MIS. GUJARAT BOTTLING COMPANY LTD. AND ORS. v. THE COCA COLA CO. AND ORS.

A is, however, not confined in its application to these two categories but covenants falling in these two categories are always subjected to the test of reasonableness. Since the doctrine of restraint of trade is based on public policy its application has been influenced by changing views of what is desirable in the public interest. The decisions on public policy are subject to change and development with the change and development of trade and B the means of communications and the evolution of economic thought. The general principle once applicable to agreements in restraint of trade has consequently been considerably modified by later decisions in England. In the earliest times all contracts in restraint of trade, whether general or partial, were void. The severity of this principle was gradually relaxed, and c it became the rule that a partial restraint might l:?e good if reasonable, although a general restrain was of necessity void. The distinction between general and partial restraint was subsequently repudiated and the rule now is that the restraints, whether general or partial, may be good if they are reasonable and any restraint on the freedom of contract mu.st be shown to be reasonably necessary for the purpose of freedom of trade. A covenant in restraint ·of trade must be reasonable with reference to the public policy and it must also be reasonably necessary for the protection of the interest of the covenantee and regard must be had to the interests of the covenan- tor. Contracts in restraint of trade are prima facie void and the on~ of proof is on the party supporting the contract to show that the restraint goes no further than is reasonably necessary to protect the interest of the covenantee and if this onus is discharged the onus of showing that the restraint is nevertheless injurious to· the public is on the party attacking the contract. The court has to decide, as a matter of law, (i) whether a contract is or is not in restraint of trade, and (ii) whether, if in restraint of trade, it is reasonable. The court takes a far stricter and less favourable view of covenants entered mto between employer and employee than it d~es not similar covenants between vendor and purchaser or in partnership agree- ments, and accordingly a restraint may be unreasonable as between employer and employee which would be reasonable as between the vendor and purchaser of a business. See Halsbury's Laws of England, 4th Edn., G Vol 47, paragraphs 9 to 26; N.S. Golikari v. Century Spinning Co., [1967] 2 SCR 378 at pp. 384-85. Instead of segregating two questions, (i) whether the contract is in restraint of trade, (ii) whether, if so, it is "reasonable," the courts have often fused the two by asking whether the contract is in "undue restraint of trade" or by a compound finding that it is not satisfied H

GUJ. BOTfLING CO.LTD. v. COCA COLA CO. (S.C. AGRAWAL, J.] 541

that this contract is really in restraint of trade at all but, if it is, it is A reasonable. See Esso Petroleum Co. Ltd. v. Harper's Garage (Stourport) Ltd., (1968) AC 269 at p. 331 Lord Wilberforce.

In India agreements in restraint of trade are governed by Section 27 of the Indian Contract Act which provides as follows : B "Section 27. Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

Exception 1. - One who sells the goodwill of a business may agree C with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein: Provided that such limits appear to the Court reasonable, regard being had to the nature of the business." D The said provision was lifted from Hon. David D. Field's Draft Code for New York which was based upon the old English doctrine of restraint of trade, as prevailing in ancient times. The said provision was, however, never applied in New York. The adoption of this provision has been severely criticised by Sir Frederick Pollock who has observed that "the law of India is tied down by the language of the section to the principle, now exploded in England, of a hard and fast rule qualified by strictly limited exceptions." While construing the provisions of Section 27 the High Courts in India have held that neither the test of reasonableness nor the principle that the restraint being partial or reasonable are applicable to a case governed by Section 27 of the Contract Act, unless it falls within the exception. The Law Commission in its Thirteenth Report has recom- mended that the provision should be suitably amended to allow such restrictions and all contracts in restraint of trade, general or partial, as were reasonabl~, in the interest of the parties as well as of the public. No action has, however, been taken by Parliament on the said recommendation. See G : Superintendence Company of India (P) Ltd. v. Krishan Murgai, [1980] 3 SCR 1278, at pp. 1291, 1296-98, per AP. Sen J..

We do not propose to go into the question whether reasonableness of restraint is outside the purview of Section 27 of the Contract Act and for the purpose of the present case we will proceed on the basis that an H

542 SUPREMECOURTREPORTS (1995] SUPP. 2S.C.R.

A enquiry into reasonableness of the restraint is not envisaged by Section 27. On that view instead of being required to consider two questions as in England, the courts in India have only to consider the question whether the contract is or is not in restraint of trade. It is, therefore, necessary to examine whether the negative stipulation contained in paragraph 14 of the 1993 Agreement can be regarded as in restraint of trade. This involves the B question, what is meant by a contract in restraint of trade?

In Attomey-General of the Commonwealth of Australia. v. Adelaide Steamship Co. Ltd., [1913] AC 781, Lord Parker has said :

c "Monopolies and contracts in restraint of trade have this in com- mon, that they both, if enforced, involve a derogation from the common law right in virtue of which any member of the community may exercise any trade or business he pleases and in such manner as he thinks best in his own interests." [p.794]

D Referring to these observations Lord Reid in Esso Petroleum Co. Ltd., (supra) has said :

"But that cannot have been intended to be a definition : all contracts in restraint of trade involve such a derogation but not all contracts involving such a derogation are contracts in restraint of trade. Whenever a man agrees to do something over a period he thereby puts it wholly or partly out of his power to 'exercise any trade or business he pleases' during that period. He may enter into a contract of service or may agree to give his exclusive services to another : then during the period of the contract he is not en~itled to engage in other business activities. But no one has ever sug- gested that such contracts are in restraint of trade except in very

- unusual circumstances." [p. 294]

In McEllistrim v. Ballymacelligott Co-operative Agricultural and Dairy Society Ltd., (1919) AC 548, Lord Finlay after referring to the principle enumerated in Herbert Morris Ltd. v. Saxe/by, (1916) 1 AC 688, that public policy requires that every man shall be at liberty to work for himself and shall not be at liberty to deprive himself or the State of his labour, skill or talent by every contract that he enters into, had stated "This is equally applicable to the right to sell his goods." Doubting the correctness of this statement Lord Reid in Esso Petroleum Co. Ltd. (supra) has said:

GUJ. BOTTLING CO. LTD. v. COCA COLA CO. [S.C.AGRAWAL,J.) 543

"It would seem to mean that every contract by which a man (or a A company) agrees to sell his whole output (or even half of it) for any future period to the other party to the contract is a contract in restraint of trade because it restricts his liberty to sell as he pleases, and is therefore unenforceable unless his agreement can be justified as being reasonable. There must have been many B ordinary commercial contracts of that kind in the past but no one has ever suggested that they were in restraint of trade." [p. 296]

In Petrofina (Great Britain) Ltd. v. Martin, [1966] Ch. 146, Diplock L.J. (as the learned Law Lord then was), in the Court of Appeal, has said:

"A contract in restraint of trade is one in which a pa~ty (the c covenantor) agrees with any other party (the covenantee) to restrict his liberty in the future to carry on trade with other persons not parties to the contract in such manner as he chooses." [p. 180]

In the same case, Lord Denning M.R. has said : D "Every member of the community is entitled to carry on any trade or business he chooses and in such manner as he thinks most desirable in his own interests, so long as he does nothing unlawful: with the consequence that any contract which interferes with the free exercise of his trade or business, by restricting him in the work E he may do for others, or the arrangements which he may make with others, is a contract in restraint of trade. It is invalid unless it is reasonable as between the parties and not injurious to the public interests."

After referring to these observations, Lord Morris in Esso Petroleum F Co. Ltd. (supra) has said :

"These are helpfnl expositions provided they are used rationally and not too literally. Thus if made a contract under which he willingly agreed to serve on reasonable terms for a few years G and to give his whole working time to B, it would be surprising indeed if it were sought to describe the contract as being in restraint of trade. In fact such a contract would likely be for the advancement of the trade." [p. 307]

These observations indicate that a stipulation in a contract which is H

544 SUPREME COURT REPORTS (1995) SUPP. 2 S.C.R.

A intended for advancement of trade shall . not be regarded as being in restraint of trade. In Esso Petroleum Co. Ltd. (supra) the question whether the agreement under consideration was a mere agreement for the promo- tion of trade and not an agreement in restraint of it, was thus answered by Lord Pearce : B "Somewhere there must be a line between those contracts which are in restraint of trade and whose reasonableness can, therefore, be considered by the courts and those contracts which merely regulate the normal commercial relations between the parties and are, therefore, free from doctrine." [p. 327) c "The doctrine does not apply to ordinary commercial contracts for the regulation and promotion of trade during the existence of the contract, provided that any prevention of work outside the con- tract, viewed as a whole, is directed towards the absorption of the parties' service and not their sterilisation. Sole agencies are a D normal and necessary incident of commerce and those who desire the benefits of a sole agency must deny themselves the oppor~ tunities of other agencies." [p. 328]

In the same case, Lord Wilberforce has observed : E "It is not to be supposed, or encouraged, that a bare allegation that a contract limits a trader's freedom of action exposes a party suing on it to the burden of justification. There will always be certain general categories of contracts as to which it can be said, with some degree of certainty, that the 'doctrine' does or does not apply to them. Positively, there are likely to be certain sensitive areas as to which the law will require in every case the test of reasonable- ness to be passed : such an area has long been and still is that of contracts between employer and employee as regards the period after the employment has ceased. Negatively, and it is this that concerns us here, there will be types of contract as to which the law shoul<f be prepared to say with some confidence that they do not enter into the field of restraint of trade at all. " [p. 332)

"How, then, can such contracts be defined or at least identified? No exhaustive test can be stated-probably no precise non-exhaus- H tive test. But the development of the law does seem to show that

GUJ.BOTILINGCO.LTD. v. COCACOLACO.[S.C.AGRAWAL,J.) 545

judges have been able to dispense from the necessity of justification under a public policy test of reasonableness such contracts or provisions of contracts as, under contemporary conditions, may be found to have passed into the accepted and normal currency of commercial or contractual or conveyancing relations." [pp. 332-33]

There is a growing trend to regulate distribution of goods and services through franchise agreements providing for grant of franchise by the franchiser on certain terms and conditions to the franchisee. Such agreements often incorporate a condition that the franchisee shall not deal with competing goods. Such a condition restricting the right of the franchisee to deal with competing goods is for facilitating the distribution of the goods of the franchiser and it cannot be regarded as in restraint of trade.

If the negative stipulation contained in paragraph 14 of the 1993 Agreement is considered in the light of the observations inEsso Petroleum D Co. Ltd. (supra), it will be found that the 1993 Agreement is an agreement for grant of franchise by Coca Cola to GBC to manufacture, bottle, sell and distribute the various beverages for which the trade marks were acquired by Coca Cola. The 1993 Agreement is thus a commercial agree- ment whereunder both the parties have undertaken obligations for promot- ing the trade in beverages for their mutual benefit. The purpose underlying E paragraph 14 of the said agreement is to promote the trade and the negative stipulation under challenge seeks to achieve the said purpose by requiring GBC to wholeheartedly apply to promoting the sale of the products of Coca Cola. In that context, it is also relevant to mention that the said negative stipulation operates only during the period the agreement p is in operation because of the express use of the words "during the subsistence of this agreement including the period of one year as con- templated in paragraph 21", in paragraph 14. Except in cases where the contract is wholly one sided, normally the doctrine of restraint of trade is not attracted in cases where the restriction is to operate during the period the contract is subsisting and it applies in respect of a restriction which G operates after the termination of the contract. It has been so held by this Court in N.S. Golikari (supra wherein it has been said:

"The result of the above discussion is that considerations against restrictive covenants are different in cases where the restriction is H

546 SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.

A to apply during the period after the termination of the contract than those in cases where it is to operate during the period of the contract. Negative covenants operative during the period of the contract of employment when the employee is bound to serve his employer exclusively are generally not regarded as restraint of trade and therefore do not fall under Section 27 of the Contract B Act. A negative covenant that the employee would not engage himself in a trade or business or would not get himself employed by any other ma:;ter for whom he would perfor~ similar or sub- stantially similar duties is not therefore a restraint of trade unless the contract as aforesaid is unconscionable or excessively harsh or c unreasonable or one sided as in the case of W.H. Milsted and Son Ltd." [p. 389]

Similarly, in Superintendence Company (supra) AP. Sen J., in his concurring judgment, has said that "the doctrine of restraint of trade never applies during the continuance of a contract of employment; it applies only when the contract comes to an end." [p. 1289]

Shri Shanti Bhushan has submitted that these observations must be confined only to contracts of employment and that this principle does not apply to other contracts. We are unable to agree. We find no rational basis for confining this principle to a contract for employment and excluding its application to other contracts. The underlying principle governing con- .tracts in restraint of trade is the same and as a matter· of fact that courts take a more restricted and less favourable view in respect of a covenant entered into between an employer and an employee as compared to a F covenant between a vendor and a purchaser or partnership agreements. We may refer to the following observations of Lord Pearce in Esso Petroleum (supra) : [p.328]

"When a contract only ties the parties during the continuance of the ·contract, and the negative ties are only those which are in- G cidental and normal to the positive commercial arrangements at which the contract aims, even though those ties exclude all dealings with others, there iS no restraint of trade within the meaning of the doctrine and no question of reasonableness arises. If, however, the contract ties the trading activities of either party after its H determination, it is a restraint of trade, and the question of

GUJ.BOTILINGCO. LTD. v. COCA COLA CO. [S.C.AGRAWAL,J.) 547

reasonableness arises." (P.328) A

Since the negative stipulation in paragraph 14 ot the 1993 Agreement is confined in its application to the period of subsistence of the agreement and the restriction imposed therein is operative only during the period the' 1993 Agreement is subsisting, the said stipulation cannot be held to be in restraint of trade so as to attract the bar of Section 27 of the contract Act. B We are, therefore, unable to uphold the contention of Shri Shanti Bhushan that the negative stipulation contained in paragraph 14 of the 1993 Agree- ment, being in restraint of trade, is void under Section 27 of the Contract Act. c ·Shri Shanti Bhushan has urged that even if the negative stipulation contained in paragraph 14 of the 1993 Agreement is found to be valid it is confined in its application to the preceding part of paragraph 14 which reads as under :

"The Bottler recognises that is imperative that the Bottler must D maintain with full vigion the continuity of the supply of the Company's products/beverages for safeguarding the interest of the consuming public and thus maintaining the goodwill of the Com- pany."

Laying emphasis on the words "As such" in the negative stipulation, E Shri Shanti Bhushan has contended that the negative stipulation must be read as relatable to this part of paragraph 14 which means that the said stipulation can be invoked only if GBC is not able to maintain the con- tinued supply of the products and beverages to Coca Cola. According to Shri Shanti Bhushan such an eventuality has not arisen in view of the fact F that Coca Cola has refused to supply to GBC essence/syrup and/or otht?r materials which are required for preparing the products and beverages. The submission of Shri Shanti Bhushan is that in these circumstances the negative stipulation contained in paragraph 14 cannot be invoked by Coca Cola. G Shri T.R. Andhyarujina, the learned senior counsel appearing for Coca Cola, has, on the other hand, pointed out that in paragraph 14 the part commencing with the words "As such" is independent of the preceding sub-paragraph and is not a part of the preceding sub-paragraph referred to above and that the negative stipulation must be read with all the earlier H

548 SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.

A sub-paragraph contained in paragraph 14 and its application cannot be confined to the sub-paragraph iinmediately preceding the words "As such" as contended by Shri Shanti Bhushan. We are in agreement with the said submission of Shri Andhyarujina. In our opinion, the negative stipulation contained at the end of paragraph 14 must be read as applicable to all the sub-paragraphs of paragraph 14 preceding the said stipulation and, if it is B thus read, it is apparent that the purpose of the negative stipulation in paragraph 14 is that GBC will work vigorously and deligently to promote and solicit the sale of the products/beverages produced under the trade marks of Coca Cola as mentioned in the first sub-paragraph of paragraph

14. This would not be possible if GBC were to manufacture, bottle, sell, c deal or otherwise be concerned with the products, beverages or any other brands or trade marks/trade names.

We are, therefore, unable to agree with Shri Shanti Bhushan that the negative stipulation contained in paragraph 14 of the 1993 Agreement must be confined in its application to the immediately preceding sub-paragraph D of paragraph 14 of the 1993 Agreement.

Shri Shanti Bhushan has next contended that clause (b) of paragraph 19 of the 1993 Agreement which imposes a restraint in the matter of transfer of the shares of GBC is void inasmuch as transfer of shares of a E company registered under the Companies Act is governed by Section 82 of the said Act and no restraint can be placed by contract on the said right to transfer the shares of a company. Shri Shanti Bhushan has placed reliance on the decision of this Court in V.B. Rangaraj. v. V.B. Gopalak- rishan & Ors., [1992] 1 SCC 160, and has submitted that if clause (b) of paragraph 19 is held to be void then Coca Cola cannot invoke the concluding part of paragraph 19 and dis-continue the supply of essen- ces/syrup and/or other materials to GBC while the 1993 Agreement sub- sists. The relevant part of paragraph 19 is as under :

"Paragraph 19. Upon the happening of any one or more of. the following event in addition to all other rights and remedies, the Company shall have the right to cancel and terminate this Agree• ment forthwith by written notice to the Bottler.

(a) x x x x x x x x x

H (b) Should Bottler be other than a natural person, no change shall

GUJ.BOTILINGCO.LTD. v. COCACOLACO.(S.C.AGRAWAL,J.] 549

be made in its structure nor shall any transfer be made of any of A its stock, share or interest or other indicia of ownership which would result in an effective transfer of wntrol without the prior express written consent of the Company. The Company reserves the right to terminate this Agreement at will for failure to notify it of such change or transfer: B (c) x x x x x x x x x

(d) x x x x x x x x x

(e) x x x x x x x x x c Upon the happening of any one or more of the foregoing events, the Company shall also have the right to discontinue supplying the Bottler with essence/syrup and/or other materials for such length of time as the Company may in its sole judgment deem necessary without thereby cancelling or prejudicing the Company's D right to cancel or terminate the Agreement for the said cause or for any one or more other cause or causes."

Clause (b) does not appear to be very happily worded. Since the parties to the 1993 Agreement were Coca Cola and GBC only and the shareholders of GBC were not parties to the agreement, it cannot have any E binding force on the shareholders of GBC. Clause (b) of paragraph 19 cannot, therefore, be construed as placing any restraint on the right of the shareholders to transfer their shares. It can only be construed to mean that in the event of the shareholders of GBC transferring their shares and such transfer resulting in an effective transfer of control of GBC, Coca Cola has F a right to terminate the agreement and even without terminating the agreement Coca Cola has the additional right to discontinue supplying GBC with essence/syrup and/or other materials for such length of time as Coca Cola may in its sole judgment deem necessary without thereby cancelling or prejudicing Coca Cola's right to cancel or terminate the G Agreement for the said cause or for any one or more other cause or causes. In other words, in the event of effective transfer of control of GBC as a result of transfer of shares by the shareholders, apart from its right to cancel the agreement Coca Cola has also been given the right to dis-con- tinue the supply of essences/syrup and/or other materials to GBC. This clause governs the relationship between Coca Cola and GBC Inter se and H

550 SUPREME COURT REPORTS {1995] SUPP. 2 S.C.R.

A it cannot be construed as placing a restraint on the right of the shareholders to transfer their shares. V.B. Rangaraj (supra) on which reliance has been placed by Shri Shanti Bhushan has, therefore, no applica- tion.

Shri Shanti Bhushan has next urged that in the facts and circumstan- B ces of the case the High Court was not justified, in law, in issuing an interim injunction enforcing the negative stipulation contained in paragraph 14 of the 1993 Agreement. The submission of Shri Shanti Bhushan is that as a result of the said injunction and dis-continuance by Coca Cola of the supply of essence/syrup and/or other materials by exercising its right under para- c graph 19 of the 1993 Agreement, the plants of GBC at Ahmedabad and Rajkot would remain idle and a large number of workers who are employed in those plants would be rendered unemployed and GBC would be saddled with heavy liabilities leading to its closure and thereby resulting in ir- reparable loss which cannot be compensated in the event of suit filed by D Coca Cola being dismissed. Shri Shanti Bhushan has also submitted that on the other hand Coca Cola would not suffer any loss because it has already made alternative arrangements for supply of its products in areas covered by both the Agreements between GBC and Coca Cola by arrang- ing supply of their products from other licensees in the neighbouring areas. Shri Shanti Bhushan has placed reliance on the decisions of Gujarat High E Court in M/s. Lalbhai Dalpatbhai & Co. v. Chittaranjan Chandulal Pandya, AIR (1966) Guj. 189, and that of Delhi High Court in Modem Food Industries India Ltd. v. Mis Shri Krishna Bottlers (P) Ltd., AIR (i984) Delhi 119, as well as on the observations of Lord Diplock in Amrican Cyanamid Co. v. Ethicon Ltd., (1975) AC 396. F In the matter of grant of injunction, the practice in England is that where a contract is negative in nature, or contains an express negative stipulation, breach of it may be restrained by injunction and injunction is normally granted as a matter of course, even though the remedy is equi- table and thus in principle a discretionary one and a defendant cannot G resist an injunction simply on the ground that observance of the contract is burdensome to him and its breach would cause little or no prejudice to the plaintiff and that breach of an express negative stipulation can be restrained even though the plaintiff cannot show that the breach will cause him any loss. See : Chitty on Contracts, 27th. Edn., Vol. I, General Prin- H ciples, para 27-040 at p. 1310; Halsbury's Laws of Engla11d, 4th Edn. Vol.

GUJ.BOTfLINGCO.LTD. v. COCACOLACO.[S.C.AGRAWAL,J.] 551

24, para 992. in India Section 42 of the Specific Relief Act, 1963 prescribes that notwithstanding anything contained in clause (e) of Section 41, where a contract comprises an affirmative agreement to do a certain act, coupled with a negative agreement, express or implied, not to do a certain act, the circumstance that the court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement. This is subject to the proviso that the plaintiff has not failed to perform the contract so far as it is binding on him. The Court is, however, not bound to grant an injunction in every case and an injunction to enforce a negative covenant would be refused if it would indirectly compel the employee either to idleness or to serve the employer. See Ehnnan v. Bartholomew, (1927) W.N. 233; N.S. Golikari, c (supra) at P. 389.

The grant of an interlocutory injunction during the pendency of legal proceedings is a matter requiring the exercise of discretion of the court. While exercising the discretion the court applies the following tests - (i) D whether: the plaintiff has a prima facie case; (ii) whether the balance of convenience is in favour of the plaintiff; and (iii) whether the plaintiff would suffer an irreparable injury if his prayer for interlocutory injunction is disallowed. The decision whether or not to grant an interlocutory injunc- tion has to be taken at a time when the existence of the legal right assailed by the plaintiff and its alleged violation are both contested and uncertain and remain uncertain till they are established at the trail on evidence. Relief by way of interlocutory injunction is granted to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved. The object of the interlocutory injunction is to protect the plain- tiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncer- tainty were resolved in his favour at the trial. The need for such protection has, however, to be .weighed against the corresponding need of the defen- dant to be prote..cted against injury resulting from his having been prevented from exercising his own legal rights for which' he could not be adequately compensated. The court must weigh one need against another and determine where the 'balance of convenience' lies. See : Wander Ltd. &Anr. v.Antox India P. Ltd., [1990] Supp. SCC 727 at pp. 731-32. In order to protect the defendant while granting an interlocutory injunction in his favour the Court can require the plaintiff to furnish an under taking so that the defendent can be adequately compensated if the uncertainty were H

552 SUPREME COURT REPORTS (1995] SUPP. 2 S.C.R.

resolved in his favour <U: the trail. - Shri Shanti Bhushan has contended that Coca Cola can be adequate- ly compensated for the loss caused to it by award of damages in the even:t of it succeeding in the suit and that if the impugned injunction granted by B the High Court is not reversed the loss suffered by GBC would be ir- reparable and incalculable inasmuch as the plants at Ahmedabad and Rajkot would remain idle and large number of workmen employed in those plants would be rendered unemployed and it may lead to closure of the undertaking of GBC. Shri Nariman and Shri Andhyarujina, on the other hand, have submitted that Pepsi in taking over GBC, took a calculated c commercial risk knowing fully well the effect of negative covenant con- tained in the 1993 Agreement and that if GBC is not restrained from manufacturing and selling Pepsi products for the stipulated period of one year, the goodwill and the market share which Coca Cola has for its own products would be effectively destroyed by a rival which has captured GBC D and that damages would not be an adequate compensation for the injury which. would be irreparable and that in respect of the loss that m~y be sustained by it, GBC would be protected by the undertaking that is re- quired to be given by Coca Cola under Rule 148 of the BombaY, High Court (Original Side) Rules, 1980. E We are inclined to agree with the submission of Shri Nariman and Shri Andhyarujina. Having regard to the negative covenant contained in paragraph 14 of the 1993 Agreement which is subsisting, Coca Cola has made out a primafacie case of grant of an injunction. As regards the other two requirements for grant of interlocutory injunction, viz., balance of convenience and irreparable injury, we find that as a result of the transfer of shares of GBC and respondent No. 7 in favour of the appellants Nos. 2 to 5, the plants of GBC at Ahmedabad and Rajkot are· now under the control of Pepsi. The 1993 Agreements were entered into by Coca Cola to ensure that the plants of GBC at Ahmedabad and Rajkot are available for manufacture of the beverages bearing the trade marks that where acquired by Coca Cola . The negative stipulation in paragraph 14 was inserted in order to preclude the said plants being used for manufacture of products of other manufactures during the period the 1993 Agreements were sub- sisting. Pepsi by taking control over GBC sought to achieve a dual purpose, viz., reduce the production capacity of beverages bearing the trade marks

GUJ.BOTILINGCO.LID. v. COCACOLACO.(S.C.AGRAWAL,J.] 553

held by Coca Cola by denying use of the plants of GBC at Ahmedabad A and Rajkot for manufacture of those products and to increase the produc- tion capacity of Pepsi products by making available these plants for manufacture of Pepsi products. As a result of the interim injunction granted by the High Court the two plants of GBC cannot be used for manufacture of Pepsi products till January 25, 1996 and the effort of Pepsi B to gain an advantage over Coca Cola by reducing the availability of products of Coca Cola and increasing the availability of Pepsi products in the areas covered by the 1993 Agreements has been frustrated to a certain

---- extent inasmuch as the increase in the availability of Pepsi products has been prevented. In the absence of such an order Pepsi would have been free to use the plants of GBC at Ahmedabad and Rajkot for the manufac- C ture of their products. This would have resulted in reduction of the share of Coca Cola in the beverages market and the resultant loss in goodwill

- and profits could not be adequately compensated by damages. In so far as loss that may be caused to GBC as a result of grant of interim injunction, we are of the view that the loss that may be sustained by GBC can be D assessed and GBC can be compensated by award of damages which can be recovered from Coca Cola in view of the undertaking that Coca Cola is required to give under Rule 148 of the Bombay High Court (Original Side) Rules, 1980. It has not been suggested that Coca Cola do not have the financial capacity to pay the amount that is found payable. E The interim injunction granted by the High Court has been assailed by the appellants on the ground that as a result of refusal by Coca Cola to continue with the supply of essence/syrup and/or materials the bottling plants of GBC at Ahmedabad and Rajkot would remain idle and a large number of workmen who were employed in the said plants would be rendered unemployed. We cannot lose sight of the fact that this complaint is being made by Pepsi through the mouth of the appellants. It is difficult to appreciate how Pepsi can ask Coca Cola to part with its trade secrets to its business rival by supplying the essence/syrup etc. for which Coca Cola holds the trade marks to GBC which is under effective control or Pepsi. Pepsi took a deliberate decision to take over GBC with the full knowledge of the terms of the 1993 Agreement. It did so with a view to paralyse the operations of Coca Cola in that region and promote its products. In view of the negative stipulation contained in paragraph 14 of the 1993 Agree- ment which has been enforced by the High Court, Pepsi has not succeeded in this effort. It must suffer the consequences of the failure of the effort H

554 SUPREME COURT REPORTS (1995] SUPP. 2 S.C.R.

A and it cannot assail the interim injunction granted by the High Court by invoking the plight of the workmen who are employed in the bottling plants ofGBC.

In this context, it would be relevant to mention that in the instant -~,

case GBC had approached the High Court for the injunction order, B granted earlier, to be vacated. Under Order 39 of the Code of Civil procedure, jurisdiction of the Court to interfere with an order of inter- locutory or temporary injunction is purely equitable and, therefore, the Court, on being approached, will, apart from other considerations, also ..,...._....__;;,_ look to the conduct of the party invoking the jurisdiction of the court, and c may refuse to interfere unless his conduct was free from blame. Since the relief 1s wholly equitable in nature, the party invoking the jurisdiction of the Court has to show that he himself was not at fault and that he himself was not responsible for bringing about the state of things complained of and that he was not unfair or inequitable in his dealings with the party ~

against whom he was seeking relief. His conduct should be fair and honest. D These considerations will arise not only in respect of the person who seeks an order of injunction under Order 39 Rule 1 or Rule 2 of the Code of Civil Procedure, but also in respect of the party approaching the Court for vacating the ad-interim or temporary injunction order already granted in the pending suit or proceedings. E Analysing the conduct .of the GBC in the light of the above prin- ciples, it will be seen that GBC, who was a party to the 1993 Agreement, has not acted in conformity with the terms set out in the said agreement. It was itself, prima facie, responsible for the breach of the agreement, as F would be evident from the facts set out earlier. Neither the consent of Coca Cola was obtained for transfer of shares of GBC nor was Coca Cola informed of the names of persons to whom the shares were proposed to be transferred. Coca Cola, therefore, had the right to terminate the agree- ment but it did not do so. On the contrary, GBC itself issued the notice for terminating the agreements by giving three months notice. "' G It is contended by Shri Nariman and, in our opinion, rightly, that the GBC, having itself acted in violation of the terms of agreement and having breached the contract, cannot legally claim that the order of injunction be vacated particularly as the GBC itself is primarily responsible for having brought about the state of things complained of by it. Since GBC has acted

.GUJ. BOTTLING CO. LTD. v. COCA COLA CO. [S.C.AGRAWAL,J.] 555

in an unfair and inequitable manner in its dealings with Coca Cola, there was hardly any occasion to vacate the injunction order and the order passed by the Bombay High Court cannot be interfered with not even on the ground of closure of factory, as the party responsible, prima facie, for breach of contract cannot be permitted to raise this grievance.

Shri Shanti Bhushan has lastly urged that the interim injunction granted by the High Court is in very wide terms because not only GBC but also those to whom the shares have been sold and also subsequent trans- ferees, their servants, agents nominees, employees, subsidiary companies, controlled companies, affiliates or associate companies or any person acting for and on their behalf are restrained by the interim injunction from using the plants of GBC. It is no doubt true that the interim injunction is widely worded to cover the persons aforementioned but in its operation the order only restrains them from using the plants of GBC at Ahmedabad and Rajkot for manufacturing, bottling or selling or dealing with or con- cerning in any manner whatsoever with the beverages of any person till January 25, 1996, the expiry of the period of one year from the date of notice dated January 25, 1995. The interim injunction is thus confined to the use of the plaints at Ahmedabad and Rajkot by any of these persons and it is in consonance with the negative stipulation contained in paragraph 14 of the agreement dated September 20, 1993.

For the reasons aforementioned we do not find any infirmity in the impugned order of the High Court dated March 31. 1995 granting an interim injunction in terms of prayers (a)(ii) and (a)(iii) of the Notice of Motion as amended. The appeals, therefore, fail and are accordingly dismissed. No Costs.

V.M. Appeals dismissed.