Source: Delhi High Court

Why in News?

Recently, the Delhi High Court in the matter of Maruti Traders v. Itron India Pvt Ltd has held that terms of the contract will supersede the principle of equity and fairness in commercial matters.

What was the Background of the Maruti Traders v. Itron India Pvt Ltd Case?

• In this case, the petitioner was authorized by the defendant to act as a non-exclusive dealer for domestic and bulk water meters and accessories in Chhattisgarh.
• All the terms related to price of the document and specifications related to manufacturing of meters were settled between the parties.
• The Petitioner claimed that there was an implied understanding between the parties that petitioner may charge a price to customers that included a profit margin over the Respondent's decided price.
• It was further argued by the petitioner that the Respondent granted dealership rights to others which resulted in the loss of Petitioner.
• It was also argued by the petitioner that the parties to whom the respondent has granted dealership rights were initially liaised with the petitioner, which is a breach of their contract.
• The Respondent contended that there is no such binding agreement between the parties that the respondent cannot directly sell the water meters in the market.
• The Respondent presented that Clause 2.01 of the Reseller Agreement allowed them to sell directly and appoint other resellers which did not constitute a breach.
• The dispute led to arbitral proceedings between the parties and the award was passed in favour of the respondent.
• Aggrieved by the award the petitioner filed the present petition before the Delhi High Court.

What were the Court’s Observations?

• The Delhi High Court observed the scope of Section 34 of the Arbitration & Conciliation Act, 1996 (A&C).
• The Court, after referring to various case laws, inferred that the scope of interference of the court in the decisions of the Arbitral tribunal must only be restricted to the provisions given under Section 34 of the A&C.
• The Delhi High Court further added that when there is any harm to the public policy, principles and statutes then only a court can interfere with the merits of the awards.
• The Delhi High Court held that the petitioner failed in proving the breach by the respondent as there was no such contract between the parties before the reseller agreement as per Section 10 and Section 7 of the Indian Contract Act, 1872 (ICA) which could accord the petitioner’s claims.
• It was further held by the Delhi High Court that in commercial contracts equity shall not be applicable as it is governed strictly by the terms of the contracts and relief can only be granted based on the rights given under the statute.
• The Delhi High Court found the award correct and dismissed the petition.

What is Equity?

• It is a form of Justice under the principles of natural justice.
• Equity is a way of ensuring fairness and justice when required by applying good conscience.
• The concept of equity complements the ideas of reasonableness, challenging unfair actions, and the principles of natural justice.
• Equity majorly ensures the fairness of the due procedure and curbs unfair and unjust practices.
• Equity ensures specific performance of contracts, enforce equitable estoppel, and grant equitable relief in cases of undue influence in the cases of contractual disputes.
• Equity works on the legal maxim “equity suffer wrong without remedy” which means equity comes into role when there is any shortcoming with the law

What is the Difference Between Equity and Equality?

How Equity is a Secondary Source of Law?

• Equity is derived neither from customary laws nor from statutory laws. It is derived from the precedents based on conscience by the English laws. In the Courts of Chancery.
• Special Courts known as “Equity Courts” were set up in England to resolve the disputes by applying the principle of Equity where common law cannot be applied.
• It provides resolutions to the disputes where common law cannot fairly give the remedy.
• Equity is a set of uncodified rules to ensure fairness and justice.

What is the Principle of Fairness?

• Fairness is the means to justice.
• The principle of fairness ensures procedural fairness in due process of law to prevent any arbitrary or unfair practice.
• It ensures the third party pronouncing a decision or responsible for resolving the dispute between the parties must be impartial.
• The principle of fairness ensures that the rules or statutes should be applied in such a way that the result must be just, fair and equitable.
• The main objective of fairness is to meet the ends of justice by foolowing a fair procedure.