Bombay High Court
Taprogge Gesellschafi M.B.H.
Versus
I.A.E.C.India Ltd.
Decided On:

Headnote:Section 27 (i)-Constitution of India-Article 52 (ii) Specific Relief Act (47 of 1963)-Section 42 (iii) Private International Law-Negative covenant In a Contract of agency-Enforcement of-Negative covenant can not be enforced.

       The distinction between the restraints imposed by a Contract, operative during the subsistence of the contract and those operative after the lifetime of the contract is fundamental character. The purpose, incidents and consequences of the two types of restraints need to be borne in mind before proceeding to determine the validity of the restraint sought to be enforced in this notice of motion. While guarding jealously the freedom of contract to engage in any trade, business or profession as one wills, the law abhors monopoly which prohibit a person from pursuing a lawful trade, business or profession. This being the policy of law, any restraint on the freedom of trade, business or profession, is considered void. The law enacted by Section 27 of the Act is faunded on the public policy which disapproves and negates the restraints on trade, business or profession. Though this is the general rule of law, all corners are not alike, and the restraints imposed by them are varied in their nature and effect. The contracts between the vendor and purchaser of business are generally marked by equality of strength and bargaining power. In the contracts between Master and servant, this may not be so.

       Generally speaking, the negative covenants operative during the term of the contract are not hit by Section 27 of the Contract Act because they are designed to fulfil the contract and not to restrict them. On the other hand, when a restriction applies after the contract is terminated the restriction on freedom of trade, business or profession takes the form of restraint on trade, business or profession. This distinction which is of a fundamental nature has to be borne in mind: otherwise the perspective will be lost.

       The restrictive covenant which the plaintiff seeks to enforce in this suit clearly falls within the prohibition of Section 27 of the Act.

       The negative covenant embodied in Clause 13.1 of the contracts is void.

       The principle that emerges is that a contract, valid by the proper law, cannot be enforced in the country where it has to be performed if its performance would be opposed to the fundamental principles of.

       Public policy or a statute of that country. It is a general principle of the Conflict of Laws that the Courts of a country will not apply any foreign law, if and in so far as its application would lead to results contrary to the fundamental principles of public policy of the lex fori.

       In applying the principles stated above, it is of the essence of the matter that there should be a conflict between the foreign law and its enforcement in the country where it has to be performed. In other words, the foreign law must conflict with a part of the lex loci solution is. What is relevant is not the character of the foreign contract in the abstract but the result of its enforcement in the concrete cases.

       The rule which applies to contracts opposed to fundamental principles of the public policy also applies to contracts, the performance of which is forbidden by the statutory Law. For example, if the contract has to be performed in India, Indian statute will govern the legality of the performance. Thus, if the rules established by English Courts are followed in India. Indian Courts will not enforce the proper law of a contract if its making or performance involves the violation of an Act of the legislature. In a nutshell, the rule is that, a contract, whether lawful by its proper law or not, is invalid in so far as its performance is unlawful by Lex Loci Solution is.

       It is, therefore, clear that the negative covenant embodied in Clause 13.1 of the Contract between the parties to this suit, even if it is valid under the German Law, cannot be enforced in India. For this reason also the plaintiff cannot be granted the injunction that has been prayed for.

       Order 1, Rule 10-Suit filed In the name of the Company where agency contract Is In the name of individual-Maintainability of-Suit is not maintainable as there being no cause of action arising to the plaintiff.

       The contract with the defendant was entered into by the individual by name Ludwig Taprogge the suit is instituted by the company named Taprogge Gesellschft MBH. The plaintiffs have not pleaded as to how they are entitled to sue the defendants on the contract executed by the individual Ludwing Taprogge. It cannot, therefore, be said that the plaintiffs have any cause of action against the defendants. Assuming however that the plaintiffs are the assigness of the contract from Ludwig Taprogge, such assignment has not been pleaded. Therefore, the plaintiffs do not have any right to sue the defendants on this contract.

       For Citation : AIR 1988 Bom 157 at pp. 160, 161, 162, 163, 164, 165, 166