J 2009 SCC OnLine Bom 2067 2010 2 Bom CR 317 Aryanvatkar Nlsacin 20231114 215612 1 20

SCC Online Web Edition, © 2023 EBC Publishing Pvt. Ltd.
Page 1 Tuesday, November 14, 2023

Printed For: Aryan Vatkar, National Law School of India University Bangalore
SCC Online Web Edition: http://www.scconline.com
© 2023 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
2009 SCC OnLine Bom 2067 : (2010) 2 Bom CR 317
In the High Court of Bombay

(BEFORE ANOOP V. MOHTA, J.)
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
Versus
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 400093 … Respondent
Arbitration Petition No. 763 of 2009
Decided on December 18, 2009
Advocates who appeared in this case:
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.
JUDGMENT
1. The Petitioner has invoked Section 9 of the Arbitration and
Conciliation Act, 1996 (for short, Arbitration Act) for the following
prayer:—
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 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.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
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 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

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.
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.
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:—
….
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 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
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.
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 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.
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—
(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.
37. 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 by JVA, shareholders agreement & the
Article of Association of CBVPL. Both the partners are aware of their
respective, written & unwritten obligations, liabilities, duties.
38. 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. in
Arbitration Petition No. 423/2009 on 24.09.2009 as under:
-----------------------------------------------------------------------------------------------------------------------------------------------------------
“8 The Apex Court recently in Vimal Chand Ghevarchand Jain v.

Ramakant Eknath Jajoo, (2009) 5 Scale 59 has observed while
dealing with the 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 CR 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) 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 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, [1985] A.C.
-----------------------------------------------------------------------------------------------------------------------------------------------------------
191 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.”
39. 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
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.
40. 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.
41. 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 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 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.
42. 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”
43. The purpose and object of Partnership and/or Joint Venture is
-----------------------------------------------------------------------------------------------------------------------------------------------------------
quite clear and as elaborated in the following words:

1. A Joint Venture to produce and market a particular product is in
the nature of partnership. (New Horizons Limited v. 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.”
44. 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 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.
45. Some Authorities are as under:
(a) Snell's Principles of 28 th Edition, Page 654 which 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.
46. 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.
47. In Milan Commercial Pvt. Ltd. v. Asian Healthcare Services Ltd.
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.,
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 v. 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 ….”
48. 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 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.
49. 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.
50. 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.
51. The submission that it is not the business of CBVPL (the
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 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 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.
52. 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 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.
53. 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.
54. The submission with regard to the Award already passed and/or
suppression of facts or the statements and/or incomplete documents,
and 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.
55. 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 v. Mehar Pharma,
(2005) 3 Bom CR 191 and F. Hoffman La Roche v. Cipla Ltd., (2008)
148 DLT 598]. It is a clear commercial contract between the parties.
There is no private interest involved in this dispute and not the 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.
56. 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.
57. 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.
58. 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
v. M.O.H. Aslum, (1991) 1 SCC 412 : AIR 1991 SC 1020 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.”
59. 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.
60. 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 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 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.
61. 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 shareholders.
62. 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.
63. 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.
64. All points are kept open.
65. The Petition stands allowed accordingly. No costs.
———
Disclaimer: While every effort is made to avoid any mistake or omission, this casenote/ headnote/ judgment/ act/ rule/
regulation/ circular/ notification is being circulated on the condition and understanding that the publisher would not be
liable in any manner by reason of any mistake or omission or for any action taken or omitted to be taken or advice
rendered or accepted on the basis of this casenote/ headnote/ judgment/ act/ rule/ regulation/ circular/ notification. All
disputes will be subject exclusively to jurisdiction of courts, tribunals and forums at Lucknow only. The authenticity of
this text must be verified from the original source.

J 2009 SCC OnLine Bom 2067 2010 2 Bom CR 317 Aryanvatkar Nlsacin 20231114 215612 1 20

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

J 2009 SCC OnLine Bom 2067 2010 2 Bom CR 317 Aryanvatkar Nlsacin 20231114 215612 1 20

Uploaded by

Copyright:

Available Formats

SCC Online Web Edition, © 2023 EBC Publishing Pvt. Ltd.

Page 1 Tuesday, November 14, 2023

2009 SCC OnLine Bom 2067 : (2010) 2 Bom CR 317

In the High Court of Bombay

Novartis Vaccines & Diagnostics Inc. a company

supporting them, and referring to this Section 13.10(a). For a

5. In 1989, the Respondent established a manufacturing facility at

11. On 01/05/1998, a Marketing and Distribution Agreement (HMR

aforesaid resolution a notice was sent to the Respondent by the

renew the aforesaid Marketing & Distribution Agreement.

Such contract may be varied by consent of all the partners, and

agreement with his partners that on ceasing to be a partner he will

“8 The Apex Court recently in Vimal Chand Ghevarchand Jain v.

191 cited at (7)(iv) by Longmore LJ : If a “detailed semantic

firm or the company need to be determined by the contract between

quite clear and as elaborated in the following words:

“12 In addition to the above, Mr. Ranjit Kumar also referred to

convinced that there is also a contract permitting the respondent to

partner to carry on business only of the firm while he is a partner,

while interpreting a contract of partnership as under:

per the market requirement and/or announcement, therefore, the

You might also like