S.R Das Gupta, J.:— This is an application under s. 33 of the Indian Arbitration Act for an order that the arbitration clause contained in the agreement dated September 14, 1940, concluded between the petitioner and the respondent be declared null and void; that the said agreement dated September 14, 1940, be declared void and inoperative; the effect of the arbitration agreement contained in the said agreement dated September 14, 1940, he determined, and for injunction and costs.

The facts necessary for me to set out for the purpose of this application are as follows:

The petitioner Messrs. Carew & Co., Ltd., has a factory for the manufacture of sugar situated at a place called Darsana in the district of Nadia in East Bengal. The respondent North-Bengal Sugar Mills Co., Ltd., has its own factory for the manufacture of sugar situated at a place called Gopalpur in the district of Rajshahi in East Bengal.

Prior to September 14, 1940, the petitioner and the respondent used to procure sugarcane for meeting the needs of their respective factories, from amongst others, the sugarcane-growing areas in the Rajshahi district, both on the north and south sides of the river Padma.

On September 14, 1940, an agreement was arrived at between the petitioner and the respondent whereby zones were allocated to the respective parties for their respective factories. The material terms of the said agreement are as follows:

That for the period of two years, viz., season 1940–1941 and 1941–1942, the Rajshahi district would be zoned between the two factories in certain areas, as mentioned in the said agreement. In consideration of the said arrangement Messrs. Carew & Co., Ltd. undertook not to draw or obtain supply of sugarcane from the Rajshahi district but only from stations south of the Padma river after the close of the cane-crushing season 1941–1942.

That within their respective zones the two factories shall make their own individual arrangements for the purchasing and taking deliveries of cane as also development and encouragement of cane cultivation. Each of the said two factories undertook not to draw or appropriate through whatsoever agency any canes from the zones allotted to the other factory. In case of any infringement of this mutual restriction by either factory the offending factory shall be liable to pay to the other factory liquidated damages at the rate of three annas per maund of cane thus wrongly appropriated or received.

That with the expiry of the cane-crushing season of 1941–1942 the claim of the Darsana factory to appropriate any cane supply from the Rajshahi or the Pabna district shall automatically cease and Darsana factory undertook and agreed to withdraw from the Rajshahi and the Pabna district altogether and not to maintain thereafter in any case whatsoever any staff, weighbridges or organisation or agents in the Rajshahi or the Pabna district or any stations north of the Padma river nor thereafter to appropriate, draw or receive any supply of sugarcane directly or indirectly from the Rajshahi or the Pabna district or any station north of the river Padma.

In the event of either factory appropriating or securing any canes in contravention of the said agreement such factory shall be liable to pay to the other factory liquidated damages at the rate of three annas per maund of cane thus wrongly appropriated or received.

Any dispute arising out of the said agreement shall be referred to the arbitration of two arbitrators to be appointed by the executive committee of the Indian Sugar Mills Association. The said arbitrators shall appoint an umpire and the arbitration shall be governed by the provisions of the Indian Arbitration Act.

Disputes having arisen between the parties with regard to the right of Messrs Carew & Co., Ltd., in spite of the said agreement, to draw its supply from the Rajshahi district, the matter was referred by the respondent to the arbitration of two arbitrators to be appointed by the executive committee of the Sugar Mills Association in terms of the said agreement. In its letter of reference the respondent inter alia claimed liquidated damages at the rate of three annas per maund.

Under these circumstances Messrs. Carew & Co., Ltd., have made the present application and their main contention before me is that the agreement dated September 14, 1940, is void and inoperative ab initio and is not binding on them as being in restraint of trade and having been concluded in contravention of the provisions of the Indian Contract Act. Messrs. Carew & Co., Ltd. also base their contention on another ground which is as follows: The partition of India and the creation of the Pakistan have completely altered the circumstances under which the said agreement was arrived at. The state of things which was taken into consideration by the parties at the time of the conclusion of the said agreement no longer existed. It was then assumed by the parties to the said agreement that the petitioner would have a clear field in its own zone for development, but the partition of Bengal has completely changed the situation, and it was with great difficulty that the petitioner was able to draw cane from West Bengal in the years 1947 and 1948. The result of the partition has diminished the area from which they could originally receive supplies for their sugarcane factory.

The respondent disputes the proposition, namely, that the agreement in question is in restraint of trade and therefore void. The respondent also disputes that the change of circumstances which have been brought about by the partition of Bengal and the creation of Eastern Pakistan has in any way affected the working of the contract in question or made the provisions of that contract inoperative.

Two questions arise for my decision, viz., (1) is the contract void being in restraint of trade? (2) Has the contract become unenforceable because of the unforeseen change of circumstances, namely, partition of India and creation of Pakistan?

Under s. 27 of the Contract Act an agreement, the effect of which is to restrain a party from exercising a lawful profession, trade or business, is void. This proposition cannot be disputed. It is also now well-established on the authorities that a contract restraining a party even partially from exercising a lawful profession or trade or business is also void. Madhub Chunder Poramanick v. Rajcoomar Doss(1), Brahmoputra Tea Co., Ld. v. E. Scarth(2), Nur Ali Dubash v. Abdul Ali(3).

Mr. Advocate-General, appearing on behalf of the respondent, does not dispute the proposition, viz., that a contract, the effect of which is to restrain a lawful profession, trade or business, is void and it would be void even if it partially restrains a party from exercising such lawful profession, trade or business. But what he contends is that in this particular case the object of the agreement is not to restrain the applicant from carrying on its trade but the object is to enable the applicant to develop the area where their own factory is situate so that they can carry on business in a better way. Mr. Advocate-General contends that the agreement prescribed the mode in which the petitioner is to carry on the business. In any event he contends that there is no restriction at all because the petitioner is free to obtain supply of cane from the Rajshahi district, but in that case the petitioner will have to pay only a certain sum by way of liquidated damages.

I have carefully considered the agreement before me and, in my opinion, the effect of the present agreement is to restrain the petitioner from carrying on its trade or business within the area mentioned in the agreement. Drawing or obtaining supply of sugarcane is a part of the business of the petitioner and there is no doubt that under the agreement dated September 14, 1940, the petitioner is restrained from drawing or receiving any supply of sugarcane directly or indirectly from Rajshahi or Pabna or any station north of Padma.

Mr. Advocate-General cited before me a number of decisions in support of his contention. He cited before me the decision in Carlisles, Nephews & Co. v. Ricknauth Bucktearmull(4) and contended that the effect of the agreement is nothing but to regulate the mode of carrying on the business. In that case the plaintiffs on August 4, 1881, entered into a contract with the defendant for sale to the latter of a quantity of goods of a certain description “to be delivered up to the 31st December, 1881”. The plaintiffs stipulated that they would make no sales of goods of the same description to others before December 1, 1881; and the contract contained an arbitration clause. It was no doubt held that the stipulation in the contract prohibiting any sales of goods to others during a particular period, of a similar description to those brought under the contract, is not a stipulation in restraint of trade under s. 27 of the Indian Contract Act. But the facts of that case show that the term of the agreement which debarred the plaintiff from selling its goods to others before December 1, 1881, was really in the nature of a negative covenant and was ancillary to the main terms of the contract and the said negative covenant was to be operative only during the term of the contract. But in the present case the petitioner is restrained for all time to come from carrying on its trade or business in any stations north of the river Padma.

The next case which has been cited by Mr. Advocate-General in support of his contention is Mackenzie v. Striramiah.

In that case the defendant was the holder of a license for the manufacture of salt and had entered into an agreement with the plaintiffs for the sale to them of all the salt manufactured by him. The material clause was cl. 6 of the agreement, and learned Advocate-General laid stress on it. The said clause was to the effect that the licensee should not manufacture any salt in excess of the quantity which the firm of Arbuthnot & Company should from time to time, at the commencement of each manufacturing season, require the licensee to manufacture. There was also another clause, being cl. 12, which provided that all salt manufactured and stored by the licensee under the said license should be sold by the licensee to the said firm of Artbuthnot & Company at a certain price. It was contended that the agreement was void being in restraint of trade but the said contention was not accepted. But it appears from the judgment delivered in that case that the learned Judge deciding it did not find it necessary to pronounce any opinion upon the effect of clause 6, but proceeded to decide the case on the effect of clause 12 of the said agreement. His Lordship observed as follows:

I think these clauses may be separated and that it does not follow that because one is bad the whole contract is void. Clause 6 may be bad: it is not necessary to pronounce an opinion upon that; it is not in question in this suit and is not sought to be enforced. Clause 12 does not, in my opinion, purport to restrain defendant from exercising his trade or business within the meaning of s. 27 of the Contract Act. It is merely an agreement to sell all the salt he manufactures during a certain period to plaintiffs at a certain price. No doubt a negative covenant not to sell to anybody else may be implied, but that is not such a restraint from exercising his trade or business as the section contemplates. In one sense, every agreement for sale of goods whether in esse or in posse is a contract in restraint of trade for, if A.B agrees to sell goods to C.D, he precludes himself from selling them to anybody else. But a reasonable construction must be put upon the section and not one which would render void the most common form of mercantile contract.

The facts of the present case to my mind are different from the facts of that particular case. Under the present case the effect of the contract is that the petitioner will not be allowed to carry on business for all time to come in any station north of the river Padma.

The next case cited by Mr. Advocate-General in support of his contention is Prem Sook v. Dhurum Chand. In that case the contract under which goods were purchased at a certain rate for the Cuttack market, contained a stipulation that, if the goods went to Madras, a higher rate should be paid for them, and it was held that such a contract is not one in restraint of trade; and if the purchasers sold the goods to a person in Calcutta, who in turn resold to another, who took them to Madras, the original purchasers were, under the terms of the contract, liable to pay at the enhanced rate. Mr. Advocate-General laid great stress on this case as supporting his contention. In my opinion, this case can be clearly distinguished from the present case and the distinction would be quite evident from the judgment of their Lordships delivered in that case, the material portion of which is as follows:

All that the plaintiffs say in that contract is, we will sell these goods to you at one price if you are going to send them to Cuttack, but we will charge you another price if they are sent for sale to Madras. They had a right to refuse to sell to the defendants at all this small parcel of goods, and they had a right to fix the price at which they were willing to sell them; and they did fix the price in this way, and the defendants accepted the bargain. We can see no restraint of trade in that, because it left the defendants free to trade with the goods in any other place in any way they thought fit.

Thus, in that case, it was held that the seller had the right to sell the goods to the buyer or not at whatever price the seller thought fit to do and they had a right to fix one price if the goods were sold at Cuttack, but at another price if they were sent for sale to Madras. It was left with the seller to say what price he would charge under what circumstances. But the position in this case is entirely different. In this case, as I have already indicated, the very essence of the contract is that one is not to carry on business within a particular area.

The only other cases which have been cited by Mr. Advocate-General in support of his contention are Pothi Ram v. Islam Fatima and Charlesworth v. MacDonald.

In the case of Pothi Ram v. Islam Fatima (supra) an agreement was entered into by an owner of land with the owner of adjoining land to the effect that a market for the sale of cattle should not be held on the same day on the lands of both of them and it was held that it was not an agreement to which the principle of s. 27 of the Indian Contract Act would apply.

Again the distinction between the facts of that case and the case which is now before me would be quite evident on a reference only to a portion of the judgment delivered which runs as follows:

The question is whether the owner of land entering into an agreement with the owner of neighbouring land, to the effect that a market for sale of cattle shall not be held on the same day on the lands of both of them is entering into an agreement which is void under s. 27 aforesaid. It seems to us that a landlord who, in return for market tolls or fees, allows a cattle market to be conducted on his land is not thereby exercising the trade or business of selling cattle. If he is exercising any business at all, he is exercising the business of a landholder, and the agreement on his part not to allow his land to be used for some particular purpose on some particular day is not an agreement restraining him from exercising his lawful profession, trade or business. These considerations are sufficient to dispose of this appeal.

Thus the conclusion reached by their Lordships in that case was based only on the ground, namely, that a landlord who, in return for market tolls or fees, allows a cattle market to be conducted on his land is not thereby exercising the trade or business of selling cattle.

In Charlesworth v. MacDonald: A agreed on certain terms to become assistant for three years to B who was a physician and surgeon practising at Zanzibar. The letter (Ex. B), which stated the terms which B offered and which (as the court found) A accepted, contained the words “the ordinary clause against practising must be drawn up”. It was held by their Lordships that the effect of that clause was to give the plaintiff right to call upon the defendant to execute the ordinary covenant against practising as a physician and surgeon in Zanzibar. Their Lordships then observed as follows:

If that be so, the result is that the defendant has, in effect, agreed not to practise as a physician and surgeon on his own account in Zanzibar during the term of his agreement and during the same term to practise there as the assistant of the plaintiff.

Their Lordships observed further as follows:

In other words, is it an agreement which restrains the defendant from exercising lawful profession? Is it an agreement in restraint of trade? I think not. I do not think that an agreement of this class falls within the section. If it did, all agreements for personal service for a fixed period would be void. An agreement to serve exclusively for a week, a day, or even for an hour, necessarily prevents the person so agreeing to serve from exercising his calling during that period for any one else than the person with whom he so agrees. It can hardly be contended that such an agreement is void.

Thus the ground on which their Lordships decided that case was that the agreement to serve exclusively for a week, a day, or even for an hour, necessarily prevents the person so agreeing to serve, from exercising his calling during that period for any one else than the person with whom he so agrees. In other words, the negative covenant not to practise during the period as a doctor in Zanzibar necessarily follows from the main term of the agreement and this negative covenant, as in some of the other cases to which I have referred, really follows from and is an ancillary to the main agreement in question. I do not think that the cases cited by the learned Advocate-General support is contention on the question now before me.

Mr. Dutta Roy has also cited a number of decisions in support of his contention and I will refer only to some of them.

In Brahmoputra Tea Co., Ld. v. E. Scarth it was held that a contract under which a person is partially restrained from competing, after the term of his engagement is over, with his former employer, is bad under s. 27 of the Contract Act. In that case under 10th clause of the agreement the defendant agreed that he would not at any time during the said agreement, or during a period of five years from the date of the determination thereof, directly or indirectly be engaged in or promote the cultivation, manufacture or sale of tea or any other similar description of business for the time being carried on by the plaintiff company within 40 miles of any of the company's premises in Assam. Their Lordships held that this agreement was void as being opposed to s. 27 of the Indian Contract Act and their Lordships observed as follows:

We entertain no doubt that the contract in the cl. 10 is void, so far as it restrains the defendant from taking service, or from engaging in, or promoting directly or indirectly, the cultivation of tea for a period of five years from the date of the termination of his agreement, although the restriction only extended to a distance of forty miles from any of the company's gardens. Couch, C.J and Pontifex, J. held in the case of Madhub Chunder Poramanick v. Rajcoomar Doss that the words “restrained from exercising a lawful profession, trade or business” do not mean an absolute restriction, andare in tended to apply to a partial restriction.

The other case to which I shall refer in this connection is Nur Ali Dubash v. Abdul Ali (supra). In that case A and B, two ghât serangs, entered into a contract with X and five others who carried on the business of dubashes at Chittagong for the purpose of carrying on their respective business in unanimity and not injuring one another's trade. The contract, which was to last for three years, provided, inter alia, that A and B were to act as ghât serangs only and do no service to ships in any other capacity; that X and the other dubashes were to give A five vessels, secured by them, every year for him to act as ghât serangs too; and that A was only to act as ghât serangs to the said five ships, and, with the exception of ships for which he had previously acted as ghât serangs, he should not act as ghât serangs or do any other services for ships belonging to any one else. The contract also contained provisions as to the apportionment of the five ships so to be given to A amongst the various dubashes, and amongst such, an agreement by X to give A the third ship he should secure. It also contained a provision for the payment of Rs. 1,000 as damages by any one breaking the contract to the person who should suffer by the breach. In a suit by A against X, alleging a breach of the contract by the latter in not giving him the third ship as agreed, and claiming Rs. 1,000 by way of damages, the question arose whether that agreement was void under s. 27 of the Contract Act, and their Lordships held that it was void under the provisions of s. 27 of the Contract Act.

The fact that there is a provision in the agreement for payment of certain sums by way of liquidated damages in case the petitioner before me draws supply in contravention of the terms of the agreement in question, does not, to my mind, alter the position and make the agreement not in restraint of trade. Similar provisions were also there in some of the cases cited before me by Mr. Dutta Roy, but nevertheless it was held that the agreement in question was void as being in restraint of trade. The amount payable under the agreement now before me is by way of liquidated damages for breach of the agreement, that is to say, the payment is to be made on the assumption that the agreement in question has been broken.

In the result, the contention of Mr. Dutta Roy on this point succeeds and I have come to the conclusion that the present agreement is in restraint of trade and is therefore void under s. 27 of the Indian Contract Act.

With regard to his second contention, namely, that the contract has become unenforceable because of unforeseen change of circumstances, i.e, the partition of India and creation of Eastern Pakistan, Mr. Dutta Roy relied on the principle laid down in the case of British Movietonews, Ld. v. London and District Cinemas, Ld., and contended that if there are uncontemplated turns of events and if the ensuing turn of events was so completely outside the contemplation of the parties that the Court was satisfied that the parties, as reasonable people, could not have intended that the contract should apply to the new situation, then the contract would become unenforceable. Mr. Dutta Roy contended that the partition of India resulting in the creation of Pakistan is such a turn of events. In my opinion the question whether the principle enunciated in British Movietonews' case (supra) would apply to a particular case or not will depend on its own facts and circumstances and the principal thing to be considered in each case is how far the altered circumstances affect the contract itself and the working of it. Any and every change of circumstances, to my mind, would not justify a court in declaring a contract to be inoperative. The change of circumstance must be such as would remove the very foundation of the contract itself. Judging from this point of view, I do not think that the altered circumstances, as alleged by Mr. Dutta Roy, has made the contract unenforceable.

On a reference to the petition itself it would be found that the only grounds alleged, so far as this aspect of the petitioner's case is concerned, are those contained in paras. 12 and 13 of the petition. All that is stated in para. 12 is that the state of things which was taken into consideration by the petitioner and the respondent at the time of the conclusion of the said agreement no longer exists and that it was then assumed by the parties that the petitioner would have a clear field in its own zone for development. It is further alleged in the said paragraph that the partition of Bengal has completely changed the situation and it was with difficulty that the petitioner was able to draw cane from West Bengal in 1947–1948. It has not been stated as to why after the partition of Bengal the petitioner would not be able to draw its resources from the territories which fall within the Indian Union. In the next paragraph it has been alleged that the petitioner had to drop entirely a very large scheme of land acquisition in West Bengal for the purpose of cultivation of sugarcane and to drop also large scale plans for encouraging others to cultivate sugarcane at Darsana. Darsana is in Pakistan, and no reason has been given as to why the petitioner had to drop the schemes referred to in the said paragraph. The only other thing which is alleged in the said paragraph is that the Government of West Bengal intend sooner or later to encourage the setting up of another sugar mill in the area of Western Bengal. It is again nothing more than a mere apprehension that there would be difficulty in future.

In the affidavit-in-reply the petitioner no doubt has tried to set out some more facts other than those which are contained in the petition. But to my mind, even those facts would not justify me in accepting the contention of the petitioner on this point. I am not satisfied on the materials before me that the altered circumstances are of such a nature that I should hold that: the parties as reasonable people could not have intended that the contract should apply even to the new situation.

In my opinion, except a mere apprehension, there is no sufficient material before me to establish that the altered circumstance has in any way affected the working of the contract or has removed the very foundation of the contract and I cannot accept the contention of Mr. Dutta Roy on this point. But on the other ground, namely, that the contract is void under s. 27 of the Indian Contract Act, I hold that the petitioner should succeed in this application.

Order in terms of prayer (1) and prayer (5) of the petition. Each party to hear his own costs.

Application allowed in part.

Attorneys for petitioner: Sandersons & Morgans.

Attorney for respondent: Charu Chandra Bosu.

S.K.D