1995 (8) TMI 232 - SC - Companies Law

Whether the plaintiff has a prima facie case? Whether the balance of convenience is in favour of the plaintiff? Whether the plaintiff would suffer an irreparable injury if his prayer for interlocutory injunction is disallowed? Held that - Appeal rejected. The interim injunction granted by the High Court is in very wide terms because not only GBC but also those to whom the shares have been sold and also subsequent transferees, their servants, agents, nominees, employees, subsidiary companies, controlled companies, affiliates or associate companies or any person acting for and on their behalf are restrained by the interim injunction from using the plants of GBC. It is no doubt true that the interim injunction is widely worded to cover the persons aforementioned but in its operation the order only restrains them from using the plants of GBC at Ahmedabad and Rajkot for manufacturing, bottling or selling or dealing with or being concerned in any manner whatsoever with the beverages of any person till January 25, 1996, the expiry of the period of one year from the date of notice dated January 25, 1995. The interim injunction is thus confined to the use of the plants at Ahmedabad and Rajkot by any of these persons and it is in consonance with the negative stipulation contained in paragraph 14 of the agreement dated September 20, 1993. For the reasons aforementioned no infirmity in the impugned order of the High Court dated March 31, 1995, granting an interim injunction in terms of prayers (a)( ii) and (a)( iii) of the notice of motion as amended.

Issues Involved:
1. Validity and subsistence of the 1993 agreement.
2. Validity of the negative covenant in paragraph 14 of the 1993 agreement.
3. Validity of clause (b) of paragraph 19 of the 1993 agreement regarding transfer of shares.
4. Justification for the interim injunction granted by the High Court.

Issue-wise Detailed Analysis:

1. Validity and Subsistence of the 1993 Agreement:
The court examined whether the 1993 agreement between Coca Cola and Gujarat Bottling Co. Ltd. (GBC) was still in effect or had been superseded by the 1994 agreement. The 1993 agreement was for granting a license under common law for the use of trade marks by GBC, while the 1994 agreement was a statutory agreement required under the Trade and Merchandise Marks Act, 1958, for registering GBC as a registered user of Coca Cola's trade marks. The court concluded that the 1994 agreement did not supersede the 1993 agreement, as the latter included various terms regulating the franchise granted by Coca Cola to GBC, which were not found in the 1994 agreement. Therefore, the 1993 agreement was still in effect.

2. Validity of the Negative Covenant in Paragraph 14 of the 1993 Agreement:
The court addressed whether the negative covenant in paragraph 14, which restricted GBC from dealing with any other brands or trade marks during the subsistence of the agreement, was in restraint of trade and void under Section 27 of the Indian Contract Act, 1872. The court observed that the negative stipulation was intended to promote trade by ensuring that GBC would vigorously promote Coca Cola's products. Since the restriction was only applicable during the subsistence of the agreement, it was not considered a restraint of trade. The court held that the negative stipulation was valid and not void under Section 27.

3. Validity of Clause (b) of Paragraph 19 of the 1993 Agreement Regarding Transfer of Shares:
Clause (b) of paragraph 19 restricted the transfer of shares in GBC without Coca Cola's prior written consent. The court clarified that this clause did not place a restraint on the shareholders' right to transfer their shares but rather gave Coca Cola the right to terminate the agreement or discontinue the supply of essences/syrups if such a transfer resulted in an effective transfer of control of GBC. The court held that this clause governed the relationship between Coca Cola and GBC and did not violate the shareholders' rights under the Companies Act. Therefore, the clause was valid.

4. Justification for the Interim Injunction Granted by the High Court:
The interim injunction restrained GBC and related parties from using the plants at Ahmedabad and Rajkot for manufacturing or dealing with beverages of any person other than Coca Cola until January 25, 1996. The court considered the balance of convenience and irreparable injury, noting that Pepsi's takeover of GBC aimed to paralyze Coca Cola's operations in the region and promote Pepsi's products. The court found that the interim injunction was necessary to prevent irreparable harm to Coca Cola's goodwill and market share, which could not be adequately compensated by damages. The court also observed that GBC's conduct was inequitable, as it had breached the terms of the 1993 agreement. Therefore, the interim injunction was justified and upheld.

Conclusion:
The appeals were dismissed, and the interim injunction granted by the High Court was upheld. The court found no infirmity in the High Court's order, which enforced the negative stipulation in paragraph 14 of the 1993 agreement and restrained GBC from using its plants for manufacturing or dealing with beverages of any person other than Coca Cola until January 25, 1996.

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