Percept D’Markr (India) Pvt. Ltd. v. Zaheer Khan & Anr.
Appeal (civil) 5573-5574 of 2004
Defendant entered into a contract for management of his media affairs with the plaintiff company on the term that prior to the completion of first negotiation period and thereafter, plaintiff will have the ‘right of first refusal’ in regard to any offer for services of management of media affairs received by defendant; such that defendant cannot accept any third party offer without offering plaintiff right to match the offer on same terms and in plaintiff’s failing to do so. However, defendant entered into an agreement with third party after the termination of the said agreement and plaintiff claimed permanent injunction.
ISSUE: Whether the covenant was in restraint of trade u/s 27 and hence void?
If the plaintiff failed to match the third party offer, defendant was free to negotiate with the third party; if the plaintiff however matched the offer, defendant suffered no detriment. In either case, defendant was not restrained and was not suffering. Further, the contract was one of agency and not of employer-employee relationship such that it was unaffected by inequality of bargaining power.
The contract of agency as one entered here between the parties is of personal in nature such that forcing the negative covenant will mean compelling the defendant to get his affairs managed by the plaintiff company even after the initial agreement has not been breached and has been lawfully terminated; this will be in restrain of his right to trade with any person in any manner he chooses. So long as it is sought to enforce the covenant while the subsisting of the agreement it is valid, but the moment it is sought to be enforced after the contract has been terminated, it will be violative of S.27 and hence, void and unenforceable.
Author: Vishrut Kansal (National University of Juridical Sciences, Kolkata)