and the respondent have supplied relevant documents at the time of hearing of this appeal and, therefore, the Court thought it fit not to call for record and proceedings from the District Court, Vadodara. Learned Senior Counsel for both the parties have taken me through the relevant documents more particularly collaboration agreement and amendment agreement. The Court has also taken into consideration correspondence and other materials which were relied upon by the learned Senior Counsel for the parties at the time of hearing of this appeal. 18. Mr. S.I. Nanavati learned Senior Counsel appearing for the appellant has submitted that the appellant has a strong prima facie case at least in respect of Product Groups Nos. I to IV and is entitled to claim specific performance thereof. It is contended that the words "non-exclusive rights" in place of 'exclusive rights' meant that both APS (appellant) and SKF (respondent) would be at liberty to manufacture and market the textile machinery components within the territory as defined in the agreement. In this connection, it is contended that the said words cannot be construed to mean that SKF would be entitled to manufacture and market the components of the said Product Group Nos. I to IV to the exclusion of the appellant's rights to manufacture and market textile machinery components of Produce Groups Nos. I to IV. Learned Senior Counsel also contended that, if the said meaning is given to the words 'non-exclusive rights', then, it would amount to deletion of all the product groups by virtue of the amendment agreement and implied termination, which is not the intention of the amendment agreement. It is, therefore, contended by learned Senior Counsel that the appellant has strong prima facie case and there are triable issues to be decided by the Arbitrators in the proceedings referred to them. Learned Senior Counsel for the appellant further submitted that the intention of the respondent is obviously dubious, because, by Collaboration Agreement, it had given exclusive rights to the appellant by misrepresentation and fraud, by executing Amendment Agreement, got the exclusive rights converted into non-exclusive rights. It is contended by learned Senior Counsel for the appellant that the appellant does not seek status quo with regard to the entire property of the respondent-company; what is sought to be protected is subject matter of arbitration proceedings, i.e. rights of the appellant in respect of the Product Group Nos. I to IV and X and the additional claim of compensation on account of not providing/delaying supply of technology for the said product groups. Learned Senior Counsel for the appellant further submitted that, if the reliefs as prayed for in the application filed under Section 9 of the Act are not granted in favour of the appellant, it would suffer undue hardship and irreparable injury. It is contended that, on the other hand, if the respondent is restrained from selling assets in any manner, no irreparable injury would be caused to it. Learned Senior Counsel for the appellant further submitted that the application for interim measures was not barred by delay, as the appellant came to know about the evil design of the respondent only in April 1995. In the alternative, learned Senior Counsel for the appellant submitted that the issue of delay can only be examined by the Arbitrators and not by the Civil Court in the proceedings under Section 9 of the Act. In the context of this submission, learned Senior Counsel for the appellant submitted that any observation with regard to delay would only frustrate the object of enactment of Section 9 and would also render the arbitration proceedings infructuous as being time-barred. Learned Senior Counsel for the appellant further contended that the conduct of the respondent-company was objectionable and not the conduct of the appellant-company as held by the District Court. In this connection, learned Senior Counsel for the appellant submitted that during pendency of the suit in the trial court, the respondent had disposed of its textile machinery components business, which is a deliberate intention to deprive the appellant of the legal rights of monetary benefits that may be awarded at the end of the arbitration proceedings. Learned Senior Counsel for the appellant further submitted that the order of the District Court was illegal, against the evidence produced on the record, and perverse, because the learned District Judge has not taken into consideration the principles of grant of injunction, which were in favour of the appellant, and, therefore, the appeal may be allowed and the order of the District Court may be set aside. 19. Mr. S.I.Nanavati, learned Senior Counsel for the appellant submitted, in support of Civil Application No.6068 of 1999 for production of documents, that the prayer for production of documents was justified in view of the subsequent development dated June 1, 1999 on which date despite sale of said textile machinery components business, the SKF had its own stall at the International Exhibition of Textile Machinery (ITMA-99) in Germany. It is submitted that the brochures were distributed at ITMA-99 by Texparts to circumvent the order of status quo of this Court. Further, the said components