Case: Hi Point Services Private Limited Vs. Chloro Controls (India) Private Limited &amp; Others

12th January, 2002, in order to salvage the situation and in a state of utter helplessness, wrongly contended that the plaintiff be permitted to conduct the business of electro chlorination equipments of the Kocha family outside the scope of the joint venture by interpreting the Joint Venture Agreements to be in respect of gas chlorination equipments only, and keeping the 5th Defendant away from electro chlorination business. Severn Trent, however, refused to accept this suggestion.33. Prima-facie, at this stage, we are of the opinion that even the plaintiff and Defendant No.9 accepted that the joint venture agreements were only in respect of gas chlorination equipments and did not cover electro chlorination business. Plaintiff strongly relied upon various circumstances which found favour by the learned Single Judge. Mr.Doctor strenuously contended that the Under Secretary to the Government of India, Ministry of Industry, addressed the letter dated 11.10.1996 to Defendant No.5 (Exhibit I to the plaint) conveying approval of the Government of India to the proposal for foreign collaboration with Defendant No.2 subject to the terms and conditions set out therein. Defendant No. 5 replied this on 21.12.1996 (Exhibit j to the plaint) and in so far as point No.2 of letter dated 11.10.1996 is concerned, approval was requested to be amended so as to include manufacture of gas chlorination and electro chlorination equipments among other products. This was responded by the Under Secretary to the Government of India, Ministry of Industry on 21.04.1997 (Exhibit L to the plaint) conveying the approval of the Government of India to the amendment of clauses 2, 3 and 4 of the approval letter dated 11.10.1996. Pursuant to the approval dated 21.04.1997 Supplementary Collaboration Agreement was executed between Defendant No.2 and Defendant No.5 wherein parties confirmed that they shall adhere to the terms and conditions as stipulated by the Government of India vide letter dated 11.10.1996, amended on 21.04.1997. The said Supplementary Collaboration Agreement is at Exhibit M to the plaint. Relying upon this correspondence alongwith the other circumstances, Mr.Doctor contended that the object of the Joint Venture Agreement was not only to manufacture gas chlorination equipments, but also to manufacture electro chlorination equipments.34. We do not find any substance in this contention. Clause 26 of the Shareholders Agreement dated 16.11.1995 provides that the said agreement sets-forth entire agreement and understanding between the parties as to the subject matter and superseded all negotiations, commitments and writings prior to the date of agreement pertaining to the subject matter of the said Agreement. Clause 28 thereof further provides that the Shareholders Agreement shall not be altered, modified or supplemented except with the prior written approval of the parties thereto. As noted earlier the Shareholders Agreement was entered into by and between Defendant No.2 on one hand and the plaintiff & Defendant No.9 on the other. Similarly, clause 24 of the Financial & Technical Know How Licence Agreement dated 16.11.1995 provides that no modification or amendment to the said agreement and no waiver of any of the terms and conditions set out therein shall be binding, unless made in writing, duly executed by both the parties. Plaintiff has not brought on record any material to indicate that various agreements entered into between the parties were suitably modified pursuant to the approval dated 21.04.1997 accorded by the Government of India. Even otherwise, no material is brought on record by the plaintiff to substantiate that pursuant to the approval dated 21.04.1997, Defendant No.5, was in fact manufacturing electro chlorination equipments.35. Clause 17 of the Shareholders Agreement provides that the plaintiff and Defendant No.9 agreed to transfer such of the assets as are related to gas chlorination equipments business presently carried on by the plaintiff and Defendant No.9 as per the Appendix IV of the said Agreement. Thus, prima-facie, the assertions made by the plaintiff that the plaintiff and Defendant No.9 transferred assets of their electro Chlorination equipment business to Defendant No.5 Joint Venture Company, is also factually incorrect, and further having regard to the joint venture agreement there was inherent possibility of deadlock regarding the management of the company viz.Defendant No.5. In that regard clauses 6, 7, 8 and 9 of the Shareholders Agreement indicate inherent possibility of deadlock in the management of the Company and consequently, if there is a deadlock, obviously, Defendant No.5 would not be in a position to carry on its business. Having regard to clauses 6, 7, 8 & 9 of the Shareholders Agreement and having further due regard to the fact that the disputes and differences arose between the plaintiff & Defendant No.9 on one hand and Defendant Nos.1 & 2 on the other from December, 1998 onwards and the said disputes and differences continued between them even in the year 2001, would prima-facie indicate that Defendant No.5 was not in a position to carry on business. It is in these circumstances, we are of the opinion that the plaintiff has not made out a prima-facie case for issuance of injunction as prayed for. This is to be appreciated on the backdrop of the fact that in for as Defendant No.4 is concerned, even in the plaint the plaintiff has admitted that prior to acquisition of Exceltec by Severn Trent, the Exceltec had an existing tie up and arrangement with Defendant No.4 in India.36. Even otherwise, there is one more reason for denying any interim relief to the plaintiff and that is the delay in approaching the Court. The Plaintiff has specifically averred in the plaint itself that Defendant Nos.1 & 2 started committing breaches since December 1998 and even in the year 2001 they continued to commit breaches. In the meeting of Board of Directors held on 10.12.2001 Defendant No.9 in terms of clauses 4.4.5 and 4.4.6 declared that the joint venture agreements are only in respect of gas chlorination equipments and the electro chlorination was excluded. Despite this position, the plaintiff has instituted a suit as late as on 19.01.2004. This is the additional reason for denying any interim relief to the plaintiff.

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

Explanation:
0[ds]Perusal of thiswould indicate that it does not include any electro chlorination equipment. Appendix II to this agreement specifically deals with the products and parts not manufactured by Defendant No.Thus Appendix II clearly sets out the list of products and parts not manufactured by the Joint Venture and it further provides all capital control products not listed in Exhibit I. We have already noted that Appendix I to this agreement provides for products manufactured by Defendant No.5 for chlorine service only, and deals only with gas chlorination equipment and does not include any electro chlorinationour opinion, clause 4.5 is in two parts viz. (i) Mr.Kocha, Defendant No.9 (including his wife and sons), Chloro Controls, the Plaintiff shall not, during the term of this agreement, engage, directly or indirectly, or be financially interested in the manufacture, sale or distribution of chlorination equipments and related products which are similar to those manufactured or sold by Defendant No.5 Company. In so far as obligation cast on Defendant No.9 and the plaintiff is that during the term of this agreement, they shall not deal in any manner, in the manufacture, sale or distribution of chlorination equipments and related products which are similar to those manufactured or sold by the Defendant No.5 Company. (ii) During the term of this agreement the Capital Controls (Defendant Nos.12), its parents and associates will not directly or indirectly engage in or be financially interested in the manufacture, sale or distribution in India of the products manufactured or sold by Defendant No.5 Company. Thus, in so far as plaintiff and Defendant No.9 are concerned, the negative covenant is wide enough to include chlorination equipment and the related products which are similar to those manufactured or sold by defendant No.5. Thus , the said negative covenant in so far as plaintiff and Defendant No.9 are concerned, is widely worded, whereas in so far as Defendant Nos.12 are concerned, it only prohibits them from dealing in any manner with the products manufactured or sold by Defendant No.5 Company. In other words, this covenant is not as widely worded as compared with the wordings of negative covenant qua the plaintiff and Defendantotherwise, from the material on record, we do not find that in fact Defendant No.5 was manufacturing or selling electro chlorination equipments. As noted earlier, in the plaint the plaintiff has asserted that Defendant No.5 did not deal with Hypogen brand in view of its exorbitant pricing. That apart, plaintiff has not led any foundation in the plaint for invoking clause 4.5 of the Shareholders Agreement.Perusal of section 27 of the Indian Contract Act, in our opinion, casts onus of proving reasonableness under Exception I on the covenantee. The Plaintiff has notestablished that the agreements entered into between the parties fall in Exception 1 to Section 27 of the Act. The view we are taking is also supported by the decision of the Apex Court in the case of Percept DMarle (India) (P) Ltd.V/s.Zaheer Khan, (2006) 4 SCC 227.   Prima facie we are not satisfied on the basis of material on record that the negative covenant contained in clause 4.5 of the Shareholders Agreement can be invoked by the plaintiff. As indicated earlier the plaintiff has notestablished that Defendant No.5 was manufacturing or selling electro chlorination equipments, having regard to various joint venture agreements.Perusal of clause 4.4.5 would indicate that the gas chlorination was covered in the joint venture agreement and electro chlorination was excluded in the joint venture agreement. Perusal of clause 4.4.6 would indicate that it was suggested that it would be prudent for all to keep the joint venture company away from electro chlorination business and continue the electro chlorination business in the company owned by Defendant No.9. This would resolve the most of the problems and no complications would take place at the time of bidding for the tender and no embarrassing situations would arise at any time in future between the companies., at this stage, we are of the opinion that even the plaintiff and Defendant No.9 accepted that the joint venture agreements were only in respect of gas chlorination equipments and did not cover electro chlorination business. Plaintiff strongly relied upon various circumstances which found favour by the learned Single Judge. Mr.Doctor strenuously contended that the Under Secretary to the Government of India, Ministry of Industry, addressed the letter dated 11.10.1996 to Defendant No.5 (Exhibitto the plaint) conveying approval of the Government of India to the proposal for foreign collaboration with Defendant No.2 subject to the terms and conditions set out therein. Defendant No. 5 replied this on 21.12.1996 (Exhibitto the plaint) and in so far as point No.2 of letter dated 11.10.1996 is concerned, approval was requested to be amended so as to include manufacture of gas chlorination and electro chlorination equipments among other products. This was responded by the Under Secretary to the Government of India, Ministry of Industry on 21.04.1997 (Exhibitto the plaint) conveying the approval of the Government of India to the amendment of clauses 2, 3 and 4 of the approval letter dated 11.10.1996. Pursuant to the approval dated 21.04.1997 Supplementary Collaboration Agreement was executed between Defendant No.2 and Defendant No.5 wherein parties confirmed that they shall adhere to the terms and conditions as stipulated by the Government of India vide letter dated 11.10.1996, amended on 21.04.1997. The said Supplementary Collaboration Agreement is at Exhibitto the plaint. Relying upon this correspondence alongwith the other circumstances, Mr.Doctor contended that the object of the Joint Venture Agreement was not only to manufacture gas chlorination equipments, but also to manufacture electro chlorinationregard to clauses 6, 7, 89 of the Shareholders Agreement and having further due regard to the fact that the disputes and differences arose between the plaintiffDefendant No.9 on one hand and Defendant Nos.12 on the other from December, 1998 onwards and the said disputes and differences continued between them even in the year 2001, wouldindicate that Defendant No.5 was not in a position to carry on business. It is in these circumstances, we are of the opinion that the plaintiff has not made out acase for issuance of injunction as prayed for. This is to be appreciated on the backdrop of the fact that in for as Defendant No.4 is concerned, even in the plaint the plaintiff has admitted that prior to acquisition of Exceltec by Severn Trent, the Exceltec had an existing tie up and arrangement with Defendant No.4 in India.36. Even otherwise, there is one more reason for denying any interim relief to the plaintiff and that is the delay in approaching the Court. The Plaintiff has specifically averred in the plaint itself that Defendant Nos.12 started committing breaches since December 1998 and even in the year 2001 they continued to commit breaches. In the meeting of Board of Directors held on 10.12.2001 Defendant No.9 in terms of clauses 4.4.5 and 4.4.6 declared that the joint venture agreements are only in respect of gas chlorination equipments and the electro chlorination was excluded. Despite this position, the plaintiff has instituted a suit as late as on 19.01.2004. This is the additional reason for denying any interim relief to the plaintiff.