MANU/SC/0472/1995

Equivalent/Neutral Citation: AIR1995SC 2372, 1995(2)ARBLR249(SC ), [1995]18C LA322(SC ), [1995]84C ompC as618(SC ),
(1995)4C ompLJ417(SC ), 1995GLH(2)594, 1995 INSC 441, JT1995(6)SC 3, (1996)1MLJ15(SC ), 1996(16)PTC 89(SC ), 1995(4)SC ALE635,
(1995)5SC C 545, [1995]Supp2SC R514, 1995(2)UJ698

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 6839-6840 of 1995
Decided On: 04.08.1995
Gujarat Bottling Co. Ltd. and Ors. Vs. Coca Cola Company and Ors.
Hon'ble Judges/Coram:
S.C. Agrawal and Saiyed Saghir Ahmad, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: Shanti Bhushan, Gopal Subramanium, Arun Jaitley, Fali
Sam Nariman and T.R. Andhyarujina, Advs.
Case Note:
Contract - interlocutory injunction - Order 39 Rules 1 and 2 of CPC, 1908 -
Gujarat Bottling Co. (GBC) having itself acted in violation of terms of
agreement and having breached 'contract' cannot legally claim that Order of
injunction be vacated - GBC acted in unfair and inequitable manner in its
dealing with respondent-company - while exercising discretion of granting
interlocutory injunction Court applies three tests firstly whether plaintiff has
prima facie case secondly whether balance of convenience is in favour of
plaintiff and whether plaintiff would suffer irreparable loss in case of refusal
of interlocutory injunction - need for protection under Order 39 Rules 1 and 2
has to be weighed against need to protect defendant against any injury
resulting from his having been prevented from exercising his own rights for
which he could not be adequately compensated - appellant company not
entitled to claim for vacation of injunction Order.
ORDER
S.C. Agrawal, J.
1. Special leave granted.
2 . In the past nations often went to war for the protection and advancement 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 operations, for the protection and advancement of their economic
interests. 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"), 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.
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3. 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 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
owned and controlled by Mr. Ramesh Chauhan and Mr. Prakash Chauhan, respondents
Nos. 3 and 4. The said group was manufacturing under trade marks bearing the names
"Gold Spot", "Thums Up", "Limca", "Maaza", "Run 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 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 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.
4. Gujarat Bottling Company Ltd., appellant No. 1 (hereinafter referred to as 'GBC) is a
company incorporated under the Companies Act, 1956. 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 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 under the trade marks "Thums Up", "Limca", "Gold Spot", "Maaza", "Citra",
"Rim Zim" and "Bisleri Club Soda". In anticipation of the assignment of the 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 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 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 paragraph 21
provisions is made for termination of the said agreement by either 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 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
discontinue supply to GBC with essence/syrup and/or other materials on the happening
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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 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 marks 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 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 September 20, 1993
for Ahmedabad and Rajkot towns for the use of the trade 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 terminated 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.
5. 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", "Limca", "Thums Up", "Maaza", "Citra", etc, in relation to goods prepared
by or for the licensee (GBC) from concentrates and/or syrup supplied by the licensor
(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 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 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 registration 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 limitation 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
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.
6. After the execution of these agreements steps for up gradation of the plants of GBC
at Ahmedabad and Rajkot were taken and when the up gradation of the said two plants
was near completion Coca Cola advised 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 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
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as well as respondent Nos. 3 and 4 and their family members and associates in GBC and
respondent No. 7 were transferred to appellants Nos. 2 to 5 which are concerns closely
associated and connected or affiliated to subsidiaries 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 the 1994 Agreement whereby the said agreement was terminated. In the said notice
it is also stated that 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 under Clause 21 of 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 Processing Industries, Government of
India, for approval of crown cap designs pertaining to beverages of which the trade
marks are held by Pepsi.
7 . 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 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 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 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 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 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 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 the shares have been sold
and also subsequent transferees, 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 an interim
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 injunction from using the plants of respondent No. 1 at Ahmedabad and 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.
8. Feeling aggrieved by the said judgment of the Division Bench of the High Court dated
March 31, 1995, GBC (defendant No. 1) and the four transferees of the shares of GBC
(defendants Nos. 7 to 10) have filed these appeals.
9. By the said interim order the High Court has given effect to the negative stipulation
contained in paragraph 14 of the 1993 Agreement which is in the following terms :
As such the Bottler covenants that the Bottler 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 this Agreement
including the period of one year's notice as contemplated in paragraph 21.
10. 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 Agreement 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 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.
11. 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 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 separate existence dissociated from that goodwill.
[See : General Election Co. v. General Electric Co. Ltd. (1972) 2 All E R 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 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 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

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and for that purpose provisions are made in Sections 48 to 54 of the Act. In Clause (m)
of Section 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 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 Central Government has been empowered to make rules
providing that no application for registration as such shall be entertained unless the
agreement 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 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 application shall be
accompanied by the agreement in writing or a duly authenticated copy thereof entered
into between the registered proprietor 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 registered user of a trade mark
to call upon the proprietor to take proceeding 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 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 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
over the permitted user ceases."
12. 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 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 registered user to take
proceedings in his own name to prevent infringement of the trade mark.
13. Apart from the said provisions relating to 'registered users, it is permissible for the
registered proprietor of a trade mark to permit a person to use his registered trade
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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 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.33'5].
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 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.
14. 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. 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 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 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 Coca Cola to inspect at any time the premises of GBC, the finished beverages,
the methods of preparation thereof, the bottling process, 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
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). 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 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
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paragraph 6 would constitute an infringement of the agreement for which Coca Cola
reserves its right to terminate the agreement. Under paragraph 7 GBC has agreed to
vigorously and diligently promote and solicit the sale of the said beverages and assure
full and complete distribution of the said beverages to meet the market demand for the
said beverages. Under Clause (a) of paragraph 8 GBC covenants and agrees not 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 therefore. 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 limitation 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 graphically or phonetically similar thereto or in limitation 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 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 limitation 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 Cola on all matters concerning the said trade
marks shall be final and conclusive and not subject 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 paragraph 10 GBC has
assured Coca Cola that it will safeguard that no spurious beverages are manufactured,
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 limitation beverages being filled in the bottles registered under
Coca Cola's trade name or trade marks. In paragraph 11 GBC has recognised 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. In paragraph 12
it is provided that nothing contained in the Agreement shall be construed as conferring
upon 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 strictly on its own merits, 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 its name, nor will GBC use in
connection with any drink any trade marks or design which is deceptively similar to
Coca Cola's trade marks or any 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 diligently 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 products/beverages to meet the

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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 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 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 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
commissions or omissions on the part of GBC. In paragraph 18 GBC has agreed not to
sell, assign, transfer, pledge, mortgage, lease, licence or 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 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 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 expire, without notice, on November 17, 1998 unless it has been
earlier terminated as provided in the agreement. Paragraph 21 marks 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 reason by any of court, governmental
agency, body or tribunal. In paragraph 25 provision is made for supersession of all
prior contracts, agreements 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 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
Annexure 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
claims against Parle (Exports) Limited or any of its affiliates which would affect the
rights of Coca Cola under the agreement.
15. 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
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marks in respect of beverages mentioned in Annexure II to the agreement which were to
be acquired shortly by Coca 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 to be acquired by Coca Cola. The 1993
Agreement also contains various provisions governing preparation, bottling and sale of
the beverages covering 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 agreement subject to the conditions laid down in the
agreement.
16. We would now come to the 1994 Agreement. In 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 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 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-exclusive licence
by the Licensor to the Licensee to use the said trade marks 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, formulae, processes and instruction, furnished or approved by the
Licensor from time to time and so long as such goods are manufactured within such
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 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 package of dispense the said goods strictly in accordance
with standards, 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 packaged 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 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 Licensor.
Paragraph 4 records the understanding that the Licensee shall not be the sole
licensee/permitted user of the said trade marks. In paragraph 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
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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 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 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 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 marks.
1 7 . A perusal of the provisions contained in the 1994 Agreement, more 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 Rules for registration of GBC as the
registered user of the trade marks specified in the Schedule to the agreement which had
been acquired by 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 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 (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 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 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
construed as wiping out the said terms and conditions regarding exercise of franchise
granted by Coca Cola to GBC as contained in the 1993 Agreement. 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 the 1994
Agreement cannot be construed as superseding the 1993 Agreement 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.
1 8 . Shri Shanti Bhushan, the learned senior counsel appearing for the 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
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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 Agreement enables the termination period to be reduced by
mutual consent 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 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 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 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 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 Agreement and/or that the termination period under the
License Agreement in any event stands reduced to 90 days' please treat this
letter, as a matter of abundant caution, as termination notice also under Clause
21 of the License Agreement.
19. In the said notice, it is not stated that the parties had mutually agreed 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
paragraph 21 of the 1993 Agreement is being reduced from one year to 90 days by the
1994 Agreement, there was no reason why GBC would not 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 January 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 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 only 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 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.
2 0 . We may now examine the submission of Shri Shanti Bhushan that the negative
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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 the common law in England.
21. 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 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 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 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 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 it became the rule that a partial
restraint might be 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 must be shown to 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 covenantor. Contracts in restraint of trade are prima
facie void and the onus of proof is on the party supporting the contract to show that the
restraint goes 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 covenants entered into between employer and employee than it
does not similar covenants between vendor and purchaser or in partnership agreements,
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., Vol. 47, paragraphs 9 to 26 : N.S. Golikari v.
Century Spinning Co. MANU/SC/0364/1967 : (1967)ILL J740SC . 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
that this contract is really in restraint of trade at all but, if it is, it is reasonable. See
Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd. (1968) AC 269 Lord
Wilberforce.
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22. In India agreements in restraint of trade are governed by Section 27 of the Indian
Contract Act which provides as follows :
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 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.
23. 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 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 exception. The Law Commission in its Thirteenth Report
has recommended that the provision should be suitably amended to allow such
restrictions and all contracts in restraint of trade, general or partial, as were reasonable,
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 : Superintendence Company of
India (P) Ltd. v. Krishan Murgai MANU/SC/0457/1980 , per A.P. Sen J..
24. 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 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 question, what is meant by a
contract in restraint of trade?
25. In Attorney-General of the Commonwealth of Australia. v. Adelaide Steamship Co.
Ltd. [1913] AC 781, Lord Parker has said :
Monopolies and contracts in restraint of trade have this in common, 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]
26. 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 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
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 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 entitled to engage in other
business activities. But no one has ever suggested that such contracts are in
restraint of trade except in very unusual circumstances. [p. 294]
27. In McEllistrim v. Ballymacelligott Co-operative Agricultural and Dairy Society Ltd.
(1919) AC 548, Lord Finlay after referring to the principle enumerated in Herbert Morris
Ltd. v. Saxelby (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
statement Lord Reid in Esso Petroleum Co. Ltd. (supra) has said :
It would seem to mean that every contract by which a man (or 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
ordinary commercial contracts of that kind in the past but no one has ever
suggested that they were in restraint of trade. [p. 296]
2 8 . 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 party (the 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]
29. In the same case, Lord Denning M.R. has said :
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 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.
30. After referring to these observations, Lord Morris in Esso Petroleum Co. Ltd. (supra)
has said :
These are helpful 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 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]
31. These observations indicate that a stipulation in a contract which is 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 promotion of trade and not an agreement in restraint of it,
was thus answered by Lord Pearce :
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 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]
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 contract, viewed as a whole, is directed towards
the absorption of the parties' service and not their sterilisation. Sole agencies
are a normal and necessary incident of commerce and those who desire the
benefits of a sole agency must deny themselves the opportunities of other
agencies. [p. 328]
32. In the same case, Lord Wilberforce has observed :
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 to them. Positively, there are likely to be certain sensitive areas
as to which the law will require in every case the test of reasonableness 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 law should 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-exhaustive test. But the
development of the law does seem to show that judges have been able to
dispense from the necessity of justification 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]
33. There is a growing trend to regulate distribution of goods and 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 of the
goods of the franchiser and it cannot be regarded as in restraint of trade.
3 4 . If the negative stipulation contained in paragraph 14 of the 1993 Agreement is
considered in the light of the observations in Esso Petroleum 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
agreement whereunder both the parties have undertaken obligations for promoting the
trade in beverages for their mutual benefit. The purpose underlying 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

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mention that the said negative stipulation operates only during the period the
agreement is in operation because of the express use of the words "during the
subsistence of this agreement including the period of one year as contemplated 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 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 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 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 master for whom he would perform similar
or substantially similar duties is not therefore a restraint of trade unless the
contract as aforesaid is unconscionable or excessively harsh or unreasonable or
one sided as in the case of W.H. Milsted and Son Ltd. [p. 389]
3 5 . Similarly, in Superintendence Company (supra) A.P. Sen J., in his concurring
judgment, has said that "the doctrine of restraint of trade never applies during the
continuance of a contract of employment; it applies only when the contract comes to an
end." [p. 1289]
36. 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 for confining this principle to a contract
for employment and excluding its application to other contracts. The underlying
principle governing contracts 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 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 incidental 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
determination, it is a restraint of trade, and the question of reasonableness
arises. (P.328)
37. Since the negative stipulation in paragraph 14 of 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. We are, therefore, unable to uphold the contention of Shri Shanti
Bhushan that the negative stipulation contained in paragraph 14 of the 1993 Agreement,
being in restraint of trade, is void under Section 27 of the Contract Act.

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38. 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 maintain with full
vision 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 Company.
39. Laying emphasis on the words "As such" in the negative stipulation, 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 continued 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 that Coca Cola has refused to supply to GBC essence/syrup and/or other 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.
40. 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 sub-paragraph contained in paragraph 14 and its application
cannot be confined to the sub-paragraph immediately 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 thus read, it is apparent that the purpose of
the negative stipulation in paragraph 14 is that GBC will work vigorously and diligently
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, deal or otherwise be
concerned with the products, beverages or any other brands or trade marks/trade
names.
4 1 . 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 of paragraph 14 of the 1993
Agreement.
42. 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 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
and Ors. MANU/SC/0076/1992 : AIR1992SC453 , and has submitted that if Clause (b)
of paragraph 19 is held to be void then Coca Cola cannot invoke the concluding part of
paragraph 19 and dis-continue the supply of essences/syrup and/or other materials to
GBC while the 1993 Agreement subsists. The relevant part of paragraph 19 is as under :
Paragraph 19. Upon the happening of any one or more of the following event in

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 addition to all other rights and remedies, the Company shall have the right to
cancel and terminate this Agreement forthwith by written notice to the Bottler.
(a) x x x
(b) Should Bottler be other than a natural person, no change shall be
made in its structure nor shall any transfer be made of any of its stock,
share or interest or other indicia of ownership which would result in an
effective transfer of control 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:
(c) x x x
(d) x x x
(e) x x x
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 right to cancel or terminate the Agreement for the said cause or for
any one or more other cause or causes.
43. 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 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 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 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-continue the supply of essences/syrup and/or other materials to GBC. This clause
governs the relationship between Coca Cola and GBC Inter se and 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 application.
44. Shri Shanti Bhushan has next urged that in the facts and circumstances 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 discontinuance by
Coca Cola of the supply of essence/syrup and/or other materials by exercising its right
under paragraph 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 irreparable loss which cannot be compensated in
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the event of suit filed by 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 arranging supply of their products
from other licensees in the neighbouring areas. Shri Shanti Bhushan has placed reliance
on the decisions of Gujarat High Court in Lalbhai Dalpatbhai & Co. v. Chittaranjan
Chandulal Pandya MANU/GJ/0051/1966 : AIR1966Guj189 , and that of Delhi High
Court in Modem Food Industries India Ltd. v.Shri Krishna Bottlers (P) Ltd.
MANU/DE/0469/1983 : AIR (1984) Delhi 119, as well as on the observations of Lord
Diplock in American Cyanamid Co. v. Ethicon Ltd. (1975) AC 396.
45. 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 equitable and thus in principle a discretionary one and a
defendant cannot 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 Principles, para 27-040 at p. 1310 : Halsbury's
Laws of England, 4th Edn. Vol. 24, para 992. in India Section 42 of the Specific Relief
Act, 1963 prescribes 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 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
Ehrman v. Bartholomew (1927) W.N. 233 N.S. G.
46. 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) 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 injunction 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 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 plaintiff
against injury by violation of his right for which he could not be adequately
compensated in damages recoverable in the action if the uncertainty were resolved in
his favour at the trial. The need for such protection has, however, to be weighed against
the corresponding need of the defendant to be protected 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 and
determine where the 'balance of convenience' lies. See : Wander Ltd. and Anr. v. Antox
India P. Ltd. MANU/SC/0595/1990 . 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 defendant can be adequately compensated if the uncertainty
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were resolved in his favour at the trial.
47. Shri Shanti Bhushan has contended that Coca Cola can be adequately compensated
for the loss caused to it by award of damages in the event of it succeeding in the suit
and that if the impugned injunction granted by the High Court is not reversed the loss
suffered by GBC would be irreparable 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 commercial risk knowing
fully well the effect of negative covenant contained 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 and that
damages would not be an adequate compensation for the injury which would be
irreparable and that in respect of the loss that may be sustained by it, 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.
4 8 . 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 prima facie case of
grant of an injunction. As regards the other 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 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 subsisting. Pepsi by
taking control over GBC sought to achieve a dual purpose, viz., reduce the production
capacity of beverages bearing the trade marks held by Coca Cola by denying use of the
plants of GBC at Ahmedabad and Rajkot for manufacture of those products and to
increase the production 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 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 manufacture 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 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.
4 9 . The interim injunction granted by the High Court has been assailed by the
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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 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 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 Agreement 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 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 of GBC.
50. In this context, it would be relevant to mention that in the instant case GBC had
approached the High Court for the injunction order, granted earlier, to be vacated.
Under Order 39 of the Code of civil procedure, jurisdiction of the Court to interfere with
an order of interlocutory 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 may refuse to interfere
unless his conduct was free from blame. Since the relief is 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. 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 CPC, 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.
51. Analysing the conduct of the GBC in the light of the above principles, 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 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 agreement but it did not do so. On
the contrary, GBC itself issued the notice for terminating the agreements by giving three
months notice.
52. 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 brought about the state of things complained of by
it. Since GBC has acted in an unfair and inequitable manner in its dealings with Coca
Cola, there 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.
53. Shri Shanti Bhushan has lastly urged that the interim injunction granted by the High
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Court is in very wide terms because not only GBC but also those to whom the shares
have been sold and also subsequent transferees, 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 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 concerning 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 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.
54. For the reasons aforementioned we do not find any infirmity in the 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.
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