1983 (3) TMI 312 - HC - Indian Laws

Court dismisses injunction, allows vacate order, finding balance favors respondent. Contract terminable, parties bear own costs.

The court dismissed the plaintiff's application seeking an injunction and allowed the respondent's application to vacate the injunction order. The court ... Enforcement of negative stipulation by injunction - reasonableness test for negative covenants - injunction as an extraordinary remedy - balance of convenience and irreparable injury - temporary injunction principles under Order XXXIX Rules 1 & 2 CPC - determinable contract and effect on specific reliefEnforcement of negative stipulation by injunction - reasonableness test for negative covenants - injunction as an extraordinary remedy - Whether a negative covenant in the franchise agreement restraining the respondent from manufacturing and marketing a competing soft drink is enforceable by injunction - HELD THAT: - The Court accepted that a negative stipulation can, in principle, be enforced by injunction but emphasised the settled test that such relief is exceptional and must satisfy reasonableness both as between the contracting parties and in relation to the public interest. Reliance was placed on the principle that where damages would be an adequate and more efficacious remedy, an injunction should not be granted merely to enforce a contractual restraint. The Court observed that injunctions against negative stipulations are proper in exceptional circumstances - for example where specialised knowledge or technical know-how imparted to the counterparty would be misused to the employer's detriment - and should not be issued simply to spite the alleged breaching party. [Paras 18, 19, 21, 22]A negative covenant is not prima facie unenforceable, but injunctive relief to enforce it requires exceptional justification and must meet the reasonableness test; damages may suffice in ordinary cases.Balance of convenience and irreparable injury - temporary injunction principles under Order XXXIX Rules 1 & 2 CPC - determinable contract and effect on specific relief - Whether, on the facts, the interim injunction restraining the respondent from manufacturing and marketing 'Thril' should be continued or vacated - HELD THAT: - Applying the principles for interim relief, the Court examined factual material: existence of alternative marketing through a prior franchisee (M/s Spencer and Company), the respondent's claim of having commenced production of 'Thril' and having invested for that purpose, and the respondent's exercise of a contractual termination notice. The Court found that the petitioner already had marketing arrangements enabling availability of its product in the disputed territory, weakening its claim of irreparable loss. Conversely, the respondent would suffer significant and irreparable loss if restrained, having shifted production and invested to manufacture 'Thril'. On the balance of convenience the Court held that the interim protection should not continue and that the prohibition in Section 41 of the Specific Relief Act did not bar consideration of injunction in the abstract but the facts did not favour granting it. [Paras 24, 25]On the balance of convenience and absence of exceptional circumstances, the interim injunction was vacated and the respondent's application under Order 39 Rule 4 was allowed.Final Conclusion: The High Court held that although negative covenants may in exceptional cases be enforced by injunction subject to a reasonableness test, on the facts the balance of convenience lay against the petitioner; the ex parte interim injunction of 16th February, 1983 was vacated and the respondent's application under Order 39 Rule 4 was allowed, parties to bear their own costs. Issues Involved:1. Vacation of ex parte ad interim injunction.2. Reference to arbitration under Section 20 of the Indian Arbitration Act.3. Non-performance of the franchise agreement.4. Grant of injunction under Section 41(e) read with Section 14(a) and (c) of the Specific Relief Act.5. Applicability of Section 42 of the Specific Relief Act.6. Determinability of the contract.7. Balance of convenience and irreparable loss.Detailed Analysis:1. Vacation of Ex Parte Ad Interim Injunction:On 8th March 1983, the court allowed I.A. No. 793 of 1983 filed by the defendant under Order 39, Rule 4 of the Code of Civil Procedure, seeking the vacation of the ex parte ad interim injunction passed on 16th February 1983. Consequently, the plaintiff's application, I.A. No. 719 of 1983, was dismissed.2. Reference to Arbitration Under Section 20 of the Indian Arbitration Act:The plaintiff, Modern Food Industries Ltd., sought to file the original arbitration agreement in court and refer the disputes to arbitration as per the arbitration clause in the contract with the respondent, M/s. Shri Krishna Bottlers Pvt. Ltd. The disputes, as mentioned in para 16 of the petition, included the respondent's refusal to manufacture the plaintiff's products, leading to a claimed loss of Rs. 60 lakhs.3. Non-Performance of the Franchise Agreement:The plaintiff alleged that the respondent failed to bottle and market the soft drink '77' and instead entered into an agreement with another company, M/s. McDowell Company, to bottle and market their product 'Thril', which was similar in flavor and taste to '77'. The plaintiff claimed that this contravened the agreement dated 17th March 1982, which prohibited the respondent from dealing with any other similar product without written permission.4. Grant of Injunction Under Section 41(e) Read with Section 14(a) and (c) of the Specific Relief Act:The respondent raised a preliminary objection that the injunction sought could not be granted under Section 41(e) read with Section 14(a) and (c) of the Specific Relief Act. The court noted that the dispute regarding the non-performance of the negative agreement was not explicitly mentioned in para 16 of the main petition, but for the purpose of deciding the applications, it was presumed that such a dispute existed.5. Applicability of Section 42 of the Specific Relief Act:The plaintiff argued that the contract included a negative agreement not to manufacture or bottle any other soft drink except 'Nova Cola' for one year. Under Section 42 of the Specific Relief Act, the plaintiff sought an injunction to restrain the respondent from manufacturing and marketing 'Thril'. The court considered whether the enforcement of the negative stipulation was reasonably necessary for the protection of the plaintiff's legitimate interests.6. Determinability of the Contract:The respondent contended that the contract was determinable under clause 21, which allowed either party to terminate the agreement with prior notice. The respondent had already served a six-month notice of termination on the plaintiff on 28th February 1983. The court acknowledged that the contract was indeed determinable.7. Balance of Convenience and Irreparable Loss:The court assessed the balance of convenience and the potential for irreparable loss. The plaintiff claimed a potential loss of Rs. 60 lakhs due to the respondent's non-performance. However, the court noted that the plaintiff's products were still available in Hyderabad and Secunderabad through another franchise agreement with M/s. Spencer and Company. On the other hand, the respondent had invested in manufacturing 'Thril' and would suffer irreparable loss if restrained from doing so. The court found that the balance of convenience favored the respondent.Conclusion:The court dismissed the plaintiff's application, I.A. No. 719 of 1983, and allowed the respondent's application, I.A. No. 793 of 1983, thereby vacating the injunction order passed on 16th February 1983. The parties were directed to bear their own costs.