Supreme Court of India
M/S. GUJARAT BOTTLING COMPANY LTD. AND ORS.versusTHE COCA COLA CO. AND ORS.
- Citation
- 1995 INSC 441
- Decided
- 4 August 1995
- Disposal
- Dismissed
- Bench
- S C AGRAWAL
Holding
The Supreme Court upheld the High Court's interim injunction, holding that the 1993 negative covenant is not a restraint of trade, the 1994 agreement does not supersede or alter the 1993 agreement, and the injunction is proper and equitable.
Summary
Gujarat Bottling Co. Ltd (GBC) entered into a 1993 licence agreement with Coca Cola to bottle and distribute beverages under several trade marks, which included a negative covenant prohibiting GBC from dealing in competing products during the agreement's term. A subsequent 1994 agreement, intended to register GBC as a statutory user of the marks, did not supersede the 1993 agreement or alter its termination notice period. After Pepsi acquired control of GBC, Coca Cola terminated the agreements and obtained an interim injunction restraining GBC and its transferees from using the bottling plants for any other brands. GBC challenged the injunction on grounds of restraint of trade, invalidity of the termination clause, and excessive breadth of the order. The Supreme Court held that the negative covenant was not a restraint of trade under Section 27 of the Contract Act, the 1994 agreement did not modify the 1993 agreement, and the injunction was justified as Coca Cola had a prima facie case and the balance of convenience favored it. Consequently, the appeals were dismissed and the High Court's injunction upheld.
Issues considered
- The nature and enforceability of the negative covenant in the 1993 agreement under the doctrine of restraint of trade.
- Whether the 1994 agreement superseded or modified the 1993 agreement, particularly the termination notice period.
- The validity of clause 19(b) of the 1993 agreement restricting share transfers under the Companies Act.
- The appropriateness of the interim injunction granted by the High Court, considering prima facie case, balance of convenience, and irreparable injury.
- Whether the injunction was overly wide in restraining transferees and affiliates.
Legislation cited
- Code of Civil Procedure, 1908s. Order 39 Rule 1, s. Order 39 Rule 2
- Companies Act, 1956s. 82
- Indian Contract Act, 1872s. 27
- Specific Relief Act, 1963s. 41(e), s. 42
- Trade and Merchandise Marks Act, 1958s. 48, s. 49
Subjects
trade mark licensingrestraint of tradeinterim injunctionfranchise agreementnegative covenantSpecific Relief ActContract Actequitable reliefregistered usershare transfer restriction
Judgment
A MIS. GUJARAT BOTTLING COMPANY LTD. AND ORS.
v.
THE COCA COLA CO. AND ORS.
AUGUST 4, 1995
B [S.C. AGRAWAL ANDS. SAGHIR AHMAD, JJ.]
Trade and Merchandise Marks Act/Trade and Merchandise Marks
Rules 1958-Section 49/Rule 83-Trade Mark-Registration ofuser-Statut01y
requirement~Implications of Common law-Licensing-Restriction on
C usage.
Indian Contract Act, Section 27-Restraint of trade-Doctrine of-Test
of reasonablenes~ommercial agreement~Applicability to-Condition
restricting the 1ight of the franchisee to deal with competing goods-To
facilitate distribution of goods of the franchisee-Held, cannot be regarded as
D restraint of trade.
Specific Relief Act, 1963-Sections 4l(e) & 42-lnjunction-Grant
of-Enforcement of negafive covenant-Held, relief discretionary-Plea of
burdensome contract-Not valid defence.
E Civil Procedure Code. 1908-0rder 39 Rules I and 2-Principles of
grant of injunction-Held, conduct of parties a relevant consideration-Parties
to show that they are not fault as relief is equitable.
Interlocutory Injunction-Discretionary remed;-Tests for grant of
F The Appellant Company (GBC) fully owned and controlled by
respondents nos. 2-4 and 7 and their respective family members and
situated in Ahmedabad and Rajkot in Gujarat were engaged in the
preparation bottling, sale and distribution of beverages registered under
the trade marks "Thoms Up" "Limca", "Gold Spot", "Maaza", "Citra", "Rim
G Zim" and "Bislerie Club Soda" under Iic~nse from the Parle group of
companies, the registered owners of the said trade marks. The Parle group
of companies was owned and controlled by Respondent Nos. 3 and 4.
Coca Cola company (respondent No.1) in anticipation of an assign·
ment of rights in the trade marks for the aforesaid beverages by the
H registered owners viz., Parle group, executed an agreement on 20.9.93 with
514
GUJ. BOTILING CO.LTD. v. COCA COLA CO. 515
GBC agreeing to grant a license to GBC for the use of the trade marks in A
respect of the beverages mentioned above. The agreement provided for the
use of the said trademarks by GBC to ensure that such of the trademark
was strictly in accordance with the common law governing user of trade
mark. This agreement permitted and authorized GBC to bottle, sell and
distribute the said beverages under the aforesaid trademarks inter alia on
B
the following terms: a) GBC will not sell, assign, transfer, pledge,
mortgage, lease, license or in any other way or manner encumber, dispose
of, in whole or in part, the agreement of any interest therein, either directly
or indirectly, not to pass by operation of or in any other manner without
Coca Cola's prior written consent; b) the agreement may be terminated by
either side on giving one year's written notice which period may be reduced c
by mutual consent in writing between Coca Cola and GBC; It contained a
negative stipulation that GBC will not manufacture, bottle, sell, deal or
otherwise be concerned with the products, beverages of any other brands
or trade marks/trade names during the subsistence of the agreement
including the period of one year's notice as contemplated in the agreement. D
The 1993 Agreement came into force on 12.11.93 when the trade marks
were assigned and transferred to Coca Cola. The agreement was to operate
for five years unless terminated earlier. Further under cl.(19) the transfer
of stock, share or interest or other indica of ownership of GBC resulting
in effective transfer of control without the prior express written consent of
Coca Cola was restrained. E
On 30.4.94 a second agreement was executed between the same
parties wherein Coca Cola was described as a Licenser and GBC as the
Licensee inter alia on the following terms : a) both the parties shaU make
an application to the Registrar of Trade marks under the Trade & Mer- F
chandise Marks Act, 1958 or any statutory modification thereto or thereof
for the time being in force to procure the registration of the licensee (GBC)
as a registered user of the said trade marks as aforesaid as soon as the
said trade marks are registered and shall sign and execute all such
documents as are reasonably proper and necessary to secure registration
and for any change thereof in the future; b) the agreement shall continue G
in force without limit of any period but may be terminated at any time by
either party upon giving 90 days notice in writing to the other by mutual
consent. But in the event of either committing a breach it may be ter-
minated on thirty days' notice. This agreement was a statutory agreement
executed in compliance with the requirements of the Trade & Merchandise H
•516 SUPREME COURT REPORTS [1995] SUPP. 2S.C~R.
A Marks Act and the rules framed thereunder for the registration of GBC
as the registered user of the trademarks.
After the aforesaid agreements GBC took steps to upgrade their
plant and when Coca Cola insisted on some additional investments GBC
was reluctant and thereafter respondent No. 2 applied to Coca Cola for its
B consent to a transfer of its interest in GBC. Coca Cola refused to give its
consent in the absence of any intimation as to the identity of the prospec-
tive buyer and informed them that the transfer can be permitted provided
GBC does not lose controlling power or management in favour of an
outsider.
c On 20.1.95 the share holding of respondents 2-4 and 7 including that
of their family members were transferred to appellants 2 to 5, concerns
closely associated and connected or affiliated to subsidiaries of Pepsi
(respondent no 2 to 6) as a result of which Pepsi acquired a controlling
interest in GBC. There after GBC terminated both the agreements with
D Coca Cola by a notice issued under clause 7 of the 1994 agreement, on
25.1.95. It was also stated by GBC that the 1993 agreement stood replaced
by 1994 agreement and in any even since the period of termination has been
reduced to 30 days notice the notice also be treatecJ_ ~i·~~f,~i~~tl~~ ~nderthe
1993 agreement. On the same day GBC informed Coca Cola that 70.6% of
E the holding have been transferred in favour of Respondents 2 to 5.
Immediately thereafter GBC made an application to the Ministry of
Food Processing Industries for approval of crown cap designs pertaining
to beverages of which the Trademarks were held by Pepsi.
F Coca Cola filed a suit in the Bombay High Court seeking various
reliefs and also took out a notice of motion seeking interim relief. The
Single Judge who heard the matter, issued an interim injunction restrain-
ing GBC from manufacturing, bottling or selling or dealing with the
products, beverages of any brand or trade mark owned by respondent nos.
5 and 6 or any one else other than Coca Cola. GBC was permitted to
G pursue its application pending before the Ministry of Food Processing
Industries but was not allowed to act upon the permission of the said
authority or any other authority without the prior leave of the court. This
order was assailed by both GBC .and Coca Cola before a Division Bench.
At the request of the counsel of the parties the notice of motion was taken
H on board and decided finally by the Division Bench.
GUJ. BOTTLING CO.LTD. v. COCA COLA CO. 517
By the impugned order the notice of motion was made absolute. An A
injunction was granted inter alia :
(a) restraining GBC from either directly or indirectly by itself or
through its shareholders from concerning itself with the products,
beverage of any other brand or trademark of Coca Cola; and
B
(b) that in the event of the sale of shares having taken place before
the institution of the suit, the deponent no. 1 and those to whom the shares
have been sold and subsequent transferees etc. were restrained by an
interim injunction from using the plants of GBC for manufacturing,
bottling or selling or dealing with or concerning themselves in any manner C
whatsoever with the beverages of any person till January 25, 1996.
Aggrieved by the said Judgment, GBC and the four transferees of
the shares preferred appeals to this Court.
It was contended on behalf of the appellants that the negative D
stipulation contained in para 14 of the 1993 agreement being in restraint
of trade is void in view of the provisions of Section 27 of the Contract Act;
that the 1993 agreement is no longer in operation since it has been
superseded by the 1994 agreement and the same has been terminated by
notice dt. 25.1.95 and in the alternative the period of notice for terminating E
the agreement as contained in the 1993 agreement was reduced by mutual
consent from one year to 90 days by the 1994 agreement and the agreement
stands terminated on the expiry of 90 days from the date of said notice;
the observation relating to the doctrine of restraint of trade must be
confined only to contracts of employment and that this principle does not
apply to other contracts; the negative stipulation contained in paragraph F
14 of the 1993 agreement is confined in its application to the preceding
paragraph which means that the said stipulation can be invoked only if
GBC is not able to maintain the continued supply of the products and
beverages to Coca Cola and fails to maintain the Goodwill; that Clause (b)
of paragraph 19 of the 1993 agreement which imposed a restraint in the G
matter of transfer of the shares of GBC is void as transfer of shares of a
company registered under the Companies Act is governed by Section 82 of
the said Act and no restraint can be placed by contract on the said right
to transfer the shares of the company; the High Court was not justified in
law in issuing an interim injunction enforcing the negative stipulation
contained in paragraph 14 of the 1993 agreement, as a result of the said H
518 SUPREME COURT REPORTS [1995) SUPP. 2.S.C.R.
A injunction and discontinuance by Coca Cola if the supply of essence/syrup
and/or other materials by exercising its right under the 1993 agreement,
the plants of GBC would remain idle and a large number of workers who
are employed in those plants would be rendered unemployed and GBC
would be saddled with heavy liabilities loading to its closure thereby
resulting in irreparable loss which cannot be compensated in the event of
B the suit filed by Coca Cola being dismissed; that on the other hand Coca
Cola could not suffer any loss because it had already made alternative
arrangements for supply of its products in area covered by both the
agreement by arranging supply of their products from other licensees in
the neighboring areas that Coca Cola can be adequately compensated for
c the loss cause to it by award of damages in the event of it succeeding in
the suit; and that the injunction granted by the High Court is in very wide
terms.
The Respondents contended that, the negative stipulation is ap-
D plicable to the entire para 14 of the 1993 agreement and it should not be
confined to a particular portion only; that Pepsi in taking over GBC took
a calculated risk with full knowledge of the negative covenant and if GBC
is not restrained the goodwill will be destroyed by a rival and damages
would not be an adequate compensation and GBC can be protected by
Coca Cola by furnishing an undertaking under Rule 148 of the Bombay
E High Court Original side rules; and that since GBC itself is primarily
responsible for breach of the Agreement it cannot seek the vacation of the
interim order.
Dismissing the appeals, this Court
F
HELD : 1. The use of a+egistered trade mark can be permitted to a
registered user in accordance with the provisions of the Trade a~d Mer-
chandise Marks Act and for that purpose the registered proprietor has to
enter into an agreement with the proposed registered t.•ser. The 1994
agreement is a statutory agreement under the Act of 1958 and the rules
G framed thereunder. However, the 1993 agreement is for grant of license in
common law and is much wider in its amplitude and includes terms
regarding the right of the Franchisee in the matter of manufacturing,
bottling etc. The 1994 agreement cannot be construed as superseding the
1993 agreement and the Cou~ below have rightly rejected such a conten-
H tion. (537-C-D-F]
GUJ.BOTILINGCO.LID. v. COCACOLACO. 519
General Election Co. v. General Electric Co. Ltd., [1972] All ER 507, A
referred to.
P. Narayanan - Law of Trade Marks and Passing off 4th Ed., Para 20.6,
p. 335, referred to.
2. Since the nature and scope of the two agreement are different the B
1994 agreement cannot be construed as having modified the termination
period given in the 1993 agreement. There is no consensus ad idem between
the parties to reduce the termination period. Hence, the 1993 agreement
can be terminated only by given a notice of one year as required in the
agreement. [538-B-DJ
c
..
3. The condition restricting the right of franchisee to deal with
competing goods is for facilitating the distribution of the goods of the
franchiser and it cannot be regarded as one in restraint of trade. Since the
negative stipulation in the 1993 agreement is confined to the period of
subsistence of the agreement it cannot be held to be in restraint of trade D
so as to attract the bar of sec. 27 of the Contract Act. [545-C, 547-B]
N.S. GoJikari v. Century Spinning Co., [1967) 2 SCR 378 Superinten-
dent Company of India v. Krishan Murgai, [1980) 3 SCR 1278, referred to.
Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd., (1968) E
AC 269, Attorney General of the Commonwealth of Australia v. Adelaide
Steamship Co. Ltd., [1913) AC 781; McE/listrim v. Ballymacelligott Co-
operative Agricultural And Dairy Society Ltd, [1919) AC 548; Herbert Morris
Ltd. v. Saxelby, [1916) 1 AC 688 and Petrofina (Great Britain) Ltd. v. Martin,
. [1966) Ch. 146, referred to. F
Halsbury's Laws of England, 4th Edn., Vol. 47 paras 9 to 26, referred
to.
4. There is no basis for confining the doctrine of restraint of trade to
a contract for employment and excluding its application to other contracts. G
The underlying principle governing contracts in restraint of trade is the
same in both the contract of employment in and other contracts. [546-E]
5. The negative stipulation contained in the 1993 Agreement is to
promote the trade and it seeks to achieve the said purpose by requiring
GBC to wholeheartedly apply to promoting the sale of the products of Coca H
520 SUPREME COURT REPORTS [1995) SUPP. 2 S.C.R..
A Cola. Further, the operation of the same is only during the subsistence of
the Contract. [545-E-F]
6. The negative stipulation contained in para 14 of the 1993 agree-
ment is applicable to all the sub-paragraphs preceding the same and the
purpose of the negative stipulation is to promote and solicit the products
B of GBC produced under the trademarks of Coca Cola. [545-D]
7. Cl.(b) of para 19 cannot be held to mean placing restriction on
the right of the shareholders from alienating their shares in GBC. It is
between GBC and Coca Cola inter se and it does not have any binding force
on other shareholders. It only means that in the event of effective transfer
c of control of GBC by its shareholders in addition to their right to cancel
()
their agreement Coca Cola has been given a right to discontinue the supply
of materials to GBC. [549-F·G]
V.B. Rangraj v. V.B. Gopalakrishnan & Ors., [1992) 1 SCC 160,
.
D distinguished.
8. The relief of injunction is wholly equitable in nature and the party
invoking the same has to show that he himself was not at fault and that
he himself was not responsible for bringing about the state of things
complained of and that he was not unfair or inequitable in his dealings
E with the party against whom he was seeking relief. These considerations
are. equally applicable to the party approaching the court for vacating the
order of injunction. [554-C-D]
M/s. Lalbhai Dalpatbhai & Co. v. Chittaranjan Chandulal Pandya, AIR
(1966) Guj. 189, Modem Food Industries India Ltd. v. M/s. Shri Krishna
F Bottlers (P) Ltd., AIR (1984) Delhi 119 and Wander Ltd. & Anr. v. Antox
India P. Ltd., [1990) Supp. SCC 727, referred to:
Ehrinan v. B01tholomew, (1927) W.N. 233, American Cynamid Co. v.
Ethicon Ltd., [1975) AC 396, referred to.
G
Chitty on Contracts, 27th Edn., Vol. I, General Principles, para 27-040;
Halsbury's Laws of England, 4th Edn. vol. 24, para 992, referred to.
9. The relief of injunction is granted to protect the plaintiff against
injury by violation of his right for which he could not be adequately
H compensated in damages recoverable in the action if the uncertainty were
GUJ. BOTfLING CO. LTD. v. COCA COLA CO. [S.C. AGRAWAL, J.] 521
resolved in his favour at the trial. In order to protect the defendant the A
Court can require the Plaintiff to furnish an undertaking so that the
defendant can be adequately compensated if the uncertainty were resolved
in his favour at the trial. Coca Cola has made out a prima-facie case for
grant of injunction. The loss that may be caused to GBC as a result of
grant of injunction can be assessed and GBC may be compensated by B
award of damages. GBC would be protected by the undertaking that is
required to be given by Coca Cola under Rule 148 of the Bombay High
Court (original side) Rules, 1980. [551-F-H; 553-D-E]
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 6839-40
of 1995. C
From the Judgment and Order dated 31.3.95 of the Bombay High
Court in A Nos. 183 & 191/95 in Notice of Motion No. 316/95 in Suit No.
400of1995.
Shanti Bhushan, Gopal Subramaniam, Aron Jetley, F.S. Nariman, D
T.R. Andhyarujina, Anil B. Divan, Harish N. Salve, K.K. Venugopal, A
Sitalwad, Hemant Sahai, Amit Kapur, Ashok Grover, P.S. Shroff, Sunil
Dogra, Dinyar Madan, Ramji Srinivasan, Ms. Monica .Sharma. S.S. Shroff
S.V. Thakore, B.V. Desai, Prasant Patnaik, C.L. Sareen, R.C. Lohli, Ms.
Indu Malhotra and Ms. Aysha Khatri for the appearing parties. E
The Judgment of the Court was delivered by
S.C. AGRAWAL, J. Special leave granted.
In the past nations often went to war for the protection and advan- F
cement of their economic interests. Things have changed now. Under the
international order envisaged by the Charter of the United Nations war is
no longer an instrument of State policy. Now-a-days there are wars between
corporations; more particularly corporations having multi-national opera-
tions, for the protection and advancement of their economic interests. G
These wars are fought on the economic plane but some of the battles spill
over to courts of law. The present case is one such legal battle. The
combatants are two American multi-national corporations dominating the
soft drink market having operations in a number of countries. On the one
side is Coca Cola Company (respondent No.1), hereinafter referred to as
"Coca Cola", and on the other side is PEPSICO INC. (for short "Pepsi"), H
522 SUPREME COURT REPORTS [1995] SUPP. 2S.C.R.
A and its subsidiaries and subsidiaries of the subsidiaries which are under,
direct or indirect, control of Pepsi. There is a long history of trade rivalry
between these two multi-national corporations.
.......
Coca Cola had been operating in this country till 1977 when on
account of change of policy of the new Government Coca Cola had to
B close its operations in India. After the departure of Coca Cola the products
of the domestic manufactures filled the vacuum. A substantial share of the
market came to be controlled by the Parle group of companies oWlled and
controlled by Mr. Ramesh Chauhan and Mr. Prakash Chauhan, respon-
dents Nos. 3 and 4. The said group was manufacturing under trade marks
C bearing the names "Gold Spot", "Thums Up", "Limca", "Maaza", "Rim Zim"
and "Citra" as well as "Bisleri" club soda. They had arrangements with
bottlers in different parts of the country where under the bottlers prepared
beverages from the essence/syrup supplied by the Parle group and after
bottling the same the beverages were sold under the names for which trade
D marks were held by the Parle group. In late 1980s Pepsi started operations
in India and introduced beverages under their trade marks. Coca Cola
followed suit thereafter. Under the Deed of Assignment dated November
12, 1993, the Parle group assigned their trade marks in the beverages
bearing the names "Gold Spot", "Thums Up" , "Limca", "Maaza", "Rim Zim"
and "Citra" to Coca Cola. On January 6, 1994, Coca Cola applied to the
E Registrar of Trade Marks for being recorded as subsequent proprietor of
the trade marks which had been assigned to it by the various Parle entities.
Gujarat Bottling Company Ltd., appellant No. 1 {hereinafter referred
to as 'GBC) is a company incorporated under the Companies Act, 1956.
F 21% of its shares are held by Ahmedabad Advertising· and Marketing
Consultants Ltd., respondent No. 7. The remaining 79% of shares were
held by Mr. Pinakin K. Shah, respondent No. 2 and his family members
and business associates and respondents Nos. 3 and 4 and their family
members and associates in the ratio of 78% and 22% respectively. The
shares of respondent No. 7 were also held by respondent No. 2 and his
G family members and associates and respondent No. 3 and 4 and their family
members and associates in the same ratio of 78% and 22% respectively.
GBC has bottling plants at Ahmedabad and Rajkot in Gujarat. GBC was
having an arrangement with respondents Nos. 3 nd 4 whereunder licence
had been given to GBC to prepare, bottle, sell and distribute beverages
H under the trade marks "Thums Up", "Limca", "Gold Spot", "Maaza", "Citra",
UUJ.BOTfLINGCO.LTD. v. COCA COLA CO. [S.C.AGRAWAL,J.) 523
"Rim Zim" and "Bisleri Club Soda". In anticipation of the assignment of the A
rights in trade marks by parle group in its favour, Coca Cola, on September
20, 1993, entered into an agreement (hereinafter referred to as the "1993
Agreement") with GBC whereby Coca Cola permitted and authorised -
GBC, upon the terms contained in the said agreement, to bottle, sell and
distribute the beverages known and sold under the trade marks "Gold B
Spot", "Thums Up", "Limca", "Maaza" and "Rim Zim". The trade mark
"Citra" was excluded from this agreement for the reason that a suit for
'passing off' was pending against the Parle entity concerned in the Delhi
High Court and there was uncertainty of the outcome of this litigation. The
1993 Agreement was to come into effect on the date Coca Cola indicated C
in writing to GBC that all trade marks related to the said agreement have
been assigned and transferred to Coca Cola. The 1993 Agreement is to -
... operate till November 17, 1998 unless earlier terminated as provided in the
said agreement. Under Paragraphs 4(a), 6, 18, 19, 20 and 23 Coca Cola is
empowered to terminate the said agreement without notice and in para-
graph 21 provisions is made for termination of the said agreement by either D
side on giving one year's written notice. The said period of notice could be
reduced by mutual consent in writing between Coca Cola and GBC.
Paragraph 14 of the 1993 Agreement contains a negative covenant by GBC
not to manufacture, bottle, sell, deal or otherwise be concerned with the
products, beverages of any other brands or trade marks/trade names during E
the subsistence of the agreement including the period of one years' notice
as contemplated in paragraph 21. Under paragraph 19 Coca Cola has the
right to dis-continue supply to GBC with essence/syrup and/or othe!
materials on the happening of any of the events mentioned in clauses (a)
to (e) of the said paragraph. Clause (b) of paragraph 19 relates to transfer
of stock, share or interest or other indicia of ownership of GBC resulting
F
in effective transfer of control without the prior express written consent of
Coca Cola. The 1993 agreement came into force on November 12, 1993
when the trade niarks related to the said agreement were assigned and
transferred to Coca Cola. Two such agreements were executed - one
pertaining to Ahmedabad town and other pertaining to Rajkot town. In G
petition, Coca Cola also entered into two separate agreements under
letters dated September 20, 1993 in respect of permission to use the trade
mark "Citra" by GBC for Ahmedabad and Rajkot towns. Two other
separate agreements were entered by Coca Cola under letters dated Sep-
tember 20, 1993 for Ahmedabad and Rajkot towns for the use of the trade H
524 SUPREME COURT REPORTS [1995) SUPP. 2S.C.R.
A mark "Bisleri" club soda by GBC. All these four letters agreements are
-
~
operative for two years and can be renewed by mutual consent. These
agreements can be ten.ninated by giving three months notice by either side.
These agreements were also to come into effect from the date indicated by
Coca Cola in writing to GBC that all trade marks related to the said
agreements have been assigned and transferred to Coca Cola.
B
On April 30, 1994 Coca Cola entered into another agreement
(hereinafter referred to as the "1994 Agreement") with GBC whereby Coca
Cola granted to GBC a non-exclusive licence to use the trade marks
mentioned in the schedule to the agreement, namely, "Gold Spot", "Lim ca",
c ''Thums Up", "Maaza", "Citra", etc, in relation to goods prepared by or for
the licensee (GBC) from concentrates and/or syrup supplied by the licen-
sor (Coca Cola) and packaged or dispensed in accordance with standards,
specifications, formulae processes and instruction furnished or approved ...
by the licensor from time to time and only so long as such goods are
manufactured within such territory of India and sold within such territory
D
of India and in such bottles or other containers as shall be approved by
the licensor from time to time. In the said agreement it is provided that
both the parties shall make application to the Registrar of Trade Marks ~
under the Trade & Merchandise Marks Act, 1958 (hereinafter referred to
as "the Act') or any statutory modification or enactment thereto or thereof
E for the time being in force to procure the registration of the Licensee
(GBC) as a registered user of the said trade marks as aforesaid as soon as
the said trade marks are registered and shall sign and execute all such
documents as are reasonably proper and necessary to secure such registra-
tion and for any change thereof in the future. The said agreement is not
limited to any particular period and is to continue in force without limita-
F
tion of period but can be terminated at any time by either party upon giving
ninety days' notice in writing to the other or by mutual consent. But in the
event of either party committing a breach of any of the provisions of the ....
said agreement it shall be lawful for the other party, by giving thirty days'
notice in writing, to terminate the agreement. In accordance with the 1994
G Agreement an application was submitted by Coca Cola on July 12, 1994
under Section 48 and 49 of the Act to register the said agreement as a
Registered User Agreement.
After the execution of these agreements steps for upgradation of the
H plants of GBC at Ahmedabad and Rajkot were taken and when the
GUJ.BOTTLINGCO.LID. v. COCACOLACO.(S.C.AGRAWAL,J.] 525
upgradation of the said two plants was near completion Coca Cola advised A
GBC that it was necessary for GBC to provide for additional investments
in marketing arrangements, purchase of crates and other equipments and
trucks etc. GBC was, however, reluctant to make further investment and
respondent No. 2 requested Coca Cola to give its consent in advance for
transfer of interest of respondent No. 2 in GBC. Coca Cola declined to
B
give its consent to such transfer in advance without being aware as to who
the prospective purchaser was and informed GBC and respondent No. 2
that the transfer can be permitted provided GBC does not lose controlling
power or management in favour of an outsider. On January 20, 1995, the
share holding of respondent No. 2 and his family members and associates
as well as respondent Nos. 3 and 4 and their family members and associates c
in GBC and respondent No. 7 were transferred to appellants Nos. 2 to 5
which are concerns closely associated and connected or affiliated to sub-
sidiaries of Pepsi, respondent No. 6, and Pepsi Foods Limited, respondent
No. 5, a subsidiary of Pepsi. As a result Pepsi acquired control over GBC.
On January 25, 1995 GBC Gave a notice to Coca Cola under clause 7 of D
the 1994 Agreement whereby the said agreement was terminated. In the
said notice it is also stated tha~ without prejudice to the contentions of
GBC that the 1993 Agreement stands replaced by the 1994 Agreement
and/or that the termination period under the 1993 Agreement in any event
stands reduced to 90 days and that the said letter dated January 25, 1995
be treated, as a matter of abundant caution, as termination notice also E
under clause 21of the 1993 Agreement. On January 25, 1995 GBC also
addressed a letter to Coca Cola informing them that shares representing
70.6% approximately of the paid up equity capital of GBC had been
acquired by and transferred in favour of appellants Nos. 2 to 5. On January
31, 1995 GBC addressed a letter to the Director (F&VP), Ministry of Food F
Processing Industries, Government of India, for approval of crown cap
designs pertaining to beverages of which the trade marks are held by Pepsi.
On January 30, 1995 Coca Cola filed in suit- (Suit No. 400 of 1995)
in the Bombay High Court seeking various reliefs. In the said suit Coca G
Cola took out Notice of Motion No. 316 of 1995 seeking interim relief.
During the course of hearing on the said Notice of Motion before the
learned single Judge of the High Court (Dhanuka J .) the learned counsel
for Coca Cola sought interim relief in terms of prayers (a)(i), (a)(ii) (a)
(iii) and (a) (viii) of the Notice of Motion. By his order dated February 22,
1995 the learned single Judge declined the application for grant of interim H
526 SUPREME COURT REPORTS [1995) SUPP. 2 S.C.R.
A relief in terms of prayers (a)(i), (a)(iii) and (a)(viii) but issued an interim
injunction restraining GBC from manufacturing, bottling or selling or
dealing with the products, beverages of any brand or trade marks owned
by respondents Nos., 5 and 6 or any one else other than Coca Cola. GBC
was permitted to pursue its application dated January 31, 1995 pending
before the Director (F&VP), Ministry of Food Processing Industries, in
B accordance with law but GBC was directed not to act upon the permission
of the said authority or any other authority, if granted, without obtaining
prior leave of the court. Two appeals (Appeals Nos. 183 and 191 of 1995)
were filed against the· said order of the learned single Judge before the
Division Bench of the High Court - one was by GBC and the other was by
c Coca Cola. During the course of hearing of the said appeals the parties,
through their counsel, submitted that as decision in the appeals would have .
impact on the Motion pending before the learned single Judge, it was
desirable that Notice of Motion No. 316 of 1995 should be taken up on
board and disposed of finally by the Division Bench so as to avoid one
D more appeal. In view of the said submission and by consent of the parties
the Motion was heard and disposed of finally by the Division Bench by the
impugned judgment dated March 31, 1995. By the said judgment Notice of
Motion No. 316 of 1995 was made absolute in terms of prayer Nos. (a)(ii)
and (a) (iii) as modified. Prayer (a)(ii) was for an injunction restraining
respondent No. 1 (GBC) either directly or indirectly by itself or through
E its shareholders from concerning itself with the products, beverages of any
other brand or trade mark of the plaintiffs (Coca Cola). Under prayer
(a)(iii) as modified an injunction has been granted in the following terms:
"That in the event of the sale of shares having taken place before
the institution of the suit, the deponent No. 1 and those to whom
F
the shares have been sold and also subsequent transferees, their
servants, agents, nominees, employees, subsidiary companies, con-
trolled companies, affiliates or associate companies or any person
acting for and on their behalf are restrained by an interim injunc-
tion from using the plants of respondent No. 1 at Ahmedabad and
G Rajkot for manufacturing, bottling or selling or dealing with or
concerning themselves in any manner whatsoever with the
beverages of any person till January 25, 1996."
Feeling aggrieved by the said judgment of the Division Bench of the
H High Court dated March 31, 1995, GBC (defendant No.l) and the four
GUJ.BOTILINGCO.LID. v. COCACOLACO.[S.C.AGRAWAL,J.] 527
transferees of the shares of GBC (defendants Nos. 7 to 10) have filed these A
appeals.
By the said interim order the High Court has given effect to the
hegative stipulation contained in paragraph 14 of the 1993 Agreement
which is in the following terms :
B
"As such the Bottler covenants that the Bottler will not manufac-
ture, bottle, sell, deal or otherwise be concerned with the products,
beverages of any other brands or trade marks/trade names during
the subsistenane of this Agreement including the period of one
year's notice as contemplated in paragraph 21." C
On behalf of the appellants submissions have been made assailing
the validity of the said negative covenant. For that purpose it is necessary
to determine whether the 1993 Agreement subsists or has been legally
terminated. The case of GBC, in this regard, is that the 1993 Agreement
is no longer in operation since it has been superseded by the 1994 Agree- D
ment and the 1994 Agreement has been terminated by notice dated January
25, 1995 and that, in the alternative, the requirement regarding giving of
one year's written notice for terminating the 1993 Agreement as contained
in paragraph 21 of the said agreement was reduced by mutual consent by
the parties by the 1994 Agreement wherein under clause 7 the period of E
such notice for terminating the agreement is 90 days and that by notice
dated January 25, 1995 the 1993 Agreement stands terminated on the
expiry of 90 days from the date of the said notice. These submissions
require an examination of the nature and contents of the 1993 and 1994
Agreements but before we proceed to do so we may briefly refer to the
relevant law governing the use of trade marks in India. F
The first enactment whereby the machinery for registration and
statutory protection of trade marks was introduced in this country was the
Trade Marks Act, 1940. Prior to the said enactment the law relating to
trade marks in India was based on common law which was substantially the G
same as was applied in England before the passing of the Trade Marks
Registration Act, 1875. At common law the right to property in a trade
mark was in the nature of monopoly enabling the holder of the said right
to restrain other person from using the mark. For being capable of being
the subject matter of property a trade marks had to be distinctive. This
right was an adjunct. of the goodwill of a business and was incapable of H
528 SUPREME COURT REPORTS [1995) SUPP. 2 S.C.R.
A separate existence dissociated from that goodwill. [See : General Election
Co. v. General Electric Co. Ltd., (1972) 2 All ER 507). The Trade Marks
Act, 1940, which was based on the Trade Marks Act, 1938 of U.K., has
now been replaced by the Act. The Act has modified the law relating to
Trade and Merchandise Marks and is a comprehensive piece of legislation
B dealing with the registration and protection of trade marks and criminal
offences relating to trade marks and other markings in merchandise. Under
the Act registration of trade marks is not compulsory and as regards
unregistered trade marks, some aspects are governed by the Act while
others are still based on common law. In respect of a trade mark registered
under the provisions of the Act certain statutory rights have been conferred
c on the registered proprietor which enable him to sue for the infringement
of the trade mark irrespective of whether or not mark is used. The Act also
makes provisions whereunder registered proprietor of a trade mark can
permit any person to use the mark as a registered user and for that purpose
provisions are made in Sections 48 to 54 of the Act. In clause (m) of Section
D 2 the expression "permitted use" in relation to a registered trade mark has
been defined to mean "(i) the use of a trade mark by a registered user of
the trade mark in relation to goods - (a) with which he is connected in the
course of trade; and (b) in respect of which the trade mark remains
registered for the time being; and (c) for which he is registered as
E registered user; and (ii) which complies with any conditions or restrictions
to which the registration of the trade mark is subject". In sub- section (1)
of Section 48 it is provided that a person other than a registered proprietor
of a trade mark may be registered as the registered user thereof in respect /
of any or all of the goods in respect of which the trade mark is registered
otherwise than as a defensive trade mark and in the said Section the
F Central Government has been empowered to make rules providing that no
application for registration as such shall be entertained unless the agree-
ment between the parties complies with the conditions laid down in the
rules for preventing trafficking in trade marks. Under sub-section (2) the
permitted use of a trade mark shall be deemed to be used by the proprietor
G thereof and shall be deemed not to be used by a person other than the
proprietor, for the purpose of Section 46 or for any other purpose for
which such use is material under the Act or any other law. Section 49
makes provision for submission of application for registration of trade
mark as a registered user and one of the requirements is that the said
H aJ?plication shall be accompanied by the agreement in writing or a duly
GUJ.BOTfLINGCO.LTD. v. COCACOLACO.[S.C.AGRAWAL,J.) 529
authenticated copy thereof entered into between the registered proprietor A
and the proposed registered user with respect to permitted use of the trade
mark and it is further required that the registered proprietor or some
person authorised to the satisfaction of the Registrar to act on his behalf
give an affidavit in respect of the matters set out in sub-clauses (a) to (d)
of clause (ii) of sub-section (1) of Section 49. Section 51 empowers a B
registered user of a trade mark to call upon the proprietor to take proceed-
ing to prevent infringement of the trade mark and if the proprietor refuses
or neglects to do so within three months after being so called upon, the
registered user may institute proceedings for infringement in his own name
as if he were the proprietor, making the proprietor a defendant. Section
52 deals with power of Registrar to very or cancel registration as registered C
user. Under Section 53 a registered user does not have the right of
assignment or transmission of the right to use the trade mark. Further
provisions relating to registered user are contained in chapter V (Rules 82
to 93) of the Trade and Merchandise Marks Rules, 1959 (hereinafter
referred to as "the Rules"). Rules 83 provides the particulars which are D
required to be stated in the agreement between the registered proprietor
and the proposed registered user with respect to the permitted use of the
trade mark. The said particulars include "the particulars specified in
sub-clauses (a) to (d) of clause (ii) of sub-section (1) of Section 49" and a
provision about "means for bringing the permitted use to an end when the
relationship between the parties or the control by the registered proprietor E
over the permitted user ceases."
The above mentioned provisions contained in the Act and the Rules
indicate that the use of registered trade mark by a registered user is subject
to fulfilment of certain conditions and for the purpose of registration of a F
registered user it is necessary for the registered proprietor of the trade
mark and the proposed registered user to execute an agreement which
must contain the prescribed particulars and must be submitted alongwith
the application for registration as a registered user. The registration as
registered user enables the use of the trade mark by the registered user as
being treated as use by the proprietor of the trade mark and enables a G
registered user to take proce_edings in his own name to prevent infringe-
ment of the trade mark.
Apart from the said provisions relating to 'registered users, it is
permissible for the registered proprietor of a trade mark to permit a person H
530 SUPREME COURT REPORTS (1995) SUPP. 2 S.C.R.
A to use his registered trade mark. Such licensing of trade mark is governed
by common law and is permissible provided (i) the licensing does not result
in causing confusion or deception among the public; (ii) it does not destroy
the distinctiveness of the trade mark that is to say, the trade mark, before
the public eye, continues to distinguish the goods connected with the
proprietor of the mark from those connected with others; and (iii) a
B connection in the course of trade consistent with the definition of trade
mark continues to exist between the goods and the proprietor of the mark.
(See : P. Narayanan - Law of Trade Marks and Passing off, 4th Ed., para
20.16, p.335]. It would thus appear that use of a registered trade mark can
be permitted to a registered user in accordance with provisions of the Act
C and for that purpose the registered proprietor has to enter into the
agreement with the proposed registered user. The use of the trade mark
can also be permitted dehors the provisions of the Act by grant of licence
by the registered proprietor to the proposed user. Such a licence is
governed by common law.
D
We may now examine the two agreements, viz., the 1993 Agreement
and 1994 Agreement. In the 1993 Agreement, in paragraph 2, Coca Cola
has agreed to permit and authorise GBC, upon the terms contained in the
said agreement, to bottle, sell and distribute the beverages known as and
sold under the trade marks set forth, in Annexure II to the agreement.
E Under paragraph 3 it is required that beverages shall be manufactured in
a plant approved by Coca Cola in accordance with the formula and
procedure provided by Coca Cola. In clause (a) of paragraph 4 GBC
expressly covenants to consistently maintain the quality .of the said
beverages in all respects and to strictly adhere and conform to the technical
F ·specifications and standards as provided, using only such ingredients and
of such quality as approved by Coca Cola. GBC also undertakes to exercise
great care and caution to see that sub-standard, inferior or unwholesome
beverages will not be manufactured/marketed by GBC or its agents directly
or indirectly and if Coca Cola observes that the quality of the beverages is
G not maintained consistently, and/or there are persistent complaints from
the market, dealers, outlets, consumers, etc., concerning the low standard
or inferior quality of the beverages manufactured/marketed by GBC, Coca
Cola retains the right to forthwith terminate the agreement. In clause (b)
of paragraph 4, in order to assure compliance by GBC with the above
requirements, it is permissible for the representatives and/or agents of
H Coca Cola to inspect at any time the premises of GBC, the finished
GUJ. BOTILING CO. LID. v. COCA COLA CO. [S.C. AGRAWAL, J.] 531
beverages, the methods of preparation thereof, the the bottling process, A
and full co-operation in this regard is to be extended by GBC. GBC has
also agreed to submit sample of the finished beverages to Coca Cola every
month for analysis and approval by Coca Cola who is the sole judge to
determine and certify the quality of the said beverages as fit for marketing.
Paragraph 5 relates to keeping by GBC or complete records of all chemical B
tests carried out as specified by Coca Cola and of production, sale and
distribution of the beverages and furnishing of monthly reports about the
same to Coca Cola. Under clause (a) of paragraph 6 GBC undertakes to
buy only from Coca Cola or a manufacturer approved by Coca Cola
essences and beverages bases (ingredients for making the said beverages). C
Under clause (b) of paragraph 6 GBC undertakes to buy bottles, crowns,
labels and other ingredients of the quality, standard and specifications laid
down by Coca Cola preferably from the suppliers approved by Coca Cola
and in case GBC chooses to buy the above items from a supplier/suppliers
other than the one approved by Coca Cola, GBC is required to submit the
items so procured to Coca Cola to determine the quality, standard and D
specifications before they are put to use to manufacture, bottle or sale of
the said beverages. Under clause ( c) of paragraph 6 GBC has agreed to
use only bottles, labels and crowns for the said beverages of a type, style,
size and design approved by Coca Cola. The breach of clauses (a), (b) and
( c) of paragraph 6 would constitute an infringement of the agreement for E
which Coca Cola reserves its right to terminate the agreement. Under
paragraph 7 GBC has agreed to vigorously and deligently promote and
solicit the sale of the said beverages and assure full and complete distribu-
tion of the said beverages to meet the market demand for the said
bverages. Under clause (a) of paragraph 8 GBC covenants and agrees not
F
to manufacture, bottle, sell, deal in or otherwise be concerned with any
product under any getup or container used by Coca Cola or which is likely
to be confused or used in unfair competition therewith or passed-off
therefor. Under clause (b} of paragraph 8 GBC covenants and agrees not
to manufacture, bottle, sell, deal in or otherwise be. concerned with any
product under any trade mark or other designation which is an imitation G
or infringement of these trade marks or is likely to cause passing-off of any
product which is calculated to lead the public to believe that it originates
from Coca Cola because of GBC's association with the business of bottling,
distributing and selling the beverages. In the said clause, it is provided that
the use of the .said trade marks in any form or fashion or any wordS H
532 SUPREME COURT REPORTS [1995) SUPP. 2S.C.R.
A graphically or phonetically similar thereto or in imitation thereof on any
product other than that of Coca Cola, would constitute an infringement of
the trade marks or be likely to cause passing-off. Under clause ( c) of
paragraph 8 GBC covenants and agrees that during the continuance of the
agreement it will not manufacture, bottle, sell, deal in or otherwise be
concerned with any beverages put out under any trade mark or name or
B
style being same or deceptively similar to the trade marks owned by Coca
Cola or having similar or near similar phonetic rendering and any
beverages put out under that said trade marks or otherwise which is an
imitation of the essence, syrup or beverages or is likely to be a substitute
thereof. In paragraph 9 it has been provided that the decision of Coca
c Cola on all matters concerning the said trade marks shall be final and
conclusive ~d not s~bject to question by GBC and Coca Cola will protect
and defend above trade marks at its sole cost and expenses and GBC will
co-operate fully with Coca Cola in the defence and protection of the said
trade marks in use in the territory infringing Coca Cola's trade marks. In
D paragraph 10 GBC has assured Coca Cola that it will safeguard that no
spurious beverages are manufacture,d, marketed, sold or otherwise dealt
with in the bottles registered with Coca Cola's trade name or trade marks
and GBC has further undertaken to take all necessary steps to prevent any
spurious or imitation beverages being filled in the bottles registered under
E Coca Cola's trade name or trade marks. In paragraph 11 GBC has recog-
nised Coca Cola's ownership of the trade marks and has agreed to only
use the said trade marks in the manner lawfully permitted and not to take
any action which would cause breach or harm the trade marks or Coca
Cola's ownership thereof in any manner. !n paragraph 12 it is provided that
nothing contained in the Agreement shall be construed as conferring upon
F GBC any right, title or interest in the above trade marks, or in their
registration or in any designs, copy rights, patents, trade names, signs,
emblems, insignia, symbols, slogans, or other marks or. devices used in
connection with the said beverages., In paragraph 13 GBC has agreed to
sell and distribute the said beverages under Coca Cola's trade marks
G strictly on its own meri~, and make only such representation concerning
the said beverages as shall have been previously authorized in writing by
Coca Cola and that "GBC will not use Coca Cola's trade marks or any
other such name/names which are deceptively similar or have phonetic
resemblance or can be confused with Coca Cola's trade mark, as part of
H its name, nor will GBC use in connection with any drink any trade marks
GUJ. BOTILING CO. LTD. v. COCA COLA CO. [S.C. AGRAWAL, J.) 533
or design which is deceptively similar to Coca Cola's trade marks or any A
other trade marks which Cola Cola may acquire. In paragraph 14 GBC
recognises that Coca Cola has awarded the territory on the assurance of
GBC, that is will work vigorously and deligently to promote and solicit the
sale of the products/beverages, produced under the trade marks of Coca
Cola and has further assured full and complete distribution of Coca Cola's B
products/beverages to meet the demand from the consumers because of
the goodwill enjoyed by Coca Cola and its products/beverages and GBC
also recognises that Coca Cola has incurred heavy expenditure by way of
advertisements, periodic training of the sales, marketing and technical staff
of GBC as well as the protection of its goodwill and GBC recognises that
it is imperative that it must maintain with full vigour the continuity of the C
supply of Coca Cola's products/beverages for safeguarding the interest of
the consuming public and thus maintaining the goodwill of Coca Cola. At
the end of paragraph 14 there is the negative stipulation which has already
been set out earlier. In paragraph 15 GBC has agreed that it will not sell
the said beverages to the retailers in the territory on prices higher than the D
price agreed to or recommended by Coca Cola in writing. In paragraph 16
Coca Cola reserves its rights to grant at any time one or more additional
licence near the area where GBC plant is located, if in the judgment of
Coca Cola situation warrants commissioning of further/additional licence.
In paragraph 17 it is provided that nothing In the agreement shall create E
or be deemed to create any relationship of agency, partnership or joint
venture between Coca Cola and GBC and further that GBC will assume
full responsibility or liability for and will hold Coca Cola harmless from any
loss, injury, claims or damages resulting from or claimed to result from acts
of cc.mmissions or omissions on the part of GBC. In paragraph 18 GBC
has agreed not to sell, assign, transfer, pledge, mortgage, lease, licence or
F
in any other way or manner encumber or dispose of, in whole or in part,
the agreement or any interest herein, either directly or indirectly, nor to
pass by operation of law or in any other manner without Coca Cola's prior
written consent. Under Paragraph 19 Coca Cola has the right to cancel and
terminate the agreement forthwith by written notice to GBC upon the G
happening of any one or more or the events mentioned in clauses (a) to
(e) of the said paragraph. The said power is in addition to all other rights
and remedies which Coca Cola may have. In the concluding part of
paragraph 19 it is provided that upon the happening of any one or more
of the foregoing events, Coca Cola shall also have the right to discontinue H
534 SUPREME COURT REPORTS [1995) SUPP. 2 S.C.R.
A supplying GBC with essence/syrup and/or other materials for such length
of time as Coca Cola may in its sole judgment deem necessary without
thereby cancelling or prejudicing Coca Cola's right to cancel or terminate
the agreement for the said cause or for any one or more other cause or
causes. In paragraph 20 it is prescribed that the said agreement shall
B expire, without notice, on November 17, 1998 unless it has been earlier
terminated as provided in the agreement. Paragraph 21 markes provision
for termination of the agreement by either side on giving one year's written
notice which period may be reduced by mutual consent in writing between
Coca Cola and GBC. Paragraph 23 deals with partial invalidity resulting
from any of the provisions of the agreement being held invalid for whatever
c reason by any of court, governmental agency, body or tribunal. In para-
graph 25 provision is made for supersession of all prior contracts, agree-
ments or commitments, either written or oral, which are rendered null and
void and of no effect. Paragraph 29 provides that the agreement shall come
into effect at the date on which Coca Cola indicates in writing to GBC that
D all trade marks related to the said agreement have been assigned and
transferred to Coca Cola, provided that if such notice is not issued by the
first anniversary of the agreement, then the agreement shall be void· ab
initio and of no effect. In paragraph 30 GBC represents and warrants to
Coca Cola that GBC acknowledges that the trade marks listed on An-
E nexure II will be, as of the effective date of this agreement, the property
of Coca Cola, that GBC has no right, title or interest to such trade marks,
except pursuant to the licence granted by the agreement and that GBC has
no existing claims or basis for clainis against Parle (Exports) Limited or
any of its affiliates which would affect the rights of Coca Cola under the
agreement.
F
A perusal of the various provisions contained in the 1993 Agreement
shows that by this agreement Coca Cola has agreed to grant a licence to
GBC for the use of the trade marks in respect of beverages mentioned in
Annexure II to the agreement which were to be acquired shortly by Coca
G Cola. A number of provisions in the agreement relate to the use. of the said
trade marks by GBC so as to ensure that such user of the trade marks by
GBC is strictly in accordance with the common law governing user of trade
marks. The 1993 Agreement was, therefore, an agreement for grant of
licence under common law for user by GBC of the trade marks which were
H to be acquired by Coca Cola. The 1993 Agreement also contains various
GUJ.BOTILINGCO.LTD. v. COCACOLACO.[S.C.AGRAWAL,J.] 535
provisions governing preparation, bottling and sale of the beverages cover- A
ing by the said trade marks, In that sense the 1993 Agreement can be
regarded as an agreement for grant of a franchise by Coca Cola, as
franchiser, to GBC; as franchisee, whereunder GBC has been permitted to
manufacture, bottle and sell the beverages covered by the trade marks
referred to and mentioned in the agreement in the area covered by the
B
agreement subject to the conditions laid down in the agreement.
We would now come to the 1994 Agreement. lo. this agreement Coca
Cola has been described as the Licensor and GBC as the Licensee. In
clause (a) of the Preamble to the agreement it is stated that the licensor
has acquired the trade marks specified in the schedule to the agreement C
by virtue of Deeds of Assignment dated November 12, 1993 in respect of
the goods specified in the said schedule. In clause (b) of the Preamble
reference is made to the 1993 Agreement and it is stated that the parties
have arranged for the preparation, packaging and sale of the goods by the
Licensee and for the use of the said trade marks in relation thereto, and D
may enter into further arrangements in the future, within the scope of the
1994 Agreement. In clause (c) of the Preamble it is stated that the Licensor
holds no equity interest in the Licensee and wishes to enter into an
agreement for the use of the said trade marks on a purely contractual basis.
Thereafter, the agreement provides in paragraph 1 for grant of a non-ex-
clusive licence by the Licensor to the Licensee to use the said trade marks E
in relation to goods prepared by or for the Licensee from concentrate
and/or syrup supplied by the Licensor or its nominee and prepared and
packaged or dispensed in accordance with standards, specifications, for-
mulae, processes and instruction, furnished or approved by the Licensor
from time to .time and so long as such goods are manufactured within such F
territory of India and in such bottles or other containers as shall be
approved by the Licensor from time to time. In paragraph 2 of the
agreement it is provided that the Licensor and the Licensee shall make
application to the Registrar of Trade Marks under the Act or any statutory
modification on enactment thereto or thereof for the time being in force G
to procure the registration of the Licensee as a registered user of the said
trade marks as aforesaid as soon as the said trade marks are registered and
shall sign and execute all such documents as are reasonably proper and
necessary to secure such registration and for any change thereof in the
future. In paragraph 3 the Licensee has undertaken to prepare and pack-
age of dispense the said goods strictly in accordance with standards, H
536 SUPREME COURT REPORTS (1995] SUPP. 2 S.C.R. ..-
A specifications, formulae, processes and instructions furnished or approved
by the Licensor from time to time to use the said trade marks in relation
only to such goods so prepared and p?.ckaged or dispensed and also agreed
to permit the Licensor or its authorised representative at all reasonable
times to inspect at the Licensee's premises and elsewhere as the Licensor
may consider appropriate to implement these covenants to ensure quality
B
control of the said goods and the methods of preparing, packaging or
dispensing the said goods and the Licensee will, if called upon by· the
Licensor to do so, submit samples of the said goods, including packages
and the markings thereon, for the inspection, analysis and approval of the
Lieensor. Paragraph 4 records the understanding that the Licensee shall
c not be the sole licensee/permitted user of the said trade marks. In para-
graph 5 the Licensee has agreed that whenever the said trade marks are
used by the licensee in relation to the said goods, the marks shall be so
described as to clearly indicate that the trade marks are being used only
by way of permitted use. In paragraph 6 the Licensee recognises the
.-
Licensor's title to the said trade marks and the Licensee agrees that it shall
D
not at any time do or suffer to be done any act or thing which will in any
way impair the rights of the Licensor in and to the said trade marks and
the Licensee shall not acquire and shall not claim any right, title or interest
in and to the said trade marks adverse to the Licensor by virtue of the
License granted under the agreement to the Licensee or through the
E Licensee's use of the trade marks. In paragraph 7 it is provided that the
agreement shall continue in force without limit of period but may be
terminated at any time by either party upon giving 90 day's notice in writing
to the other or by mutual consent and further that in the event of either
party committing a breach of any of the provisions of the agreement it shall
F be lawful for the other party by giving 30 days' notice in writing to terminate
the agreement. In paragraph 8 the Licensee covenants that upon any
amendments that the Licensor may request Licensee to execute for the
purpose of applying for variation or cancellation of the entry of the •,
Licensee as a registered user of the said trade marks and that in the event
of cancellation, the Licensee will not make any further use of the said trade
G marks.
A perusal of the provisions contained in the 1994 Agreement, more J..
particularly paragraphs 2 and 8, indicates that the said agreement has been
executed with a view to comply with the requirements of the Act and the
H Rules for registration of GBC as the registered user of the trade marks
GUJ. B01TLINGCO. LTD. v. COCA COLA CO. (S.C.AGRAWAL,J.] 537
specified in the Schedule to the agreement which had been acquired by A
Coca Cola. This agreement has been executed as per the requirements of
Rule 83 of the Rules read with sub-clauses (a) to (d) of clause (ii) of
sub-section (1) of Section 49. This is evident from paragraphs 1, 3, 4, 5 and
-r 6 which contain particulars referable to sub-clauses (a), (b) and (c) and
paragraph 7 which contains particular referable to sub- clause (d) of clause B
(ii) of sub-section (1) of Section 49. The 1994 Agreement must, therefore,
be treated as an agreement for registration of GBC as a registered user as
contemplated by Section 49 of the Act. In other words, 1994 Agreement is
a statutory agreement which is required to be executed under Section 49
of the Act read with Rule 83 of the Rules for registration of GBC as a
registered user of the trade marks held by Coca Cola. It is true that C
· provisions similar to these contained in 1994 Agreement are also contained
in the 1993 Agreement. But that is so because a licence to use a trade
marks in common law can only be granted subject to certain limitations
which are akin to the requirements for an agreement for registered user
under the Act. But, at the same time, the 1993 Agreement is much wider
in its amplitude than the. 1994 Agreement in the sense that the 1993 D
Agreement includes various terms regulating the exercise of the right of
-
..
franchise that has been granted by Coca Cola to GBC in the matter of
manufacturing, bottling and selling of the beverages which provisions are
not found in the 1994 Agreement. The 1994 Agreement cannot be con-
strued as wiping out the said terms and conditions regarding exercise of
franchise granted by Coca Cola to GBC as contained in the 1993 Agree- E
ment. In this context, reference may also be made to paragraph 25 of the
1993 Agreement which contains an express provision for superseding all
prior contracts/agreements or commitments either written or oral. No
similar provision regarding the supersession of the 1993 Agreement is
contained in the 1994 Agreement. We are, therefore, of the opinion that F
the 1994 Agreement cannot be construed as superseding the 1993 Agree-
ment and the learned single Judge and the Division Bench of the High
Court have rightly rejected the contention urged on behalf of GBC that
1993 Agreement was superseded by the 1994 Agreement.
Shri Shanti Bhushan, the learned senior counsel appearing for the G
appellants, however, laid emphasis on the alternative submission that the
period of notice for terminating the agreement as contained in paragraph
21 of the 1993 Agreement was reduced by mutual consent from one year
to 90 days' by paragraph 7 of the 1994 Agreement. We find it difficult to
accept this contention. It is no doubt true that paragraph 21 of the 1993
H
538 SUPREME COURT REPORTS (1995) SUPP. 2 S.C.R.
A Agreement enables the termination period to be reduced by mutual con-
sent in writing between Coca Cola and GBC. There is, however, no such
agreement which expressly reduces the said termination period under
paragraph 21 of the 1993 Agreement. What is suggested is that paragraph
7 of the 1994 Agreement is such an agreement which, by implication,
reduces the termination period prescribed in paragraph 21 of the 1993
B Agreement. Since we are of the view that the nature and scope of the two
agreements, i.e., 1993 Agreement and 1994 Agreement, are not the same
and that while the 1993 Agreement is an agreement for grant of licence in
common law and the 1994 Agreement is executed as per the requirements
of the Act and the Rules for the purpose of registration of user, GBC as
c registered user of the trade marks under the Act, clause 7 of the 1994
Agreement has to be confined in its application to that agreement only and
it cannot be construed as having modified the termination period contained
in paragraph 21 of the 1993 Agreement. Moreover, paragraph 21 of the .,,__
1993 Agreement requires that reduction of the termination period has to
D be by mutual consent of both the parties, viz., Coca Cola and GBC. Mutual
consent postulates consensus ad idem between the parties. There is no
material on record to show that there was such a consensus ad idem
between Coca Cola and GBC regarding reducing the termination period
for the notice under paragraph 21 of the 1993 Agreement. The notice dated
January 25, 1995 that was given by GBC to Coca Cola does not lend
E support to the case of the appellants. In the said notice it is stated :
"Without prejudice to our contentions that the so called Licence
Agreement dated September 20, 1993 (herein 'the License
Agreement') stands replaced by the Trade Mark License Agree-
ment and/or that the termination period under the License Agree-
F
ment in any event stands reduced to 90 days' please treat this letter,
as a matter of abundant cautidb, as termination notice also under
clause 21 of the License Agreement."
In the said notice, it is not stated that the parties had mutually agreed
G to reduce the termination period from one year to 90 days by the 1994
Agreement. What is stated in the notice is the contention of GBC that the
1993 Agreement is replaced by the 1994 Agreement and that in any event
the limitation period had been reduced to 90 days. If it was mutually agreed
by Coca Cola and GBC. that the termination period for notice under
H paragraph 21 of the 1993 Agreement is being reduced from one year to
GUJ. BOTIUNGCO. LTD. v. COCA COLA CO. [S.C.AGRAWAL,J.] 539
90 days by the 1994 Agreement, there was no reason why GBC would not A
have mentioned about the said mutual understanding in the notice dated
January 25, 1995. The fact that there is no mention about such mutual
understanding in the notice dated Ja...'luary 25, 1995 and what is stated in
the said notice about reduction of the termination period of the notice is
by way of contention of GBC negatives the case put forward by the
B
appellants that the termination period for the notice under paragraph 21
of the 1993 Agreement had been reduced from one year to 90 days. It must,
therefore, be held that the 1993 Agreement can be terminated oniy by
giving a notice of one year as required by paragraph 21 of the said
agreement. The question whether the notice dated January 25, 1995 can be
treated as a notice terminating the 1993 Agreement on the expiry of period c
of one year from the date of the said notice has not been examined by the
High Court. We do not propose to go into the same and leave it to the
High Court to deal with it, if raised. For the present, we will proceed on
the basis that the 1993 Agreement subsists and it does not stand terminated
on the expiry of 90 days from the date of notice dated January 25, 1995.
D
We may now examine the submission of Shri Shanti Bhushan that the
negative stipulation contained in paragraph 14 of the 1993 Agreement,
being in restraint of trade, is void in view of the provisions of Section 27
of the Indian Contract Act, 1872. For that purpose, it is necessary to
consider whether and, if so, to what extent the law in India differs from· E
the common law in England.
Under the common law in England a man is entitled to exercise any
lawful trade or calling as and where he wills. The law has always regarded
jealously any interference with trade, even at the risk of interference with F
freedom of contract, as it is public policy to oppose all restraints upon
liberty of individual action which are injurious to the interests of the State.
A person may be restrained from carrying on his trade by reason of an
agreement voluntarily entered into by him with that object and in such a
case the general principle of freedom of trade must be applied with due
regard to the principles that public policy requires for persons of full age G
and understanding the utmost freedom to contract. Traditionally the
doctrine of restraint of trade applied to covenants whereby an employee
undertakes not to compete with his employer after leaving the employer's
service and covenants by which a trader who has sold his business agrees
not thereafter to complete with the purchaser of the business. The doctrine H
540 SUPREME COURT REPORTS (1995] SUPP. 2 S.C.R.
A is, however, not confined in its application to these two categories but
covenants falling in these two categories are always subjected to the test of
reasonableness. Since the doctrine of restraint of trade is based on public
policy its application has been influenced by changing views of what is
desirable in the public interest. The decisions on public policy are subject
to change and development with the change and development of trade and
B the means of communications and the evolution of economic thought. The
general principle once applicable to agreements in restraint of trade has
consequently been considerably modified by later decisions in England. In
the earliest times all contracts in restraint of trade, whether general or
partial, were void. The severity of this principle was gradually relaxed, and
c it became the rule that a partial restraint might l:?e good if reasonable,
although a general restrain was of necessity void. The distinction between
general and partial restraint was subsequently repudiated and the rule now
is that the restraints, whether general or partial, may be good if they are
reasonable and any restraint on the freedom of contract mu.st be shown to
D be reasonably necessary for the purpose of freedom of trade. A covenant
in restraint ·of trade must be reasonable with reference to the public policy
and it must also be reasonably necessary for the protection of the interest
of the covenantee and regard must be had to the interests of the covenan-
tor. Contracts in restraint of trade are prima facie void and the on~ of
proof is on the party supporting the contract to show that the restraint goes
E no further than is reasonably necessary to protect the interest of the
covenantee and if this onus is discharged the onus of showing that the
restraint is nevertheless injurious to· the public is on the party attacking the
contract. The court has to decide, as a matter of law, (i) whether a contract
is or is not in restraint of trade, and (ii) whether, if in restraint of trade, it
is reasonable. The court takes a far stricter and less favourable view of
F
covenants entered mto between employer and employee than it d~es not
similar covenants between vendor and purchaser or in partnership agree-
ments, and accordingly a restraint may be unreasonable as between
employer and employee which would be reasonable as between the vendor
and purchaser of a business. See Halsbury's Laws of England, 4th Edn.,
G Vol 47, paragraphs 9 to 26; N.S. Golikari v. Century Spinning Co., [1967]
2 SCR 378 at pp. 384-85. Instead of segregating two questions, (i) whether
the contract is in restraint of trade, (ii) whether, if so, it is "reasonable,"
the courts have often fused the two by asking whether the contract is in
"undue restraint of trade" or by a compound finding that it is not satisfied
H
GUJ. BOTfLING CO.LTD. v. COCA COLA CO. (S.C. AGRAWAL, J.] 541
that this contract is really in restraint of trade at all but, if it is, it is A
reasonable. See Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport)
Ltd., (1968) AC 269 at p. 331 Lord Wilberforce.
In India agreements in restraint of trade are governed by Section 27
of the Indian Contract Act which provides as follows :
B
"Section 27. Every agreement by which any one is restrained from
exercising a lawful profession, trade or business of any kind, is to
that extent void.
Exception 1. - One who sells the goodwill of a business may agree C
with the buyer to refrain from carrying on a similar business, within
specified local limits, so long as the buyer, or any person deriving
title to the goodwill from him, carries on a like business therein:
Provided that such limits appear to the Court reasonable, regard
being had to the nature of the business."
D
The said provision was lifted from Hon. David D. Field's Draft Code
for New York which was based upon the old English doctrine of restraint
of trade, as prevailing in ancient times. The said provision was, however,
never applied in New York. The adoption of this provision has been
severely criticised by Sir Frederick Pollock who has observed that "the law E
of India is tied down by the language of the section to the principle, now
exploded in England, of a hard and fast rule qualified by strictly limited
exceptions." While construing the provisions of Section 27 the High Courts
in India have held that neither the test of reasonableness nor the principle
that the restraint being partial or reasonable are applicable to a case
governed by Section 27 of the Contract Act, unless it falls within the F
exception. The Law Commission in its Thirteenth Report has recom-
mended that the provision should be suitably amended to allow such
restrictions and all contracts in restraint of trade, general or partial, as were
reasonabl~, in the interest of the parties as well as of the public. No action
has, however, been taken by Parliament on the said recommendation. See G
: Superintendence Company of India (P) Ltd. v. Krishan Murgai, [1980] 3
SCR 1278, at pp. 1291, 1296-98, per AP. Sen J..
We do not propose to go into the question whether reasonableness
of restraint is outside the purview of Section 27 of the Contract Act and
for the purpose of the present case we will proceed on the basis that an H
542 SUPREMECOURTREPORTS (1995] SUPP. 2S.C.R.
A enquiry into reasonableness of the restraint is not envisaged by Section 27.
On that view instead of being required to consider two questions as in
England, the courts in India have only to consider the question whether
the contract is or is not in restraint of trade. It is, therefore, necessary to
examine whether the negative stipulation contained in paragraph 14 of the
1993 Agreement can be regarded as in restraint of trade. This involves the
B question, what is meant by a contract in restraint of trade?
In Attomey-General of the Commonwealth of Australia. v. Adelaide
Steamship Co. Ltd., [1913] AC 781, Lord Parker has said :
c "Monopolies and contracts in restraint of trade have this in com-
mon, that they both, if enforced, involve a derogation from the
common law right in virtue of which any member of the community
may exercise any trade or business he pleases and in such manner
as he thinks best in his own interests." [p.794]
D Referring to these observations Lord Reid in Esso Petroleum Co.
Ltd., (supra) has said :
"But that cannot have been intended to be a definition : all
contracts in restraint of trade involve such a derogation but not all
contracts involving such a derogation are contracts in restraint of
E trade. Whenever a man agrees to do something over a period he
thereby puts it wholly or partly out of his power to 'exercise any
trade or business he pleases' during that period. He may enter into
a contract of service or may agree to give his exclusive services to
another : then during the period of the contract he is not en~itled
F to engage in other business activities. But no one has ever sug-
gested that such contracts are in restraint of trade except in very
-
unusual circumstances." [p. 294]
In McEllistrim v. Ballymacelligott Co-operative Agricultural and Dairy
Society Ltd., (1919) AC 548, Lord Finlay after referring to the principle
G enumerated in Herbert Morris Ltd. v. Saxe/by, (1916) 1 AC 688, that public
policy requires that every man shall be at liberty to work for himself and
shall not be at liberty to deprive himself or the State of his labour, skill or
talent by every contract that he enters into, had stated "This is equally
applicable to the right to sell his goods." Doubting the correctness of this
H statement Lord Reid in Esso Petroleum Co. Ltd. (supra) has said:
GUJ. BOTTLING CO. LTD. v. COCA COLA CO. [S.C.AGRAWAL,J.) 543
"It would seem to mean that every contract by which a man (or a A
company) agrees to sell his whole output (or even half of it) for
any future period to the other party to the contract is a contract
in restraint of trade because it restricts his liberty to sell as he
pleases, and is therefore unenforceable unless his agreement can
be justified as being reasonable. There must have been many B
ordinary commercial contracts of that kind in the past but no one
has ever suggested that they were in restraint of trade." [p. 296]
In Petrofina (Great Britain) Ltd. v. Martin, [1966] Ch. 146, Diplock
L.J. (as the learned Law Lord then was), in the Court of Appeal, has said:
"A contract in restraint of trade is one in which a pa~ty (the
c
covenantor) agrees with any other party (the covenantee) to
restrict his liberty in the future to carry on trade with other persons
not parties to the contract in such manner as he chooses." [p. 180]
In the same case, Lord Denning M.R. has said : D
"Every member of the community is entitled to carry on any
trade or business he chooses and in such manner as he thinks most
desirable in his own interests, so long as he does nothing unlawful:
with the consequence that any contract which interferes with the
free exercise of his trade or business, by restricting him in the work E
he may do for others, or the arrangements which he may make
with others, is a contract in restraint of trade. It is invalid unless
it is reasonable as between the parties and not injurious to the
public interests."
After referring to these observations, Lord Morris in Esso Petroleum F
Co. Ltd. (supra) has said :
"These are helpfnl expositions provided they are used rationally
and not too literally. Thus if A made a contract under which he
willingly agreed to serve B on reasonable terms for a few years G
and to give his whole working time to B, it would be surprising
indeed if it were sought to describe the contract as being in
restraint of trade. In fact such a contract would likely be for the
advancement of the trade." [p. 307]
These observations indicate that a stipulation in a contract which is H
544 SUPREME COURT REPORTS (1995) SUPP. 2 S.C.R.
A intended for advancement of trade shall . not be regarded as being in
restraint of trade. In Esso Petroleum Co. Ltd. (supra) the question whether
the agreement under consideration was a mere agreement for the promo-
tion of trade and not an agreement in restraint of it, was thus answered by
Lord Pearce :
B "Somewhere there must be a line between those contracts which
are in restraint of trade and whose reasonableness can, therefore,
be considered by the courts and those contracts which merely
regulate the normal commercial relations between the parties and
are, therefore, free from doctrine." [p. 327)
c "The doctrine does not apply to ordinary commercial contracts for
the regulation and promotion of trade during the existence of the
contract, provided that any prevention of work outside the con-
tract, viewed as a whole, is directed towards the absorption of the
parties' service and not their sterilisation. Sole agencies are a
D normal and necessary incident of commerce and those who desire
the benefits of a sole agency must deny themselves the oppor~
tunities of other agencies." [p. 328]
In the same case, Lord Wilberforce has observed :
E "It is not to be supposed, or encouraged, that a bare allegation that
a contract limits a trader's freedom of action exposes a party suing
on it to the burden of justification. There will always be certain
general categories of contracts as to which it can be said, with
some degree of certainty, that the 'doctrine' does or does not apply
F to them. Positively, there are likely to be certain sensitive areas as
to which the law will require in every case the test of reasonable-
ness to be passed : such an area has long been and still is that of
contracts between employer and employee as regards the period
after the employment has ceased. Negatively, and it is this that
concerns us here, there will be types of contract as to which the
G
law shoul<f be prepared to say with some confidence that they do
not enter into the field of restraint of trade at all. " [p. 332)
"How, then, can such contracts be defined or at least identified?
No exhaustive test can be stated-probably no precise non-exhaus-
H tive test. But the development of the law does seem to show that
GUJ.BOTILINGCO.LTD. v. COCACOLACO.[S.C.AGRAWAL,J.) 545
judges have been able to dispense from the necessity of justification A
under a public policy test of reasonableness such contracts or
provisions of contracts as, under contemporary conditions, may be
found to have passed into the accepted and normal currency of
commercial or contractual or conveyancing relations." [pp. 332-33]
There is a growing trend to regulate distribution of goods and B
services through franchise agreements providing for grant of franchise by
the franchiser on certain terms and conditions to the franchisee. Such
agreements often incorporate a condition that the franchisee shall not deal
with competing goods. Such a condition restricting the right of the
franchisee to deal with competing goods is for facilitating the distribution C
of the goods of the franchiser and it cannot be regarded as in restraint of
trade.
If the negative stipulation contained in paragraph 14 of the 1993
Agreement is considered in the light of the observations inEsso Petroleum D
Co. Ltd. (supra), it will be found that the 1993 Agreement is an agreement
for grant of franchise by Coca Cola to GBC to manufacture, bottle, sell
and distribute the various beverages for which the trade marks were
acquired by Coca Cola. The 1993 Agreement is thus a commercial agree-
ment whereunder both the parties have undertaken obligations for promot-
ing the trade in beverages for their mutual benefit. The purpose underlying E
paragraph 14 of the said agreement is to promote the trade and the
negative stipulation under challenge seeks to achieve the said purpose by
requiring GBC to wholeheartedly apply to promoting the sale of the
products of Coca Cola. In that context, it is also relevant to mention that
the said negative stipulation operates only during the period the agreement p
is in operation because of the express use of the words "during the
subsistence of this agreement including the period of one year as con-
templated in paragraph 21", in paragraph 14. Except in cases where the
contract is wholly one sided, normally the doctrine of restraint of trade is
not attracted in cases where the restriction is to operate during the period
the contract is subsisting and it applies in respect of a restriction which G
operates after the termination of the contract. It has been so held by this
Court in N.S. Golikari (supra wherein it has been said:
"The result of the above discussion is that considerations against
restrictive covenants are different in cases where the restriction is H
546 SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.
A to apply during the period after the termination of the contract
than those in cases where it is to operate during the period of the
contract. Negative covenants operative during the period of the
contract of employment when the employee is bound to serve his
employer exclusively are generally not regarded as restraint of
trade and therefore do not fall under Section 27 of the Contract
B Act. A negative covenant that the employee would not engage
himself in a trade or business or would not get himself employed
by any other ma:;ter for whom he would perfor~ similar or sub-
stantially similar duties is not therefore a restraint of trade unless
the contract as aforesaid is unconscionable or excessively harsh or
c unreasonable or one sided as in the case of W.H. Milsted and Son
Ltd." [p. 389]
Similarly, in Superintendence Company (supra) AP. Sen J., in his
concurring judgment, has said that "the doctrine of restraint of trade never
D applies during the continuance of a contract of employment; it applies only
when the contract comes to an end." [p. 1289]
Shri Shanti Bhushan has submitted that these observations must be
confined only to contracts of employment and that this principle does not
apply to other contracts. We are unable to agree. We find no rational basis
E for confining this principle to a contract for employment and excluding its
application to other contracts. The underlying principle governing con-
.tracts in restraint of trade is the same and as a matter· of fact that courts
take a more restricted and less favourable view in respect of a covenant
entered into between an employer and an employee as compared to a
F covenant between a vendor and a purchaser or partnership agreements.
We may refer to the following observations of Lord Pearce in Esso
Petroleum (supra) : [p.328]
"When a contract only ties the parties during the continuance of
the ·contract, and the negative ties are only those which are in-
G cidental and normal to the positive commercial arrangements at
which the contract aims, even though those ties exclude all dealings
with others, there iS no restraint of trade within the meaning of
the doctrine and no question of reasonableness arises. If, however,
the contract ties the trading activities of either party after its
H determination, it is a restraint of trade, and the question of
GUJ.BOTILINGCO. LTD. v. COCA COLA CO. [S.C.AGRAWAL,J.) 547
reasonableness arises." (P.328) A
Since the negative stipulation in paragraph 14 ot the 1993 Agreement
is confined in its application to the period of subsistence of the agreement
and the restriction imposed therein is operative only during the period the'
1993 Agreement is subsisting, the said stipulation cannot be held to be in
restraint of trade so as to attract the bar of Section 27 of the contract Act. B
We are, therefore, unable to uphold the contention of Shri Shanti Bhushan
that the negative stipulation contained in paragraph 14 of the 1993 Agree-
ment, being in restraint of trade, is void under Section 27 of the Contract
Act.
c
·Shri Shanti Bhushan has urged that even if the negative stipulation
contained in paragraph 14 of the 1993 Agreement is found to be valid it is
confined in its application to the preceding part of paragraph 14 which
reads as under :
"The Bottler recognises that is imperative that the Bottler must D
maintain with full vigion the continuity of the supply of the
Company's products/beverages for safeguarding the interest of the
consuming public and thus maintaining the goodwill of the Com-
pany."
Laying emphasis on the words "As such" in the negative stipulation,
E
Shri Shanti Bhushan has contended that the negative stipulation must be
read as relatable to this part of paragraph 14 which means that the said
stipulation can be invoked only if GBC is not able to maintain the con-
tinued supply of the products and beverages to Coca Cola. According to
Shri Shanti Bhushan such an eventuality has not arisen in view of the fact F
that Coca Cola has refused to supply to GBC essence/syrup and/or otht?r
materials which are required for preparing the products and beverages.
The submission of Shri Shanti Bhushan is that in these circumstances the
negative stipulation contained in paragraph 14 cannot be invoked by Coca
Cola.
G
Shri T.R. Andhyarujina, the learned senior counsel appearing for
Coca Cola, has, on the other hand, pointed out that in paragraph 14 the
part commencing with the words "As such" is independent of the preceding
sub-paragraph and is not a part of the preceding sub-paragraph referred
to above and that the negative stipulation must be read with all the earlier H
548 SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.
A sub-paragraph contained in paragraph 14 and its application cannot be
confined to the sub-paragraph iinmediately preceding the words "As such"
as contended by Shri Shanti Bhushan. We are in agreement with the said
submission of Shri Andhyarujina. In our opinion, the negative stipulation
contained at the end of paragraph 14 must be read as applicable to all the
sub-paragraphs of paragraph 14 preceding the said stipulation and, if it is
B thus read, it is apparent that the purpose of the negative stipulation in
paragraph 14 is that GBC will work vigorously and deligently to promote
and solicit the sale of the products/beverages produced under the trade
marks of Coca Cola as mentioned in the first sub-paragraph of paragraph
14. This would not be possible if GBC were to manufacture, bottle, sell,
c deal or otherwise be concerned with the products, beverages or any other
brands or trade marks/trade names.
We are, therefore, unable to agree with Shri Shanti Bhushan that the
negative stipulation contained in paragraph 14 of the 1993 Agreement must
be confined in its application to the immediately preceding sub-paragraph
D of paragraph 14 of the 1993 Agreement.
Shri Shanti Bhushan has next contended that clause (b) of paragraph
19 of the 1993 Agreement which imposes a restraint in the matter of
transfer of the shares of GBC is void inasmuch as transfer of shares of a
E company registered under the Companies Act is governed by Section 82
of the said Act and no restraint can be placed by contract on the said right
to transfer the shares of a company. Shri Shanti Bhushan has placed
reliance on the decision of this Court in V.B. Rangaraj. v. V.B. Gopalak-
rishan & Ors., [1992] 1 SCC 160, and has submitted that if clause (b) of
paragraph 19 is held to be void then Coca Cola cannot invoke the
F concluding part of paragraph 19 and dis-continue the supply of essen-
ces/syrup and/or other materials to GBC while the 1993 Agreement sub-
sists. The relevant part of paragraph 19 is as under :
"Paragraph 19. Upon the happening of any one or more of. the
G following event in addition to all other rights and remedies, the
Company shall have the right to cancel and terminate this Agree•
ment forthwith by written notice to the Bottler.
(a) x x x x x x x x x
H (b) Should Bottler be other than a natural person, no change shall
GUJ.BOTILINGCO.LTD. v. COCACOLACO.(S.C.AGRAWAL,J.] 549
be made in its structure nor shall any transfer be made of any of A
its stock, share or interest or other indicia of ownership which
would result in an effective transfer of wntrol without the prior
express written consent of the Company. The Company reserves
the right to terminate this Agreement at will for failure to notify
it of such change or transfer:
B
(c) x x x x x x x x x
(d) x x x x x x x x x
(e) x x x x x x x x x
c
Upon the happening of any one or more of the foregoing
events, the Company shall also have the right to discontinue
supplying the Bottler with essence/syrup and/or other materials for
such length of time as the Company may in its sole judgment deem
necessary without thereby cancelling or prejudicing the Company's D
right to cancel or terminate the Agreement for the said cause or
for any one or more other cause or causes."
Clause (b) does not appear to be very happily worded. Since the
parties to the 1993 Agreement were Coca Cola and GBC only and the
shareholders of GBC were not parties to the agreement, it cannot have any E
binding force on the shareholders of GBC. Clause (b) of paragraph 19
cannot, therefore, be construed as placing any restraint on the right of the
shareholders to transfer their shares. It can only be construed to mean that
in the event of the shareholders of GBC transferring their shares and such
transfer resulting in an effective transfer of control of GBC, Coca Cola has F
a right to terminate the agreement and even without terminating the
agreement Coca Cola has the additional right to discontinue supplying
GBC with essence/syrup and/or other materials for such length of time as
Coca Cola may in its sole judgment deem necessary without thereby
cancelling or prejudicing Coca Cola's right to cancel or terminate the G
Agreement for the said cause or for any one or more other cause or causes.
In other words, in the event of effective transfer of control of GBC as a
result of transfer of shares by the shareholders, apart from its right to
cancel the agreement Coca Cola has also been given the right to dis-con-
tinue the supply of essences/syrup and/or other materials to GBC. This
clause governs the relationship between Coca Cola and GBC Inter se and H
550 SUPREME COURT REPORTS {1995] SUPP. 2 S.C.R.
A it cannot be construed as placing a restraint on the right of the
shareholders to transfer their shares. V.B. Rangaraj (supra) on which
reliance has been placed by Shri Shanti Bhushan has, therefore, no applica-
tion.
Shri Shanti Bhushan has next urged that in the facts and circumstan-
B ces of the case the High Court was not justified, in law, in issuing an interim
injunction enforcing the negative stipulation contained in paragraph 14 of
the 1993 Agreement. The submission of Shri Shanti Bhushan is that as a
result of the said injunction and dis-continuance by Coca Cola of the supply
of essence/syrup and/or other materials by exercising its right under para-
c graph 19 of the 1993 Agreement, the plants of GBC at Ahmedabad and
Rajkot would remain idle and a large number of workers who are employed
in those plants would be rendered unemployed and GBC would be saddled
with heavy liabilities leading to its closure and thereby resulting in ir-
reparable loss which cannot be compensated in the event of suit filed by
D Coca Cola being dismissed. Shri Shanti Bhushan has also submitted that
on the other hand Coca Cola would not suffer any loss because it has
already made alternative arrangements for supply of its products in areas
covered by both the Agreements between GBC and Coca Cola by arrang-
ing supply of their products from other licensees in the neighbouring areas.
Shri Shanti Bhushan has placed reliance on the decisions of Gujarat High
E Court in M/s. Lalbhai Dalpatbhai & Co. v. Chittaranjan Chandulal Pandya,
AIR (1966) Guj. 189, and that of Delhi High Court in Modem Food
Industries India Ltd. v. Mis Shri Krishna Bottlers (P) Ltd., AIR (i984) Delhi
119, as well as on the observations of Lord Diplock in Amrican Cyanamid
Co. v. Ethicon Ltd., (1975) AC 396.
F
In the matter of grant of injunction, the practice in England is that
where a contract is negative in nature, or contains an express negative
stipulation, breach of it may be restrained by injunction and injunction is
normally granted as a matter of course, even though the remedy is equi-
table and thus in principle a discretionary one and a defendant cannot
G resist an injunction simply on the ground that observance of the contract
is burdensome to him and its breach would cause little or no prejudice to
the plaintiff and that breach of an express negative stipulation can be
restrained even though the plaintiff cannot show that the breach will cause
him any loss. See : Chitty on Contracts, 27th. Edn., Vol. I, General Prin-
H ciples, para 27-040 at p. 1310; Halsbury's Laws of Engla11d, 4th Edn. Vol.
GUJ.BOTfLINGCO.LTD. v. COCACOLACO.[S.C.AGRAWAL,J.] 551
24, para 992. in India Section 42 of the Specific Relief Act, 1963 prescribes A
that notwithstanding anything contained in clause (e) of Section 41, where
a contract comprises an affirmative agreement to do a certain act, coupled
with a negative agreement, express or implied, not to do a certain act, the
circumstance that the court is unable to compel specific performance of
the affirmative agreement shall not preclude it from granting an injunction
B
to perform the negative agreement. This is subject to the proviso that the
plaintiff has not failed to perform the contract so far as it is binding on
him. The Court is, however, not bound to grant an injunction in every case
and an injunction to enforce a negative covenant would be refused if it
would indirectly compel the employee either to idleness or to serve the
employer. See Ehnnan v. Bartholomew, (1927) W.N. 233; N.S. Golikari, c
(supra) at P. 389.
The grant of an interlocutory injunction during the pendency of legal
proceedings is a matter requiring the exercise of discretion of the court.
While exercising the discretion the court applies the following tests - (i) D
whether: the plaintiff has a prima facie case; (ii) whether the balance of
convenience is in favour of the plaintiff; and (iii) whether the plaintiff
would suffer an irreparable injury if his prayer for interlocutory injunction
is disallowed. The decision whether or not to grant an interlocutory injunc-
tion has to be taken at a time when the existence of the legal right assailed
by the plaintiff and its alleged violation are both contested and uncertain E
and remain uncertain till they are established at the trail on evidence.
Relief by way of interlocutory injunction is granted to mitigate the risk of
injustice to the plaintiff during the period before that uncertainty could be
resolved. The object of the interlocutory injunction is to protect the plain-
tiff against injury by violation of his right for which he could not be F
adequately compensated in damages recoverable in the action if the uncer-
tainty were resolved in his favour at the trial. The need for such protection
has, however, to be .weighed against the corresponding need of the defen-
dant to be prote..cted against injury resulting from his having been
prevented from exercising his own legal rights for which' he could not be
adequately compensated. The court must weigh one need against another G
and determine where the 'balance of convenience' lies. See : Wander Ltd.
&Anr. v.Antox India P. Ltd., [1990] Supp. SCC 727 at pp. 731-32. In order
to protect the defendant while granting an interlocutory injunction in his
favour the Court can require the plaintiff to furnish an under taking so that
the defendent can be adequately compensated if the uncertainty were H
A
552 SUPREME COURT REPORTS (1995] SUPP. 2 S.C.R.
resolved in his favour <U: the trail.
-
Shri Shanti Bhushan has contended that Coca Cola can be adequate-
ly compensated for the loss caused to it by award of damages in the even:t
of it succeeding in the suit and that if the impugned injunction granted by
B the High Court is not reversed the loss suffered by GBC would be ir-
reparable and incalculable inasmuch as the plants at Ahmedabad and
Rajkot would remain idle and large number of workmen employed in those
plants would be rendered unemployed and it may lead to closure of the
undertaking of GBC. Shri Nariman and Shri Andhyarujina, on the other
hand, have submitted that Pepsi in taking over GBC, took a calculated
c commercial risk knowing fully well the effect of negative covenant con-
tained in the 1993 Agreement and that if GBC is not restrained from
manufacturing and selling Pepsi products for the stipulated period of one
year, the goodwill and the market share which Coca Cola has for its own
products would be effectively destroyed by a rival which has captured GBC
D and that damages would not be an adequate compensation for the injury
which. would be irreparable and that in respect of the loss that m~y be
sustained by it, GBC would be protected by the undertaking that is re-
quired to be given by Coca Cola under Rule 148 of the BombaY, High Court
(Original Side) Rules, 1980.
E
We are inclined to agree with the submission of Shri Nariman and
Shri Andhyarujina. Having regard to the negative covenant contained in
paragraph 14 of the 1993 Agreement which is subsisting, Coca Cola has
made out a primafacie case of grant of an injunction. As regards the other
F two requirements for grant of interlocutory injunction, viz., balance of
convenience and irreparable injury, we find that as a result of the transfer
of shares of GBC and respondent No. 7 in favour of the appellants Nos. 2
to 5, the plants of GBC at Ahmedabad and Rajkot are· now under the
control of Pepsi. The 1993 Agreements were entered into by Coca Cola to
ensure that the plants of GBC at Ahmedabad and Rajkot are available for
G manufacture of the beverages bearing the trade marks that where acquired
by Coca Cola . The negative stipulation in paragraph 14 was inserted in
order to preclude the said plants being used for manufacture of products
of other manufactures during the period the 1993 Agreements were sub-
sisting. Pepsi by taking control over GBC sought to achieve a dual purpose,
H viz., reduce the production capacity of beverages bearing the trade marks
GUJ.BOTILINGCO.LID. v. COCACOLACO.(S.C.AGRAWAL,J.] 553
held by Coca Cola by denying use of the plants of GBC at Ahmedabad A
and Rajkot for manufacture of those products and to increase the produc-
tion capacity of Pepsi products by making available these plants for
manufacture of Pepsi products. As a result of the interim injunction
granted by the High Court the two plants of GBC cannot be used for
manufacture of Pepsi products till January 25, 1996 and the effort of Pepsi B
to gain an advantage over Coca Cola by reducing the availability of
products of Coca Cola and increasing the availability of Pepsi products in
the areas covered by the 1993 Agreements has been frustrated to a certain
---- extent inasmuch as the increase in the availability of Pepsi products has
been prevented. In the absence of such an order Pepsi would have been
free to use the plants of GBC at Ahmedabad and Rajkot for the manufac- C
ture of their products. This would have resulted in reduction of the share
of Coca Cola in the beverages market and the resultant loss in goodwill
- and profits could not be adequately compensated by damages. In so far as
loss that may be caused to GBC as a result of grant of interim injunction,
we are of the view that the loss that may be sustained by GBC can be D
assessed and GBC can be compensated by award of damages which can
be recovered from Coca Cola in view of the undertaking that Coca Cola is
required to give under Rule 148 of the Bombay High Court (Original Side)
Rules, 1980. It has not been suggested that Coca Cola do not have the
financial capacity to pay the amount that is found payable.
E
The interim injunction granted by the High Court has been assailed
by the appellants on the ground that as a result of refusal by Coca Cola to
continue with the supply of essence/syrup and/or materials the bottling
plants of GBC at Ahmedabad and Rajkot would remain idle and a large
number of workmen who were employed in the said plants would be F
rendered unemployed. We cannot lose sight of the fact that this complaint
is being made by Pepsi through the mouth of the appellants. It is difficult
to appreciate how Pepsi can ask Coca Cola to part with its trade secrets
to its business rival by supplying the essence/syrup etc. for which Coca Cola
holds the trade marks to GBC which is under effective control or Pepsi.
Pepsi took a deliberate decision to take over GBC with the full knowledge G
of the terms of the 1993 Agreement. It did so with a view to paralyse the
operations of Coca Cola in that region and promote its products. In view
of the negative stipulation contained in paragraph 14 of the 1993 Agree-
ment which has been enforced by the High Court, Pepsi has not succeeded
in this effort. It must suffer the consequences of the failure of the effort H
554 SUPREME COURT REPORTS (1995] SUPP. 2 S.C.R.
A and it cannot assail the interim injunction granted by the High Court by
invoking the plight of the workmen who are employed in the bottling plants
ofGBC.
In this context, it would be relevant to mention that in the instant -~,
case GBC had approached the High Court for the injunction order,
B granted earlier, to be vacated. Under Order 39 of the Code of Civil
procedure, jurisdiction of the Court to interfere with an order of inter-
locutory or temporary injunction is purely equitable and, therefore, the
Court, on being approached, will, apart from other considerations, also
..,...._....__;;,_
look to the conduct of the party invoking the jurisdiction of the court, and
c may refuse to interfere unless his conduct was free from blame. Since the
relief 1s wholly equitable in nature, the party invoking the jurisdiction of
the Court has to show that he himself was not at fault and that he himself
was not responsible for bringing about the state of things complained of
and that he was not unfair or inequitable in his dealings with the party ~
against whom he was seeking relief. His conduct should be fair and honest.
D These considerations will arise not only in respect of the person who seeks
an order of injunction under Order 39 Rule 1 or Rule 2 of the Code of
Civil Procedure, but also in respect of the party approaching the Court for
vacating the ad-interim or temporary injunction order already granted in
the pending suit or proceedings.
E
Analysing the conduct .of the GBC in the light of the above prin-
ciples, it will be seen that GBC, who was a party to the 1993 Agreement,
has not acted in conformity with the terms set out in the said agreement.
It was itself, prima facie, responsible for the breach of the agreement, as
F would be evident from the facts set out earlier. Neither the consent of Coca
Cola was obtained for transfer of shares of GBC nor was Coca Cola
informed of the names of persons to whom the shares were proposed to
be transferred. Coca Cola, therefore, had the right to terminate the agree-
ment but it did not do so. On the contrary, GBC itself issued the notice
for terminating the agreements by giving three months notice. "'
G
It is contended by Shri Nariman and, in our opinion, rightly, that the
GBC, having itself acted in violation of the terms of agreement and having
breached the contract, cannot legally claim that the order of injunction be
vacated particularly as the GBC itself is primarily responsible for having
H brought about the state of things complained of by it. Since GBC has acted
.GUJ. BOTTLING CO. LTD. v. COCA COLA CO. [S.C.AGRAWAL,J.] 555
in an unfair and inequitable manner in its dealings with Coca Cola, there A
was hardly any occasion to vacate the injunction order and the order
passed by the Bombay High Court cannot be interfered with not even on
the ground of closure of factory, as the party responsible, prima facie, for
breach of contract cannot be permitted to raise this grievance.
Shri Shanti Bhushan has lastly urged that the interim injunction B
granted by the High Court is in very wide terms because not only GBC but
also those to whom the shares have been sold and also subsequent trans-
ferees, their servants, agents nominees, employees, subsidiary companies,
controlled companies, affiliates or associate companies or any person
acting for and on their behalf are restrained by the interim injunction from C
using the plants of GBC. It is no doubt true that the interim injunction is
widely worded to cover the persons aforementioned but in its operation
the order only restrains them from using the plants of GBC at Ahmedabad
and Rajkot for manufacturing, bottling or selling or dealing with or con-
cerning in any manner whatsoever with the beverages of any person till
January 25, 1996, the expiry of the period of one year from the date of D
notice dated January 25, 1995. The interim injunction is thus confined to
the use of the plaints at Ahmedabad and Rajkot by any of these persons
and it is in consonance with the negative stipulation contained in paragraph
14 of the agreement dated September 20, 1993.
For the reasons aforementioned we do not find any infirmity in the
E
impugned order of the High Court dated March 31. 1995 granting an
interim injunction in terms of prayers (a)(ii) and (a)(iii) of the Notice of
Motion as amended. The appeals, therefore, fail and are accordingly
dismissed. No Costs.
V.M. Appeals dismissed.
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