Grant of permanent injunction to enforce negative covenants in service of contracts.

This is an appeal against an order of interim injunction passed by the Vth Assistant Judge, City Civil Court, Madras, in I.A. No. 9305 of 1966 in O.S. No. 3102 of 1966. The appellants are defendants in the suit. They are manufacturers of pharmaceutical products and also sole agents in India for foreign manufacturers of pharmaceutical products. The plaintiff and defendants entered into an agreement in May, 1955 which was to last for a period of 12 years from 1st April, 1955, with an option to renew for a like period at the end of the term. The expenses of the plaintiff’s organisation were to be met by the defendants. But it was not to exceed 15 per cent. of the gross sales. The plaintiff was to be entitled to a half-share in the profits made. It is not necessary to enter into great details as to the terms of the contract between the parties. The defendants proposed to take over the distribution with effect from 1st September, 1966 into their own hands and announced their decision by their letter dated 23rd August, 1966, purporting to terminate and revoke all their existing contracts with the plaintiff. The plaintiff filed the suit alleging that the defendant had no power to terminate the sole distribution rights granted to the plaintiff, and that the plaintiff continued to be the sole distributor of the defendants and their foreign principals, and that they had also option to renew the tenure for a further period of 12 years. Therefore, the plaintiff laid the suit to restrain the defendants from committing a breach of the sole distribution agreement between the parties and prayed for the issue of a permanent injunction restraining the defendants from in any manner distributing, selling or otherwise dealing with their products or the products of their foreign principals. Pending disposal of the suit, the plaintiff filed I.A. No. 9305 of 1966 for an interim injunction. The learned Assistant City Civil Judge issued an interim injunction prayed for, holding that at this stage the Court’s only duty is to see whether there is a bona fide contention between the parties and on which side in the event of success the balance of convenience will lie if the injunction does not issue, that if the Court finds that there is a substantial question to be investigated and that matters should be preserved in status quo till the final disposal of the question, it is sufficient ground for granting injunction,and that it is neither proper nor is the Court bound to go into the question and decide whether the application is not maintainable in law and injunction prayed for cannot be granted under the Specific Relief Act. In other words, the view of the learned Assistant City Civil Judge was that the matter had to be decided not under the Specific Relief Act, but should be decided under the provisions of Order 39, Civil Procedure Code, because it is concerned with interim injunction. He held that the ends of justice and the balance of convenience required that a temporary injunction should issue restraining the defendants from distributing, selling or otherwise dealing with their products or the products of their foreign principals and issued an order accordingly.

Mr. Rajah Iyer -appearing for the respondent made it clear that the question is now concerned with the period upto 31st March, 1967. The terms of the contract as regards an option for renewal are not quite clear as to whether the option lay with the plaintiff or with the defendants and whether the renewal was to be on the same terms as at present or terms were to be negotiated and arrived at by an agreement between the parties. Even otherwise it would have to be held that the matter of renewal of the agreement not being very clear, the question would have to be decided only on the basis of the rights of the parties Under the present agreement which is to enure till 31st March, 1967. It should also be made clear that the terms of the agreement and the relationship between the parties ar