2007 (12) TMI 515 - HC - Indian Laws

Summary

Issues Involved:
1. Validity and enforcement of the Promotion Agreement.
2. Interpretation and application of the negative covenant in Clause 19.
3. Grant of interlocutory relief.
4. Enforceability of the negative covenant under Section 27 of the Contract Act.
5. Applicability of Section 42 of the Specific Relief Act.

Detailed Analysis:

1. Validity and Enforcement of the Promotion Agreement:
The Promotion Agreement, executed on 12th December 2003, appointed the Second Petitioner as the sole and exclusive agent of the First Respondent for managing and marketing his services. The agreement was valid for four years from the date of execution or until the conclusion of the ICC World Cup 2007, whichever was later. The Petitioners argued the agreement subsisted until 11th December 2007, while the First Respondent claimed it came into force from 16th October 2003. This difference in understanding was deemed irrelevant to the outcome of the proceedings under Section 9 of the Arbitration and Conciliation Act, 1996.

2. Interpretation and Application of the Negative Covenant in Clause 19:
Clause 19.1 granted the Petitioners an unconditional right to renew the agreement for four years, subject to a negotiation process starting no later than 16th August 2007. For sixty days, the First Respondent was to negotiate exclusively with the Petitioners. Clause 19.2, effective "after the term of this agreement," required the First Respondent to offer the Petitioners a right of first refusal before accepting any third-party offer. This negative covenant precluded the First Respondent from concluding an agreement with a third party until the Petitioners had the opportunity to match the offer.

3. Grant of Interlocutory Relief:
The Court considered whether the Petitioners had a prima facie case, the balance of convenience, and the potential for irreparable injury. The Promotion Agreement involved personal, confidential, and fiduciary services, which are inherently based on trust and confidence. The Court emphasized that specific performance of such contracts is typically barred by Sections 14(1)(a), (b), and (d) of the Specific Relief Act, 1963. The Petitioners could be compensated monetarily if they succeeded in the arbitral proceedings, whereas the First Respondent would suffer irrevocable prejudice if compelled to continue the relationship.

4. Enforceability of the Negative Covenant under Section 27 of the Contract Act:
Section 27 of the Contract Act voids agreements restraining lawful trade, except for the sale of goodwill. The Court referenced Supreme Court precedents, including Percept D'Mark (India) (P) Ltd. v. Zaheer Khan, which held that negative covenants extending beyond the contract term are void. The negative covenant in Clause 19.2 was deemed a restraint on trade, as it restricted the First Respondent's future liberty to engage with third parties for endorsements, promotions, and similar activities.

5. Applicability of Section 42 of the Specific Relief Act:
Section 42 allows for an injunction to enforce a negative covenant even if specific performance of the affirmative agreement is not possible. However, the Court noted that this does not mandate granting an injunction in every case. Given that the negative covenant in Clause 19.2 amounted to a restraint of trade, the Court declined to grant the injunction. The judgment in Zaheer Khan was cited, emphasizing that such negative covenants are void and unenforceable.

Conclusion:
The Petition was dismissed. The Court accepted the First Respondent's statement that he would not enter into negotiations or agreements with third parties until 11th December 2007, without prejudice to the contention regarding the agreement's expiration. The observations were confined to the application under Section 9 and did not preclude the parties from asserting their rights before the Arbitral Tribunal.