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PETITIONER:

M/S GUJARAT POTTLING CO.LTD. & ORS.

Vs.

RESPONDENT:

THE COCA COLA CO. & ORS.

DATE OF JUDGMENT04/08/1995

BENCH:

AGRAWAL, S.C. (J)

BENCH:

AGRAWAL, S.C. (J)

AHMAD SAGHIR S. (J)

CITATION:

1995 AIR 2372 1995 SCC (5) 545

JT 1995 (6) 3 1995 SCALE (4)635

ACT:

HEADNOTE:

JUDGMENT:

J U D G M E N T

S.C. AGARWAL. J. :

Special leave granted.

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.

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", "Rim Zim" and "Citra"

as well as "Bisleri" club soda. They had arrangements with

bottlers in different parts of the country whereunder the

bottlers prepared beverages from the essence/syrup supplied

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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.

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

Ahmadebad 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 and 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 provision 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 convenant 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 dis-continue supplying to GBC with essence/

syrup and/ or other 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 in effective transfer of control without the

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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 Ahmadabad town and other pertaining to

Rajkot town. In addition, 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 letter 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.

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.

After the execution of these agreements steps for

upgradation of the plants of GBC at Ahmedabad and Rajkot

were taken and when the upgradation of the said two plants

was near completion Coca Cola advised GBC that it was

necessary for GBC to provide for aditional 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

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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 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.

On January 30, 1995 Coca Cola filed a 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 mark 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 abd 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.

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(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 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."

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.

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 subsistenance of this

Agreement including the period of one

year's notice as contemplated in

paragraph 21."

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.

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

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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 mark 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 Electric 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 codified

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 that 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 provision 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 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 bing; and (c) for which he is registered as

registered user; and (ii) which complies with any conditions

or restrictions to which the registeration of the trade mark

is subject". In sub-section (i) 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 use by the propriter thereof and

shall be deemed not to by 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 registred

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

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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

defendent. 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 refered 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 propretor over the permitted user ceases."

The abovementioned 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 registerd 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 proprieter of

the trade mark and enables a registered user to take

proceedings in his own name to prevent infringement of the

trade mark.

Apart from the said provisions relating to registered

users, it is permissible for the registerd proprited of a

trade mark to permit a person to use his registerd 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

others; and (iii) a connection in the course of trade

cosistent with the definition of trade mark continues to

exist between the goods and the propriter of the mark. [see

: P. Narayanan = Law of Trade Marks and passisng-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 and for that

purpose the registered proprietor has to enter into an

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.

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

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to consistently maintain the quality of the sid beverages in

all respects and to strictly adhere and conform to the

technical specification and standards as provided, using

only such ingredients and of such quality as provided 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 requirments, it is permissible for the representatives

and/or agents of Coca Cola to inspect at any time the

premisesof GBC, the finished beverages, the methods of

preparation there of and the bottling process, and full

cooperation in this regard is to be extended by GBC. GBC has

also agreed to submit samples 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 of 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 lables 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 itens 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, lables 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 which Coca Cola reserves its right to

terminate the agreement. Under pragraph 7 GBC has agreed to

vigorously and deligently 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 get

up 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 pragraph 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 cdesignation which is an imitation or

infringement of these trade marks or is likely to cause

passings-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

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in any form or fashion or any words graphically or

phonetically similar thereto or in imitation thereof on any

product other than that of Coca Cola. would constitiute 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 manufacturer, 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 the 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 Cola on all matters concerning the said

trade mark shall be final and conclusive and not subject to

question by GBC and Coco Cola in the defenc 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 imitation beverages being

filled in the bottles registerd under Coca Cola's trade name

or trade marks. In pragraph 11 GBC has recognised Coca

Cola's ownership of the trade marks and has agred 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 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 connecetion with

any drink any trade marks or design which is deceptively

similar to Coca Cola's trade marks or any other trade marks

which Coca Cola may acquire.In paragraph 14 GBC recognises

that Coca Cola has awarded the territory on the assurance of

GBC, that it 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

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 supply of Coca Cola's

products/beverages for safeguarding the interest of the

consuming public and thus maintaining the goodwill of Coca

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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 judgement 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 commisions or

omissions on the part of the 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 to right to cancel and terminate the agreement forthwith

by written notice to GBC upon the happening of any one or

more of 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 makes 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 mull 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 the 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.

A perusal of the various provisions contained in the

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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

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 covered by the said trade marks.

In that sense the 1993 Agreement can be regarded as an

agreement for grant of a franchisee, whereunder GBC has been

permitted to manufacture, bottle and sell the beverages

covered by the trade marks referred to and mentioned in the

agrement in the area covered by the agreement subject to the

conditions laid down in the agreement.

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

virture 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 prepration, 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 license 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 License has

undertaken to prepare and package or dispense the said goods

strictly in accordance with standars, 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

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convenants 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 undertaking 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 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 virture of the licence 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 days 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 convenants that upon any amendments

that the Licensor may request the 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.

A perusal of the provisions contained in the 1994

Agreement, more particularly paragraph 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 clauses (ii) of sub-section (1) of

section 49. This is evident from paragraphs 1, 3, 4, 5, and

6 which contain partculars referable to sub-clauses (a), (b)

and (c) and paragraph 7 which contains partculars 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 word's

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 similiar to these contained in 1994 Agreement are

also contained in the 1993 Agreement. But that is so because

a licence to use a trade mark 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 the manufacturing,

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bottling and selling of the beverages which provisions are

not found in the 1994 Agreement. The 1994 Agreement canot 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 provisions 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 supersending 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.

Shri Shanti Bhushan, the learned senior counsel

appering 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 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 pragraph 21 of the 1993 Agreement enables the

termination period to be reduced by mutual consent in

writing between.Coca Cola and GBC. There is, howecer, no

such agreemdnt which expressly reduces the daid termination

period under paragraph 21 of the 1993 Agreement. What is

suggested is that paragraph 7 of the 1994 Agreement. What is

suggested is that poaragraph 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 reguirements of the Act

and the Rules for the purpose of registration of user, GBC

as registered user of the trade marks under the Act, clause7

of the 1994 Agreement has to be confined tin 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, papragraph 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

Livense Agreement') stands replaced by

the Trade Mark License Agreement and/or

that the temination period under the

License Agreement in any event stands

reduced to 90 days ' please treat

termination notice also under clause 21

of the License Agreement."

In the said notice, it is not stated that the parties

had mutually agreed to reduce the termination period from

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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

mutualy 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 tp 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 thenotice 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 the said notice

has not been examined by the High Court. we do not proposes

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.

We may now examine the submission of Shri Shanti

Bhushan that the negative stipulation contained in paragraoh

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 trhe 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 jealoulay any interference with

trade, even at the risk of interference with freedom of

contract, as it is public policy to opposse all restraints

uopn liberty of individual action which are injurious to the

interests oif the State. A person may be restrained from

carrying in his trade by reason of an agreement voluntarilu

entered into by him with that object and in such a case tha

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 compete 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 aubjected to the

test or reasonableness. Since the doctrine of restrint 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 enconimic thought. The general principle once applicable

to agreements in restraint of trade has consequently been

considerbly modified by later decisions in England. In the

earliest times all contracts in restraint of trade, whether

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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 restraint 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 contact 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 necerssary for the protection of the interest of

the covenantee and regard must be had to the interests 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 shoe that the restraint goes no further than

is reasonably necesary top rpotect the interest of the

covenantee and if this onus is discharged the onus of

showing that the restraint is nevertheless injurieous 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 trader, 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 of 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 Spuinning 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 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 at

p. 331 Lord Wilberforcel].

In India agreements in restraint of trade are govrned

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."

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 wa, however, never applied times.

The said provision was, however, never applied in New York.

The adoption of this provision has been severly criticised

by Sir Frederick Pollock who has observed that "the law of

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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 not the

principle that the restraint beoing partial or reasobale 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 or trade,

generaql or partial, as were reasonablke, 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, 1980 (3) SCR 1278, at pp.1291, 1296-

98, per A.P.Sen J.J.

We do not propose to go into the question whether

reasonableness of restraqint 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?

In Attorney-General of the Commonwealth of Australia v.

Adelaids 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 enforcved, 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]

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 into a

contract of service or may agree to give

his exclusive service 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]

In McEllistrim v. Ballymacelligott co-operative

Agricultural and Dairy Society Ltd., 1919 Ac 548, Lord

Finlay after referring to the principle enumerated in

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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

aplicabl;e to the right to sell his goods." Douibting the

correctness of this statement Lord Reid in Esso POetroleum

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 suggersted that they were in

restraint of trade." [p.296]

In Petrfina (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 convenantor)

agrees with any other party (the

convenantee) to restrict his lberty in

the future to carry on trade with other

persons not parties to the contract in

such manner as he cjhooses."[p.180]

In the same case, Lord denning M.R. has

said:

"Every member of the community is

entitled to carry on any trade or

business be 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 or tyrade. It is invalid

unless it is reasonable as between the

parties and not injurious to the public

interest."

After referring to these observations,

Lord Morris in Esso Petroleum Co. Ltd.

(supra) has said:

These are helpful expositions provided

they are used reationally 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 inmdeed if it

were sought to descrisbe the contract as

being in restaint 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

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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:

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

realations 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'

servives 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]

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 certaintly, 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

or 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 np

precise non-exhaustive test. But the development of the law

does seem to show that judge have been able to dispense from

the necessity of justification under a public p[olicy 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 services through franchise agreements providing

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for grant of franchies by the franchiser on certain terms

and conditions to the franchiseee. Such agreements often

incorp;orate a conditionm that the francxhisee 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.

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 wholeheartedlky apply to

promoting the sale of the products of Coca /Cola. In that

contextr, it is also relevant to 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 subsistenance of this agreement including

the period of one year as contemplated in paragraph 21," in

paragraph 14. Except in cases where the contact is wholly

one sided, normally the doctrine of restrain of trade is not

attracted in cases where therestriction is to operate during

the period the contract is substriction 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

contracts. 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 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 opr excessively harsh or

unreasonable or one sided as in the case

of W.H. Milsted and Son Ltd." [p.389]

Similarly, in Superintendence Company (supra) A.P. Sen

J., in his concurring judgement, has said that "the doctrine

of restraint of trade never applied 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

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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

undelying principle governing contracxts in restraint of

trade is the same and as a matter of fact the 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);

"We 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 restrine and no

question of reasonablness arises. If ,

however, the contract ties the trading

activities od either party after its

question of reasonablness arises."

[p.328]

Since the negatice 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.

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 is application to the

preceding part of paragraph 14 which reads as under:

"The Bottlker recognises that is is

imperative that the Bottler must

maintain with full mvigion the

products/beverages for safeguarding the

interest of the consuming public and

thus maintaining the goodwill of the

company."

Laying emphasis on the wpord"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 Coca Cola has refused tosupply to GBC

essence/syrups 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.

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-paragraphs contained in paragraph 14 and its

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application cannot be confined to the sub-paragraph

immediately preceding the wqord "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-oparagraphs of

paragrpah 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 deligently to promoite 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 otherwqise 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 1`993 Agreement must be confined in its

application to the immediately preceding sub-paragraph of

paragraph 14 of the 1993 Agreement.

Shri Shanti Bhushan has next contended that clause (b)

of paragraph 19 of the 1993 Agreement wqhich imposes a

restraint in the matter of transfer of the shares of GBC is

void inasmuch as transfer of shares of a company registere

under the Companie\s Act is governed by Section 82 of 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. Gopalakrishnan & 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 concluding

part of paragraph 19 and dis-continue the supply of

essences/syrup and/or other materials to GBC while the 1993

Agreement susbsiste. The relevant part of paragraph 19 is as

under:

"Paragraph 19. Upon the happening of any

one or more of the folloowing events in

additon to all have the right to cancel

and terminate this Agreement forthwith

by written notice to the Bottler.

(a) x x x x

(b) Should Bottler be other than a

natural person, no charge shall be m,ade

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 eill for

failure to notify it of suchj 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

suplying the Bottler with essence/syrup

and/or other materials for such length

of time as the Company may in its sole

judgm,ent deem necessaary without

thereby cancelling or prejudicing the

Company's right to cancel or terminate

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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 binding force on the

shareholders of GBC. Clause (b) of paragraph 19 cannot,

therefore, be constructed 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. 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 even 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 dis-continue 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 pejudicing 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 goiven the

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 constued 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, nop application.

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 injuction 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 injuction and dis-continuance

by Coca Cola of the supply of essence/syrup and/or other

materials by exercising oits 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 therby resulting in irreparable loss which

cannot be compenbsated in the event of suit filed by Coca

Cola being dismissed. Shri Shanti Bhushan has also submitted

the 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 M/s Lalbhai Dalpatbhai &

Co. v. Chittaranjan Chandulal Pandya, AIR 1966 Guj. 189,and

that of Delhi High Court in Modern food Industries India

Ltd. v. M/s Shri Krishna Bottlers(p) Ltd, AIR 1984 Delhi

119, as well as on the observations of Lord Diplock in

Amrican cynamid Co. v. Ethicon Ltd., 1975 Ac 396.

In the matter of grant of injuction, the p[ractice in

Enland is that where a contract is negative in nature, or

contains an express nagative stipulation, breach of it may

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be restrained by injuction and injuction is normally granted

as a matter of course, even though the redy is equitable and

thus in principle a discretionary one and a defendant cannot

resist an injuction 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.1,

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 cluse (e) of Section

41, where a contract copmptises an affirmative agreement,

express or implied, not to do a certain act, the

circumstances that the court is unable to compel specific

performance of the affirmative agreeement shall not preclude

it from granting an injuction to perform the negative

agreement. This is subject to the proviso that the plantiff

has not failed to perform the contract so far as it is

binding on him. The Court is, however, not bound to grant an

injuction in every case and an injuction to enforce a

negative covenant would be refused if it would indirectly

compel the employee either to idleness or to serve the

employer. [See: Ethrman v. Bartholomew. (1927) W.N. 233;

N.S.Golikari (supra) at p. 389].

The grant of an interlocutory injuction during the

perdency of legal proceedings is a matter requiring the

exercise of discretion of the court. While exercising the

descretion 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 pliantiff would suffer an irreparable injury if

his prayer for interlocutory injuction is disallowed. The

decision whether or not to grant an onterlocutory injuction

has to be taken at a time when the existence of the leagal

right assailed by the plaintiff and its alleged violation

are both contested and uncertain and its alleged violation

are both contested and uncertain and remain uncertain till

they are established at the trial on evidence. Relief by way

of interlocutory injuction 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 injuction 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 weghed

against the corresponding need of the defendant to be

protected against injury resulting from his having been

prevented from exercisising 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.& Anr. v,. Antox India P.

Ltd., 1990 (suoo) Scc 727 at pp. 731-32]. In order to

protect the defendent whiloe granting an interlocutory

injuction in his favour the Court can require the plaintiff

to furnish an undertaking so that the defendent can be

adequately compensated if the uncertainty were resolved in

his favour at the trial.

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 injuction granted by the High Court is not

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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

closere 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 convenant

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.

We are inclined to agree with the submission of Shrki

nariman and Shri Andhyarujina. Having regard to the negative

covenant contained in paragraph 14 of the 1993 Agrreement

which is subsisting, Coca Cola has made out a prima facie

case for grant of an injuction. As regards the other two

requirements for grant of interlocutory injuction, viz.,

balance of convenience and orreparable 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 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 were acquired by Coca Cola. The negative stipulation in

p[aragraph 14 was inserted in order to preclude the said

plants being used for manufacture of products of opther

manufacturers during the period the 1993 Agreements were

subsisting. Pepsi by taking control over GBC sought to

achievce a dual purpose, viz., reduce the production

capacity of beverage 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 injuction 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 Agreement 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 wqouild have resulted in reduction of the share of Coca

Cola in the Beverages m,aket 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 injuction, 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

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to pay the amount that is found payable.

The interim injuction 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

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 oits 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 of Pepsi. Pepsi took a

deliberate decision yto take over GBCX 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 and it cannot assail the interim

injuction granted by the High Court by invoking the plight

of the workmen who are employed in the bottling plants of

GBC.

In this context, it would be relevant to mention that

in the instant case GBCX had approached the High Court for

the injuction order, granted earlier, to be vacanted. UNder

order 39 of the Code of Civil Procedure, jurisdiction of the

Court to interfere with an order of interlocutory or

temporary injuction 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

relkief is sholly equitable in nature, the party invoking

the jurisdictionb of the court has tro show that he himselff

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

partyh 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

injuction 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 vocating the ad-interim or

temporary injuction order already granted in the pending

suit or proceedings.

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

terns set out in the said agreement. It was itself, Prima

facie, resposible for the breach of the agreement, as would

be evidenmt from the facts set out earlier. neither the

consent of Coca Cola was obtained for transfer of shares of

GBC not 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

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 ahaving breached the contract,

cannot legally claim that the order or injuction be vocated

particularly as th GBC itself is primarily reponsible for

having brought about the state of things complained of by

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it. Since GBC has acted in an unfair and inequitable m,anner

in its dealings with Coca Cola, there was hardly and any

occasion to vacant the injuction order and the order passed

by the Bombay High Court cannot be interferred 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

injuction 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 subsewquent trnasferees, their servants,

agents nominees, employees, subsidiary companies. controlled

companies. affiliates or associte companies or any person

acting for and on their behalfd are restrained by the

interim injuction from using the plants of GBC. It is no

doubt true that the interim injuction 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 anbd 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 injuction is thus

confined to the use of the plants 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 impugned order of the high Court dated

March 31, 1995 granting an interim injuction 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.