The Chancellor Masters And ... vs Orient Longman Private Limited ...
2002 Latest Caselaw 2160 Del

JUDGMENT

K.S. Gupta, J.

1. This order will govern the disposal of I.A. Nos. 4425/02 filed under Order 39 Rules 1 & 2 red with Section 151 CPC by the plaintiff and 5527/02 under Order 39 Rule 4 read with Section 151 CPC filed by the defendants.

2. Suit was filed for permanent injunction restraining defendants 1 to 3, their officers, servants, representatives and agents from publishing, distributing, marketing and selling 'The New Communicative Course NETWORK ENGLISH' in Volumes (1 to 5), interalia, alleging that the plaintiff entered into an agreement dated 24th August 1994 with defendant No. 3 and J.A. Mason and pursuant thereto the later jointly authored and delivered to the former for publication series of 3 books titled 'Communicate in English' and these books were first published in 1993-94 and revised in 1995-96. Revised books were brought out under the new title 'Learning to Communicate' series (1 to 5). Two special editions of books were brought out, one in 1997 which was meant for DAV Schools and another in 2000 which was meant for Manipur schools. Books were again revised in the year 1999-2000 and were brought out under the title 'New ! Learning to Communicate' series which comprised of - Course Books (1 to 5) and Activity Books (1 to 5). Sale figures of said books up to 2000-2001 have been set out in Para 23 of the plaint. It is further alleged that plaintiff has learnt on or about 5th April 2002 that defendant No. 1 is proposing to publish series of five course books titled 'The New Communicative Course NETWORK ENGLISH' and corresponding series of five Activity Books titled 'The New Communicative Course NETWORK ENGLISH Activity Book' authored by defendant No. 3 which are intended to be used as text books in the schools for classes 1 to 5 in the same manner as copyrighted works of the plaintiff are being used. Plaintiff has been able to obtain copies of Course Book and Activity Book Volumes 2 and 3 of the impugned works which are being filed Along with plaint. Defendant No. 3 seems to have entered into some arrangement with defendant No. 1 and/or defendant No. 2 for the purpose. Said Volumes 2 and 3 have been printed by defendants 4 and 5 and are due to be released shortly in the market. It is further alleged that defendant No. 1 is a long standing competitor of the plaintiff in educational publishing, particularly school textbooks in English language course. Said volumes are on the same subject; based on the same communicative approach to teaching English; designed to cater to the same readership segment and are very competitively priced. Their design-methodology, plan, arrangement, structure and pattern are also similar to copyrighted works - 'New ! Learning to Communicate' of the plaintiff. It is also alleged that defendant No. 3 has authored said Volumes 2 and 3 in breach of Clause 13 of the agreement dated 24th August 1994 in collusion with defendants 1 and 2 and the interest of the plaintiff, thus, needs to be protected.

3. In said I.A. 4425/02 by the order dated 7th May 2002 the defendants were restrained from taking out Volumes 2 and 3 in question till 17th May 2002 for which summons and notices were issued. This ex-parte ad interim injunction continues to operate till date.

4. Defendants 1 to 5 contested the suit by filing written statement. It is alleged that series bearing the title 'Communicate in English' was created as a result of an agreement dated 21st May 1993 in between defendant No. 3 Paul Gunashekar and the plaintiff. Initially the books were titled as 'Middle School English Course'. They were finally published under the title 'Communicate in English' in 1994. Revised series under the new title 'Learning to Communicate' written by defendant No. 3 and J.A. Mason was published in 1995. This series was created under the aegis of the agreement dated 24th May 1994. Series was subsequently revised for the DAV educational schools and Manipur Catholic schools under the agreements dated 27th January 1998 and 24th September 1999 respectively. Series was revised once more and published under the title 'New ! Learning to Communicate' which consisted of Course books and Activity Books 1 to 5. Plaintiff had failed to disclose the agreements dated 21st May 1993, 27th January 1998, 24th September 1999 and 6th September 2001. It is alleged that the agreement dated 24th August 1994 is in restraint of trade and, thus, void ab-initio under Section 27 of the Contract Act, 1872. It is claimed that act of authoring Volumes 2 and 3 in question by defendant No. 3 for defendants 1 and 2 is perfectly within the bounds of normal business practice. It is alleged that there is no similarity between the two competing works.

5. Aforesaid I.A. 5527/02 was filed on the pleas taken in written statement for vacating ad interim injunction order dated 7th May 2002.

6. Submission advanced by Sh. V.P. Singh for defendants was that on handing over the manuscripts of series of 3 books titled 'Communicate in English' towards the end of 1993 to the plaintiff, the defendant No. 3 stood discharged of her obligation under Clause 13 of the agreement dated 24th August, 1994 and the plaintiff, thus, cannot seek to restrain her from authoring and publishing Volumes 2 and 3 in question by invoking later part of Clause 13. In the alternative, further submission advanced was that later part of said clause being unreasonable is in restraint of trade and opposed to Section 27 of the Contract Act. Reliance was placed on the decisions in Superintendence Company of India (P) ltd. v. Krishan Murgai, , Taprogge Gesellschaft MBH v. IAEC India Ltd., ; and Pepsi Foods Ltd and Ors. v. Bharat Coca-Cola Holdings Pvt. Ltd. and Ors., . Execution of agreement dated 24th August 1994 (copy at Pages 26 to 29 on Part-I file) is, thus, admitted by defendant No. 3 Along with J.A. Mason. To appreciate the submission, particularly Clauses 2, 3, 5, 7, 8, 9, 12, 13, 15 and 19 of this agreement need be reproduced. Same are as under:-

"2. The Author hereby assigns to the Publisher during the legal term of copyright including any renewals thereof the entire copyright in the Work subject to the terms and conditions thereinafter mentioned.

3. The Author shall deliver to the Publisher not later than December 1994 in a fit state for the printers the complete text and illustrations of the Work free of charge and the Author shall pay all copyright or other fees for textual matter drawing, photographs, pictures maps, diagrams to be reproduced. The Author shall correct punctually and return all the proofsheets thereof and if required by the Publisher shall compile or authorize the Publisher to arrange to compile an index to the work at the Author's expense.

5. The Publisher shall print and publish the work as soon as reasonably may be after the complete copy shall have been delivered to him and he shall have the sole control of all details of production advertising price sale and terms of sale of the work and the right at his discretion to raise or reduce the published price of the work.

7. During the legal term of copyright the Publisher shall pay to the author and the author agrees to accept the following royalties on the Indian published price except as provided in subsequent clauses.

(a) On all copies of the work sold in India 10% (ten per cent) of the Indian published price up to 20,000 copies and thereafter 12.5% royalty payable as per Clause 7(d) given below.

(d) Division of royalty if there are two or more Authors will be up to 20000 copies 6% of Miss. S.K. Ram; 4% to Mr. Mason

Beyond 20,000 copies 7.5% to Miss Ram and 5% to Mr. Mason.

8. If at any time after two years of publication the work shall cease to have a sufficiently remunerative sale the publisher shall be at liberty either to dispose of any copies remaining on hand as a remainder or to waste them and in the event of the price realised being less than one-third of the published price the publisher shall be free from any liability to pay royalties to the Author on copies disposed of in this manner. The author shall have the option of purchasing such copies at a rate to be agreed upon which shall not be higher than the price the publisher shall receive if he remainders (?) the work.

9. The Publisher agrees to make up statements of sales annually to 31st March and to render them together with a cheque for the amount due to the Author not later than the 30th September following provided that if the amount be less than fifty rupees no payment shall be made and the amount shall be carried forward to the year following.

12(a). During the continuance of this Agreement the Publisher shall exercise his best endeavors to negotiate the sale or lease of translation rights in the work and the receipts from any such sale or lease and from the sale or lease of dramatic serial broadcasting television film quotation condensation and any other rights in the work not already provided for in this agreement shall be divided in the following proportions viz two-thirds to the author and one-third to the Publisher except in the case of reprint rights licensed for sale by another publisher on which the Publisher's receipts shall be equally divided between the Author and the Publisher.

(b) In the event of any unauthorized use being made of the work in any country not a party to the Copyright Union and/or the Universal Copyright Convention the Author and the Publisher shall share any payment received in the proportion of sixty per cent to the Author and forty per cent to the Publisher.

13. During the continuance of this Agreement the Author shall not without the consent in writing of the Publisher prepare or edit for any other publisher any work that is an expansion abridgement or revision of the work or of any part of it or publish or cause to be published any work on the same subject at or about the price the sale of which may reasonably be regarded as conflicting or likely to conflict with the sale of the work.

15. The Author if called upon to do so by the Publisher shall revise and edit the work from time to time to bring it up to date but if the Author shall be dead or disqualified by mental or bodily infirmity or any other cause or shall not within six weeks after being requested to do so by the Publisher undertake to prepare such revised edition or if having undertaken to prepare it he shall not carefully and completely revise correct prepare and deliver to the Publisher in a fit state for the printer such new edition within six months (or within such time as may be agreed between himself and the Publisher) the Publisher shall thenceforth be at full liberty to employ for that purpose such editor or editors and at such remuneration as he think proper and to deduct such remuneration from any moneys payable to the Author under this Agreement. The Publisher shall print and publish any such edition as soon as reasonably may be after complete copy shall have been delivered to him.

19. If after the work is out of print for six months or more the Author shall call upon the Publisher to reprint the work and if the Publisher shall not within four weeks after he shall have received a written request by registered post to that effect agree thereto the Author may require the Publisher to resign all rights in the work and the Publisher thereupon at his request and expense shall assign the same to him absolutely without prejudice to any claim the Author may have under this Agreement and to rights in the work already granted to third parties under this Agreement."

7. It may be mentioned that defendants' said contention based on discharge by performance has not been pleaded in the written statement. Further, as is manifest from the averments in Sub Para (1)(a) of Para 31 of written statement on merits, the plea taken is that the term of agreement dated 24th August 1994 extended to the full term of copyright in the series i.e. the life of the author plus 60 years as provided in Copyright Act and Clause 13 has the effect of barring defendant No. 3 from writing on the given subject for life. Argument based on discharge by performance, obviously, is inconsistent with the case set up in said Para 31(a)(1) of written statement. Be that as it may, reading Clauses 2, 3, 5, 7, 8, 9, 12, 13, 15 and 19 together and considering use of opening words - 'During the subsistence of this agreement' - in Clause 13 of the agreement would show that defendant No. 3 had undertaken not to publish or cause to be published any work on the same subject at or about the price of sale which might reasonably be regarded as conflicting or likely to conflict with the sale of copyrighted works of the plaintiff without its consent in writing for her lifetime plus 60 years as provided by Section 22 of the Copyright Act unless agreement was terminated earlier under Clauses 8 or 19. Hence, submission in regard to Clause 13 having exhausted with the delivery of manuscripts of copyrighted works by defendant No. 3 is repelled being without any merit.

8. This brings me to another limb of argument about later part of Clause 13 being in restraint of trade and opposed to Section 27 of the Contract Act. Paras 31 to 34 of the decision in Gujarat Bottling Co. Ltd. and Ors. v. Coca Cola Company and Ors., 1995 (5) SC 545 relied upon by Sh. K.N. Bhat for plaintiff which have great bearing on the issue read:-

"31. If the negative stipulation contained in paragraph 14 of 1993 agreement is considered in the light of the observations in Esso Petroleum Co. Ltd., 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 agreement whereunder both the parties have undertaken obligations for promoting the trade in beverages for their mutual benefit. The purpose underlying 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 wholehearted 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 is in operation because of the express use of the words 'during the subsistence of this agreement including the period of one year as contemplated 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 operates after the termination of the contract. It has been so held by this Court in N.S. Golikart wherein it has been said (SCR p.389):

"The result of the above discussion is that considerations against restrictive covenants are different in cases where the restriction is 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 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 master for whom he would perform similar or substantially similar duties is not therefore a restraint of trade unless the contract as aforesaid is unconscionable or excessively harsh or unreasonable or one sided as in the case of W.H. Milsted and Son Ltd.

32. Similarly, in Superintendence Co. A.P. 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." (SCR p.1289 : SCC p.255, paragraph 18).

33. Shri Shanti Bhushan has submitted that these observations must be confined only to contracts of employment an that this principle does not apply to other contracts. We are unable to agree. We find no rational basis for application to other contracts. The underlying principle governing contracts in restraint of trade is the same and as a matter of fact the courts take a more restricted and less favorable view in respect of a covenant entered into between an employer and an employee as compared to a covenant between a vendor and a purchaser or partnership agreements. We may refer to the following observations of Lord Pearce in Esso Petroleum: (All ER p.727) "When a contract ties the parties only during the continuance of the contract, and the negative ties are only those which are incidental 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 determination, it is a restraint of trade, and the question of reasonableness arises.

34. Since the negative stipulation in paragraph 14 of 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. We are, therefore, unable to upheld the contention of Sh. Shanti Bhushan that the negative stipulation contained in paragraph 14 of the 1993 Agreements, being in restraint of trade, is void under Section 27 of the Contract Act."

9. Aforementioned Taprogge Gesellschaft MBH and Pepsi Food Ltd cases (supra) have no applicability as they pertain to post termination and not during the continuance of agreement period. Superintendence Co. of India (P) Ltd.'s case (supra) was taken note of in Gujarat Bottling case (supra) and applying the ratio of the later decision the negative covenant in later part of Clause 13 whereby defendant No. 3 undertook not to publish or cause to be published any work on the same subject at or about the price the sale of which might reasonably be regarded as conflicting or likely to conflict with the sale of copyrighted works without the consent in writing of plaintiff, in the agreement dated 24th August 1994 which still subsists, therefore, can be legally enforced against defendant No. 3 being not in restraint of trade. During the course of argument, it was pointed out on behalf of plaintiff that a cheque for Rs. 96,27,567.68 for the financial year ending 31st March 2002 was sent to defendant No. 3 towards royalty which she got encashed. Aforesaid covenant cannot be regarded is wholly one sided or unreasonable as defendant No. 3 would further get royalty during the legal term at the rate noticed in Para 7 of the agreement. Further, Volumes 2 and 3 in question of the Course and Activity Books and Course and Activity Books 2 and 3 published by the plaintiff are on the same subject of English language teaching and based on similar communicative approach to teaching English. Not only that they are designed to cater the same readership segment i.e. classes 2 and 3 and are also competitively priced. Having reached this conclusion the plaintiff must be held to have prima facie made out case for making aforesaid order dated 7th May 2002 pending suit absolute. Obviously, balance of convenience in the case is in favor of plaintiff who is likely to suffer irreparable injury if the said order is not confirmed.

10. Consequently, I.A. 5527/02 is dismissed. While allowing I.A. No. 4424/02, said order dated 7th May 2002 is made absolute.