Arb-763-09 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO. 763 OF 2009 Novartis Vaccines & Diagnostics Inc. a company incorporated under the laws of the State of Delaware in the United States of America, having its principal place of business at 350, Massachusetts Avenue Cambridge, MA 02139 – 4182, United States of America ...Petitioner. Vs. Aventis Pharma Limited. a company incorporated and registered under the Companies Act, 1956, having its registered office at Aventis House, 54A, Sir Mathurdas Vasanji Road, Andheri (East), Mumbai 400 093 ...Respondent. Mr.T. Andhyarujina, Sr. Counsel with Mr.Zal Andhyarujina, Sr.Counsel with Mr.Atul Rajadhyaksha i/b. M/s.Wakhariya & Wakhariya for the Petitioner. Mr.D.J.Khambatta, Sr. Counsel with Mr. M. S. Doctor i/b. Bachubhai Munim & Co. for the Respondent. CORAM :- ANOOP V. MOHTA, J. DATE OF RESERVING THE JUDGMENT :- 11th DECEMBER, 2009. DATE OF PRONOUNCING THE JUDGMENT: 18th DECEMBER,2009 JUDGMENT :- The Petitioner has invoked Section 9 of the Arbitration and Conciliation Act, 1996 (for short, Arbitration Act) for the following prayer:- Arb-763-09 2 a) this Hon’ble Court be pleased to grant an interim measure of protection by way of an interim injunction restraining the Respondent by itself and/or through its agents and/or servants from or in any manner distributing Verorab. 2 Admittedly, there is an Arbitration clause in Joint Venture Agreement (for short, JVA) dated 22nd April, 1998, which reads thus- “13.10 Any dispute arising out of or in connection with this Agreement or any Related Agreement shall be resolved by the Parties in the following manner: (a) Any Party may initiate resolution of such controversy by providing to the other Parties a brief and concise statement of the initiating Party’s claims, together with relevant facts supporting them, and referring to this Section 13.10(a). For a period of sixty (60) days from the date of such statement, or such longer period as the Parties may agree in writing, the Parties shall make good faith efforts to settle the dispute. Such efforts shall include without limitation, full presentation of the Parties’ respective positions before the respective chief executive officers of their respective companies. Any Party may in its sole discretion elect to be assisted by counsel in such presentation. (b) In the event the Parties are unable to reach accord using the procedures specified in paragraph (a) above, such dispute shall be finally settled without recourse to the courts, in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, by one or more arbitrators designated in conformity with those Rules. Arbitration shall be held in London, England. Either Party may ask the competent tribunal to confirm an arbitration award or otherwise provide that it shall be enforceable.” 3 Considering the scope and purpose of Section 9 of the Arbitration Act and if the case is made out, then whether pre-arbitration stages as provided Arb-763-09 3 under the clause were complied with or not that can be gone into at the later stage. The basic requirement of existence of the arbitration agreement and the dispute between the parties arising out of the same, in my view, is sufficient to consider the case of the Petitioner for urgent relief. 4 As per the respondent, prior to 1989, Rabipur, an anti-rabies vaccine, and therefore a life saving drug, was manufactured by a company known as Behringwerke (a constituent of the Hoechst Group), and was exclusively imported and marketed in India, Nepal, Bangladesh, Sri Lanka (“the HMR Territory”), by the Respondent (then known as Hoechst India Limited). The Respondent established and developed, at huge cost, the marketing network, which is specially required in order to market and distribute an anti rabies vaccine. As of February 2009 this network consisted of about 350 medical representatives and channel sales executives who had reached out to over 46,000 general medical practitioners and 11,000 A Class Pharmacy Retailers every month. In addition thereto the Respondent has appointed 2,000 distributors to distribute Rabipur along with the Respondent’s other brands. The Respondent has also established a “Cold Chain” that is specially required for the storage and transportation of an anti rabies vaccine, which includes special facilities such as walk in coolers at all its 27 C & F locations, to store the vaccines temperatures between 2 deg. Centigrade and 8 deg. Centigrade, and refrigerated vans for transporting the vaccines. Arb-763-09 4 5 In 1989, the Respondent established a manufacturing facility at Ankleshwar, Gujarat to Rabipur, for manufacturing and production of Rabipur in India. The Rabipur, anti-rabies vaccine, manufactured at the aforesaid undertaking, was distributed and marketed in India by Respondent till February 2009. 6 In February, 1996, the vaccine business of Behringwerke (including that of Rabipur vaccine) was transferred to Chiron Corporation (now known as Novartis Vaccines and Diagnostics Inc.- the Petitioner) excluding the business of the Respondent’s manufacture and marketing of the Rabipur vaccine in the HMR Territory. 7 In the year 1997, the Respondent and the company then known as Chiron Behring GmbH & Company, Germany, executed the following documents: i) A secrecy Agreement dated 5th February, 1997. ii) A Registered User Agreement dated 30th April, 1997 for the Respondent to continue as registered user in relation to the manufacture of Rabipur vaccine in India. iii) An agreement dated 5th May, 1997 for the supply of Seed Virus ( a raw material for the manufacture of Rabipur) iv) A Licence and Technical Collaboration Agreement dated 6th May, 1997 in relation to technical information for Arb-763-09 5 manufacture of Rabipur. 8 On 07/10/1997, the Company, known as Chiron Behring Vaccines Private Limited (hereinafter “the Company”), was incorporated. 9 On 22/04/1998, A Joint Venture Agreement was executed between Petitioner and the Respondent. This agreement recognized the Respondents rights to continue to market and distribute Rabipur in the HMR Territories. The aforesaid agreement provides as under:- Article- 5 Distribution of JVC Products in the HMRL Territories- 5.3 Provided that the JVC can meet HMRL’s requirements, HMRL shall not sell in the HMRL Territories any vaccine products that complete with the JVC Products. “Article 7 Distribution of Other Chiron Vaccines in the HMRL Territories- 10 On 22/04/1998, a Shareholders Agreement was executed between Petitioner and the Respondent. Clause 13.1 of the shareholders Agreement states as under: “13.1 Relationship of the Shareholders Nothing contained in this Agreement shall establish or imply that the shareholders are members of any partnership,joint venture, association, syndicate or any other entity between themselves except as Shareholders of the Company.” 11 On 01/05/1998, a Marketing and Distribution Agreement (HMR Arb-763-09 6 Territories) was executed between the Company and the Respondent. The relevant clauses of this agreement are as follows:- Article 11. Non-Competition 11.1 It is agreed and declared that provided CBV supply the Products in quantities that meet HMR’s firm purchase orders, HMR will not sell in THE HMR Territory any vaccine products that compete with the Products covered under this Agreement. 11.2 Subject to Clause 2.8, CBV agree and undertake that they will not directly or knowingly indirectly sell the Products in the HMR Territory. 12 On 01/05/1998, a marketing and Distribution Agreement (Chiron Territory) was also executed between the Company and the Petitioner. The relevant clause of this agreement is reproduced hereunder: “Article 11 Non-Competition 11.1 It is agreed and declared that provided CBV supply the Products in quantities that meet Chiron’s firm purchase orders, Chiron will not sell in the Chiron Territory and vaccine products that compete with the Products covered under this Agreement.” 13 On 01/06/1998, a Licence and Technical Collaboration Agreement between Novartis Vaccines & Diagnostics GmbH & Company KG and the Company, whereby the technology for the manufacture of the Rabipur vaccine was licensed to the Company. Arb-763-09 7 14 In the year 2004, the Respondent became a constituent of the multinational Sanofi Aventis Group. 15 On 15/12/2005, the Board of Directors of the Company decided to increase the capacity of the Rabipur manufacturing facility at Ankleshwar, Gujarat from 7.5 million doses per year to 12 million doses per year and for this purpose decided to undertake certain remediation measures at their plant. 16 In the month of April, 2006, the Novartis Group took over the Petitioner and its subsidiaries and affiliates, and succeeded to the rights and obligations of Chiron Corporation, USA and Chiron Behring GmbH & Co., in the Company. 17 On 27/09/2006, at a meeting of its Board of Directors the Company resolved not to renew the Marketing & Distribution Agreement entered into with the Petitioner, for marketing and distribution of Rabipur in the HMR Territory, from 1st May, 2008 onwards. Based on the aforesaid resolution a notice was sent to the Respondent by the Company in this regard. 18 On 03/07/2007, suit No.1847 of 2007 filed by the Respondent, inter alia, to challenge the minutes of the meeting held on 27th September, 2006, and the subsequent notice of non-renewal issued by the Company to the Petitioner. The Respondent filed Notice of Motion No. 2490 of 2007 for certain interim reliefs in the abovementioned suit. Arb-763-09 8 19 On 31/07/2007, the Petitioner filed an affidavit in reply to Notice of Motion No. 2490 of 2007 in the abovementioned suit. 20 On 26/03/2008, the Petitioner preferred a request for arbitration to the International Court of Arbitration of the International Chamber of Commerce. 21 On 23/04/2008, the consent terms were filed before the Hon’ble Supreme Court by which parties agreed to refer all disputes and differences that had arisen between them, in respect of or relating to the Joint Venture Agreement dated 22nd April, 1998, and/or the Related Agreements (as defined in the Joint Venture Agreement), and all claims raised in Suit No. 1847 of 2007 including the Request for Arbitration filed with the ICC by Chiron Behring Vaccines Private Limited, and the Petitioner abovenamed to the sole arbitration of Mr. Justice S.P. Bharucha, retired Chief Justice of India. The aforesaid agreement was recorded by an order of the Hon’ble Supreme Court. 22 On 05/06/2008, the Respondent filed its statement of claim before the learned Arbitrator. 23 On 14/07/2008, the Petitioner filed its reply to the Statement of Claim, in which it was contended as under:- “2. ... 6. The non-renewal of the Distribution Agreement was in the best interests of the Joint Venture Company for a host of reasons, including:- Arb-763-09 9 .... Questions as to whether Aventis could fulfil its obligation to use its best efforts to promote Rabipur pursuant to Article 8.1 of the Distribution Agreement, in light of Rabipur’s losing market share and Sanofi Aventis group’s manufacture of Varorab and its sale in India through a local distributor, Ranbaxy.” “7. Thus, it was eminently reasonable for the Joint Venture Company to seek to review its distribution options, and to do so, the Board rightly and unanimously voted to not renew the Distribution Agreement.” ... ... “52. Since 2002, the Indian market for anti-rabies has doubled and other competing products have come into the market. In 2002, Rabipur had approximately a 78% market share of the anti-rabies vaccine market in India. The market share for Rabipur- distributed by Aventis – has decreased from 78% in 2002 to 56% in 2006; a decrease of 22%. Rabipur had virtually no growth in the private market from 2002 through 2006. Sanofi Pasteur’s Verorab market share, however, increased from 11% in 2002 to 17% in 2006.” “58. The need for the Joint Venture Company to review its distribution arrangement, therefore, was obvious because of at least the following factors: Sanofi Aventis owned both Aventis, which distributes Arb-763-09 10 Rabipur, and Sanofi Pasteur, which manufactures Verorab and sells Verorab, another anti-rabies vaccine, which is Rabipur’s main competitor, in India pursuant to a distribution agreement. 24 The petitioner (“Novartis” or “the petitioner”) is a part of the Novartis Group of Companies. The respondent (“Aventis” or “the Respondent”) is a part of the Sanofi Aventis Group of Companies. Both the Novartis Group of Companies, as well as, the Sanofi Aventis Group of Companies are large multinational organizations engaged in the business of manufacturing and selling pharmaceutical products having worldwide operations. 25 The petitioner (51%) and the Respondent (49%) are shareholders in a Joint Venture Company known as Chiron Behring Vaccines Private Limited (hereinafter referred to as “CBVPL”). 26 The relationship between the parties is governed by a Joint Venture Agreement dated 22nd April 1998 (“the JVA”) along with the Shareholders Agreement and the Articles of Association of CBVPL. 27 Both the petitioner and the respondent are entitled to nominate an equal number of Directors to the Board of CBVPL. The Petitioner is Arb-763-09 11 however entitled to appoint the Chairman of the Board, who has a casting vote. 28 As per the material terms of the JVA, the purpose of the joint venture was: (i) CB VPL was to manufacture an anti rabies vaccine known as Rabipur; (ii)The Respondent was entitled to distribute Rabipur in India, Nepalo, Bangladesh and Pakistan (hereinafter referred to as “HMRL Territories”); (iii)The petitioner had the right to distribute Rabipur worldwide, (other than in the HMRL Territories). 29 CBVPL had entered into a Marketing & Distribution Agreement dated 1st May 1998 with the Respondent for the HMRL Territories. On 27th September 2006, the Board of Directors of CBVPL decided not to renew the aforesaid Marketing & Distribution Agreement. 30 The non-renewal of the Respondent’s Marketing & Distribution Agreement was the subject matter of a dispute between the parties which was referred to arbitration. Arb-763-09 12 31 By an award dated 4th February 2009, it was held that the Marketing & Distribution Agreement had not been renewed by CBVPL. 32 On 16th February, 2009 at a meeting of the Board of Directors of CBVPL, the petitioner, by using its casting vote and in breach of the material term of the JVA decided to appoint its sister concern, a Company known as Novartis Healthcare Private Limited (“Novartis Healthcare”), to distribute Rabipur in the HMRL Territories. This was notwithstanding the fact that the Respondent offered terms for distribution that were more beneficial to CBVPL. 33 In or about September, 2009 the respondent started distributing a product known as “Verorab” which is an anti rabies vaccine manufactured by Sanofi Aventis Group and is imported into India by a group company known as “Sanofi Pasteur India Limited”. 34 Therefore, on 29.09.2009 the petitioner has filed the present petition under Section 9 of the Arbitration Act and sought an interim injunction/interim measure restraining the respondent from distributing verorab. 35 After hearing both the parties, as urgency was shown, this Court has Arb-763-09 13 granted an ad-interim relief in terms of prayer (a) on 16.10.2009 by giving reasons. The respondent preferred an Appeal against the said order on 28.10.2009 and the same was withdrawn on 11.11.2009. The injunction order as passed by this Court on 16.10.2009 remained intact till this date and the same has been in force since then. 36 The parties have strongly relied on the provisions of Sections 9 to 11, 16, 17, 36 and 54 of the Indian Partnership Act, 1932 (the Partnership Act) which is reproduced as under: “9 General duties of partners. - Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative. 10 Duty to indemnify for loss caused by fraud. - Every partners shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm. 11 Determination of rights and duties of partners by contract between the partners. - (1) Subject to the provisions of this Act, the mutual rights and duties of the partners of a firm may be determined by contract between the partners, and such contract may be expressed or may be implied by a course of dealing. Such contract may be varied by consent of all the partners, and such consent may be expressed or may be implied by a course of dealing. Arb-763-09 14 Agreements in restraint of trade. - (2) Notwithstanding anything contained in Section 27 of the Indian Contract Act, 1872, such contracts may provide that a partner shall not carry on any business other than that of the firm while he is a partner. 16 Personal profits earned by partners. - Subject to contract between the partners. - (a) if a partner derives any profit for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm name, he shall account for that profit and pay it to the firm; (b) if a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business. 17 Rights and duties of partners . - Subject to contract between the partners.- (a) after a change in the firm.- where a change occurs in the constitution of a firm, the mutual rights and duties of the partners in the reconstituted firm remain the same as they were immediately before the change, as far as may be; (b) after the expiry of the term of the firm, and. - where a firm constituted for a fixed term continues to carry on business after the expiry of that term, the mutual rights and duties of the partners remain the same as they were before the expiry, so far as they may be consistent with the incidents of partnership at will; and (c) where additional undertaking are carried out. - where a firm constituted to carry out one or more adventures or undertakings carries out other adventures or undertakings, the mutual rights and duties of the partners in respect of the other adventures or undertakings are the same as those in respect of the original adventures or undertakings. 36 Rights of outgoing partner to carry on competing business. - (1) An outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but, subject to contract to the contrary, he may not - Arb-763-09 15 (a) use the firm name, (b) represent himself as carrying on the business of the firm, or (c) solicit the custom of persons who were dealing with the firm before he ceased to be a partners. Agreements in restraint of trade. - (2) A partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within specified local limits; and, notwithstanding anything contained in section 27 of the Indian Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable. 54 Agreements in restraint of trade. - Partners may, upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits; and notwithstanding anything contained in section 27 of the Indian Contract Act, 1872 (9 of 1872), such agreement shall be valid if the restrictions imposed are reasonable. 37 Section 27 of the Indian Contract Act, 1872 is also reproduced as under: 27 Agreement in restraint of trade, void. - 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. - Saving of agreement not to carry on business of which goodwill is sold. - 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. Arb-763-09 16 38 Where parties enter into any kind of Joint Venture and/or partnership to do particular business and/or to establish particular business or company and, accordingly, enter into various contracts/agreements, it is always on the foundation of meeting of mind with an intention to do the joint business in cooperation, in Trust and in good faith for the common advantage & benefit. The commercial contracts always need to be respected and considered from the above point of view. The scheme, the object and the intention of the parties to enter into such type of agreement/contract need to be read together by reading and by considering the whole documents as well as the purpose and the object behind formation of such partnership/company. No provision is made for a partner to do rival or competing business freely. Both the parties are governed b y JVA, shareholders agreement & the Article of Association of CBVPL. Both the partners are aware of their respective, written & unwritten obligations, liabilities, duties. 39 I have considered while dealing with and while reading the purpose and the object of such commercial documents/agreements in Unity Realty and Developers Ltd. v. BW Highway Star Pvt.Ltd. & ors in Arbitration Petition No.423/2009 on 24.09.2009 as under: “8 The Apex Court recently in Vimal Chand Ghevarchand Jain & ors. vs. Ramakant Eknath Jajoo, 2009 (5) SCALE 59 has observed while dealing with the Arb-763-09 17 construction of a commercial contract as under : “A document, as is well known, must be construed in its entirety” I have observed in Reliance Natural Resources Ltd. v. Reliance Industries Limited, 2007 (Supp.) Bom. C.R. 925 as under: “93 Apart from that the following extracts from Chitty on Contracts (27th Edition), 1994 in para 12.053 is also useful: “Every contract is to be construed with reference to its object and the whole of its terms, and accordingly, the whole context must be considered in endeavouring to collect the intention of the parties, even though the immediate object of inquiry is the meaning of an isolated word or clause.” 9 Recently, in Durham V. BAI (Run Off) Ltd (in scheme of arrangement) and other cases, [2009] 2 All ER, 26, the Queen’s Bench Division while dealing with the construction of wordings in a commercial contract by referring to various other English Judgments has observed as under:- (203)A summary of helpful principles, drawn largely from the words of Longmore LJ in Absalom (on behalf Lloyd’s Syndicate 957) v TCRU Ltd (2005) EWCA Civ 1586 at (7), (2006) 1 All ER (Comm) 375 at (7), (2006) 2 Lloyd’s Rep 129, and based upon submissions to me by counsel, which I had approved, in the recent case of Reilly V. National Insurance * Guarantee Corporation Ltd (2008)EWHC 722 (Comm) at (13), (2008) 2 All ER (Comm) 612 at (13), was again the subject matter of agreement, and I repeat and incorporate it: ‘(a) Ordinary Meaning. There is a presumption that the words to be construed should be construed in their ordinary and popular sense, since the parties to the contract must be taken to have intended, as reasonable men, to use words and phrases in their commonly understood and accepted sense. (See also para (7) (i)-(iii) in the judgment of Arb-763-09 18 Longmore LJ and in particular: “The object of the inquiry is not necessarily to probe the ‘real’ intention of the parties, but to ascertain what the language they used in the document would signify to a properly informed observer.”) (b) Businesslike Interpretation. It is an accepted canon of construction that a commercial document, such as an insurance policy, should be construed in accordance with sound commercial principles and good business sense, so that its provisions receive a fair and sensible application. (See also the words of Lord Diplock in Antaios Cia Navieras SA V Salen Rederierna AB, The Antaios (1984) 3 All ER 229 at 233, (1985) AC 191