Holding

Clause 31(b) is a post‑contractual restrictive covenant that constitutes a restraint of trade and is void under Section 27 of the Contract Act; consequently, an injunction enforcing it would amount to specific performance of a personal service contract, which is barred under the Specific Relief Act.

Summary

Percept D'Mark (India) Pvt. Ltd. entered into a three‑year promotion agreement with cricketer Zaheer Khan that contained a clause giving the company a right of first refusal on any third‑party endorsement offers, even after the contract expired. After the term ended, Khan signed a similar agreement with another firm. Percept sought an interim injunction under Section 9 of the Arbitration and Conciliation Act to enforce the post‑expiry clause; a single judge granted it, but the Bombay High Court Division Bench set it aside, holding the clause to be a restraint of trade void under Section 27 of the Contract Act. The Supreme Court examined whether the clause was a prohibited restraint of trade, whether an injunction would amount to specific performance of a personal‑service contract barred by the Specific Relief Act, and whether the interim relief was proper. The Court affirmed that the clause, being a post‑contractual restrictive covenant, is void under Section 27, and that granting an injunction would amount to specific performance of a personal fiduciary service, which is prohibited. Consequently, the Division Bench’s order was upheld and the appeal dismissed.

Issues considered

The validity of clause 31(b) (right of first refusal) as a restraint of trade under Section 27 of the Indian Contract Act, 1872.
Whether a negative covenant surviving the expiry of a personal services contract can be enforced by injunction.
Whether specific performance of a personal/fiduciary service contract is barred under Sections 14(1)(a), (b), (d) of the Specific Relief Act, 1963.
The propriety of granting an interim injunction at the interlocutory stage in a Section 9 arbitration application.

Legislation cited

Arbitration and Conciliation Act, 1996s. 9
Indian Contract Act, 1872s. 27
Specific Relief Act, 1963s. 14(1)(a), s. 14(1)(b), s. 14(1)(d), s. 42

Subjects

restraint of tradespecific performanceinjunctionpersonal services contractright of first refusalpost‑contractual covenantSpecific Relief ActContract Actarbitrationinterim relief

Judgment

A PERCEPT D'MARK (INDIA) PVT. LTD.
v.
ZAHEER KHAN

MARCH 22, 2006

B [H.K. SEMA AND DR. AR. LAKSHMANAN, JJ.}

Specific Relief Act, 1963-Sections 14(l)(a), (b} and (d}-Contract,
1872--Section 27-Promotion agreement for member of Indian Cricket team
C appointing sole and exclusive agent for marketing and generally managing
his diverse media affairs-Agreement having fued term with a clause that
after its expiry if he desired to appoint any other person as hi.f agent for
rendering similar services, he was required to give the agent option to match
offer of other party, and only if the agent refused it, appoint the other party-
After expiry ofthe term, cricketer entering into agreement with another person---
D Single judge of High Court granting ad-interim injunction restraining the
cricketer from acting upon agreement with the other party without first
performing his obligation under the clause offirst agreement-Division Bench
allowing the appeal-Correctness of-Held: Contract between the cricketer
and the agent was for services which were of personal, confidential and
E fiduciary in nature and its specific performance was barred by Section 14(l}(a),
(b) and (d) of Act of 1953-Grant of interim injunction by Single Judge of
High Court was wrong as it not only compelled such specific performance, but
also granted entire relief before conclusion of trial-Enforcement of negative
covenant of clause in first agreement beyond its term against contract entered
into subsequently was restriction on cricketer's freedom to enter into fiduciary
F relationships of his choice; it compelled him to enter into afresh contract with
the agent after fully performing his pervious contract, and was a restraint of
trade which was void under Section 27 ofAct of 1872--Section 9 ofArbitration
and Conciliation Act, 1996.

Contract, 1872-Section 27-Jnterpretation of-Neither test of
G reasonableness nor principle ofrestraint oftrade being partial is app/icab/e-
Agreement has to fall within express exception engrafted in it to be declared
void

Appellant company, carrying on business, inter alia, of celebrity

H 146
PERCEPT D'MARK (INDIA) PVT.LTD. 1'.ZAHEER KHAN 147
endorsement and management, entered into promotion agreement with A
respondent no. I, who was then a member of Indian Cricket team. Under
the agreement, appellant was to act as the sole and exclusive agent to
market and generally manage diverse media affairs, endorsements etc. of
latter. The term of the agreement was for a period of three years
commencing from October 30, 2000 and ending on October, 29, 2003
unless extended by mutual consent of both the parties. As per clause 31 B
(b) of the agreement, if respondent no. I, after expiry of term of the
agreement was desirous of appointing any other person as his agent for
rendering services similar to those rendered by appellant, he was required
to offer appellant the right to match the third party offer, and only in the
event of appellant opting not to exercise its right to accept it, appoint the C
third party. The appellant on 1.12.2003 became aware that respondent no.
I had entered into an agreement with respondent no. 2 for services similar
to those rendered by them and filed an Arbitration Petition in the High
Court under Section 9 of the Arbitration and Conciliation Act, 1996. They
prayed inter alia, for an interim order that pending the commencement
and duration of arbitration proceeding, respondent no. I be restrained by D
injunction from entering into or continue to act upon agreement with third
party without first performing his obligation under Clause 31 (b) of the
agreement. Single judge of High Court granted the ad-interim reliefs as
prayed for. However, Division Bench of High Court held that Clause 31(b)
of the agreement was in restraint of trade and void under Section 27 of E
Contract Act. It allowed the appeals, dismissed the arbitration petition and
passed orders for further proceedings in the case. Henre the present
appeals.

Appellant contended that (i) Clause 31(b) of the agreement giving
them right of refusal was reasonable, in furtherance of trade and hence F
not void under Section 27 of Contract Act (ii) Under Section 42 of Specific
Relief Act, 1963 Court can grant injunction to perform negative covenant
even where specific performance of affirmative covenant may not enforced.

Respondent contended that the agree!Dent cannot be specifically
enforced under Section 14 of the Specific Relief Act, 1963, and accordingly, G
F under Section 4l(e) no injunction could be granted as prayed by appellant.

Dismissing the appeals, the Court

HELD: 1.1. In view of the personal nature of the service and
relationship between the contracting parties, a contract of agency such as H
148 SUPREME COURT REPORTS [2006] 3 S.C.R.

A one entered into between the appellant and respondent No. I is incapable
of specific performance and to enforce the performance thereof would be
inequitable.

1.2. Grant of injunction restraining first respondent would have the
effect of compelling the first respondent to be managed by the appellant,
B in substance and effect a decree of specific performance of an agreement
of fiduciary or personal character or service, which is dependent on mutual
trust, faith and confidence.

1.3. Grant of this injunction resulted in compelling specific
-
C performance of a contract of personal, confidential and fiduciary service,
which is barred by Clauses (b) and (d) of Section 14 (I) of Specific Relief
Act, 1953.

1.4. It is not only barred by Clause (a) of Section 14(1) of the Specific
Relief Act, but this Court has consistently held that there shall be no
D specific performance of contract for personal services.

2.1. If the negative covenant or obligation under Clause 31(b) is
sought to be enforced beyond the term, i.e. if it is enforced as against a
contract entered into on 20-11-2003 which came into effect on 1-12-2003,
then it constitutes an unlawful restriction on respondent no. I's freedom
E to enter into fiduciary relationships with persons of his choice, and a
compulsion on him to forcibly enter into a fresh contract with the appellant
even though he has fully performed the pervious contract, and is therefore,
a restraint of trade which is void under Section 27 of the Indian Contract
Act.

F Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co.
Ltd., (1967[ 2 SCR 378 and Gujarat Bottling Co. ltd. v. Coca Cola Co.,
(1995[ 5 sec 545, relied on.

Madhup Chander v. Rajcoomar Doss, (1874) 14 Beng. L.R. 76,
approved.
G
2.2. The terms of the contract was expressly limited to 3 years from
30-10-2000 to 29-10-2003, unless extended by mutual agreement, and all
obligations and services under the contract were to be performed during
the term.
H
t
PERCEPT D'MARK (IND!A) PVT.LTD. r.ZAHEER KHAN 149
2.3. Clause 31(b) was also to operate only during the term, i.e. from A
the conclusion of the first negotiation period under clause 31(a) on 29-7-
2003 till 29-10-2003. This respondent No. I has scrupulously complied with.

2.4. While construing the provisions of Section 27 of the Contract
Act, neither the test of reasonableness nor the principle of restraint of trade
being partial is applicable, unless it falls within express exception engrafted B
in Section 27.

3.1. Grant of injunction by Single Judge amounted to granting the
whole or entire relief which may be claimed at the conclusion of trial,
which is impermissible.
c
Bank of Maharashtra v. Race Shipping. (1995) 3 SCC 257, relied on.

3.2. The single Judge's order completefy overlooked the principles
of balance· of convenience and irreparable injury. Whereas appellant could
be fully compensated in monetary terms if they finally succeeded at trial, D
respondent No. I could never be compensated for being forced to enter
into a contract with a party he did not desire to deal with, if the trial results
in rejection of Percept's claim.

Hindustan Petroleum v. Sriman Narayan, [2002) 5 SCC 760, relied on.

3.3. The Division Bench was right in coming to the prima facie E
conclusion drawn by it, and in setting aside the Single Judge's order. No
case was made out by the appellant for compelling respondent no. 1 to
appoint the appellant as his agent in perpetuity.

4.1. The present appeal challenges the interlocutory order of the High F
Court in which the Division Bench has itself made it clear that it is
recording only a prima facie finding that Clause 31(b) of the agreement
is void under Section 27 of the I,ndian Contract Act, 1872.

4.2. Ever since the rejection of the said interlocutory application by
the Division Bench there has been no injunction in operat~n and this G
Court while granting leave to appeal also declined to grant any stay of
the Division Bench's order or restoration of the Single Judge's order.
Consequently, during the past 2 112 years, the contract dated 22-11-2003
between respondent No. 1 and respondent No. 2 has been in operation and,
indeed, is soon to be completed. The appellant is now seeking a mandatory
H
150 SUPREME COURT REPORTS (2006] 3 S.C.R.

A interim order 2 1/2 years down the line, praying in effect that this Court
should set the clock back and grant an interim injunction which was
rejected by the High Court on 19-12-2003 and which was declined at the
stage of granting leave to appeal by this Court.

4.3. The appellants are seeking at the interlocutory stage on question
B the interpretation of restraint of trade during the post-contractual period,
which interpretation has been uniform, consistent and unchanged for the
past several years. Even if there were a case for reconsideration of this
132 year old interpretation, though none is made out by the appellant,
such an exercise ought not be undertaken in the present interlocutory
C proceedings.

5. Clause 31(b) of the agreement is an independent clause which
survives the expiry of the agreement and any dispute between the parties
regarding the enforceability of the said clause would come under the
Clause 32(g) of the agreement which provides for resolution of any claim
D or controversy pertaining to the agreement through the process of
arbitration.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 5573-5574
of 2004.

E From the Final Judgment and Order dated 19.12.2003 of the Bombay
High Court in Appeal Nos. 1109 and 1110 of 2003 in Arbitration Petition
No. 514/2003.

Ashok H. Desai, Ritin Ray, E.C. Agrawala, Mahesh Agarwal and Rishi
Agarwal for the Appellant.
F
K.N. Bhat, Chanderuday Singh, Prem Prakash, Ashok Mathur, Ms.
Ruby Singh Ahuja and Navin Kumar for the Respondents.

The Judgment of the Court was delivered by

G DR. AR. LAKSHMANAN, J. The above appeals were filed from the
common final judgment and order dated 19.12.2003 passed in Appeal No.
1109/2003 in Arbitration Petition No. 514/2003 and Appeal No. 1110/2003
in Arbitration Petition No. 514/2003 by the Division Bench of the High
Court of Judicature at Bombay whereby the appeals filed by the appellant
against fhe order of the learned Single Judge were allowed and the arbitration
H petition filed by the appellant herein before the Single Judge was dismissed.
PERCEPT D'MARK (INDIA) PVT.LTD. 1'.ZAHEER KHAN [ LAKSHMANAN, J.] J5}

The central issue of importance in this appeal is whether the right of A
first refusal under clause 31 (b) of the permission agreement entered into
between the appellant Percept D. Markr (India) Pvt. Ltd. and the respondent
No.I Zaheer Khan is void under Section 27 of the Indian Contract Act, 1872
has been in restraint of trade.

It was submitted by learned senior counsel for the appellant - Mr. B
Ashok H. Desai that the provision such as th,e right of first refusal is merely
regulatory and not in restraint of trade.

FACTS:

The appellant is a ~ompany incorporated under the Companies Act, C
1956 and carries on business, inter alia, of event management, model and
celebrity endorsement and management, charity events/social marketing, all
entertainment related activities, sports management and marketing, internet
marketing, broadband publicity and radio marketing.
, D
Respondent No. I - Zaheer Khan is an Indian citizen and a cricketer of
international repute. He had entered into an agreement with the appellant.
Respondent No.2 is a con1pany incorporated under the Companies Act, 1956.
'
The appellant entered into the said agreement with respondent No. I on
01.11.2000 for a period of 3 years commencing on 30. 10.2000 and expiring E
on 29.10.2003. By a letter of intent dated 29.07.2003, the appellant forwarded
to respondent No. I the draft terms for extension of the said agreement for a
further period of 5 years. Respondent No. I informed the representative of the
appellant from time to time that he does not intend to appoint any agent for
managing his different media affairs. Respondent No. I informed the appellant
on I0.09.2003 that he was. not desirous of renewing and/or extending the F
terms of the said agreement and the same would, therefore, terminate as of
20.10.2003. He further stated that the said letter provided for notice of non-
renewal. By the said letter, he informed the appellant of having received the
letter of intent and informed the appellant that he was not desirous of signing
the same. By the said letter, he confirmed that the 3 agreements stated in the G
said letter were subsisting. Respondent No. I was further informed that as per
the terms of the said agreement, prior to the execution of the first negotiation
period provided in Clause 3 l(a), he could not accept any offer for
endorsements, promotions, advertising or other affiliation with regard to any
product or services and that prior to accepting any offer, he was under an
H
152 SUPREME COURT REPORTS (2006] 3 S.C.R.

A obligation to provide the appellant in writing all the terms and conditions of
such third party and offer the appellant the right to match such third party
offer. Respondent, by his letter dated 23.09.2003, did not deny his
representation to the fact and the effect that he did not intend to appoint any
agent for managing his media affairs, however. clarified that he intended to
perform the subsisting agreement which had been entered into between the
B appellant and him and third parties which would continue beyond the terms
of the said agreement. The appellant. by its letter, clarified its position as
regards its contention in paragraphs 3 and 4 of letter dated 15.09.2003 and
further reiterated that if respondent No. I was at any time during or after the
term of the said agreement desirous of appointing any other person as his
C agent for rendering services similar to the services rendered by the appellants
under the said agreement. respondent No. I was first required to offer the
appellant the right to match the third party offer only in the event the appellant
• does not exercise its right to accept respondent No. I's offer on the same
terms and conditions as the third party offer. It was further stated that if the
terms offered by the third party materially changed in favour of such third
D party after the same had been offered by respondent No. I to the appellant,
respondent No. I would be required to re-offer the revised terms of the third
party offer. The appellant. by its letter dated 27.10.2003, reiterated the same
terms. On 29.10.2003, the agreement expired by efflux oftime. The appellant,
by its letter dated I 0.11.2003 reiterated what was stated by it in its earlier
E letters with regard to the rights of the appellant and obligations of respondent
No. I in case respondent No. I was desirous of appointing any other person
as his agent for rendering services similar to the services rendered by the
appellant under the said agreement.

Respondent No. I, by his letter dated 18.11.2003, alleged that he had no
F obligation under the said agreement after 29.10.2003, save and except
honouring the subsisting agreement entered into by respondent No. I with
third parties as specified in his letter dated 10.09.2003 and the agreement
entered into with Adidas Limited which was negotiated prior to the expiry of
the said agreement. In the said Jetter for the first time, after the said agreement
G had expired by efflux of time, respondent No. I alleged that the said agreement
was allegedly one-sided and an unfair arrangement. It is pertinent to note that
during the entire period of the said agreement, respondent No. I had not
alleged to the appellant that the terms of the said agreement was either one-
sided or unfair. The appellant states that the same was clearly an after-
thought.
H
PERCEPT D'MARK (INDIA) PVT.LTD. 1•.ZAHEER KHAN [ LAKSHMANAN, J.] J53

The appellant, for the first time, became aware on 01.12.2003 from A
some sources and from the website of respondent No.2 that respondent No. I
has entered into an agreement with respondent No.2 for services similar to
the services rendered by the appellant under the said agreement. Respondent
No. I has not denied the fact that he negotiated with third parties, including
respondent No.2 prior to expiry of the agreement with.out discharging his B
obligation to intimate the appellant of such offer.

On 04.12.2003, the appellant filed an Arbitration Petition No. 514/2003
in the High Court under Section 9 of the Arbitration and Conciliation Act,
1996 praying, inter alia, for an interim order that pending the commencement
of and during the arbitration proceedings and the making of the award therein C
and the implementation thereof, respondent No. I be restrained by an interim
order and injunction from entering into any agreement/arrangement or acting
upon or continuing to act upon any agreement/contract with respondent No.2
or any third party without first performing and complying with respondent
No.l's obligations under and in terms of Clause 31 (b) of the agreement.
D
Learned Single Judge of the High Court granted ad-interim relief in
terms of prayer Clause (a) of the petition. Respondent Nos. I and 2,preferred
separate appeals against the order of the learned Single Judge praying, inter
alia, for a stay therein.

The Division Bench allowed the appeals and dismissed the arbitration E
petition filed by the appellant on 19.12.2003. The High Court, by the said
order, directed respondent No.I (i) to place before the High Court in a sealed
cover the copy of the agreement entered into by respondent No. I with
respondent No.2 and/or any other third party immediately and was further
directed to place upto date accounts under the said contract/s (ii) to place F
before the High Court any other contract that he may enter into with any
third party within a period of 4 weeks from 19.12.2003; and (iii) to place on
record the account/s of four weeks under such contracts in a sealed cover.

Aggrieved by the above order, two special leave petitions were filed by
the appellant in this Court. This Court stayed the impugned order until further G
orders. On 27.08.2004, leave was granted.

We heard Mr. Ashok H. Desai, learned senior counsel, appearing for
the appellant and Mr. Chanderuday Singh, learned senior counsel, appearing
for respondent No. I and Mr. K.N. Bhat, learned senior counsel, appearing for
respondent No.2. H
154 SUPREME COURT REPORTS [2006) 3 S.C.R.

A Mr. Ashok H. Desai, learned senior counsel, appearing for the appellant
submitted that the High Court has failed to appreciate the true legal meaning
and effect of Section 27 of the Indian Contract Act, 1872. He submitted that
an agreement of 'first option' or the 'right of first refusal' of the kind contained
in the Promotion Agreement dated 01.11.2000 entered between the appellant
and respondent No. I can never be said to be an agreement in restraint of
B trade. Explaining further, he said that the contract of 'first refusal' on the
ground of option in favour of the appellant is not an independent agreement
to promote trade and not an agreement in restraint of trade. He would submit
that the High Court was not justified in rejecting the contention of the appellant
that the obligation of respondent No. I in Clause 31 (b) of the agreement
C survives the term of the said agreement. It was also submitted that the High
Court is not correct and justified in coming to the conclusion that the agreement
is a contract of service. Likewise, the High Court was not justified in coming
to the conclusion that the covenant contained in Clause 3 l{b) of the said
agreement was applicable only during the period of contract and not thereafter.
The High Court was also not justified in rejecting the appellant's contention
D that the derogation contained in Clause 31 (b) of the agreement is not in
restraint of trade but effectively in furtherance of trade and, therefore, not
void under Section 27 of the Contract Act. According to Mr. Desai, the
covenant in Clause 31 (b) of the agreement was an obligation which was to
operate after the close of business hours on 29.10.2003. There is also no
E contention on behalf of respondent No. I that the agreement was
unconscionable or excessively harsh or unreasonable or one sided. It was
submitted that the covenant contained in Clause 3 l(b) did not restrict
respondent No. I from accepting any offer for his endorsements, promotions,
advertisements or other services on his own and thus did not restrict respondent
No.1 's liberty to carry on his affairs in the manner he liked. The finding and
F the conclusion of the High Court that the covenant contained in Clause 3 l(b)
of the agreement curtailed respondent No. I to accept any offer for his
endorsement, promotion etc. by dealing with any person on his own. Under
the covenant contained in Clause 31 (b ), the appellant did not match the third
party offer within ten days of receiving such offer from such third party,
G respondent No. I had the liberty to enter into an agreement with such third
party.

According to Mr. Desai, the facts in this case clearly disclose the nature
of the Promotion Agreement entered into between the parties and the benefit
obtained by respondent No. I as well as the appellant. The Promotion
H Agreement dated 0 I. I 1.2000 is a class of contracts, common in the industry,
PERCEPT D'MARK (INDIA) PVT.LTD. 1>.ZAHEER KHAN [ LAKSHMANAN, J.J 155
that may be termed as 'celebrity contracts'. While arguing the case, Mr. A
J' Desai highlighted certain provisions of the agreement which are as follows:-

• Under the Agreement, the appellant was appointed as the sole
and exclusive agent to manage and market the affairs of
respondent.
1 • In consideration for this appointment, respondent no. I was
B
..__ guaranteed a minimum amount of Rs. 55 lakhs per year. In reality,
he was able to obtain Rs. I crore per year.
• Such a celebrity contract involves considerable risk to the agent
(in this case, the appellant) who has to guarantee a large amount
c
-- and to invest considerable amounts of money at a substantial risk
in creating and promoting a particular person as a brand. The
reciprocal promise obtained from the opposite party (in this case,
respondent no. I) is in the form of a right of first refusal.
• The Agreement provided for an initial term of three years (from
30.10.2000 to 29.10.2003) and extension thereof for such further D
period as may be mutually agreed.

* The extension was contemplated, inter alia, pursuant to the terms
of Clause 31 of the Agreement pursuant to which Respondent
no. I was to negotiate on an exclusive basis with the appellant
for a prescribed period. E
* Thereafter, Clause 31 (b) contained a right of first refusal clause
pursuant to which the appellant was to be given an opportunity
to match any third party offer made to Respondent No. I before
Respondent No. I was permitted to enter into the third party
agreement. If the appellant failed to match the third party offer, F
Respondent· no. I was free to enter into a contract with the third
party. If the appellant matched the offer, Respondent no. I suffered
no detriment. In either case, it cannot be said that Respondent
no. I was restrained in any manner and more importantly, the
right of first refusal clause has no detrimental impact on
G
respondent No.I - Zaheer Khan whatsoever. It is submitted that
such right of first refusal provision is customary in agreements
of this nature.

* The Agreement contains an arbitration clause to refer disputes to
arbitration.
H
156 SUPREME COURT REPORTS (2006) 3 S.C.R.

A * It is the undisputed position that both parties performed their
respective obligations under the Agreement and that Respondent
no. I therefore benefited financially for the 3 years that the
Agreement was in force. After gaining such benefit over a three
year period, Respondent No. I now challenges the validity of
clause 31(b) which is an integral part of the bargain and mutual
B rights and obligations of the parties to the Promotion Agreement
in the following circumstances.

Mr. Desai also furnished a brief list of dates which, according to him,
will restrict the contract of respondent No. I in attempting not to honour his
C obligation under the agreement to provide the appellant with a right to match
any third party offer.

01.11.2000 Appellant enters into Promotion Agreement with
Respondent no. I. Initial term is to expire on 29.10.2003.

29.07.2003 Appellant's letter to Respondent No. I forwarding the draft
D terms of an extension of the Promotion Agreement. Only
if accepted, the letter speaks of a condusion of the
negotiations contemplated under clause 31 of the Promotion
Agreement.

10.09.2003 Reply of Respondent no. I stating that he was not desirous
E of renewing and or extending the term of the Promotion
Agreement. Respondent no. I also informed the appellant
that he did not intend to appoint any agent to manage his
different media affairs, which was misleading.

15.09.2003 Appellant's letter referring to discussions with Respondent
F no. I wherein Respondent no. I had informed the appellant
that he did not intend to appoint any agent .for managing
his different media affairs. The letter clearly stated the
understanding of the parties that the right of first refusal
did not apply if the appellant himself managed his media
affairs and that otherwise, it applied during and after the
G terms of the Agreement.

23.09.2003 Reply of the Respondent no. I not contraverting the position
stated in the appellant's letter dated 15.9.2003.

06.10.2003 Further letter by appellant during term of Promotion
Agreement.
H
7

PERCEPT D'MARK (INDIA) PVT.LTD. ,.,zAHEER KHAN [ LAKSHMANAN, J.] J57

No re~ly from respondent no. 1 to appellant's letter A
dated 6.10.2003.

27.10.2003 Further letter by appellant during term of Promotion
Agreement.

28.10.2003 Reply of respondent no.I (one day before expiry of initial B
term of Promotion Agreement) making out a new case that
clause 31 (b) was void under the Contract Act.

20. J l .2003 Respondent no. I enters into contract with Respondent no-.
2 (Appellant became aware of the contract only during
proceedings before the Division Bench in the Bombay HC). C
04.12.2003 Appellant files Arbitration Petition No. 514/2003.

10.12.2003 Order of Single Judge granting ad in,terim relief in terms
of appellant's prayer (a)
19.12.2003 Impugned judgment of Bombay High Court holding clause D
31(b) to be void.

According to Mr. Desai, it is clear from the above details that contrary
to his commitment and without giving the appellant a right of first refusal as
required by Clause 3 l(b), respondent No.I appeared to have entered into an
agreement with respondent No.2 on 20.11.2003 for managing his media affairs. E
In such circumstances, on 01.12.2003, the appellant filed an application under
Section 9 of the Arbitration and Conciliation Act, 1996 praying that respondent
No.I be injuncted from entering into any such agreement or from acting in
furtherance of it. Thus, the relief claimed in Section 9 proceedings was only
against respondent No. I.
F
The learned Single Judge of the Bombay High Court granted the interim
relief in terms of prayer (a). The appeal filed by the respondent was allowed
and the learned Division Bench found Clause 31 (b) to be void under Section
27 of the Indian Contract Act, 1872.

Mr. Desai then argued the scope and effect of Section 27 of the Indian G
Contract Act, 1872. According to him, Section 27 deals with restraint of
trade and not with promotion or regulation of trade. The language of the
section makes this abundantly clear and the development of the case law in
India also supports this. In support of this contention, he relied on V.N
Deshpande v. Arvind Mills, AIR (1964) Bombay 423. In the said case, the H
158 SUPREME COURT REPORTS [2006] 3 S.C.R.

A High Court of Bombay was considering a clause relating to confidentiality of
infonnation and stated as follows:-

'"Clause 9 of the agreement prevents the appellant from divulging any
secret infonnation of the nature mentioned in that clause after the
tennination of his service. As pointed out in ( 1916) l AC 688 the
B defendant is not prevented from acquiring knowledge which makes
him a better employee for the public for future employment. It only
prevents him from divulging information which he has received as
respondents' employee to another party. It is, therefore, clear that the
clause as worded is proper and an injunction granted in tenns thereof
C is not unreasonable or wider latitude than justified in law." (emphasis
added)

The decision in Deshpande ·s case (supra) was affinned in Niranjan
Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd., [1967] 2
SCR 378.
D
"29. These observations indicate that a stipulation in a contract which
is intended for advancement of trade shall not be regarded as being
in restraint of trade. In Esso Petroleum Co. Ltd. the question whether
the agreement under consideration was a mere agreement for the
promotion of trade and not an agreement in restraint of it, was
E answered thus by Lord Pearce : (All ER pp. 726-27)

"Somewhere there must be a line between those contracts which
are in restraint of trade and whose reasonableness can, therefore,
be considered by the courts, and those contracts which merely
regulate the normal commercial relations between the parties
F and are, therefore, free from doctrine.

***
In the same case, Lord Wilberforce has observed : tAll ER p. 729)

"It is not to be supposed, or encouraged, that a bare allegation that
G
a contract limits a trader's freedom of action exposes a party suing
on it to the burden of justification. There will always be certain
general categories of contracts as to which it can be said, with some
-
degree of certainty, that the 'doctrine' does or does not apply to
them. Positively, there are likely to be certain sensitive areas as to
H which the law will require in every case the test of reasonableness to
PERCEPT D'MARK (INDIA) PVT.LTD. 1'.ZAHEER KHAN [ LAKSHMANAN, J.) J59
be passed: such an area has long been and still is that of contracts A
between employer and employee as regards the period after the
employment has ceased. Negatively, and it is this that concerns us
here, there will be types of contract as to which the law should be
prepared to say with some confidence that they do not enter into the
field of restraint of trade at all.
B
How, then, can such contracts be defined or at least identified? No
exhaustive test can be stated - probably no precise, non-exhaustive
test. The development of the law does seem to show, however, that
judges have been able to dispense from the necessity of justification
under a public policy test of reasonableness such contracts or C
provisions of contracts as, under contemporary conditions, may be
found to have passed into the accepted and normal currency of
commercial or contractual or conveyancing relations."

In the context of the franchise agreements before this Court in Gujarat
Bottling, this Court concluded: D
"30. There is a growing trend to regulate distribution of goods and
services through franchise agreements providing for grant of franchise
by the franchiser on certain tenns and conditions to the franchisee.
Such agreements of often incorporate a condition that the franchisee
shall not deal with competing goods. Such a condition restricting the E
right of the franchisee to deal with competing goods is/or facilitating
the distribution ofthe goods ofthe franchiser and it cannot be regarded
as in restraint of trade. "

"24. We do not propose to go into the question whether reasonableness
of restraint is outside the purview of Section 27 of the Contract Act F
and for the purpose of the present case we will proceed on the basis
that an enquiry into reasonableness of the restraint is not envisaged
by Section 27."

That in the facts and circumstances, Mr. Desai submitted that Clause
31 (b) is reasonable as it is on the basis of the right of first refusal clause that G
the appellant can take the risk on a relatively less well-known player and
-..Compensate him so well. While in determining reasonableness, Courts take a

t stricter view of employer-employee relationship, but this, according to him,
is admittedly not that. According to him, this is an agency and as argued, it
is not clear which side has the stronger bargaining power.
H
160 SUPREME COURT REPORTS (2006] 3 S.C.R.

A Learned counsel for respondent No.2 submitted that no relief can be
claimed against it in application under Section 9 of the Arbitration and
Conciliation Act, 1996. Such a submission, according to Mr. Desai, fails to
appreciate the prayer made by the appellant in Section 9 application wherein
relief was claimed only against respondent No. I as could be seen from the
B prayers in Section 9 application. In fact, at the time the Section 9 was applied,
the appellant had only reason to believe but could definitively assert that
respondent No. I had entered into a contract with respondent No.2.

According to Mr. Desai, a relief can be granted even against a third
party under Section 9 of the Arbitration and Conciliation Act, 1996 which
C provides as follows:-

"9. Interim measures, etc. by Court.- A party may, before or during
arbitral proceedings or at any time after the making of the arbitral
--
award but before it is enforced in accordance with Section 36, apply
to a Court-
D (i) for the appointment of a guardian for a minor or a person of
unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the
following matters, namely:-

E (a) the preservation, interim custody or sale of any goods which
are the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or
thing wliich is the subject-matter of the dispute in arbitration,
F or as to which any question may arise therein and authorising
for any of the aforesaid purposes any person to enter upon
any land or building in the possession of any party, or
authorising any samples to be taken or any observation to be
made, or experiment to be tried, which may be necessary or
G expedient for the purpose of obtaining full information or
evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to
the Court to be just and convenient,
H
PERCEPT D'MARK (INDIA) PVT. Lm. 1• ZAHEER KHAN [ LAKSHMANAN, J.] 161

and the Court shall have the same power for making orders as A
it has for the p purpose of, and in relation to, any proceedings
before it."

Explaining further, Mr. Desai, submitted that the language of Section
9 states that the application has to be made by a party to the arbitration
agreement but not that the relief would be confined only against a party. For B
instance, preservation or custody of goods or appointment of a receiver may
involve a third party as well, along with the party to the arbitration agreement.
In the present case, the application is made by a party to the arbitration
agreement against another party to the arbitration agreement, and a third
party may be affected by the application. This is the very principle underlying C
Section 9 otherwise, the purpose and intent of interim relief contemplated
· under Section 9 cannot be frustrated.

Learned counsel for respondent No. I submitted that the failure of the
appellant to commence arbitral proceedings since the date of the impugned
order was fatal to its Section 9 application. According to Mr. Desai, the D
appellant in fact, in this case, has acted with utmost expedition. The appellant
upon becoming aware of the fact that respondent No. I had acted in breach
of its obligation under the Promotion Agreement filed Section 9 application
on 04.12.2003 and the Single Judge granted interim relief on 10.12.2003
which decision was reversed by the Division Bench on 19 .12.2093 and the
appellants promptly approached this Court. E
The fact that the appellants have not yet commenced arbitral proceedings
is solely on account of the fact that the Division Bench, in the impugned
order, has held Clause 31 (b) to be void under Section 27 of the Contract Act.
Since the claim of the appellant is based on only Clause 31 (b ), it would be
a futile exercise for the appellant to commence arbitration. Learned senior F
counsel for respondent No. I submitted that the impugned judgment of the
·Division Bench that Clause 31 (b) is void under the Indian Contract Act is
only a prima facie finding at an interim stage. Such a submission, according
to Mr. Desai, is only to be stated to be rejected. The judgment of the Division
Bench is a determination o~ a point of law and is a final and binding decision, G
even if such determination is in proceedings arising out of Section 9
application.

Learned senior counsel for respondent No. I submitted that the agreement
may not be specifically enforced under Section 14 of the Specific Relief Act,
1963 and accordingly, under Section 41 (e), no injunction could be granted as H
162 SUPREME COURT REPORTS [2006] 3 S.C.R.

A prayed for by the appellant. According to Mr. Desai, this submission loses
sight of Section 42 of the Act which provides that a Court may grant an
injunction to perform a negative covenant even where specific performance
of the affirmative covenant ~ay not be enforced. Section 42 provides as
follows:-

B "42. Injunction to perform negative agreement.- 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
circumstances that the court is unable to compel specific performance
of the affirmative agreement shall not preclude it from granting an in
c junction to perform the negative agreement:

Provided that the plaintiff has not failed to perform the contract so far
as it is binding on him."

Learned senior counsel for respondent No. I, Mr. Chanderuday Singh,
D per contra, submitted that since the present appeal challenges an interim
order, and no interim relief having been granted in favour of the appellant
during the past 2= years, during which the contract between respondent No. I
and respondent No.2 has been in operation and indeed is soon to be completed,
there is no cause for interference at this late stage by this Court. In the light
E of the intervening events, sufficient protection for the appellant will be given
if this Court were to clarify (i) that all observations and findings of the High
Court were for the limited purpose of deciding an interlocutory application,
and hence will not bind parties at trial; (ii) that all contentions raised by all
parties are expressly kept open; and (iii) that the interim protection in paragraph
17 of the High Court's order will continue till the conclusion of the contract
F dated 20.11.2003.

He would further submit that the term of the contract was expressly
limited to 3 years from 30.10.2000 to 29.10.2003, unless extended by mutual
agreement and all obligations and services under the contract were to be
G performed during the term. It was further submitted that assuming without
admitting that the negative covenant in Clause 31 (b) is not void and is
enforceable, it was nevertheless inappropriate, if not impermissible, for the
Single Judge to grant an injunction to enforce it at the interim stage, for the
following reasons:-"

H "(i) Firstly, grant of this injunction resulted in compelling specific
PERCEPl D'MARK (INDIA) PVT.LTD. •'.ZAHEER KHAN [ LAKSHMANAN, J.] 163
perfonnance of a contract of personal, confidential and fiduciary A
service, which is barred by Clauses (b) and (d) of Section 14(1) of
the Specific Relief Act, 1963;

(ii) Secondly, it is not only barred by Clause (a) of Section 14(1) of
the Specific Relief Act, but this Court has consistently held that there
shall be no specific perfonnance of contracts for personal services; B
(iii) Thirdly, this amounted to granting the whole or entire relief
which may be claimed at the conclusion of trial, which is
impennissible;

(iv) Fourthly, the Single Judge's order completely overlooked the C
principles of balance of convenience and irreparable injury. Whereas
Percept could be fully compensated in monetary tenns if they finally
succeeded at trial, respondent No. l could never be compensated for
being forced to enter into a contract with a party he did not desire to
deal with, if the trial results in rejection of Percept's claim.
D
It was further contended that the appellant's failure to even invoke
arbitration between 04.12.2003 and 02.03.2006 is fatal to their claim for an
injunction under Section 9 of the Arbitration and Conciliation Act, 1996. In
any event, the entire petition under Section 9 was not maintainable, as the
agreement dated 20.11.2003 was already entered into and in force from
01.12.2003 when the petition was filed, and this agreement constituted the E
cause of action for the appellant. This agreement being with a third party
who is outside the scope of the arbitration agreement in Clause 31 (g) of the
present contract, Section 9 could not be invoked.

It was further contended that the learned Singie Judge's entire judgment F
was based on a new case made out by the learned Judge which was contrary
to the pleadings or neither pleaded nor urged by the appellant before him.
Learned Division Bench has noted this by analysing the Single Judge's
judgment in detail, and has naturally found such exercise to be impermissible,
especially in the context of an interlocutory application under Section 9 of
the Arbitration and Conciliation Act, 1996. The Division Bench has traced G
and analysed the settled law on post-contractual covenants, has examined in
detail the scope and effect of Clause 31 (b ), and has found it to be a patent
restraint of trade, and, therefore, void under Section 27. With respect, this
detailed and well-reasoned judgment ought not to be interfered with by this
Court, especially since the entire matter is at the interim stage, and there has H
164 SUPREME COURT REPORTS (2006] 3 S.C.R.

A been no stay of the new contract in the interregnum.
Mr. K.N. Bhat, learned senior counsel for respondent No.2, submitted
that under Section 41(e) of the Specific Relief Act, 1963 ail injunction cannot
be granted to prevent a breach of a contract, the performance of which cannot
be specifically enforced. According to him, the said Section would apply to
B both temporary injunction as well as permanent injunction. In any view of
the matter. it is not possible, in the present case. to sustain the injunction
granted by the learned Single Judge and the Division Bench was clearly right
in allowing the respondents appeal. By petition No. 514/2003, the appellant
sought an interim order restraining the first respondent from entering into an
C agreement/arrangement or acting upon or continuing to act upon any
agreement/contract with the second respondent or any third party without
first performing and complying with the first respondent's obligation under
and in terms of Clause 31 (b) of the contract. In the correspondence addressed
by the appellant, in particular, the letters dated 15.09.2003, 06. I0.2003,
27. I 0.2003 and 10.11.2003 were annexed as Exhibits respectively to the
D petition. The appellant repeatedly contended that the first respondent was
bound at any time during or after the term of the said contract to provide the
appellant, in writing, of the terms and condition~ of any third party offer so
that the appellant would have the right to match the third party offer received
by the first respondent prior to the first respondent accepting any such offer.
E The appellant's interpretation/understanding of Clause 31(b) of the contract
that the negative covenant contained in Clause 31 (b) will operate after the
expiry of the contract is further demonstrated by the submissions contained
in paragraph 9 of the petition. In light of the above, the Courts were required
to consider whether the negative covenant contained in Clause 3 I (b) which
was admittedly to operate after the expiry of the contract, was in restraint of
F trade and, therefore, violative of Section 27 of the Indian Contract Act.
Learned Single Judge for the reasons recorded in his order granted an
injunction. The Division Bench held that the doctrine of restraint of trade
does not apply during the continuance of a contract of employment and it
applies only when the contract comes to an end. Accordingly, a restrictive
covenant will apply during the period of the contract but will be hit by
G Section 27 of the Indian Contract Act and be void, after the contract is ended.
Concluding his argument, learned counsel submitted that the Division Bench
correctly held that Clause 31 (b) of the contract was not merely a clause of
first refusal but was in restraint of trade. The Division Bench also correctly
held that in view of the fact that the latter part of the covenant under Clause
H 3 I(b) was not enforceable, it was not necessary for it to deal with this
PERCEPT D'MARK (INDIA) PVT.LTD. F.ZAHEER KHAN [ LAKSHMANAN, J.] J65

respondent's further contention that the appellant's petition No. 514/2003 A
under Section 9 of the Act was not maintainable against second respondent
who was not a party of the contract.

We have carefully considered the lengthy submissions made by all the
counsel appearing for the respective parties. We have also gone through the
pleadings, annexures and the judgments rendered by the learned Single Judge B
and of the Division Bench and other relevant connected records.

The present appeal challenges the interlocutory order of the High Court
in which the Division Bench has itself made it clear that it is recording only
a prima facie finding that Clause 31 (b) of the agreement is void under Section C
27 of the Indian Contract Act, 1872.

It is pertinent to notice that ever since the rejection of the said
int~rlocutory application on 19.12.2003, there has been n'o injunction in
operation and this Court while granting leave to appeal also declined to grant
any stay of the Division Bench's order or restoration of the Single Judge's D
·order. Consequently, during the past 2= years, the contract dated 22.11.2003
between respondent No. I and ·respondent No.2 has been in operation and,
indeed, is soon to be completed. The appellant is now seeking a mandatory
interim order 2= years down the line, praying in effect that this Court should
set the clock back and grant an interim injunction which was rejected by the
High Court on 19.12.2003 and which was declined at the stage of granting E
leave to appeal by this Court.

Most importantly, the appellants are seeking at the interlocutory stage
to question the interpretation .of restraint of trade during the post-contractual
period, which interpretation has been uniform, consistent and unchanged for
the past several years since the judgment of Sir Richard Couch, C.J. in F
Madhup Chunder v. Rajcoomar Doss, (1874) 14 Beng. L.R. 76. The
interpretation of Section 27 of the Contract Act which found prima facie
favour with the Division Bench is one which has been uniformly and
consistently followed from 1874 till 2006 by all High Courts in India, and
which has expressly been approved by this Court in Niranjan Shankar Golikari G
(supra), Superintendence Company of India (supra) and Gujarat Bottling
(supra). Even if there were a case for reconsideration of this 132-year old
interpretation; though none is made out by the appellant, such an exercise
ought not to be undertaken in the present interlocutory proceedings.

H
J
166 SUPREME COURT REPORTS [2006] 3 S.C.R.

A We have perused the judgment of the Division Bench which is a detailed
and well-reasoned judgment which more than adequately deals with the issues
for the limited purposes of interim reliefs under Section 9 of the Arbitration
& Conciliation Act.

According to learned senior counsel for the respondents, the appellant
B has no intention of invoking or pursuing arbitration proceedings. In this
context, the judgment relied on by learned counsel for the first respondent in
Firm Ashok Traders v. Gurumukh Das Saluja, [2004] 3 SCC 155 may be
referred. The said judgment says that commencement of arbitration proceedings
is not dependent on the grant or refusal of interim reliefs, and that if arbitral
C proceedings are not commenced post haste after making an application under
Section 9, such interlocutory proceedings would cease to be maintainable.

Respondent No. I, who was then the best fast bowler in the Indian
Cricket Team and a rising star in the international world of cricket, entered
into a Promotion Agreement dated I st November, 2000 ('the agreement')
D with the appellant whereunder the appellant was to act as the sole and exclusive
agent to manage. market, render various consulting services, negotiate for,
execute contracts on behalf of, render tax and other advice to, and generally
manage diverse media affairs, endorsements, advertising and the like for
respondent No. L during the term of the agreement.

E The term of the said agreement was for a period of three years
commencing on October 30, 2000 and ending on October 29, 2003, unless
extended by mutual consent of the appellant and respondent No. I. The term
of the contract came to an end on October 29, 2003, as expressly stated by
the appellant in the Arbitration Petition.
F Respondent No. I, thereafter, entered into an agreement dated November
22, 2003 with respondent No.2, whereby respondent No.2 became the agent
for managing all media affairs of respondent No. I with effect from December
I, 2003.

G The appellant filed a petition under Section 9 of the Arbitration and
Conciliation Act, 1996 for enforcement of the agreement after its expiry, and
contended that such enforcement of the expired agreement should be granted
pending commencement and conclusion of arbitration proceedings by the
appellant. The cause of action for filing the petition was the concluded
agreement between respondent Nos. I and 2. An injunction was sought seeking
H to restrain respondent No. I from entering into any agreement/arrangement or
PERCEPT D'MARK (INDIA) PVT.LTD. '"ZAHEER KHAN [ LAKSHMANAN, J.] J67

acting upon or continuing to act upon any agreement/contract with respondent A
No.2 or any third party without first performing and complying with clause
,31 (b) of the said agreement.

PLEADINGS IN THE ARBITRATION f'ETIT!ON

The express case pleaded in the petition urider Section 9 was that (i) the B
agreement was for a term of 3 years from October 30, 2000 till October 29,
2003; (ii) the agreement came to an end by efflux of time on October 29,
2003; (iii) the petitioner (appellant herein) had learnt and confirmed that
respondent No. I and respondent No.2 had entered into an agreement ; Clause
31 of the agreement survives the expiry of the agreement; the agreement
contained a negative covenant which was valid and binding after its expiry; C
and the subsequent agreement entered into between respondent No. I and
respondent No.2 was null and void.

According to the respondent, there is no pleading whatsoever to support
the argument that respondent No. I was a fledgeling or was yet to develop D
,; into a celebrity at the time the agreement was entered into, or that the appellant
took any risk whatsoever in entering into the agreement and agreeing to
procure endorsements/advertising to ensure the minimum guaranteed amount.
There is no pleading whatsoever that the actual endorsements/advertising
fees secured were worth more than the minimum guaranteed amounts, or that
, they totalled Rs. I crore per year as is sought to be argued.· There is no E
pleading whatsoever to suggest that the appellant was responsible for building
up the reputation or saleability of respondent No. I, or that the success of
respondent No. I as a cricketer was in any manner contributed to or enhanced
by the appellant. There is no pleading relating to "celebrity contracts'', nor
anything to suggest that the right of first refusal is a normal or common form F
of contract in agency contracts relating to personal services or promotional
services, nor indeed even a whisper to the effect that such a clause is necessary
for the regulation or promotion of trace. There is no pleading whatsoever to
the effect that Clause 31 (b) was a reciprocal promise obtained by the appellant
to offset the alleged (but unpleaded) investments and risks undertaken by the
appellant. There is no allegation of ma/a fide conduct. The appellant, on the G
other hand, proceeds entirely on submissions relating to the alleged
enforceability of a negative covenant after the expiry of the agreement.

We have already perused the judgment of the learned Single Judge and
of the learned Division Bench of the High Court.
H
168 SUPREME COURT REPORTS [2006] 3 S.C.R.

A On the pleadings contained in the Arbitration Petition, there can be no
escape from the conclusion that what the appellant sought to enforce was a
negative covenant which. according to the appellant, survived the expiry of
the agreement. This, the High Court has rightly held is impermissible as such
a clause which is sought to be enforced after the term of the contract is prima
facie void under Section 27 of the Contract Act.
B
It was contended by learned senior counsel for the appellant that Clause
31 (b) is not prima facie void as (i) it allegedly does not travel beyond the
term because it is an independent contract; (ii) the term of agreement was
itself extendable and never came to an end; (iii) the words "initial term"
C denote that Clause 31 (b) itself resulted in an automatic extension of the term;
and (iv) the "full term" contemplated was beyond the "initial term" of 3
years.

The legal position with regard to post-contractual covenants or
restrictions has been consistent, unchanging and completely settled in our
D country. The legal position clearly crystallised in our country is that while
construing the provisions of Section 27 of the Contract Act, neither the test
of reasonableness nor the principle of restraint being partial is applicable,
unless it falls within express exception engrafted in Section 27.

Section 27 of the Indian Contract Act, 1872 provides as follows:-

''27. Agreement in restraint of trade, void- Every agreement by which
any one is restrained from exercising a lawful profession, trade or
business of any kind is to that extent void.

Exception !.- Saving of agreement is not to carry on business of
F which goodwill is sold.- One who 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, 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."
G
We have perused the relevant portions of Niranjan Shankar Golikari
(supra), Superintendence Company of India (supra) and Gujarat Bottling
(supra) which have been extracted by the learned Judges of the Division
Bench and quoted in extenso. In the circumstances, there can be no manner
of doubt that the Division Bench was right in coming to the prima facie
H conclusion drawn by it, and in setting aside the Single Judge's order. No case
PERCEPT D'MARK (INDIA) PVT. LTD. 1•.ZAHEER KHAN ( LAKSHMANAN, J.J J69

was made out by the appellant for compelling respondent No. I to appoint the A
appellant as his agent in perpetuity. In view of the personal nature of the
service and relationship between the contracting parties. a contract of agency/
management such as the one entered into between the appellant and respondent
No. I is incapable of specific performance and to enforce the performance
thereof would be inequitable. Likewise. grant of injunction restraining first B
respondent would have the effect of compelling the first respondent to be
managed by the appellant, in substance and effect a decree of specific
performance of an agreement of fiduciary or personal character or service,
which is dependent qn mutual trust, faith and confidence.

The appellant can be adequately compensated in terms of money if C
injunction is refused. In our view, grant of injunction, in the present case,
would result in irreparable injury and great injustice to first respondent which
is incapable of being remedied in monetary terms, as he would be compelled
to enter into a relationship involving mutual, faith, confidence and continued
trust against his will.
D
We have perused the contract in detail. The terms of the contract was
expressly limited to 3 years from .30. I 0.2000 to 29.10.2003, unless extended
by mutual agreement, and all obligations and services under the contract
were to be performed during the term.

Clause 31 (b) was also to operate only during the term, i.e. from the E
conclusion of the first negotiation period under clause 3 l(a) on 29. 7.2003 till
29.10.2003. This respondent No. I has scrupulously complied with. So long
as Clause 31 (b) is read as being operative during the term of the agreement,
i.e. during the period from 29.7.2003 till 29.10.2003, it may be valid and
enforceable. However, the moment it is sought to be enforced beyond the F
term and expiry of the agreement, it becomes prima facie void, as rightly
held by the Division Bench.

If the negative covenant or obligation under Clause 31 (b) is sought to
be enforced beyond the term, i.e. if it is enforced as against a contract entered
into on 20.11.2003 which came into effect on 1.12.2003, then it constitutes G
an unlawful restriction on respondent No. I's freedom to enter into fiduciary
relationships with persons of his choice, and a compulsion on him to forcibly
enter into a fresh contract with the appellant even though he has fully
performed the previous contract, and is, therefore, a restraint of trade which
is void under Section 27 of the Indian Contract Act.
H
170 SUPREME COURT REPORTS (2006] 3 S.C.R.

A Under Section 27 of the Contract Act (a) a restrictive covenant extending
beyond the term of the contract is void and not enforceable. (b) The doctrine
of restraint of trade does not apply during the continuance of the contract for
employment and it applied only when the contract comes to an end. (c) As
held by this Court in Gujarat Bottling v. Coca Cola (supra), this doctrine is
B not confined only to contracts of employment, but is also applicable to all
other contracts.

Assuming without admitting that the negative covenant in Clause 31 (b)
is not void and is enforceable, it was nevertheless inappropriate, if not
impermissible, for the single Judge to grant an injunction to enforce it at the
C interim stage, for the following reasons:

(i) Firstly, grant of this injunction resulted in compelling specific
performance of a contract of personal, confidential and fiduciary
service, which is barred by Clauses (b) and (d) of Section 14( I)
of the Specific Relief Act, 1963;
D (ii) Secondly, it is not only barred by Clause (a) of Section 14(1) of
the Specific Relief Act, but this Court has consistently held that
there shall be no specific performance of contracts for personal
services:
(iii) Thirdly, this amounted to granting the whole or entire relief
E which may be claimed at the conclusion of trial, which is
impennissible. (Bank of Maharashtra v. Race Shipping, [1995]
3 SCC 257 (Paras 10-12).
(iv) Fourthly, the single Judge's order completely overlooked the
principles of balance of convenience and irreparable injury.
F Whereas Percept (appellant) could be fully compensated in
monetary tenns if they finally succeeded at trial, respondent No. I
could never be compensated for being forced to enter into a
contract with a party he did not desire to deal with, if the trial
results in rejection of Percept's claim. (Hindustan Petroleum v.
Sriman Narayan, [2002] 5 SCC 760.
G

-
(v) The principles which govern injunctive reliefs in such cases of
contracts of a personal or fiduciary nature, such as management
and agency contracts for sportsmen or perfonning artistes, are
excellently summarised in a Judgment of the Chancery Division
reported in Page Once Records v. Britton, (1968) I W.L.R. 157.
H
PERCEPT D'MARK (!NOIA) PVT.LTD. 1·.ZAHEERKHAN [ LAKSHMANAN, J.] 171

In this case it was held that, although the appellant had established A
a primafacie case of breach of contract entitling them to damages,
it did not follow that entire of them was entitled to the injunction
sought; that the totality of the obligations between the parties
gave rise to the fiduciary relationship and the injunction would
not be granted, first, because the performance of the duties
imposed on the appellant could not be enforced at the instance B
of the defendants and, second, becaase enforcements of the
negative covenants would be tantamount to ordering specific
performance of this contract of personal services by the appellant
on pain of the group remaining idle and it would be wrong to put
pressure on the defendants to continue to employ in the fiduciary C
capacity of a manager and agent someone in whom he had lost
confidence.
Clause 31 (a) and (b) is reproduced below:-
"31. NEGOTIATION AND RIGHTS OF FIRST REFUSAL:
D
(a) NEGOTIATION: During the third contract year, and in any event
not later than August I st, 2003 the Parties shall meet to commence
discussions with a view to the extension of their relationship beyond
the Term. For sixty (60) days thereafter, Zaheer Khan, agrees to
negotiate in good faith only with Percept, and not with any third
party, concerning the right after the Term to the use of his endorsement E
or for the arrangement contemplated by this Agreement in association
with any goods or services. Only after such one hundred and eighty
(180) day period from the date of the last assignment, Zaheer Khan
shall have the right to negotiate with other persons, subject however
to sub-clause (b ).
F
(b) FIRST REFUSAL: During the Term of the Agreement, prior to
completion of the first negotiation period provided for in sub-clause
(a) above, Zaheer Khan agrees not to accept any offer for his
endorsement, promotion, advertising, or other affiliation with regard
to any products or services. Thereafter, Zaheer Khan agrees not to G
accept any offer for his endorsement, promotion, advertising, or other
affiliation with regard to any goods or services or for arrangement
similar to the transaction hereunder without first providing Percept
with written notice of such offer and all the material terms and
conditions thereof and offering Percept the right to match the third
party offer. Percept shall thereafter have right, exercisable by written H
172 SUPREME COURT REPORTS (2006] 3 S.C.R.

notice to Zaheer Khan within ten( I0) days of receipt, to accept Zaheer
A ..
Khan's offer on the same terms and conditions offered by such third
party. If Percept does not accept Zaheer Khan's offer, Zaheer Khan
shall thereafter have the right to enter into an agreement with such
third party.

B In our view, Clause 3 l(b) of the agreement merely provides for an
obligation of respondent No. I to give an opportunity to the appellant to
match the offer, if any, received by respondent No. I from the third party.
This clause does not per se restrict or prohibit respondent No. I to enter into
any contract with a third party but at best it provides the appellant with an
opportunity to gain from the advertisements the appellant has made in the
c process of marketing and creation of the image of respondent No. I which
was gradually built up by the appellant. This clause does not restrict the right
of respondent No. I to accept any offer for endorsement, promotion, advertising .
or other affiliation either on his own or through any party in the event of
failure of the appellant to match the offer of the third party from whom
D respondent No. I would receive any offer, respondent No. I would be free to
contract with such third party. Further, the said clause does not restrict the
right of respondent No. I to appoint an agent of his choice or restrict his
liberty to carry on his affairs in the manner he likes, with the persons he
chooses. in the manner he thinks best. The restriction, if any, is on account
of voluntary obligations undertaken by respondent No. I and assurances made
E by him to the appellant wherefor, respondent No. I cannot be permitted to
renege his promises under the garb of an alleged restriction violative of
Section 27 of the Contract Act. Clause 3 l(b) of the agreement is an independent
clause which survives the expiry of the agreement and any dispute between
the parties regarding the enforceability of the said clause would come under
F the provision of Clause 32(g) of the agreement which provides for resolution
of any claim or controversy pertaining to the agreement through the process
of arbitration. Clause 32(g) of is reproduced below:

"(G) ARBITRATION: Any claims or controversies relating to this
Agreement shall be resolved by arbitration held under the auspices
G and rules of the Indian Arbitration and Conciliation Act, J996 by one
arbitrator appointed in accordance with the arbitration rules. The place
of arbitration shall be Mumbai. Any award of such arbitration shall
be final, conclusive and legally binding, without any right of appeal
and may be entered into judgment in any court of competent
jurisdiction. This Agreement and all matters related hereto shall be
H
PERCEPT D'MARK (INDIA) PVT. LTD. 1·.ZAHEER KHAN [ l.AKSHMANAN, J.] 173
governed by the laws of India." A
In our view, no case is made out by the appellant for compelling
respondent No. I to appoint the appellant as his agent in perpetuity when the
first respondent has no faith or trust in the appellant. The grant of injunction
restraining respondent No. I from acting upon the agreement entered into
with the second respondent would have the effect of compelling the first B
respondent to be managed by the appellant, in substance and effect a decree
of specific performance of an agreement of personal service, which is
dependant on mutual trust, faith and confidence which, in the present case,
are eroded and non-existent. In our view, the appellant can be adequately
compensated in terms of money if injunction is refused. Clause 31 (b) contains C
a restrictive covenant in restraint of trade as it clearly restricts respondent
No. I from his future liberty to deal with the persons he choses for his
endorsements, promotions, advertising or other affiliation and such a type of
restriction extending beyond the tenure of the contract is clearly hit by Section
27 of the Contract Act and is void. The said covenant, as noticed earlier,
curtails the liberty of respondent No. I Zaheer Khan even though the contract D
has been completed to accept any offer for his endorsement, promotion etc.
even by dealing with any person of his own.

As already noticed, no interim relief having been granted in favour of
the appellant during the past 2 Yi years during which the contract between
respondent Nos. I and 2 has been in operation and indeed is soon to be E
completed, there is no cause for interference at this late stage by this Court.
In the light of the intervening events, it would be sufficient protection for the
appellant if this Court directs:-

(i) that all observations and findings of the High Court were for the
limited purpose of deciding an interlocutory application, and hence F
will not bind parties at trial;
(ii) that all contentions raised by all parties are expressly kept open;
(iii) that the interim protection in paragraph 17 of the High Court's
order will continue till the conclusion of the contract dated G
20.11.2003.
(iv) that this Court is not expressing any opinion on merits of the
rival claims and that the observation made in this judgment is
only for the purpose of finding out the prima facie case.
H
174 SUPREME COURT Rl::POR rs [2006) 3 S.C.R.

(v) that the appellant is at liberty to proceed against the respondent
A for breach of the contractual terms before the appropriate forum
in accordance with law: and
(vi) that liberty is reserved to the appellant to invoke Clause 32(g) of
the agreement. """
B In the result, the appeal stands dismissed on the above terms. No costs.
--,..
V.S. Appeals dismissed.