Mac Laboratories (Private) Ltd. v. V.R Nathan, Sole Proprietor Of V.R Nathan & Sons

This is an appeal against an order of interim injunction passed by the Vth Assistant Judge, City Civil Court, Madras, in I.A No. 9305 of 1966 O.S No. 3102 of 1966. The appellants are defendants in the suit. They are manufacturers of pharmaceutical products and also sole agents in India for foreign manufacturers of pharmaceutical products. The plaintiff and defendants entered into an agreement in May, 1955, which was to last for a period of 12 years from 1st April, 1955, with an option to renew for a like period at the end of the term. The expenses of the plaintiff's organisation were to be met by the defendants. But it was not to exceed 15 per cent of the gross sales. The plaintiff was to be entitled to a half-share in the profits made. It is not necessary to enter into great details as to the terms of the contract between the parties. The defendants proposed to take over the distribution with effect from 1st September, 1966 into their own hands and annouced their decision by their letter dated 23rd August, 1966, purporting to terminate and revoke all their existing contracts with the plaintiff. The plaintiff filed the suit alleging that the defendant had no power to terminate the sole distribution rights granted to the plaintiff, and that the plaintiff continued to be the sole distributor of the defendants and their foreign principals, and that they had also option to renew the tenure for a further period of 12 years. Therefore, the plaintiff laid the suit to restrain the defendants from committing a breach of the sole distribution agreement between the parties and prayed for the issue of a permanent injunction restraining the defendants from in any manner distributing, selling or otherwise dealing with their products or the products of their foreign principals. Pending disposal of the suit, the plaintiff filed I.A No. 9305 of 1966 for an interim injunction. The learned Assistant City Civil Judge issued an interim injunction prayed for, holding that at this stage the Court's only duty is to see whether there is a bona fide contention between the parties and on which side in the event of success the balance of convenience will lie if the injunction does not issue, that if the Court finds that there is a substantial question to be investigated and that matters should be preserved in status quo till the final disposal of the question, it is sufficient ground for granting injunction and that it is neither proper nor is the Court bound to go into the question and decide whether the application is not maintainable in law and injunction prayed for cannot be granted under the Specific Relief Act. In other words, the view of the learned Assistant City Civil Judge was that the matter had to be decided not under the Specific Relief Act, but should be decided under the provisions of O. 39, Civil Procedure Code, because it is concerned with interim injunction. He held that the ends of justice and the balance of convenience required that a temporary injunction should issue restraining the defendants from distributing, selling or otherwise dealing with their products or the products of their foreign principals and issued an order accordingly.

Mr. Rajah Iyer appearing for the respondent made it clear that the question is now concerned with the period upto 31st Match, 1967. The terms of the contract as regard an option for renewal are not quite clear as to whether the option lay with the plaintiff or with the defendants and whether the renewal was to be on the same terms as at present or terms were to be negotiated and arrived at by an agreement between the parties. Even otherwise it would have to be held that the matter of renewal of the agreement not being very clear, the question would have to be decided only on the basis of the rights of the parties under the present agreement which is to ensure till 31st March, 1967. It should also be made clear that the terms of the agreement and the relationship between the parties are such that the matter does not lend it self to a decree for specific performance. Therefore the further question that arises is whether under the circumstances a permanent injunction could issue and also whether a temporary injunction could issue in the circumstances of this case.

The principles governing the matter have been very extensively canvassed by both the parties. While the issue of a temporary injunction is governed by the provisions of O. 39, Civil Procedure Code, still the principles applicable to the issue of a permanent injunction under the Specific Relief Act would normally govern the consideration of the question whether a temporary injunction should issue. In Subba Naidu v. Haji Badsha Sahib(1) a Bench of this Court held that the principles which govern the grant of temporary injunctions under the Civil Procedure Code are the same as these which are laid down in the Specific Relief Act relating to the grant of a perpetual injunction, and that the grant of such an injunction is a matter of judicial discretion. Though it is put in the form of query, that is the view which their Lordships were disposed to take. In D.D.G Hansa of Bremen v. Pestonji(2) it is observed as follows (at page 348):

“The question of a temporary injunctions dealt with by the Civil Procedure Code, whereas the question of a permanent injunction is dealt with under Specific Relief Act. But the principles applicable to the two proceedings are very similar. They both derive from the Court of the Chancery and they postulate that a man will be punished if he does what his conscience tells him not to do. It is, therefore, impossible in disposing of temporary injunction to exclude from one's mind the English doctrine as contemplated in the Specific Relief Act.”

It has been laid down that the preventive relief by way of injunction, whether perpetual or temporary, is within the discretion of the Court depending on the particular circumstances of each case, and that in order to entitle the plaintiff to a temporary injunction pending the disposal of the suit, the plaintiffs must make out a prima facie strong case in support of the right they claim and further show that irreparable damage will result to them if the injunction is not granted. The principles applicable to circumstances like these are not in doubt. But in practice considerable difficulties are felt in applying the principles to any particular set of facts.

In Halsbury's Laws of England, Volume 21, Simonds Edition at page 343, the law is laid down as follows:

“The object of an interlocutory or interim injunction is to preserve matter in status qua until the case be tried……………and will only impose such restraint as may suffice to stop the mischief complained of or, where the object is to stay further injury to keep things as they are at the moment. Such an injunction is in effect a substitute for the damages which might be assessed for the period between the issuing of the writ and the trial.”

At page 352 it is observed as follows:

“It is the very first principle of injunction law that prima facie, the Court will not grant an injunction to restrain an actionable wrong for which damages are the proper remedy. Where the Court interferes by way of injunction to prevent an injury is irreparable (italics mine) and second that it is continuous. By the term irreparable injury is meant injury which is substantial and could never be adequately remedied or atoned for by damages, not injury which cannot possibly be repaired; and the fact that the plaintiff may have a right to recover damages is no objection to the exercise of the jurisdiction by injunction, if his rights cannot be adequately protected or vindicated by damages.”

In respect of interlocutory injunction it is laid down at page 364:

“……………in no case does the Court grant an interlocutory injunction as of course………it is quite sufficient if the Court finds a case which shows that there is a substantial question to be investigated, and that matters ought to be preserved in status quo until that question can be finally disposed of.”

In this case there is no doubt that the contract is to extend upto 31st March, 1967. But the question whether the defendants have the right to terminate the contract, is still a disputed question and the learned Assistant City Civil Judge has given no consideration to that aspect of the case. I must also say that this is not a case where an irreparable injury in the sense of an injury which could never be remedied or atoned for by damages would accrue to the plaintiff. In a case of breach of contract the normal remedy would be damages. It is not as though that in this case if the plaintiff is not allowed to distribute the products which are sold by the defendants it would not be possible to calculate what exactly the damages would be. It would be quite possible to calculate the damages. In D.D.G Hansa of Bremen v. Pestonji Bilaram, A.J.C, has quoted the following passage:

“The inconvenience to the defendants not to say the society at large, would be greater if the Court interfered than not interfering could possibly be to the plaintiffs, because all that plaintiffs require is money, and if they are entitled to money they will be entitled to recover it in the ordinary course of law. As to reputation I do not see why it should suffer by differing from a particular railway company; the reputation of the railway company may equally suffer by differing from the plaintiff. If the plaintiff's reputation does however, suffer, there is a remedy open at law.”

That passage would apply to the circumstances of the present case also.

The next question is whether an injunction could be issued under the principles laid down in the Specific Relief Act. Under S. 57 of the Act notwithstanding S. 56, Cl. (f), where a contract comprises an affirmative agreement to do a certain act, coupled with negative agreement, express or implied, not to do a certain act, the circumstance that the Court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement, provided that the applicant has not failed to perform the contract so far as it is binding on him. Under S. 56(f) an injunction cannot be granted to prevent the breach of contract the performance of which would not be specifically enforced. Under S. 21 a contract which runs into such minute or numerous details or which is not dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such that the Court cannot enforce specific performance of its material terms, cannot be specifically enforced. The terms of the present contract are such that it is not a contract which can be specifically enforced and therefore under S. 56(f) an injunction cannot be granted to prevent the breach of the contract. All the same the question is whether under S. 57 an injunction could be granted. On behalf of the appellants it has been argued that an injunction could be granted and that in this case there is no negative agreement which could be directed to be performed by an injunction. It is conceded that a covenant wholly negative could be enforced by means of an injunction, but it is urged that where the covenant is positive not negative, an injunction cannot be issued. The appellants quoted extensively from Modern Equity by Harold Greville Hanbury, 8th Edition. At page 570 it is stated:

“The principle that has guided the Courts has been that they will not enforce specific performance by a back door.

It is easier for the Court to restrain the breach of a separate negative covenant which accompanies an affirmative covenant in the same contract than it is for it to infer the presence of a negative covenant from the presence of an affirmative covenant standing by itself.”

In any case, it is urged, as there is no specific negative covenant an injunction cannot be issued in this case. In this case while there is an affirmative covenant there is no negative covenant. It has only to be inferred. The present case is really a contract of service, a contract between principal and agent. At page 571 of the book it is observed:

“But it is in relation to contracts of service that the difficulties surrounding the problem become really acute, and the Courts have been driven back on the significance of a negative stipulation.”

At page 573 it is laid down:

“In later cases Judges have tended to adopt, as a rough-and-ready solution of the difficulties, a distinction between cases in which the contract contains both affirmative and negative stipulations, and cases in which it contains stipulation purely affirmative. By granting “negative performance” in the former and refusing it in the latter type of case, they have taken the middle path between jettisoning the great authority of Lord St. Leonards on the one hand and committing themselves to a dangerously wide policy on the other.”

It is argued by the appellants that as the contract in the present case contains only stipulations purely affirmative, it should not be protected by means of an injunction. But that is not the view which the Court in this country have been disposed to take. In Burn & Co. v. Macdonald a Bench of the Calcutta High Court held that although there was no negative condition in terms in the agreement, a negative covenant could be properly implied under S. 57 of the Specific Relief Act. Their Lordships observed at page 364:

“The law in India on this subject is codified and it has been laid down in the House of Lords by the Judicial Committee and in several cases in this Court………that where the law has been codified it is of little avail to enquire what is the law apart from such codification, but we must look to the Code itself as our guide in the matter. The law here is codified by S. 57 of the Specific Relief Act. That seems to me to make the case reasonably clear………The language of that section is reasonably clear, and it appears to give legislative sanction in India to the view expressed by Lord Selborne in the passage I have read…….The view I entertain coincides with that of the late Chief Justice Farran in the case of Gharlesworth v. MacDonald. In that case the Court thought that there was a negative covenant, although the terms of the agreement were not very clear. After dealing with the case of Lumley v. Wagner(3), Farran, C.J, says: ‘In my opinion it would be most unfair to gentlemen in the position of the plaintiff not to protect them in such cases. It would virtually debar them from engaging an assistant at all. An action for damages would afford them no protection, certainly no adequate protection and, in a previous part of his judgment he refers to S. 57 of the Specific Relief Act and speaks of it ‘as a legislative decision to the same effect’. Now, can we in the present case properly say that a negative covenant is implied?

I feel no doubt about it. Here the covenant is that the defendant will diligently and to the best of his ability devote himself to the duties as a draftsman and general assistant. Surely when a man says that he will devote himself during a period of years to the business of a particular firm, it does imply that he will not give his services during that period to any other firm. It would be dangerous to hold the contrary.”

The view expressed by Lord Selborne about Lumley v. Wagner, in Wolverhampton & Walsall Railway Co. v. London & North-Western Railway Company(4), referred to by the Bench of the Calcutta High Court is as follows (at page 363):

“With regard to the case of Lumley v. Wagner to which reference was made, really when it comes to be examined, it is not a case which tends in any way to limit the ordinary jurisdiction of this Court to do justice between parties by way of injunction. It was sought in that case to enlarge the jurisdiction on a highly artificial and technical ground and to extend to it an ordinary case of hiring and service, which is not properly a case of specific performance, the technical distinction being made, that if you find the word ‘not’ in an agreement ‘I will not do a thing’ as well as the words ‘I will’ even although the negative term might have been implied from the positive, yet the Court, refusing to act on an implication of the negative will act on the expression of it. I can only say, that I should think it was the safer and the better rule, if it should eventually be adopted by this Court, to look in all such cases to the substance and not to the form. If the substance of the agreement is such that it would be violated by doing the thing sought to be prevented, then the question will arise, whether this is the Court to come to for a remedy. If it is, I cannot think that ought to depend on the use of the negative rather than an affirmative form of expression. If, on the other hand, the substance of the thing is such that the remedy ought to be sought elsewhere, then I do not think that the form ought to be changed by the use of a negative rather than an affirmative.”

In Gallianji Harjivan v. Narsi Tricum, it is observed as follows:

“At present all that we are concerned with is the covenant on the part of the defendant that he would serve plaintiff exclusively for the period of ten years from 1st February, 1893. That is a lawful agreement. Specific Relief Act (I of 1877), S. 57, Illustration (d) shows that if B contracts with A that he will serve him faithfully for twelve months as a clerk, A is entitled to an injunction restraining B serving a rival house as clerk. So here defendant contracted with plaintiff to serve him as cutter for ten years from 1st February, 1893; why should plaintiff not obtain an injunction restraining defendant from serving a rival milliner as cutter during that period?

It may be doubted whether in England the plaintiff would succeed. Thus to take the case of Whitwood Chemical Co. v. Hardman……Lindley, L.J,………admitted that every agreement to do a particular thing in one sense involves a negative. He said (pp. 426-427):

‘It involves the negative of doing that which is inconsistent with the thing you are to do………but it does not at all follow that because a person has agreed to do a particular thing, he is, therefore, to be restrained from doing everything else which is inconsistent with it. The Court has never gone that length, and I do not suppose that it ever will. We are dealing here with a contract of a particular class. It is a contract involving the performance of personal service, and, as a rule, the Court does not decree specific performance of such contracts. That is a general rule. There has been engrafted upon that rule an exception, which is explained more or less definitely in Lumley v. Wagner that is to say, where a person has engaged not to serve any other master……the Court can lay hold of that and restrain him from so doing………and the principle does not depend upon whether you have an actual negative clause, if you can say that the parties were contracting in the sense that one should not do this or the other—some specific thing on which you can put your finger’……………But in India we must follow the words of the statute. No doubt under S. 56, Cl. (f) of the Specific Relief Act an injunction cannot be granted to prevent the breach of a contract the performance of which would not be specifically enforced; and under S. 21(b) and (g) a contract of personal service cannot be specifically enforced, nor can a contract the performance of which involve the performance of a continuous duty, extending over a longer period than three years from its date. But S. 57 specifically provides for this difficulty…………The circumstance that the Court is unable to directly compel specific performance of the affirmative agreement by defendant that he shall serve me as cutter for ten years from 1st February, 1893, does not preclude it from indirectly compelling specific performance of that agreement by granting an injunction to defendant to perform the implied negative agreement that he will not during that period serve anybody else as cutter.”

In Madras Railway Co. v. Thomas Rust where the defendant signed an agreement in England with a railway company whereby he contracted to serve the company exclusively for four years it was held that the plaintiff company was entitled to an interlocutory injunction restraining the defendant from serving other on the terms that the plaintiff company should consent to retain him in its employ. In fact in Subba Naidu v. Haji Badsha Sahib(5) an argument was advanced that S. 57 should be confined to Lumley v. Wagner type of cases. This Court observed at page 171:

“There is certainly nothing in the words of S. 57 to suggest that so narrow a construction should be placed upon it. The section is really a proviso to S. 56, which cuts down the operation of the proceeding section, Mr. Grant has been unable to cite any decision of the Courts in this country in support of the proposition which he put forward though no doubt there are expressions of opinion in the text books which support his proposition. The authorities such as there are against the proposition which he invites us to adopt.”

This Court referred to the decision in Madras Railway Co. v. Thomas Rust. It may be noted that the case was not even a case of personal service. It is therefore clear that as far as this country is concerned, the Courts have been prepared to proceed on the basis that a positive agreement that a certain person would serve another exclusively would imply a negative agreement not to serve any other person during the period of the agreement with the first person. It may also be pointed out that in Fairam Valjee v. Indian Iron and Steel Co., it was held that in respect of the contract where a company used the words “total,” “all” and “entire,” the company undertook to purchase all the flux needed from the vendor at the rate specified and the purchase of the flux by the vendee from other suppliers amounted to a breach and that the vendor had made out a case for injunction. It is therefore not possible to follow the opinion expressed by the learned author Harold Greville Hanbury in Modern Equity, 8th Edition, above referred to. It is clear that in so far as the present agreement is concerned, there is an implied negative agreement that the plaintiff should not either entrust the sole agency to anybody else or distribute the products themselves directly: If this case were one of perpetual injunction, the Court would have power to grant the perpetual injunction.

It is further argued for the appellants that this case being one of personal service more or less like that of master and servant, there have so far been no cases where a master who has agreed to employ a servant has been prevented by an injunction for employing any other, though there have been a number of cases where a servant who has agreed to serve a master exclusively has been prevented by an injunction from serving any other master. A number of cases having been relied on, particularly in reference to sole selling agencies. In Brett v. East India and London Shipping Co. Ltd. it has been held that the Court will not compel specific performance of an agreement by a company to employ plaintiff as their broker, and that the contract being at an end, that which is merely an adjunct to the principal relief sought, namely, an injunction to restrain the company from advertising in breach of a stipulation contained in the agreement, the name of any other person as their broker, will not be granted. In Macdonald v. Casein Ltd., it has been held that an injunction will not be granted restraining the breach by a principal of a contract giving an agent the sole agency for the sale of goods in a specified area, unless the contract contains an express negative covenant. In Cant v. Miller, English and Empire Digest (Replacement) Vol. 823 *355 it was held that the contract between plaintiffs and defendant was not an assignment of the defendant's rights under his contract with the colliery company but an agreement for personal service with an implied covenant not to employ any one else, and that therefore the injunction should not be granted, the proper remedy being for damages at law. In Atlas Steels (Aus.) Pty, Ltd. v. Atlas Steels Ltd. where defendant appointed plaintiff its sole distributor and sole agent for sale of its goods in as pecified territory by an agreement containing an express negative stipulation by defendant whereby defendant bound itself not to sell any of its goods in the territory, it was held an injunction should not be granted to restrain breaches by defendant of the negative stipulation. In Chinnock v. Sainsbury(6), it was held the Court would not compel the performance of the contract for an agency. In Morris v. Delobbeiflipo(7), it was held that the agreement was one of agency and consequently not one of which specific performance would be decreed by a Court of Equity. In Davis v. Foreman(8), referring to a clause the employer would not terminate manager's employment except for misconduct, it was held that the clause though negative in form was affirmative in substance being equivalent to a stipulation by the employer that he would retain the manager in his employ and an injunction ought not to be granted. But as I have already pointed out the law in India is not the same as in England. Even in England the position seems to be that the servant has the same rights as the master in similar circumstances. In Halsbury's Laws of England, Hailsham Edition, Volume 22, at page 169 it is laid down as follows:

“The Court will not decree specific performance of a contract of service at the suit of the master or of the servant, partly, on the ground that the contract is based upon mutual confidence, and partly because the Court is not in a position to supervise the manner in which the contract is performed. Where, however, the contract of service includes a negative stipulation by which the master or the servant binds himself, not to do a specific act, the Court while declining to enforce specific performance of the contract as a whole, will enforce the negative stipulation and will restrain the master or servant by injunction from committing a breach thereof. The negative stipulation must, however, be expressed on the face of the contract, or at least be clearly implied from its language; it is not sufficient for this purpose to show that the act done is inconsistent with some positive stipulation in the contract. An injunction will not however be granted at the suit of the master where he is himseif the first to break the contract.”

Therefore I should consider that in a case like this Court has the power to grant a permanent injunction.

The question still remains whether in the circumstance of this case it is just and necessary to grant an injunction and where the balance of convenience lies. As I have already mentioned, this is not a case where an irreparable injury would be caused to the plaintiff. The plaintiff could be given an adequate remedy by way of damages. The contract itself is to run till 31st March, 1967. To give a temporary injunction would really be to enable the plaintiff to get what he wants in the suit itself. Considering these facts and considering further the fact that the defendants are distributors of pharmaceutical products and if they are prevented by an injunction in distributing them they would have to entrust the distribution to the plaintiff in which case the performance of the contract would never be adequately supervised by Court. This is not a case for temporary injunction. The public would also stand to suffer because of the non-availablity of the pharmaceutical products for which the defendants are distributors. I do not think that there is any justification for granting an injunction in favour of the plaintiff. The appeal is therefore allowed and the injunction granted by the lower Court is vacated. There will be no order as to costs.

V.C.S