Delhi High Court

Dr. Lal Pathlabs Pvt. Ltd. & Anr. vs Dr. Arvinder Singh & Ors. on 15 October, 2014

Author: Rajiv Sahai Endlaw

          *IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                       Date of decision: 15th October, 2014

+      CS(OS) No.2504/2013, I.As. No.20267/2013 (u/O 39 R-1&2 CPC),
       20268/2013 (u/O 2 R-2), 2965/2014 (u/O 39 R-2A), 3848/2014
       (u/O 39 R-4), 3849/2014 (of D-3 u/O 7 R-11), 3850/2014 (of D-3
       u/O 1 R-10&13), 6146/2014 & 6147/2014 (both of D-3 for
       exemption)
       DR. LAL PATHLABS PVT. LTD. & ANR.                ..... Plaintiffs
                   Through: Mr. Rajiv Nayar, Sr. Adv. with Mr. Sudhir
                            Sharma, Mr. Sanjeev Kumar Sharma,
                            Mr. Angad Kochhar and Mr. Abhishek
                            Shivpuri, Advs.
                                 Versus

       DR. ARVINDER SINGH & ORS.                      ..... Defendants
                   Through: Mr. Krishnendu Datta and Mr. Sanyat
                            Lodha, Advs. for D-1.
                            Mr. Mansih Srivastava and Mr. Rahul
                            Malhotra, Advs. for D-2.
                            Mr. Kapil Rustagi, Adv. for D-3.

CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1.     The applications of the plaintiffs, under Order XXXIX Rules 1 and 2,

Order II Rule 2 and Order XXXIX Rule 2A of the CPC and of the defendant

no.3 under Order VII Rule 11 and Order I Rules 10 and 13 of the CPC, in

this suit for the reliefs of (i) for a decree of permanent injunction restraining

the defendants from carrying on any activity / business competing with the


CS(OS) No.2504/2013                                                   Page 1 of 51
 business of the plaintiffs in Udaipur; (ii) for a decree of permanent

injunction restraining the defendants no.1 & 2 from soliciting and recruiting

the employees, clients and doctors of the plaintiffs by inducing them to leave

the employment of the plaintiffs and join the defendant no.3; and (iii) for a

decree of permanent injunction restraining the defendants no.1&2 from

divulging or disclosing confidential and proprietary information of the

plaintiffs to any third party or to use such information for their own benefit

and to the detriment of the plaintiffs, are for adjudication. While issuing

summons of the suit and notices of the applications, vide ex parte ad interim

order dated 13th December, 2013 the defendants were restrained from

divulging the proprietary information of the plaintiffs to any third party or

from soliciting and recruiting employees and doctors of the plaintiffs. The

said ex parte ad interim order continues. The senior counsel for the plaintiffs

and the counsels for each of the three defendants have been heard on the

applications.

2.     The plaintiffs have instituted the suit pleading:-




CS(OS) No.2504/2013                                                 Page 2 of 51
        (i)     that the plaintiff no.1 Company is a diagnostic service provider

               in the field of medical tests with a pan-India presence under the

               name and style of "Dr. Lal Path Labs";

       (ii)    that the defendants no.1&2 i.e. Dr. Arvinder Singh and Dr.

               Rajendra Kachhawa had in or about the year 1999, in

               partnership started carrying on the business of a diagnostic

               centre also in the field of medicine in the name and style of

               "Amolak X Ray & Diagnostic Centre" at 24-C, Madhuban

               Colony, Udaipur, Rajasthan;

       (iii)   that the aforesaid partnership firm in or about October, 2003

               sold and transferred the said diagnostic centre business to one

               M/s Piramal Diagnostic Services Private Limited (PDSL);

               PDSL continued carrying on the same business and providing

               the same services as earlier being provided by Amolak X Ray

               & Diagnostic Centre, from the same location and in the name

               and style of "Wellspring Amolak Pathlab Diagnostics" and later

               on in the name and style of "Piramal Amolak Diagnostic";

       (iv)    subsequently vide Business Purchase Agreement dated 24th

               November, 2009, the said business along with its assets was

CS(OS) No.2504/2013                                                  Page 3 of 51
               sold by PDSL to the plaintiff no.2 Amolak Diagnostics Private

              Limited (ADPL) of which the defendants no.1 & 2 were the

              only equal shareholders; the plaintiff no.2 ADPL continued

              carrying on business from the same location in the name and

              style of "Amolak Diagnostics";

       (v)    that in or about the year 2011 the defendants no.1 & 2

              approached the plaintiff no.1 Company with an offer to sell

              their 100% shareholding in the plaintiff no.2 ADPL;

       (vi)   a Share Purchase Agreement dated 21st January, 2011 (SPA)

              was signed whereunder the defendants no.1 & 2 sold to the

              plaintiff no.1 Company their entire shareholding constituting

              100% shareholding of the plaintiff no.2 ADPL together with the

              goodwill of the plaintiff no.2 ADPL for a consideration of

              Rs.14,25,00,000/-; thus the plaintiff no.2 ADPL became a

              wholly owned subsidiary of the plaintiff no.1 Company;

       (vii) that as part of the aforesaid transaction, the defendants no.1 & 2

              had also undertaken that they shall not engage directly or

              indirectly in any business which competes with the business of

              the plaintiff no.2 ADPL;

CS(OS) No.2504/2013                                                 Page 4 of 51
        (viii) that as part of the aforesaid transaction, the defendants no.1 & 2

              also agreed to enter into Retainership Agreements with the

              plaintiff no.1 Company whereunder the defendants no.1 & 2

              agreed to render their professional services to the plaintiff no.1

              Company for a period of three years starting from 21st January,

              2011 and to devote all their working time and attention to

              provide services to the Company; the defendants no.1&2

              further agreed not to solicit or induce any of the plaintiff

              Companies‟ employees to leave plaintiff Companies and join

              any other employment and to hold all confidential and

              proprietary information in the strictest confidence and not to

              disclose it to any person, firm or corporation or to use the same

              otherwise than in carrying out the work of the two plaintiff

              Companies; the defendants no.1 & 2 had also agreed to

              indemnify the plaintiff Companies;

       (ix)   that in terms of the aforesaid, the defendants no.1 & 2 started

              working with the plaintiff Companies as Chief of Lab and as

              Chief Radiologist respectively at Udaipur;




CS(OS) No.2504/2013                                                  Page 5 of 51
        (x)    that though the defendant no.1 in terms of the above was

              obliged to serve the plaintiffs for three years w.e.f. 21st January,

              2011 but resigned vide letter dated 23rd May, 2013 and the

              plaintiff no.1 Company agreed to relieve him w.e.f. 1st July,

              2013; at that time also, the defendant no.1 submitted an

              undertaking dated 11th June, 2013 reiterating his obligation of

              abstaining    from competing directly or indirectly with the

              plaintiffs, from soliciting the employees of the plaintiffs and

              abiding by the terms of the SPA and the other agreements;

       (xi)   the plaintiffs on 2nd July, 2013 learnt that a new diagnostic

              centre by the name of "Arth Diagnostics" owned by Arth

              Diagnostics Private Ltd. (defendant no.3) and providing the

              same services in the field of medical tests had commenced

              operating in the close vicinity (at 4C, Apex Chamber, behind

              Bharatiya Lok Kala Mandal, Madhuban Colony, Udaipur,

              Rajasthan) of the place where the business aforesaid acquired

              for consideration by the plaintiff no.1 Company was being

              carried on; it was also learnt that the said business was using




CS(OS) No.2504/2013                                                    Page 6 of 51
               identical trademark and trade name "AMOLAK" as well as a

              mark deceptively similar to the plaintiff no.2 ADPL‟s logo;

       (xii) the plaintiffs on making enquiry learnt that the defendant no.1,

              after leaving the employment of the plaintiff Companies on 1st

              July, 2013, had joined the defendant no.3 and that in fact the

              money for setting up of the defendant no.3 had come from the

              bank accounts of the defendants no.1&2 though one Mr.

              Satyendra Singh Panwar who was earlier an employee of the

              plaintiff no.2 ADPL was shown as a shareholder and Director

              of the defendant no.3;

       (xiii) that the defendants no.1 & 2 also started approaching the

              customers, clients and doctors attached to the plaintiffs; and,

       (xiv) the plaintiff no.2 ADPL filed a suit for permanent injunction in

              the Courts at Udaipur for restraining the defendants from using

              the trademark and logo of the plaintiff no.2 ADPL and from

              passing off the business of the defendant no.3 as that of the

              plaintiffs.

3.     The defendant no.1 has contested the suit, by filing a written

statement, inter alia on the grounds:-

CS(OS) No.2504/2013                                                   Page 7 of 51
        (a)    that this Court has no territorial jurisdiction to entertain the suit,

              the entire cause of action pleaded having accrued at Udaipur;

              the plaintiff no.2 ADPL itself had prior to the institution of this

              suit filed the suit aforesaid against the defendants at Udaipur;

       (b)    that this Court is also not the forum conveniens for the present

              suit;

       (c)    that the restraint sought by the plaintiffs against the defendant

              no.1, a Pathologist by profession is a restraint of trade and

              profession and unreasonable;

       (d)    that the terms and conditions if any in the contracts, entitling

              the plaintiffs to do so, are void and contrary to law;

       (e)    that the reliefs claimed in the present suit are against public

              policy and contrary to law;

       (f)    that the defendant no.1 was compelled to leave the employment

              of the plaintiffs owing to the plaintiffs having purported to

              transfer the defendant no.1 to Gurgaon; that the defendant no.1

              owing to the illness of his wife, was / is unable to so shift;

       (g)    that the reliefs claimed in the present suit are an attempt on the

              part of the plaintiffs to create a monopoly;

CS(OS) No.2504/2013                                                     Page 8 of 51
        (h)    denying that the defendant no.1 had financed the setting up of

              the defendant no.3;

       (i)    that the plaintiff no.2 ADPL, before being purchased by the

              plaintiff no.1 Company had been set up and created by the

              defendants no.1 & 2 as an established and reputed lab and

              diagnostic centre in the city of Udaipur with a large customer

              base;

       (j)    that the defendant no.1 had complied with all the terms and

              conditions of his agreements and after the termination of the

              Retainership Agreement w.e.f. 1st July, 2013, stood relieved

              from all his obligations;

       (k)    that any term and condition of the agreements which restrained

              the defendant no.1 from freely practicing his profession

              subsequent to the termination of the Retainership Agreement, is

              contrary to law and void ab-initio;

       (l)    that the plaintiffs had forced the defendant no.1 to leave the

              employment of the plaintiffs under the Retainership Agreement

              since the defendant no.1 had failed to be part of the illegal and

              unethical practices of the plaintiffs;

CS(OS) No.2504/2013                                                 Page 9 of 51
        (m)    denying that he was possessed of any confidential or

              proprietary information of the plaintiffs or had access thereto;

       (n)    that the defendant no.1 had merely loaned some monies to the

              aforesaid Mr. Satyendra Singh Panwar;

       (o)    denying that the defendant no.1 had solicited any patients or

              employees of the plaintiffs; and,

       (p)    that the plaintiffs had indulged in forum shopping after having

              failed to obtain any interim relief in the previously instituted

              suit in the Courts at Udaipur.

4.     The defence taken by the defendant no.2 in his written statement,

though differently worded, is in essence the same as in the written statement

of the defendant no.1 save that the defendant no.2 pleads that he had offered

to resign vide e-mail dated 22nd August, 2013 but which was not accepted

and he continued to work for the plaintiffs for a period of three years as

agreed.

5.     The defendant no.3 has contested the suit by filing a written statement

on the grounds:-

       I.     denying that it had solicited any employees or patients of the

              plaintiffs; however the city of Udaipur has limited number of

CS(OS) No.2504/2013                                                  Page 10 of 51
               experienced pathological professionals available for the

              expanding pathological needs and if any of the doctors, staff or

              patients have switched from the plaintiffs to the defendant no.3,

              they must have done it on their own;

       II.    controverting the valuation of the suit for the purposes of Court

              Fees and jurisdiction;

       III.   that the plaintiffs had earlier moved an application under

              Section 9 of the Arbitration and Conciliation Act, 1996 in this

              Court but had subsequently withdrawn the same to file the

              present suit owing to the involvement of the defendant no.3, not

              a party to the Arbitration Agreement; the said fact had been

              concealed from the plaint; the plaintiffs have thus indulged in

              forum shopping;

       IV.    that no cause of action against the said defendant had accrued to

              the plaintiffs within the territorial jurisdiction of this Court;

       V.     denying that any cause of action had accrued to the plaintiffs

              against the defendant no.3;




CS(OS) No.2504/2013                                                      Page 11 of 51
        VI.    denying that the defendants no.1 & 2 were involved in the

              setting up of the defendant no.3 and / or were involved in the

              business of the defendant no.3; and,

       VII. pleading other defences similar to the defences in the written

              statement of the defendants no.1&2.


6.     The plaintiffs have filed replications to the three written statements.

7.     The plaintiffs, by IA No.20267/2013 seek interim relief on the same

lines as the main relief claimed in the plaint.

8.     The plaintiffs, by IA No.20268/2013 seek leave to sue the defendants

for recovery of damages at a subsequent stage.

9.     The plaintiffs, by IA No.2965/2014 allege violation of the ad interim

order, by the defendant No.2 joining the employment of the defendant no.3

as a Radiologist as published in the newspaper Rajasthan Patrika on 26th

January, 2014.

10.    The defendant no.1 has filed IA No.3848/2014 under Order XXXIX

Rule 4 of the CPC for vacation of the ad interim order.




CS(OS) No.2504/2013                                                   Page 12 of 51
 11.    The defendant no.3 has filed IA No.3849/2014 under Order VII Rule

11 of the CPC for rejection of the plaint on the ground of the same being

devoid of any cause of action.

12.    The defendant no.3 has filed IA No.3850/2014 for deletion of its

name from the array of defendants on the ground of the plaint not disclosing

any cause of action thereagainst.

13.    Needless to state, the replies have been filed to all the aforesaid

applications.

14.    IA No.6146/2014 and IA No.6147/2014 have been filed by the

defendant no.3 for exemption and which are allowed subject to just

exceptions. The counsels have addressed arguments mainly on the

application for interim relief but the discussion thereon would also govern

the outcome of the other applications.

15.    The senior counsel for the plaintiffs,

A.     has drawn attention to:-

       (a) the SPA, particularly to,

                (i)    the nomenclature therein of the defendants no.1 & 2 as

                sellers;


CS(OS) No.2504/2013                                                Page 13 of 51
               (ii)    Clause 2.2.1 thereof, wherein the sale consideration of

              Rs.14,25,00,000/- has been arrived at on the basis of projected

              financials for the year ending 31st March, 2011; and,

              (iii)   Clause 10.4 thereof, being a non-compete covenant and

              to Schedule-J thereof listing the tangible assets sold therein and

              their total valuation of Rs.2.27 crores and has argued that the

              balance approx. Rs.12 crores was for purchase of goodwill;

       (b)    Retainership Agreements executed by both the defendants, to

       serve the plaintiffs for a minimum period of three years and Clause 9

       whereof contains a non-solicitation of employees and clients and non-

       compete covenant;

       (c)    the Non-Disclosure Agreements dated 30th October, 2012, also

       executed by the defendants, agreeing to, during the term of the

       agreement and thereafter, not retain, make copies of, divulge, disclose

       or communicate to any person any of the plaintiffs‟ "Proprietary

       Information" or relating to the plaintiffs‟ business;

       (d)    the undertaking executed by the defendant no.1 on 11th June,

       2013 reiterating the non-solicitation and non-compete covenant;


CS(OS) No.2504/2013                                                   Page 14 of 51
        (e)    the photocopy of a business card of Arth Diagnostics with the

       trademark "AMOLAK" and giving its "New Address";

       (f)    the photocopy of the business card of the defendant no.1, also

       containing the name of Arth Diagnostics and describing him as

       „Chairman & Managing Director‟ and „Chief Pathologist‟ thereof; and

       (g)    the statements of the bank account of Mr.      Satyendra     Singh

       Panwar aforesaid to show receipt of monies from the defendant no.1

       and payment thereof for purchase of the shares of the defendant no.3;

B.     has argued,

       (a)    that the suit filed by the plaintiffs against the defendants in the

       Courts at Udaipur, prior to the institution of the present suit, was only

       for the relief of injunction against infringement of trademark and

       passing off and has with reference to the plaint therein demonstrated

       that the plaintiffs had specifically reserved the right to take action

       separately against the defendants with respect to the SPA;

       (b)     that vide exception to Section 27 of the Indian Contract Act,

       1872 (Contract Act), one who sells the goodwill of a business, may

       agree with the buyer to refrain from carrying on a similar business,


CS(OS) No.2504/2013                                                   Page 15 of 51
        within specified local limits so long as the buyer carries on a like

       business therein provided that such limits appear to the Court

       reasonable, regard being had to the nature of the business;

       (c)    that the defendants, on the contrary have set up a competing

       business at a distance of less than 100 yds. and has in this regard

       invited attention to a snapshot of the Google Maps; and,

C.     has relied on:-

       (i)    Bajranglal Bajaj Vs. The State of Madhya Pradesh

              MANU/MP/0083/1965 - laying down that goodwill cannot be

              sold apart from the business and the sale of business implies the

              sale of goodwill though not expressly mentioned;

       (ii)   Hukmi      Chand     Vs.   Jaipur    Ice    &    Oil    Mills    Co.

              MANU/RH/0036/1980 - where a clause, though in restraint of

              trade, was held to be valid because the defendant on dissolution

              of business had taken his share in the goodwill and it was held

              that the restraint cannot be said to be unreasonable on the

              ground that no time limit is specified as the same is specified in

              the exception itself to Section 27 of the Contract Act i.e. till the

              purchaser of the goodwill carries on a like business;

CS(OS) No.2504/2013                                                    Page 16 of 51
        (iii)   M/s. Gujarat Bottling Co. Ltd. Vs. Coca Cola Company

               MANU/SC/0472/1995, Wipro Ltd. Vs. Beckman Coulter

               International S.A. (2006) 131 DLT 681 and Allied Dunbar

               (Frank Weisinger) Ltd. Vs. Weisinger [1988] I RLR 60, 8 Tr L

               20 - to canvas that a stipulation in a contract which is intended

               for advancement of trade shall not be regarded as being in

               restraint of trade and stands on a different footing as compared

               to an employer - employee contract;

        (iv) Wipro Ltd. (supra) - to contend that non-solicitation clause

               does not amount to a restraint of trade, business or profession

               and would not be hit by Section 27 supra;

       (v)     Sukanya Holdings (P) Ltd. Vs. Jayesh H. Pandya (2003) 5

               SCC 531 and judgment dated 13th September, 2012 of this

               Court in CS(OS) No.2086/2010 titled M/s R.R. Enterprises Vs.

               Garware-Wall Ropes Ltd. - to contend that the remedy of

               arbitration was not open to the plaintiffs as cause of action

               against the defendants no.1 & 2 on the one hand and against the

               defendant no.3 on the other hand could not be bifurcated;




CS(OS) No.2504/2013                                                  Page 17 of 51
        (vi)   V.V. Sivaram Vs. Foseco India Limited MANU/KA/0520/2005

              - to contend that disclosure of confidential information after

              cessation of employment can be restrained;

       (vii) Niranjan Shankar Golikari Vs. Century Spinning and

              Manufacturing Co. Ltd. AIR 1967 SC 1098 - to contend that a

              person may be restrained from carrying on his trade by reason

              of an agreement voluntarily entered into by him with that

              object; and,

       (viii) Connors Bros. Ltd. Vs. Bernard Connors AIR 1940 PC 75 and

              Allied Dunbar (Frank Weisinger) Ltd. (supra) - to contend

              that restrictive covenants in case of sale of goodwill have been

              held to be reasonable.


16.    The counsel for the defendant no.1 has argued:-

       (a)    that Section 27 supra declares every agreement by which

              anyone is restrained from exercising a lawful profession, trade

              or business of any kind to be void to that extent; the exception

              thereto is only with respect to agreements of sale of goodwill of

              business and not qua the sale of goodwill of a profession; the



CS(OS) No.2504/2013                                                 Page 18 of 51
               said exception is not applicable to the sale of goodwill of

              professional practice, as of a doctor;

       (b)    that the defendant no.3 is a juristic person and a corporation

              sole and the defendants no.1&2 are neither its shareholders nor

              directors; merely because they are Consultants in the defendant

              no.3 does not mean that the business of the defendant no.3 is

              the business of the defendants no.1 & 2;

       (c)    that the defendant no.1 moreover is a resident of Jaipur

              (defendant no.2 is admittedly a resident of Udaipur);

       (d)    has drawn attention to LE Passage to India Tours & Travels

              Pvt. Ltd. Vs. Deepak Bhatnagar MANU/DE/0357/2014 where

              a learned Single Judge of this Court held that the exception to

              Section 27, though speaks about the business but does not

              include a profession and that there can be no covenant to sell

              the skills of an individual, as the same is contrary to Section 27

              of the Contract Act;

       (e)    that in the transaction between the plaintiff no.1 on the one

              hand and the defendants no.1 & 2 on the other hand there was

              no sale of goodwill and the valuation of Rs.14.25 crores arrived

CS(OS) No.2504/2013                                                   Page 19 of 51
               at, was on the basis of assets, cash flow and projected earnings

              only;

       (f)    that the defendants no.1 & 2, as part of the aforesaid transaction

              had agreed not to carry on any competing business but had not

              agreed not to carry on their profession as a Pathologist and

              Radiologist respectively;

       (g)    that as far as the restrictive covenants in the Retainership

              Agreements are concerned, they were binding only during the

              term of employment and cannot bind the defendants after they

              left the employment of the plaintiffs;

       (h)    that medical profession is not business;

       (i)    that the plaintiffs have not established any sale of goodwill;

       (j)    that the defendant no.1 is not carrying on any similar business;

       (k)    that the plaintiffs have impleaded the defendant no.3 merely to

              plead a case of the defendants no.1 & 2 carrying on the business

              which they had agreed not to do but have failed to establish that

              the business of the defendant no.3 is of the defendants no.1 &

              2;




CS(OS) No.2504/2013                                                   Page 20 of 51
        (l)    that there is a difference between carrying on business and

              practicing profession; it is for this reason only that two sets of

              agreements i.e. SPA with respect to business and Retainership

              Agreement with respect to professional services were executed;

       (m)    that the money transaction between the defendant no.1 and the

              defendant no.3 is merely of loan and is not a transaction of the

              defendant no.1 investing in the business of the defendant no.3;

       (n)    that the allegations in the plaint are vague, without any

              particulars;

       (o)    that the elements of balance of convenience and irreparable loss

              and injury are also in favour of the defendants;

       (p)    the plaintiffs have not made a prima facie case of having

              suffered any loss owing to any activities of the defendants;

       (q)    that the grant of interim relief to the plaintiffs would amount to

              grant of final relief only;

       (r)    that the plaint is not based on facts but on the basis of beliefs of

              the plaintiffs;




CS(OS) No.2504/2013                                                    Page 21 of 51
        (s)    has relied on:-

              (i)     Dr. M.M. Hassan Vs. T.C. Mohammed AIR 1994

                      Kerala 278 - laying down that the word "business" does

                      not include medical profession;

              (ii)    Percept D' Mark (India) (P) Ltd. Vs. Zaheer Khan

                      (2006) 4 SCC 227 - laying down that post-contractual

                      covenants or restrictions are void under Section 27 of the

                      Contract Act;

              (iii)   M/s. Lalbhai Dalpatbhai & Co. Vs. Chittaranjan

                      Chandulal Pandya AIR 1966 Gujarat 189 where

                      injunction was refused on the ground that if the same

                      were to be granted the result would be that the defendant

                      would be either reduced to idleness and starvation or be

                      compelled to go back in the employment of the plaintiffs;

                      and,

              (iv)    M.P. Electricity Board Vs. Shiv Narayan (2005) 7 SCC

                      283 vide which the question, whether the legal profession

                      is a commercial activity, in the context of charges for the

                      electricity consumed, was referred to a larger Bench.

CS(OS) No.2504/2013                                                   Page 22 of 51
        (t)    that the plaintiffs have not claimed any money for the loss if

              any suffered as yet; and,

       (u)    that the goodwill, even if any purchased by the plaintiffs, was

              protected for 2½ years during which the defendant no.1 has

              remained in the employment of the plaintiffs and the same was

              more than an adequate safeguard.


17.    The counsel for the respondent no.2, while adopting the arguments of

the counsel for the defendant no.1 has argued that the defendant no.2 has

been a resident of Udaipur and has completed his Retainership Agreement

with the plaintiffs and cannot be forced to work with the plaintiffs as would

be the case if injuncted from practicing in Udaipur.

18. The counsel for the defendant no.3 has argued:-

A. that the plaintiffs have no privity with the defendant no.3 and

no cause of action against the defendant no.3;

B. that this Court does not have territorial jurisdiction over the

defendant no.3 whose activities are confined to the city of

Udaipur, Rajasthan;

C. the defendant no.3 has taken a loan of Rs.65 lacs from the State

Bank of India (SBI) for the purposes of its business;

D. that the defendants no.1 & 2 are neither shareholders nor

directors of the defendant no.3;

E. that the plaintiffs cannot enforce the agreements entered into

with the defendants no.1 & 2 against the defendant no.3;

F. that the defendant no.3 cannot be restrained from carrying on its

business;

G. that there is no allegation in the plaint, of any collusion between

the defendants no.1 & 2 on the one hand and the defendant no.3

on the other hand;

H. that the contracts which are sought to be enforced are by their

very nature determinable and / or compensation in money for

breach whereof would be sufficient;

I. has relied on Desiccant Rotors International Pvt. Ltd. Vs.

Bappaditya Sarkar MANU/DE/1215/2009 where injunction to

restrain an ex-employee from joining the employment of a

competitor was denied on the ground that right of livelihood

must prevail;

J. that the defendant no.3 was incorporated on 14th June, 2012 and

took loan aforesaid from SBI on 16th March, 2013; on the

contrary according to the plaintiffs the cause of action for the

suit had accrued on 2nd July, 2013 after the defendant no.1 left

the employment of the plaintiffs on 1st July, 2013;

K. that the plaintiffs have concealed filing of the application under

Section 9 of the Arbitration Act and withdrawal thereof;

L. that the argument of the plaintiffs before the Udaipur Court and

in the proceedings of Section 9 of the Arbitration Act for

piercing the corporate veil of the defendant no.3 had not

succeeded; and,

M. has relied on Dalpat Kumar Vs. Prahlad Singh AIR 1993 SC

276 - on the aspect of balance of convenience.

19. The senior counsel for the plaintiffs, in rejoinder, has argued:-

I. that the judgments relied upon by the counsels for the

defendants relating to employer - employee relationships are

not applicable since the transaction subject matter of the present

suit was of sale of business of a diagnostic centre;

II. has referred to Clauses 6.13 (e), 8.2 and 10.6 to contend that the

representations made by the defendants no.1 & 2 therein are

with respect to sale of business with its assets;

III. with reference to Clause 3.1 read with Schedule-D of the SPA

has contended that the sale was also of all intangible assets

including goodwill;

IV. has with reference to the definition of „Intellectual Property

Assets‟ in the SPA argued that the same also includes goodwill;

V. that since the valuation of tangible assets given in the SPA is of

only Rs.2.27 crores, the remaining sale consideration out of

Rs.14.25 crores necessarily has to be towards the consideration

for intangible assets including goodwill;

VI. has referred to Commissioner of Income Tax, W.B.III Vs.

Chunilal Prabhudas & Co. (Defunct Firm) AIR 1971 Cal 70 -

laying down that goodwill has no separate existence apart from

business;

VII. has relied on Gadakh Yashwantrao Kankarrao Vs. E.V. alias

Balasaheb Vikhe Patil (1994) 1 SCC 682 to show that media

reports were taken into consideration;

VIII. Dr. P. Vadamalayan Vs. The Commissioner of Income Tax,

Madras AIR 1970 Mad 460 and Commissioner of Income Tax

Vs. Upasana Hospital MANU/KE/0242/1996 to contend that

the distinction between business and profession is blurring; and,

IX. has referred to Goyal MG Gases Pvt. Ltd. Vs. Air Liquide

Deutschland GmbH MANU/DE/0098/2005 to contend that the

remedy of arbitration was not available to the plaintiffs.

20. I have weighed the pleadings, the documents and the respective

contentions and am of the considered opinion that a case for interim

injunction restraining the defendants no.1 & 2 from practicing as Pathologist

and Radiologist respectively in the city of Udaipur, whether in their own

name or in association or employment with any other person is made out, for

the reasons hereafter appearing.

21. As far as the aspect of territorial jurisdiction of this Court to entertain

this suit is concerned, the counsel for the defendant no.1, on a specific query

of this Court, had replied that all the documents executed by the parties were

part of one and the same transaction. The counsel for the defendant no.2, as

aforesaid, had adopted the said argument. The plaintiffs and the defendants

no.1 & 2, as part of the said transaction had signed the SPA dated 21st

January, 2011, Retainership Agreements also dated 21st January, 2011 and

Non-Disclosure Agreements dated 30th October, 2012. The SPA though does

not give the place of its execution, is engrossed on a stamp paper issued at

Delhi and the witnesses thereof disclose their residence at Gurgaon and from

which an inference, at this stage, can be drawn to the effect that the

Agreement was executed at Delhi. The Retainership Agreements signed by

the two defendants separately are also executed on a stamp paper issued at

Delhi and expressly state the same to have been executed at New Delhi.

However since both the SPA and the Retainership Agreements are of the

same day and part of the same transaction, it can safely be assumed that the

SPA also was executed at New Delhi. The reliefs claimed in the plaint, it is

not controverted, are emanating therefrom. Even though the defendants no.1

& 2 may be residents of outside Delhi, from having signed the SPA in the

territorial jurisdiction of this Court, a part of cause of action would accrue

here. Not only so, the SPA further provides that all actions, suits,

proceedings arising from or in any way relating to the SPA shall be subject

to the exclusive jurisdiction of Courts in Delhi. Thus at least at this stage it

cannot be said at least qua the defendants no.1 & 2 that this Court has no

territorial jurisdiction.

22. That brings me to the aspect of Section 27 of the Contract Act. The

defendants no.1 & 2, in the SPA had represented, (i) that the plaintiff no.2

ADPL was a closely-held private limited liability company engaged "in the

business of providing diagnostics services including both, pathological and

radiology"; (ii) that they together held 100% of the issued, subscribed and

paid up equity share capital of the plaintiff no.2 ADPL; (iii) that they were

desirous of selling their entire shareholding in the plaintiff no.2 ADPL for a

gross consideration of Rs.14.25 crores; (iv) that the Gross Purchase Price

had been computed on the basis of Audited Financial Statements for the year

ended 31st March, 2010 as well as on their representation that the plaintiff

no.2 ADPL will achieve minimum annual Gross Revenue of

Rs.7,00,00,000/- and an annual Earnings before Interest, Depreciation,

Taxes and Amortization (EBIDTA) of Rs.2,70,00,000/- in the next one year

from the date of the Agreement (with the same being computed without

deduction of the remuneration or consultancy fee of Rs.36,00,000/- payable

to the defendants no.1 & 2); (v) that the plaintiff no.2 ADPL had full power

and authority to utilize the premises, being Bungalow No.2, Plot No.24-C,

Madhuban Colony, Udaipur for carrying on its business and the plaintiff

no.2 ADPL will not be deprived of use of the said premises; (vi) that the

lease of the said premises was subsisting till 8th June, 2013 and they will use

their best endeavours to get the lease renewed for such further period as the

plaintiff no.2 ADPL may require; however if the lease is not renewed, they

will cause Ms. Madhu Kachhawa being a relative of the defendant no.2 Dr.

Rajendra Kachhawa and who is the owner of the first floor of an adjacent

premises, to lease the said premises to the plaintiff no.2 ADPL for a

minimum period of 15 years; (vii) that the SPA will not adversely affect any

contract entered into by the plaintiff no.2 ADPL with any of its customers or

continuance of the contracts with the customers nor will it trigger

termination of contracts entered into by the plaintiff no.2 ADPL with its

customers; (viii) that the plaintiff no.2 ADPL had purchased the business

from Piramal Diagnostic Services Pvt. Ltd. on a Slump Sale basis; and, (ix)

that the persons mentioned in Schedule-G of the SPA were the only

employees of the plaintiff no.2 ADPL and the plaintiff no.2 ADPL had put

in place an appropriate mechanism for ensuring continuation of employment

of the said employees, especially those deemed to be important by the

plaintiff no.1 Company for continuing the operations of the plaintiff no.2

ADPL; the said Schedule-G also contained the names of the defendants no.1

& 2.

23. The defendants no.1 & 2, in the SPA had agreed, (i) that in the event

the plaintiff no.2 ADPL fails to achieve the Target Gross Revenue, the Gross

Purchase Price shall be reduced in the manner provided therein and in the

event the plaintiff no.2 ADPL failed to achieve the Target EBIDTA, the

Gross Purchase Price shall be reduced in the manner provided therein and

that in the event of the plaintiff no.2 ADPL failing to achieve the Target

Gross Revenue and the Target EBIDTA the Gross Purchase Price shall be

reduced in the manner provided therein; (ii) that they "shall not, directly or

indirectly, at any point of time, whether through partnership or as a

shareholder, joint venture partner, collaborator, employee, consultant or

agent or through relative or in any manner whatsoever, whether for profit or

otherwise, carry on any business which competes directly or indirectly with

the whole or any part of the business carried on" by the plaintiff no.2 ADPL

and that they "shall not engage in any business which competes directly or

indirectly" with the plaintiff no.2 ADPL "whether during the continuance of

the agreement for providing their services" to the plaintiff no.2 ADPL "or

thereafter"; (iii) that the aforesaid restrictions are fair and reasonable as to

the subject matter, geographical scope and duration and are reasonably

necessary to protect the interest of the plaintiff no.2 ADPL and the plaintiff

no.1 Company and also to protect the value of the business of the plaintiff

no.2 ADPL; (iv) that the plaintiff no.1 Company would be entitled to

injunctive relief to prevent a breach of the defendants no.1 & 2‟s obligations;

and, (v) that their experience and knowledge will enable them to be

employed gainfully in a business which is not competing with the business

of the plaintiff no.2 ADPL and that injunctive relief will not prevent the

defendants no.1 & 2 from providing for themselves and their family.

24. In the Retainership Agreements also, both the defendants no.1 & 2

agreed that for a period of five years immediately following the termination

of the Retainership Agreement for any reason, they shall not directly or

indirectly undertake any other activity of similar nature so as to give any sort

of competition to the business of the plaintiff no.2 ADPL and that the

plaintiffs may enforce the said Agreement by injunctive relief against them.

25. Section 27 supra makes every agreement by which anyone is

restrained from exercising a profession, trade or business of any kind is void.

The agreements entered into by the two defendants with the plaintiffs, not to

carry on business of the kind which they were till then carrying on through

the medium of plaintiff no.2 ADPL and which business they had vide the

said agreements sold to the plaintiff no.1 Company for a consideration of

Rs.14.25 crores, is certainly such an agreement and would be void

thereunder. The only question for consideration is whether the same falls in

the exception to Section 27. The said aspect would entail decision on, (i)

whether the exception is applicable only to an Agreement of Sale of

goodwill of a „business‟ and would not be applicable to an Agreement of

Sale of goodwill of a „profession‟ and if so what is the distinction between

„business‟ and „profession‟; (ii) whether the subject agreements are an

Agreement of Sale of goodwill; (iii) what is the effect if any of such

agreements not specifying the local limits within which the two defendants

had agreed to refrain from carrying on similar business and whether in the

absence of the agreements specifying such local limits, the Court can specify

the same and if so what would be a reasonable limit, having regard to the

business / profession, goodwill whereof was sold vide the said agreements.

26. Notwithstanding the observations of a Single Judge of this Court in

LE Passage to India Tours & Travels Pvt. Ltd. (supra), I am unable to

accept the proposition that the exception to Section 27 is applicable only to

agreements of sale of goodwill of business and not to agreements of sale of

goodwill of a profession. Though so disagreeing with the view already taken

by the learned Single Judge of this Court, I do not feel the need to refer the

matter to a larger Bench for two reasons. Firstly, a research on the website of

this Court reveals FAO(OS)142/2014 preferred thereagainst to be pending

consideration before a Division Bench of this Court and to be listed next on

13th October, 2014. Secondly, LE Passage to India Tours & Travels Pvt.

Ltd. was a case of sale of business of an inbound travel agent. It was by no

means a case relating to a profession like medicine or law or accountancy or

the like. It is a settled proposition of law that a legal question even if decided

in a judgment, but not arising in the facts of the case and decision whereof

was not necessary, does not constitute a precedent. In fact, the expression

„obiter dictum‟ was defined by M.C. Chagla, C.J. speaking for the Division

Bench of the Bombay High Court in Mohandas Issardas Vs A.N.

Sattanathan AIR 1955 Bom 113 as, an expression of opinion on a point

which is not necessary for the decision of a case or, statements by the way

and it was held that the same does not have the binding weight of the

decision of the case and the reasons for the decision. The Supreme Court in

Ranchhoddas Atmaram Vs. Union of India AIR 1961 SC 935 held that the

question which was never required to be decided even though decided,

cannot be treated as decided. Recently also the Supreme Court in Arun

Kumar Aggarwal Vs. State of Madhya Pradesh AIR 2011 SC 3056 on a

conspectus of the earlier decisions reiterated that a statement in a dicta not

essential to decide the issue in hand does not form part of the judgment of

the Court and has no authoritative value. Mention may also be made of the

judgment of the Full Bench of the Gujarat High Court in Hitesh

Bhanuprasad Soni Vs. Union of India [1989] 66 Comp Cas 744 (Guj)

laying down that what is binding is the ratio of the decision and not the

opinion of the Court on any question which was not required to be decided

in a particular case. It was explained that the same is not binding as a

precedent because the observation was unnecessary for the decision

pronounced. A reading of the judgment in LE Passage to India Tours &

Travels Pvt. Ltd. also does not disclose any discussion on the said aspect. If

carrying on activity as a travel agent is a profession and not a business,

carrying on of any other activity would also not qualify to be carrying on a

business and would be carrying on of a profession only in as much as

carrying on of business in any field / commodity also requires a skill.

27. In my view the meaning of the words, "profession, trade or business"

used in Section 27 is in one context only and the said words have to be read

ejusdem generis, and not as carving out any distinction between profession,

trade and business. The heading of the Section in fact describes it only as

"Agreement in restraint of trade, void" and does not even use the three

expressions as would have been the case had the legislature intended the

same to be conveying separate meanings or to treat them separately. The

Supreme Court in Raichurmatham Prabhakar Vs. Rawatmal Dugar (2004)

4 SCC 766, while holding that heading or the title of a Section has a role,

though limited, in construction of statutes, observed that the heading or the

title of a Section may be taken as very broad and general indicators of the

nature of the subject-matter dealt with thereunder and as a condensed name

assigned to indicate collectively the characteristics of the subject-matter

dealt with underneath; though the name would always be brief having its

own limitations. Again, though the heading of the Section uses only the

expression "trade" and not the expressions "business" or "profession", the

heading of the exception to the Section namely "Saving of agreement not to

carry on business of which goodwill is sold" uses only the expression

"business" and not even the expression "trade". It will be incongruous to

hold that while the heading of the main body of Section is with respect to

three things, the heading of the exception thereto is with respect to one only

of those three things. The Supreme Court, in Alloy Steel Project Vs. The

Workmen (1971) 1 SCC 536, while interpreting Section 3 of the Payment of

Bonus Act, 1965, held that it would be a strange method of construction of

language to hold that „establishment‟ referred to in the main part of the

Section will include all different departments, undertakings and branches of

a Company, while it will not do so in the proviso to the same Section and

that such different meanings in the same Section in respect of the same

words or expression cannot be accepted.

28. The counsels, besides LE Passage to India Tours & Travels Pvt. Ltd.

have not cited any other judgment on the said aspect. My research also has

not unearthed any case in which such contention may have been taken or

adjudicated upon; rather in all cases, all the three expressions are found to

have been used in one breath only, again conveying an impression that the

same are not intended to convey different meanings so as to make a

profession different from trade or business or trade different from profession

or business or business different from profession and trade. I have also

considered that even if the three expressions were intended to have different

connotations, whether there could be any reason for carving out an exception

in the matter of sale of goodwill of business only and not carving out such an

exception to sale of goodwill of trade or profession. There is no indication

for the same in the statute and I have not been able to think of any. No

distinction, in my view, can be carved out between the consequences of sale

of a goodwill of a business from that of sale of goodwill of a profession. The

best example of the same can be given from LE Passage to India Tours &

Travels Pvt. Ltd. itself, where the opinion that the exception relates to sale

of goodwill of business and not to sale of goodwill of a profession came to

be given in the context of sale of goodwill of an activity of travel agent,

treating the same to be involving a skill. It would be a great affront and

injustice to tradesmen and businessmen to say that they carry on their

respective activities without being possessed of any skill or that their skill is

any less than that of a person who may claim himself to be a professional

instead of a tradesman or a businessman. Moreover though at the time of

enactment of the Indian Contract Act, 1872, the skill required and demanded

for carrying on trade and business may have been much less than the skill

required to practice the profession as of a lawyer or a doctor or an

accountant but the same, with trade and business in the fields, say of

electronics and information technology having developed, no longer holds

good. Today, admissions to a Bachelor and Master of Business

Administration Educational Programmes / Courses are no less tougher than

admissions to Law Schools or Medical Schools.

29. The Supreme Court in S. Mohan Lal Vs. R. Kondiah (1979) 2 SCC

616, concerned with the provision of the Andhra Pradesh Buildings (Lease

Rent and Eviction) Control Act, 1960 permitting the landlord to seek

eviction of the tenant if proved to be requiring the premises for the purpose

of his business and faced with the question whether an Advocate could seek

eviction on the said ground for the purpose of his profession, observed that

business is a common expression which is sometimes used by itself in a

collocation of words as in "business, trade or profession". Of course, the

High Court of Kerala in Dr. M.M. Hassan (supra) cited by the counsel for

the defendant no. 1 did not consider itself to be bound by the said dicta of

the Supreme Court, observing that the word used in the Andhra Act was

business alone while the words used in the Kerala Act were "trade or

business" and held that the expression "trade or business" would not include

a profession. However, what is relevant for us is the observation of the

Supreme Court that the word business and the collocation of words

"business, trade or profession" are used interchangeably. I may add that the

Monopolies and Restrictive Trade Practices Act, 1969 and its successor

legislation namely the Competition Act, 2002 both define trade inter alia as

meaning business, profession or occupation relating inter alia to provision of

any services. Similarly, the Indian Partnership Act, 1932 also defines

business as including trade and profession. The Division Bench of this Court

also in Institute of Chartered Accountants of India Vs. Director General of

Income Tax (Exemptions) (2012) 347 ITR 99 cited with approval

Christopher Barker and Sons Vs. IRC [1919] 2 KB 222 holding "All

professions are businesses, but all businesses are not professions".

30. The nature of the profession has also over the years undergone a

change, as would be quite evident from the activities of the defendants

no.1&2 themselves. The defendants no.1&2, though qualified to practice the

profession of medicine, as would be evident from the aforesaid narrative,

were carrying on an organized activity intended for profit and; though the

value of the tangible assets of said activity was only Rs.2.27 crores but the

said activity, called by the defendants no.1 & 2 themselves as „business‟ was

sold as a „going concern‟ for a price nearly seven times thereof. It can hardly

be said that the activities of the defendants no.1&2 were without any profit

motive. Though the professions such as law and medicine may in earlier

times have been practiced, at least in this country, without any organized

activity and merely on the basis of the practitioners own acumen but the

same can no longer be said to be true of today when we have, at least in the

metropolitan cities, a number of say lawyers associating together to form a

firm or an association to provide services to the clients having work

spanning before ever increasing courts (with bifurcation) and tribunals and

other foras. Today in my view, it is neither possible nor correct to carve out

a distinction labeling an activity of a lawyer, if working alone, as a

profession and of a lawyer if part of a group, as a business. The same can be

said to be true of the medical profession also, with large hospitals and

nursing homes and clinics entering the healthcare activity. The Division

bench of this Court in Vipul Medcorp TPA Pvt. Ltd. Vs. Central Board of

Direct Taxes 183 (2011) DLT 580 rejecting the contention that tax was not

required to be deducted at source when the payment was made to a corporate

hospital which being an artificial person could not render professional

services and was in fact carrying on business, held that the reality that

services in the field of medicine are not confined and rendered by

individuals but in most cases rendered in hospitals which may be corporate

or juristic entities, cannot be ignored.

31. I find the Privy Council as far back in Noel Charles Minchin Home

Vs. John Charles Edward Douglas MANU/PR/0074/1912 to have held an

agreement not to practice the profession of law at a particular place and for a

reasonable time to be valid, though not on the anvil of Section 27.

32. I therefore conclude that the rigors of Section 27 are equally

applicable to any activity whether it be profession or a trade or a business

and similarly the exception thereto is also applicable to the sale of goodwill

of any activity whether labelled as a business or a trade or as a profession. I

also hold that there is no reason to, qua the applicability of Section 27 and

exception thereto, discriminate between a business or a trade on the one

hand and a profession on the other hand.

33. Alternatively, even if it were to be held that the exception to Section

27 is applicable only to sale of goodwill of a business and not to sale of

goodwill of a profession, I also hold that the activity being carried on by the

defendants no.1 & 2 through the medium of the plaintiff no.1 ADPL was

definitely a business as admitted by them in the SPA also and was not a

profession. The defendants no.1 & 2 in the agreement, executed by them for

consideration, having described the said activity as a business, cannot now

be permitted to contend the same to be an agreement relating to profession.

34. Before leaving the said subject I may deal with another aspect. The

counsels for the defendants during the arguments sought to carve out a

difference between the activities of the defendants no.1 & 2 as shareholders

and directors of the plaintiff no.2 ADPL and as doctors. The said distinction

also in my view is illusory. A business as that of the plaintiff no.2 ADPL i.e.

of providing diagnostics services in the field of medicine / healthcare is not

dependent upon trading in any goods or commodities but on the professional

skills of the doctors providing the said services. It cannot be said that the

defendants no.1 & 2 were wearing separate hats, while carrying out the

medical tests and while collecting payments therefor. Thus if the agreement

entered into by them is found to fall in the exception to Section 27, their

agreement to refrain from doing the same business would be deemed to be,

not to carry on the same activity which they were earlier carrying on, neither

on an individual basis nor as an employee of any other company or juristic

entity providing such services or in any other manner.

35. A business such as of providing diagnostic services, besides of course

being dependent upon machines and equipment for carrying out the tests, is

dependent again on the acumen of the doctors operating and reading the said

machines and equipment. A better radiologist is always able to detect, say a

fracture, in the same X-ray in which others have missed. It is more so

applicable to reading and interpretation of other more complicated views

and analysis appearing of human organs and their excretions and contents.

36. Thus if a doctor carrying on his profession in an organized manner so

as to qualify to be a business would agree to sell the said business and to

refrain from carrying on similar business, he cannot be heard to say that he

has agreed to refrain from carrying on such organized activity but is not to

be injuncted from setting up shop next door, to render the same services as a

professional. The patients in whom the said doctor has inculcated faith over

a period of time and built a goodwill which he has sold, would still, on

seeing the same doctor, flock to him rather than to his erstwhile seat. The

patients are primarily attracted to skills of a doctor or a lawyer and not to the

office premises which that doctor or lawyer occupies.

37. Though the documents executed at the time of transaction though of

sale and purchase of shares only, but leave no manner of doubt that they are

of sale of goodwill also. The goodwill of a business, as that of a diagnostic

centre, is the reputation built by it over the years of accurate results on the

basis of which the patient / consumer is able to receive appropriate treatment

and recover early from the ailment. Such accuracy is dependent upon the

quality of the machines and other equipments to conduct the test as well as

the efficiency and skill of the paramedical staff operating the said machines

and equipments and the doctors reporting thereon. The consumers/customers

of such a diagnostic centre are not likely to immediately come to know of

change of management of the company owning the diagnostic centre and,

finding familiar faces and receiving satisfactory results as before, may

continue going there even if subsequently come to know of change of

management. The clauses in the agreement whereunder the defendants no.1

& 2 assured and represented as sellers to the plaintiff no.1 purchaser that the

consumers i.e. the patients and the employees and doctors would remain

unaffected and the plaintiff no.1 Company would also be assured use of the

place where the said diagnostic centre had been running for the past several

years, are all indicative of the intent and agreement of the parties to provide

a transition period to ensure continuity of footfalls in the said centre and

upon which the generation of revenue therefrom was dependent, to enable

the plaintiff no.1 Company to take hold of the business. As part of the same,

the defendants no.1 & 2 also agreed to serve the said diagnostic centre as

retainers for a period of at least three years. If the defendants no.1 & 2, after

the said three years or even prior thereto were to set up another diagnostic

centre in close vicinity as they have done, the possibility of the patients /

consumers shifting their loyalties to the new diagnostic centre set up by the

defendants no.1 & 2 or to a diagnostic centre with which they were

associated and it is for this reason only that the plaintiff no.1 Company had

insisted and the defendants no.1 & 2 had agreed not to carry on the said

activity. Once the case is found to fall within the exception to Section 27, the

said agreement would not be void and the plaintiff no.1 Company would be

entitled to enforce the same.

38. In my view, it matters not whether the local limits within which the

defendants no.1 & 2 had so agreed to refrain themselves, are specified or not

in as much as whether the said local limits are reasonable or not is for the

Court to adjudicate. Even if the defendants, while so agreeing have not

specified the local limits, the Court can always define the said local limits. In

fact the senior counsel for the plaintiffs had fairly stated that the plaintiffs

are concerned with the defendants carrying on the said activity in the city of

Udaipur only and the defendants are free to carry on the said activity

anywhere else in the country. In fact as far as the said limit of the city of

Udaipur is concerned, the defendants rather than contending that the same

would be too wide, have themselves pleaded and argued that the city of

Udaipur and its growing demands and the limited numbers of professionals

has the tendency of leading to monopoly. Thus it cannot be said that the

limits of the city of Udaipur would be unreasonable to so restrain the

defendants.

39. Though, vide exception to Section 27 the defendants are to be

restrained for so long as the plaintiff no.1 as buyer carries on business in

Udaipur, but I find the parties to have in the Retainership Agreements which

is part and parcel of the same transaction as the SPA, to have provided a

limit of five years only from the expiry of the Retainership Agreement the

life whereof was for a period of three years i.e. from 21st January, 2011 to

21st January, 2014. Though the SPA does not contain any such limitation but

the plaintiff no.1 Company having provided the said limitation of five years

in the Retainership Agreement, is to be bound by the same. I am therefore of

the view that the restriction on the defendants no.1 & 2 for a period of five

years from the expiry of the Retainership Agreement would be reasonable.

Accordingly, the defendants no.1 & 2 are to be so restrained from rendering

services as they were rendering through the medium of the plaintiff no.2

ADPL, till 21st January, 2019.

40. In so far as the pleas of the defendant no.3, of this Court having no

territorial jurisdiction against it and the plaint not disclosing any cause of

action against it and its name being liable to be deleted, are concerned, the

case with which the plaintiffs have approached this Court is of the defendant

no.3 being a front of the defendants no.1 & 2. The payments admittedly

made by the defendants no.1 & 2 to Mr. Satyendra Singh Panwar at about

the contemporaneous time are sufficient to hold that the said case of the

plaintiffs cannot be thrown out as bogus at this preliminary stage and is

required to be put to trial. This Court having been found to have territorial

jurisdiction to entertain the suit against the defendants no.1 & 2, would

axiomatically have territorial jurisdiction to entertain the suit against the

defendant no.3 also which is alleged to be alter ego of the defendants no.1 &

2. The doctrine of piercing the corporate veil is certainly applicable where

case of fraud and deceit is made out. If indeed it is found that the defendant

no.3 is an enterprise of the defendants no.1 & 2 only, it would certainly be a

case for piercing of corporate veil.

41. Today, India is putting full thrust to developing its economy and to

transition from a developing to a developed nation status. The present as

well as the last several governments have been in this regard making

attempts to invite multinational and other foreign corporations to invest in

the country. Mergers, acquisitions, takeover of running / growing business

so as to have a foot-hold in the country are well known modes of such

investments. We already have international health providers in the field of

dentistry setting base in the country including by acquisition of some Indian

dentistry practices. Such non-compete clauses are an essential part of such

mergers and acquisitions, to ensure the success thereof. If the Courts today

were to take a view that such clauses are non-enforceable, the same in my

view would be a serious impediment and run counter to the thrust on inviting

such investments. The Supreme Court in Union of India Vs. Raghubir

Singh (1989) 2 SCC 754 held that the doctrine of binding precedent is

circumscribed in its governance by perceptible limitations, limitations

arising by reference to the need for readjustment in a changing society, a

readjustment of legal norms demanded by a changed social context and

changing social, economic and technological conditions. It was further held

that it is the profound responsibility of the Court to recognize that the times

are changing and that there is occasion for a new jurisprudence to take birth.

The same thought was echoed in State of Punjab Vs. Amritsar Beverages

Ltd. (2006) 7 SCC 607. A Division Bench of this Court in Rohit Shekhar

Vs. Narayan Dutt Tiwari AIR 2012 Delhi 151 held that the the language of

a statute though necessarily embedded in its own time, is nevertheless to be

construed in accordance with the need to treat it as a current law.

42. Of course the defendant no.3, till a case for piercing the corporate veil

is established and proved, cannot be injuncted from providing the services.

However, the defendants no.1 & 2 can always be injuncted from associating

themselves in any manner whatsoever with the defendant no.3.

43. As far as the argument, of the plaintiffs creating a monopoly is

concerned, the defendants have separate forums available for the same.

Moreover this is only a interim stage.

44. Accordingly:-

(i) IA No.20267/2013 of the plaintiffs is allowed to the extent that the defendants no.1 & 2, till 21st January, 2019 are restrained from carrying on practice / business / profession as a Pathologist or as a Radiologist in the city of Udaipur in any manner whatsoever including by providing consultancy services or by associating with any other person or body providing such services;

(ii) The application being IA No.20268/2013 of the plaintiffs under Order II Rule 2 CPC is allowed and the plaintiffs are granted permission to sue the defendants separately for the relief of damages;