The enforcement of negative covenants presupposes the existence of a subsisting agreement, and failure to establish the renewal of the agreement within the limitation period bars the claim for injunction.

Headnote:
Limitation - Agreement for Renewal - Clauses 15 and 20 - Summary
Fact of the Case:

The appellants filed suits seeking injunction against the respondents from interfering with their mining operations, claiming that the original agreement stood renewed automatically. The respondents denied the renewal, and the appellants failed to seek a declaration or enforcement of the renewal within the limitation period.
Finding of the Court:

The court found that the suits were barred by limitation as the cause of action for seeking a declaration of renewal arose when the respondents denied the renewal, and the appellants failed to take appropriate legal action within the limitation period.
Issues: The main issue was whether the suits were barred by limitation, and whether the appellants had a valid cause of action for seeking injunction based on the assumption of automatic renewal of the original agreement.
Ratio Decidendi: The court held that the enforcement of negative covenants presupposes the existence of a subsisting agreement, and the appellants failed to establish the renewal of the agreement or seek a declaration from the court within the limitation period.
Final Decision: The court dismissed the appeals, upholding the rejection of the plaints under Order VII Rule 11 CPC due to the suits being barred by limitation.

Judgement Key Points

The legal document explains that for negative covenants (rules that prevent certain actions) to be enforced, there must be a valid, existing agreement. If the agreement is not renewed or does not exist anymore, then these covenants cannot be enforced.

It also states that renewal of an agreement, like a lease or mining rights, usually requires a proper written document. Simply exercising an option to renew does not automatically create a new, valid agreement. Instead, a formal renewal document or a court declaration is typically needed to confirm that the agreement has been renewed.

In this case, the parties argued over whether the agreement was automatically renewed after the original period ended. The court found that there was no proper, renewed agreement in writing, and no court had declared that the agreement was renewed automatically. Because of this, the covenants in the original agreement could not be enforced, and any suit trying to do so was barred by the law of limitation (time limits for legal actions).

The court emphasized that a suit based on an agreement that does not legally exist or is not properly renewed cannot succeed. Therefore, the suits filed were dismissed because they were considered to be filed too late or on the wrong basis, as the necessary legal renewal had not taken place.

JUDGMENT

B.P. SINGH, J.

1. Special Leave granted.

2. These appeals have been flied by the appellants against the common judgment and order of the High Court of Judicature at Bombay dated 20.1 0.2006 In First Appeal Nos. 138 and 139 of 2006 whereby the High Court has affirmed the order of the Trial Court dismissing the suits filed by the appellants under Order VII Rule 11 of the Code of Civil Procedure holding that the suits are barred by limitation.

3. The representative facts giving rise to these appeals are taken from the pleadings in suit flied by Hardesh Ores Pvt. Ltd. The appellants herein, namely, Hardesh Ores Pvt. Ltd. in civil appeal arising out of SLP(C) NO.1 06/2007 (for short Hardesh) and Socledade de Fomento Industrial Pvt. Ltd. In civil appeal arising out of SLP(C) No. 640/2007 (for short Fomento) respectively entered Into two agreements with the respondent Hede & Co. (for short Hede) on 23.10.1996. The agreement with Hardesh was for extraction of are from the mine In question whereas the agreement with Fomento was for purchase of minerals extracted from the mine. 80th the agreements contained similar terms and conditions. As per Clause 2.1 of the Agreement, the agreement though executed on 23.10.1996 was to come Into force from 1.1,1997 and was to remain In force for a period of 5 years from such date. Clause 2.2 of the agreement provided that on the expiry of every 5 years the agreement shall stand renewed for further periods of like duration at the sole option of Hardesh on the same terms and conditions as contained In the original agreement. Hardesh was entitled to exercise Its option during the entire period of lease in respect of the said mine and renewals thereafter, and until such time as remaining deposits of ore In the said mine could be economically exploited. Clause 2.3 gave the right to Hardesh to terminate the agreement by giving two calendar months prior notice in writing to the respondent-Hede of Its Intention to do so. Clause 2.5 of the agreement provided Inter alia that In case Hardesh was forced to abandon work In the said mine/land on account of any lawful or legal claim made and/ or objection raised by any person Including the holder of surface right or on account of any Injunction being passed by any Court of Law or on account of any fault of the respondent, the agreement shall not stand terminated but the operation thereof shall stand suspended for such time. In the event such a condition/situation continued to exist for a period exceeding six calendar months, Hardesh shall be entitled to terminate the agreement after giving 30 days notice in writing. Clause 9.2 of the agreement ensured that the respondent shall not in any manner Interfere or obstruct Hardesh from carrying on the work of extraction, raising, loading or delivering the are and its other functions under and In accordance with the agreement.

Clause 15 of the agreement provided that during the subsistence of the agreement, Hardesh shall solely be entitled to extract and deliver the are from the said mine and the respondent shall not be entitled to authorise or permit any other person for that purpose nor shall the respondent either themselves or through their servants and/or agents, extract, raise, remove, load, transport or deliver the ore from the said mine unless expressly authorised or approved by Hardesh in writing. Under Clause 20 of the agreement the respondent covenanted unto the appellant that during the pendency of the indenture they shall not enter into any agreement, understanding or arrangement with any other party for working the said mine/lease for carrying on any other operation whatsoever in the said mine/ lease.

The agreement with Fomento is more or less in the same terms though with Fomento it is for the purchase of the iron ore extracted and to be extracted from the said mine.

4. Two suits for injunction were filed by the appellants herein on 4.10.2005. The reliefs claimed in the suit of Hardesh were as follows:-

(i)

Click Here to Read the rest of this document

2007 Supreme(SC) 731

The enforcement of negative covenants presupposes the existence of a subsisting agreement, and failure to establish the renewal of the agreement within the limitation period bars the claim for injunction.

Cases Referred (8)