Full Text
HIGH COURT OF DELHI
Date of Decision: 07th October, 2022
DR REDDYS LABORATORIES LIMITED
THROUGH AUTHORIZED SIGNATORY MR GOPALA KRISHNA GANGAVELLI ..... Petitioner
Through: Ms. Neelima Tripathi, Senior Advocate with Mr. Apoorv P.
Tripathi, Ms. Soumya Sharma & Ms. Anjali Kaushik, Advocates. [M:-9910523322].
Through: None.
PRATEEK JALAN, J. (ORAL)
JUDGMENT
1. The petitioner has filed this petition under Section 9 of the Arbitration and Conciliation Act, 1996 [hereinafter, “the Act”], for interim measures of protection in anticipation of arbitral proceedings between the parties under an agreement dated 06.05.2016 entitled “Supply Agreement” [hereinafter, “the Supply Agreement”]. The Supply Agreement was extended twice, by way of amendment agreements dated 24.05.2019 and 14.05.2020. 2022:DHC:4156
2. Although several reliefs have been claimed in the petition, Ms. Neelima Tripathi, learned Senior Counsel for the petitioner, presses the petition only as far as prayer “a” is concerned, which reads as follows: “a. Pass an order/ mandatory injunction directing the Respondent to issue a no-objection certificate or consent letter for appointment of a new distributor for pharmaceutical products of the Petitioner in Myanmar;”
3. Notice was issued in the petition on 03.06.2022, at which stage, Ms. Tripathi did not press for ex parte ad interim relief. Learned counsel for the petitioner has filed an affidavit of service dated 01.09.2022, which shows that service has been effected upon the respondent by e-mail, courier and Speed Post. E-mail service was effected on 09.06.2022 from the e-mail address of learned counsel for the petitioner to the email address - nancy.mmhtwe@gmail.com, which is the e-mail address from which correspondence was addressed to the petitioner on behalf of the respondent[1]. Learned counsel for the petitioner has affirmed that the e-mail has not bounced back. Speed Post delivery and courier delivery were effected upon the respondent on 14.06.2022 and 24.06.2022, respectively, at the address mentioned in Clause 16 of the Supply Agreement for service of notice. Printouts of the tracking reports have also been placed on record. Pursuant to the directions of this Court vide order dated 25.07.2022, by an e-mail communication dated 01.08.2022, learned counsel for the petitioner A copy of one such e-mail dated 09.03.2022 is placed on record as part of the petitioner’s list of documents at page No. 41 also informed the respondent of the next date of hearing i.e. 06.09.2022.
4. Despite all these efforts towards service of notice, the respondent has not entered appearance. As sufficient time has lapsed to enable the respondent to enter appearance, the petition is taken up for hearing in its absence.
5. The petitioner is a manufacturer of pharmaceutical products. The respondent is a company incorporated in Republic of Singapore. By way of the Supply Agreement, the respondent was appointed as the petitioner’s distributor for the territory of Myanmar. The respondent had nominated a consignee in the territory of Myanmar namely M/s Biosy’s Company Limited [hereinafter, “Biosy’s”]. The original term of the Supply Agreement was three years, after which it was extended by way of amendment agreements dated 24.05.2019 and 14.05.2020 for one year each. The Supply Agreement has thus expired by efflux of time on 05.05.2021.
6. The clauses of the Supply Agreement, insofar as they are relevant for the purposes of the present petition, are as follows:- “6. REGULATORY MATTERS xxxx xxxx xxxx 6.[3] It is the responsibility of DISTRIBUTOR to inform DR.REDDY'S about the laws, regulation of the Territory applicable to the Products including Patents, imports, regulations, labelling, technical specifications, safety requirements, etc.
7. COMPLIANCE 7.[1] DISTRIBUTOR shall during the term of this Agreement comply with all legal and regulatory requirements relevant to the promotion, supply and sale of medicines within the Territory.
DISTRIBUTOR ___ shall also comply with all the relevant laws including but not limited to relevant anti-corruption, anti-competition laws applicable in the Territory.
13.
TERM AND TERMINATION 13.[1] This Agreement shall come into force on the Commencement Date and, unless terminated earlier pursuant to clause 13.[2] below, shall continue in full force for each Product for a normal term of three (3) years from the date of execution of this Agreement and may be renewed for further period upon mutual agreement of the parties in writing.
14.
CONSEQUENCES OF TERMINATION 14.[1] Upon termination of this Agreement for a Product for any reason: 14.1.[1] DISTRIBUTOR may sell stocks for such Product for which it has accepted orders from customers prior to the date or termination, and to this extent, the provisions of this Agreement shall continue in full force and effect; and for the balance stocks with DISTRIBUTOR, both the parties may mutually discuss on the liquidation of the same. In the absence of natural agreement, DISTRIBUTOR shall return the stocks to DR.REDDY'S or its nominated agent at the price at Supply Price plus handling plus taxes if any. 14.1.[2] The parties shall not be relieved from any liability, which at the term of such termination has already accrued to the other party, or which is attributable to a period prior to such termination. 14.1.[3] DISTRIBUTOR shall return the Product Registration and all the Confidential Information shared by DR. REDDY'S within a period of ten (10) days from the date of termination. 14.1.[4] DISTRIBUTOR shall issue no objection certificate/ consent letter if required for appointing a new Distributor on termination of the Agreement.
18. LAW 18.[1] This Agreement and the obligations of the parties shall be governed by and construed in accordance with the laws of India. 18.[2] All disputes or differences between parties hereto, including any dispute or difference regarding interpretation of any term or provision, rights or obligations between the parties arising out of or in connection with this agreement shall be finally settled by arbitration in accordance with the Singapore International Arbitration Centre (SIAC) which are deemed to be incorporated by reference into this clause and the arbitral ruling, decision or judgment of the arbitral tribunal in India shall be final and binding on both Parties, and: a) All proceedings shall be conducted in English and a daily transcript in English shall be prepared; b) The disputing Parties shall mutually appoint a sole arbitrator. In the event the disputing Parties are unable to agree on a single arbitrator within a period of 15 (fifteen) days from the date of service of Notice of Dispute, the Dispute shall be referred to an arbitral panel comprising of three (3) arbitrators, one each to be appointed by the disputing parties, and the third to be appointed by the two arbitrators so appointed, who shall serve as Chairman of the Arbitration Panel; and c) The venue of arbitration shall be in India.”
7. A list of pharmaceutical products supplied by the petitioner in the territory of Myanmar through the distributorship of the respondent has been annexed as Annexure 1 to the Agreement dated 14.05.2020. These include drugs for the treatment of cholesterol and heart disease (Rozat), high blood pressure (Telsartan), pain relief (Ketorol Injection), blood clots (Fondaparinux), cancer (Reditux), kidney disease (Cresp), and diseases of the stomach and oesophagus (Omez DSR).
8. Ms. Tripathi submits that these drugs were supplied in the territory of Myanmar through the distributorship of the respondent under the Supply Agreement. For this purpose, various regulatory approvals were taken by the respondent and Biosy’s, including an exporter approval (in favour of the petitioner), Distributor Drug Importation Approval Certificate in the name of Biosy’s, and Product Drug Importation Approval Certificate for each of the products to be supplied.
9. After the lapse of the Supply Agreement on 05.05.2021, the petitioner claims to have addressed several communications to the respondent calling upon it to sign a new agreement. Various communications to this effect, including e-mails dated 30.08.2021, 04.09.2021, 14.09.2021, 16.09.2021, 22.10.2021, 03.11.2021, 07.12.2021, 17.01.2022, 02.02.2022, 15.03.2022 and 18.03.2022 have been placed on record[2]. It is evident therefrom that the petitioner has repeatedly called upon the respondent to extend the term of the Supply Agreement and also alerted the respondent to the fact that it would not be able to honour further purchase orders in the absence of an extended agreement. In the e-mail dated 07.12.2021, it is stated that the petitioner’s representatives have sought to contact the respondent’s representatives by various methods and also to arrange an in-person meeting at the respondent’s office. The respondent has also been informed that many of the petitioner’s products are already out of stock and other products are likely to run out shortly which would cause inconvenience to patients in the territory of Myanmar. In the email dated 17.01.2022, it is also stated that the petitioner’s representatives attempted to visit the respondent’s representatives but were unable to meet her.
10. In the course of this correspondence, an e-mail dated 09.03.2022 was addressed by the representative of the respondent to the petitioner. By the said e-mail, the respondent raised various issues upon which it sought to negotiate with the petitioner. However, the respondent has not disputed the petitioner’s assertion that the Supply Agreement had expired in May, 2021 and no extension has yet been signed.
11. After receipt of the aforesaid e-mail, the petitioner has addressed several further e-mails to the respondent, but no response thereto has been received. Document No.5 of the petitioner’s list of documents
12. In these circumstances, the petitioner issued a notice dated 22.03.2022 to the respondent noting that the Agreements have expired by efflux of time and calling upon the respondent to issue a No Objection Certificate [hereinafter, “NOC”] for the petitioner’s appointment of a new distributor. The said communication also failed to elicit a response. It is in these circumstances, that the petitioner has filed the present petition under Section 9 of the Act.
13. Ms. Tripathi states that during the pendency of this petition, the petitioner has also invoked the arbitration clause by a letter dated 05.09.2022, addressed to the respondent, and the petitioner proposes to take steps for constitution of the arbitral tribunal in accordance with law.
14. It is clear from the arbitration clause contained in Clause 18 of the Supply Agreement that all disputes will be resolved and settled by arbitration, and that the venue of the arbitration shall be India. The respondent has not entered appearance to dispute the jurisdiction of this Court at this stage. In support of jurisdiction of this Court, Ms. Tripathi has placed on record copies of airway bills, purchase invoices and packaging list[3] showing that the products have been dispatched to Biosy’s from New Delhi Airport, India, which is within the jurisdiction of this Court. A statement to this effect has also been made in the petition[4]. Document Nos. 9, 10 and 11 of the petitioner’s list of documents Paragraph 33 in the petition at page No. 32
15. Ms. Tripathi also relies upon an opinion of local counsel from Myanmar, dated 22.02.2022[5] to demonstrate that a NOC is required from the respondent, prior to the petitioner being able to apply for issuance of regulatory approvals in favour of any new distributors.
16. In these circumstances, Ms. Tripathi submits that there is a strong prima facie case for grant of the injunction sought and balance of convenience is also in favour of the petitioner herein.
17. As the interim injunction sought in the present case is of a mandatory nature, Ms. Tripathi has placed on record several judgments to support the case that a mandatory injunction in furtherance of the terms of an agreement can be permitted in certain facts and circumstances. In Dorab Cawasji Warden vs. Coomi Sorab Warden and Others[6], the Court held as follows:-
18. The view taken by the Division Bench of this Court in Ajay Singh vs. Kal Airways Private Limited and Ors.[8] was as follows:-
27. It was observed later, in the same judgment that: “The question of substance is whether the granting of the injunction would carry that higher risk of injustice which is normally associated with the grant of a mandatory injunction. The second point is that in cases in which there can be no dispute about the use of the term 'mandatory' to describe the injunction, the same question of substance will determine whether the case is 'normal' and therefore within the guideline or 'exceptional' and therefore requiring special treatment. If it appears to the court that, exceptionally, the case is one in which withholding a mandatory interlocutory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel a 'high degree of assurance' about the plaintiff's chances of establishing his right, there cannot be any rational basis for withholding the injunction.” ”9 Against the aforesaid judgment of the Division Bench of this Court, the Supreme Court declined special leave to appeal.10 Order dated 28.07.2017 in SLP (C) 18558/2017
19. Ajay Singh11 was followed in another judgment of this Court in Jetpur Somnath Tollways Limited vs. National Highways Authority of India12 wherein, the Coordinate Bench of this Court in petitions under Section 9 of the Act, granted interim relief to enforce the terms of an agreement. The aforesaid view was upheld by the Division Bench13. On the scope of Section 9 of the Act, the Division Bench held as follows:- “35. On the question of exercise of power under Section 9 of the A&C Act, we have already referred to Clauses 37.3.[1] of the Concessionaire Agreement which is an express and mandatory provision when said agreement is terminated on account of concessionaire fault. We have also referred to Clauses 3.[2] and 4.[2] of the tripartite Escrow Agreement which refers to termination payment. To accept the plea of NHAI that section 9 of the A&C Act cannot be invoked, would negate and obliterate the aforesaid Clauses and their effect. In the aforesaid circumstances the ratio of decision of the Division Bench of this Court in Value Source Mercantile Limited Vs. Span Mechnotronix Limited (2014) 143 DRJ 505, is apposite, if not definite and conclusive. Referring to Section 9 of the A&C Act, this decision emphasized that the said provision uses the expression ‘interim measure of protection’ as distinct from the expression ‘temporary injunction’ used in Rules 1 and 2 of Order XXXIX of the Code of Civil Procedure, 1908. Interim injunction is one of the measures or orders prescribed in Clause (d) to Section 9 (ii) of the A&C Act, albeit a party to the arbitration agreement is entitled to apply for and seek ‘interim measure of protection’. Clause (e) to Section 9(ii) is a residuary power of the court to issue or direct other Supra (note 8) (2017) 4 Arb LR 391 Judgment dated 27.10.2017 in FAO (OS)(COMM)s 165-166/2017 "interim measures of protection". Thus, the court has the power to issue or direct other interim measures of protection as may appear to the court to be just and convenient. Section 9 encompass the power of making orders as the Civil Court has for the purpose of, and in relation to any proceedings before it. This decision refers to Rule 10 of Order XXXIX of the aforesaid Code which empowers the Court to direct to deposit payment of the admitted amount. Therefore the court exercising power under Section 9 of the A&C Act has the same power as that of a civil court during pendency of the suit.”14
20. The aforesaid judgment of the Division Bench of this Court was carried in appeal before the Supreme Court15, which was disposed of by an order dated 05.01.2018. The said order reads as follows:- “Heard Mr. Tushar Mehta, learned Additional Solicitor General along with Ms. Gunjan Sinha Jain, learned counsel for the SLP(C)No.35087/17 petitioner; Mr. Kapil Sibal, learned senior counsel and Mr. Gourab Banerji, learned senior counsel for the respective respondentcaveators. Having heard learned counsel for the parties, we are inclined to issue the following directions: (i) The finding by the High Court with regard to encashment of bank guarantee is affirmed.
(ii) The petitioner shall pay a sum of Rs.348.604 crores within a span of six weeks from today.
(iii) If the bank seeks arbitration and the petitioner seeks arbitration against the bank, the same shall be arbitrated upon.
(iv) The amount shall be kept in the Escrow Account as directed by the High Court. SLP (C) No. 36692/2017 [National Highway Authority of India vs. Jetpur Somnath Tollways Limited]
(v) Any finding recorded by the learned Single Judge or the Division Bench on the merits of the claim shall not be relied upon in the arbitration proceedings. The Special Leave Petitions are disposed of accordingly.”
21. On the question of the scope of power under Section 9 of the Act, and applicability of the principles applicable under the Code of Civil Procedure, 1908 [hereinafter, “CPC”], the Supreme Court has recently in Essar House Private Limited vs. Arcellor Mittal Nippon Steel India Limited16, expressly approved the judgment of this Court in Ajay Singh17. It is further held in the said judgment as follows:-
22. Applying these principles, I am satisfied that the grant of interim relief sought in this petition is merited in the facts and circumstances of the case. It is evident from the Agreements that the respondent’s distributorship has expired by efflux of time on 05.05.2021. Despite more than one year having passed since and considerable correspondence calling upon the respondent to extend the term of the Supply Agreement, it has failed to do so. The only correspondence addressed by the respondent (by an e-mail dated 09.03.2022) does not dispute the factual position that the distributorship agreement in its favour has expired. Upon termination of the Supply Agreement for any reason, Clause 14.1.[4] requires the respondent to issue a NOC/ consent letter, if required for appointing a new distributor. The respondent has also failed to do so despite the request of the petitioner. The respondent’s complete inaction jeopardises not only the petitioner’s business in Myanmar, but also the availability of vital pharmaceutical products to the residents of Myanmar.
23. In these circumstances, I am of the view that the petitioner has made out a strong case for trial as required by the judgment in Dorab Cawasji Warden19. The case demonstrates the exceptional circumstances which require an order to be passed in mandatory terms. The petitioner’s ability able to serve the territory of Myanmar Supra (note 6) by supply of its pharmaceutical products through the respondent, has effectively been altered by the respondent’s failure to issue the NOC in terms of the Agreements, despite its lapse by efflux of time, which the petitioner now seeks to restore.
24. Seen from the perspective laid down by the Division Bench in Ajay Singh20 also, the petitioner’s claims are merited. The situation which the respondent has brought to bear today, prima facie disentitles the petitioner to supply its products in Myanmar causing significant loss of business and reputation to the petitioner and also depriving patients in Myanmar from the use of those products. The public interest in ensuring continued supply of pharmaceutical products is also a significant factor to determine the question of irretrievable prejudice and balance of convenience. I am of the view that the refusal of an injunction in these circumstances carries a greater risk of irretrievable prejudice to the petitioner than grant of the injunction would occasion to the respondent. I am further fortified by the aforesaid decision of the Supreme Court in Essar House21 which eschews the strict technicalities of the procedural law when considering a petition under Section 9 of the Act and enjoins the Court to grant relief where required in the interest of justice.
25. For the aforesaid reasons, the petition is disposed of with a direction upon the respondent to issue a NOC or a consent letter, for the appointment of a new distributor for pharmaceutical products of the petitioner in the territory of Myanmar. The respondent is directed to do Supra (note 16) so within four weeks after service of a copy of this order upon it. However, the petitioner is directed to maintain separate accounts of any business transacted by it in the territory of Myanmar, so that the respondent may be suitably compensated in the arbitral proceedings, if found so entitled.
26. The petitioner is directed to take expeditious steps for constitution of the arbitral tribunal. It will be open to the petitioner to seek the other reliefs sought in the present petition by way of interim relief before the arbitral tribunal. In the event the respondent seeks any modification, variation or vacation of the order passed herein, it is also entitled to take steps in accordance with law for this purpose.
27. The petition is disposed of in the above terms. It is made clear that the observations contained in this order are only for the purpose of disposal of the present petition and will not prejudice the parties in the final adjudication of the arbitral proceedings.
PRATEEK JALAN, J OCTOBER 07, 2022 ‘Bhupi’/