Validity of termination clause and enforceability of specific performance under the Specific Relief Act

JUDGMENT - A.P. SHAH, J.:---This appeal is directed against the order of the learned Single Judge by which interim injunction has been issued in petition under section 9 of the Arbitration and Conciliation Act, 1996, hereinafter referred to as the “Act”, restraining the appellant Oil and Natural Gas Corporation Ltd. (ONGC) from acting on the notice of termination dated 16-10-2001. The brief facts giving rise to this appeal and indicating the points for decision herein are now stated.

2. On 19-2-1999 the appellant floated a tender for manning, running, operating, repairing and maintenance on hire of three vessels under Group IX i.e. Samudrika 2, Samudrika 7 and Sindhu 9. The respondent was one of the tenderers. On 30-12-1999 a contract was signed between the appellant and respondent for vessel Samudrika 2 for the primary term of 2 and half years from 9-12-1999. Clause 1.10.1 of the agreement provided that the duration of the contract shall be for the period of 2 and half years (30 months) with effect from the date of vessel being handed over to the respondent. It was further set out that the ONGC reserved the right to extend the contract for a further period of six months in two instalments of three months on the same rates, terms and conditions. Clause 19 which is pertaining to termination reads as under:

“The owner reserves its right to terminate the agreement at any time after expiry of one year of contract by giving 30 days notice in writing to the operator without assigning any reason whatsoever.”

3. On 16-10-2001 the appellant issued notice terminating contract with effect from 15-11-2001 under Clause 19.3 of the agreement. The agreement contains an arbitration Clause namely Clause 22. The respondent pending reference of the matter to the arbitration moved this Court under section 9 of the Act and sought injunction to restrain the appellant from acting on the notice of termination. It was the case of the respondent that there is implied covenant that the agreement will run its full primary term of 2 and half years from 9-12-1999 and that the appellant is bound by the said covenant and based on the said convenant respondent has made huge investments including giving of two bank guarantees. By the amendment, respondent pleaded promissory estoppel based on implied covenant of the contract. By the further amendment it was averred that Clause 19.3 of the agreement is unconscionable and opposed to public policy and violative of section 23 of the Contract Act and the appellant are not entitled to invoke and act in pursuance to the said Clause 19.3 of the agreement.

4. The learned Single Judge appears to have taken the view that Clause 19.3 is unconscionable and against public policy and violates section 23 of the Contract Act. In this behalf of the learned Judge has relied on the decision of the Supreme Court in (Kum. Srilekha Vidyarthi etc. v. State of U.P. and others)1, A.I.R. 1991 S.C. 537. The learned Judge also referred to a decision of the Calcutta High Court in (M/s. Omprakash Pariwal and another v. Union of India and others)2, A.I.R. 1988 Calcutta 143, and a decision of the Andhra Pradesh High Court in (V. Raghunatha Rao v. State of A.P. and others)3, 1983(1) A.L.T. 461. The learned Judge was of the opinion that if the appellant has invoked Clause 19.3 all that means is that the appellant need not communicate reasons for termination to the respondent but it does not mean that power can be exercised, capriciously or arbitrarily. Then referring to the decisions of the Supreme Court in (M/s. Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay)4, 1990(1) Bom.C.R. 405 and (Mahavir Auto Stores and others v. Indian Oil Corporation and others)5, A.I.R. 1990 S.C. 1031, the learned Judge concluded thus:

“.........The matter is no longer in the realm of private contract as explained by the Apex Court it is now in the public domain. To my mind, therefore, considering all the aspects, it would be unjust to allow res

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