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2008 DIGILAW 190 (CAL)

Farinni v. Dream Food Products

2008-02-15

SANJIB BANERJEE

body2008
Judgment :- (1.) THE plaintiff insists on the enforcement of the negative covenant and the defendants urge that their daily bread comes from the manufacture of cakes. The unravelling of the problem lies in the answer to the legal issue as to whether the Court is left with no discretion in the enforcement of the negative covenant. (2.) THE plaintiff came to Court almost at the beginning of the season of good cheer and obtained an ex-parte order on December 12, 2007 in terms of prayer (a) and the appointment of a special officer in terms of prayer (b) of the petition. Prayer (a) restrained the defendants from manufacturing any product for any person other than the plaintiff. Prayer (b) permitted the special officer to keep a check on the activities at the defendants factory. On December 20, 2007, upon the defendants being heard, the special officer was required to make a surprise visit to the defendants manufacturing unit without giving notice to any of the parties. (3.) THE defendants submit that their entire business has come to a standstill and the best season for cakes, despite this extended winter, is almost over. The defendant pleads that the Court is not bound to grant an injunction in every case to enforce a negative covenant and a prayer for injunction may be refused if it would indirectly compel the defendant to idleness or serve the plaintiff. (4.) THE parties entered into an agreement on July 16, 2004 which envisaged that the defendants would manufacture cakes of the plaintiffs farinni brand of value of Rs. 50,000/- per day. The relevant clause in the agreement does not read to be as rigid as being a minimum guaranteed amount but the parties are agreed that the plaintiff was to place orders, and the defendants were to manufacture, goods of minimum value of rs. 50,000/- per day. The fourth clause in the agreement is the one that the plaintiff insists on:- " (4) The second party (the first defendant) will not produce any goods in their Brand name or other name without written concent (sic, consent) of first party". (5.) FOLLOWING the agreement, the defendants acquired some machines from the plaintiff for a promised sum of Rs. 13. 5 lakh for which 27 post-dated cheques were issued. (5.) FOLLOWING the agreement, the defendants acquired some machines from the plaintiff for a promised sum of Rs. 13. 5 lakh for which 27 post-dated cheques were issued. The memorandum of understanding of November 27, 2005 records that the last payment would be made by the defendants in the month of February, 2008. On August 19, 2006 the parties agreed in writing that a monthly fixed sum of Rs. 90,000/- would be paid by the plaintiff to the defendants against manufacture of products upto the value of rs. 15 lakh; for products of value of more than Rs. 15 lakh and upto Rs. 20 lakh, the defendants would be entitled to 6% of the value; and for manufacture of products in excess of Rs. 20 lakh, the defendants would be entitled to 5% of the value per month. (6.) ACCORDING to the plaintiff, disputes arose following the defendants failure to pay an instalment towards machinery supplied and by September, 2007 the plaintiff complained of alleged breach on the party of the defendants. The narration of events in the petition suggests that a letter was written by the first defendant to the plaintiff on October 1, 2007, to which the plaintiff replied on October 3, 2007 and thereafter the plaintiff discovered that the defendants were manufacturing cakes sold under the brand Bapuji for another confectionery. It was in such circumstances, that the plaintiff caused its Advocate to write a letter on October 22,2007 to the defendants requiring the defendants to stop producing goods for any party other than the plaintiff. The grievance that the plaintiff came to Court with was that its Advocates demand went unheeded despite the fourth clause in the agreement being a complete embargo on the defendants manufacturing any product for any other person. (7.) TO begin with, the defendants suggest that the plaintiffs invocation of the territorial jurisdiction of this Court is on tenuous grounds. The defendants suggest that the plaintiff has no office at all at Amartalla Street but has cited such address to slip into this Court. The defendants insist that the Amartalla Street address of the plaintiff was thought up to dodge the caveat lodged elsewhere by the defendants and to obtain an ex parte order. The defendants suggest that the plaintiff has no office at all at Amartalla Street but has cited such address to slip into this Court. The defendants insist that the Amartalla Street address of the plaintiff was thought up to dodge the caveat lodged elsewhere by the defendants and to obtain an ex parte order. No papers have been produced by the plaintiff, the defendants claim, that would show that the plaintiff carries on any business within jurisdiction or that the Amartalla Street address figures in any of the plaintiffs letterheads or bank account papers or other documents. (8.) THE defendants say that by subsequent agreement evident from undisputed letters, the parties had agreed to an enhanced daily order of value of Rs. 1 lakh being placed by the plaintiff. The defendants justify such enhanced quantum by asserting that the defendants acquired the plaintiffs machines on the promise of enhanced orders. The defendants urge that the plaintiff has found an alternative manufacturing facility and has proffered one excuse after another to deny the defendants the minimum guaranteed amount, cite alleged breach on the defendants part and seek to enforce the negative covenant to squeeze the defendants out of the business altogether. (9.) THE defendants refer to an electronic mail message of October 16, 2007 issued by the plaintiff in response to the defendants letter October 1, 2007 and suggest that the reply of October 3, 2007 relied upon in the petition was posted only on October 16, 2007 but a false impression as to the immediacy of the reply had been presented to Court at the ex parte stage. The defendants say that such electronic mail of October 16, 2007 was deliberately suppressed as it would show the plaintiffs acknowledgement of the defendants manufacture of Bapuji cakes and the invitation to arrive at a workable solution. The defendants submit that upon the plaintiff not having reacted with alarm or alacrity on the defendants intimation that the defendants would manufacture products for others, and despite the plaintiffs knowledge in beginning October 2007 that the defendants had commenced manufacture of Bapuji cakes, the plaintiff should not be rewarded for having approached the Court with far less candour than was required of it in seeking an ex parte order. (10) THE defendants rely on their letter of May 12, 2006 and the plaintiffs endorsement thereon to suggest that the parties had agreed to production of Farinni products at the defendants factory of value of Rs. 1 lakh per day. A writing of June 17, 2006, received by the plaintiff on June 21, 2006, is placed for the same purpose. The defendants suggest that substantial sums remain due to them from the plaintiff which ought to be adjusted against the money due to the plaintiff for the machines and it would inequitable for the plaintiff to insist on payment for its machines without paying the defendant for the manufacturing and related costs. In effect, the defendants submit that the plaintiff is in breach of the agreement by not placing orders covering the minimum guaranteed amount which left the defendants with no alternative but to take up manufacturing cakes for others upon notice to the plaintiff. (11.) EVEN after affidavits were completed, at the suggestion of Court the parties were required to attempt to work together and the defendants were agreeable in starting with the minimum guaranteed amount of rs. 50,000/-per day, but it appears that over the week since the attempt was to begin, the parties have merely traded charges. (12.) THE simple case of the plaintiff is that such mundane matters as the defendants refer to are irrelevant in the context of the negative covenant that it seeks to implement. The plaintiff refers to Section 42 of the Specific relief Act to insist that it is entitled to a blanket order restraining the defendants from manufacturing for any other. The plaintiff asserts that the other terms of the agreement may not be enforced or may even be incapable of being enforced, but that would leave the negative covenant unaffected. The plaintiff is emphatic that there is no breach of its part such as would disentitle it from enforcing the negative covenant within the meaning of Section 42 of the Specific Relief Act. The disinclination on its part, the plaintiff says, arose upon the breach on the defendants part and the plaintiff cannot be faulted in its conduct. (13.) THE plaintiff has relied on a judgment reported at AIR 1996 Cal 67 (Vijaya Minerals Pvt. Ltd. v. Bikash Chandra Deb) and has relied on paragraph-77 thereof:-"77. The disinclination on its part, the plaintiff says, arose upon the breach on the defendants part and the plaintiff cannot be faulted in its conduct. (13.) THE plaintiff has relied on a judgment reported at AIR 1996 Cal 67 (Vijaya Minerals Pvt. Ltd. v. Bikash Chandra Deb) and has relied on paragraph-77 thereof:-"77. In any event, there is a negative covenant in the contract, and in such a case, the question of balance of convenience and whether damages would be adequate remedy or not becomes immaterial. " (14.) THE defendants refer to a judgment reported at 1995 (5) SCC 545 (Gujarat Bottling Co. Ltd. and Ors. v. Coca Cola Co. and Ors.). Paragraphs-42 and 43 of the Gujarat Bottling case have been placed for the proposition that the Court is not bound to grant an injunction to enforce a negative covenant in every case and the grant of injunction is subject to the discretion of Court:-"42. In the matter of grant of injunction, the practice in England is that where a contract is negative in nature, or contains an express negative stipulation, breach of it may be restrained by injunction and injunction is normally granted as a matter of course, even though the remedy is equitable and thus in principle a discretionary one and a defendant cannot resist an injunction simply on the ground that observance of the contract is burdensome to him and its breach would cause little or no prejudice to the plaintiff and that breach of an express negative stipulation can be restrained even though the plaintiff cannot show that the breach will cause him any loss. [see: chitty on Contracts, 27th Edn. , Vol. I, General Principles, Paragraph-27-040 at p. 1310; Halsburys Laws of England, 4th Edn. , Vol. 24, paragraph-992. ] In India Section 42 of the Specific Relief Act, 1963 prescribes that notwithstanding anything contained in Clause (e) of section 41, where a contract comprises an affirmative agreement to do a certain act, coupled with a negative agreement, express or implied, not to do a certain act, the circumstance that the Court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement. This is subject to the proviso that the plaintiff has not failed to perform the contract so far as it is binding on him. This is subject to the proviso that the plaintiff has not failed to perform the contract so far as it is binding on him. The Court is, however, not bound to grant an injunction in every case and an injunction to enforce a negative covenant would be refused if it would indirectly compel the employee either to idleness or to serve the employer. [see: Ehrman v. Bartholomew, 1898 (1)Ch. 671; N. S. Golikari, 1967 (2) SCR 378 at p. 389. "43. The grant of an interlocutory injunction during the pendency of legal proceedings is a matter requiring the exercise of discretion of the Court. While exercising the discretion 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. [see: Wander Ltd. v. Antox India (P) Ltd. , 1990 Supp SCC 727 (SCC at pp. 731-32.) In order to protect the defendant while granting an interlocutory injunction in his favour the Court can require the plaintiff to furnish an undertaking so that the defendant can be adequately compensated if the uncertainty were resolved in his favour at the trial. [see: Wander Ltd. v. Antox India (P) Ltd. , 1990 Supp SCC 727 (SCC at pp. 731-32.) In order to protect the defendant while granting an interlocutory injunction in his favour the Court can require the plaintiff to furnish an undertaking so that the defendant can be adequately compensated if the uncertainty were resolved in his favour at the trial. " (15.) THE Supreme Court judgment could not have been considered by the learned Single Judge in the Vijaya Minerals case as it is a letter judgment. The absolute view expressed in the Vijaya Minerals case, that the question of balance of convenience would be immaterial in the enforcement of a negative covenant, does not appear to be in consonance with the principle enunciated by the Supreme Court. (16.) THERE is an arguable case of breach on the plaintiffs part that the defendants make out. But such matter has to await the trial. Yet, there is a discretion which is at large, the grounds of prejudice aside, and it appears that the defendants put the plaintiff on notice that they would manufacture for another as the plaintiffs conduct stifled the working of the agreement between the parties. It is not merely the delay of nearly two months between the plaintiffs discovery of the defendants manufacturing of Bapuji cakes and the plaintiffs coming to Court, but the plaintiffs invitation to the defendants found in the following sentence of its mail of October 16, 2007:- "nevertheless, we request you to come forward with a written workable proposal which could be beneficial for both of us." (17.) SUCH sentence came upon the previous which noted the manufacture of Bapuji cakes by the defendants and the consequent violation of the agreement between the parties. There was no immediate demand by the plaintiff on the defendants to desist from manufacturing bapuji cakes, though an Advocates notice was sent in late October, 2007. There is no denial in the plaintiffs mail of October 16, or in the written communication of October 3, 2007 (posted on October-16) of the plaintiff having found an alternative manufacturing unit. Prima facie, there appears to be some basis that the plaintiff had decided not to keep its commitment to the defendants factory after having its cakes manufactured at another. (18.) IT is evident that the parties are at loggerheads and cannot work together. Prima facie, there appears to be some basis that the plaintiff had decided not to keep its commitment to the defendants factory after having its cakes manufactured at another. (18.) IT is evident that the parties are at loggerheads and cannot work together. The plaintiff may have justifiable reason to not have its valued brand manufactured by a grudging producer. Though the law recognizes that a negative covenant can be enforced even if the agreement may not be enforceable as to its other terms, the result of an injunction in aid of the negative covenant would be a closure of the defendants factory. The balance of convenience would not warrant the defendants to be condemned to idleness. The plaintiff, no doubt, has a prima facie case in that the negative covenant stares at the defendant, but it is only a third of the distance that the plaintiff covers on the strength of a prima facie case having been made out. The plaintiff does not make the second or the final thirds to earns its injunction on the negative covenant as the balance of convenience, in the circumstances, is not in its favour and the plaintiff would suffer no irreparable injury if the injunction is refused. The plaintiff does not deny that it has an alternative manufacturing facility and its business would not stop if the defendants were left free to manufacture for any other person. (19.) THE interim order is vacated, but the defendants have to be put on terms. The defendants should pay the entire sum due on account of the machinery to the plaintiff, without insisting on any adjustment on any other account, in six equal monthly instalments beginning March 15, 2008 and payable by the 15th day of the five succeeding months. In default of any payment, there will be an interim order in terms of prayer (a) of the notice of motion and the plaintiff will have liberty to seek further interlocutory reliefs. (20.) G. A. No. 3861 of 2007 is disposed of on the above basis without any order as to costs. Urgent photostat certified copy of the order may be supplied to the parties applying for it upon compliance with all requisite formalities. Later- Stay of operation of the order is prayed for by the plaintiff and is declined.