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Judgment
K. Sampath, J.—The suit C.S.No. 802/96 is for recovery of 616,922.64 U.S. Dollars equivalent to approximately Rs. 2,22,10,000/-
calculated at the rate of 1 U.S. Dollar = Rs. 36/- on the date of the filing of the suit, for a permanent injunction restraining the respondents, their
directors, partners, servants, agents, distributors, stockists, representatives, assigns or any of them or by directly or indirectly entering into an
agreement with any other hotel using the proprietary information and date, intellectual property, the Holiday Inn System and other inputs of the
applicants, a decree for permanent prohibitory injunction restraining the respondents, their directors, partners, servants, agents, etc. or any of them
from transferring, finalising, completing, furnishing and or operating any hotel other than the proposed hotel at Mount View, No. 1, G.S.T. Road,
Guindy, Madras, a decree for permanent prohibitory injunction restraining the respondents jointly and severally, their directors, partners, etc. or
any of them from passing off and/or enabling others to pass off their business and/or hotel as and for the applicant''s business and hotel by use of
the name/trading style of Holiday Inn Crowne Plaza or any other name or trading style similar thereto, for an award pendente lite and future interest
to the applicant and against the respondents jointly and severally on the decreed amount at the rate of 1.5% per month being the agreed rate of
interest and for the costs of the suit. Pending suit interim applications have been filed. O.A. No. 653/96 is for the issue of an interim prohibitory
temporary injunction restraining the respondents jointly and severally their directors, partners, etc. from using or converting to use the proprietary
information and technology of the applicant comprised in
(a) the Holiday Inn System.
(b) the hotel plans regarding out lay, facilities, planning, architectural and technical drawings, and
(c) any relevant recommendations, advice or information which was made available by the applicant to the respondents including those regarding
interior fit out, hotel computer system and information technology, room reservation technology and facilities, standards, manual, etc., during the
pendency of the present suit for finalising, completing and furnishing and/or operating a hotel at Mount View, No. 1, G.S.T. Road, Madras.
O.A.No. 654/96 has been filed for an interim prohibitory temporary injunction restraining the respondents jointly and severally, their directors,
etc. from transferring, alienating or creating any interest in favour of any third party directly or indirectly in the proposed hotel at Mount View No.
1, G.S.T. Road, Guindy, Madras, in the property as set out in Annexure-A.
O.A.No. 104/97 is for the issue of an interim prohibitory temporary injunction restraining the respondents and Appu Hotels Limited jointly and
severally, their directors, partners, servants, etc. from commissioning and operation of the hotel at the schedule mentioned property and directing
them to maintain the status quo during the pendency of the suit.
A.No. 1464/97 is for the appointment of an Advocate Commissioner alongwith an Architect Civil Engineer to visit the various premises of the
respondents or their Architects, interior designers, other contractors at No. 1, G.S.T. Road, Guindy, Madras-32, and No. 1 Venus Colony, 29
Alwarpet, Madras, and inspect and verify the construction as well as the plans, designs, drawings, details and other documents relating to the hotel
to ascertain the extent to which the superstructure, internal structure, interior decoration, layout, designs, facilities, fit outs, plans for furnishings,
finishing, etc. of the hotel are passed on/the incorporate inputs, designs, details, common reports, etc. of the schedule contained in the standard
manual as well as in various documents filed on record and/are found at the said premises, submit a report thereon at the earliest possible date and
to direct the respondents to provide all relevant and necessary assistance to the Court Commissioner in executing the commission expedited.
The case as set out in the plaint is as follows:
The plaintiff, a company incorporated under the laws of Netherlands having its office at Hoekenrode 6, 1102 BR, Amsterdam, Quid-Oost,
Netherlands, has acquired rights, title and interest in certain trade marks, service marks and other intellectual property assets (including confidential
and proprietary commercial information) of Holiday Inns Incorporated and its associate companies. The plaintiff has been entitled to use and
license and has been using and licensing the various trade marks, service marks and other intellectual property rights and assets in several countries
of North America. There were discussions between the plaintiff and the second defendant, who is the Chairman of the first defendant, which is a
public limited company incorporated under the Indian Companies Act, 1956 for among other things, establishing and running hotel business for
technical collaboration to enable defendants 1 and 2 to construct, complete, furnish, commission and operate a five star hotel under the name and
style of Holiday Inn Crowne Plaza-Madras Hotel at Mount View, 1, GST Road, Madras (hereinafter referred to as the proposed hotel). Pursuant
to this, from time to time since June, 1992 the plaintiff provided defendants 1 and 2 with various proprietary, confidential and commercially
valuable information, know-how, designs, details, standards, etc. The plaintiff also participated in various reviews at Madras and overseas of the
proposed design, planning, layout, room, facilities, specifications, etc., of the proposed hotel. The same was recorded in a written agreement dated
August 17, 1993 (hereinafter referred to as the agreement). Such information was all subject to the confidentiality obligations incorporated as a
negative covenant. Time was agreed to be the essence of the new development agreement.
On the basic of the various inputs and contents of the Holiday Inn''s Standards Manual, after modifications, revised plans were submitted by
defendants 1 and 2 in April, 1993 and approved in May, 1993. Various approvals (from Reserve Bank of India, Loans, Rating as a five star hotel,
etc.) were obtained for a hotel by defendants 1 and 2 representing that it was to be constructed and operated under a technical collaboration with
the plaintiff. Various contracts were also entered into by defendants 1 and 2 for planning, designing and construction of PGP-Holiday Inn Crowne
Plaza Hotel as per Holiday Inn''s standards and specifications, particularly in respect of;
(i) turn-key architectural, civil/structural and all utility systems,
(ii) interior design, consultancy service,
(iii) general design approval co-ordination of all aspects, and
(iv) construction.
The foundation was excavated prior to the signing of the agreement. Rest of the construction was undertaken and completed in accordance with
the approvals and contracts subsequent to the agreement.
The first defendant acknowledged that the system including all improvements and additions made by the first defendant was exclusively owned
by the plaintiff which had the sole right to grant licences for use of all or any elements thereof. It was also agreed that a party''s failure to insist upon
strict performance of any provision or failure to exercise any option/right will not constitute a waiver or relinquishment thereof and either party
could waive or give up only in writing.
The salient features of the agreement are as follows:
(i) It came into effect and become enforceable upon execution by the plaintiff.
(ii) The agreement and any licence granted under it was agreed to expire upon prior written notice of ten years from the date on which the plaintiff
authorised defendants 1 and 2 to commence use of the system at the hotel to open and operate a Holiday Inn Hotel. If not terminated, the term will
automatically get extended by a further ten year period.
(iii) For effective termination of the agreement written notice had to be issued not more than 18 months and not less than 12 months before the last
day of the ten year period.
(iv) The first defendant would be entitled to elect to terminate the agreement at any time provided it gave the plaintiff written notice thereof at least
24 months before the termination date so selected accompanied by a lump-sum payment for the notice period subject to minimum of U.S. $
50,000 per year. The notice period for mid-term termination would commence from the date of payment of the notice money.
(v) In case, the construction of the hotel is not completed and the hotel is not furnished, equipped and otherwise made ready for opening for
business in accordance with the agreement by 31st December, 1995, the plaintiff had the right to terminate the agreement without liability.
Defendants 1 and 2 had represented to the plaintiff that the site at Mount View, No. 1, G.S.T. Road, Guindy, Madras, was owned by the first
defendant and it was entitled to the possession of the hotel during the entire licence term without restrictions and that the first defendant was owned
by the second defendant.
As per the terms of the agreement, the first defendant had to construct the hotel according to the plans approved by the plaintiff and to strictly
comply with the Manual, standards, specifications, etc. of the plaintiff, to make all efforts to maximise the gross revenue generated at the hotel, to
ensure that during the licence term, no part of the hotel or the system was used to further or promote a competing business, to protect, maintain
and promote the Hotel Holiday Inn and its special characteristics, to treat as confidential, proprietary and secret, the System, the Manual and all of
the information, documentation or other descriptive literature provided by or through the plaintiff and by a negative covenant, to prevent the
disclosure of the System, to retain at all time and exercise direct management control over the hotel''s business and by a negative covenant not to
enter into any lease/management agreement/other similar arrangements for the operation of the hotel or any part there of without prior written
consent of the plaintiff, to notify the plaintiff about any proposed transfer of the hotel outside the Holiday Inn System to secure the right of first
refusal to the plaintiff and to take all necessary action to assure that no use was made of any part of the System at or in connection with the hotel
after the agreement or the licence term ends, including physical changes of distinctive System features of the hotel down to the structural steel.
Defendants 1 and 2 failed and neglected to complete the hotel by 31-12-1995, thus, preventing the plaintiff from granting the licence to them to
use the Holiday Inn System for operating the hotel. On 10-2-1996 the second defendant wrote a letter on behalf of the first defendant purporting
to terminate the agreement stating that the new development agreement between the parties stood ""terminated from today"". The letter further stated
that ""we would be glad if you can refund to us US $ 20,000 paid to you."" Thus, defendants 1 and 2 had not complied with the pre-conditions
imposed by section 15 (a) of the agreement. The efforts made by the plaintiff were of no avail as defendants 1 and 2 maintained that the
termination was final and justified since the licence was never granted and as such, the agreement worked itself out. This has necessitated the filing
of the present suit and the various applications for interim relief''s as already set out.
All along defendants 1 and 2 had been negotiating and finalising a Consultancy & Operating Agreement with the plaintiff''s competitor, at the
same time availing the various confidential and proprietary inputs from the plaintiff under the agreement.
During the pendency of the suit, the first defendant got amalgamated with the third defendant and the third defendant was arrayed as a party
pursuant to an order dated 11-3-1997.
Only from the counter affidavit dated 25-2-1997 the plaintiff discovered that on the one hand the second defendant had issued the terminated
notice and on the other he had been negotiating through his company, the third defendant, and entered into an agreement with Hilton International,
a competitor of the plaintiff. The defendants are guilty of not honouring their contractual obligations under the agreement including the negative
covenants. The defendants had acted in a carefully planned design to subvert and defeat the legal and contractual rights of the plaintiff.
The case of the defendants as set out in the counters is as follows:-
The whole thing depends on the interpretation of clauses 6 and 15 of the agreement. The ownership of the Holiday Inn System by the plaintiff ''is
not disputed. The defendants will not use the Holiday Inn System and any proprietary and confidential information of Holiday Inn in the running of
the hotel, since they have got their arrangement with Hilton International. The third defendant by reason of the merger with the first defendant,
stepped into the shoes of the first defendant and become liable for all obligations of the first defendant including the ones covered under the
agreement. Their further case is that the agreement had worked itself out, since the hotel had not been completed on 31-12-1995. The termination
was valid. Clause 15 (a) was not applicable to the termination notice and it came into operation after the commencement of the hotel/licence term.
The relief of injunction cannot be granted as the party affected has to elect its course of action either to seek specific performance or to seek
compensation by way of damages. The plaintiff in the instant case has elected to claim damages and it cannot therefore ask for specific
performance by way of injunctive relief when it has not pleaded that the agreement subsisted nor had it asked for a declaration in those terms.
Having quantified its claim for damages, prayers for permanent and interlocutory injunctions are not maintainable. The negative covenants and the
contractual obligations sought to be enforced by the plaintiff are not in force or operation as the licence term has not commenced. The prayer in O.
A. No. 104/97 is beyond the scope of the prayers in the plaint as well as infructuous, since the third defendant entered into the Consultancy and
Operation Agreement dated 10-2-1996 with Hilton International prior to the suit. There could, therefore, be no injunction. There is no prima facie
case, balance of convenience or irreparable loss or harm. Fraud has not been pleaded in the plaint and as such it cannot be the basic for grant of
any interlocutory relief to the plaintiff against the defendants. Conduct of the parties is relevant only to ascertain whether a party has come before
the Court with clean hands. The defendants have come to Court with clean hands.
The learned Counsel besides arguing the matter elaborately, also submitted written arguments.
The point for determination in the instant case is whether the plaintiff is entitled to the relief''s prayed for in the various injunction petitions. By
consent the documents filed by the parties have been marked as Exs. P-1 to P-81 and Exs. D-1 to D-22.
The plaintiff wants to restrain the defendants from commissioning and operating the hotel at the site pursuant to their arrangement with Hilton
International or any party other than the plaintiff. It is submitted on behalf of the plaintiff by Mr. Habibullah Basha, learned Senior Counsel, as
follow:-
The second defendant approached the plaintiff for entering into technical collaboration and the parties reached in principle agreement in this regard
and the second defendant used the name, reputation and goodwill of the plaintiff and obtained various approvals, sanctions and contracts in the
name of the defendants such as R.B.I. Approvals for technical collaboration with the plaintiff, application for grant of loan of Rs. 22 crores to the
third defendant (a hundred per cent subsidiary of defendant No. 1 an a part of PGP Group of Companies) for a new five star deluxe hotel project
to be implemented in collaboration with Holiday Inn for franchise/marketing and for technical consultancy during construction. The overall plan
evaluation, interiors concept preliminary scheme and service internal layouts had commenced and civil works, electrical, plant and machinery
installation, interior decoration, etc. were yet to commence. The proposed full commissioning of the hotel was stated to be in April, 1995.
Department of Tourism approval and Cantonment Board approval was for 280 rooms, but to meet the Holiday Inn requirements, the room size
had been increased and major remodelling undertaken. Agreements were entered into by and between defendant No. 3 as a subsidiary of
defendant No. 1 for PGP Holiday Inn Crowne Plaza Hotel requiring performance consistent with the latest Holiday Inn Crowne Plaza world-wide
standards as set out in the guidelines and specifications in Annexure-I respectively:
(a) Dated 18-2-1993 with M & A International Limited, USA for turnkey architectural civil/structural and utility systems;
(b) Dated 14-3-1993 with Pendse & Associates for interior design consultancy services;
(c) Dated 31-3-1993 with N.G. George & Associates for Architect on Record for Design Approvals Co-ordination throughout the Project;
(d) Dated 1-3-1993 with CHS Planning & Design Corporation for interior design services. Holiday Inn were a part of the project team and the
approval process were to review the contract documents.
On the representations of the defendants, the plaintiff delivered in trust to the defendants various proprietary information and data collected and
refined by the Holiday Inn evolved over the past 45 years world-wide to build the distinctiveness in the facilities, services and standards maintained
by Holiday Inn hotels. Varied literature and manuals including the updated versions of the Holiday Inn Standards Manual were given by the plaintiff
to the defendants to enable them to commence preparation of plans, designs, layouts, details, etc. of the hotel commensurate with and in
accordance with the Holiday Inn Standards. The plaintiff also undertook several trips to Madras and other places for finalising the plans, designs,
lay-outs, details, etc. of the hotel. All along the plaintiff was given to understand that the agreement would be entered into with the third defendant.
At the request of the defendants dated 8-6-1993, the agreement for new development of the hotel was executed on 17-8-1993 by the plaintiff
with the first defendant as the proposed licensee and the second defendant as the guarantor. Defendants 1 and 2 had represented that the third
defendant would be merged with the first defendant through an approved tie of amalgamation process. Several important obligations including
negative stipulations are set out in the various sections of the agreement, the prime ones being sections 4, 4(n), 6, 10, 12, 13-B, 13-H, 13-J, 15,
16 and 20. The hotel was to be completed and made ready for functioning as a Holiday Inn Crowne Plaza Hotel by the defendants by or before
31-12-1995 utilizing the various inputs of the plaintiff. Thereafter, the plaintiff was to grant a licence to the defendants to use the Holiday Inn
System in running the hotel. The parties commenced performance of their contractual obligations and the defendants had no complaint against the
plaintiff. The defendants failed and neglected to complete the hotel by 31-12-1995, thus preventing the plaintiff from granting the licence to the
defendants to use the Holiday Inn System for operating the hotel. The plaintiff had all along refuted and disputed the purported termination dated
10-2-1996 and its validity and offered to continue performance of the agreement. The efforts made by the plaintiff to persuade the defendants to
start performing were of no avail and the defendants attempted to maintain that the purported termination was final and since the licence was never
granted, the agreement had worked itself out.
The learned Senior Counsel submitted that defendants 2 and 3 continued to be obliged to honour the contractual and legal obligations arising
out of the agreement dated 17-8-1993 even after the amalgamation of the first defendant into the third defendant is complete. In this connection
reliance is placed on the contents of the Amalgamation Petition by the learned Senior Counsel, particularly paragraphs 5(a) to (c), contents of the
Amalgamation Scheme, particularly paragraphs 4, 5, 6 and 7, the contents of paragraphs 5 and 8 of the order passed by this Court and also the
decision of the Supreme Court in Bhagwan Dass Chopra Vs. United Bank of India and Others,
It is the further submission of the learned Senior Counsel that the termination notice dated 10-2-1996 (Ex. P-4 issued by the second defendant
in the name of the first defendant is invalid, illegal and bad in law since in a commercial contract for a fixed term like the agreement dated 17-8-
1993, a party is entitled to terminate the contract only in strict compliance with the termination clause. The contractual obligations continued to
subsist against the defendants. In support of his submission, the learned senior Counsel placed reliance on sections 15 and 20 of the agreement,
termination notice dated 10-2-1996, and the decision of the Punjab High Court in Firm Sohan Lal Arjun Dass Vs. Firm Banwari Lal Vishwa Nath
(AIR 1960 Punjab 549), extracts from Halsbury''s Laws of England Volume IX, 4th Edition paragraphs 529 to 532 and the extracts from J.W.
Carter''s treatise on Breach of Contract, Second Edition, paragraphs 1010 to 1024.
The learned senior Counsel further submitted that the negative stipulation/covenants in the agreements dated 17-8-1993 must be enforced
against the defendants u/s 42 of the Specific Relief Act, 1963. In granting the injunctions prayed for and considering the defendants'' prayer, the
Court has to consider the bona fides and conduct of the parties. Since, the third defendant has been an instrumentality of the second defendant and
a subsidiary of the first defendant and since the agreement dated 17-8-1993 was all along negotiated with the third defendant, the third defendant
in entering into the Hilton Agreement on 10-2-1996 was not nothing bona fide, but as a part of the defendants'' ploy to defeat the plaintiff''s
valuable, legal and contractual rights. In any case, the second defendant owns and controls both defendants 1 and 3 and has engineered the fraud
through-the instrumentalities of the-two companies. In this connection, the learned Senior Counsel places reliance on the following:
(1) Sections 4(n), 16, 13-B, 13-H, 13-J and 20 of the agreement,
(2) M/s. Gujarat Bottling Co. Ltd. and others Vs. Coca Cola Company and others,
(3) Extracts from Chitty on Contracts Volume-I, 26th Edition, pages 1893 to 1903,
(4) Extracts from Hanbury and Maudsley on Modern Equity (1990 Edition) page 745, and
(5) Ex. P-21 dated 8-6-1993, P-20 dated 22-6-1993, P-21 (a) dated 24-6-1993 and P-22 dated 5-8-1993.
The learned Senior Counsel submitted that the corporate veil of defendants 1 and 3 had to be lifted to recognize the brain behind the fraud
committed with a view to evade the contractual and legal obligations of the defendants towards the plaintiff and to thereupon enforce and secure
the legal rights of the plaintiff. In support the learned Senior Counsel relied on the following documents:-
(1) Application for loan made by Appu Hotels Ltd., bearing dated 24-8-1992 (Ex. D-1),
(2) Turnkey Architectural Civil/structural agreement between Appu Hotels and M & A International Ltd., U.S.A. (Ex. D- 2),
(3) Agreement for interior design consultancy services between Appu Hotels and M/s. Pendse & Associates, dated 14-3-1993 (Ex. D-3), with
annexure.
(4) Agreement for ''Architect on Record'' between Appu Hotels Ltd., & N.G. George Associates with annexure (Ex. D-4),
(5) Agreement for interior design services between Appu Hotels Ltd., & C.H.S. Planning & Design Corporation dated 1-3-1994 (Ex. (D-5), and
(6) R.B.I. approvals applied for and received by the second defendant in the name of the first defendant for technical collaboration with the plaintiff
dated 26-11-1992, 5-3-1993 and 13-4-1994 (Ex. P-1 Attachment F).
The learned Senior Counsel also relied on the letter dated 8-6-1993 (Ex. P-2) sent by the second defendant to the plaintiff suggesting that the
agreement might be executed by the first defendant rather than the third defendant stating that the two companies would eventually be merged by
an approved process of amalgamation. He also relied on:-
(1) The invitation card dated 6-5-1994 (Ex. P-2) and the plaintiff''s participation in the launch of the hotel.
(2) The termination letter dated 10-2-1996 (Ex. P-4) and the simultaneous execution of agreement by the second defendant in the name of the
third defendant with a competitor of the plaintiff on the same date (Ex. D-14),
(3) The correspondence between the plaintiff and the defendants regarding enforceability of the contract between February and September, 1996
(Exs. P-5 to P-7), and
(4) The various photographs showing the changes at site taken in October, 1996 marked as Ex. D-12 (a) series.
The learned Senior Counsel placed reliance on the following further decisions in support of this contentions:-
(1) Tata Engineering and Locomotive Co. Ltd. Vs. State of Bihar and Others,
(2) Delhi Development Authority Vs. Skiper Construction Company (P) Ltd. and another,
(3) New Horizons Limited and Another Vs. Union of India (UOI) and Others,
(4) Punjab National Bank Finance Limited Vs. Shital Prasad Jain and Others,
(5) Hackbridge-Hewittic and Easun Ltd. Vs. G.E.C. Distribution Transformers Ltd.,
(6) Nellie Wapshare and Others Vs. Pierce Leslie and Co. Ltd. and Others,
(7) Jones and another Vs. Lipman and another (1962 (I) All E.R. 442)
(8) Gilford Motor Company Ltd. Vs. Horne (1933 (I) Ch. 935), and
(9) D.H.N. Food Distributors Ltd. and others Vs. London Borough of Tower Homlets (1976 (3) All E.R. 462).
The learned Senior Counsel further argued that confidentiality in the proprietary information of the plaintiff in the possession of the defendants
must be enforced and secured in view of the entrustment thereof and the confidentiality provisions of the agreement dated 17-8-1993. In support
of this argument, the learned Senior Counsel relied on (1) the various copies of and the versions of Holiday Inn Standards Manual with the
defendants and/or its employees, agents, associates, etc.
(2) Various inputs towards design, plan, outlay, interiors; etc., provided by the plaintiff since June, 1992 till the finalization and approval of all plans
reflected in the various documents,
(3) Sections 10, 16, 12, 13-B, 13-H, 13-J and 15 of the agreement dated 17-8-1993,
(4) Konard Wiedemann GmbH & Co. Vs. Standard Castings P. Ltd., & Others (10 Industrial Property Law Reporter 243 (Delhi),
(5 Burlington Home Shopping Pvt. Ltd. Vs. Rajnish Chibber,
(6) V. Govindan Vs. E.M. Gopalakrishna Kone and Another,
(7) Ram Bandhan and Others Vs. Guddar Ram, and
(8) The extracts from Hanbury and Maudsley on Modern Equity (1990 Edition) pages 754 to 756, - 705 and 706).
Mr. Mohan Parasaran, learned Counsel for Respondents 1 and 3 submitted as follows:-
The suit is for a quantified sum being the damages alleged to have been caused to the plaintiff on the ground of breach of new development
agreement Ex. P-1 entered into between the plaintiff and the first defendant, now amalgamated with the third defendant. Having made an election,
it is not open to the plaintiff to seek a decree for permanent prohibitory injunction restraining the defendants etc., jointly and severally by directly or
indirectly entering into any agreement with any other hotel chain using the proprietary information and data, intellectual property ''Holiday Inn''
system and other inputs of the plaintiff and also for a permanent prohibitory injunction on the alleged cause of action of passing off. This only
indirectly seeks specific performance, which cannot be permitted in law. There is no prima facie case made out nor the balance of convenience lies
in favour of the plaintiff for grant of any interim relief as prayed for. According to the plaintiff, there is a breach of the new development agreement
and the plaintiff is liable to be compensated in terms thereof with particular reference to Section 15 read with Section 6. Even in cases where a
stipulation by way of negative covenant is incorporated in the contract when the party has quantified and made a claim for damages, there could be
no injunction. In this connection, the learned Counsel relied on a judgment of the Delhi High Court in Modern Food Industries India Ltd. Vs. M/s.
Shri Krishna Bottlers (P) Ltd., and Gordon Woodroffe and Co., Madras (P.) Ltd. Vs. C.D. Gopinath and Another, The plaintiff has understood
that the contract has been put an end to and it has claimed only monetary compensation. This would be evident from Ex. P-9 dated 9-3-1996 and
communication dated 2-9-1996 Ex. P. 11. In Ex. P-15 dated 12-9-1996 the plaintiff has stated as follows:-
Total input to date-U.S. $ 31,500/- Estimated at 50% of the total scope due to early termination of contract. Basically for most of 92-94 I would
say that H.I.W. exceeded the normal technical services input on the project. There has always been a problem in this project due to the naivety of
the owner and his relationship with all parties involved. For the past two years the project basically stagnated and visits to the site over this period
(only on passing) indicated that the progress was very slow. We have put a lot into this project as a department and have every justification in the
U.S. $ 60,000/- fee even if the project was not completed under our brand.
According to the learned Counsel, as per this letter the plaintiff had realised that the project had basically stagnated and visits were made to the site
only on passing and that the plaintiff itself claims that it has every justification in the U.S. $ 60,000/- fee if the project was not completed in its
brand name.
Even for claiming damages based as it is on the new development agreement, it is the contention of the learned Counsel that payment of damages
as claimed by the plaintiff would arise only on the commencement of the licence terms which would occur or commence only pursuant to the
plaintiff having licensed the defendants to use Holiday Inn system after the completion of the construction of the hotel. The expression ''licensed
terms'' is expressly used in different places in the agreement and a distinction has to be made between the date of the agreement and licensed terms
as understood in the agreement. The learned Counsel drew attention to clauses 4, 5, 6 and 12 of the agreement. Even the negative covenant with
regard to the management of the hotel, namely, Section 13 (b) of the new Development Agreement Ex. P-1 would apply only on the
commencement of the licensed terms, because Section 13 itself presupposes cases of transfer after an entity is licensed and the defendants cannot
be a licensed entity because the licensed terms were yet to being. The defendants are only in the position of an independent contractor and neither
party is the legal representative or agent of the other or has the power to obligate or has the right to direct or supervise the daily affairs of the other
for any purpose whatsoever and no partnership joint venture, agency, fiduciary or employment relationship was ever intended or created by reason
of this agreement. The plaintiff having no proprietary interest in the property where the hotel to be established and the licensees were to be
franchisees, it would not get any right.
It is further submitted that the Standards Manual of Holiday Inn (Ex. P-17(a)) is not an exclusive or confidential document as claimed by the
plaintiff as in page 77 in the Manual it is stated that it is designed for the use by the people, who are familiar with hotel operation and designs and
construction. The word used is ''mainly'' and not ''exclusive''. There is no infringement of any intellectual property rights of the plaintiff as the hotel is
now projected to be one commenced and run in collaboration with Hilton and prominently displayed as Madras Hilton. There is no infringement of
copyright or any action amounting to passing off as alleged by the plaintiff. No prejudice would be caused to the plaintiff by non-grant of any
injunction, on the contrary only the defendants would be prejudiced because they are the lawful owners of the property and that would outweigh
the prejudice that might be caused to the plaintiff and which could be compensated in monetary terms. The M/s. Gujarat Bottling Co. Ltd. and
others Vs. Coca Cola Company and others, does not support the case of the plaintiff. In that case, it was specifically contended by the plaintiff that
damages would not be an adequate compensation for the injury, which it would suffer and which would be irreparable and in the event of the
plaintiff failing in the suit, Gujarat Bottling Company would be protected by its undertaking given before Bombay High Court under Rule 148 of the
Bombay High Court (Original Side) Rules. In the instant case, the plaintiff has not alleged or projected the damages as not adequate remedy. In
paragraph 28 of the plaint, the plaintiff has expressly stated as under:
Without prejudice to the plaintiff''s contention that the termination is invalid in law, the plaintiff submits that it is, in any event, entitled to claim
compensation for the fundamental breach committed by the defendants in acting in contravention of the new development agreement in its letter
and spirit.
The plaintiff having elected and quantified the damages, the further relief of injunction cannot be granted.
It is further submitted that the franchise agreement itself is non-exclusive agreement. The plaintiff itself being at liberty to enter into similar
agreement in respect of other locations to locate Holiday Inn including in different locations in the City of Madras, serious prejudice would be
caused if any injunction is granted. The defendants have already gone ahead with the project in collaboration with M/s. Hilton and have spent
enormous amounts, the total estimated cost of the project being Rs. 116 crores. The defendants have made an investment of Rs. 55 crores and
interim relief at this stage would render waste of colossal investment. The defendants and those connected with it in the project have also entered
into various commitments in relation to the project. The new development agreement Ex. P-1 had been validly terminated even in February, 1996.
The injunction relief asked for is only to coerce the defendant to submit to the terms of the plaintiff and they are not bona fide. This is a case where
rights of parties are yet to be determined and yet to established. In such a situation, there could be no injunction. The industry involved in the
present case is one which is being encouraged and helped by the Central Government as part of its programme to promote tourism. The project
when completed would be a source of earning substantial foreign exchange for the country. Grant of injunction would prejudice both the interests
of the defendants as also public interest.
So far as the second defendant is concerned, the learned Counsel Mr. T.K. Seshadri submitted that considering the relief sought for in para
41(b) of the plaint, it is beyond the scope of the suit. The defendants have already gone on record that prior to the institution of the suit by the
plaintiff, they entered into an agreement with Hilton International on 10-2-1996. The question of the defendants using the proprietary information
for the applicant does not, therefore, arise. The question of using the trade mark and logo after termination of the agreement, does not arise after
the agreement with Hilton International. It is also specifically alleged in the counter that the defendants are not using any software relating to hotel
reservation system called Holidex and other particulars relating to management of the hotel. The relief sought for in paragraph 41(b) of the plaint
has already become infructuous in view of the agreement entered into by M/s. Appu Hotels Ltd. with Hilton International on 10-2-1996. The
agreement entered into with Hilton International is only an operating agreement. The ownership of the hotel remains with Appu Hotel Ltd. There is
no interlocutory application similar to the prayer sought for in para 41(c) of the plaint. No grounds have been made out as required in Order 38
Rule 5 of the Code of Civil Procedure. There is no prayer in the plaint similar to the one in O.A.No. 104/97. On the other hand, if the prayer in
para 41(c) of the plaint is considered, the relief sought for in the application is directly in contradiction with the main relief. In the case of
anticipatory breach, it is open to the applicant if he contends that the termination is illegal and that the contract continues to be subsisting and in
force to wait till the time for performance elapsed and then claim for damages as in the ordinary case of breach. The other option is to accept the
alleged fundamental breach and claim damages by accepting the wrongful repudiation as determining the contract and sue for damages. The
applicant cannot treat the contract as continuing and also claim damages. In this connection, the learned Counsel referred to the following passage
at page 525 of the Indian Contract and Specific Relief Act by Pollock and Mulla, Eleventh Edition, pages 524 and 525:
When a party to the contract wrongfully refuses to perform obligations, this will not automatically bring the contract to an end. The innocent party
has an option either to accept the wrongful repudiation as determining the contract and sue for damages or he may ignore or reject the attempt to
determine the contract and affirm its continuance. There is no third choice, as a sort of via media, to affirm the contract and yet be absolved from
tendering further performance unless and until the party who refuses to perform obligations gives reasonable notice that he is once again able and
willing to perform.
There is no allegation or plea that the applicant would not be adequately compensated in damages. On the basis of the allegations in the plaint,
there is no case made out for injunction. It is not necessary to lift the corporate veil to show that defendants 1 and 3 are one and the same. No
fraud has been played by the second defendant in signing the contract in the name of the first defendant in relation to a property belonging to the
third defendant. In Ex. P.28 letter dated 8-6-1993 signed by the second defendant and addressed to Lay Choo Lim, Legal Counsel, it is clearly
stated that the first defendant holds majority of the shares in the third defendant company and both would be merged with one company by an
approved process of amalgamation and flexibility had to be provided to enable any one of the companies to hold the licence. As a matter of fact,
both the companies went into a scheme of amalgamation and merger approved by the Court in C.P.Nos. 85 and 86 of 1997 dated 5-2-1997 (Ex.
P.22). The injunction applications are without merit and deserve to be dismissed.
Let us first examine whether there has been valid termination of Ex. P-1 by Ex. P-4 notice. The salient features of Ex. P-1 have already been
referred to in paragraph 8 supra. As per the terms of Ex. P-1, the first defendant would be entitled to elect to terminate the agreement at any time
provided it gave the plaintiff written notice thereof at least 24 months before the termination date so selected accompanied by a lump sum payment
for the notice period subject to a minimum of U.S.$ 50,000 per year. The notice period for mid-term termination would commence from the date
of payment of the notice money. In case, the construction of the hotel is not completed and the hotel is not furnished, equipped and otherwise
made ready for opening for business in accordance with the agreement by 31st December, 1995, the plaintiff had the right to terminate the
agreement without liability.
From the terms of Ex. P-1 it prima facie appears that unless the defendants completed the Hotel by 31-12-1995, there is no question of the
plaintiff granting the licence to them to use the Holiday Inn System for operating the hotel. At the same time, it is to be noticed that the first
defendant would be entitled to elect to terminate the agreement at any time provided it gave the plaintiff written notice thereof at least 24 months
before the termination date so selected accompanied by lump-sum payment etc. already referred to. It is also necessary at this stage to have a look
at the developments that have taken place between June, 1992 and 10-2-1996. The application for loan was made by Appu Hotels Ltd. under
Ex. D-1 on 24-8-1992. Under Ex. D-2 Turnkey Architectural Civil/Structural agreement between Appu Hotels and M & A International Ltd.
U.S.A. had been entered into. Under Ex. D-3 dated 14-3-1993 an agreement for interior design consultancy services between Appu Hotels and
M/s. Pendse & Associates took place. Under Ex. P-1 on 17-8-1993 it came into being. Under Ex. D-3 agreement for ''Architect on Record''
between Appu Hotels Ltd. & N.G. George Associates came to be entered into. Under Ex. D-5 agreement for interior design services between
Appu Hotels Ltd. and CHS Planning & Design Corporation came into effect. On 26-11-1992, 5-3-1993 and 13-4-1994 (Ex. P-1 attachment F)
R.B.I. approvals were applied for and received by the second defendant in the name of the first defendant for technical collaboration with the
plaintiff. On 8-6-1993 under Ex. P-21 the second defendant wrote to the plaintiff suggesting that the agreement might be executed by the first
defendant rather that the third defendant stating that the two companies would eventually be merged by an approved process of amalgamation. The
contractual obligations of the various proprietary informations, and know-how supplied to the defendants since June, 1992 in terms of
confidentiality, non-disclosure and non-competent obligations and negative covenants had been subsisting ever since. It is also necessary to refer to
Ex. D-14 agreement between the defendants and Hilton International. The material portions in Ex. D-14 are:
The hotel which is under construction at No. 1, G.S.T. Road, Guindy, Madras, India, will be according to existing plans.
Article 1 page 2: The hotel is in the final stages of completion.
Page 3 section 3: Technical Assistance service. It is acknowledged that as the development of the Hotel has progressed substantially as at the date
hereof (10-2-1996) that in practice First Party will require several aspects of Hilton''s technical assistance services.
Article III page 5: Subject to the terms of this agreement, Hilton shall have full control and discretion in operation of the hotel.
The object in seeking injunction with regard to this aspect, according to the learned Senior Counsel Mr. Habibullah Basha, is that the information
relevant to a Holiday Inn Crowne Plaza Hotel has been provided to the defendants from time to time and this is sought to be protected and
prevented from being unauthorisedly used and disclosed by the defendants.
It is not disputed that the defendants had used the specifications, materials, etc. It cannot also be disputed. According to them, it is not
exclusive but is public property. So far as this contention of the learned Senior Counsel for the defendants with regard to the non-exclusiveness of
the Standard Manual is concerned, it is contended on behalf of the plaintiff that the Standards Manual and all other things provided to the
defendants are all covered by the confidentiality obligations in terms of clause 10 of Ex. P-1. The Standard Manual cannot be just taken off the
shelf by any member of the public or for that matter available for the asking, but is given only to personnel including suppliers, architects, designers
and operators connected with a Holiday Inn owner or licensee. It is not the defendants'' case that long prior to 10-2-1996 the specifications had
been changed and that the plaintiff''s specifications had not been followed. On the contrary, the attitude is what if? In my view this is a wrong and
improper attitude. Abundant materials have been filed to show the various proprietary and confidential information, inputs and know how provided
by the plaintiff since 1992 to the defendants, which went into the plans and designs of the hotel, as also the various agreements entered into by the
defendants with various parties for the purposes of designing, planning, decorating and completing the hotel, which would clearly show that the
hotel was planned, designed and completed as per the technical inputs and know how. This aspect had already been adverted to.
It is also not open to the defendants to contend that the commencement of the licensed term would being to occur only pursuant to the plaintiff
having licensed the defendants to use Holiday Inn System after the completion of the construction of the hotel. From the terms of Ex. P-1 and the
sequence of events it could be seen that the defendants have failed to complete the hotel by 31-12-1995, thus preventing the plaintiff from granting
the licence to them to use the Holiday Inn System from operating the hotel.
Let us now have a look at the termination notice, Ex. P- 4. Absolutely no reasons have been given, though an improvement is sought to be
made in the pleadings. Ex. P-5 is the reply by the plaintiff on 16-2-1996.
In dealing with the termination of the contractual licences, in Halsbury''s Laws of England 4th Edition, Volume 9, paragraph 530 it is stated as
follows:-
A contractual licence is a licence supported by consideration but not coupled with a grant. Such a licence might at common law be effectively
revoked at any time, whether or not it contained provisions regarding its duration and the licensee''s only remedy was an action for damages; but
the equitable principle now prevails, and if on its proper construction the licence is irrevocable or revocable only after a certain time, revocation will
as a rule be restrained by the grant of an injunction. Where the remedy of injunction cannot be applied because the licence has already been
ejected, it seems that the Court will determine the parties'' rights on the basic of what they would have been if there had been an opportunity to
apply for an injunction.
Again in paragraph 52, dealing with termination notice, it is stated as follows:-
If a contract contains a provision that one of the parties there to may determine the contract by notice, notice must be given in accordance with the
terms of the contract, but the right to notice may be waived. Where it is stipulated that the notice shall be one of a specified length of time, a valid
notice is given if the date given in the notice is a fixed and determinable date not less distant than the specified length of time. If the right to
determine a contract by notice depends upon the performance of a condition precedent, it is essential for the party seeking to exercise his right of
determining the contract first to show that the condition has been fulfilled or waived.
Again in Breach of Contract by J.W. Carter Second Edition dealing with the termination process, it is stated as follows:-
Applicable requirements depend primarily on terms of the contract.
Article 53: Where one party to a contract seeks to justify an election to terminate its performance for breach or repudiation by the other party by
relying on a contractual right to terminate, the requirements of an effective election are, subject to any applicable statutory rule, those specified by
the contract, or in the absence of such specification, the requirement of the common law.
It is reasonably common, particularly in standard from contracts, to find specific terms granting rights to terminate for breach. Where such
contractual rights are stated it is nor uncommon for the contract to specify not only the circumstances in which the right to terminate will arise but
also the procedural requirements which must be fulfilled before exercise of the contractual right can be regarded as an effective election to
terminate performance.
In para 1012 it is stated as follows:-
Compliance with contractual requirements:-
Whether or not the requirements of election provided for by a contractual right to terminate have been complied with will depend on the particular
circumstances of the case and is a question of fact. Contractual rights to terminate are fairly strictly construed. For example, where the contract
requires notice to be given to the promisor of the breach relied upon, the promisee will be required to specify the breach which is relied on and to
indicate clearly that termination may occur if the notice is not complied with. However, substance is more important than form, and what is crucial
is the information conveyed to a reasonable person in the position of the promisor. For example, where the contract confers various rights the
notice should indicate the contractual right which is being relied upon. If the circumstances of the case indicate that only one such right is relevant a
general notice may suffice.
An election must be made at the right time and a contractual right to terminate for breach cannot be exercised in advance of the time provided for.
For example, in Afovos Shipping Co. S.A. Vs. Pagnan (1983 (I) W.L.R. 195), ship owners sought to rely on a contractual right to terminate the
performance of a time charter party by withdrawing the vessel the subject of the charger on the ground of non-payment of the hire due on or
before 14 June, 1979. The ship owners had to comply with the ""anti-technicality clause"" (C1. 31 of the Charter) which provided:-
When hire is due and not received the owners, before exercising the option of withdrawing the vessel from the charter party, will give charterers 48
hours'' notice, Saturdays, Sundays and Holidays excluded and will not withdraw the vessel if the hire is paid within these 48 hours.
The ship owners telexed their notice at 16.40 hours on 14 June, and this was received by the charterers five minutes later. The withdrawal of the
vessel took place at 19.20 hours on 18 June. The House of Lords that the notice had been given too soon since the charterers'' payment could not
be said to be ""due and not received"" within C1.31 until midnight on 14 June.
In para 1014 dealing with the effect of non-compliance, it is stated as follows:-
Due to the ability of a promisee to justify an election to terminate on alternative grounds, the effect of non-compliance with the requirements of a
contractual right to terminate are not as straightforward as might be expected.
If the contractual requirements are not complied with, the promisee''s election on that ground will be ineffective. If no other ground is available to
the promisee the election will be regarded as a wrongful termination of performance and may constitute a repudiation of obligation.
I am prima facie satisfied that there has been no valid termination of Ex. P-1 agreement under Ex. P-4 and the agreement continues to subsist.
We have therefore to proceed on the premise that there is no valid termination. Then what follows ? What is the effect of such an invalid
termination ? Whether there could be an injunction ? Whether there could be an injunction in respect of a negative covenant ? Whether the plaintiff
has made an election and there could be no injunction ?
Let us now deal with the election theory first. The learned Counsel for the respondents/defendants contended that in the event of anticipatory
breach, the innocent party has to elect its course of action from one of the two options available, namely, to seek specific performance or to seek
compensation by way of damages. In the instant case, the plaintiff has made the election and, therefore, it cannot ask for specific performance by
way of injunctive relief''s, particularly when it has neither pleaded that the agreement subsists nor has it asked for a declaration in those terms. In
support of this contention, the learned Counsel relied on a judgment of this Court in Gordon Woodroffe and Co., Madras (P.) Ltd. Vs. C.D.
Gopinath and Another, In that case, the service agreement by the respondent with steamer agency company (appellant) represented by its
Chairman contained a covenant that he should be true and faithful to the company and should use his best endeavours for its advancement and
prosperity. The company''s steamer agency was terminated and the agency was offered to the respondent after a certain date. There was unilateral
termination of service agreement by the company after such offer. The suit was filed against the respondent for permanent injunction retraining him
from taking up the same agency. The question arose whether interim injunction pending suit could be granted and whether covenant could be
construed as negative covenant not to take up some agency after termination of service agreement. It was held by the Bench that,
even if there was a breach of negative covenant as alleged, it could be compensated in money and, therefore, sections 38(3)(c) and 14(a) of the
Specific Relief Act would come in the way of the court granting relief to the appellant by way of an injunction.
In the course of the judgment, the Division Bench referred to a number of decisions and in particular to American Cyanamid Co. v. Ethicon
Ltd. (1975 (I) All E.R. 504). The matter as already stated related to a contract of service and the Bench concurred with the view of the trial Judge
that a contract of service could not be specifically enforced as a breach thereof could always be compensated in money and that the general rule
was that the grant of an injunction was a matter of discretion of the Court and it could not be claimed as of right. No doubt, the discretion had to
be exercised in a judicious manner and in accordance with the provisions relating to the grant of injunction contained in the Specific Relief Act. The
Bench also observed that,
an injunction could not be granted to prevent the breach of a contract, which could not be specifically enforced.
It was sought to be argued for the appellant in that case that though there was no express negative covenant, a negative covenant that the
respondent could not take over a similar or the same steamer agency should be implied. This contention was rejected by the Bench. According to
the Bench,
the clause in the agreement between the parties did not expressly or impliedly prevent the respondent from giving up his service under the appellant
and starting an agency business of his own and when once his services had been terminated on a particular date and even if an implied negative
covenant was read into the service agreement not to work against the interests of the company that negative covenant could not subsist after the
service agreement had been put an end to by the appellant itself by terminating the services of the respondent....
In view of the proviso to section 42 the appellant who had prevented the services of the respondent unilaterally could not seek to enforce the
alleged negative agreement and that in view of the matter the appellant had disabled himself from getting a relief of interim injunction by terminating
the service agreement.
In my view, the ratio of the decision of the Bench would not apply to the facts of the present case as admittedly, the termination notice is
subject matter of challenge in the present proceedings.
The next decision relied on by the learned Counsel for the defendants is the one reported in Modern Food Industries India Ltd. Vs. M/s. Shri
Krishna Bottlers (P) Ltd., The plaintiff in that case had entered into a franchise agreement with the defendant, a private company under which the
plaintiff was to sell concentrate to the defendant to manufacture and bottle the aerated water drink ""77"" and distribute it in Hyderabad. Under the
agreement the defendant was prohibited from manufacturing or selling any product akin to that of the plaintiff in Hyderabad without its written
permission. The averments of the plaintiff were that the defendant had not only failed to perform its part of the contract, but had also entered into
an agreement with another company to bottle and market their product known as ""Thril"" as a result of which it was likely to suffer damage. The
plaintiff, therefore, filed an application to restrain the defendant from manufacturing, marketing or in any other manner dealing with the aerated
water ""Thril"". It was held by a learned single Judge of the Delhi High Court that,
it was not a fit case where injunction could be issued. The balance of convenience was not in favour of the plaintiff. The plaintiff had arrangements
with another company to market and bottle its products in the State of Andhra Pradesh. The defendant, on the other hand, if injucted from selling a
soft drink ""Thril"" was likely to suffer irreparable loss because of its heavy investments. An injunction to perform negative agreement ought to be
granted only in exceptional cases. The enforcement of a negative stipulation ought not to be granted only to spite a party proceeded against.
The learned single Judge followed the decision of the Supreme Court in Niranjan Shankar Golikari Vs. The Century Spinning and Mfg. Co. Ltd.,
It should be noticed that in the same decision it has been stated in paragraph 21 as follows:
Prima facie I am of the view that such an injunction ought to be granted only on exceptional cases; for example, where the employer or the
principal has imparted specialised knowledge or technical know how to his employee or agent to train them for a specific specialised field of work
and during the currency of the contract or employment that specialised knowledge or know how ought not to be allowed to be used to the
detriment of the employer or the principal. The enforcement of a negative stipulation ought not to be granted only to spite a party proceeded
against.
This judgment of the Delhi High Court has been referred to by the Supreme Court in M/s. Gujarat Bottling Co. Ltd. and others Vs. Coca Cola
Company and others, , and according to the learned Counsel for the plaintiff, the ratio of that case has been rejected by the Supreme Court, which
is not evident from the reading of the Supreme Court decision.
The learned Counsel for the defendants relied on the following passage from Pollock & Mulla on the Indian Contract Act, Eleventh Edition,
Volume-I pages 524 and 525:
If one party to a contract repudiates it in the sense of making it clear to the other party that he refuses or will refuse to carry out his part of the
contract, the other party, the innocent party, has an option. He may accept that repudiation and sue for damages for breach of contract whether or
not the time for performance has come; or he may if he chooses, disregard or refuse to accept it and then the contract remains in full effect (quoted
with approval in Motilal Srinivasa Sarda Vs. The Netha Co-operative Spinning Mills Ltd., Anticipatory breach was not devised as a whip to be
used for the chastisement of deliberate law breakers, but from which the shiftless, the dilatory or the unfortunate are to be spared. Anticipatory
breach means simply that party is in breach from the moment his actual breach becomes inevitable. (Universal Cargo Carriers Corporation v. Citati
- 1957-2 Q.B. 401, 438). HoChester v. De La Tour (1853-2 E & B 678, 686) established that a renunciation when acted upon became final.
Thus if a man proclaimed by words or conduct an inability to perform, the other party could safely act upon it without having to prove that when
the time came for performance the inability was still effective. (Universal Cargo Carriers Corporation v. Citati (1957-2 QB 401, 438).
The innocent party wishing to treat himself as discharged where there is anticipatory breach of a contract must make his decision known to the
party in default, otherwise the contract continues for ""an unaccepted repudiation is a thing writ in water. (Howard v. Pickford Tool Co. (1951-
K.B. 417). The three sets of circumstances giving rise to discharge of a contract are:
(1) renunciation of apart of his liabilities under it;
(2) impossibility of performance created by his own act; and
(3) total or partial failure of performance.
In the case of the first two, the renunciation may occur or impossibility be created either before or at the time for performance. In the case of the
third, it can occur only at the time or during the time of performance of the contract. The third of these is the ordinary case of breach and the first
two state the two modes of anticipatory breach. (Universal Cargo Carriers Corporation v. Citati - 1957-2 Q.B. 401).
When a party to the contract wrongly refused to perform obligations, this will not automatically bring the contract to an end. The innocent party has
an option either to accept the wrongful repudiation as determining the contract and sue for damages or he may ignore or reject the attempt to
determine the contract and affirm its continuance. There is no third choice, as a sort of via media, to affirm the contract and yet be absolved from
tendering further performance unless and until the party who refused to perform obligations gives reasonable notice that he is once again able and
willing to perform. Such a choice would negate the contract being kept alive for the benefit of both parties and would deny the party who
successfully sought to rescind the right to take advantage of any supervening circumstance which would justify him in declining to complete.
(Forcometal SARL v. Mediterranean Shipping Co. v. The Simona (1988-2 All E.R. 742).
From what has already been stated and what is to follow, I do not think that the passage extracted above in any way helps the case of the
defendants in the present case.
The learned Counsel for the defendants referred to the amended plaint paragraphs 21 to 30 for substantiating their contention that the plaintiff
cannot ask for specific performance by way of injunctive relief''s when it had made an election and claimed damages. As contended by the learned
Counsel for the plaintiff, the plaintiff has exercised its option by filling the present suit claiming damages for breach of contract and various
proprietary and confidential information, inputs and know how supplied to the defendants since June, 1992 in terms of confidentiality, non-
disclosure and non-compete obligations and negative covenants. It is specifically stated in paragraphs 21 and 27 of the amended plaint that the
termination notice is not valid. The injunctive relief''s are not sought for by way of specific performance of the agreement inasmuch as the plaintiff is
not asking the defendants to complete, furnish, finalise, commission and start running a Holiday Hotel at the site.
The learned Counsel then referred to Exs. P-9, P-11, P-13 and P-15, and according to the learned Counsel, these documents would clearly
show that the plaintiff could not ask for injunctive relief''s.
In its letter Ex. P-5 dated 16-2-1996, the plaintiff has specifically stated as follows:
Pursuant to section 15(a) of the International Licence Agreement, Pallava may elect to terminate this agreement by providing to BIH, notice of
such election in writing at least 24 months before the termination date selected by Pallava. Furthermore, for such notice to be effective, it must also
be accompanied by a lump-sum payment (as liquidated damages and not as a penalty and not in place of any other payments required under this
agreement) equal to the total of the amounts required to be paid u/s 6 by reference to the revenue projections prepared by you and incorporated
as Attachment-C for the 24 months following the date of the notice (with the royalty fee component of this lump-sum to be, in no event, less than
U.S. $ 50,000 per year).
Accordingly your notice is ineffective and the International Licence Agreement continues to be in force.
Clause 20 of Ex. P-1 runs as follows:
... no waiver by any party hereto of any provision of this agreement shall be deemed to have been made unless contained in writing signed by the
party making such waiver. Either party''s failure to insist, in any one or more instances, upon strict performance of any provision of this agreement,
or its failure to exercise any right or any option herein contained, shall not be construed as a waiver or relinquishment of any such provision, right or
option for the future, and all provisions of this agreement shall nonetheless continue in full force and effect.
On the basis of the above, it is contended by the learned Counsel for the plaintiff that the validity of termination has been properly challenged.
Section 42 of the Specific Relief Act clearly provides for enforcement of negative covenants even where the positive covenants are not
enforceable.
One other contention of the learned Counsel for the defendants to be noticed at this stage is that the prayer in O.A.No. 104/97 is beyond the
scope of the prayers in the plaint as well as infructuous since defendant No. 3 entered into a consultancy and operation agreement dated 10-2-
1996 with Hilton International prior to the suit and, therefore, there could be no injunction. The prayer is for injunction against any hotel other than
the proposed hotel at the site. According to the learned Senior Counsel for the plaintiff, the objection raised on behalf of the defendants is totally
misconceived inasmuch as the prayer seeks permanent prohibitory injunction against the defendants from transferring, finalising, completing,
furnishing and operating any hotel other than the proposed hotel at the site and that the term ''the proposed hotel'' has been defined in paragraph 4
of the amended plaint to mean the Five Star Holiday Inn Crowne Plaza-Madras Hotel proposed to be developed and operated at the site. Again,
the fact that an agreement had been entered into between the defendants and Hilton International would clearly show that the defendants intended
to disclose, convert to use and make available proprietary and confidential Holiday Inn information, technical know how and inputs contrary to the
contractual obligations and the defendants cannot take advantage of their own wrong to frustrate the lawful claim of the plaintiff. There is substance
in the contention of the learned Senior Counsel for the plaintiff. The mere fact that the defendants have entered into an arrangement with Hilton
International Ltd. cannot stand in the way of the plaintiff being granted the relief prayed for if it is otherwise entitled to the same.
It is next to be seen whether the three prerequisites for interim injunction are not satisfied in the instant case and in fact, the position is only in
favour of refusal, the three prerequisites being,
(i) prima facie case,
(ii) balance of convenience, and
(iii) irreparable loss or harm.
The learned Counsel for the defendants relies on the judgment of the Supreme Court in M/s. Gujarat Bottling Co. Ltd. and others Vs. Coca Cola
Company and others, and in particular paragraph 46. Apart from this, the learned Counsel submitted that the agreement between the plaintiff and
the second defendant does not create any interest and right in favour of the plaintiff in the immovable property, namely, the site, which absolutely
belonged to the second defendant and as such the plaintiff could not seek to interfere with the right and enjoyment of the said site of the
defendants. In any event, it is contended that the prejudice that would be caused by the injunction to the defendants would be much more than that
would be caused to the plaintiff.
The learned Counsel for the plaintiff meeting the arguments, submitted that all the three prerequisites existed in favour of the plaintiff and against
the defendants, that M/s. Gujarat Bottling Co. Ltd. and others Vs. Coca Cola Company and others, would squarely apply to the facts of the
present case. In that case,
the right of a factory owner to run the bottling plant in spite of a negative covenant was involved and during the notice period Gujarat Bottling
Company was forced to shut down and keep idle its plant and machinery as well as....
It is further submitted that by seeking the injunction the plaintiff is not attempting to interfere with the rights and ownership of the defendants of the
immovable property and the failure to grant interim injunction would cause irreparable harm and damage to the plaintiff.
Regarding the contention relating to the prerequisites Lord Diplock said in American Cyanamid Company v. Ethican Ltd. (AIR 1975 SC 396)
as follows:
... The use of such expression as ''a probability'', ''a prima facie case'' or '' a strong prima facie case'' in the context of the exercise of a
discretionary power to grant an interlocutory injunction leads to confusion as to the object sought to be achieved by this form of temporary relief.
The Court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried.
It is no part of the Court''s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of
either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are
matters to be dealt with at the trial....
However, in the later case of N.W.L. Ltd. Vs. Woods (1979-I W.L.R. 1294) Lord Diplock himself seems to have reverted to the old principles:-
In assessing whether what is compendiously called the balance of convenience lies in granting or refusing interlocutory injunctions in actions
between parties of undoubted solvency the Judge is engaged in weighing the respective risks that injunctice may result from his deciding one way
rather than the other at a stage when the evidence is incomplete. On the one hand there is the risk that if the interlocutory injunction is refused but
the plaintiff succeeds in establishing at the trial his legal right for the protection of which the injunction had been sought he may in the meantime have
suffered harm and inconvenience for which an award of money can provide no adequate recompense. On the other hand, there is the risk that if
the interlocutory injunction is granted but the plaintiff fails at the trial, the defendant may in the meantime have suffered harm and inconvenience
which is similarly irrecompensable. The nature and degree of harm and inconvenience that are likely to be sustained in these two events by the
defendant and the plaintiff respectively in consequence of the grant or the refusal of the injunction are generally sufficiently disproportionate to bring
down by themselves the balance on one side or the other and this is what I understand to be the thrust of the decision of this House in American
Cyanamid Company Vs. Ethicon Ltd.
Right from the beginning of the hearing of the case what had been agitating my mind was the conduct of the defendants, the second defendant
in particular, in unilaterally calling off the deal one fine morning, i.e. on 10-2-1996. If it had alone been done, perhaps it would have passed muster
for not granting injunction in respect of negative covenants, but then what was most disturbing was striking a deal with Hilton International on the
some day-that in my view is the height of dishonesty-I do not subscribe to the line of thinking that in business transactions straight-forwardness is
the first casualty. While confabulating with the plaintiff, the second defendant had been surreptitiously dealing behind the scene with Hilton
International people and then he chose to call it off with the plaintiff. The second defendant cannot make a virtue of the fact that the defendants had
already gone on record that prior to the institution of the suit by the plaintiff, they had entered into an agreement with Hilton International on 10-2-
1996. What is the consequence of this ? Will it be enough if ultimately the plaintiff succeeds, it could be satisfied with a decree for money. It should
be, is the contention of the defendants.
After the judgment in N.W.L. Ltd. Vs. Woods (1979-I W.L.R. 1294), the position has reverted to what was stated by Lord Upjohn of the
House of Lords, in J.T. Stratford & Son Ltd. Vs. Lindley (1965 A.C. 269):-
In these circumstances, the principle which ought to guide His Lordships seems to be clear. An appellant seeking an interlocutory injunction must
establish a prima facie case of some breach of duty by the respondent to him. He may even obtain a quiatimet injunction in case of a threatened
injury, but I need not consider that further because a prima facie case of an actual breach has been established. He must further establish that the
respondents are threatening and intending to repeat that breach of duty, but in a case such as this it may readily be inferred and I do so in this case.
This being so, an injunction may be granted if it is just and convenient so to do, the remedy being purely discretionary. The balance of convenience
in these cases is always of great important.
In the matter of grant of interim injunction, the Supreme Court in Wander Ltd. and Another Vs. Antox India P. Ltd., ) observed as follows:-
Usually, the prayer for grant of an interlocutory injunction is at a stage when the existence of the legal right asserted by the plaintiff and its alleged
violation are both contested and uncertain and remain uncertain till they are established at the trial on evidence. The Court, at this stage, acts on
certain well settled principles of administration of this form of interlocutory remedy which is both temporary and discretionary. The object of the
interlocutory injunction, it is stated,
... is to protect the plaintiff against injury by violation of his rights for which he could not adequately be compensated in damages recoverable in the
action if the uncertainty were resolved in his favour at the trial. The need for such protection must be weighed against the corresponding need of the
defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be
adequately compensated. The Court must weigh one need against another and determine where the ''balance of convenience'' lies.
The interlocutory remedy is intended to preserve in status quo, the rights of parties which may appear on a prima facie case. The Court also, in
restraining a defendant from exercising what he considers his legal right but what the plaintiff would like to be prevented, puts into the scales, as a
relevant consideration whether the defendant has yet to commence his enterprise or whether he has already been doing so in which latter case
considerations some what different from those that apply to a case where the defendant is yet to commence his enterprise, are attracted.
In M/s. Gujarat Bottling Co. Ltd. and others Vs. Coca Cola Company and others, already referred to, dealing with grant of interlocutory
injunction, the Supreme Court stated the law on the subject as follows:-
Under Order 39 of the Code of Civil Procedure, jurisdiction of the Court to interfere with an order of interlocutory or temporary injunction is
purely equitable and, therefore, the Court, on being approached, will, apart from other consideration, also look to the conduct of the party
invoking the jurisdiction of the Court, and may refuse to interfere unless his conduct was free from blame. Since the relief is wholly equitable in
nature, the party invoking the jurisdiction of the Court has to show that he himself was not at fault and that he himself was not responsible for
bringing about the state of things complained of and that he was not unfair or inequitable in his dealings with the party against whom he was seeking
relief. His conduct should be fair and honest. These considerations will arise not only in respect of the person who seeks an order of injunction
under Order 39 Rule 1 or Rule 2 of the Code of Civil Procedure, but also in respect of the party approaching the Court for vacating the ad-interim
or temporary injunction order already granted in the pending suit or proceedings.
In the same judgment, the Supreme Court observed as follows:-
The grant of an interlocutory injunction during the tendency of legal proceedings is a matter requiring the exercise of discretion of the Court. while
exercising the direction the Court applies the following tests:-
(i) Whether the plaintiff has a prima facie case;
(ii) Whether the balance of convenience is in favour of the plaintiff; and
(iii) Whether the plaintiff would suffer an irreparable injury if his prayer for interlocutory injunction is disallowed.
The decision whether or not to grant an interlocutory injunction has to be taken at a time when the existence of the legal right assailed by the
plaintiff and its alleged violation are both contested and uncertain and remain uncertain till they are established at the trial on evidence. Relief by
way of interlocutory injunction is granted to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved.
The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately
compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial. The need for such protection has,
however, to be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented
from exercising his own legal rights for which he could not be adequately compensated. The court must weigh one need against another and
determine where the ''Balance of convenience'' lies.
In Dalpat Kumar and Another Vs. Prahlad Singh and Others, the Supreme Court observed as follows:
Therefore, the burden is on the plaintiff by evidence aliunde by affidavit or otherwise that there is ""a prima facie case"" in his favour which needs
adjudication at the trial. The existence of the prima facie right and infraction of the enjoyment of his property or the right is a condition for the grant
of temporary injunction. Prima facie case is not to be confused with prima facie title which has to be established, on evidence at the trial. Only
prima facie case is a substantial question raised, bona fide, which needs investigation and a decision on merits. Satisfaction that there is a prima
facie case by itself is not sufficient to grant injunction. The Court further has to satisfy that non-interference by the Court would result in ""irreparable
injury"" to the party seeking relief and that there is no other remedy available to the party except one to grant injunction and he needs protection
from the consequences of apprehended injury or dispossession. Irreparable injury, however, does not mean that there must be no physical
possibility of repairing the injury, but means only that the injury must be a material one, namely, one that cannot be adequately compensated by
way of damages. The third condition also is that ""the balance of convenience"" must be in favour of granting injunction. The Court while granting or
refusing to grant injunction should exercise sound judicial discretion to find the amount of substantial mischief or injury which is likely to be caused
to the parties, if the injunction is refused and compare it with that which is likely to be caused to the other side if the injunction is granted. If on
weighing competing possibilities or probabilities of likelihood of injury and if the Court considers that pending the suit, the subject matter should be
maintained in status quo, an injunction would be issued. Thus the Court has to exercise its sound judicial discretion in granting or refusing the relief
of ad-interim injunction pending the suit.
....
...But the Court would be circumspect before granting the injunction and look to the conduct of the party, the probable injuries to either party and
whether the plaintiff could be adequately compensated if injunction is refused..... The phrases ""prima facie case"", ""balance of convenience"" and
irreparable loss"" are not rhetoric phrases for incantation, but words of width and elasticity, to meet myriad situations presented by men''s ingenuity
in given facts and circumstances, but always is hedged with sound exercise of judicial discretion to meet the ends of justice.
In Dinesh Mathur Vs. O.P. Arora and Others, ) the Supreme Court observed as follows:
...Granting injunction is a matter of discretion. Balance of convenience and irremediable injury are triable issues and are required to be examined
and found positively.
The case of the defendants is that the agreement had worked itself out since the hotel was not completed by 31-12-1995 and the agreement
Ex. P-1 is also silent as to what would happen if the hotel is not completed by 31-12-1995 as also the case of the plaintiff that the term under the
agreement had not come to an end, that the agreement also does not say that on the defendants failing to complete the hotel by 31-12-1995, the
agreement would end have already been dealt with. It has already been found that the option is given only to the plaintiff and this option not having
been exercised by the plaintiff, the agreement Ex. P-1 continued to be binding on the parties and the defendants could not unilaterally terminate the
agreement.
Before having a look at the authorities and leading text books relating to negative covenants, let us deal with one other aspect relating to
confidentiality and non-compete aspects of the question. According to the defendants, the plaintiff has not set out in detail the
proprietary/confidential information and inputs given to the defendants, which have gone into the preparation of the hotel plants, that the Standards
Manual Ex. P-17 (a) is not as exclusive and proprietary as it is claimed to be that the defendants have already entered into an agreement with
Hilton and they do not intend to start a Holiday Inn Hotel or Holiday Inn''s intellectual proprietary rights/Holiday Inn System and that there are
sufficient pleadings to this effect on the part of the defendants. It is also further submitted that Holiday Inn Hotels all over the world are not identical
or uniform and that the defendants have not lifted any prototype of Holiday Inn Hotel.
Meeting this argument, it is contended on behalf of the plaintiff as follows:
Since June, 1992, as already stated, various proprietary and confidential information, inputs and know how were supplied to the defendants and
the negative covenants have been subsisting ever since. The confidentiality and non-disclosure obligations are inherent in the circumstances of the
case and have been held to bind parties even in the absence of contracts to that effect. So far as the plaintiff is concerned, it has to establish a
prima facie case that confidentiality in proprietary information was provided and that it is not necessary for the plaintiff to file or list out each and
every document supplied. In support of this stand, the learned Counsel relied on a number of authorities. They are:
(1) Konrad Wiedemann GmbH & Co. v. Standard Castings P. Ltd. & Others reported in Volume 10 IPLR 243 (Del)
(2) Burlington Home Shopping Pvt. Ltd. Vs. Rajnish Chibber,
(3) Saltman Engineering Co. Ltd. and others v. Campbell Engineering Co. Ltd. (1963 3 All ELR 413)
(4) Peter Pan Manufacturing Corporation v. Corsets Silhouette Ltd. (1963 3 All ELR 402)
(5) National Broach and Machine Co. v. Churchill Gear Machines Ltd. (1965 2 All ELR 961)
(6) Warner Brothers Pictures Inc. v. Nelson (1936 3 All ELR 160)
(7) Terrapin Ltd. v. Builders'' Supply Co. etc. (1960 RPC 128); and
(8) M/s. Gujarat Bottling Co. Ltd. and others Vs. Coca Cola Company and others, already referred to.
We have already noticed that the defendants had clandestinely attempted to bypass and give a go-bye to the agreement entered into with the
plaintiff under Ex. P-1 and had not acted in conformity with the terms in the said agreement. The defendants ought to have put the plaintiff on notice
of their intention to get out of the agreement as per the terms regarding notice provided under the agreement before calling it a day with them.
Having regard to the facts and circumstances of the case, I am of the view that the plaintiff is entitled to an injunction in terms of the prayer.
In the case before the Supreme Court in M/s. Gujarat Bottling Co. Ltd. and others Vs. Coca Cola Company and others, ) the facts were as
follows:
C entered into a trade agreement with GBC for bottling and distributing their products in 1993 or 1994. Subsequently, P acquired substantial
interest in the share holding of GBC in an effort to control GBC and gain dominance in the areas served by C through GBC-C. The 1993
agreement between the parties was a commercial agreement for promoting trade in beverages for their mutual benefit. The 1994 agreement was to
comply with the requirements of the Trade Marks Act for registration of user by GBC. There was a negative stipulation in the agreement in order
to preclude the plants of GBC at Hyderabad and Rajkot being used for manufacture of products of other manufacturers during the period 1993
agreements were substiting. P by taking control over GBC sought to achieve a dual purpose, viz. reduce the production capacity of beverages
bearing the trade marks held by C by denying use of the plants of GBC at the two places for manufacture of those products and to increase the
production capacity of P products by making available these plants for manufacture of P Products. The High Court granted interim injunction that
the two plants of GBC could not be used for manufacture of P products for two years as provided in the agreement as notice period and the effort
of P to gain an advantage over C by reducing the availability of products of C and increasing the availability of P products in the areas covered the
1993 agreement had been frustrated to a certain extent inasmuch as the increase in the availability of P products had been prevented. If such an
order had not been granted P would have been free to use the plants of GBC at the two places for the manufacture of their products. This would
have resulted in reduction of the share of C in the beverages market and the resultant loss, the goodwill and profits could not be adequately
compensated by damages. In so far as loss that may be caused to GBC as a result of grant of interim injunction, the Supreme Court took the view
that the loss sustained by GBC could be assessed and GBC could be compensated by award of damages which could be recovered from C in
view of the undertaking that C was required to give under Rule 148 of the Bombay High Court (Original Side) Rules, 1980.
The Supreme Court also observed that,
it could not lose sight of the fact that P had complained through the mouth of GBC that by reason of the interim injunction granted the bottling
plants of GBC at the two places would remain and a large number of workmen who had employed in the said plants would be rendered
unemployed.
It was also observed by the Supreme Court that,
P took a deliberate decision to take over GBC with the full knowledge of the terms of 1993 agreement and the idea was to paralise the operations
of C in that region and promote its own products. In view of the negative stipulation contained in the 1993 agreement, which had been enforced by
the High Court, P had not succeeded in its effort.
The Supreme Court held that,
it should suffer the consequences of the failure of the effort and it cannot assail the interim injunction granted by the High Court by involving the
plight of the workmen who were employed in the bottling plants of GBC.
The case on hand is a much better case on facts. It cannot be disputed that Hilton International is fully aware of the arrangement between the
plaintiff and the defendants and the relevant portions from the agreement between Hilton International and the defendants have already been
adverted to. I am of the view that the decision of the Supreme Court in Gujarat Bottling Company case would squarely apply to the facts of the
present case. I reject the contention of the learned Counsel for the defendants/respondents that the Gujarat Bottling Company case would not
apply as it did not involve any real estate ownership rights as in the present case or that there is no factual statement in the plaint as to how the
plaintiff would suffer loss if the injunction prayed for are not granted and further that the Supreme Court in that case came to the conclusion that
Coca Cola could not be compensated. In the present case, I am prima facie satisfied that it is not possible to quantify the damage that would be
caused to the plaintiff by reason of the conduct of the defendants in terminating the agreement and hitching up with Hilton International.
Let us now go to negative covenants. Dealing with negative contracts in Chitty on Contracts 27th Edition, Volume 1 it is stated as follows:
Where a contract is negative in nature, or contains an express negative stipulation, breach of it may be restrained by injunction. In such cases an
injunction is normally granted as a matter of course, even though the remedy is an equitable and thus in principle a discretionary one. A defendant
cannot, in particular, resist an injunction simply on the ground that observance of the contract is burden some to him that its breach would cause
little or no prejudice to the plaintiff; indeed, breach of an express negative stipulation can be restrained even though the plaintiff cannot show that
the breach will cause him any loss. In such cases, the court is not concerned with ""the balance of convenience or inconvenience."" This rule,
however, only applies to a prohibitory injunction restraining a defendant from future breaches. If he has already broken his contract (e.g. by fencing
land that he promised to leave open) he may be ordered by a mandatory injunction actually to under the breach. Such an order is subject to a
balance of convenience"" test, and may, accordingly, be refused if the prejudice suffered by the defendant in having to restore the original position
heavily out weighs the advantage that will be derived from such restoration by the plaintiff. On the other hand, the court will also, in applying the
balance of convenience test, take account of the nature of the breach. Thus where the defendant had in breach of a restrictive covenant erected a
building so as to block the plaintiff''s sea view, a mandatory injunction was granted as the breach had been committed deliberately, with full
knowledge of the plaintiff''s rights, and as damages would not have been an adequate remedy.
Applications for interlocutory injunctions are likewise subject (inter alia) to the ""balance of convenience"" test; except where there is ""a plain and
uncontested breach of a clear covenant not to do a particular thing.
Dealing with express negative promises, the learned author says in paragraph 1895 as follows:
Specific performance will not generally be indirectly enforced by restraining either party by injunction from committing a breach of his positive
obligation to work or to employ. But such a contract may contain an express negative promise which can be enforced by injunction without
indirectly compelling the employee to work for the employer, or the employer to employ the employee. In Lumley Vs. Wagner (1852-I De G.M.
& G. 604) the defendant had agreed with the plaintiff to sing at the Drury Lane theatre on two nights a week for a period of three months, and not
to use her talents at any other theatre during that period, without the written authority of the plaintiff. Afterwards she agreed for a larger payment to
sing during the three months for Mr. Gye at Covent Garden, and to abandon the agreement with the plaintiff. Lord St. Leonards L.C. granted an
injunction, restraining the defendant from singing for Mr. Gye. He said:
It is true that I have not the means of compelling her to sing, but she has no cause of complaint if I compel her to abstain from the commission of an
act which she has bound herself not to do."" On the same principle, breach of negative stipulation against acting elsewhere than is promised may be
restrained by injunction. (Grimston Vs. Gunnigham (1894 1 QB 125); Robinson & Co. Ltd. Vs. Heuer (1898 2 Ch. 451); Tvoli (Manchester) Vs.
Colley (1904 20 T.L.R. 437); Warner Bros. Vs. Nelson (1937 1 K.B. 209). Such an injunction may provide an inducement to perform the
positive obligation, but it falls short of indirectly compelling the employee to do the agreed work.
In para 1899 it is stated as follows:
Implied negative promises:
An injunction to restrain the breach by an employee of a stipulation in a contract of employment will only be issued if the contract contains an
express negative promise. The remedy has been restricted in this way because in such cases an injunction may put so much economic pressure on
the person who is to render the service that he will in fact be forced to perform the positive part of the contract; and compulsion of this kind is
traditionally regarded as undesirable. But where the defendant''s obligation is not one to render personal services, there is less objections to an
injunction which puts pressure on him to perform his positive undertaking, even though it may not be specifically enforceable; and in many cases of
this kind the courts have been willing to imply negative stipulations and to restrain their breach of injunction. Thus an injunction has been issued to
prevent a ship owner from using a ship under charter inconsistently with the charter-party, to restrain breach of a promise to give ""first refusal"" of
purchase of land, and to restrain breaches of various exclusive dealing agreements. And a seller of uncut timber had been restrained from
interfering with the right of the buyer to enter the land to cut down the timber and to take it away; this was ""not specific performance in the sense of
compelling the vendor to do anything. It merely prevents him from breaking his contract.
In Hanbury and Maudsely Modern Equity, Thirteenth Edition at page 745 it is stated as follows:
Where a contract contains both positive and negative stipulations, and the positive ones are not susceptible to the remedy of specific performance,
the question arises whether the plaintiff can restrain the breach of the negative stipulation by injunction. In suitable cases, this can be done. The
jurisdiction to grant an injunction is wider than that to order specific performance.
The principle is that an injunction will not be granted if that would amount to indirect specific performance of the positive terms. Thus, it used to be
said with confidence that if an employer agreed with his manager not to terminate the employment except for misconduct or breach of the
agreement, and then gave notice to the manager, no injunction would lie, for this would indirectly enforce the contract.
It has been held by the Supreme Court in Delhi Development Authority Vs. Skiper Construction Company (P) Ltd. and another, that,
Before making the order for injunction, the court must be satisfied that it is a case which calls for such an order. This obligation cannot be
jettisoned and the onus placed upon the respondents to apply for vacating it by mechanically granting an order of injunction.
In Konrad Wiedemann GmbH & Co. Vs. Standard Castings P. Ltd. and others (Volume 10 Industrial Property Law Reporter (Delhi) at page
243),
there was a collaboration agreement between a German firm and an Indian Company to manufacture tractors in India. There was breach by Indian
Company of the terms regarding payment for transfer of know how and services. The German firm entertained apprehension as to non-observance
of confidentiality of information and unauthorised manufacture of tractors and filed suit for declaration of their title to ownership of prototype and
also sought interim injunction to prevent disposal of prototype, divulsion of confidential information and prayer for appointment of a Court receiver
to take custody of prototype.
The Delhi High Court granted the injunction prayed for. It rejected the contention of the defendants that the plaintiffs were only entitled to royalty
on sales of tractors manufactured by the defendants. The Delhi High Court granted the prayer in the following terms pending suit:
Granted an injunction against the defendants restraining them from
(i) alienating, disposing of, charging or handing over possession of the prototype of the towing tractor to any party;
(ii) making copies of the said prototype in any manner or manufacturing or marketing, directly or indirectly, any equipment based upon or derived
form the prototype; and
(iii) disclosing to any person any information received by them from the plaintiff in relation to the prototype.
In Burlington Home Shopping Pvt. Ltd. Vs. Rajnish Chibber, in a case arising under the Copyright Act, 1957 as amended by Copyright
Amendment Act, 1994 (Act No. 38 of 1994) relating to data base compilation literary work consisting of compilation of mailing addresses of
customers, the question arose whether breach of the same could be subject-matter of copyright. It was found that,
There were striking similarities and it was liable to be restrained.
It was observed by the Delhi High Court that,
the authorities and the trend of judicial opinion are clear that a compilation of addresses developed by any one by devoting time, money, labour
and skill though the sources were commonly situated, amounts to a literary work, wherein the author has a copyright.
It was further held that,
the database available with the defendants is substantially a copy of the database available with the plaintiff and compiled by the plaintiff. The
striking similarities noticed in the two databases could not have existed but for the fact of the defendants having made use of plaintiff''s database
and, therefore, a strong prima facie case had been made out for infringement by the defendants of the plaintiff''s copyright.
In Hanbury and Maudsely on Modern Equity 1990, the law is stated as follows:
The courts have gone even further than this in protecting confidential material. Before 1875, it was accepted that equity would, in suitable cases,
restrain a defendant from revealing or distributing information or other material obtained in confidence, regarding the breach of confidence as an
equitable wrong needing protection by injunction even though it was not easy to say that it was protected by any other remedy. And it has now
been accepted that the jurisdiction in this type of case does not depend on any notion of property or contract, but that an obligation of confidence
can exist by virtue of the circumstances, and independently of any actual agreement to that effect.
An injunction will be available to restrain a breach of confidence, whether arising out of a personal, commercial or other relationship.
In Warner Brothers Pictures Inc. Vs. Nelson (1936 3 All ELR 160) the problem arose this way:
By a contract in the usual form in the industry, a prominent film actress undertook during the term of the employment not to render any services for
or in any other photographic stage or motion picture production or business of any other person or engage in any other occupation without the
written consent of the producer.
The negative stipulations ran as follows:
She will not, during the term of the contract render any services for or in any other photographic, stage or motion picture production or
productions, or business of any other person...... or engage in any other occupation without the written consent of the producer being first had and
obtained.
Sometime thereafter, the actress declined to be further bound by the agreement, left the United States and entered into an agreement in England
with a third person. Contending this was a breach of contract on her part, the plaintiffs commenced action claiming a declaration that the contract
was valid and binding and sought an injunction to restrain the defendant from acting in breach of it and damages. It was admitted at the trial by the
defendant that the plaintiffs had not broken any part of the contract and that she had, but it was contended on her behalf that no injunction could as
a matter of law be granted in the circumstances of the case.
Lumley Vs. Wagner (1852 1 De. G. M. & G. 604 ) was referred to end the following passage of Lord St. Leonards, L.C. was extracted:-
Wherever this Court has no proper jurisdiction to enforce specific performance, it operates to bind men''s consciences, as far as they can be
bound, to a true and literal performance of their agreements; and it will not suffer them to depart from their contracts at their pleasure, leaving the
party with whom they have contracted to the mere chance of any damages which a jury may give. The exercise of this jurisdiction has, I believe,
had a whole some tendency towards the maintenance of that good faith which exists in this country to a much greater degree perhaps than in any
other; and although the jurisdiction is not to be extended, yet a judge would desert his duty who did not act up to what his predecessors have
handed down as the rule for his guidance in the administration of such an equity.
and the king''s Bench held as follows:-
(1) Where the enforcement of such negative covenants did not amount to a decree of the specific performance of the positive covenants, or to
obliging the employee to remain idle or perform the positive covenants, they can be enforced by injunction;
(2) The granting of such an injunction was discretionary and should be limited to what is reasonable in all the circumstances of the case; and
(3) In the circumstances of this case an injunction to enforce the negative stipulations should be granted limited in area to the jurisdiction of the
Court and in time to the duration of the contract or three years whichever period should be the shorter.
The King''s Bench referred to the language of WILLS, J. in Crimston Vs. Cuningham (1894 1 Q.B. 125) which was as follows:-
This is an agreement of a kind which is pre-eminently subject to the interference of the Court of injunction, for in cases of this nature it very often
happens that the injury suffered in consequence of the breach of the agreement would be out of all proportion to any pecuniary damages which
could be proved or assessed by a jury. This circumstance affords a strong reason in favour of exercising the discretion of the Court by granting an
injunction.
It was held in Terrapin Ltd. Vs. Builders'' Supply Co. (Hayes) Ltd., Tayler Wood Row Ltd. and Swift Plan Ltd. (1960 5 Reports of Patent,
Design and Trade Mark Cases) that there could be injunction in respect of misuse of confidential information given by one party to another.
In Peter Pan Manufacturing Corporation Vs. Corsets Silhouette Ltd. (1963 3 All ELR 402) it was held that,
If a defendant is proved to have used confidential information directly or indirectly obtained from a plaintiff, without the consent, express or implied
of the plaintiff, he will be guilty of an infringement of the plaintiff''s rights.
This obligation does not depend necessarily on the prior existence of a contractual relationship between the parties.
It was also held that,
apart from liability for breach of contract, damages are obtainable for breach of confidence by virtue of Lord Cairns'' Act.
In Saltman Engineering Co. Ltd. and others Vs. Campbell Engineering Co. Ltd. (1948 65 R.P.C. 203) it was observed as follows:-
If two parties make a contract, under which one of them obtains for the purpose of the contract or in connection with it some confidential matter,
then, even though the contract is silent on the matter of confidence, the law will imply an obligation to treat that confidential matter in a confidential
way, as one of the implied terms of the contract; but the obligation to respect confidence is not limited to cases where the parties are in contractual
relationship. The formula is that if a defendant is proved to have used confidential information, directly or indirectly obtained from a plaintiff, without
the consent, express or implied of the plaintiff, he will be guilty of an infringement of the plaintiff''s rights.
The information to be confidential, must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely, it must not be
something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a
formula, a plan, a sketch, or something of that kind, which is the result of work done by the matter on materials which may be available for the use
of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only
be produced by somebody who goes through the same process.
In a recent judgment, the Court of Appeal Civil Division, in Murray Vs. Yorkshire Fund Managers and another (1998 2 All E.R. 1015) as
regards breach of confidence, has observed as follows:-
In order to succeed in an action for breach of confidence a plaintiff has to show, apart from contract that the information had the necessary quality
of confidence about it, that it had been imparted in circumstances importing an obligation of confidence and that there had been an unauthorised
use of the information to the detriment of the party communicating it.
In my view, all the three conditions are satisfied in the present case. I have therefore no hesitation in holding that the plaintiff is entitled to the
relief''s prayed for in the interlocutory applications.
One other aspect to be considered is the fraud alleged against the defendants. The plaintiff, according to its case, came to know about the
amalgamation of the first defendant with the third defendant from the counter filed on behalf of defendants 1 and 2. Thereafter, the third defendant
was brought on the scene pursuant to the orders dated 11-3-1997 of this Court. It is not necessary to go into the question of lifting the corporate
veil inasmuch as, even according to the third defendant, it is not going to dispute its liability in case such liability is fastened on it. All the three
prerequisites for grant of interim injunction: (1) prima facie case; (2) balance of convenience and (3) irreparable loss or harm are present in the
instant case and the following order is passed:-
O.A.No. 653/96: There will be an interim prohibitory temporary injunction restraining the respondents jointly and severally, their directors,
partners, servants, agents, distributors, stockists, representatives, etc., from using or converting to use the proprietary information and technology
of the applicant comprised in the Holiday Inn System; the hotel plans regarding outlay, facilities, planning, architectural and technical drawings; and
any relevant recommendation, advice or information made available to the respondents including those regarding interior fit-out, hotel computer
system and information technology, room reservation technology and facilities, Standards Manual, etc. pending disposal of the suit for finalizing,
completing, furnishing and/or operating the hotel at Mount View, No. 1, G.S.T. Road, Guindy, Madras.
O.A.No. 654/96; There will be an interim prohibitory temporary injunction restraining the respondents jointly and severally, their directions,
partners, servants, agents, distributors, stockists, representatives, assigns or any of them from transferring alienating or creating any interest in
favour of any third party directly or indirectly in the proposed hotel at Mount View, No. 1 G.S.T. Road, Guindy, Madras.
O.A.No. 104/97: There will be an interim prohibitory temporary injunction restraining the defendants and Appu Hotels Ltd. jointly and severally,
their directors/partners, servants, agents, distributors, stockists, representatives, assigns or any of them from commissioning and operating the hotel
at the schedule mentioned property.
No orders are necessary in Application No. 1464/97 in view of the orders passed in the other applications.
However, there will be no order as to costs in the applications.