Post-expiry restraint and personal service covenant cannot be enforced by injunction; Section 27 bars the restraint.

A post-expiry right of first refusal was held unenforceable because, once sought to operate beyond the contractual term, it amounted to a restraint on trade under Section 27 of the Indian Contract Act, and the reasonableness doctrine could not save it outside the statutory exception. Interim injunction under Section 9 of the Arbitration and Conciliation Act was also refused because enforcing the covenant would, in substance, compel specific performance of a personal and fiduciary service arrangement barred by the Specific Relief Act. The Court held that money compensation was the appropriate remedy and sustained the refusal of injunctive relief.

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Issues: (i) Whether the right of first refusal clause, sought to be enforced after expiry of the agreement, was void as being in restraint of trade under Section 27 of the Indian Contract Act, 1872. (ii) Whether an interim injunction under Section 9 of the Arbitration and Conciliation Act, 1996 could be granted to enforce such a covenant in a contract of personal and fiduciary service.

Issue (i): Whether the right of first refusal clause, sought to be enforced after expiry of the agreement, was void as being in restraint of trade under Section 27 of the Indian Contract Act, 1872.

Analysis: The covenant required the respondent to give the appellant an opportunity to match a third-party offer, but the Court held that once enforcement was sought beyond the contractual term, the stipulation operated as a post-contractual restraint. The settled position under Section 27 is that a restrictive covenant extending beyond the term of the contract is void and the doctrine of reasonableness does not apply unless the case falls within the statutory exception. The clause, if read as operative after expiry, restrained the respondent's freedom to contract with others and therefore could not be enforced beyond the term.

Conclusion: The covenant was held unenforceable insofar as it was sought to be enforced after expiry of the agreement and was void under Section 27.

Issue (ii): Whether an interim injunction under Section 9 of the Arbitration and Conciliation Act, 1996 could be granted to enforce such a covenant in a contract of personal and fiduciary service.

Analysis: The Court held that granting the injunction would, in substance, compel specific performance of a personal and fiduciary agency arrangement, which is barred by the Specific Relief Act. A negative covenant cannot be enforced through interim relief where the result would be to force continuation of a relationship based on mutual trust and confidence, especially after the contract had expired. The Court also noted that the appellant could be compensated in money, whereas forcing the respondent to continue in the relationship would cause irreparable prejudice. The balance of convenience and the nature of the relief sought weighed against interference.

Conclusion: Interim injunctive relief was refused and the order of the Division Bench was sustained.

Final Conclusion: The Court upheld the view that the post-expiry restraint was not enforceable and that interlocutory relief could not be used to compel continuation of a personal agency relationship, leaving the appellant to pursue other remedies in law.

Ratio Decidendi: A covenant that restrains a party's freedom to contract after the expiry of the agreement is void under Section 27, and such a post-contractual negative covenant cannot be enforced by interim injunction where doing so would amount to specific performance of a personal or fiduciary service contract.

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