1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL (LODGING) NO.920 OF 2007 IN ARBITRATION PETITION (L) NO.698 OF 2007 1. Percept Talent Management Pvt.Ltd., a company registered under the companies Act, 1956 having its registered office at P2, Level 2A, Reghuvanshi Estate, 11/12, Senapati Bapat Marg, Lower Parel (West), Mumbai – 400 013. 2. Percept D'Mark India Pvt.Ltd., a company registered under the companies Act, 1956 having its registered office at P2, Level 2A, Reghuvanshi Estate, 11/12, Senapati Bapat Marg, Lower Parel (West), Mumbai – 400 013. .. Appellants (Org. Petitioners) Versus 1. Yuvraj Singh, An Indian Inhabitant, residing at F-5/9, DLF Phase I, Gurgaon 122 001. 2. Globosport India Private Limited, a company incorporated under the Companies Act and having its 2 registered office at 339, 1st Floor, 1 Main Road, Cambridge Layout, Someshwarpura Post, Ulsoor, Bangalore – 560 008 .. Respondents Dr.Virendra Tulzapurkar with Mr.V.R. Dhond, Mr.Ameet Naik & Ms.Hemangi Abhyankar i/by N.N. Iyer & Co. for the Appellants. Mr.I.M. Chagla, senior Advocate with Mr.Riyaz Chagla Mr.L. Pareira, Mr.J.A. Shah & Mr.J.A. Shah i/by J.A. Shah & Associates for respondent No.1. Mr.Kamal Khata i/by Daru Shah & Co. for respondent No.2. CORAM : SWATANTERKUMAR, C.J. & J.P. DEVADHAR, J. RESERVED ON : 19TH DECEMBER, 2007 PRONOUNCED ON : 17TH JANUARY, 2008. ORAL JUDGMENT (Per J.P. Devadhar, J.) : 1. This appeal arises from the Judgment of the learned Single Judge dated 7-12-2007. By the said judgment, the learned Single Judge has dismissed the Arbitration Petition filed by the appellants under Section 9 of the Arbitration and Conciliation Act, 1996 (`1996 Act' for short). 2. Arbitration Petition under Section 9 of the 1996 Act was filed by the appellants No.1 and 2 (hereinafter referred to as `the petitioners No.1 and 2) inter alia seeking an order that pending the hearing and final disposal of the arbitration proceedings in pursuance of the promotion agreement dated 12/12/03, the 3 respondent No.1 be restrained from in any manner entering in to any negotiations / agreement / arrangement with any other party without complying with clause 19(2) of the promotion agreement dated 12/12/03. The learned Single Judge by relying upon the decisions of the Apex Court in the case of Percept D'Mark (India) (P) Limited V/s. Zaheer Khan & Another reported in (2006) 4 SCC 227 and other cases held that the negative covenant contained in clause 19(2) of the Promotion Agreement dated 12-12-2003 would prima facie amount to a clause in restraint of trade and, therefore, the relief sought in the Arbitration Petition cannot be granted. By observing that at this stage prima facie clause 19.2 cannot be regarded as a term independent of the existing contract, the learned Single Judge dismissed the Arbitration Petition. Challenging the said Judgment, the present Appeal is filed. 3. The basic facts relevant for the purposes of deciding this appeal are that the petitioner No.2 and the respondent No.1 had entered into a promotion agreement on 12-12-2003, whereby the respondent No.1 who is a Cricketer had appointed the appellant No.2 and its directors and authorized employees as sole and exclusive agents to manage and market the services and day- to-day affairs of the respondent No.1 in respect of media, 4 advertisement and related activities on the the terms and conditions more particularly set out therein. By a Deed of Assignment dated 1-4-2007 all the rights and obligations of the Second Petitioner under the Promotion Agreement dated 12-12- 2003 were assigned in favour of the first Petitioner. 4. As per Clause 17.1 of the Promotion agreement dated 12-12-2003, the contract between the parties was to come into force with effect from the close of business hours on October 16, 2003 and continue to remain in force for a period of 4 (four) years from the date of execution of the said agreement or till the conclusion of ICC World Cup, 2007, whichever is later, unless terminated earlier by the parties, in accordance with the terms of the said agreement. 5. Clause 22 of the said agreement provided for arbitration. As per Clause 22.1 of the Promotion Agreement, if any dispute arose between the parties, during the subsistence of the said agreement or thereafter, in connection with the validity, interpretation, implementation or alleged breach of any of the provisions of the said agreement, the parties shall endeavour to settle such dispute amicably and if the attempt to bring about the 5 amicable settlement fails, then the dispute be referred to a sole arbitrator or in case of disagreement as to the appointment of sole arbitrator, then each party to nominate one arbitrator and the third arbitrator was to be appointed by the two arbitrators so appointed. 6. Clause 19 of the promotion agreement dated 12-12- 2003 is relevant for the purposes of deciding the issues raised in this appeal. Clause 19 of the said promotion agreement dated 12- 12-2003 reads as under :- “19. Negotiation and Rights of First Refusal. 19.1 Negotiation Percept shall have the unconditional right to renew this Agreement for a further period of 4 (Four) years in accordance with the procedure set out in this Clause 19. During the Term of this Agreement, and in any event not later than August 16, 2007 if Percept at its sole discretion may require, the Parties shall meet to commence discussions with a view to the extension of their relationship beyond the Term. For sixty (60) days thereafter, Yuvraj agrees to negotiate in good faith only with percept, and not with any third party, concerning the renewal / extension of the arrangement contemplated under this Agreement and/or for the right after the Term to the use of his endorsement or for the arrangement contemplated by this Agreement in association with any goods or services. Only after such sixty days (60) day period, Yuvraj shall have the ;right to negotiate with other persons, subject however to sub-clause 19.2. 19.2 Right of First Refusal. 6 After the Term of this Agreement, in the event the good faith negotiations initiated under Clause 19.1 fail to result in mutually agreeable terms of extension of the Agreement. Yuvraj shall be free to negotiate with any third party. Provided always that Yuvraj agrees not to accept any offer for his endorsement, promotion, advertising or other affiliation with regard to any goods or services or for arrangement similar to the transaction hereunder including the appointment of another agent without first providing Percept with written notice of such offer and all the terms and conditions thereof including the final draft of the contract offered by such third party and offering Percept the right to match the third party offer. Percept shall thereafter have the right, exercisable by written notice to Yuvraj within ten (10) days of receipt, to accept such offer on the same terms and conditions offered by such third party. If Percept does not accept such offer, Yuvraj shall thereafter have the right to enter into an agreement with such third party on terms not more favourable than the terms offered to Percept”. 7. During the period from 2003 to 2007, the contractual obligation as per the promotion agreement dated 12-12-2003 was performed by the respective parties to the contract. As the contract was coming to an end, the petitioner No.1 being interested in renewing the promotion agreement, held several meetings with the respondent No.1 in the month of October, 2007 regarding the proposed terms of extension of the promotion agreement. By a letter dated 23-10-2007 addressed to the respondent No.1, the petitioner No.1 listed the principle terms of offer for extension of promotion Agreement. As there was no 7 response and the petitioners came to know that the respondent No.1 was on the verge of signing a contract with the respondent No.2 outside the promotion agreement dated 12-12-2003, the petitioners addressed a letter dated 31-10-2007 to the respondent No.1 seeking clarification in that behalf. 8. By a further letter dated 5-11-2007, the petitioner No.1 pointed out to the respondent No.1 the rights of the petitioner NO.1 under clause 19 of the promotion agreement dated 12-12- 2003 and the respondent No.1 was called upon to provide details of third party offers (if any), received by respondent No.1 as contemplated under clause 19 of the promotion agreement. However, by a letter dated 7-11-2007, the respondent No.1 contended that the promotion agreement dated 12-12-2003 had came to an end on 16-10-2007 and declined the terms of offer made by petitioner No.1 on 23-10-2007 regarding extension of promotion agreement. By a letter dated 14-11-2007, the petitioner No.1 informed the respondent No.1 that the promotion agreement dated 12-12-2003 was valid till 11-12-2007 and till then the respondent No.1's participation in the endorsements to the exclusion of petitioner No.1 amounted to breach of the terms of promotion agreement dated 12-12-2003. 8 9. As there was no reply, on 6-12-2007, the petitioners filed Arbitration Petition No.698 of 2007 in this Court under Section 9 of the 1996 Act stating therein that the promotion agreement dated 12-12-2003 was valid till 11-12-2007 and as per clause 19 of the said promotion Agreement, if the respondent No.1 had received any offer from a third party, the respondent No.1 was obliged to forward the said offer to the petitioner No.1 and if the petitioner No.1 was willing to match the said offer, then further promotion agreement would be and was required to be executed between the petitioner No.1 and the respondent No.1. Accordingly, the petitioners sought injunction restraining the respondent No.1 from in any manner entering into negotiations / agreement / arrangement with any other party in respect of the subject matter of promotion agreement dated 12-12-2003 without complying with clause 19 of the promotion agreement dated 12- 12-2003. 10. By the impugned Judgment and Order dated 7th December, 2007, the learned Single Judge inter alia relying upon the judgment of the Apex Court in the case of Zaheer Khan (supra) dismissed the Arbitration Petition filed by the petitioners 9 on the ground that the negative covenant contained in clause 19 (2) of the promotion agreement dated 12-12-2003 was prima facie in restraint of trade and, therefore, the reliefs sought in the Arbitration Petition cannot be granted. 11. The basic contention of Dr.Tulzapurkar, learned senior counsel for the petitioners is that clause 19(2) of the promotion agreement dated 12-12-2003 is not identical to clause 31(b) of the promotion agreement which the petitioners had entered into with Cricketer Zaheer Khan and, therefore, the learned Single Judge was in error in dismissing the Arbitration Petition by relying on the decision of the Apex Court in the case of Zaheer Khan (supra). Relying on para 66 of the Judgment of the Apex Court in the case of Zaheer Khan (supra), Dr.Tulzapurkar submitted that the `right of first refusal' contained in clause 19(2) being an independent clause which survives even after the expiry of the promotion agreement dated 12-12-2003, such a clause was enforceable in law and such a clause could not be said to be in restraint of trade as contemplated under Section 27 of the Contract Act. 12. Dr.Tulzapurkar submitted that right of first choice contained in clause 31(b) in the case of Zaheer Khan was to 10 operate during the term of the contract whereas, in the present case, right of first choice contained in clause 19(2) was not to operate or intended to operate during the term of the promotion agreement dated 12-12-2003. In fact, clause 19(2) expressly provides that the said clause was to operate after the term of the promotion agreement dated 12-12-2003. Therefore, the observations made by the Apex Court in the case of Zaheer Khan relating to a clause which was to operate during the term of the contract could not be imported while interpreting a clause in the present case, which operates beyond the term of the contract. As the factual and legal background were different, the learned single Judge erred in relying upon the decision of the Apex Court in the case of Zaheer Khan (supra). In this context, he placed reliance on the decision of the Apex Court in the case of Ashwini Kumar Singh V/s. U.P. Public Service Commission reported in AIR 2003 S.C. 2661. 13. Dr.Tulzapurkar, further submitted that clause 19.2 was really in the nature of an independent clause / agreement which for purposes of convenience was embodied in the promotion agreement dated 12-12-2003. The Apex Court in the case of Zaheer Khan (supra) has not considered this aspect of the matter 11 and, therefore, the learned Single Judge erred in dismissing the Arbitration petition by relying upon the decision of the Apex Court in the case of Zaheer Khan. 14. Dr.Tulzapurkar further submitted that the learned Single Judge seriously erred in observing that where trust and confidence have ceased to exist in a relation-ship, the relationship cannot survive. He submitted that it was not even the case of the respondent No.1 that trust and confidence between the petitioners and the respondent No.1 had ceased to exist. He submitted that the real issue between the parties was in respecting the sanctity of the concluded contract especially clause 19.2 of the promotion agreement dated 12-12-2003. The said clause was absolutely reasonable and the interest of the respondent No.1 was protected by ensuring that the renewal would be on terms not less favourable than those which were offered to the respondent No.1 by others. He submitted that the issue in the present case was not compelling the respondent No.1 to enter into a contract but to compel the respondent No.1 to honour clause 19.2 of the contract which he had already entered into. As the respondent No.1 failed to honour clause 19.2 of the contract already entered into, which is in effect an independent contract, the petitioners were entitled 12 to seek enforcement of the said clause by initiating Arbitration proceedings and during the pendency of the said proceedings, the petitioners were entitled to seek interim relief by filing Arbitration Petition under Section 9 of the ABN Act. 15. Relying on Section 42 of the Specific Relief Act, 1963, Dr.Tulzapurkar submitted that even if the petitioners were not able to compel the respondent No.1 to make known the best offer received by him during the pendency of the arbitration proceedings, the petitioners could restrain the 1st respondent from acting contrary to the negative covenant contained in clause 19.2 of the promotion agreement dated 12-12-2003. He submitted that failure to grant interim relief, as prayed for in the present case, would really make the arbitral proceedings completely academic and/or redundant. In these circumstances, Dr.Tulzapurkar submitted that the finding recorded by the learned Single Judge that the petitioners could be compensated in monetary terms if they succeed in the arbitration is wholly erroneous. Accordingly, he submitted that the impugned Judgment be set aside and interim relief be granted as prayed for in the Arbitration Petition. 16. Mr.Chagla, learned senior Advocate appearing on 13 behalf of the respondent No.1 while supporting the judgment of the learned Single Judge submitted that the issues raised in this appeal are squarely covered by the judgment of the Apex Court in the case of Zaheer Khan (supra). He submitted that although clause 19.2 of the promotion agreement dated 12-12-2003 was slightly at variance with the clause considered by the Apex Court in the case of Zaheer Khan, the said difference in the clause would have no bearing on the applicability of the ratio laid down by the Apex Court in the case of Zaheer Khan to the facts of the present case. Accordingly, Mr.Chagla submitted that there is no merit in the appeal and the same ought to be dismissed. 17. Having heard counsel on both sides, we are clearly of the opinion that the issues raised in this appeal are squarely covered by the ratio laid down by the Apex Court in the case of Zaheer Khan (supra) and hence no fault can be found with the Judgment of the learned Single Judge in dismissing the Arbitration petition filed by the petitioners. 18. It is no doubt true that in the case of Zaheer Khan the `First Refusal' clause commenced with the words `during the term of the agreement', whereas, in the present case, the `First 14 Refusal' clause commences with the words, `After the term of this agreement'. The question is, whether the above distinction is so vital as to hold that the ratio laid down by the Apex Court, in the case of Zaheer Khan is inapplicable to the facts of the present case. 19. Prima facie, in our opinion, there is no material difference between clause 31(b) considered by the Apex Court in the case of Zaheer Khan and clause 19.2 in the present case. For the sake of convenience, we extract herein below the relevant portion of clause 31(b) in Zaheer Khan's case, which reads thus :- “31.(b) FIRST REFUSAL :-- During the Term of the Agreement , prior to completion of the first negotiation period provided for in sub-clause (a) above Zaheer Khan agrees not to accept any offer for his endorsement, promotion, advertising, or other affiliation with regard to any products or services. Thereafter, Zaheer Khan agrees not to accept any offer for his endorsement, promotion, advertising, or other affiliation with regard to any goods or services or for arrangement similar to the transaction hereunder without first providing Percept with written notice of such offer and all the material terms and conditions thereof to offering, percept the right to match the third party offer. Percept shall .......” Thus, in Zaheer Khan's case, though the `First Refusal' clause commences with the words `During the Term of the Agreement', the negative covenant commences with the word 15 `Thereafter', whereas in the present case, the negative covenant commences with the words `After the term of the contract'. Although, the words used in the negative covenant in both the contracts are different, the effect is the same. In other words, in both the cases, the negative covenant was to operate after the term of the contract. As the Apex Court in Zaheer Khan's case has held that any negative covenant which survives after the expiry of the agreement would be void, the above ratio laid down by the Apex Court would be squarely applicable to the facts of the present case. 20. It is true, as held by the Apex Court in para 66 of the said Judgment, that where the negative covenant, if any, is voluntarily undertaken by a party, then such a party cannot be permitted to renege his promises under the garb that an obligation is violative of Section 27 of the Contract Act. However, where the negative covenant forms part of a contract which was to be operative for a period of four years, then such a negative covenant which survives after the expiry of the contract would be prima facie void and hence unenforceable. 21. The argument that clause 19.2 is in the nature of an 16 independent contract cannot be accepted because, it is a clause contained in the promotion agreement dated 12-12-2003 which was to be operative for a period of four years only. Although, the Arbitration Petition was filed during the subsistence of the Promotion Agreement dated 12-12-2003 seeking enforcement of clause 19.2 thereof, in view of the fact that admittedly, the respondent No.1 has not finalised any deal with the third parties during the subsistence of the promotion agreement dated 12-12- 2003, in out opinion, granting any interim relief in furtherance of a negative covenant which survives after the expiry of the promotion agreement dated 12-12-2003 would be contrary to the dictum laid down by the Apex Court in Zaheer Khan's case. In view of our prina facie finding that the negative covenant is unenforceable, granting injunction under Section 42 of the Specific Relief Act, 1963 does not arise at all. 22. In the result, the Appeal fails and the same is hereby dismissed with no order as to costs. CHIEF JUSTICE J.P. DEVADHAR, J.