Binding MOU and interim preservation relief upheld where essential terms were settled and termination appeared unjustified.

A memorandum of understanding was held, prima facie, to be a binding contract because the essential terms were settled, the definitive forms were annexed, and the parties acted on the arrangement, leaving no substantial matters for further negotiation. Interim protection was also warranted pending arbitration because the relief sought was preservation of the subject matter, damages were not an adequate remedy for the unique commercial opportunity involved, and the right to terminate had, prima facie, been waived by conduct. On the material before the Court, the termination was found to be without justification and, prima facie, arbitrary and illegal, so status quo protection was continued pending the arbitral award.

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Issues: (i) Whether the memorandum of understanding constituted a binding contract and not a mere agreement to agree. (ii) Whether interim protection was barred because the contract was determinable or otherwise not specifically enforceable, and whether the termination of the memorandum of understanding was arbitrary and illegal.

Issue (i): Whether the memorandum of understanding constituted a binding contract and not a mere agreement to agree.

Analysis: The memorandum recorded that the parties had accepted the essential terms, that the forms of the definitive agreements were annexed to it, and that the obligations undertaken were legally binding. The conduct of the parties after execution also showed performance under the arrangement and no substantial open terms left for further negotiation. The requirement of later formal agreements did not, in the facts of the case, prevent the arrangement from being a concluded bargain.

Conclusion: The memorandum of understanding was, prima facie, a binding contract and not merely an agreement to agree.

Issue (ii): Whether interim protection was barred because the contract was determinable or otherwise not specifically enforceable, and whether the termination of the memorandum of understanding was arbitrary and illegal.

Analysis: The Court held that the relief claimed was only for preservation of the subject matter pending arbitration and not for final enforcement of the contract. The petitioner had made out a prima facie case that compensation would not be an adequate remedy because the transaction concerned a unique opportunity to participate in the rehabilitation and management of sick textile mills. The Court further held that the contract had, by conduct, been extended and the right to terminate on expiry of the original period had been waived. On the material before it, the termination was found to be without justification and, prima facie, arbitrary and illegal. Since the subject matter had to be preserved pending arbitral adjudication, the bar under the Specific Relief Act was not attracted at this stage.

Conclusion: Interim injunction was warranted in favour of the petitioner and the termination was, prima facie, invalid.

Final Conclusion: The petitions were allowed and status quo protection was continued pending the arbitral award, with the subject matter of the dispute ordered to be preserved.

Ratio Decidendi: A memorandum of understanding may be treated as a binding contract where the essential terms are settled and the parties act upon it, and an interim injunction may be granted to preserve the subject matter when the contract, though asserted to be determinable, has been prima facie extended or waived by conduct and the remedy in damages is not adequate.

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