Non-compete clauses are valid during the term of an agreement but become void post-termination under Section 27 of the Indian Contract Act, 1872.

JUDGMENT :

(A.S. Chandurkar, J.)

1] Admit. The Commercial Appeal is taken up for final disposal.

2] This appeal filed under Section 37 of the Arbitration & Conciliation Act, 1996 (for short, “the Act of 1996”) raises challenge to the judgment dated 08/08/2023 passed by the learned Single Judge in exercise of jurisdiction under Section 9 of the Act of 1996. By the said judgment, the appellant has been restrained from sourcing forgings/parts or products from an Indian entity, RKFL by granting an injunction in terms of prayer clause (a) of the Interim Application. Being aggrieved by the aforesaid judgment, the respondent in the proceedings under Section 9 has filed this appeal.

3] Facts that are relevant for considering challenge are that on 31/03/2015 a Master Supply Agreement – MSA came to be executed between Indus Powertech Inc, the appellant, hereinafter referred to as “the Company” and Echjay Industries Private Limited, the respondent, hereinafter referred to as “the Supplier”. Under this MSA, the Supplier undertook to supply to the Company various products since the Company was specializing in supplying engineering components to North American manufacturers. Various terms and conditions were entered into. Clauses 3 and 15 to 17 being relevant are being reproduced hereunder:-

“3. Non-compete/Non-solicitation :

The Supplier agrees that the Company shall have exclusive rights to deal with all customers or clients introduced to it by the Company (hereinafter referred to as “Customers”) from within the geographical boundaries of United States of America, Canada and Mexico (hereinafter “Territory”). The current list of such Customers is detailed in Annexure-I and all transactions with the Customers in the Territory shall be through and shall accrue to the benefit of the Company. During the term of this Agreement and for a period of twenty four (24) months after termination of this Agreement for any reason, the Supplier shall not sell or solicit business from, or conduct business with the Customers. Similarly, the Company will also not source forgings from any other forging Company from India unless pursuant to Supplier’s refusal to quote or supply such items.”

“15. Termination for Cause :

Either party may terminate this Agreement prior to the expiration of the initial or any renewal term of this Agreement only for “cause” upon one hundred eighty (180) days’ prior written notice to the other Party setting forth the breach complained of. The term “cause” shall for purposes of the Agreement mean :

a) Existence of a force majeure or other circumstance beyond a Party’s reasonable control which hinders that Party’s performance of its obligations under this Agreement for more than one hundred eighty (180) days.

b) Breach of any material obligation under this Agreement;

c) Conviction on a serious criminal offense.”

“16. Termination without Cause :

Either Party may terminate this Agreement without cause by giving an advance notice, in writing, to the other Party at- least three hundred sixty-five (365) days prior to intended date of such termination.”

“17. Commission upon Termination: Upon termination of this Agreement by the Supplier for any reason, the Supplier agrees to continue to supply the Products and to pay any commission due or earned to the Company on all orders which are received by the Supplier for a period of two (2) years from the date of such termination.”

Parties acted in accordance with the MSA until the Supplier on 27/01/2023 exercised its right under Clause 15 of the MSA and served a notice to terminate the MSA by furnishing various causes for termination with which we are presently not concerned. The Supplier thereafter filed Commercial Arbitration Petition (L) No.16800 of 2023 on 21/06/2023 seeking an order of injunction as per Clause 3 of the MSA so as to restrain the Company from sourcing forgings/engineering components, etc from an Indian entity, RKFL or its subsidiaries and from carrying out business either directly or indirectl