ARNAV ENTERPRISES v. IOSIS SPA AND WELLNESS PVT. LTD.

Priya Soparkar 1 aral 7255-20

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

ABRITRATION APPEAL (L) NO.7255 OF 2020

IN

ABRITRATION PETITION (L) NO.426 OF 2020

WITH

INTERIM APPLICATION (L) NO. 7271 OF 2020

AND

INTERIM APPLICATION (L) NO. 7268 OF 2020

IN

ABRITRATION APPEAL (L) NO.7255 OF 2020

IN

ABRITRATION PETITION (L) NO.426 OF 2020

Arnav Enterprises ... Appellant/Applicant Vs.

IOSIS Spa & Wellness Private Limited ... Respondent ----

Mr.Vikrant Shetty alongwith Ms.Sakina Electricwala i/by M/s Taurus Legal, Advocates for the Appellant/Applicant.

Ms.Fatima Barodawalla alongwith Mr.Uttam S. Rane, Mr.Laxman Bhinda, Mr.Vikram Ahirwar, Advocates for the Respondent. ----

CORAM : R.D.DHANUKA &

V.G.BISHT, JJ.

RESERVED ON : APRIL 07, 2021.

PRONOUNCED ON: APRIL 20, 2021.

Judgement- (Per R.D.Dhanuka, J.):-

1. By this appeal filed under section 37 of the Arbitration and Conciliation Act, 1996 (for short "the Arbitration Act") the appellant (original respondent) has impugned the order dated 30^thJuly, 2020 and 26^thOctober, 2020 passed by the learned Single Judge thereby granting ad- interim measures in favour of the respondent (original petitioner) under section 9 of the Arbitration Act. Some of the relevant facts for the purpose

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of deciding this appeal are as under.

2. It was the case of the respondent that the respondent is engaged in the business of running wellness centers under the brandname and trademark of "IOSIS". The Founder and Managing Director of the respondent has specialized in cosmetology and wellness from London Beauty School (U.K.), beauty and cosmetology at Christine Valmy (U.S.) etc. The respondent has knowledge of running beauty salon, slimming, skincare centers and spas in India.

3. It was the case of the respondent that the appellant approached the respondent for franchise of the respondent in the month of December, 2018. Various correspondences were exchanged between the parties through e- mails. The respondent issued a Letter of Intent on 5^thMarch, 2019 in favour of the appellant for setting up and operating the franchise center. It is the case of the respondent that on 31^stMarch, 2019 the Franchise Agreement came to be executed between the parties. The appellant however committed default of the said Franchise Agreement. The appellant however through its advocate issued a termination notice on 21^stJune, 2020 terminating the business of the franchise center. The appellant however continued to operate the center and utilized the brandname, trademarks of the respondent contrary to clause (16) of the Franchise Agreement.

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4. The respondent wrote a letter dated 28^thJune, 2020 denying the allegations made by the appellant in the letter dated 21^stJune, 2020 and called upon the appellant to adhere to clause (16) of the said Franchise Agreement. The appellant denied the contents of the said letter dated 28 ^th June, 2020 vide a letter dated 2^ndJuly, 2020. The respondent filed petition under section 9 of the Arbitration Act on 14 ^thJuly, 2020 and prayed for ad- interim reliefs. The said petition was resisted by the appellant. The appellant raised a preliminary objection with respect to the maintainability of the said petition filed by the respondent under section 9 before this Court. In the said affidavit in reply, the appellant relied on the Letter of Intent dated 31^stMarch, 2019 and alleged that the said Franchise Agreement was never signed and executed by and between the parties.

5. The matter appeared before the learned Single Judge on various dates. On 20^thJuly, 2020 the appellant through its counsel made a statement that pursuant to the letter of termination, the appellant has completely ceased use of the respondent's franchise brandname, tradename, trademarks, printed material, brouchers equipments, technology and was not referring any of the clients of the respondent to itself. The learned Single Judge recorded the said statement as an undertaking to this Court. On 30^thJuly, 2020, the appellant through its counsel also contended before the learned Single Judge that the appellant was not agreeable to acknowledge the Franchise Agreement between the parties and what has been relied upon

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by the respondent herein was a bogus document, not signed by the appellant.

6. This court prima facie held that the appellant has disowned any contractual relationship on the ground of Letter of Intent or any Franchise Agreement and not entitled to have any benefits under Letter of Intent or under Franchise Agreement in respect of facilities, brands, trademark which the respondent would otherwise provide. The appellant made a statement before the learned Single Judge that they are in no manner using the trademark/brandnames or any of the facilities of the respondent. This Court accepted the said statement.

7. It was the case of the respondent that inspite of said statement made by the appellant, the appellant continued to use the brandname and advertisement materials of the respondent. This court recorded the statement made by the respondent and directed the appellant not to use any of the brandname or advertisement material of the respondent or any facilities of the respondent in respect of any of its outlet as also on the website or elsewhere. The appellant was directed to take immediate steps to remove any of the brandnames/ advertisement material belonging to respondent if the same was still being used by the appellant.

8. By an order dated 30^thJuly, 2020 the learned Single Judge granted

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ad-inerim relief in terms of prayer clauses (a) and (b), thereby restraining the appellant from operating that center in the name of "IOSIS" or any other name for a period of two years from 21^stJune, 2020 and also from using the brandname of the petitioner i.e. IOSIS, Spa and Wellness Private Limited or any other name resembling IOSIS Spa and Wellness Private Limited.

9. The learned Single Judge passed an order on 26^thOctober, 2020 in the Interim Application (L) No.5055 of 2020 filed by the appellant for modification of the said order on the ground that the said ad-interim order in terms of prayer clauses (a) and (b) was causing prejudice to the appellant as it restrains the appellant from carrying on its business in any other name for a period of two years from 21^stJune, 2020. In paragraph No.4 of the said order the learned Single Judge referred to clause (16) of the Franchise Agreement which provides for the "effect of termination" strongly relied upon by the respondent before the learned Single Judge. The learned Single Judge observed that there was nothing on record on the date of the said order dated 30^thJuly, 2020 to discard the Franchise Agreement or to show that the respondent herein was prohibited from referring to that agreement. The learned Single Judge clarified in the impugned order that the said order dated 30^thJuly, 2020 was an ad-interim order. The observations made in the said order, the order dated 30^thJuly, 2020 and order dated 26^thOctober, 2020 were prima facie, keeping all contentions of

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the parties of principal proceedings expressly open. The learned Single Judge observed that prima facie it is difficult to believe the statement of the appellant that the said Franchise Agreement was fabricated or a bogus document.

10. Being aggrieved by the said two orders, the appellant preferred this appeal. The Division Bench of this Court passed an order on 3^rdDecember, 2020 on mentioning the matter by the appellant thereby staying the impugned order to the extent of restraining the appellant from carrying out spa business for two years from 21^stJune, 2020 to 20^thJune, 2022. The Division Bench clarified that the appellant shall not carry out the spa business in the name of "IOSIS".

11. Mr.Vikrant D.Shetty, learned counsel for the appellant invited our attention to some of the documents annexed to the appeal paperbook and would submit that there was no Franchise Agreement signed between the parties. Whatever steps were taken by the parties were taken under the said Letter of Intent which also came to be terminated by his client. He submits that clause (16) of the Franchise Agreement which prohibits the appellant from operating or doing business under any name or in any manner was not applicable since no such Franchise Agreement was signed by his client. In any event, such clause is contrary to Section 27 of the Contract Act. Such negative covenant could not have been enforced against the appellant. The

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appellant cannot be restrained from carrying on his own business being carried by not using the trademark or material of the respondent.

12. In support of this submission, learned counsel placed reliance on judgments in cases of Gujarat Bottling Company Limited and others Vs. Coca Cola Company and others, (1995)5 SCC 545; Taprogge Gesellschaft MBH Vs. IAEC India Limited (1987) SCC Online Bom 345; Precept D'mark (India) Limited Vs. Zaheer Khan and others, (2006)4 SCC 227 and Best Sellers Retail (India) Private Limited Vs. Aditya Birla Nuvo Limited (2012) 6 SCC 792. It is submitted that the Hon'ble Supreme Court and this court, in those judgments, have categorically held that a negative covenant is contrary to section 27 of the Contract Act being a contract in restraint of trade.

13. Ms.Fatima Barodawala, learned counsel for the respondent on the other hand would submit that not only the Letter of Intent was issued by the respondent but the parties had also executed the Franchise Agreement. Various steps were taken pursuant to those documents by the parties. The appellant had however terminated the said agreement between the parties. Though this Court had granted ad-interim relief, the appellant committed violation of the ad-interim order passed by this court and continued to use the trademark of the respondent. The respondent has already filed a separate contempt proceedings against the appellant.

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14. The learned counsel for respondent submits that it was a specific case of the respondent in para 10 of the arbitration petition that the respondent had shared with the appellant various information/ documents which were sensitive and confidential including trade secrets and computer database in the form of files programs, knowhow, formulae and the like which had been created by the respondent as also the customer details etc. The appellant had continued to use those sensitive and confidential information/documents even after termination of the agreement entered into between the parties. The learned Single Judge was thus right in granting ad-interim reliefs in terms of prayer clauses (a) and (b) by adverting to negative covenant which is recorded in clause (16) of the Franchise Agreement.

15. It is submitted that such negative covenant is enforceable in law and is not contrary to section 27 of the Contract Act, in view of the nature of confidential information and documents furnished to the appellant with permission to use such sensitive and confidential information of the documents during the existence of the Franchise Agreement and not after termination of the said agreement. She distinguished the judgments relied upon by the learned counsel for the appellant and also sought to rely upon such judgments Niranjan Shankar Golikari Vs. Centrury Spinning and Manufacturing, (1967) 2 SCR 378; V.M.Deshpande Vs. The Arvind Mills Company Ltd., order dated 10^thJuly, 1945 in FA 86/1945 and Anindya Mukherjee Vs. Clean Coats Private Limited, order dated 28^thOctober, 2020 in

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ARBP/947/2009 in support of her submissions.

16. It is not in dispute that in the impugned orders passed by the learned Single Judge are ad-interim orders. The Arbitration petition filed by the respondent under section 9 of the Arbitration act is still pending.

17. The parties have not even appointed any arbitrator. On the basis of the material produced by the parties on record, the learned Single Judge has made prima facie observations that the argument of the appellant that the Franchise Agreement was not signed by the appellant and was a bogus document cannot be considered. The appellant had acted upon the said agreement and started the business by using such confidential and sensitive information/documents. In our prima facie view there is thus no substance in the submissions of the learned counsel for the appellant that the said Franchise Agreement was a bogus document.

18. Be that as it may, even in the said Letter of Intent at page 101 of the appeal memo it is made clear that upon termination of the agreement the franchise will not use the name of "IOSIS" or any name resembling the name of "IOSIS". All branding/ materials/data are to be handled as per rules.

19. The Hon'ble Supreme Court in case of Gujrat Bottling Company

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Limited and others Vs. Coco Cola Company and others (supra) has held that in a contract which is intended for advancement of trade shall not be regarded as being in restraint of trade. The Court has to decide as a matter of law whether the contract has or not in restraint of trade and whether, if so, it is reasonable. In our prima facie view considering the fact that the respondent had the brandname in the name of "OASIS" and has reputation in the market and having furnished various sensitive and confidential documents and information including the list of their customers, such restraint as recorded in clause (16) of the Franchise Agreement, in our prima facie view would not be a restraint of trade under section 27 of the Contract Act. Hon'ble Supreme Court in the said matter had granted injunction against the defendant after considering the provisions of section 27 of the Contract Act and also the principles under order XXXIX and also section 42 of the Specific Relief Act, 1963.

20. Be that as it may, since the impugned observations made by the learned Single Judge are prima facie in nature and since those two orders are ad-interim orders, even otherwise we do not propose to interfere with those two orders even on this ground.

21. It is made clear that the observations made by the learned Single judge as well as the observations made by this Court in this order are prima facie in nature. No case is made out by the appellant for interference with

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the impugned orders passed by the learned Single Judge. The appeal is devoid of merits and is accordingly dismissed. All pending Interim Applications are also dismissed.

22. Ad-interim relief granted by this court on 3^rdDecember, 2020 stands vacated. The learned Single Judge is directed to dispose of the said Arbitration Petition (L) No.426 of 2020 expeditiously.

23. There shall be no order as to costs.

( V.G.BISHT, J. ) ( R.D.DHANUKA, J. )

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