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The Indian Partnership Act, 1932
The Indian Contract Act, 1872
The Arbitration Act, 1940
Section 9 in The Indian Partnership Act, 1932
Section 11 in The Indian Contract Act, 1872

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Bombay High Court
Novartis Vaccines & Diagnostics ... vs Aventis Pharma Limited on 18 December, 2009
Bench: Anoop V.Mohta
    Arb-763-09                                1


                   IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                       ORDINARY ORIGINAL CIVIL JURISDICTION




                                                                                    
                       ARBITRATION PETITION NO. 763 OF 2009
     




                                                           
    Novartis Vaccines & Diagnostics Inc.
    a company incorporated under the laws of
    the State of Delaware in the United States




                                                          
    of America, having its principal place of
    business at 350, Massachusetts Avenue
    Cambridge, MA 02139 - 4182,




                                                 
    United States of America                                         ...Petitioner.
             Vs.
    Aventis Pharma Limited.
                               
    a company incorporated and registered
                              
    under the Companies Act, 1956, having
    its registered office at Aventis House,
    54A, Sir Mathurdas Vasanji Road,
          


    Andheri (East), Mumbai 400 093                                   ...Respondent.
       



    Mr.T. Andhyarujina, Sr. Counsel with Mr.Zal Andhyarujina, Sr.Counsel with 
    Mr.Atul Rajadhyaksha i/b. M/s.Wakhariya & Wakhariya for the Petitioner.





    Mr.D.J.Khambatta, Sr. Counsel with Mr. M. S. Doctor i/b. Bachubhai Munim 
    & Co.  for the Respondent.
                                               
                                CORAM :- ANOOP V. MOHTA, J.

DATE OF RESERVING THE JUDGMENT :- 11th DECEMBER, 2009. DATE OF PRONOUNCING THE JUDGMENT: 18th DECEMBER,2009 JUDGMENT :-

The Petitioner has invoked Section 9 of the Arbitration and Conciliation Act, 1996 (for short, Arbitration Act) for the following prayer:-

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a) this Hon'ble Court be pleased to grant an interim measure of protection by way of an interim injunction restraining the Respondent by itself and/or through its agents and/or servants from or in any manner distributing Verorab.

2 Admittedly, there is an Arbitration clause in Joint Venture Agreement (for short, JVA) dated 22nd April, 1998, which reads thus-

"13.10 Any dispute arising out of or in connection with this Agreement or any Related Agreement shall be resolved by the Parties in the following manner:
(a) Any Party may initiate resolution of such controversy by providing to the other Parties a brief and concise statement of the initiating Party's claims, together with relevant facts supporting them, and referring to this Section 13.10(a). For a period of sixty (60) days from the date of such statement, or such longer period as the Parties may agree in writing, the Parties shall make good faith efforts to settle the dispute. Such efforts shall include without limitation, full presentation of the Parties' respective positions before the respective chief executive officers of their respective companies. Any Party may in its sole discretion elect to be assisted by counsel in such presentation.
(b) In the event the Parties are unable to reach accord using the procedures specified in paragraph (a) above, such dispute shall be finally settled without recourse to the courts, in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, by one or more arbitrators designated in conformity with those Rules. Arbitration shall be held in London, England. Either Party may ask the competent tribunal to confirm an arbitration award or otherwise provide that it shall be enforceable."

3 Considering the scope and purpose of Section 9 of the Arbitration Act and if the case is made out, then whether pre-arbitration stages as provided ::: Downloaded on - 09/06/2013 15:26:33 ::: Arb-763-09 3 under the clause were complied with or not that can be gone into at the later stage. The basic requirement of existence of the arbitration agreement and the dispute between the parties arising out of the same, in my view, is sufficient to consider the case of the Petitioner for urgent relief.

4 As per the respondent, prior to 1989, Rabipur, an anti-rabies vaccine, and therefore a life saving drug, was manufactured by a company known as Behringwerke (a constituent of the Hoechst Group), and was exclusively imported and marketed in India, Nepal, Bangladesh, Sri Lanka ("the HMR Territory"), by the Respondent (then known as Hoechst India Limited). The Respondent established and developed, at huge cost, the marketing network, which is specially required in order to market and distribute an anti rabies vaccine. As of February 2009 this network consisted of about 350 medical representatives and channel sales executives who had reached out to over 46,000 general medical practitioners and 11,000 A Class Pharmacy Retailers every month. In addition thereto the Respondent has appointed 2,000 distributors to distribute Rabipur along with the Respondent's other brands. The Respondent has also established a "Cold Chain" that is specially required for the storage and transportation of an anti rabies vaccine, which includes special facilities such as walk in coolers at all its 27 C & F locations, to store the vaccines temperatures between 2 deg. Centigrade and 8 deg. Centigrade, and refrigerated vans for transporting the vaccines.

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5 In 1989, the Respondent established a manufacturing facility at Ankleshwar, Gujarat to Rabipur, for manufacturing and production of Rabipur in India. The Rabipur, anti-rabies vaccine, manufactured at the aforesaid undertaking, was distributed and marketed in India by Respondent till February 2009.

6 In February, 1996, the vaccine business of Behringwerke (including that of Rabipur vaccine) was transferred to Chiron Corporation (now known as Novartis Vaccines and Diagnostics Inc.- the Petitioner) excluding the business of the Respondent's manufacture and marketing of the Rabipur vaccine in the HMR Territory.

7 In the year 1997, the Respondent and the company then known as Chiron Behring GmbH & Company, Germany, executed the following documents:

i) A secrecy Agreement dated 5th February, 1997.
ii) A Registered User Agreement dated 30th April, 1997 for the Respondent to continue as registered user in relation to the manufacture of Rabipur vaccine in India.
iii) An agreement dated 5th May, 1997 for the supply of Seed Virus ( a raw material for the manufacture of Rabipur)
iv) A Licence and Technical Collaboration Agreement dated 6th May, 1997 in relation to technical information for ::: Downloaded on - 09/06/2013 15:26:33 ::: Arb-763-09 5 manufacture of Rabipur.

8 On 07/10/1997, the Company, known as Chiron Behring Vaccines Private Limited (hereinafter "the Company"), was incorporated.

9 On 22/04/1998, A Joint Venture Agreement was executed between Petitioner and the Respondent. This agreement recognized the Respondents rights to continue to market and distribute Rabipur in the HMR Territories. The aforesaid agreement provides as under:-

Article- 5 Distribution of JVC Products in the HMRL Territories- 5.3 Provided that the JVC can meet HMRL's requirements, HMRL shall not sell in the HMRL Territories any vaccine products that complete with the JVC Products.
"Article 7 Distribution of Other Chiron Vaccines in the HMRL Territories-

10 On 22/04/1998, a Shareholders Agreement was executed between Petitioner and the Respondent. Clause 13.1 of the shareholders Agreement states as under:

"13.1 Relationship of the Shareholders Nothing contained in this Agreement shall establish or imply that the shareholders are members of any partnership,joint venture, association, syndicate or any other entity between themselves except as Shareholders of the Company."

11 On 01/05/1998, a Marketing and Distribution Agreement (HMR ::: Downloaded on - 09/06/2013 15:26:33 ::: Arb-763-09 6 Territories) was executed between the Company and the Respondent. The relevant clauses of this agreement are as follows:-

Article 11.
Non-Competition 11.1 It is agreed and declared that provided CBV supply the Products in quantities that meet HMR's firm purchase orders, HMR will not sell in THE HMR Territory any vaccine products that compete with the Products covered under this Agreement.
11.2 Subject to Clause 2.8, CBV agree and undertake that they will not directly or knowingly indirectly sell the Products in the HMR Territory.

12 On 01/05/1998, a marketing and Distribution Agreement (Chiron Territory) was also executed between the Company and the Petitioner. The relevant clause of this agreement is reproduced hereunder:

"Article 11 Non-Competition 11.1 It is agreed and declared that provided CBV supply the Products in quantities that meet Chiron's firm purchase orders, Chiron will not sell in the Chiron Territory and vaccine products that compete with the Products covered under this Agreement."

13 On 01/06/1998, a Licence and Technical Collaboration Agreement between Novartis Vaccines & Diagnostics GmbH & Company KG and the Company, whereby the technology for the manufacture of the Rabipur vaccine was licensed to the Company.

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14 In the year 2004, the Respondent became a constituent of the multinational Sanofi Aventis Group.

15 On 15/12/2005, the Board of Directors of the Company decided to increase the capacity of the Rabipur manufacturing facility at Ankleshwar, Gujarat from 7.5 million doses per year to 12 million doses per year and for this purpose decided to undertake certain remediation measures at their plant.

16 In the month of April, 2006, the Novartis Group took over the Petitioner and its subsidiaries and affiliates, and succeeded to the rights and obligations of Chiron Corporation, USA and Chiron Behring GmbH & Co., in the Company.

17 On 27/09/2006, at a meeting of its Board of Directors the Company resolved not to renew the Marketing & Distribution Agreement entered into with the Petitioner, for marketing and distribution of Rabipur in the HMR Territory, from 1st May, 2008 onwards. Based on the aforesaid resolution a notice was sent to the Respondent by the Company in this regard.

18 On 03/07/2007, suit No.1847 of 2007 filed by the Respondent, inter alia, to challenge the minutes of the meeting held on 27th September, 2006, and the subsequent notice of non-renewal issued by the Company to the Petitioner. The Respondent filed Notice of Motion No. 2490 of 2007 for certain interim reliefs in the abovementioned suit.

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19 On 31/07/2007, the Petitioner filed an affidavit in reply to Notice of Motion No. 2490 of 2007 in the abovementioned suit.

20 On 26/03/2008, the Petitioner preferred a request for arbitration to the International Court of Arbitration of the International Chamber of Commerce.

21 On 23/04/2008, the consent terms were filed before the Hon'ble Supreme Court by which parties agreed to refer all disputes and differences that had arisen between them, in respect of or relating to the Joint Venture Agreement dated 22nd April, 1998, and/or the Related Agreements (as defined in the Joint Venture Agreement), and all claims raised in Suit No. 1847 of 2007 including the Request for Arbitration filed with the ICC by Chiron Behring Vaccines Private Limited, and the Petitioner abovenamed to the sole arbitration of Mr. Justice S.P. Bharucha, retired Chief Justice of India. The aforesaid agreement was recorded by an order of the Hon'ble Supreme Court.

22 On 05/06/2008, the Respondent filed its statement of claim before the learned Arbitrator.

23 On 14/07/2008, the Petitioner filed its reply to the Statement of Claim, in which it was contended as under:-

"2. ...
6. The non-renewal of the Distribution Agreement was in the best interests of the Joint Venture Company for a host of reasons, including:-
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....
Questions as to whether Aventis could fulfil its obligation to use its best efforts to promote Rabipur pursuant to Article 8.1 of the Distribution Agreement, in light of Rabipur's losing market share and Sanofi Aventis group's manufacture of Varorab and its sale in India through a local distributor, Ranbaxy."
"7. Thus, it was eminently reasonable for the Joint Venture Company to seek to review its distribution options, and to do so, the Board rightly and unanimously voted to not renew the Distribution Agreement."
...
...
"52. Since 2002, the Indian market for anti-rabies has doubled and other competing products have come into the market. In 2002, Rabipur had approximately a 78% market share of the anti-rabies vaccine market in India. The market share for Rabipur- distributed by Aventis -
has decreased from 78% in 2002 to 56% in 2006; a decrease of 22%. Rabipur had virtually no growth in the private market from 2002 through 2006. Sanofi Pasteur's Verorab market share, however, increased from 11% in 2002 to 17% in 2006."
"58. The need for the Joint Venture Company to review its distribution arrangement, therefore, was obvious because of at least the following factors:
Sanofi Aventis owned both Aventis, which distributes ::: Downloaded on - 09/06/2013 15:26:33 ::: Arb-763-09 10 Rabipur, and Sanofi Pasteur, which manufactures Verorab and sells Verorab, another anti-rabies vaccine, which is Rabipur's main competitor, in India pursuant to a distribution agreement.

24 The petitioner ("Novartis" or "the petitioner") is a part of the Novartis Group of Companies. The respondent ("Aventis" or "the Respondent") is a part of the Sanofi Aventis Group of Companies. Both the Novartis Group of Companies, as well as, the Sanofi Aventis Group of Companies are large multinational organizations engaged in the business of manufacturing and selling pharmaceutical products having worldwide operations.

25 The petitioner (51%) and the Respondent (49%) are shareholders in a Joint Venture Company known as Chiron Behring Vaccines Private Limited (hereinafter referred to as "CBVPL").

26 The relationship between the parties is governed by a Joint Venture Agreement dated 22nd April 1998 ("the JVA") along with the Shareholders Agreement and the Articles of Association of CBVPL.

27 Both the petitioner and the respondent are entitled to nominate an equal number of Directors to the Board of CBVPL. The Petitioner is ::: Downloaded on - 09/06/2013 15:26:33 ::: Arb-763-09 11 however entitled to appoint the Chairman of the Board, who has a casting vote.

28 As per the material terms of the JVA, the purpose of the joint venture was:

(i) CB VPL was to manufacture an anti rabies vaccine known as Rabipur;
(ii)The Respondent was entitled to distribute Rabipur in India, Nepalo, Bangladesh and Pakistan (hereinafter referred to as "HMRL Territories");
(iii)The petitioner had the right to distribute Rabipur worldwide, (other than in the HMRL Territories).

29 CBVPL had entered into a Marketing & Distribution Agreement dated 1st May 1998 with the Respondent for the HMRL Territories. On 27th September 2006, the Board of Directors of CBVPL decided not to renew the aforesaid Marketing & Distribution Agreement.

30 The non-renewal of the Respondent's Marketing & Distribution Agreement was the subject matter of a dispute between the parties which was referred to arbitration.

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31 By an award dated 4th February 2009, it was held that the Marketing & Distribution Agreement had not been renewed by CBVPL.

32 On 16th February, 2009 at a meeting of the Board of Directors of CBVPL, the petitioner, by using its casting vote and in breach of the material term of the JVA decided to appoint its sister concern, a Company known as Novartis Healthcare Private Limited ("Novartis Healthcare"), to distribute Rabipur in the HMRL Territories. This was notwithstanding the fact that the Respondent offered terms for distribution that were more beneficial to CBVPL.

33 In or about September, 2009 the respondent started distributing a product known as "Verorab" which is an anti rabies vaccine manufactured by Sanofi Aventis Group and is imported into India by a group company known as "Sanofi Pasteur India Limited".

34 Therefore, on 29.09.2009 the petitioner has filed the present petition under Section 9 of the Arbitration Act and sought an interim injunction/interim measure restraining the respondent from distributing verorab.

35 After hearing both the parties, as urgency was shown, this Court has ::: Downloaded on - 09/06/2013 15:26:33 ::: Arb-763-09 13 granted an ad-interim relief in terms of prayer (a) on 16.10.2009 by giving reasons. The respondent preferred an Appeal against the said order on 28.10.2009 and the same was withdrawn on 11.11.2009. The injunction order as passed by this Court on 16.10.2009 remained intact till this date and the same has been in force since then.

36 The parties have strongly relied on the provisions of Sections 9 to 11, 16, 17, 36 and 54 of the Indian Partnership Act, 1932 (the Partnership Act) which is reproduced as under:

"9 General duties of partners. - Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative.
10 Duty to indemnify for loss caused by fraud. - Every partners shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.
11 Determination of rights and duties of partners by contract between the partners. - (1) Subject to the provisions of this Act, the mutual rights and duties of the partners of a firm may be determined by contract between the partners, and such contract may be expressed or may be implied by a course of dealing.
Such contract may be varied by consent of all the partners, and such consent may be expressed or may be implied by a course of dealing.
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Agreements in restraint of trade. - (2) Notwithstanding anything contained in Section 27 of the Indian Contract Act, 1872, such contracts may provide that a partner shall not carry on any business other than that of the firm while he is a partner.
16 Personal profits earned by partners. - Subject to contract between the partners. -
(a) if a partner derives any profit for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm name, he shall account for that profit and pay it to the firm;
(b) if a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business.
17
Rights and duties of partners . - Subject to contract between the partners.-
(a) after a change in the firm.- where a change occurs in the constitution of a firm, the mutual rights and duties of the partners in the reconstituted firm remain the same as they were immediately before the change, as far as may be;
(b) after the expiry of the term of the firm, and. -
where a firm constituted for a fixed term continues to carry on business after the expiry of that term, the mutual rights and duties of the partners remain the same as they were before the expiry, so far as they may be consistent with the incidents of partnership at will; and
(c) where additional undertaking are carried out. - where a firm constituted to carry out one or more adventures or undertakings carries out other adventures or undertakings, the mutual rights and duties of the partners in respect of the other adventures or undertakings are the same as those in respect of the original adventures or undertakings.
                     36    Rights   of   outgoing   partner   to   carry   on 
            competing business. - (1)           An outgoing partner may carry 
on a business competing with that of the firm and he may advertise such business, but, subject to contract to the contrary, he may not -
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(a) use the firm name,
(b) represent himself as carrying on the business of the firm, or
(c) solicit the custom of persons who were dealing with the firm before he ceased to be a partners.
Agreements in restraint of trade. - (2) A partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within specified local limits; and, notwithstanding anything contained in section 27 of the Indian Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable.
54 Agreements in restraint of trade. - Partners may, upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits; and notwithstanding anything contained in section 27 of the Indian Contract Act, 1872 (9 of 1872), such agreement shall be valid if the restrictions imposed are reasonable.

37 Section 27 of the Indian Contract Act, 1872 is also reproduced as under:

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 1. - Saving of agreement not to carry on business of 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.
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38 Where parties enter into any kind of Joint Venture and/or partnership to do particular business and/or to establish particular business or company and, accordingly, enter into various contracts/agreements, it is always on the foundation of meeting of mind with an intention to do the joint business in cooperation, in Trust and in good faith for the common advantage & benefit. The commercial contracts always need to be respected and considered from the above point of view. The scheme, the object and the intention of the parties to enter into such type of agreement/contract need to be read together by reading and by considering the whole documents as well as the purpose and the object behind formation of such partnership/company. No provision is made for a partner to do rival or competing business freely. Both the parties are governed b y JVA, shareholders agreement & the Article of Association of CBVPL. Both the partners are aware of their respective, written & unwritten obligations, liabilities, duties.

39 I have considered while dealing with and while reading the purpose and the object of such commercial documents/agreements in Unity Realty and Developers Ltd. v. BW Highway Star Pvt.Ltd. & ors in Arbitration Petition No.423/2009 on 24.09.2009 as under:

"8 The Apex Court recently in Vimal Chand Ghevarchand Jain & ors. vs. Ramakant Eknath Jajoo, 2009 (5) SCALE 59 has observed while dealing with the ::: Downloaded on - 09/06/2013 15:26:33 ::: Arb-763-09 17 construction of a commercial contract as under :
"A document, as is well known, must be construed in its entirety"
I have observed in Reliance Natural Resources Ltd. v. Reliance Industries Limited, 2007 (Supp.) Bom. C.R.
925 as under:
"93 Apart from that the following extracts from Chitty on Contracts (27th Edition), 1994 in para 12.053 is also useful:
"Every contract is to be construed with reference to its object and the whole of its terms, and accordingly, the whole context must be considered in endeavouring to collect the intention of the parties, even though the immediate object of inquiry is the meaning of an isolated word or clause."
9 Recently, in Durham V. BAI (Run Off) Ltd (in scheme of arrangement) and other cases, [2009] 2 All ER, 26, the Queen's Bench Division while dealing with the construction of wordings in a commercial contract by referring to various other English Judgments has observed as under:-
(203)A summary of helpful principles, drawn largely from the words of Longmore LJ in Absalom (on behalf Lloyd's Syndicate 957) v TCRU Ltd (2005) EWCA Civ 1586 at (7), (2006) 1 All ER (Comm) 375 at (7), (2006) 2 Lloyd's Rep 129, and based upon submissions to me by counsel, which I had approved, in the recent case of Reilly V. National Insurance * Guarantee Corporation Ltd (2008)EWHC 722 (Comm) at (13), (2008) 2 All ER (Comm) 612 at (13), was again the subject matter of agreement, and I repeat and incorporate it:
'(a) Ordinary Meaning. There is a presumption that the words to be construed should be construed in their ordinary and popular sense, since the parties to the contract must be taken to have intended, as reasonable men, to use words and phrases in their commonly understood and accepted sense. (See also para (7) (i)-(iii) in the judgment of ::: Downloaded on - 09/06/2013 15:26:33 ::: Arb-763-09 18 Longmore LJ and in particular: "The object of the inquiry is not necessarily to probe the 'real' intention of the parties, but to ascertain what the language they used in the document would signify to a properly informed observer.")
(b) Businesslike Interpretation. It is an accepted canon of construction that a commercial document, such as an insurance policy, should be construed in accordance with sound commercial principles and good business sense, so that its provisions receive a fair and sensible application. (See also the words of Lord Diplock in Antaios Cia Navieras SA V Salen Rederierna AB, The Antaios (1984) 3 All ER 229 at 233, (1985) AC 191 at 201 cited at (7)(iv) by Longmore LJ: If a "detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense".)
(c) Commercial Object. The commercial object or function of the clause in question and its relationship to the contract as a whole will be relevant in resolving any ambiguity in the wording.
     



                 (d)Construction
                                      to   avoid   unreasonable   results.     If   the 
wording of a clause is ambiguous, and one reading produces a fairer result than the alternative, the reasonable interpretation should be adopted. It is to be presumed that the parties, as reasonable men, would have intended to include reasonable stipulation in their contract.'"

40 The parties have made their respective interpretation of these various terms and clauses from their points of view in support of their submissions. The Court need to take into consideration all but within the frame of law. The contract/agreements need to be read as a whole ::: Downloaded on - 09/06/2013 15:26:33 ::: Arb-763-09 19 considering the nature & the purpose of the business. The clause and the contract as a whole even if is clear and unambiguous, the court needs to consider the same in the facts and circumstances of the case. It is necessary to see relationship between words; sentences; clauses; chapters and the whole document. It cannot be read in isolation. The aspect of faith, trust, fiduciary relationship and understanding between the parties, just cannot be overlooked, while interpreting any such private commercial documents.

41 Admittedly, there is no negative and/or positive covenant/clause in the agreement in question. The submission that it is the policy of the law not to restrain any of the partner or person or Director from carrying on rival or competing business specially in the absence of an express negative covenant which is based upon the policy of the law as provided under Section 11(2) of the Partnership Act read with Section 27 of the Contract Act, is not acceptable.

42 Considering the scope and purpose and object of Partnership and/or of Joint Ventures, in my view, there is equitable duty of a partner or other person not to compete with the business of the Partnership/Company.

Merely because there is no negative covenant, that itself is not sufficient to permit other partners to do rival or competing business of the same nature.

Section 9 of the Partnership Act provides that the partners are bound to carry on business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 20 of all things affecting the firm. It is partner's general duty to be just and faithful to the firm/company. The mutual rights and duties of the partners of the firm or the company need to be determined by the contract between the partners. Such contract may be express or may be implied by a course of dealing as contemplated under Section 11 of the Partnership Act.

Section 11(2) of the Partnership Act specifies and permit that such contracts may be providing that a partner shall not carry on any business other than that of the firm while he is a partner. This itself means knowing fully the effect and the purpose of Section 27 of the Indian Contract Act, it is permitted to such partners to agree by express or by implication not to permit other partners to do any business other than that of the firm while he is a partner. This does not, according to me, entitle the other partners to say and submit that in the absence of any negative covenant of this nature he is entitled to do competing business or any other rival business.

The party may be agree that a partner shall not carry on any other business than that of the firm while he is a partner. This itself does not mean that in the absence of any agreement/negative covenant, he is free to do any competing business, unless agrees specifically by the partners/parties, as contemplated under Sections 16,17,34,54 of the Partnership Act and/or even otherwise as it is always subject contract between the parties. If both the parties/partners agree and allow other partners to do the rival or competing business then only such partner is free to do such permissive ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 21 rival business. Such contract between the partners may be expressly provided and/or may be implied by a course of dealing, but the submission that in the absence of negative covenant, they are free to do rival and competitive business, in my view, affects the whole purpose and object of the Partnership and/or Joint Venture. It creates confusion and disturbs the company's management, structure and the business and creates all sorts of bad impression and complications in the market for the supporting Groups and this internal fight supports the rival groups. Such competing business cannot be said to be permissible, unless agreed specifically by the parties/partners. In absence of specific contract between the parties, such rival competing business by one of the Directors and/or the partner creates more complication than solving and doing the good business of the company.

43 Both the parties have relied upon the various Commentaries of Indian, as well as, of the English Authors and also relied upon various Foreign/Indian Judgments/Citations. Lindley & Banks on the Law Partnership (18th Edition), Para 10-91 states as follows:

"10-91 Each partner will normally agree not only that he will devote his whole time to the partnership business but also that he will not engage in any other business, whether or not competing with the firm's business"

44 The purpose and object of Partnership and/or Joint Venture is quite clear and as elaborated in the following words:

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1. A Joint Venture to produce and market a particular product is in the nature of partnership. (New Horizons Limited vs. Union of India 1995 (1) SCC 478 at page 494.
2. A Joint Venture partner cannot engage in any operation harmful to the business in which partners are engaged as the relationship of joint venture partner is a relationship of trust and confidence and subject to the duty of good faith and loyalty from partners. Corpus Juris Secundum paragraph 22.
3. Basis of the relationship. "Ordinary partnerships are presumed by the law to be based on the mutual trust and confidence of each partner in the integrity of every other partner. The utmost good faith is requisite in the relations between partners." See Halsbury on Partnership Vol. 35 paragraph 94, page 52.
A Joint Venture being in the nature of a partnership, a partner has a duty of carrying on business to the greatest common advantage, to be just and faithful to each other as in the case of a commercial partnership. This is reflected in Section 9 of the Indian Partnership Act, 1932 and in standard text books on Law of Partnership.
4. "A partner cannot without the consent of a his co-partners lawfully carry on for his own benefit either openly or secretly any business in rivalry with the firm to which he belongs".
"This is an obligation which implied in any partnership and anything contrary could never be contemplated by the partners."

45 In my view, it is unacceptable to allow or permit any one partner to do a competing business without specific written permission/contract. The submission referring to Section 16 cannot be permitted to mean that other partner can do competing business to the prejudice of the partnership or venture and when objected to share the profits earned out of the said business in rivalry. The result of permitting other partners to do rivalry business just cannot be compensated in terms of money and/or sharing of profits. Such competing/rival business, without written permission or ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 23 contract, will definitely cause damage to the purpose and object of the Joint Venture or Partnership. There are always various sorts of strategies in doing business. The parties jointly ventured and come together to establish a particular business. They proceed accordingly jointly with full cooperation. The concerned market/business, the commerce trade also based upon various practice and strategies which just cannot be overlooked in this era of global and competitive market/business. If both the parties decide and agree, a business can be done orally or even without written communication. But when both the parties decide to fight, then any number of clauses in written documents/agreements are not sufficient to settle the dispute. Therefore, having once agreed and decided to do a particular business and project jointly and in fact, acted accordingly with clear understanding, trust, any one partner or person cannot be allowed to do the rival or competing business being part and partner of the company/firm only because there is no negative covenant. In my view, it is permissible to do rival and/or competing business, if agreed specifically by the parties and if any partner is doing such rival business without written permission and/or consent from the other partner, the Company/firm or the affected partner is entitled to seek injunction/relief or interim measure.

    46      Some Authorities are as under:

                   (a)                                  th
                            Snell's  Principles  of  28    
                                                            Edition, Page  654   which 




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     Arb-763-09                                  24

states "In many cases the Court will enforce by injunction the due observance of the terms of the partnership and of the duties which under the general law the partners owes to each other. An injunction may be granted to prevent a partner from engaging any other business contrary to a clause in the partnership or, if the business is a rival business even though there be no such clause".

(b) Kerr on Injunctions Page 513-514 to the same effect "Where a partnership term had not expired one of the partners who entered into a new partnership for carrying on business of the same character and nature was restrained from carrying on such business".

(c) The Law of Partnership in India by S. T. Desai, 7th Edition, 2009 at page 146 and page 505".

(d) Halsbury's on Partnership Vol. 35 paragraph 156 it is stated "The Court may grant injunction whenever it appears just or convenient; and will do so, at the instance of a partner to restrain any other partner from acting contrary to the obligations imposed upon him by the partnership relationship whether such acts are in actual breach of express relations or breach of good faith which is the implied duty of every partner.

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47 It is settled law that Section 9 of the Arbitration Act need to be read with Order 39, Rules 1 and 2 of Code of Civil Procedure (CPC) and the provisions of the Specific Relief Act while considering to grant interim measure/protection pending Arbitration.

48 In Milan Commercial Pvt.Ltd. vs. Asian Healthcare Services Ltd. & ors. dt. 16/Nov/2009 (Notice of Motion 1691/2008 in Suit 1452/2008) and as cited and relied by the learned senior counsel for the respondent, I have observed as under:

"45 It is observed in Kishorsinh Ratansinh Jadeja v. Maruti Corp. & ors. JT 2009 (5) SC 180 as under:
"12 In addition to the above, Mr.Ranjit Kumar also referred to the decision of this Court in Mandali Ranganna & ors. T. Ramchandra, [2008] (11) SCC 1 ] where an additional principle was sought to be enunciated relating to grant of injunction by way of an equitable relief. This Court held that in addition to the three basic principles, a Court while granting injunction must also take into consideration the conduct of the parties ....."

49 The submission is made by the learned senior counsel appearing for the respondent that the conduct of the parties are also relevant factor which need to be considered by the Court while granting the injunction and contended that as the petitioner failed to perform his part of the obligation and made it clear though partners of the company not to grant or provide any business or distribution to the respondent. Whatever may ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 26 be the reason for doing so, the fact remains that the respondent in revolt admittedly started doing rival business of dispute without any express or implicit consent and/or authority from the petitioner and the company.

50 Having once observed that it is not permissible though for the purposes of Section 9 of the Arbitration Act, I am not inclined to accept the submission made by the respondent that because of conduct of the petitioner he is not entitled for any equitable relief. The conduct of the petitioner in the Board Meeting of 27th September, 2006 or 16th February, 2009 i.e. Refusal of petitioner to buy out the respondent at reasonable price with negotiation and/or the petitioner is not in a position to manufacture sufficient products and as there is shortage in the market that itself also cannot be the reason to permit the respondent to do the rival or the competing business in such fashion.

51 To allow to do business in other territories of the company or demarcation of area for the distribution that itself cannot be read to mean an express or implied permission or consent to do any rival business. This also no way amounts to implied permission or consent by a course of dealing. There is no question of using or not using the company/firm's assets or properties or secrets. Such party may or may not use company's assets. It is not necessary to do so. The submission with regard to the using of assets or properties or secrets are immaterial.

52 The submission that it is not the business of CBVPL (the ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 27 company/partnership) to distribute an anti-rabies vaccine and, therefore, there is no competition or rivalry between the two. The manufacture of Rabipur by the petitioner and the distribution of verorab by the respondent, in my view, itself sufficient to hold it is a rival or competitive business considering the whole purpose and object of formation of the petitioner/company read with their nature of business, distribution and marketing of the products in the same field. I am not convinced that there is also a contract permitting the respondent to distribute a competing product. Clause 5.3 as strongly relied cannot be read to mean that there is a contract permitting the respondent to distribute a competing product.

Permitting to distribute products in restricted or particular territories that does not mean that it is a permission to do rival business in other territories. The interse agreement of distribution of the products as contemplated in Articles 5, 7 and 11 cannot be read to mean that for want of negative covenant, the respondent is free to do rival business & that amounts to permission, express or implied to do rival business. Whether it is rival business or no, that aspect can be judged by the affected or concerned party/company only allowing one of the Director to do rival business of distribution of verorab when the company/petitioner are admittedly doing the business of manufacturing and distribution of Rabipur. In my prima facie view it is nothing but the rival/competing business and it definitely affects, disturbs and creates confusion in the ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 28 market and the trade. The fact that the distribution of Rabipur by the respondent in the HMRL territories and by the petitioner in the rest of the world though the business of the petitioner as contended is limited to manufacturing the anti-rabies vaccines Rabipur is unacceptable. The clauses cannot be read in isolation. The whole document, the nature of business and the purpose of the Joint Venture and the respective obligation and duties of existing partners/Directors and their respective Trust, faith from the point of view of commercial market and business reality are important factor apart from the agreement between the parties within the frame work of law. Considering the scope and purpose of Section 27 of the Contract Act, merely because in sub-section (2) of Section 11 as exception is carved out and as there is no negative covenant in the agreement between the parties, that itself cannot be permitted to mean that the other partner has no obligation, duty to act in the interest of the Joint Venture/firm by using his fullest mutual agreed benefits. Any rival business by such partner definitely will cause harm generally or individually, if he works not exclusively for the company. The proviso to Section 11(2) is very clear thereby it is permitted inspite of Section 27 of the Contract Act that the partners may provide that a partner shall not carry on any business other than that of the firm while he is a partner. But for this such negative covenant or clauses could not have been agreed or permitted to the parties even for entering into such partnership ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 29 business/Joint Venture.Now,in view of this, it is permissible for the partners to enter into partnership with such negative covenant/clauses. This also cannot be read and refer to mean that in the absence of any negative covenant/clause, other partner is free to do any business other than that of the firm while he is a partner. In my view, as not specifically agreed, it is the obligation and duty of a partner to carry on business only of the firm while he is a partner, unless contracted or agreed between the parties otherwise. But this also subject to Sections 16(b), 36 and 54 of the Partnership Act. In the present case, there is no such case of dissolution of firm or partnership. The respondent is still a partner/Director of the company having 49% of shares. There is no doubt, therefore, he has a duty of good faith, trust, cooperation to continue to achieve the purpose and object of the Joint Venture.

53 Assuming for a moment that there are cases and counter cases or allegations or counter allegations are made by the parties, with regard to their respective conduct, but in view of the fact that the firm/company is still in existence and they are doing the business jointly, therefore, merely because there are breaches of various reciprocal obligations that itself, in my view, cannot be the reason to interpret the provisions of law, as well as, the clauses of the agreement between the parties to mean that in such situation, the other party is free to do rival or competing business or business affecting the existing business of the company. This will definitely ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 30 destroy the market of the company and/or affect their business and even the market's written or unwritten strategies. Therefore, the submission that the petitioner has not approached this Court with clean hands and, therefore, not entitled to any equitable relief, in the present facts and circumstances, is also unacceptable.

54 Both the parties agree so far as the principles of grant of injunction referring to the Apex Court decision in Seema Arshad Zaheer v. Municipal Corpn. of Greater Mumbai, (2006) 5 SCC 282, whereby apart from the basic elements, the Court has also expressed to consider the conduct of the parties. In the present case, in my view, there exists a prima facie case as pleaded with material to substantiate the same. The need for protection of petitioner's right is more and necessary than that of the respondent. The balance of convenience and equity tilt in favour of the petitioner and its company of which the respondent is also 49% shareholder. Therefore, in a way, the case as put up by the respondent to oppose the present petition is self-destructive. If the case of the respondent is accepted, then that itself will affect his own company's business being 49% partner of the same. In my view, therefore, it is not in the interest of the petitioner or its company of which the respondent is also 49% shareholder to permit and/or allow to do such rival or competing business in such fashion.

55 The submission with regard to the Award already passed and/or suppression of facts or the statements and/or incomplete documents, and ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 31 that the product of Rabipur was drastically reduced between June 2009 and August 2009 and the products of Rabipur has given complete stand still and further that the quantity of anti rabies vaccines available in the domestic market is not enough to reach this large number of dog bite victims, that itself cannot be the reason to accept the case of the respondent and to permit him to do the rival and competitive business. It is also difficult to accept the case that it is in the interest of public at large to permit the respondent to do the business for want of shortage of the product in question in the market. I have already observed in the interim order as under:

g) I am not denying the right of the main company/ manufacturer or other distributors to distribute "Verorab" in the market. At present only the question is whether the Respondent can distribute the same rival product in the market. This also in my view, is not in the interest of commercial agreement entered into between the parties. This is not a case of conflict between public or private interest. It is a pure commercial transaction.

56 The Authorities/citation, therefore, so relied to content that there should be no injunction to prevent such production of anti rabies vaccines in the domestic market, in the present facts and circumstances, are also of no assistance. [ Novartis AG vs. Mehar Pharma (2005) 3 Bom.C.R. 191 and F. Hoffman La Roche vs. Cipla Ltd. 148 (2008) DLT 598/MANU/DE/0381/2009 ]. It is a clear commercial contract between the parties. There is no private interest involved in this dispute and not the ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 32 public. The petitioner's case is only against the respondent to distribute the rival product, there is no relief sought against any third person and/or the company who are manufacturing and distributing such products in the market. Therefore, the submission referring to Rule 803E of the Bombay High Court (Original Side) Rules of giving notice to person likely to be affected has also no force.

57 In view of above, the submission with regard to the applicability of the provisions of Sections 3 and 4 of the Competition Act, 2002 is also unsustainable at this stage of the proceeding under Section 9 of the Arbitration Act. The remedy is elsewhere.

58 There is no question of constructive res judicata in view of the admitted subsequent developments and the conduct of the respondent of starting and distributing a rival product in the market.

59 The aspect of breach of confidentiality or use of partnership property and exploitation of the partner's intention that the firm and various other written and unwritten market strategies, just cannot be overlooked while granting injunction in such matters. The submission to restrict the injunction only to this extent is also unacceptable as it will create further complication to dissect injunction order like this. Therefore, considering all the contracts and the clauses between the parties, in my view, the case is made out by the petitioner for injunction/interim relief as prayed. The Apex Court in M.O.H.Uduman & ors vs. M.O.H.Aslum, AIR 1991 SC 1020 ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 33 has observed while interpreting a contract of partnership as under:

"14 It is settled canon of construction that a contract of partnership must be read as a whole and the intention of the parties must be gathered from the language used in the contract by adopting harmonious construction of all the clauses contained therein. The cardinal principle is to ascertain the intention of the parties to the contract through the words they have used, which are key to open the mind of the makers. It is seldom that any technical or pedantic rule of construction can be brought to bear on their construction. The guiding rule really is to ascertain the natural and ordinary sensible meaning to the language through which the parties have expressed themselves, unless the meaning leads to absurdity."
60

Admittedly, the said JVA is in existence; the company is still doing the business of manufacturing the product called "Rabipur", an anti-rabies vaccine. Admittedly, the Respondent has started distributing the rival products called "Verorab", which are not manufactured and or distributed and or permitted to be distributed by the Petitioner and or JVA. The distribution has been started since 16th September, 2009 i.e. definitely after the award.

61 Considering the rival submissions so raised including the pleadings and the material placed on record, at this prima facie stage, I have granted ad-interim injunction on 16.10.2009 in terms of prayer clause (a) by observing as under, which is also undisturbed till this date .

(a) A partner who has 49% of the share capital in a JVA, is doing the business of distribution on rival product "Verorab"

though the said JVA is in existence. It also means the JVA is ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 34 still manufacturing and doing the business of "Rabipur".

Therefore, in a way the partner who is contributing in all respect in JVA, doing other parallel business of distributing the rival products which in my view, is in complete breach of the basic purpose and object of the JVA. When the parties decide and join to do particular business in the present case, as recorded, in my view, either of the partner should do no business rival to the company, in which they are partners of a substantial nature.

d) Because, the Petitioner for whatever may be the reason not provided distribution right as per the JVA to the Respondent and or awarded the contract to some other person than the Respondent, that itself according to me, cannot be the reason to start the parallel business of distribution of rival products as done in the present case. This is on the foundation itself that the JVA is still in existence and is manufacturing and distributing their own product "Rabipur".

e) The Petitioner or the company unable to manufacture "Rabipur" as per the market requirement and/or announcement, therefore, the Respondent wants to do this business of distribution of "Verorab" in breach of JVA's object and purpose, in the interest of public at large, as contended is ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 35 also in my view, is not sufficient reason to overlook the prima facie case made out by the Petitioner. Admittedly, "Verorab"

was in the market even prior to the award and someone else was doing that distribution. The issue is whether the Respondent who has 49% share in the JVA can do this parallel business to destroy and or at least to affect the business of the company. This in my view, need to be answered in negative for above reasons, as it is also not in accordance with JVA and the business agreement.

h) There is no public interest involvement in the present matter. As there is no legal or any sort of obligation shown in favour of the Respondent to distribute such product in the market in the interest of public at large. Its a clear commercial transaction which Respondent, for whatever may be the reason, resorted to and started this distribution against the interest of the company, though he is a Partner of the company which is still in existence.

62 The company is not party to the arbitration agreement. The issue of non-joinder or mis-joinder in such arbitration petition just cannot be the reason to refuse the interim order or measure if case is made out. Even otherwise, the petitioner has 51% shares of the company. The respondent has 49% shares. This is not derivative proceeding by the minority ::: Downloaded on - 09/06/2013 15:26:34 ::: Arb-763-09 36 shareholders.

63 Both the parties have nominated their respective Arbitrators and now as per the agreement, the ICC (the International Chamber of Commerce) will take further steps to appoint their Chairman.

64 In view of above, as the parties have already proceeded to appoint Arbitrator/Arbitral Tribunal, I am inclined to confirm prayer (a) as already granted till the Constitution of the Arbitral Tribunal and eight weeks thereafter with liberty to the parties to apply for appropriate order or relief.

    65      All points are kept open.
                              
    66      The Petition stands allowed accordingly.    No costs. 
        


                                                (ANOOP V. MOHTA, J.)
     






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