IMPORTANT POINTS
1. Under Section 27 of the Indian Contract Act, a restrictive covenant extending beyond the term of the contract is void and not enforceable.
2. The doctrine of restraint of trade does not apply during the continuance of the contract for employment and it applied only when the contract comes to an end. This doctrine is not confined only to contracts of employment, but is also applicable to all other contracts.

Headnote:Indian Contract Act, 1872—Section 27—Arbitration and Conciliation Act, 1996—Section 9—Promotion Agreement—Agreement of ‘first option’ or the ‘right of first refusal’—Respondent 1, who was then the best fast bowler in the Indian Cricket Team entered into a Promotion Agreement dated 1.11.2000 with appellant company—Appellant company carries on business of event management, model and celebrity endorsement and management, charity events/social marketing, all entertainment related activities etc. etc.—As per the agreement, appellant was to act as the sole and exclusive agent to manage, market, render various consulting services, negotiate for, execute contracts on behalf of and advertising and the like for respondent 1, during the term of the agreement—Term of the agreement was for a period of three years commencing on 30.10.2000 and ending on 29.10.2003, unless extended by mutual consent—On expiry of this agreement, respondent 1 entered into an agreement with respondent 2 whereby respondent 2 became the agent for managing all media affairs of respondent—Appellant filed a petition u/s 9 of Arbitration and Conciliation Act for enforcement of the agreement after its expiry—An injunction was sought seeking to restrain respondent 1 from entering into any agreement with respondent 2—Whether interim relief can be granted in favour of appellant—(No).
       Held : In 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 non-existent. 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 choses 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 own. As already noticed, no interim relief having been granted in favour of the appellant during the past 2½ 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. In the light of the intervening events, it would be sufficient protection for the appellant if this Court directs:
       (i)that all observations and findings of the High Court were for the limited purpose of deciding an interlocutory application, and hence will not bind parties at trial;
       (ii)that all contentions raised by all parties are expressly kept open;
       (iii)that the interim protection in paragraph 17 of the High Court’s order will continue till the conclusion of the contract dated 20.11.2003.
       (iv)that this Court is not expressing any opinion on merits of the rival claims and that the observation made in this judgment is only for the purpose of finding out the prima facie case.
       (v)that the appellant is at liberty to proceed against the respondent for breach of the contractual terms before the appropriate forum in accordance with law; and
       (vi)that liberty is reserved to the appellant to invoke Clause 32(g) of the agreement. (Paras 66 and 67)

JUDGMENT

Dr. AR. Lakshmanan, J.—The above appeals were filed from the common final judgment and order dated 19.12.2003 passed in Appeal No. 1109/2003 in Arbitration Petition No. 514/2003 and Appeal No. 1110/2003 in Arbitration Petition No. 514/2003 by the Division Bench of the High Court of Judicature at Bombay whereby the appeals filed by the appellant against the order of the learned Single Judge were allowed and the arbitration petition filed by the appellant herein before the Single Judge was dismissed.

2. The central issue of importance in this appeal is whether the right of first refusal under clause 31(b) of the permission agreement entered into between the appellant - Percept D. Markr (India) Pvt. Ltd. and the respondent No. 1 - Zaheer Khan is void under Section 27 of the Indian Contract Act, 1872 has been in restraint of trade.

3. It was submitted by learned senior counsel for the appellant - Mr. Ashok H. Desai that the provision such as the right of first refusal is merely regulatory and not in restraint of trade.

FACTS :

4. 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 marketing.

5. Respondent No. 1 - Zaheer 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, 1956.

6. The 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. 1 informed 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.1 informed 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 non-renewal. 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. 1 was 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 m

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2006 Supreme(SC) 254

Cases Referred (7)