Bombay High Court
Novartis Vaccines & Diagnostics ... vs Aventis Pharma Limited on 18 December, 2009
Bench: Anoop V.Mohta
Arb-763-09 1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO. 763 OF 2009
Novartis Vaccines & Diagnostics Inc.
a company incorporated under the laws of
the State of Delaware in the United States
of America, having its principal place of
business at 350, Massachusetts Avenue
Cambridge, MA 02139 - 4182,
United States of America ...Petitioner.
Vs.
Aventis Pharma Limited.
a company incorporated and registered
under the Companies Act, 1956, having
its registered office at Aventis House,
54A, Sir Mathurdas Vasanji Road,
Andheri (East), Mumbai 400 093 ...Respondent.
Mr.T. Andhyarujina, Sr. Counsel with Mr.Zal Andhyarujina, Sr.Counsel with
Mr.Atul Rajadhyaksha i/b. M/s.Wakhariya & Wakhariya for the Petitioner.
Mr.D.J.Khambatta, Sr. Counsel with Mr. M. S. Doctor i/b. Bachubhai Munim
& Co. for the Respondent.
CORAM :- ANOOP V. MOHTA, J.
DATE OF RESERVING THE JUDGMENT :- 11th DECEMBER, 2009.
DATE OF PRONOUNCING THE JUDGMENT: 18th DECEMBER,2009
JUDGMENT :-
The Petitioner has invoked Section 9 of the Arbitration and
Conciliation Act, 1996 (for short, Arbitration Act) for the following prayer:-
a) this Hon'ble Court be pleased to grant an interim
measure of protection by way of an interim injunction
restraining the Respondent by itself and/or through its
agents and/or servants from or in any manner
distributing Verorab.
2 Admittedly, there is an Arbitration clause in Joint Venture Agreement
(for short, JVA) dated 22nd April, 1998, which reads thus-
"13.10 Any dispute arising out of or in connection with this
Agreement or any Related Agreement shall be resolved by the
Parties in the following manner:
(a) Any Party may initiate resolution of such controversy by
providing to the other Parties a brief and concise statement of
the initiating Party's claims, together with relevant facts
supporting them, and referring to this Section 13.10(a). For a
period of sixty (60) days from the date of such statement, or
such longer period as the Parties may agree in writing, the
Parties shall make good faith efforts to settle the dispute. Such
efforts shall include without limitation, full presentation of the
Parties' respective positions before the respective chief executive
officers of their respective companies. Any Party may in its sole
discretion elect to be assisted by counsel in such presentation.
(b) In the event the Parties are unable to reach accord
using the procedures specified in paragraph (a) above, such
dispute shall be finally settled without recourse to the courts,
in accordance with the Rules of Conciliation and Arbitration
of the International Chamber of Commerce, by one or more
arbitrators designated in conformity with those Rules.
Arbitration shall be held in London, England. Either Party
may ask the competent tribunal to confirm an arbitration
award or otherwise provide that it shall be enforceable."
3 Considering the scope and purpose of Section 9 of the Arbitration Act
and if the case is made out, then whether pre-arbitration stages as provided
under the clause were complied with or not that can be gone into at the
later stage. The basic requirement of existence of the arbitration agreement
and the dispute between the parties arising out of the same, in my view, is
sufficient to consider the case of the Petitioner for urgent relief.
4 As per the respondent, prior to 1989, Rabipur, an anti-rabies vaccine,
and therefore a life saving drug, was manufactured by a company known
as Behringwerke (a constituent of the Hoechst Group), and was exclusively
imported and marketed in India, Nepal, Bangladesh, Sri Lanka ("the HMR
Territory"), by the Respondent (then known as Hoechst India Limited). The
Respondent established and developed, at huge cost, the marketing
network, which is specially required in order to market and distribute an
anti rabies vaccine. As of February 2009 this network consisted of about
350 medical representatives and channel sales executives who had reached
out to over 46,000 general medical practitioners and 11,000 A Class
Pharmacy Retailers every month. In addition thereto the Respondent has
appointed 2,000 distributors to distribute Rabipur along with the
Respondent's other brands. The Respondent has also established a "Cold
Chain" that is specially required for the storage and transportation of an
anti rabies vaccine, which includes special facilities such as walk in coolers
at all its 27 C & F locations, to store the vaccines temperatures between 2
deg. Centigrade and 8 deg. Centigrade, and refrigerated vans for
transporting the vaccines.
5 In 1989, the Respondent established a manufacturing facility at
Ankleshwar, Gujarat to Rabipur, for manufacturing and production of
Rabipur in India. The Rabipur, anti-rabies vaccine, manufactured at the
aforesaid undertaking, was distributed and marketed in India by
Respondent till February 2009.
6 In February, 1996, the vaccine business of Behringwerke (including
that of Rabipur vaccine) was transferred to Chiron Corporation (now
known as Novartis Vaccines and Diagnostics Inc.- the Petitioner) excluding
the business of the Respondent's manufacture and marketing of the
Rabipur vaccine in the HMR Territory.
7 In the year 1997, the Respondent and the company then known as
Chiron Behring GmbH & Company, Germany, executed the following
documents:
i) A secrecy Agreement dated 5th February, 1997.
ii) A Registered User Agreement dated 30th April, 1997 for
the Respondent to continue as registered user in relation
to the manufacture of Rabipur vaccine in India.
iii) An agreement dated 5th May, 1997 for the supply of Seed
Virus ( a raw material for the manufacture of Rabipur)
iv) A Licence and Technical Collaboration Agreement dated
6th May, 1997 in relation to technical information for
manufacture of Rabipur.
8 On 07/10/1997, the Company, known as Chiron Behring Vaccines
Private Limited (hereinafter "the Company"), was incorporated.
9 On 22/04/1998, A Joint Venture Agreement was executed between
Petitioner and the Respondent. This agreement recognized the
Respondents rights to continue to market and distribute Rabipur in the
HMR Territories. The aforesaid agreement provides as under:-
Article- 5
Distribution of JVC Products in the HMRL Territories-
5.3 Provided that the JVC can meet HMRL's requirements, HMRL
shall not sell in the HMRL Territories any vaccine products that
complete with the JVC Products.
"Article 7
Distribution of Other Chiron Vaccines in the HMRL Territories-
10 On 22/04/1998, a Shareholders Agreement was executed between
Petitioner and the Respondent. Clause 13.1 of the shareholders Agreement
states as under:
"13.1 Relationship of the Shareholders
Nothing contained in this Agreement shall establish or
imply that the shareholders are members of any
partnership,joint venture, association, syndicate or any
other entity between themselves except as Shareholders of
the Company."
11 On 01/05/1998, a Marketing and Distribution Agreement (HMR
Territories) was executed between the Company and the Respondent. The
relevant clauses of this agreement are as follows:-
Article 11.
Non-Competition
11.1 It is agreed and declared that provided CBV supply the
Products in quantities that meet HMR's firm purchase
orders, HMR will not sell in THE HMR Territory any
vaccine products that compete with the Products covered
under this Agreement.
11.2 Subject to Clause 2.8, CBV agree and undertake that they
will not directly or knowingly indirectly sell the Products
in the HMR Territory.
12 On 01/05/1998, a marketing and Distribution Agreement (Chiron
Territory) was also executed between the Company and the Petitioner. The
relevant clause of this agreement is reproduced hereunder:
"Article 11
Non-Competition
11.1 It is agreed and declared that provided CBV supply the
Products in quantities that meet Chiron's firm purchase
orders, Chiron will not sell in the Chiron Territory and
vaccine products that compete with the Products covered
under this Agreement."
13 On 01/06/1998, a Licence and Technical Collaboration Agreement
between Novartis Vaccines & Diagnostics GmbH & Company KG and the
Company, whereby the technology for the manufacture of the Rabipur
vaccine was licensed to the Company.
14 In the year 2004, the Respondent became a constituent of the
multinational Sanofi Aventis Group.
15 On 15/12/2005, the Board of Directors of the Company decided to
increase the capacity of the Rabipur manufacturing facility at Ankleshwar,
Gujarat from 7.5 million doses per year to 12 million doses per year and for
this purpose decided to undertake certain remediation measures at their
plant.
16 In the month of April, 2006, the Novartis Group took over the
Petitioner and its subsidiaries and affiliates, and succeeded to the rights
and obligations of Chiron Corporation, USA and Chiron Behring GmbH &
Co., in the Company.
17 On 27/09/2006, at a meeting of its Board of Directors the Company
resolved not to renew the Marketing & Distribution Agreement entered into
with the Petitioner, for marketing and distribution of Rabipur in the HMR
Territory, from 1st May, 2008 onwards. Based on the aforesaid resolution a
notice was sent to the Respondent by the Company in this regard.
18 On 03/07/2007, suit No.1847 of 2007 filed by the Respondent, inter
alia, to challenge the minutes of the meeting held on 27th September, 2006,
and the subsequent notice of non-renewal issued by the Company to the
Petitioner. The Respondent filed Notice of Motion No. 2490 of 2007 for
certain interim reliefs in the abovementioned suit.
19 On 31/07/2007, the Petitioner filed an affidavit in reply to Notice of
Motion No. 2490 of 2007 in the abovementioned suit.
20 On 26/03/2008, the Petitioner preferred a request for arbitration to
the International Court of Arbitration of the International Chamber of
Commerce.
21 On 23/04/2008, the consent terms were filed before the Hon'ble
Supreme Court by which parties agreed to refer all disputes and differences
that had arisen between them, in respect of or relating to the Joint Venture
Agreement dated 22nd April, 1998, and/or the Related Agreements (as
defined in the Joint Venture Agreement), and all claims raised in Suit No.
1847 of 2007 including the Request for Arbitration filed with the ICC by
Chiron Behring Vaccines Private Limited, and the Petitioner abovenamed to
the sole arbitration of Mr. Justice S.P. Bharucha, retired Chief Justice of
India. The aforesaid agreement was recorded by an order of the Hon'ble
Supreme Court.
22 On 05/06/2008, the Respondent filed its statement of claim before
the learned Arbitrator.
23 On 14/07/2008, the Petitioner filed its reply to the Statement of
Claim, in which it was contended as under:-
"2. ...
6. The non-renewal of the Distribution Agreement was in
the best interests of the Joint Venture Company for a host
of reasons, including:-
....
Questions as to whether Aventis could fulfil its obligation
to use its best efforts to promote Rabipur pursuant to
Article 8.1 of the Distribution Agreement, in light of
Rabipur's losing market share and Sanofi Aventis group's
manufacture of Varorab and its sale in India through a
local distributor, Ranbaxy."
"7. Thus, it was eminently reasonable for the Joint Venture
Company to seek to review its distribution options, and to
do so, the Board rightly and unanimously voted to not
renew the Distribution Agreement."
...
...
"52. Since 2002, the Indian market for anti-rabies has
doubled and other competing products have come into the
market. In 2002, Rabipur had approximately a 78%
market share of the anti-rabies vaccine market in India.
The market share for Rabipur- distributed by Aventis -
has decreased from 78% in 2002 to 56% in 2006; a
decrease of 22%. Rabipur had virtually no growth in the
private market from 2002 through 2006. Sanofi
Pasteur's Verorab market share, however, increased from
11% in 2002 to 17% in 2006."
"58. The need for the Joint Venture Company to review its
distribution arrangement, therefore, was obvious because
of at least the following factors:
Sanofi Aventis owned both Aventis, which distributes
Rabipur, and Sanofi Pasteur, which manufactures Verorab
and sells Verorab, another anti-rabies vaccine, which is
Rabipur's main competitor, in India pursuant to a
distribution agreement.
24 The petitioner ("Novartis" or "the petitioner") is a part of the
Novartis Group of Companies. The respondent ("Aventis" or "the
Respondent") is a part of the Sanofi Aventis Group of Companies. Both the
Novartis Group of Companies, as well as, the Sanofi Aventis Group of
Companies are large multinational organizations engaged in the business
of manufacturing and selling pharmaceutical products having worldwide
operations.
25 The petitioner (51%) and the Respondent (49%) are shareholders in
a Joint Venture Company known as Chiron Behring Vaccines Private
Limited (hereinafter referred to as "CBVPL").
26 The relationship between the parties is governed by a Joint Venture
Agreement dated 22nd April 1998 ("the JVA") along with the Shareholders
Agreement and the Articles of Association of CBVPL.
27 Both the petitioner and the respondent are entitled to nominate an
equal number of Directors to the Board of CBVPL. The Petitioner is
however entitled to appoint the Chairman of the Board, who has a casting
vote.
28 As per the material terms of the JVA, the purpose of the joint venture
was:
(i) CB VPL was to manufacture an anti rabies vaccine known as
Rabipur;
(ii)The Respondent was entitled to distribute Rabipur in India, Nepalo,
Bangladesh and Pakistan (hereinafter referred to as "HMRL
Territories");
(iii)The petitioner had the right to distribute Rabipur worldwide, (other
than in the HMRL Territories).
29 CBVPL had entered into a Marketing & Distribution Agreement dated
1st May 1998 with the Respondent for the HMRL Territories. On 27th
September 2006, the Board of Directors of CBVPL decided not to renew the
aforesaid Marketing & Distribution Agreement.
30 The non-renewal of the Respondent's Marketing & Distribution
Agreement was the subject matter of a dispute between the parties which
was referred to arbitration.
31 By an award dated 4th February 2009, it was held that the Marketing
& Distribution Agreement had not been renewed by CBVPL.
32 On 16th February, 2009 at a meeting of the Board of Directors of
CBVPL, the petitioner, by using its casting vote and in breach of the
material term of the JVA decided to appoint its sister concern, a Company
known as Novartis Healthcare Private Limited ("Novartis Healthcare"), to
distribute Rabipur in the HMRL Territories. This was notwithstanding the
fact that the Respondent offered terms for distribution that were more
beneficial to CBVPL.
33 In or about September, 2009 the respondent started distributing a
product known as "Verorab" which is an anti rabies vaccine manufactured
by Sanofi Aventis Group and is imported into India by a group company
known as "Sanofi Pasteur India Limited".
34 Therefore, on 29.09.2009 the petitioner has filed the present petition
under Section 9 of the Arbitration Act and sought an interim
injunction/interim measure restraining the respondent from distributing
verorab.
35 After hearing both the parties, as urgency was shown, this Court has
granted an ad-interim relief in terms of prayer (a) on 16.10.2009 by giving
reasons. The respondent preferred an Appeal against the said order on
28.10.2009 and the same was withdrawn on 11.11.2009. The injunction
order as passed by this Court on 16.10.2009 remained intact till this date
and the same has been in force since then.
36 The parties have strongly relied on the provisions of Sections 9 to 11,
16, 17, 36 and 54 of the Indian Partnership Act, 1932 (the Partnership Act)
which is reproduced as under:
"9
General duties of partners. - Partners are bound
to carry on the business of the firm to the greatest common
advantage, to be just and faithful to each other, and to render
true accounts and full information of all things affecting the
firm to any partner or his legal representative.
10 Duty to indemnify for loss caused by fraud. -
Every partners shall indemnify the firm for any loss caused to it
by his fraud in the conduct of the business of the firm.
11 Determination of rights and duties of partners
by contract between the partners. - (1) Subject to the
provisions of this Act, the mutual rights and duties of the
partners of a firm may be determined by contract between the
partners, and such contract may be expressed or may be
implied by a course of dealing.
Such contract may be varied by consent of all the
partners, and such consent may be expressed or may be
implied by a course of dealing.
Agreements in restraint of trade. - (2)
Notwithstanding anything contained in Section 27 of the
Indian Contract Act, 1872, such contracts may provide that a
partner shall not carry on any business other than that of the
firm while he is a partner.
16 Personal profits earned by partners. - Subject to
contract between the partners. -
(a) if a partner derives any profit for himself from any
transaction of the firm, or from the use of the property or
business connection of the firm or the firm name, he shall
account for that profit and pay it to the firm;
(b) if a partner carries on any business of the same
nature as and competing with that of the firm, he shall account
for and pay to the firm all profits made by him in that business.
Rights and duties of partners . - Subject to contract
between the partners.-
(a) after a change in the firm.- where a change
occurs in the constitution of a firm, the mutual rights and
duties of the partners in the reconstituted firm remain the
same as they were immediately before the change, as far as
may be;
(b) after the expiry of the term of the firm, and. -
where a firm constituted for a fixed term continues to carry on
business after the expiry of that term, the mutual rights and
duties of the partners remain the same as they were before the
expiry, so far as they may be consistent with the incidents of
partnership at will; and
(c) where additional undertaking are carried out. -
where a firm constituted to carry out one or more adventures
or undertakings carries out other adventures or undertakings,
the mutual rights and duties of the partners in respect of the
other adventures or undertakings are the same as those in
respect of the original adventures or undertakings.
36 Rights of outgoing partner to carry on
competing business. - (1) An outgoing partner may carry
on a business competing with that of the firm and he may
advertise such business, but, subject to contract to the contrary,
he may not -
(a) use the firm name,
(b) represent himself as carrying on the business of
the firm, or
(c) solicit the custom of persons who were dealing
with the firm before he ceased to be a partners.
Agreements in restraint of trade. - (2) A partner may
make an agreement with his partners that on ceasing to be a
partner he will not carry on any business similar to that of the
firm within a specified period or within specified local limits;
and, notwithstanding anything contained in section 27 of the
Indian Contract Act, 1872, such agreement shall be valid if the
restrictions imposed are reasonable.
54 Agreements in restraint of trade. - Partners may,
upon or in anticipation of the dissolution of the firm, make an
agreement that some or all of them will not carry on a business
similar to that of the firm within a specified period or within
specified local limits; and notwithstanding anything contained
in section 27 of the Indian Contract Act, 1872 (9 of 1872),
such agreement shall be valid if the restrictions imposed are
reasonable.
37 Section 27 of the Indian Contract Act, 1872 is also reproduced as
under:
27 Agreement in restraint of trade, void. - 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. - Saving of agreement not to carry on
business of which goodwill is sold. - One who sells the
goodwill of a business may agree 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.
38 Where parties enter into any kind of Joint Venture and/or
partnership to do particular business and/or to establish particular business
or company and, accordingly, enter into various contracts/agreements, it is
always on the foundation of meeting of mind with an intention to do the
joint business in cooperation, in Trust and in good faith for the common
advantage & benefit. The commercial contracts always need to be
respected and considered from the above point of view. The scheme, the
object and the intention of the parties to enter into such type of
agreement/contract need to be read together by reading and by
considering the whole documents as well as the purpose and the object
behind formation of such partnership/company. No provision is made for
a partner to do rival or competing business freely. Both the parties are
governed b y JVA, shareholders agreement & the Article of Association of
CBVPL. Both the partners are aware of their respective, written &
unwritten obligations, liabilities, duties.
39 I have considered while dealing with and while reading the purpose
and the object of such commercial documents/agreements in Unity Realty
and Developers Ltd. v. BW Highway Star Pvt.Ltd. & ors in Arbitration
Petition No.423/2009 on 24.09.2009 as under:
"8 The Apex Court recently in Vimal Chand
Ghevarchand Jain & ors. vs. Ramakant Eknath Jajoo,
2009 (5) SCALE 59 has observed while dealing with the
construction of a commercial contract as under :
"A document, as is well known, must be construed in
its entirety"
I have observed in Reliance Natural Resources Ltd.
v. Reliance Industries Limited, 2007 (Supp.) Bom. C.R.
925 as under:
"93 Apart from that the following extracts from
Chitty on Contracts (27th Edition), 1994 in para 12.053 is
also useful:
"Every contract is to be construed with reference to its
object and the whole of its terms, and accordingly, the whole
context must be considered in endeavouring to collect the
intention of the parties, even though the immediate object of
inquiry is the meaning of an isolated word or clause."
9 Recently, in Durham V. BAI (Run Off) Ltd (in
scheme of arrangement) and other cases, [2009] 2 All
ER, 26, the Queen's Bench Division while dealing with the
construction of wordings in a commercial contract by
referring to various other English Judgments has observed
as under:-
(203)A summary of helpful principles, drawn largely from
the words of Longmore LJ in Absalom (on behalf Lloyd's
Syndicate 957) v TCRU Ltd (2005) EWCA Civ 1586 at (7),
(2006) 1 All ER (Comm) 375 at (7), (2006) 2 Lloyd's Rep
129, and based upon submissions to me by counsel, which I
had approved, in the recent case of Reilly V. National
Insurance * Guarantee Corporation Ltd (2008)EWHC 722
(Comm) at (13), (2008) 2 All ER (Comm) 612 at (13), was
again the subject matter of agreement, and I repeat and
incorporate it:
'(a) Ordinary Meaning. There is a presumption that the
words to be construed should be construed in their ordinary
and popular sense, since the parties to the contract must be
taken to have intended, as reasonable men, to use words
and phrases in their commonly understood and accepted
sense. (See also para (7) (i)-(iii) in the judgment of
Longmore LJ and in particular: "The object of the inquiry is
not necessarily to probe the 'real' intention of the parties,
but to ascertain what the language they used in the
document would signify to a properly informed observer.")
(b) Businesslike Interpretation. It is an accepted canon of
construction that a commercial document, such as an
insurance policy, should be construed in accordance with
sound commercial principles and good business sense, so
that its provisions receive a fair and sensible application.
(See also the words of Lord Diplock in Antaios Cia Navieras
SA V Salen Rederierna AB, The Antaios (1984) 3 All ER 229
at 233, (1985) AC 191 at 201 cited at (7)(iv) by Longmore
LJ: If a "detailed semantic and syntactical analysis of words
in a commercial contract is going to lead to a conclusion
that flouts business common sense, it must be made to yield
to business common sense".)
(c) Commercial Object. The commercial object or function
of the clause in question and its relationship to the contract
as a whole will be relevant in resolving any ambiguity in the
wording.
(d)Construction
to avoid unreasonable results. If the
wording of a clause is ambiguous, and one reading
produces a fairer result than the alternative, the
reasonable interpretation should be adopted. It is to be
presumed that the parties, as reasonable men, would
have intended to include reasonable stipulation in
their contract.'"
40 The parties have made their respective interpretation of these various
terms and clauses from their points of view in support of their
submissions. The Court need to take into consideration all but within the
frame of law. The contract/agreements need to be read as a whole
considering the nature & the purpose of the business. The clause and the
contract as a whole even if is clear and unambiguous, the court needs to
consider the same in the facts and circumstances of the case. It is necessary
to see relationship between words; sentences; clauses; chapters and the
whole document. It cannot be read in isolation. The aspect of faith, trust,
fiduciary relationship and understanding between the parties, just cannot
be overlooked, while interpreting any such private commercial documents.
41 Admittedly, there is no negative and/or positive covenant/clause in
the agreement in question. The submission that it is the policy of the law
not to restrain any of the partner or person or Director from carrying on
rival or competing business specially in the absence of an express negative
covenant which is based upon the policy of the law as provided under
Section 11(2) of the Partnership Act read with Section 27 of the Contract
Act, is not acceptable.
42 Considering the scope and purpose and object of Partnership and/or
of Joint Ventures, in my view, there is equitable duty of a partner or other
person not to compete with the business of the Partnership/Company.
Merely because there is no negative covenant, that itself is not sufficient to
permit other partners to do rival or competing business of the same nature.
Section 9 of the Partnership Act provides that the partners are bound to
carry on business of the firm to the greatest common advantage, to be just
and faithful to each other, and to render true accounts and full information
of all things affecting the firm. It is partner's general duty to be just and
faithful to the firm/company. The mutual rights and duties of the partners
of the firm or the company need to be determined by the contract between
the partners. Such contract may be express or may be implied by a course
of dealing as contemplated under Section 11 of the Partnership Act.
Section 11(2) of the Partnership Act specifies and permit that such
contracts may be providing that a partner shall not carry on any business
other than that of the firm while he is a partner. This itself means knowing
fully the effect and the purpose of Section 27 of the Indian Contract Act, it
is permitted to such partners to agree by express or by implication not to
permit other partners to do any business other than that of the firm while
he is a partner. This does not, according to me, entitle the other partners
to say and submit that in the absence of any negative covenant of this
nature he is entitled to do competing business or any other rival business.
The party may be agree that a partner shall not carry on any other business
than that of the firm while he is a partner. This itself does not mean that in
the absence of any agreement/negative covenant, he is free to do any
competing business, unless agrees specifically by the partners/parties, as
contemplated under Sections 16,17,34,54 of the Partnership Act and/or
even otherwise as it is always subject contract between the parties. If
both the parties/partners agree and allow other partners to do the rival or
competing business then only such partner is free to do such permissive
rival business. Such contract between the partners may be expressly
provided and/or may be implied by a course of dealing, but the submission
that in the absence of negative covenant, they are free to do rival and
competitive business, in my view, affects the whole purpose and object of
the Partnership and/or Joint Venture. It creates confusion and disturbs the
company's management, structure and the business and creates all sorts
of bad impression and complications in the market for the supporting
Groups and this internal fight supports the rival groups. Such competing
business cannot be said to be permissible, unless agreed specifically by the
parties/partners. In absence of specific contract between the parties, such
rival competing business by one of the Directors and/or the partner creates
more complication than solving and doing the good business of the
company.
43 Both the parties have relied upon the various Commentaries of
Indian, as well as, of the English Authors and also relied upon various
Foreign/Indian Judgments/Citations. Lindley & Banks on the Law
Partnership (18th Edition), Para 10-91 states as follows:
"10-91 Each partner will normally agree not only
that he will devote his whole time to the partnership business
but also that he will not engage in any other business, whether
or not competing with the firm's business"
44 The purpose and object of Partnership and/or Joint Venture is quite
clear and as elaborated in the following words:
1. A Joint Venture to produce and market a particular product is in the
nature of partnership. (New Horizons Limited vs. Union of India
1995 (1) SCC 478 at page 494.
2. A Joint Venture partner cannot engage in any operation harmful to
the business in which partners are engaged as the relationship of
joint venture partner is a relationship of trust and confidence and
subject to the duty of good faith and loyalty from partners. Corpus
Juris Secundum paragraph 22.
3. Basis of the relationship. "Ordinary partnerships are presumed by
the law to be based on the mutual trust and confidence of each
partner in the integrity of every other partner. The utmost good faith
is requisite in the relations between partners." See Halsbury on
Partnership Vol. 35 paragraph 94, page 52.
A Joint Venture being in the nature of a partnership, a partner has
a duty of carrying on business to the greatest common advantage, to be
just and faithful to each other as in the case of a commercial
partnership. This is reflected in Section 9 of the Indian Partnership Act,
1932 and in standard text books on Law of Partnership.
4. "A partner cannot without the consent of a his co-partners lawfully
carry on for his own benefit either openly or secretly any business in
rivalry with the firm to which he belongs".
"This is an obligation which implied in any partnership and
anything contrary could never be contemplated by the partners."
45 In my view, it is unacceptable to allow or permit any one partner to
do a competing business without specific written permission/contract. The
submission referring to Section 16 cannot be permitted to mean that other
partner can do competing business to the prejudice of the partnership or
venture and when objected to share the profits earned out of the said
business in rivalry. The result of permitting other partners to do rivalry
business just cannot be compensated in terms of money and/or sharing of
profits. Such competing/rival business, without written permission or
contract, will definitely cause damage to the purpose and object of the
Joint Venture or Partnership. There are always various sorts of strategies in
doing business. The parties jointly ventured and come together to
establish a particular business. They proceed accordingly jointly with full
cooperation. The concerned market/business, the commerce trade also
based upon various practice and strategies which just cannot be overlooked
in this era of global and competitive market/business. If both the parties
decide and agree, a business can be done orally or even without written
communication. But when both the parties decide to fight, then any
number of clauses in written documents/agreements are not sufficient to
settle the dispute. Therefore, having once agreed and decided to do a
particular business and project jointly and in fact, acted accordingly with
clear understanding, trust, any one partner or person cannot be allowed to
do the rival or competing business being part and partner of the
company/firm only because there is no negative covenant. In my view, it
is permissible to do rival and/or competing business, if agreed specifically
by the parties and if any partner is doing such rival business without
written permission and/or consent from the other partner, the
Company/firm or the affected partner is entitled to seek injunction/relief
or interim measure.
46 Some Authorities are as under:
(a) th
Snell's Principles of 28
Edition, Page 654 which
states "In many cases the Court will enforce by injunction the
due observance of the terms of the partnership and of the
duties which under the general law the partners owes to each
other. An injunction may be granted to prevent a partner from
engaging any other business contrary to a clause in the
partnership or, if the business is a rival business even though
there be no such clause".
(b) Kerr on Injunctions Page 513-514 to the same
effect "Where a partnership term had not expired one of the
partners who entered into a new partnership for carrying on
business of the same character and nature was restrained from
carrying on such business".
(c) The Law of Partnership in India by S. T. Desai, 7th
Edition, 2009 at page 146 and page 505".
(d) Halsbury's on Partnership Vol. 35 paragraph 156 it
is stated "The Court may grant injunction whenever it appears
just or convenient; and will do so, at the instance of a partner
to restrain any other partner from acting contrary to the
obligations imposed upon him by the partnership relationship
whether such acts are in actual breach of express relations or
breach of good faith which is the implied duty of every partner.
47 It is settled law that Section 9 of the Arbitration Act need to be read
with Order 39, Rules 1 and 2 of Code of Civil Procedure (CPC) and the
provisions of the Specific Relief Act while considering to grant interim
measure/protection pending Arbitration.
48 In Milan Commercial Pvt.Ltd. vs. Asian Healthcare Services Ltd. &
ors. dt. 16/Nov/2009 (Notice of Motion 1691/2008 in Suit 1452/2008)
and as cited and relied by the learned senior counsel for the respondent, I
have observed as under:
"45 It is observed in Kishorsinh Ratansinh Jadeja v.
Maruti Corp. & ors. JT 2009 (5) SC 180 as under:
"12 In addition to the above, Mr.Ranjit Kumar also
referred to the decision of this Court in Mandali Ranganna &
ors. T. Ramchandra, [2008] (11) SCC 1 ] where an additional
principle was sought to be enunciated relating to grant of
injunction by way of an equitable relief. This Court held that in
addition to the three basic principles, a Court while granting
injunction must also take into consideration the conduct of the
parties ....."
49 The submission is made by the learned senior counsel appearing for
the respondent that the conduct of the parties are also relevant factor
which need to be considered by the Court while granting the injunction
and contended that as the petitioner failed to perform his part of the
obligation and made it clear though partners of the company not to grant
or provide any business or distribution to the respondent. Whatever may
be the reason for doing so, the fact remains that the respondent in revolt
admittedly started doing rival business of dispute without any express or
implicit consent and/or authority from the petitioner and the company.
50 Having once observed that it is not permissible though for the
purposes of Section 9 of the Arbitration Act, I am not inclined to accept the
submission made by the respondent that because of conduct of the
petitioner he is not entitled for any equitable relief. The conduct of the
petitioner in the Board Meeting of 27th September, 2006 or 16th February,
2009 i.e. Refusal of petitioner to buy out the respondent at reasonable price
with negotiation and/or the petitioner is not in a position to manufacture
sufficient products and as there is shortage in the market that itself also
cannot be the reason to permit the respondent to do the rival or the
competing business in such fashion.
51 To allow to do business in other territories of the company or
demarcation of area for the distribution that itself cannot be read to mean
an express or implied permission or consent to do any rival business. This
also no way amounts to implied permission or consent by a course of
dealing. There is no question of using or not using the company/firm's
assets or properties or secrets. Such party may or may not use company's
assets. It is not necessary to do so. The submission with regard to the
using of assets or properties or secrets are immaterial.
52 The submission that it is not the business of CBVPL (the
company/partnership) to distribute an anti-rabies vaccine and, therefore,
there is no competition or rivalry between the two. The manufacture of
Rabipur by the petitioner and the distribution of verorab by the
respondent, in my view, itself sufficient to hold it is a rival or competitive
business considering the whole purpose and object of formation of the
petitioner/company read with their nature of business, distribution and
marketing of the products in the same field. I am not convinced that there
is also a contract permitting the respondent to distribute a competing
product. Clause 5.3 as strongly relied cannot be read to mean that there is
a contract permitting the respondent to distribute a competing product.
Permitting to distribute products in restricted or particular territories that
does not mean that it is a permission to do rival business in other
territories. The interse agreement of distribution of the products as
contemplated in Articles 5, 7 and 11 cannot be read to mean that for want
of negative covenant, the respondent is free to do rival business & that
amounts to permission, express or implied to do rival business. Whether it
is rival business or no, that aspect can be judged by the affected or
concerned party/company only allowing one of the Director to do rival
business of distribution of verorab when the company/petitioner are
admittedly doing the business of manufacturing and distribution of
Rabipur. In my prima facie view it is nothing but the rival/competing
business and it definitely affects, disturbs and creates confusion in the
market and the trade. The fact that the distribution of Rabipur by the
respondent in the HMRL territories and by the petitioner in the rest of the
world though the business of the petitioner as contended is limited to
manufacturing the anti-rabies vaccines Rabipur is unacceptable. The
clauses cannot be read in isolation. The whole document, the nature of
business and the purpose of the Joint Venture and the respective obligation
and duties of existing partners/Directors and their respective Trust, faith
from the point of view of commercial market and business reality are
important factor apart from the agreement between the parties within the
frame work of law. Considering the scope and purpose of Section 27 of
the Contract Act, merely because in sub-section (2) of Section 11 as
exception is carved out and as there is no negative covenant in the
agreement between the parties, that itself cannot be permitted to mean
that the other partner has no obligation, duty to act in the interest of the
Joint Venture/firm by using his fullest mutual agreed benefits. Any rival
business by such partner definitely will cause harm generally or
individually, if he works not exclusively for the company. The proviso to
Section 11(2) is very clear thereby it is permitted inspite of Section 27 of
the Contract Act that the partners may provide that a partner shall not
carry on any business other than that of the firm while he is a partner. But
for this such negative covenant or clauses could not have been agreed or
permitted to the parties even for entering into such partnership
business/Joint Venture.Now,in view of this, it is permissible for the partners
to enter into partnership with such negative covenant/clauses. This also
cannot be read and refer to mean that in the absence of any negative
covenant/clause, other partner is free to do any business other than that of
the firm while he is a partner. In my view, as not specifically agreed, it is
the obligation and duty of a partner to carry on business only of the firm
while he is a partner, unless contracted or agreed between the parties
otherwise. But this also subject to Sections 16(b), 36 and 54 of the
Partnership Act. In the present case, there is no such case of dissolution of
firm or partnership. The respondent is still a partner/Director of the
company having 49% of shares. There is no doubt, therefore, he has a
duty of good faith, trust, cooperation to continue to achieve the purpose
and object of the Joint Venture.
53 Assuming for a moment that there are cases and counter cases or
allegations or counter allegations are made by the parties, with regard to
their respective conduct, but in view of the fact that the firm/company is
still in existence and they are doing the business jointly, therefore, merely
because there are breaches of various reciprocal obligations that itself, in
my view, cannot be the reason to interpret the provisions of law, as well as,
the clauses of the agreement between the parties to mean that in such
situation, the other party is free to do rival or competing business or
business affecting the existing business of the company. This will definitely
destroy the market of the company and/or affect their business and even
the market's written or unwritten strategies. Therefore, the submission
that the petitioner has not approached this Court with clean hands and,
therefore, not entitled to any equitable relief, in the present facts and
circumstances, is also unacceptable.
54 Both the parties agree so far as the principles of grant of injunction
referring to the Apex Court decision in Seema Arshad Zaheer v. Municipal
Corpn. of Greater Mumbai, (2006) 5 SCC 282, whereby apart from the
basic elements, the Court has also expressed to consider the conduct of the
parties. In the present case, in my view, there exists a prima facie case as
pleaded with material to substantiate the same. The need for protection of
petitioner's right is more and necessary than that of the respondent. The
balance of convenience and equity tilt in favour of the petitioner and its
company of which the respondent is also 49% shareholder. Therefore, in a
way, the case as put up by the respondent to oppose the present petition is
self-destructive. If the case of the respondent is accepted, then that itself
will affect his own company's business being 49% partner of the same. In
my view, therefore, it is not in the interest of the petitioner or its company
of which the respondent is also 49% shareholder to permit and/or allow to
do such rival or competing business in such fashion.
55 The submission with regard to the Award already passed and/or
suppression of facts or the statements and/or incomplete documents, and
that the product of Rabipur was drastically reduced between June 2009
and August 2009 and the products of Rabipur has given complete stand
still and further that the quantity of anti rabies vaccines available in the
domestic market is not enough to reach this large number of dog bite
victims, that itself cannot be the reason to accept the case of the
respondent and to permit him to do the rival and competitive business. It
is also difficult to accept the case that it is in the interest of public at large
to permit the respondent to do the business for want of shortage of the
product in question in the market. I have already observed in the interim
order as under:
g) I am not denying the right of the main company/
manufacturer or other distributors to distribute "Verorab" in
the market. At present only the question is whether the
Respondent can distribute the same rival product in the
market. This also in my view, is not in the interest of
commercial agreement entered into between the parties. This
is not a case of conflict between public or private interest. It is
a pure commercial transaction.
56 The Authorities/citation, therefore, so relied to content that there
should be no injunction to prevent such production of anti rabies vaccines
in the domestic market, in the present facts and circumstances, are also of
no assistance. [ Novartis AG vs. Mehar Pharma (2005) 3 Bom.C.R. 191
and F. Hoffman La Roche vs. Cipla Ltd. 148 (2008) DLT
598/MANU/DE/0381/2009 ]. It is a clear commercial contract between
the parties. There is no private interest involved in this dispute and not the
public. The petitioner's case is only against the respondent to distribute the
rival product, there is no relief sought against any third person and/or the
company who are manufacturing and distributing such products in the
market. Therefore, the submission referring to Rule 803E of the Bombay
High Court (Original Side) Rules of giving notice to person likely to be
affected has also no force.
57 In view of above, the submission with regard to the applicability of
the provisions of Sections 3 and 4 of the Competition Act, 2002 is also
unsustainable at this stage of the proceeding under Section 9 of the
Arbitration Act. The remedy is elsewhere.
58 There is no question of constructive res judicata in view of the
admitted subsequent developments and the conduct of the respondent of
starting and distributing a rival product in the market.
59 The aspect of breach of confidentiality or use of partnership property
and exploitation of the partner's intention that the firm and various other
written and unwritten market strategies, just cannot be overlooked while
granting injunction in such matters. The submission to restrict the
injunction only to this extent is also unacceptable as it will create further
complication to dissect injunction order like this. Therefore, considering
all the contracts and the clauses between the parties, in my view, the case is
made out by the petitioner for injunction/interim relief as prayed. The
Apex Court in M.O.H.Uduman & ors vs. M.O.H.Aslum, AIR 1991 SC 1020
has observed while interpreting a contract of partnership as under:
"14 It is settled canon of construction that a contract of
partnership must be read as a whole and the intention of the
parties must be gathered from the language used in the
contract by adopting harmonious construction of all the clauses
contained therein. The cardinal principle is to ascertain the
intention of the parties to the contract through the words they
have used, which are key to open the mind of the makers. It is
seldom that any technical or pedantic rule of construction can
be brought to bear on their construction. The guiding rule
really is to ascertain the natural and ordinary sensible meaning
to the language through which the parties have expressed
themselves, unless the meaning leads to absurdity."
Admittedly, the said JVA is in existence; the company is still doing
the business of manufacturing the product called "Rabipur", an anti-rabies
vaccine. Admittedly, the Respondent has started distributing the rival
products called "Verorab", which are not manufactured and or distributed
and or permitted to be distributed by the Petitioner and or JVA. The
distribution has been started since 16th September, 2009 i.e. definitely after
the award.
61 Considering the rival submissions so raised including the pleadings
and the material placed on record, at this prima facie stage, I have granted
ad-interim injunction on 16.10.2009 in terms of prayer clause (a) by
observing as under, which is also undisturbed till this date .
(a) A partner who has 49% of the share capital in a JVA, is
doing the business of distribution on rival product "Verorab"
though the said JVA is in existence. It also means the JVA is
still manufacturing and doing the business of "Rabipur".
Therefore, in a way the partner who is contributing in all
respect in JVA, doing other parallel business of distributing
the rival products which in my view, is in complete breach of
the basic purpose and object of the JVA. When the parties
decide and join to do particular business in the present case,
as recorded, in my view, either of the partner should do no
business rival to the company, in which they are partners of a
substantial nature.
d) Because, the Petitioner for whatever may be the reason
not provided distribution right as per the JVA to the Respondent
and or awarded the contract to some other person than the
Respondent, that itself according to me, cannot be the reason to
start the parallel business of distribution of rival products as
done in the present case. This is on the foundation itself that
the JVA is still in existence and is manufacturing and
distributing their own product "Rabipur".
e) The Petitioner or the company unable to manufacture
"Rabipur" as per the market requirement and/or
announcement, therefore, the Respondent wants to do this
business of distribution of "Verorab" in breach of JVA's object
and purpose, in the interest of public at large, as contended is
also in my view, is not sufficient reason to overlook the prima
facie case made out by the Petitioner. Admittedly, "Verorab"
was in the market even prior to the award and someone else
was doing that distribution. The issue is whether the
Respondent who has 49% share in the JVA can do this parallel
business to destroy and or at least to affect the business of the
company. This in my view, need to be answered in negative for
above reasons, as it is also not in accordance with JVA and the
business agreement.
h) There is no public interest involvement in the present
matter. As there is no legal or any sort of obligation shown in
favour of the Respondent to distribute such product in the
market in the interest of public at large. Its a clear commercial
transaction which Respondent, for whatever may be the reason,
resorted to and started this distribution against the interest of
the company, though he is a Partner of the company which is
still in existence.
62 The company is not party to the arbitration agreement. The issue of
non-joinder or mis-joinder in such arbitration petition just cannot be the
reason to refuse the interim order or measure if case is made out. Even
otherwise, the petitioner has 51% shares of the company. The respondent
has 49% shares. This is not derivative proceeding by the minority
shareholders.
63 Both the parties have nominated their respective Arbitrators and now
as per the agreement, the ICC (the International Chamber of Commerce)
will take further steps to appoint their Chairman.
64 In view of above, as the parties have already proceeded to appoint
Arbitrator/Arbitral Tribunal, I am inclined to confirm prayer (a) as already
granted till the Constitution of the Arbitral Tribunal and eight weeks
thereafter with liberty to the parties to apply for appropriate order or relief.
65 All points are kept open.
66 The Petition stands allowed accordingly. No costs.
(ANOOP V. MOHTA, J.)
