UCMAS Mental Arithmetic vs Akademi Sempoa and Mental

R.S. Ramanathan, J.—The Defendants are the Applicants in Application No. 6371 of 2013. The Respondent/Plaintiff filed a Suit C.S. No. 835 of 2013 for Permanent Injunction restraining the Defendants 1 to 3, their men, servants or agents from in any manner commencing or carrying on the business of imparting any educational training in the form of Mental Arithmetic Programs designed as "Indian Abacus" or such other similar names to students, either by describing themselves as "Formerly UCMAS India" or otherwise, which business is similar to the established Abacus Training concepts adopted and perused by the Plaintiff all over the world through its National and State Master Franchisees in violation of the terms and conditions contained in the National Franchisee Agreement, dated 1.4.2006 executed between the Plaintiff and the Defendants 1 & 2 and for permanent injunction restraining the Defendants 1 to 3 from in any manner interfering with the running of the business of the Plaintiff through their National Franchisees, State Franchisees, Franchisees and Course Instructors in India relating to educational training based on the specially prepared program related to such training known as "Universal Concept Abacus & Mental Arithmetic System" ("UCMAS"), which is not the subject matter of this application and also filed Application No. 950 of 2013 seeking the relief of Temporary injunction in respect of the prayer as stated above and also obtained an Order of Ad-interim Injunction. The Applicants filed Application No. 6371 of 2013 to vacate the Temporary Injunction granted in favour of the Respondent/Plaintiff in A. No. 959 of 2013 in C.S. No. 835 of 2013.

The case of the Respondent/Plaintiff in the Suit is that the Plaintiff is the owner of the Intellectual property right over ''UCMAS Mental Development Programs'' they have designed and conducted throughout India for several years. They have developed Abacus and made a unique program ''UCMAS Abacus & Mental Arithmetic'' for children from age 4 to 13. The Plaintiff and the 1st Defendant represented by the 2nd Defendant entered into a National Franchise Agreement on 1.4.2006, by which the 1st Defendant was appointed as ''National Franchisee'' for the Plaintiff for the whole of India for a period of 15 years and the 1st Plaintiff, by letter, dated 10.9.2013 informed the Plaintiff through e-mail his intention to surrender his rights under the National Franchise Agreement, dated 1.4.2006 and expressed his intention to terminate the ''Franchisee'' of the Plaintiff Though, correspondents were exchanged between the Plaintiff and the 1st Defendant regarding the execution of the Deed of Undertaking by the Plaintiff and the Deed of Assignment by the 1st Defendant, the cause of action for the Suit arose when the Plaintiff came to know that the 1st Defendant acting through the 2nd Defendant, started the very same business under the name and style of ''Abacus India Private Limited'' and started issuing Circulars/Notifications and pamphlets calling their Indian Abacus Products and Programs are the result of 14 years of background research and also claimed that the 3rd Defendant was formerly (UCMAS India) and they are the newly invented state of the art Indian Abacus devices with course materials for the children of age group 5 to 13 and the conduct of the Defendants in supporting the 3rd Defendant and imparting the very same technique used by the Plaintiff is contrary to Clauses 9.1 & 17 of the National Franchise Agreement, dated 1.4.2013 entered into between the Plaintiff and the Defendants and the Defendants had committed breach of contract and therefore, they are to be injuncted.

The Defendants filed Application No. 6371 of 2013 to vacate the order of Temporary Injunction, contending inter alia that the tools abacus and the program and training provided by the Respondent/Plaintiff are generic in nature and the Respondent/Plaintiff cannot claim any exclusive right over the same. It is further stated that the generic tool consisting of a frame with beads has been used for thousand of years in China and other eastern countries for doing arithmetical calculations and there is no change in the form of the tool for all these years and in India, there are more than 300 brands and innumerable unorganized Abacus Course operators are using this generic abacus and the Respondent/Plaintiff cannot claim to be the sole and exclusive proprietor of the abacus.

It is further stated that the abacus used all over the world is a manual one and they started experimenting in improving the conventional model and ultimately invented Indian Abacus, which is different from UCMAS Abacus used by the Plaintiff and also stated in detail about the difference of their product in Para 14 to 17 of the Affidavit filed in support of the Application and claimed that their newly invented tools are totally different, which are not used by the Plaintiff/Respondent and the Plaintiff cannot claim any exclusive monopoly over the concept abacus.

It is further stated that they have no intention of using the Respondent''s Trade Mark for misleading the business and also undertaken that they would not use the name of the Respondent/Plaintiff in their program and they are not doing an identical business as claimed by the Plaintiff and also undertake not to use the name of the Respondent/Plaintiff in any of the transactions, including brochures, advertisements and course materials. It is also specifically stated that the relief sought for cannot be granted, in view of Section 27 of the Contract Act.

The Plaintiff filed Counter Affidavit stating that the point for determination in this Application is whether the Defendants/Applicants acted in breach of the Agreement, dated 1.4.2006 by starting a similar, if not an identical business in abacus based Mental Arithmetic Program, which they were conducting originally under the auspices of the Plaintiff.

In the Counter, the Plaintiff claimed that they are the owners of the intellectual property right over the UCAMS Mental Arithmetic Program and also admitted that the concept of Abacus cannot be claimed by the Plaintiff, but the Plaintiff developed a unique program, which is based on abacus called as "UCMAS Mental Arithmetic Program" and Indian abacus is not the invention of the Defendants and by treating the same business, the Applicants/Defendants committed breach of Clause 17 of the Agreement, dated 1.4.2006 and therefore, they are to be injuncted and rightly Temporary Injunction was granted and therefore, the Applicants filed by the Defendants is liable to be dismissed and the Temporary Injunction may be made absolute.

Mrs. Hema Sampath, the learned Senior Counsel for the Applicants/Defendants submitted that as rightly pointed out by the learned Counsel appearing for the Respondent/Plaintiff, the issue to be decided in this Application is whether the Applicants have committed any breach on the terms of National Franchise Agreement, dated 1.4.2006 and according to the Respondent/Plaintiff, the Applicants have committed breach of Clauses 19 & 17 of the National Franchise Agreement and as per Clause 17.1.4(a), upon the termination of the Agreement, the Applicants should not operate any of the UCMAS courses or other similar Abacus & Mental Arithmetic courses and concept and dealing in educational materials, including materials issued by the National Franchisees Operation Office and not to solicit customers or former customers of the business nor Divert or seek to divert any business and/or customers from the Franchiser or any other National Franchisee of the Franchiser and as per Clause 9.1(a), the Applicants should not operate any other similar abacus & mental arithmetic course centre under any other name and style and so far as Clause 17.1.4(a) & (b) are concerned, the Applications should not operate or impart any of the UCMAS course and they are the former franchisee of the Respondent/Plaintiff and no proof has been adduced by the Plaintiff/Respondent that the Applicants are operating any of the UCMAS courses or other similar Abacus & Mental Arithmetic courses issued by the Plaintiff and no proof has been adduced that the Applicants are soliciting customers or former customers of the Plaintiff and therefore, in the absence of any proof to that effect, the Plaintiff cannot restrain the Applicants from doing their own business.

The learned Senior Counsel further submitted that Indian Abacus program invented by the Applicants/Defendants is entirely different from UCMAS course offered by the Plaintiff and in the Affidavit filed in support of the Application, the details of difference has been narrated and abacus is generic and the Plaintiff cannot claim any exclusive right of the concept of abacus and like the Plaintiff, the First Defendant has also developed a unique program known as ''Indian Abacus'', which is entirely a different and unique program and therefore, restrictions imposed in Clause 9.1(a) cannot be implemented and it is also against Section 27 of the Contract Act and therefore, the injunction is liable to be vacated.

The learned Senior Counsel relied upon the following Judgments in support of her contention:

Niranjan Shankar Golikari Vs. The Century Spinning and Mfg. Co. Ltd., ;

Superintendence Company of India (P) Ltd. Vs. Sh. Krishan Murgai, ;

M/s. Gujarat Bottling Co. Ltd. and others Vs. Coca Cola Company and others, ; and

M/s. FL Smidth Pvt. Ltd. Vs. M/s. Secan Invescast (India) Pvt. Ltd., .

On the other hand, Mr. K.S. Viswanathan, the learned Counsel appearing for the Respondent/Plaintiff submitted that Clause 9.1(a) will not amount to restrain of trade and the Applicants/Defendants are only using "UCMAS Mental Arithmetic Program used by the Plaintiff and that is also evidenced by Letter, dated 8th November 2013, wherein they have claimed that they were formerly UCMAS India and they have now launched their own newly invented state of the art Indian Abacus Devices, but using UCMAS India, which is the exclusive property of the Plaintiff and admittedly, the Applicants entered into a National Franchise Agreement with the Plaintiff and got themselves appointed as Franchisee to perform the UCMAS program and therefore, they were with UCMAS and now they claimed to have come out with a new invention and also claimed to be the successor of the Plaintiff and is trying to pass on the technical know-how of the Plaintiff under the new name ''Indian Abacus'' stating that they have newly invented the state of the art Indian Abacus Devices and as per Clause 9.1(a), they are not entitled to operate any other similar Abacus & Mental Arithmetic Course centre under any other name and style even after the period of termination and therefore, they are to be injuncted from doing the same business.

He also submitted that as per Clause 17.1.4(a) & (b) even after the termination of the Agreement, they are not permitted to do any business of similar nature for a period of two years and they should not operate any of the UCMAS courses or other similar Abacus & Mental Arithmetic courses and should not solicit customers or former customers of the Plaintiff and having regard to these clauses, the Plaintiff is entitled to injunction and that was rightly granted.

The point for consideration in this Application is whether Clause 9.1.4(a) amounts to restrain of Trade as per Section 27 of the Contract Act.

As per 27 of the Contract Act, every Agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void and there is an exception to Section 27, and it relates to a circumstance where a person sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer carries on a like business provided that such limits appear to the Court as reasonable. So far as the facts of the case are concerned, we will have to see whether Clause 9.1(a) is violative of Section 27 of the Contract Act.

Clause 9.1(a) of the Agreement reads as follows:

"(a) Not to operate any other similar Abacus & Mental Arithmetic Course centre under any other name and style;

In the Judgment reported in the case of Superintendence Company of India (P) Ltd. Vs. Sh. Krishan Murgai, , it has been held that under Section 27 of the Contract, a service covenant extended beyond the termination of the service is void.

In the Judgment reported in the case of G.R.V. Rajan Vs. Tube Investments of India Ltd. , it is held as follows:

"Section 27 of the Contract Act provides that "every Agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void". The section is absolute in its terms and admits of only one exception as at present, though when it was enacted there were three exceptions, the only exception now continuing on the statue book is that ''one who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within the specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business". A reading of the main Section and the exception places beyond doubt that there is only one exception to the rule as it stands now and that exception can come into play only in the case of a goodwill and the like business being carried on by the purchaser. In such a case, the Court has to find out whether the limits imposed by the Agreement are reasonable, having regard to the nature of the business. The Section does not make a distinction between a partial restrain and an absolute restraint."

In the Judgment reported in the case of M/s. Gujarat Bottling Co. Ltd. and others Vs. Coca Cola Company and others, , it is held that normally the Doctrine of Restraint of Trade is not attracted in cases where the restriction, is to operate during the period the contract. It applies in respect of a restriction which operates after the termination of the contract. Therefore, any restriction restraining a person from doing similar business, after termination of the contract amounts to restraint of trader as per Section 27 of the Contract Act and the same is void. Therefore, the Respondent/Plaintiff cannot resort to Clause 9.1(a) of the Agreement and restrain the Applicant from doing similar business after termination of the contract and the restriction imposed under Clause 9.1(a) is also void, as it amounts to restraint of trade as per Section 27 of the Contract Act.

Further, regarding Clause 17.1.4(a)(b) are concerned, the Applicants are not entitled to operate any of the UCMAS course, which is the exclusive property of the Plaintiff and according to the Applicants, they are not using UCMAS and similar Abacus & Mental Arithmetic Courses and there have newly invented a program known as ''Indian abacus'', which is not similar to UCMAS course and also narrated the difference and their concept in Paras 14 & 17 of the Plaint and in the Counter Affidavit, there is no specific denial. Further, whether the Indian Abacus Program alleged to have been invented by the Applicants is a new invention of the Applicants or not, can be only decided during trial and having regard to the Affidavit filed by the parties, wherein the Applicants answered that their product is a new invented one and also gave details about their product and narrated the difference of their product and the same was not controverted in the Reply Affidavit, it cannot be contended at this stage that the Applicants are using UCMAS course or other similar Abacus and Mental Arithmetic Courses of the Plaintiff. Hence, the Plaintiff is not entitled to the relief of injunction at this stage on the ground that Clause 9.1(a) is violative of Section 27 of the Contract Act and prima facie material has been placed by the Appellants to the effect that they are using different concept from that of the Plaintiff and unless, the Plaintiff is able to substantiate the product of the Applicants is the same as that of the Applicants, it cannot be contended that the Applicants are not entitled to use the Indian Abacus. Hence, at this stage, no prima facie has been shown by the Plaintiff and the balance of convenience is also in favour of the Applications/Defendants. Therefore, the Injunction granted in O.A. Nos. 950 in C.S. No. 835 of 2013 is vacated and the Application No. 6371 of 2013 is allowed. No costs.