Case: Percept D'Mark (India) Pvt.Ltd Vs. Zaheer Khan

defendants to continue to employ in the fiduciary capacity of a manager and agent someone in whom he had lost confidence. 60. Clause 31 (a) and (b) is reproduced below:- "31. NEGOTIATION AND RIGHTS OF FIRST REFUSAL: (a) NEGOTIATION: During the third contract year, and in any event not later than August 1st, 2003 the Parties shall meet to commence discussions with a view to the extension of their relationship beyond the Term. For sixty (60) days thereafter, Zaheer Khan, agrees to negotiate in good faith only with Percept, and not with any third party, concerning 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 one hundred and eighty (180) day period from the date of the last assignment, Zaheer Khan shall have the right to negotiate with other persons, subject however to sub-clause (b). (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 and offering Percept the right to match the third party offer. Percept shall thereafter have right, exercisable by written notice to Zaheer Khan within ten(10) days of receipt, to accept Zaheer Khans offer on the same terms and conditions offered by such third party. If Percept does not accept Zaheer Khans offer, Zaheer Khan shall thereafter have the right to enter into an agreement with such third party. 61. In our view, Clause 31(b) of the agreement merely provides for an obligation of respondent No.1 to give an opportunity to the appellant to match the offer, if any, received by respondent No.1 from the third party. This clause does not per se restrict or prohibit respondent No.1 to enter into any contract with a third party but at best it provides the appellant with an opportunity to gain from the advertisements the appellant has made in the process of marketing and creation of the image of respondent No.1 which was gradually built up by the appellant. This clause does not restrict the right of respondent No.1 to accept any offer for endorsement, promotion, advertising or other affiliation either on his own or through any party in the event of failure of the appellant to match the offer of the third party from whom respondent No.1 would receive any offer, respondent No.1 would be free to contract with such third party. Further, the said clause does not restrict the right of respondent No.1 to appoint an agent of his choice or restrict his liberty to carry on his affairs in the manner he likes, with the persons he chooses, in the manner he thinks best. The restriction, if any, is on account of voluntary obligations undertaken by respondent No.1 and assurances made by him to the appellant wherefor, respondent No.1 cannot be permitted to renege his promises under the garb of an alleged restriction violative of Section 27 of the Contract Act. Clause 31(b) of the agreement is an independent clause which survives the expiry of the agreement and any dispute between the parties regarding the enforceability of the said clause would come under the provision of Clause 32(g) of the agreement which provides for resolution of any claim or controversy pertaining to the agreement through the process of arbitration. 62. Clause 32(g) of is reproduced below: "G) ARBITRATION: Any claims or controversies relating to this Agreement shall be resolved by arbitration held under the auspices and rules of the Indian Arbitration and Conciliation Act, 1996 by one arbitrator appointed in accordance with the arbitration rules. The place of arbitration shall be Mumbai. Any award of such arbitration shall be final, conclusive and legally binding, without any right of appeal and may be entered into judgment in any court of competent jurisdiction. This Agreement and all matters related hereto shall be governed by the laws of India." 63. In our view, no case is made out by the appellant for compelling respondent No.1 to appoint the appellant as his agent in perpetuity when the first respondent has no faith or trust in the appellant. The grant of injunction restraining respondent No.1 from acting upon the agreement entered into with the second respondent would have the effect of compelling the first respondent to be managed by the appellant, in substance and effect a decree of specific performance of an agreement of personal service, which is dependant on mutual trust, faith and confidence which, in the present case, are eroded and non-existent. In our view, the appellant can be adequately compensated in terms of money if injunction is refused. Clause 31(b) contains a restrictive covenant in restraint of trade as it clearly restricts respondent No.1 from his future liberty to deal with the persons he chooses for his endorsements, promotions, advertising or other affiliation and such a type of restriction extending beyond the tenure of the contract is clearly hit by Section 27 of the Contract Act and is void. The said covenant, as noticed earlier, curtails the liberty of respondent No.1 Zaheer Khan even though the contract has been completed to accept any offer for his endorsement, promotion etc even by dealing with any person of his own. 64. As already noticed, no interim relief having been granted in favour of the appellant during the past 2= years during which the contract between respondent Nos.1 and 2 has been in operation and indeed is soon to be completed, there is no cause for interference at this late stage by this Court.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]We have already perused the judgment of the learned Single Judge and of the learned Division Bench of the High Court. On the pleadings contained in the Arbitration Petition, there can be no escape from the conclusion that what the appellant sought to enforce was a negative covenant which, according to the appellant, survived the expiry of the agreement. This, the High Court has rightly held is impermissible as such a clause which is sought to be enforced after the term of the contract is prima facie void under Section 27 of the Contract ActWe have perused the relevant portions of Niranjan Shankar Golikari (supra), Superintendence Company of India (supra) and Gujarat Bottling (supra) which have been extracted by the learned Judges of the Division Bench and quoted in extenso. In the circumstances, there can be no manner of doubt that the Division Bench was right in coming to the prima facie conclusion drawn by it, and in setting aside the Single Judges order. No case was made out by the appellant for compelling respondent No.1 to appoint the appellant as his agent in perpetuity. In view of the personal nature of the service and relationship between the contracting parties, a contract of agency/management such as the one entered into between the appellant and respondent No.1 is incapable of specific performance and to enforce the performance thereof would be inequitable. Likewise, grant of injunction restraining first respondent would have the effect of compelling the first respondent to be managed by the appellant, in substance and effect a decree of specific performance of an agreement of fiduciary or personal character or service, which is dependent on mutual trust, faith and confidenceThe appellant can be adequately compensated in terms of money if injunction is refused. In our view, grant of injunction, in the present case, would result in irreparable injury and great injustice to first respondent which is incapable of being remedied in monetary terms, as he would be compelled to enter into a relationship involving mutual, faith, confidence and continued trust against his will. We have perused the contract in detail. The terms of the contract was expressly limited to 3 years from 30.10.2000 to 29.10.2003, unless extended by mutual agreement, and all obligations and services under the contract were to be performed during the termClause 31 (b) was also to operate only during the term, i.e. from the conclusion of the first negotiation period under clause 31(a) on 29.7.2003 till 29.10.2003. This respondent No.1 has scrupulously complied with. So long as Clause 31(b) is read as being operative during the term of the agreement, i.e. during the period from 29.7.2003 till 29.10.2003, it may be valid and enforceable. However, the moment it is sought to be enforced beyond the term and expiry of the agreement, it becomes prima facie void, as rightly held by the Division Bench. If the negative covenant or obligation under Clause 31(b) is sought to be enforced beyond the term, i.e. if it is enforced as against a contract entered into on 20.11.2003 which came into effect on 1.12.2003, then it constitutes an unlawful restriction on respondent No.1s freedom to enter into fiduciary relationships with persons of his choice, and a compulsion on him to forcibly enter into a fresh contract with the appellant even though he has fully performed the previous contract, and is, therefore, a restraint of trade which is void under Section 27 of the Indian Contract ActIn our view, Clause 31(b) of the agreement merely provides for an obligation of respondent No.1 to give an opportunity to the appellant to match the offer, if any, received by respondent No.1 from the third party. This clause does not per se restrict or prohibit respondent No.1 to enter into any contract with a third party but at best it provides the appellant with an opportunity to gain from the advertisements the appellant has made in the process of marketing and creation of the image of respondent No.1 which was gradually built up by the appellant. This clause does not restrict the right of respondent No.1 to accept any offer for endorsement, promotion, advertising or other affiliation either on his own or through any party in the event of failure of the appellant to match the offer of the third party from whom respondent No.1 would receive any offer, respondent No.1 would be free to contract with such third party. Further, the said clause does not restrict the right of respondent No.1 to appoint an agent of his choice or restrict his liberty to carry on his affairs in the manner he likes, with the persons he chooses, in the manner he thinks best. The restriction, if any, is on account of voluntary obligations undertaken by respondent No.1 and assurances made by him to the appellant wherefor, respondent No.1 cannot be permitted to renege his promises under the garb of an alleged restriction violative of Section 27 of the Contract Act. Clause 31(b) of the agreement is an independent clause which survives the expiry of the agreement and any dispute between the parties regarding the enforceability of the said clause would come under the provision of Clause 32(g) of the agreement which provides for resolution of any claim or controversy pertaining to the agreement through the process of arbitrationIn our view, no case is made out by the appellant for compelling respondent No.1 to appoint the appellant as his agent in perpetuity when the first respondent has no faith or trust in the appellant. The grant of injunction restraining respondent No.1 from acting upon the agreement entered into with the second respondent would have the effect of compelling the first respondent to be managed by the appellant, in substance and effect a decree of specific performance of an agreement of personal service, which is dependant on mutual trust, faith and confidence which, in the present case, are eroded and. In our view, the appellant can be adequately compensated in terms of money if injunction is refused. Clause 31(b) contains a restrictive covenant in restraint of trade as it clearly restricts respondent No.1 from his future liberty to deal with the persons he chooses for his endorsements, promotions, advertising or other affiliation and such a type of restriction extending beyond the tenure of the contract is clearly hit by Section 27 of the Contract Act and is void. The said covenant, as noticed earlier, curtails the liberty of respondent No.1 Zaheer Khan even though the contract has been completed to accept any offer for his endorsement, promotion etc even by dealing with any person of his ownAs already noticed, no interim relief having been granted in favour of the appellant during the past 2= years during which the contract between respondent Nos.1 and 2 has been in operation and indeed is soon to be completed, there is no cause for interference at this late stage by this Court.