Punjab-Haryana High Court
Hmm Coaches Ltd. vs M/S. Jaycee Coach Builders Limited on 22 January, 2001
Author: R.L. Anand
Bench: R.L. Anand
JUDGMENT R.L. Anand, J.
1. CM No. 1124-CII of 2001 is allowed as prayed for and the respondents are allowed to place on record the documents as prayed for.
2. M/s HMM Coaches Ltd. 175, Sector-7, Panchkula (Haryana) through its Company Secretary, Shri Ashok Swami, has filed the present revision under Section 115 of the Code of Civil Procedure and it has been directed against the order dated 29.9.2000, passed by the Court of Additional District Judge, Panchkula, who, affirmed the order dated 26.4.2000, passed by the Civil Judge (Sr. Division), Panchkula, who granted the prayers of respondents No, 1 10 5, M/s Jaycee Coach Builders Limited, Shri Rajinder Kumar Aggarwal, Mrs. Shashi Aggarwal, Mr. Rishi Aggarwal and Ms Aarti Aggarwal, under Order 39 Rules 1 and 2 read with Section 151 C.P.C. and ex parte injunction order dated 13.3.2000, vide which the defendants, including the present petitioner, were restrained either through themselves or through their agents, nominees and the business entitiles owned and managed by them from taking up directly or indirectly any business whatsoever for Swaraj Mazda Limited, which may be similar in nature to the business being undertaken by plaintiff No. 1 with Swaraj Mazda Limited including and in particular supply of buses, ambulances, special vehicles and cargo boxes on chassis manufactured by the Swaraj Mazda Limited in terms of clause 2 of the deed of settlement dated 11.8.1999 executed between the parties, was confirmed till the disposal of the suit.
3. The brief facts of the case are that plaintiffs i.e. the contesting respondents No. I to 5 filed a suit for permanent injunction restraining defendants No. 1 to 6 namely Shri Bhupinder Goel, Mrs. Alka, Mr. Hem Raj Goel, Shri Mohinder Goel, Mr. Ramneek and M/s HMM Coaches Limited, from revoking their letter dated 18.5.1999 and from seeking any business from M/s Swaraj Mazda Ltd. in accordance with the terms of the settlement deed dated 11.8.1999.
4. Plaintiff No. 2 was engaged as a Dealer of Swaraj Mazda Ltd. since the year 1985. The dealership has been under the name and style of Globe Tractors Agencies, Karnal and Jaycee Motors and Tractors, Amritsar. Plaintiff No. 2 has also been a partner of another company by the name of Sterling Tools Limited which has been supplying fasteners to Swaraj Mazda Limited. The business relationship between the other companies and Swaraj Mazda progressed well. Swaraj Mazda Limited was interested in engaging the company to fabricate/build bodies on the chasis manufactured by Swaraj Mazda Limited because of good business relations between plaintiff No. 2 and his firms and company with Swaraj Mazda Limited and the reputation and good will built up with Swaraj Mazda Limited. Plaintiff No. 2 was successful in finalising an arrangement with Swaraj Mazda Limited for the business of fabrication and body building of buses and cargo boxes. Consequently, plaintiff No. 2 decided to establish the company namely Jaycee Coach Builders Limited with factory at Lalru, District Patiala. Defendant No. 1 approached the plaintiffs and desired participation in the business venture of plaintiff No. 2. Considering the relationship of plaintiff No. 2 and defendant No. 1, it was decided to allot the shares to defendant No. 1 to the extent of money, he decided to invest. Plaintiff No. 1 company commenced commercial operations on 15.5.1991. Plaintiff No. 2 has sufficient experience in the operation and management of plaintiff No. 1, which began to do substantial business with Swaraj Mazda Ltd. which continued to be the main customer of plaintiff No. I. In the year 1995,the father-in-law of plaintiff No. 2 also joined the plaintiff company and invested Rs. 90 lakhs in the equity capital of plaintiff No. 1. The shares of plaintiff No. 1 were held by the parties as under:-
Value of shares at the rate of Rs. 10/-
No. of Shares Percent
(a) Rajinder Aggarwal and his family members 7,27,500 18.70
(b) Bhupinder Goe land his family members 1,26,300 18,61
(c) Jogindcr Lal Aggar-wal and his family members 0.00,000 39.30
(d) IFC1 2,50,000 10.90
(e) Others 2,86,2000 12.49 Total 22,90,000 100.00
5. It is alleged by the plaintiffs that dispute and differences arose between the plaintiff No. 2 and defendant No. 1 and in order to settle that dispute, a deed of settlement was written on 11.8.1999. It was signed by Shri Bhupinder Goel representing himself and his family members and nominees and business entitiles owned and managed by them. As per the settlement, plaintiff No. 2 and his family members have paid a sum of Rs. 1,30,90,000.00 to Shri Bhupinder Goel and his family members and also duly transferred their equity shares and interest in M/s Rashi Credit and Investments Limited, M/s Shrishii Agro Producls (P) Limited and Messrs Shrishti Refinery Limited.
6. HMM Coaches Limited i.e. defendant No. 6 and now pelitioner was incorporated in the year 1996 by defendant No. I Shri Bhupinder Goel to undertake the business of fabrication/body building of buses. This company was incorporated during the time when differences and disputes were pending between plaintiff No. 2 and defendant No. 1 in regard to the affairs of plaintiff No. 1. Defendant No. 1 approached Swaraj Mazda for business vide letter dated 6.2.1998. After the settlement was reached and in accordance with the terms of settlement, defendant No. I vide letter dated 18.5.1999, advised Swaraj Mazda Limited that defendant No. 6 i.e. pelitioner, is no longer interested in the business from Swaraj Mazda Limited. As per the settlement dated 11.8.1999, defendant No. 1 Bhupinder Goel and other members have given an undertaking that they would not directly or indirectly in future invite any business from Swaraj Mazda which may be similar in nature being undertaken by plaintiff No. I for Swaraj Mazda Limited. It was also undertaken that in case of breach of the undertaking, the first party within five years from the date of agreement, shall be jointly and severally liable to pay to the second party liquidated damages of rupees one crore. It is further alleged by the plaintiff that in violation of the above underiaking, defendant No. 6 through its Executive Director approached M/s Swaraj Mazda Limited vide letter dated 23.12.1999 for supply of buses, ambulances, special vehicles and Cargo boxes on chassis manufactured by Swaraj Mazda Limited which is con-
trary to the settlement reached and undertaking given. Hence this suit.
7. Along with the suit the plaintiff filed an application under Order 39 Rules 1 and 2 C.P.C. and prayed that during the pendency of the suit the defendants be restrained from transacting any business of the kind being undertaken by the plaintiffs from M/s Swaraj Mazda.
8. The suit was contested by defendant No. 1 to 5 on the plea that the plaintiffs have not come to the Court with clean hands. Earlier, the plaintiffs have entered into an agreement with defendant No. 1 on 4.11.1996, wherein it was agreed that plaintiffs would pay Rs. 5,08,00,000/- in consideration of transfer of snares in JCBL, JPCPL, cost of land adjoining JCBL factory a( Lalru and also taking into account all the shares held by defendant No. 2 in SAPPL, RCIL and SRL. Tt was further pleaded that to pressurise the defendants, the plaintiffs entered into another agreement dated 11.8.1999 wherein invalid terms were got incorporated under undue influence and coercion. Defendants No. 1 to 5 had entered into this agreement in their individual capacity and not on behalf of defendant No. 6-company. It was further pleaded that agreement dated 11.8.1999 cannot be specifically enforced. No injunction can be granted to favour of the plaintiff. Letter dated 23.12.1999 has been written by the Executive Director on behalf of HMM Coaches Limited. The answering defendant was neither in control nor in the management of the affairs of the said company. There is no attempted breach of the agreement dated 11.8.1999 by answering defendants. The suit of the plaintiffs is pre-mature and the application under Order 39 Rules 1 and 2 C.P.C. cannot be allowed.
9. It was further pleaded that defendant No. 1 and plaintiff No. 2 have jointly approached Swaraj Mazda for setting up a plant to manufacture bodies for their vehicles. The business of plaintiff No. 1 company was set up by both defendant No. 1 along with his family and associates and plaintiff No. 2 along with his family and his associates having equal share holding in the plaintiff No. 1 Company.
10. Defendant No. 1 was the whole-time Director of plaintiff No. 1 company and was looking after whole of the affairs of plaintiff No. 1. Plaintiff No. 2 without fulfilling the agreement dated 4.11.1996 fraudulently purchased the entire share of plaintiff No. 1 company held by IFCI and got the majority stake in plaintiff No. 1 company, The equity share holding of Shri Joginder Lal Aggarwal and his family was only an investment and did not have anything to do with the management and the control of the company. Once plaintiff No. 2 obtained the majority share holding, his intention became bad and he refused to fulfil the agreement dated 4.11.1996. Thus, defendant No. 1 was compelled to accept the new agreement under undue pressure from plaintiff No. 2 and relatives. It was further pleaded that letter dated 6.2.1998 was written by defendant. Nos. 6 to Swaraj Mazda and subsequently the offer was withdrawn vide letter dated 18.5.1999. This was viewed seriously by the Board of Directors of respondent No. 6 i.e. the present petitioner and defendant No. 1 Shri Bhupinder Goel was asked to resign as Managing Director. Defendant No. 6 i.e. 11MM Coaches Limited has nothing to do with the agreements dated 4.11.1996 and 11.8.1999. The plaintiffs will not suffers irreparable loss and injury. Rather the defendants will suffer irreparable loss and injury.
11. On the basis of the above defence, defendants No. 1 to 5 have prayed for the dismissal of the suit as well as the application under Order 39 Rules 1 and 2 C.P.C.
12. Suit was also contested by defendant No. 6, i.e. the present petitioner, on the plea that defendants No. 1 to 5 do not hold the majority shares and controlling interest of defendant No. 6. They are only holding 13.61% shares and their family members and associate companies hold 13.87% shares. The settlement deed relied upon by the plaintiffs is of no help to them. The defendant company was incorporated under the Companies Act, 1956. This Company never authorised the other defendants to given any undertaking or make any settlement deed against !he interest of the company. Without authorisation any settlement cannot bind the company. Defendant No. 6 sought the resignation of Shri Bhupinder Goel from the post of Managing Director. Defendant No. 6 is a juristic person and in that capacity no settlement was ever arrived at. It is further pleaded that answering defendant never owned the share of plaintiff No. 1. So, there is no question of transfer of the shares. No agreement was entered into by defendant No. 6. No alleged undertaking was ever given by defendant No. 6 to the plaintiffs. The suit of the plaintiffs is not maintainable as there is stipulation about the liquidation damages. Thus, the plaintiffs have other alternative efficacious remedy under the Specific Relief Act. Plaintiffs cannot restrain the defendants from taking business. Company has every right to take business according to law from any where. In this way the company has rightly approached Swaraj Mazda for the business. The letter dated 18.5.1999 was never written in accordance with the terms of the settlement because the settlement was stated to be entered on 11.8.1999. With this defence, the defendant No. 6 i.e. the present petitioner made a request for the dismissal of the suit as well as the stay application.
13. Arguments were addressed before the trial Court on the application under Order 39 Rules 1 and 2 C.P.C. and for the reasons given in para No. 3 to 7 of the order dated 26.4.2000, the learned Civil Judge; Panchkula allowed the application. For the sake of convenience, paras No. 3 to 7 of the order dated 26.4.2000 can be quoted in the following manner: -"
3. Execution of a deed of settlement of 11.8.1999 is not disputed by the parlies. It is also not disputed that the same is signed by plaintiffs No. 2 to 5 and defendants No. 1 to 5. Plaintiff No. 2 is the Managing Direclor of the plaintiff No. 1-Company and plaintiffs No. 3 to 5 are the family members of plaintiff No. 2. It is further not disputed that defendants No. 2 to 5 are the family members of defendants No. 1 and at the time of the execution of the deed of settlement on 11.8.1999, defendant No. 1 was the Managing Director and defendants No. 3 and 5 were the Directors of the defendant No. 6-Company-HMM Coaches Ltd. It is further not disputed that defendant No. 1 being the Managing Director also wrote a letter on 18.5.1999 to the Executive Director (Markeling), Swaraj Mazda Ltd., Chandigarh on behalf of defendant No. 6 Company stating therein, inter alia, that after careful consideration they have decided that they are no longer interested in Swaraj Mazda business and further stating that they withdraw their interests in pursuing the Swaraj Mazda business for all times.
4. A glance over the opening paras of the deed of settlement dated 11.8.1999 clearly shows that the same was executed between plaintiff No. 2 and defendant No. 1 not only in their individual capacity but also being representatives of their wives, children, relatives, friends, nominees and business entities owned and managed by them or any of them. Therefore, the contention of the learned counsel appearing on behalf of defendant No. 6 while placing his reliance on Sreedhara Shenoy v. K. Thanumalayam, AIR 1953 Tra. Co. 90 and Gujarat Bottling Co. Ltd, and others v. Coca Cola Co. and others, 1995(5) Supreme Court Cases 545 that defendant No. 6 being not a party to the deed of settlement the same is not binding on it, cannot be accepted. Otherwise also, it would be quite evident from the pleadings of the parties and the material placed on record that defendant No. 1 and his family members, relatives and other friends hold majority shares and controlling interests in defendant No. 6 Company and it is their business entity.
5. It has been next contended by the learned counsel for defendants No. 1 to 5 Shri Sudhir Mittal that in clause 2 of the deed of settlement liquidated damages of Rs. 1 crore have been named to be paid by the first party to the second party in case of breach of undertaking. The learned counsel has thus contended that deed of settlement being a contract for the non-performance of which compensation in money is an adequate relief, the same cannot be specifically enforced within the meaning of Section 41(1)(a) of the Specific Relief Act, 1963 (hereinafter referred to as "the Act") and, accordingly, no relief of permanent injunction which, is purely of discretionary nature can be granted to the plaintiffs as envisaged under Section 4(e) of the Act and he has placed his reliance in this regard on M/s Triveni Structural Ltd. v. Ms. Newage Enterprises, AIR 1993 Allahabad 78, United Commercial Bank Jalandhar City v. M/s New Model Industries Pvt. Ltd. G.T. Road, Jalandhar 1987(2) Punjab Law Reporter 86, Dewan Chand Sabbarwal v. Union of India and another, AIR 1951 Punjab 426 and Hari Krishna Aggarwal v. K.C. Gupta, AIR 1949 Allahabad 440. I regret my inability to accept these contentions of the learned counsel. It will be quite helpful to reproduce in verbatim clause 2 of the deed of setilement dated 11.8.1999 as follows:-
"2. As mutually agreed between first party and the second party, the second party has underiaken to pay to the first party a total amount of Rs. 1,30,90,000.00 (Rupees One Hundred Thirty Lacs Ninety Thousand only) for 4,67,500 shares of JCBL and 10 shares of JPCPL held by the party of first part (out of which a sum of Rs. 1,08,00,000 (Rupees one hundred eight lacs only) has already been paid by second party, his friends and Associates to the First Party) and with the transfer of all the equity shares and interest in JCBL, and JPCPL held by the members of com-panies menlioned in para 1 above, in consideration for the transfer of all the equity shares and interest in JCBL and JPCPL held by the members of the first party in favour of the second party and first party will be left with no shares of JCBL and JPCPL, This consideration also includes an undertaking from Shri Bhupinder Goel and other members of the first party that they will not take up directly or indirectly in future, any business for the Swaraj Mazda Ltd. which may be similar in nature being undertaken by Jaycee Coach Builders Limited from Swaraj Mazda Ltd. In pursuance of this settlement Mr. Bhupinder Goel has already written a letter dated 18.5.1999 to the Swaraj Mazda Ltd. to this effect. In case of any breach of this undertaking by the First Party within five years from today, the first party shall be jointly and severally liable to pay to the second party liquidated damages of rupee one crore."
A careful reading of the aforesaid clause of the deed of settlement would reveal that what the parties intended is that defendant No. I and other members of first party to the said deed of settlement shall not take up directly or indirectly in future any business for the Swaraj Mazda Ltd. which may be similar in nature being undertaken by plaintiff No. 1-Company from Swaraj Mazda Ltd. This Court having regard to the terms of the settlement deed and other attending circumstances is also prima facie satisfied that a sum of Rs. 1 crore has been named in it as the amount to be paid in case of breach of undertaking given in clause 2 within 5 years by the first party only for the purpose of securing the performance of the contract and not for the purpose of giving the first parly an option of paying money in lieu of specific performance and, therefore, the alleged contract can be enforced as en-visaged under Section 23 of the Act.
6. Whether or not the alleged contract is specifically enforceable is a contentious issued which can be appropriately decided by the Civil Court after affording the parties an opportunity to lead (heir respective evidence and at this stage it appears prima facie that the deed of settlement between the parties is the contract for the non-performance of which compensation in money would not afford adequate relief. Besides this, Section 42 of the Act also clearly provides that notwithstanding anything contained in clause (e) of Section 41 of the Act, where a contract comprises an affirmative agreement to do a certain act. coupled with a negative agreement express or implied, not to do a certain act, the circumstance that the Court is unable to compel specific purpose of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement, provided that the plaintiff has not failed to perform the contract so far as it is binding on him. In the present case also, deed of settlement dated 11.8.1999 comprises of affirmative covenant in clause 2, coupled with a negative covenant to the affect that first party will not take up directly or indirectly in future any business for the Swaraj Mazda Ltd. which may be similar in nature being undertaken by plaintiff No. 1-Company from the Swaraj Mazda Ltd. It is not the case of the defendant that plaintiffs have failed to perform their part of the contract. Rather it has been submitted by the learned counsel for the parties at bar during the course of the arguments that parties to the deed of settlement have already complied with all the affirmative covenants contained therein except alleged breach of undertaking of clause 2 by the defendants by way of writing a letter dated 23.12.1999 to Swaraj Mazda Ltd.
7. At this stage, Shri Sudhir Mittal, learned counsel for the defendants No. 1 to 5 also contended that the alleged contract between the parties being a contract in restraint of trade is void within the meaning of Section 27 of the Indian Contract Act, 1872 and thus, argued the learned counsel, that no relief or injunction can be granted to the plaintiffs on the basis of such contract and he has placed his reliance in this regard on a decision of the Hon'ble Supreme Court given in Gujarat Bot-tling's case (supra). These contentions of the learned counsel are wholly misconceived. Existence of a negative covenant in clause 2 of the deed of settlement does not make the same void under Section 27 of the Contract Act on the ground that it is in restraint of trade because.it does not prohibit the defendants completely from taking up any business or trade in future and it simply bars them from taking a particular business i.e. the business which is similar in nature being undertaken by the plaintiff No. 1-Company with a particular company namely Swaraj Mazda ltd. Since the defendants have threatened to in-
vade the plaintiffs right by way of writing the impugned letter dated 23.12.1999 to Swaraj Mazda Ltd. seeking orders of built up buses which is the main business of plaintiff No. 1-Company in breach of the undertaking given in clause 2 of the deed of settlement, therefore, in the considered opinion of this Court it is necessary to prevent the breach of an obligation existing in favour of the plaintiffs by issuing an ad interim injunction against the defendants and in case such an ad interim injunction is not issued at this stage of proceedings, plaintiffs are likely to suffer an irreparable loss. Otherwise also, it is the general rule of equity that if a thing is agreed upon to be done though there is a penalty annexed to secure its performance, yet the very thing itself must be done. Reference in this regard may be made to Sadiq Hussain v. Anup Singh, AIR 1924 Lahore 151. Similarly, the Hon'ble High Court of Mad-hya Pradesh has also held in Mohd. Latif Choud-hary v. Smt. Amritkala Baveja and another, AIR 1959 Madhya Pradesh 308 that if the parties for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a court of equity has to do is to say by way of injunction that the thing shall not be done. In such a case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties. It is not then a question of the balance of convenience or of the amount of damage or injury."
14. It may be mentioned here that against the order dated 26.4.2000, two appeals is i.e. one by the present petitioner and the other by defendants No. I to 5, were filed before the Additional District 'Judge. Both the appeals were dismissed by the [earned Additional District Judge vide order dated 29.9.2000 and the broad reasons for the dismissal of the appeals have been given in paras No. 38 to 59 of the impugned order.
15. Still not satisfied with the decision of the Courts below, the present revision has been filed.
16. I have heard Shri R.K. Chhibbar, learned Senior counsel assisted by Shri Anand Chhibbar, appearing on behalf of the petitioner, Shri M.L. Sarin, learned senior counsel assisted by Shri Ajay Tewari, Advocate, appearing on behalf of respondents No. 1 to 5 and Shri Sudhir Mittal, learned counsel appearing on behalf of the proforma respondents.
17. Section 115 of the Code of Civil Procedure lays down that the High Court may call forthe record of any case which has been decided by any Court subordinate to such High Court and in which no appeal lies thereto, and if such subordinate Court appears -
(a) to have exercised ajurisdiction not Vested in it by law, or
(b) to have failed to exercise a jurisdiction so vested, or
(c) to have acted in the exercise of its jurisdiction il-
legally or with material irregularity, the High Court may make such order in the case it thinks fit:
Provided that the High Court shall not, under this section vary or reverse any order made, or any order deciding an issue, in the course of a suit or other proceedings, except where -
(a) the order, if it had been made in favour of the party applying for revision, would have finally disposed of the suit or other proceedings, or
(b) the order, if allowed to stand, would occasion a failure of justice or cause irreparable injury to the party against whom it was made.
18. Thus, the reading of the above provision would show that while deciding a revision, the High Court will always keep in mind whether the trial court has exercised the jurisdiction which has not vested in it or has failed to exercise a jurisdiction so vested or has acted in the exercise of its jurisdiction illegally or with material irregularity. This power of the High Court is further with a rider that it will not exercise its jurisdiction until it conies to the conclusion that the impugned order has occasioned a failure of justice or has caused an irreparable injury to the party against whom it was made.
19. The learned senior counsel Shri Sarin raised a preliminary objection that since both the Courts below have exercised the discretion in favour of the plaintiff-respondents, after taking note of the pros and cons of this case, therefore, the High Court has no jurisdiction to entertain this revision. In support of this contention the learned counsel for the respondents relied upon AIR 1973 S.C. 76 The Managing Director v. Ajit Par-sad. The argument of the learned counsel can be accepted to the limited extent. Right to file a revision is one aspect of the case and the jurisdiction of the High Court to interfere in the discretion validly exercised by the Courts below, is other aspect. If a person is aggrieved by the orders of the courts below passed under Order 39 Rules 1 and 2 C.P.C. the remedy lies under section 115 C.P.C. to challenge those orders but to invoke its jurisdiction under Section 115 or not, is a different aspect altogether. AIR 1973 S.C. 76 (supra) simply lays down that High Court should not interfere even if the order is right or wrong or in accordance with law or not, unless it has exercised its jurisdiction illegally or with material irregularity. So the Hon'ble Supreme Court never says that High Court is powerless in the proceedings under Section 115 C.P.C. but definitely the High Court would be slow in interfering in the orders of the lower Courts if it comes to the conclusion that discretion has rightly been exercised and there is no miscarriage of justice. Thus, I proceed with this revision by holding that remedy of the petitioner did lie in filing this revision but 1 will examine it independently about the legality or otherwise of the im-pugned orders, vide which the application under Order 39 Rules 1 and 2 C.P.C. has been allowed.
20. This Court will certainly take care of the provi-
sions of Section 115 C.P-C. Shri Anand Chhibbar, learned Senior Counsel appearing on behalf of the petitioner, vehemently submitted that the entire case of the plaintiff- respondents is based on the deed of settlement dated 11.8.1999 and this deed of settlement does not give any right to the plaintiff-respondents to invoke a power for restraining the business of M/S HMM Coaches Ltd. The counsel submitted that the deed of settlement dated 11.8.1999 is not enforceable. M/s HMM i.e. the petitioner was never a party to that document which primarily deals with the transfers of the shares from one party to the other in a particular company. Through this deed of settlement the business and control of three companies have been transferred to Goels family. With the passing of the impugned orders by the Courts below, a serious prejudice has been caused. Shri Bhupinder Goel is the signatory of the agreement in his individual capacity and his act cannot bind the affairs of the company, which is totally a juristic person. The disputed clause of the agreement dated 11.8.1999 is violative of Section 27 of the Indian Contract Act. He also referred to the provisions of Sections 34, 46 and 48 of the Companies Act besides relying upon other case law. It was also submitted by Mr. Chhibbar that even a partial restraint from carrying on the business through agreement dated 11.8.1999 is violative to the provision of Section 27 of the Indian Contract Act.
21. On the other hand, learned counsel for the respondents submitted that Shri Bhupinder Goel is none else but the Managing Director of M/S HMM Coaches Ltd. Settlement dated 11.8.1999 is signed by the Managing Director plus two Directors. The constitution of M/S HMM is one Managing Director and three Directors out of which one Managing Director and two Directors were the signalories. Under the settlement dee'd Shri Bhupinder Goel not only on behalfof himself but also on behalf of his wife, children, relatives, friends, nomi-nees and business entilies, which were owned and managed by all or any one of them received a huge amount ofRs. 1,30,90,000/- undisputedly. Not only, the share of two companies were transferred but this consideration also included an undertaking from Shri Bhupinder Goel and other members of the first party that they will into take up directly or indirectly in future any business from Swaraj Mazda which may be similar in nature, being undertaken by Jaycee Coach Builders Limited from that firm. It was also argued by the counsel for the respondents that Shri Bhupinder Goel was aware that M/s HMM had written a letter dated 18.5.1999 to M/s Swaraj Mazda to the effect that they are not interested to have any business dealing with M/s Swaraj Mazda. Shri Bhupinder Goel is none else but the Managing Director. The equity lies is favour of the plaintiff-respondents. Irrespective of the fact that the clause No. 2 of the agreement dated 11.8.1999 lays down that in case of any breach of the undertaking given by the first party, it shall be liable jointly and severally to pay to the second party liquidate damages of rupees one crore, still, the plaintiffs un- der the law can enforce this clause and undertaking by filing a suit for injunction. Shri Sarin has adopted all the reasons given by the first appellate Court an prayed for the dismissal of this revision.
22. It is the settled principle of law that while disposing of an application under Order 39 Rules 1 and 2 C.P.C. the Courts are to be guided by three salutary principles of law i.e. prima facie case, balance of convenience and whether the plaintiff would suffer irreparable injury in case the injunction is not granted. In 1995 P.L.J. 207: 1995(3) RRR 722 (P&H) Guru Nanak Education Trust (Regd.) and others v. Shri Balbir Singh, it has been observed by the High Court that the appellate Court and the revisional Court will interfere only with the discretion exercised by the Courts below, if the order of the lower court is arbitrary, perverse or it has been passed in a capricious manner or where the Courts below have not taken note of the legal principles or it has not applied its mind to the facts and circumstances of the case. Merely that re-visional Court or appellate Court may form a different opinion, with the opinion formulated by the Courts below, is no ground to interfere with the impugned orders and if any law is required support can be taken from 1995 P.L.J. 508 : 1996(1) RRR 230 (P&H) Maman Chand v. Smt. Kamla.
23. We have now to interpret the provision of agreement dated 11.8.1999 in order to find out whether the petitioner has any case to succeed. Before I deal with the document 1 would like to refer to the document i.e. the letter dated 6.7.1998 issued by M/s HMM Coaches Limited and addressed to the Managing Director Swaraj Mazda and this letter has been issued under the signatures of Shri Bhupinder Goel vide which it was desired that M/s HMM Coaches would be in a position to manufacture the relevant number of buses, ambulances per month. Certain quotations were quoted. Thereafter letter dated 18.5.1999 was issued by the same company i.e. M/s HMM Coaches Ltd. This letter is also signed by Shri Bhupinder Goel the Managing Director and the relevant lines can be quoted in the following manner:-
"However, notwithstanding the above, now after careful consideration we have decided that we are no longer interested in Swaraj Mazda business. Therefore, through this letter, we withdraw our interests in pursuing Swaraj Mazda business for all times and accordingly shall be returning your drawings and as stated in para (2) the fully developed Ambulance will be made available to SML at the earliest."
24. Thus, through this letter Shri Bhupinder Goel acting as Managing Director of M/s HMM Coaches clearly intimated to M/s Swaraj Mazda that they wanted to withdraw their interest in pursuing the business of Swaraj Mazda for all times.
25. Now, we would like to make a brief reference to the settlement deed dated 11.8.1999. According to the preliminary language Shri Bhupinder Goel in his indi-
vidual capacity and also as representative of his wife, children, relatives, friends, nominees and business entities owned and managed by all or any of the above is one party and Shri Rajinder Kumar Aggarwal in his individual capacity and also as representative of his wife, children, relatives, friends, nominees and business entities owned and managed by all or any of the above was the second party. Then it was mentioned in the body of this agreement that the first party has collectively held equity shares of certain companies namely Jaycee Coach Builders Ltd., Jaycee Precision Castings Pvt. Ltd. and the second party collectively held equity shares of Shrishii Agro Products (P) Ltd. and Shrishti Refinery Ltd. and Rashi Credit and Investments Ltd. Also it was stated that the business of these companies was being managed by Shri Rajinder Kumar Aggarwal and Shri Bhupinder Goel and members of their respective families. Further it is incorporated that disputes and disagreements had arisen between Shri Rajinder Kumar Aggarwal and Shri Bhupinder Goel regarding the conduct of the business of the said companies and related matters and it was considered necessary that the ownership and management of these companies be split between the first and the second party. Vide this settlement all the equity shares and interest of the three companies held by the second party i.e. the party of Shri Rajinder Kumar Aggarwal, were transferred to Shri BhupinderGoel who was heading the Party No. 1. Thus, this is an agreement virtually between the two heads of the families who were representing two groups of companies. It may also be mentioned here that S/Shri Rajinder Kumar Aggarwal and Bhupinder Goel are "Sandus" as two real sisters are married with them. For our purposes the following clause is most relevant from which the rights of the parties will follow :-
"As mutually agreed between first party and the second party, the second party has undertaken to pay to the first party a total amount of Rs. 1,30,90,000 (Rupees One hundred Thirty Lacs Ninety thousand only) for 4,67,500 shares of JCBL and 10 shares of JPCPL held by the party of first part out of which a sum of Rs. 108,00,000/- (Rupees one hundred eight lacs only) has already been paid by second party, his friends and Associates to the First party and with the transfer of the shares and interest in companies mentioned in para 1 above, in consideration for the transfer of all the equity shares and interest in JCBL and JPCPL held by the members of the first party in favour of the second party and first party will be left with no shares of JCBL and JPCPL. This consideration also includes an undertaking from Shri Bhupinder Goel and other members of the first party that they will not take up directly or indirectly in future, any business for the Swaraj Mazda Ltd. which may be similar in nature being undertaken by Jaycee Coach Builders Limited from Swaraj Mazda Ltd. In pursuance of this settlement Mr. Bhupinder Goel has already written a letter dated 18.5.1999 to the Swaraj Mazda Ltd. to this effect. In case of any breach of this undertaking by the First Party within five years from today, the first party shall be jointly and severally liable to pay to the second party liquidated damages of rupees one crore."
26. Learned counsel for the petitioner submitted that this deed of settlement was only for the purpose of transfer of shares of few companies inter se and beyond that this document should not be implemented. For the reasons, which I had already quoted above, in the shape of the contentions which wre noted by me, this argument of Shri Chhibbar cannot be accepted. Section 27 of the Indian Contract Act lays down that every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.
27. Now, we have to see whether the clause is hit by Section 27 of the Contract Act or not. Through this undertaking, against which a consideration of Rs. 1,30,90,000/- was also taken, it was made to understand by Shri Bhupinder Goel and other members of the first party that they will not take up directly or indirectly in future any business for M7s Swaraj Mazda which business may be similar in nature being undertaken by M/s Jaycee Coach Builders. This clause also makes a reference of the letter dated 18.5.1999 which was written by Shri Bhupinder Goel as a Managing Director of M/s HMM. Bhupinder Goel was not an ordinary person of the Company, In the capacity of Managing Director he could always bind the company. Had there been no reference of the letter dated 18.5.1999 in the clause No. 2, reproduced above, the second party would be the last person to part a huge amount of Rs. 1,30,90,000/-. They had consciously parted this consideration by taking note of the fact that M/s HMM had written a letter dated 18.5.1999 through its Managing Director Shri Bhupinder Goel. Now, it is to be seen whether the undertaking of clause No. 2 of the agreement is a void clause as argued by the learned counsel for the petitioner who also relied upon a judgment reported as AIR 1937 Oudh 445 Abdul Karim v, Seikh Duhar. The argument of the learned counsel for the petitioner cannot be accepted. The judgment of the Oudh High Court is distinguishable on the face of it. In the cited case, a contract was executed between A and B requiring B to sell hides only to A and not to anybody else. In these circumstances, it was held that such a clause is a bad one. Here, in the present case, the undertaking is totally different. According to the clause, Shri Bhupinder Goel and his other business concerns would not take up directly or indirectly any business from M7s Swaraj Mazda which may be similar in nature being undertaken by M/s Jaycee Coach, Builders from Swaraj Mazda. M/s Bhupinder Goel or HMM company was never restrained from doing any business of body builders from any other company. There was not a total restraint through the undertaking as incorporated in clause 2. Therefore, prima facie this clause is not hit by Section 27 of the Indian Contract Act not it is vio-lative under Section 23 of the Contract Act.
28. It was submitted by the counsel for the petitioner that the suit of the plaintiff for injunction was not legally maintainable because under clause No. 2 a right to claim damages has been provided to the tune of rupees one erore.
29. On the contrary, learned counsel for the respondents relies upon AIR 1973 S.C. 2457 M.L. Devender Singh and others v. Syed Khaja in which it was observed that even if a particular sum has been named to be paid as liquidated damages for a breach of contract, such contract will be enforceable. Reliance can also be placed on AIR 1959 M.P. 309 and AIR 1924 Lahore 151.
30. With regard to the argument that Shri Bhupinder Goel had executed the agreement in individual capacity it can be stated that he has also signed representing his wife, children, relatives, friends, nominees and business entities which are owned and managed by all or any one of them. Shri Bhupinder Goel and his company had 27% equity shares on the date of the signing of the settlement. Defendants No. 1, 3, 5 were the Directors of defendant No. 6 and Shri Bhupinder Goel was the Managing Director. The petitioner company had only four Directors out of whom three Directors including the Managing Director, were the signatories of the agreement dated 11.8.1999. A company is managed by the Board of Directors and three Directors have signed the agreement dated 11.8.1999 and received a sum of Rs. 1,30,90,000/-. How they can be al-lowed to run away under the garb or plea that the agreement dated 11.8.1999 does not bind the affairs of M/s HMM Company? Moreover, this point is to be seen on the merits of the case when the parlies will lead evidence.
31. It was also submitted on behalf of the petitioner that the clause cannot be specifically enforced but this argument is totally devoid of any merit. The loss which might be caused to the respondents with the non-enforcement of the negative clause, will be difficult to be assessed. Moreover, this is a matter of merit. This clause is not causing an unreasonable restriction upon the petitioner. Rather the balance of convenience is in favour of the plaintiffs (Party No. 2), who have purchased the equity shares of defendants (Party No. 1) by paying huge amount of Rs. 1,30,90,000/- and took an undertaking from the sellers that they will not take up directly or indirectly any business from Swaraj Mazda which may be similar in the nature, being undertaken by M/s Jaycee Coach Builders.
32. I agree with the finding of the first appellate Court when it observed that the restraint agreed does not seem to be unreasonable.
33. The counsel for the petitioner relied upon Sections 34, 46 and 48 of the Companies Act and submitted that the Company has to be identified separately from its Director, Before a Managing Director can bind the Company it must be shown that the Company has given authority in favour of the Managing Director and in pursuance of that authority the Managing Direc-
tor has given an undertaking. The argument of the learned counsel for the petitioner can be rejected. I am not deciding the suit on merits but prima facie it is proved on the record that negative clause has been incorporated in the settlement dated 11.8.1999. It is for a valid consideration and through (his clause an undertaking has been given by Shri Bhupinder Goel not only on his behalf but also on behalf of the business entities which were controlled by him. Now the petitioner company cannot be allowed to back out under the garb of a letter, written subsequently by the Executive Director on the plea that Shri Bhupinder Goel was asked to resign from the post of the Managing Director. This submission of the learned counsel for the petitioner deserves to be rejected in view of the provisions of Sections 290 and 291 of the Companies Act,
34. Now, I proceed to discuss the case law which was cited by the parties at the Bar. Counsel Shri Chhibbar relied upon AIR 1965 S.C, 40 The Tata Engineering and Locomotive Co. Ltd. v. The State of Bihar and others in which it was laid down that Company in law is equal to a natural person and has a legal entity of its own. The entity of the Company is entirely separate from that of its shareholders; it bears its own name and has a seal of its own; its assets are separate and distinct from those of its members; it can sue and can be sued exclusively for its own purpose and its creditors cannot obtain satisfaction from the assets of its members. This cited judgment does not help the learned counsel for the petitioner who wanted to show that by the act of Shri Bhupinder Goel, M/s HMM which is a Company, is not bound. In the present case, Shri Bhupinder Goel was not only acting in his individual capacity but also in the capacity of Managing Director of M/s HMM and that was the reason that there is mention of the letter dated 18.5.1999 in the settlement. No other letter dated 18.5.1999 has been written by Shri Bhupinder Goel in his individual capacity. He has undertaken to abide by the terms of the letter dated 18.5.1999 issued by the HMM Company and, therefore, he cannot escape from the liability. Counsel for the petitioner also relied upon AIR 1938 Patna 473 Maharajadhiraja Sir Kameshwar Singh v. Md. Yasin Khan and submitted that the clause is not enforceable. In the cited case a licence was granted to the defendant exclusively to collect the hides of animals from plaintiff s Zamindari. Such a clause was held not to be enforceable. This cited Judgment can be safely distinguishable on facts.
35. On the contrary, the learned counsel appearing on behalf of the respondents besides relying upon AIR 1973 S.C. 76, The Managing Director v. Ajit Parshad also referred to AIR 1944 Lahore 397 Hari Singh v. Khan Moin-ud-Din Khan and others, where it was observed by the Hon'ble Judges that the exercise of the powers under Section 115 of the CPC is discretionary and where substantial justice has been done between the parties, powers of revision should neither be invoked nor exercised.
36. I have considered the pros and cons of this revision from each angle and am of the opjnion that prima facie case and balance of convenience are on the side of the plaintiff-respondents. They would sutler irreparable injury if the petitioner-company is allowed to enter as competitor when the Managing Director of this Company gave an undertaking as contained in clause 2 of the settlement deed dated 11.8.1999 and acting on that representation, consideration of Rs. 1,30,90,000/- including the transfer of equity shares, was given.
37. Resultantly, I do not see any error of jurisdiction on the part of the Courts below, therefore, the present revision is hereby dismissed with no order as to costs.
38. Nothing stated above shall amount an expression of my opinion on the merits of the suit.
39. Revision dismissed.