Contractually Restricting Interim Reliefs

Certainty, as to the result is the hallmark of any commercial document. For e.g., in the event of A the result would be B. Perhaps this is one of the prime reasons why today we see elaborate contracts, running into several clauses. Some of the terms incorporated in these contracts, are matters which traditionally vests within the discretionary domain of the judiciary (albeit a few statutory guidelines). For e.g., grant of interim/equitable relief, specific performance etc. The question therefore is how far are these terms valid in law or in other words will these terms be given effect to by the courts. In this post and subsequent posts I will make an attempt to examine this question.

 One such clause was called into question before the Bombay High Court in BCCI v. KPH Dream CricketPrivate Limited (15.12.2010). The clause in question was Clause 21.6 of the franchisee agreement which reads as under:

 “ BCCIIPL (but not the Franchisee) shall have the right to bring an action seeking injunctive or other equitable relief before the Courts of Mumbai if it reasonably believes that damages may not be an adequate remedy for the breach by the Franchisee of this Agreement."

The clause stipulates that the franchisee will have no right to bring an action seeking interim injunction even if it reasonably believes that damages may not be an adequate relief. It is to be noted that the dispute between the parties was to be settled arbitration. So, what was effectively sought to be restrained through the aforementioned clause was the franchise's right to approach the court under S. 9 of the Arbitration and Conciliation Act, 1996 (at the very least that was sought to be restrained). The Bombay High Court refused to give effect to the clause 21.6 and stayed the termination under S. 9 of the Act and held as under:

“ However, in our view, it would be wholly destructive of the underlying principles of Section 28 of the Contract Act to allow a party to assert that the effect of a contractual term is to prohibit access to the Court in a petition under Section 9 of the Arbitration and Conciliation Act 1996 for obtaining suitable injunctive relief even if, damages were not to provide an adequate recompense. The Court would not readily adopt such a construction of Clause 21.6 and indeed if it were to do so, there would be serious questions in regard to validity of Clause 21.6. A construction must therefore be placed on Clause 21.6 which makes business sense. After all, the franchise agreement reflects a business understanding between parties to a commercial document. When the Court construes a commercial document, the effort must be to give business efficacy to a commercial understanding between the parties. We decline to read Clause 21.6 as enabling BCCI to successfully set up the defence that the remedy of injunctive relief under Section 9 is barred even if the franchisee is able to establish that damages would not provide an adequate remedy”- para. 27

It is sufficiently clear that the Bomaby High Court refused to give effect to Clause 21.6. However, it is respectfully submitted that the reasoning of the court is not entirely clear as one cannot reasonably conclude whether such as clause is:

(a) invalid, as it falls foul of section 28 of the Indian Contract Act, 1872 or;

(b) It is not invalid in law, but in light of the commercial understanding between the parties it does not mean what the BCCI argues it to mean i.e. the franchisee is barred from approaching the court under S. 9 of the Arbitration Act, 1996.

If the reasoning of the court is based on (a) then such a clause would be invalid in all circumstances. However if the reasoning of the court is based on (b) then such a clause would be valid if pressing commercial reasons are shown in this behalf. In my view, the correct reasoning is one based on clause (a) i.e. Clause 21.6 and all such clauses are invalid in law.