Arnav Enterprises vs Iosis Spa And Wellness Pvt. Ltd
2021 Latest Caselaw 6525 Bom

Priya Soparkar                            1                               aral 7255-20

                 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                     ORDINARY ORIGINAL CIVIL JURISDICTION

                   ABRITRATION APPEAL (L) NO.7255 OF 2020
                                     IN
                   ABRITRATION PETITION (L) NO.426 OF 2020

                                    WITH
                   INTERIM APPLICATION (L) NO. 7271 OF 2020
                                     AND
                   INTERIM APPLICATION (L) NO. 7268 OF 2020
                                      IN
                   ABRITRATION APPEAL (L) NO.7255 OF 2020
                                      IN
                   ABRITRATION PETITION (L) NO.426 OF 2020


Arnav Enterprises                                 ... Appellant/Applicant
      Vs.
IOSIS Spa & Wellness Private Limited              ... Respondent
                                           ----
Mr.Vikrant Shetty alongwith Ms.Sakina Electricwala i/by M/s Taurus
Legal, Advocates for the Appellant/Applicant.
Ms.Fatima Barodawalla alongwith Mr.Uttam S. Rane, Mr.Laxman Bhinda,
Mr.Vikram Ahirwar, Advocates for the Respondent.
                                          ----

                                 CORAM: R.D.DHANUKA &
                                        V.G.BISHT, JJ.

RESERVED ON : APRIL 07, 2021.

PRONOUNCED ON: APRIL 20, 2021.

Judgement- (Per R.D.Dhanuka, J.):-

1. By this appeal filed under section 37 of the Arbitration and

Conciliation Act, 1996 (for short "the Arbitration Act") the appellant

(original respondent) has impugned the order dated 30 th July, 2020 and

26th October, 2020 passed by the learned Single Judge thereby granting ad-

interim measures in favour of the respondent (original petitioner) under

section 9 of the Arbitration Act. Some of the relevant facts for the purpose

Priya Soparkar 2 aral 7255-20

of deciding this appeal are as under.

2. It was the case of the respondent that the respondent is engaged in

the business of running wellness centers under the brandname and

trademark of "IOSIS". The Founder and Managing Director of the

respondent has specialized in cosmetology and wellness from London

Beauty School (U.K.), beauty and cosmetology at Christine Valmy (U.S.) etc.

The respondent has knowledge of running beauty salon, slimming, skincare

centers and spas in India.

3. It was the case of the respondent that the appellant approached the

respondent for franchise of the respondent in the month of December, 2018.

Various correspondences were exchanged between the parties through e-

mails. The respondent issued a Letter of Intent on 5 th March, 2019 in favour

of the appellant for setting up and operating the franchise center. It is the

case of the respondent that on 31 st March, 2019 the Franchise Agreement

came to be executed between the parties. The appellant however committed

default of the said Franchise Agreement. The appellant however through its

advocate issued a termination notice on 21 st June, 2020 terminating the

business of the franchise center. The appellant however continued to operate

the center and utilized the brandname, trademarks of the respondent

contrary to clause (16) of the Franchise Agreement.

 Priya Soparkar                           3                                 aral 7255-20

4.       The respondent wrote a letter dated 28 th June, 2020            denying the

allegations made by the appellant in the letter dated 21 st June, 2020 and

called upon the appellant to adhere to clause (16) of the said Franchise

Agreement. The appellant denied the contents of the said letter dated 28 th

June, 2020 vide a letter dated 2 nd July, 2020. The respondent filed petition

under section 9 of the Arbitration Act on 14 th July, 2020 and prayed for ad-

interim reliefs. The said petition was resisted by the appellant. The

appellant raised a preliminary objection with respect to the maintainability

of the said petition filed by the respondent under section 9 before this Court.

In the said affidavit in reply, the appellant relied on the Letter of Intent

dated 31st March, 2019 and alleged that the said Franchise Agreement was

never signed and executed by and between the parties.

5. The matter appeared before the learned Single Judge on various

dates. On 20th July, 2020 the appellant through its counsel made a statement

that pursuant to the letter of termination, the appellant has completely

ceased use of the respondent's franchise brandname, tradename, trademarks,

printed material, brouchers equipments, technology and was not referring

any of the clients of the respondent to itself. The learned Single Judge

recorded the said statement as an undertaking to this Court. On 30 th July,

2020, the appellant through its counsel also contended before the learned

Single Judge that the appellant was not agreeable to acknowledge the

Franchise Agreement between the parties and what has been relied upon

Priya Soparkar 4 aral 7255-20

by the respondent herein was a bogus document, not signed by the

appellant.

6. This court prima facie held that the appellant has disowned any

contractual relationship on the ground of Letter of Intent or any Franchise

Agreement and not entitled to have any benefits under Letter of Intent or

under Franchise Agreement in respect of facilities, brands, trademark which

the respondent would otherwise provide. The appellant made a statement

before the learned Single Judge that they are in no manner using the

trademark/brandnames or any of the facilities of the respondent. This Court

accepted the said statement.

7. It was the case of the respondent that inspite of said statement made

by the appellant, the appellant continued to use the brandname and

advertisement materials of the respondent. This court recorded the statement

made by the respondent and directed the appellant not to use any of the

brandname or advertisement material of the respondent or any facilities of

the respondent in respect of any of its outlet as also on the website or

elsewhere. The appellant was directed to take immediate steps to remove

any of the brandnames/ advertisement material belonging to respondent if

the same was still being used by the appellant.

8. By an order dated 30 th July, 2020 the learned Single Judge granted

Priya Soparkar 5 aral 7255-20

ad-inerim relief in terms of prayer clauses (a) and (b), thereby restraining

the appellant from operating that center in the name of "IOSIS" or any

other name for a period of two years from 21 st June, 2020 and also from

using the brandname of the petitioner i.e. IOSIS, Spa and Wellness Private

Limited or any other name resembling IOSIS Spa and Wellness Private

Limited.

9. The learned Single Judge passed an order on 26 th October, 2020 in

the Interim Application (L) No.5055 of 2020 filed by the appellant for

modification of the said order on the ground that the said ad-interim order in

terms of prayer clauses (a) and (b) was causing prejudice to the appellant

as it restrains the appellant from carrying on its business in any other

name for a period of two years from 21 st June, 2020. In paragraph No.4 of

the said order the learned Single Judge referred to clause (16) of the

Franchise Agreement which provides for the "effect of termination" strongly

relied upon by the respondent before the learned Single Judge. The learned

Single Judge observed that there was nothing on record on the date of the

said order dated 30th July, 2020 to discard the Franchise Agreement or to

show that the respondent herein was prohibited from referring to that

agreement. The learned Single Judge clarified in the impugned order that

the said order dated 30 th July, 2020 was an ad-interim order. The

observations made in the said order, the order dated 30 th July, 2020 and

order dated 26th October, 2020 were prima facie, keeping all contentions of

Priya Soparkar 6 aral 7255-20

the parties of principal proceedings expressly open. The learned Single

Judge observed that prima facie it is difficult to believe the statement of

the appellant that the said Franchise Agreement was fabricated or a bogus

document.

10. Being aggrieved by the said two orders, the appellant preferred this

appeal. The Division Bench of this Court passed an order on 3 rd December,

2020 on mentioning the matter by the appellant thereby staying the

impugned order to the extent of restraining the appellant from carrying out

spa business for two years from 21 st June, 2020 to 20th June, 2022. The

Division Bench clarified that the appellant shall not carry out the spa

business in the name of "IOSIS".

11. Mr.Vikrant D.Shetty, learned counsel for the appellant invited our

attention to some of the documents annexed to the appeal paperbook and

would submit that there was no Franchise Agreement signed between the

parties. Whatever steps were taken by the parties were taken under the said

Letter of Intent which also came to be terminated by his client. He submits

that clause (16) of the Franchise Agreement which prohibits the appellant

from operating or doing business under any name or in any manner was

not applicable since no such Franchise Agreement was signed by his client.

In any event, such clause is contrary to Section 27 of the Contract Act. Such

negative covenant could not have been enforced against the appellant. The

Priya Soparkar 7 aral 7255-20

appellant cannot be restrained from carrying on his own business being

carried by not using the trademark or material of the respondent.

12. In support of this submission, learned counsel placed reliance on

judgments in cases of Gujarat Bottling Company Limited and others Vs.

Coca Cola Company and others, (1995)5 SCC 545; Taprogge Gesellschaft

MBH Vs. IAEC India Limited (1987) SCC Online Bom 345; Precept D'mark

(India) Limited Vs. Zaheer Khan and others, (2006)4 SCC 227 and Best

Sellers Retail (India) Private Limited Vs. Aditya Birla Nuvo Limited (2012) 6

SCC 792. It is submitted that the Hon'ble Supreme Court and this court,

in those judgments, have categorically held that a negative covenant is

contrary to section 27 of the Contract Act being a contract in restraint of

trade.

13. Ms.Fatima Barodawala, learned counsel for the respondent on the

other hand would submit that not only the Letter of Intent was issued by

the respondent but the parties had also executed the Franchise Agreement.

Various steps were taken pursuant to those documents by the parties. The

appellant had however terminated the said agreement between the parties.

Though this Court had granted ad-interim relief, the appellant committed

violation of the ad-interim order passed by this court and continued to use the

trademark of the respondent. The respondent has already filed a separate

contempt proceedings against the appellant.

Priya Soparkar 8 aral 7255-20

14. The learned counsel for respondent submits that it was a specific case

of the respondent in para 10 of the arbitration petition that the respondent

had shared with the appellant various information/ documents which were

sensitive and confidential including trade secrets and computer database in

the form of files programs, knowhow, formulae and the like which had been

created by the respondent as also the customer details etc. The appellant had

continued to use those sensitive and confidential information/documents

even after termination of the agreement entered into between the parties.

The learned Single Judge was thus right in granting ad-interim reliefs in

terms of prayer clauses (a) and (b) by adverting to negative covenant

which is recorded in clause (16) of the Franchise Agreement.

15. It is submitted that such negative covenant is enforceable in law and

is not contrary to section 27 of the Contract Act, in view of the nature of

confidential information and documents furnished to the appellant with

permission to use such sensitive and confidential information of the

documents during the existence of the Franchise Agreement and not after

termination of the said agreement. She distinguished the judgments relied

upon by the learned counsel for the appellant and also sought to rely

upon such judgments Niranjan Shankar Golikari Vs. Centrury Spinning and

Manufacturing, (1967) 2 SCR 378; V.M.Deshpande Vs. The Arvind Mills

Company Ltd., order dated 10th July, 1945 in FA 86/1945 and Anindya

Mukherjee Vs. Clean Coats Private Limited, order dated 28 th October, 2020 in

Priya Soparkar 9 aral 7255-20

ARBP/947/2009 in support of her submissions.

16. It is not in dispute that in the impugned orders passed by the learned

Single Judge are ad-interim orders. The Arbitration petition filed by the

respondent under section 9 of the Arbitration act is still pending.

17. The parties have not even appointed any arbitrator. On the basis of

the material produced by the parties on record, the learned Single Judge has

made prima facie observations that the argument of the appellant that the

Franchise Agreement was not signed by the appellant and was a bogus

document cannot be considered. The appellant had acted upon the said

agreement and started the business by using such confidential and

sensitive information/documents. In our prima facie view there is thus no

substance in the submissions of the learned counsel for the appellant that the

said Franchise Agreement was a bogus document.

18. Be that as it may, even in the said Letter of Intent at page 101 of the

appeal memo it is made clear that upon termination of the agreement the

franchise will not use the name of "IOSIS" or any name resembling the

name of "IOSIS". All branding/ materials/data are to be handled as per

rules.

19. The Hon'ble Supreme Court in case of Gujrat Bottling Company

Priya Soparkar 10 aral 7255-20

Limited and others Vs. Coco Cola Company and others (supra) has held that

in a contract which is intended for advancement of trade shall not be

regarded as being in restraint of trade. The Court has to decide as a matter

of law whether the contract has or not in restraint of trade and whether, if

so, it is reasonable. In our prima facie view considering the fact that the

respondent had the brandname in the name of "OASIS" and has reputation in

the market and having furnished various sensitive and confidential

documents and information including the list of their customers, such

restraint as recorded in clause (16) of the Franchise Agreement, in our prima

facie view would not be a restraint of trade under section 27 of the Contract

Act. Hon'ble Supreme Court in the said matter had granted injunction against

the defendant after considering the provisions of section 27 of the Contract

Act and also the principles under order XXXIX and also section 42 of the

Specific Relief Act, 1963.

20. Be that as it may, since the impugned observations made by the

learned Single Judge are prima facie in nature and since those two orders are

ad-interim orders, even otherwise we do not propose to interfere with those

two orders even on this ground.

21. It is made clear that the observations made by the learned Single

judge as well as the observations made by this Court in this order are prima

facie in nature. No case is made out by the appellant for interference with

Priya Soparkar 11 aral 7255-20

the impugned orders passed by the learned Single Judge. The appeal is

devoid of merits and is accordingly dismissed. All pending Interim

Applications are also dismissed.

22. Ad-interim relief granted by this court on 3 rd December, 2020 stands

vacated. The learned Single Judge is directed to dispose of the said

Arbitration Petition (L) No.426 of 2020 expeditiously.

23. There shall be no order as to costs.

         ( V.G.BISHT, J. )                      ( R.D.DHANUKA, J. )
                                    ....