M/S Gujarat PottlingCo.Ltd.&Orsvs The Coca Cola Co.

&Ors

1995 AIR 2372

FACTS:

GBC entered into an agreement in 1993 with Coke for grant of franchisee to prepare, bottle,
sell brands of latter, but not to be concerned with the beverages of any other brand during the
subsistence of the agreement and of 1 year period notice for its termination (Para 14) Under
the agreement, GBC also had right to discontinue supplying syrup on effective transfer of
control of GBC by transfer of shares or any other indicia without the prior express consent of
Coke (Para 19). In all, 1993 agreement was for grant of license to GBC under common law
by Coke.

GBC, however entered into another agreement with Coke in 1994 where under it was
required to make an application to register the agreement under the statute as Registered User
Agreement. Though the period of termination notice was reduced to 90 days but no similar
provision as that of Para 14 of 1993 agreement was stipulated and neither was 1993
agreement expressly substituted.

The shareholding of GBC was transferred subsequently to Pepsi and it served Coke with a
notice of 90 days to terminate 1994 agreement, and as a matter of abundant precaution, as 1
year notice terminating 1993 agreement, notwithstanding the contention that 1993 stands
replaced by 1994 agreement. Coke sought GBC to be refrained from dealing with the
beverages of Pepsi for the period of 1 yr. of termination notice.

ISSUES:

1. Whether 1994 agreement substituted 1993 agreement?

2. Whether Para 14 of 1993 agreement was in restraint of trade u/s 27 of Indian Contrcat
Act (ICA), hence void?

HELD:
Since 1993 agreement was grant of license to GBC under common law and 1994 agreement
is executed under the requirements of statute for the purpose of registration of GBC as user
under the relevant act, hence, the nature and scope of two agreements was considerably
different; such that 1994 agreement could not be considered as substituting 1993
agreement. Mutuality as under S.62 required for substitution of agreement requires both
consensus ad idem between the parties and an intention to substitute the original
agreement. No such intention of the parties to substitute 1993 agreement could be construed
from 1994 agreement.

In UK: While contracts in restraint of trade whether general or partial, are prima facie void.
But, if such a restraint is held to be reasonable in regard to public policy and in consideration
of interests of both the parties, then such a restraint, whether general or partial, is subsisting.

In India: “A contract in restraint of trade is one by which a party restricts his future liberty to
carry on his trade, business or profession in such manner and with such person as he chooses”
(Superintendence Company of India v. Krishan) unless such a restriction is in furtherance or
promotion of trade in which he is presently voluntary engaged (GBC v. Coca Cola).

Under S.27 of ICA, no distinction, whatsoever, exists between the contracts whether in
partial or in general restraint of trade; such that every such agreement is void. Further, no test
of reasonableness in such a restraint, as applied in UK, is applicable according to literal
interpretation of S.27 in Indian context, such that notwithstanding whether a restraint of trade
is reasonable/conscionable or not, it is nevertheless void according to S.27 (Upheld: Zaheer)

When the contract is in promotion, furtherance or facilitating of trade, then it cannot be said
to be in restraint of trade. Secondly, except in cases where the contract is wholly one sided
and unconscionable, normally when the restriction is subsisting only during the period of the
contract and not thereafter, such restriction isn’t held to be in restraint of trade. However,
while construing a covenant in light of S.27, balance of rights of both the parties needs to be
taken into consideration. “A negative covenant, if subsisting during the existence of contract,
must not be greater than necessary to protect the interest of employer, nor unduly harsh and
oppressive to the employee” (Superintendence Company of India v. Krishan) But, a post-
contractual restriction of trade imposed upon the party, whether partial or complete, is to be
held as violative of S.27 (Zaheer&Krishan)
Restrictions imposed on employees must be carefully scrutinized for there is inequality of
bargaining power between the parties in employment contracts; with employees being
presented with standardized forms of contract either to accept or reject (both cases).
However, the general rules as to restraint of trade are applicable in case of all contracts
(GBC).

1993 agreement was commercial agreement where under both parties undertook obligations
to ‘wholeheartedly’ promote the sale and production of Coca Cola goods for their mutual
benefit, such that the restriction not to deal with the competing goods was for facilitating the
distribution of goods of franchiser (Coke) and was not in anyway restraint of trade.

Further, since the negative covenant is applied only during the period of sustenance of 1993
contract and not thereafter, hence it not being ‘unduly harsh or unconscionable’ cannot be
held to be in restraint of trade.

SeemaArshadZaheer&Orsvs Municipal Corporation Of Greater

(2006) 5 SCC 282

FACTS:

The said land, it is alleged, was leased to one MohamedbhaiAbdullabhaiMoonim under lease-
deed dated 6.7.1939. The said property was thereafter known as Moonim compound.
According to the petitioners, the said tenant - MohamedbhaiAbdullabhaiMoonim, who was
carrying on business therein under the name of M/s AbdullabhaiFaizullabhai, assigned his
business to M/s AbdullabhaiFaizullabhai Private Ltd, a company promoted by him, in or
about the year 1947; and the said company let out several portions thereof to different sub-
tenants. It is alleged that AbdullabhaiFaizullabhai Private Ltd assigned all its right, title,
interest and claim in the said property to M/s Global Marketing, a partnership firm, under
deed of assignment dated 21.9.2000, for a consideration of Rs.18 Lakhs, on 'as is, where is
basis' subject to the condition that it shall be the sole responsibility of the assignee to obtain
tenancy/occupancy/possessory rights of the assignor in respect of the said property and to
continue to use and enjoy the said property on such terms and conditions that the CPWD may
stipulate in that behalf.

It is alleged that one Abdul Samad was carrying on business under the name and style of 'A
to Z Auto Garage' in a portion of Moonim Compound; that he surrendered possession of the
said portion to Global Marketing who converted the shed situated in the said portion, that is
South-Eastern corner, into 33 shops and let out the said shops to different tenants
[SeemaArshadZaheer&Ors.] under various unregistered tenancy agreements.

The Municipal Corporation of Greater Mumbai [Brihan Mumbai Municipal Corporation, for
short the 'Corporation'] issued a notice dated 13.5.2003 under section 351 of the Mumbai
Municipal Corporation Act 1888 ['Act' for short] to the occupants thereof namely
MohamedbhaiAbdullabhaiMoonim and A. R. Shaikh (one of the partners of Global
Marketing) alleging that an unauthorized structure with brick masonary walls and A.C. Sheet
roofing measuring 17.5m X 7m (with a sloping roof of 3.50m on one side and 3.10m on the
other) had been unauthorizedly constructed, and calling upon them to show cause why the
said unauthorized construction should not be removed or pulled down. A reply dated
26.5.2003 was sent through counsel by 33 occupants of the said Building, to the said notice,
alleging that the entire property (Moonim Compound) measured 2766 sq.yds., that it had
several structures, that the structure in regard to which the notice had been issued was in
existence even prior to 1961-62 and was earlier in the occupation of Abdul Samad who was
carrying on business therein under the name and style of M/s A to Z Auto Garage, that the
said structure had been assessed to municipal tax by the Corporation and provided with
electricity and water connection, that Abdul Samad who was running A to Z Auto Garage
surrendered the said structure in his occupation to Global Marketing, and that Global
Marketing partitioned the said existing structure into 33 shops and let out those shops to 33
tenants. It was contended that as per the policy of the Corporation contained in its Circular
dated 11.11.1980, all non-residential structures, authorized or unauthorized, which were in
existence prior to datum line (1.4.1962) were to be "tolerated" and regularized, and therefore,
the said structure should not be demolished.

The Commissioner of the Corporation after considering the objections received in reply to
the notice dated 13.5.2003 and the documents produced by the objectors, passed a considered
order dated 2.9.2003 holding that the objectors have failed to prove that the structure which
was the subject matter of the notice, existed prior to the datum line (1.4.1962) or that it was
subsequently constructed authorisedly. He, therefore, directed the said unauthorized
construction to be removed within 15 days failing which it would be demolished. Feeling
aggrieved, the 32 occupants of that structure (SeemaArshadZaheer and Others) filed L.C. Suit
No. 4345/2003 in the City Civil Court, Mumbai for a declaration that the notices dated
13.5.2003 and 2.9.2003 were illegal and for a permanent injunction restraining the
Corporation from taking any action pursuant to the said notices. They also moved a notice of
motion seeking a temporary injunction restraining the Corporation from taking any action in
respect of the said structure. The City Civil Court passed a common order dated 25.11.2003
(in the said suit and connected suits relating to similar suits filed by occupants of other
structure in the said property), granting a temporary injunction restraining the Corporation
and its officials from taking any action in pursuance of the notices dated 13.5.2003 and
2.9.2003 respectively.

PETITIONER’S CONTENTIONS:

 According to the petitioners, the said tenant - MohamedbhaiAbdullabhaiMoonim, who was

carrying on business therein under the name of M/s AbdullabhaiFaizullabhai, assigned his
business to M/s AbdullabhaiFaizullabhai Private Ltd, a company promoted by him, in or
about the year 1947; and the said company let out several portions thereof to different sub-
tenants. It is alleged that AbdullabhaiFaizullabhai Private Ltd assigned all its right, title,
interest and claim in the said property to M/s Global Marketing, a partnership firm, under
deed of assignment dated 21.9.2000, for a consideration of Rs.18 Lakhs, on 'as is, where is
basis' subject to the condition that it shall be the sole responsibility of the assignee to obtain
tenancy/occupancy/possessory rights of the assignor in respect of the said property and to
continue to use and enjoy the said property on such terms and conditions that the CPWD may
stipulate in that behalf.

It is alleged by the petitioners that Global Marketing obtained possession of various portions
of Moonim Compound from the respective sub-tenants, made improvements/partitions in the
existing old structures and then let out the same to different sub-tenants (who are the
petitioners herein) in the year 2001-02. It is further alleged that the Municipal Corporation of
Greater Mumbai (Brihan Mumbai Municipal Corporation, for short 'the Corporation') issued
seven show cause notices dated 13.5.2003 followed by final orders dated 2.9.2003 under
section 351 of the Mumbai Municipal Corporation Act, 1888 ('Act' for short) to remove/pull
down seven unauthorized and illegal structures in the said premises (Moonim Compound).
The occupants of these seven structures filed seven suits (O.S. Nos.4344 to 4350/2003) in the
City Civil Court, Mumbai and obtained a temporary injunction (by common order dated
25.11.2003) restraining the Corporation from taking action in pursuance of such notices. The
seven appeals (A.O. Nos.1024 to 1030/2003) filed by the Corporation against the said order
of temporary injunction were allowed by the Bombay High Court by common order dated
21/22.2.2005 and the temporary injunction was vacated. These petitions seeking special leave
are filed against the said common order of the High Court. We will briefly refer to each case
separately.

RESPONDENT’S CONTENTIONS:

It is alleged that one Abdul Samad was carrying on business under the name and style of 'A
to Z Auto Garage' in a portion of Moonim Compound; that he surrendered possession of the
said portion to Global Marketing who converted the shed situated in the said portion, that is
South-Eastern corner, into 33 shops and let out the said shops to different tenants
[SeemaArshadZaheer&Ors.] under various unregistered tenancy agreements.

TRIAL COURT JUDGMENT:

The trial court was of the view that the plaintiffs had established prima facie that the structure
in which the 33 small shops were situated, was in existence for several years and was
assessed to property tax, and therefore, the plaintiffs were entitled to the temporary injunction
sought till disposal of the suit. On the other hand, the High Court held that the occupants-
plaintiffs had failed to make out a prima facie case that the structure was authorized, or put up
prior to 1.4.1962, and that the trial court had, without noticing and drawing correct inferences
from the documents, had proceeded in a very vague manner. The High Court, after referring
to the documents in detail, has concluded that the structure was of recent origin and
unauthorized and there was no justification for staying the action in pursuance of the notices
dated 13.5.2003 and 2.9.2003. The question for consideration is whether the order of the
High Court calls for interference.