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

The appellant is a company incorporated under the Companies Act, 1956 and carries on business, inter alia, of event management, model and celebrity endorsement and management, charity events/social marketing, all entertainment related activities, sports management and marketing, internet marketing, broadband publicity and radio marketingRespondent No.1Zaheer Khan is an Indian citizen and a cricketer of international repute. He had entered into an agreement with the appellant. Respondent No.2 is a company incorporated under the Companies Act, 1956The appellant entered into the said agreement with respondent No.1 on 01.11.2000 for a period of 3 years commencing on 30.10.2000 and expiring on 29.10.2003. By a letter of intent dated 29.07.2003, the appellant forwarded to respondent No.1 the draft terms for extension of the said agreement for a further period of 5 years.Respondent No.1informed the representative of the appellant from time to time that he does not intend to appoint any agent for managing his different media affairs.Respondent No.1informed the appellant on 10.09.2003 that he was not desirous of renewing and/or extending the terms of the said agreement and the same would, therefore, terminate as of 20.10.2003. He further stated that the said letter provided for notice of. By the said letter, he informed the appellant of having received the letter of intent and informed the appellant that he was not desirous of signing the same. By the said letter, he confirmed that the 3 agreements stated in the said letter were subsisting.Respondent No.1was further informed that as per the terms of the said agreement, prior to the execution of the first negotiation period provided in Clause 31(a), he could not accept any offer for endorsements, promotions, advertising or other affiliation with regard to any product or services and that prior to accepting any offer, he was under an obligation to provide the appellant in writing all the terms and conditions of such third party and offer the appellant the right to match such third party offer. Respondent, by his letter dated 23.09.2003, did not deny his representation to the fact and the effect that he did not intend to appoint any agent for managing his media affairs, however, clarified that he intended to perform the subsisting agreement which had been entered into between the appellant and him and third parties which would continue beyond the terms of the said agreement. The appellant, by its letter, clarified its position as regards its contention in paragraphs 3 and 4 of letter dated 15.09.2003 and further reiterated that if respondent No.1 was at any time during or after the term of the said agreement desirous of appointing any other person as his agent for rendering services similar to the services rendered by the appellants under the said agreement, respondent No.1 was first required to offer the appellant the right to match the third party offer only in the event the appellant does not exercise its right to accept respondent No.1s offer on the same terms and conditions as the third party offer. It was further stated that if the terms offered by the third party materially changed in favour of such third party after the same had been offered by respondent No.1 to the appellant, respondent No.1 would be required tor the revised terms of the third party offer. The appellant, by its letter dated 27.10.2003, reiterated the same terms. On 29.10.2003, the agreement expired by efflux of time. The appellant, by its letter dated 10.11.2003 reiterated what was stated by it in its earlier letters with regard to the rights of the appellant and obligations of respondent No.1 in case respondent No.1 was desirous of appointing any other person as his agent for rendering services similar to the services rendered by the appellant under the said agreement, by his letter dated 18.11.2003, alleged that he had no obligation under the said agreement after 29.10.2003, save and except honouring the subsisting agreement entered into by respondent No.1 with third parties as specified in his letter dated 10.09.2003 and the agreement entered into with Adidas Limited which was negotiated prior to the expiry of the said agreement. In the said letter for the first time, after the said agreement had expired by efflux of time, respondent No.1 alleged that the said agreement was allegedlyd and an unfair arrangement. It is pertinent to note that during the entire period of the said agreement, respondent No.1 had not alleged to the appellant that the terms of the said agreement was eitherThe appellant, for the first time, became aware on 01.12.2003 from some sources and from the website of respondent No.2 that respondent No.1 has entered into an agreement with respondent No.2 for services similar to the services rendered by the appellant under the said agreement.Respondent No.1has not denied the fact that he negotiated with third parties, including respondent No.2 prior to expiry of the agreement without discharging his obligation to intimate the appellant of such offerOn 04.12.2003, the appellant filed an Arbitration Petition No. 514/2003 in the High Court under Section 9 of the Arbitration and Conciliation Act, 1996 praying, inter alia, for an interim order that pending the commencement of and during the arbitration proceedings and the making of the award therein and the implementation thereof, respondent No.1 be restrained by an interim order and injunction from entering into any agreement/arrangement or acting upon or continuing to act upon any agreement/contract with respondent No.2 or any third party without first performing and complying with respondent No.1s obligations under and in terms of Clause 31(b) of the agreementLearned Single Judge of the High Court grantedm relief in terms of prayer Clause (a) of the petition. Respondent Nos.1 and 2 preferred separate appeals against the order of the learned Single Judge praying, inter alia, for a stay thereinThe Division Bench allowed the appeals and dismissed the arbitration petition filed by the appellant on 19.12.2003. The High Court, by the said order, directed respondent No.1 (i) to place before the High Court in a sealed cover the copy of the agreement entered into by respondent No.1 with respondent No.2 and/or any other third party immediately and was further directed to place upto date accounts under the said contract/s (ii) to place before the High Court any other contract that he may enter into with any third party within a period of 4 weeks from 19.12.2003; and (iii) to place on record the account/s of four weeks under such contracts in a sealed coverAggrieved by the above order, two special leave petitions were filed by the appellant in this Court. This Court stayed the impugned order until further orders. On 27.08.2004, leave was granted.

Court's reasoning:
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.