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1978 Supreme(Mad) 236
Madras High Court
RAMANUJAM,PAUL
Gordon Woodroffe and Co., Madras (P.) - Appellant
Versus
C.D.Gopinath - Respondent
Decided On : 03/21/1978
S. Chellaswami, for Appellant; S. Govind Swaminathan, for Respondents.
A party cannot seek to enforce a negative covenant in a contract of service after the contract has been terminated by the party itself.
Headnote:
INJUNCTION - SERVICE AGREEMENT - TERMINATION - NEGATIVE COVENANT - SPECIFIC PERFORMANCE - BALANCE OF CONVENIENCE - Prima facie CASE - ARBITRATION - STAY OF SUIT - APPEALABILITY OF ORDER REFUSING INTERIM INJUNCTION.
Fact of the Case:
Appellant, a company, had been acting as the sole agent for Clan Line for over 100 years. The first respondent, who was the Chairman of the appellant company, was asked to put up certain alternative proposals to the Reserve Bank of India (RBI) to bring down the foreign shareholding in the appellant company to 40% level. The first respondent wrote to the RBI stating that the appellant was prepared to give up the agency business. Clan Line informed the appellant about its decision to terminate the agency with effect from 31-1-1978 and give it over to the second respondent. The appellant terminated the services of the first respondent by an order dated 3-12-1977. The appellant filed a suit against respondents 1 and 2 for (1) a permanent injunction restraining the defendants from taking over Clan Line Steamer agency for the Ports of Madras, Kakinada and Vizagapattinam and functioning as Clan Line Co-ordinating agents for their trade from India and functioning as Clan Line controlling agents for Cuddalore, Nagapatnam, Masulipatnam and Trivandrum or acting as agents for the Clan Line Steamers Ltd., London and (2) for a decree for a sum of Rs. 5,00,000, being the damages suffered by the appellant by the first defendant' s breach of the service agreement dated 3-1-1975 entered into between the appellant and the first respondent. The appellant also filed an application for interim injunction pending disposal of the suit restraining the defendants from taking over jointly and severally the said Clan Line Steamers agency. The trial court declined to grant an interim injunction.
Finding of the Court:
The court held that the appellant had not established a case for the issue of an interim injunction restraining the respondents from taking up the Clan Line agency from 1-2-1978. The court found that the appellant had terminated the service contract with the first respondent and, therefore, it could not seek to enforce the alleged negative covenant contained in the contract of service. The court also found that the appellant had not established a prima facie case and that the balance of convenience did not warrant the grant of an injunction.
Issues: 1. Whether the appellant had established a case for the issue of an interim injunction restraining the respondents from taking up the Clan Line agency from 1-2-1978? 2. Whether the appellant had terminated the service contract with the first respondent and, therefore, it could not seek to enforce the alleged negative covenant contained in the contract of service? 3. Whether the appellant had established a prima facie case? 4. Whether the balance of convenience warranted the grant of an injunction?
Ratio Decidendi: 1. The court held that the appellant had not established a case for the issue of an interim injunction restraining the respondents from taking up the Clan Line agency from 1-2-1978. The court found that the appellant had terminated the service contract with the first respondent and, therefore, it could not seek to enforce the alleged negative covenant contained in the contract of service. The court also found that the appellant had not established a prima facie case and that the balance of convenience did not warrant the grant of an injunction. 2. The court held that the appellant had terminated the service contract with the first respondent and, therefore, it could not seek to enforce the alleged negative covenant contained in the contract of service. The court found that Clause 2 of the service agreement, which was the only provision relied on by the appellant, did not create any obligation in its favour after the contract of service came to an end and it dealt with the first respondent' s obligations only during the currency of the service agreement. 3. The court held that the appellant had not established a prima facie case. The court found that the appellant had not established that the loss that might be sustained by it by the alleged wrongful act of the first respondent or the wrongful termination of agency by Clan Line could not be compensated in terms of money. 4. The court held that the balance of convenience did not warrant the grant of an injunction. The court found that even if an injunction was granted against the respondents restraining them from taking up the Clan Line Agency, it would not enable the appellant to continue the Clan Line Agency.
Final Decision: The appeal was dismissed with costs.
RAMANUJAM, J. :- This appeal arises out of an order of Natarajan J. in Appln. No. 3892 of 1977 declining to grant an interim injunction pending disposal of C. S. No: 450 of 1977 filed by the appellant herein as plaintiff.
2. The circumstances under which the said suit came to be filed have been clearly and fully set out by Natarajan J. in the order under appeal and, therefore, it is not necessary to restate the same herein in elaborate detail and we will refer only to certain basic and salient facts. The appellant (plaintiff) was originally started as a partnership concern in 1868 but later converted into a limited company in 1924. It started as a subsidiary of Gordon Woodroffe Ltd., London which even now holds 79% of its shares. It has its registered office at Madras and branch offices at Kakinada and Vizagapattinam, for its steamer business. It was appointed as steamer agents of the Clan Line Steamers Ltd. In the year 1878, hereinafter referred to as Clan Line and the said agency was continued ever since. In the pooling system which was introduced in the year 1960. Clan Line had been allotted 47 per cent of the traffic from Kakinada and 30 per cent of the traffic from Madras.
3. Under the Foreign Exchange Regulation Act which was introduced in June 1974, the appellant has to get the permission of the Reserve Bank of India to carry on its steamer agency activities as before as 79% of the shareholding in the appellant company is being held by the Gordon Woodroffe Ltd. London. Therefore an application was made by the appellant for such permission. The Reserve Bank of India by its letter dated 16-8-1977 stated that the permission sought for cannot be granted to the appellant in its present set up when the foreign shareholding is 79% and that permission would be granted if the appellant conforms to the provisions of the foreign Exchange Regulation Act and the directives of the Reserve Bank of India by bringing down the holding of its shares by foreigners to 40% level, the balance of the 60% being taken by Indian Nationals. It is at that stage, the first respondent herein (the first defendant in the suit) who was functioning as Chairman of the appellant company under a service agreement dt 3-1-1975 for a period of five years was asked to put up certain alternative proposals to the Reserve Bank. The alternative proposals put forward by the appellant not being acceptable to the Reserve Bank, the first respondent wrote a letter on 13-10-1977 to the Reserve Bank stating that the appellant was prepared to give up the agency business, and that it may be given time till 1-2-1978 to complete the formalities in relation thereto. The first respondent thereafter got in touch with Clan Line and made them agree that with effect from 1-2-1978 they would divert their steamer agency to the second respondent to be started by him. Clan Line informed the appellant about its decision to terminate the agency with effect from 31-1-1978 and give it over to the second respondent. The appellant wrote many persuasive letters to Clan Line not to terminate its agency. But the Clan Line stuck to their original decision to terminate their agency with effect from 31-1-1978. Proceeding on the basis that the termination of the agency by the Clan Line has been purposely brought about by the respondent by making false, fraudulent and unauthorised representations both to the Clan Line and the Reserve Bank with a view to divert the steamer agency for his benefit, the appellant company terminated the services of the first respondent by an order dated 3-12-1977.
4. Subsequently the appellant filed the suit on 8-12-1977 against respondents 1 and 2 for (1) a permanent injunction restraining the defendants from taking over Clan Line Steamer agency for the Ports of Madras, Kakinada and Vizagapattinam and functioning as Clan Line Co-ordinating agents for their trade from India and functioning as Clan Line controlling agents for Cuddalore, Nagapatnam, Masulipatnam and
