Delhi High Court
Ozone Spa Private Limited vs Pure Fitness & Ors on 29 July, 2015
Author: Manmohan Singh
Bench: Manmohan Singh
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Pronounced on: 29th July, 2015
+ CS(OS) No.1815/2015
OZONE SPA PRIVATE LIMITED ..... Plaintiff
Through Dr.Abhishek Manu Singhvi, Sr.
Adv., Mr.Rajiv Nayar, Sr. Adv.,
Ms.Prathiba M. Singh, Sr. Adv. with
Mr.Chander M. Lall, Ms.Archana
Sahadeva, Mr. Ashutosh Kumar &
Ms.Rukma George, Advs.
versus
PURE FITNESS & ORS ..... Defendants
Through Mr.Dushyant Dave, Sr. Adv. with
Mr.Manav Gupta &
Ms.Prabhsahey Kaur, Advs. for
D-1 & 2.
CORAM:
HON'BLE MR.JUSTICE MANMOHAN SINGH
MANMOHAN SINGH, J.
I.A. Nos.12565/2015 (u/o XXXIX R.1 & 2 CPC, by plaintiff) and R.P. No.318/2015 (to be treated as u/o XXXIX R.4 CPC as per order dated 3rd July, 2015, by defendants)
1. The plaintiff has filed the suit for permanent injunction restraining breach of contract, breach of confidentiality/trade secrets, infringement of trademarks, get-up, layout, arrangement, trade dress of Ozone Fitness Centre, Salon and Spa, unfair competition as well as for damages/rendition of accounts of profit against the defendants.
CS(OS) No.1815/2015 Page 1 of 802. The suit and the interim application being I.A. No.12565/2015 were listed before the Vacation Court on 24th June, 2015.
3. By order dated 24th June, 2015, the Court issued the summons in the suit and notice in the interim application as well as granted an ex parte ad-interim injunction. The operative part of the said order is read as under:-
".....Accordingly, till the next date of hearing, defendant Nos.1 and 2, their partners, family members or through anyone acting for and on their behalf are restrained from establishing, running or setting up any competing business including fitness centres, salons, spas or any other business, under the name Hairmasters/Hair Masters or under any other name in violation and breach of the franchise agreement dated 5.11.2012 and supplementary agreements dated 1.4.2013 and 29.3.2014."
4. The Court also appointed two Local Commissioners with directions to visit the premises of the defendants and inventorize the publicity material, take photographs of infringed material and sign the books of accounts.
5. Upon service, the defendants No.1 and 2 filed an application under Order XLVII Rule 1 read with Section 151 CPC seeking review of the order dated 24th June, 2015 passed in I.A. No.12565/2015.
6. The said review application was listed before the same Bench on 3rd July, 2015 wherein it was prayed by defendants No.1 and 2 to treat the said application under Order XXXIX Rule 4 CPC.
7. Reply and rejoinder have been filed. Written Statement is yet to be filed.
CS(OS) No.1815/2015 Page 2 of 808. The matter was listed before this Court first time on 10th July, 2015. Parties agreed to meet on 11th July, 2015 for settlement, if any.
9. No settlement was arrived. Parties addressed their submissions on 14th July, 2015 in part in both interim applications i.e. under Order XXXIX Rule 1 and 2 CPC filed by the plaintiff and under Order XXXIX Rule 4 CPC filed by the defendants. The defendants have relied upon the application for vacation of interim order and other material available on record in order to resist the injunction application and no separate reply to I.A. No.12565/2015 was filed. As such, learned counsel for the defendants has pressed for early hearing. Thus, both the applications are taken up together.
10. In order to discuss the rival submissions of the parties, it is necessary to refer the relevant contents of plaint. Case of the plaintiff as per averments in the plaint:-
11. (a) The plaintiff-Company is the country's premier boutique health spa. Each of its centres is spread over 11,000 sq. feet and provide the highest standards of service. It launched its first Health Centre and Spa under the brand OZONE on 26th October, 2002. The plaintiff-Company is primarily engaged into health-care, fitness, salon and spa industry and the same is promoted under the mark OZONE.
(b) The plaintiff has established itself as a one-of-its-kind fitness/spa/salon centre, whose members include many eminent personalities, like Ms.Sania Mirza, Ms.Ekta Chaudhary, Pantaloons Femina Miss India Universe 2009, well-known model Mr.Inder Mohan Sudan etc. The plaintiff has grown leaps and bounds and established many health centres of international standard throughout India CS(OS) No.1815/2015 Page 3 of 80 including in Gurgaon, Hyderabad, Chandigarh and Bangalore. Apart from the aforementioned places, the plaintiff also has plans to commence operations in Ludhiana, Indore and Ahmedabad. Over a decade, the plaintiff has established several branches/franchises of Ozone Health Club and Spa in Delhi itself, details of which are as under:-
(i) Defence Colony, New Delhi.
(ii) Palm Country Club, Sushant Lok, Gurgaon.
(iii) Delhi Lawns Tennis Association, R.K.Khanna Stadium, African Avenue, New Delhi.
The plaintiff has also signed Franchise Agreements to open franchises at Rajouri Garden, Sohna Road Gurgaon, Rohtak, Ludhiana, Bhiwadi, Palam Vihar, Greater Noida etc.
c) The plaintiff is a health club of international standards fully equipped with all modern technology, unparalleled to any other health club or spa in India. The services and facilities as provided by the plaintiff company, in all its branches/franchises, are enumerated as under:-
(i) Cardio equipment: The machines have in-built programming ability that allows for tailor-made exercise regime. The equipment responds to a change in the user's heart rate. Each machine is equipped with a flat screen television and music channels that provide its user a complete choice of personalized entertainment while exercising.
(ii) Strength equipment to tone and strengthen the body.CS(OS) No.1815/2015 Page 4 of 80
(iii) Steam, sauna, massages, showers, changing cubicles and a vanity arc for women.
(iv) Aerobics, yoga, body sculpting and specific strength workouts.
(v) Luxurious spa suites which offer advanced relaxation therapies like exfoliation, cellulite reduction, detoxification, ozone treatment, salt glow, mud treatment, herbal therapies and algae treatment. The treatments include hydrotherapy tubs, dry floatation, massages, body care backup, in-house laundry, mineral water plant, solar heating systems, elevator and an in- house kitchen.
(vi) Unisex salon which provides to its customers a varied variety of services which aim to pamper and revitalize.
(vii) Body composition analysis.
(viii) Scientific nutritional evaluation and diet counselling.
(ix) In house care and guidance by physiotherapist, along with medical counselling by doctors.
(d) The turnover of the plaintiff-Company, including the income from membership of the health centre, spa and salon services advance membership fees, restaurant income etc. are mentioned in para 15 of the plaint.
(e) The details of advertisements figures approximately Rs.1,88,68,161/- on account of advertising and business promotion under the said mark in various newspapers, journals as well as in CS(OS) No.1815/2015 Page 5 of 80 other media agencies from the year 2003-2004 to 2014-2015 by the plaintiff company have been mentioned in para 16 of the plaint.
f) The plaintiff-Company has also won national and international acclaim in the form of prestigious awards and distinctions. Some of such awards are:
(i) World class quality control company namely, ACSR International Inc., Ann Arbor Michigan, USA, visited plaintiff company and awarded it the prestigious 150 ISO 14001 certificate. ISO 14001 certificates provide an assurance that the unit is committed to achieving continuous improvement through environmental management systems.
(ii) Indira Gandhi Priyadarshini Awards for the best chain of eco-friendly health clubs in India.
(g) It is claimed that as a result of the goodwill and reputation the plaintiff, as on date, has entered into nine Franchise Agreements (in addition to its own fitness centres) with various interested parties throughout the country. The unisex salon services, as provided by the plaintiff, through its franchises, inter alia, offers luxury grooming services to its customers, which are tailor made suit different skin types and designed for relaxation and beautification. Services are also tailor made to suit the needs and requirements of male customers. Further, grooming services are also provided to all the customers.
(h) The USP of the salon services being provided by plaintiff and its franchises is that all the salons currently operating under the trade CS(OS) No.1815/2015 Page 6 of 80 mark/trade name OZONE are governed by the Ozone Unisex Salon Operations Manual, which forms an important part of the Franchise Agreements that the plaintiff enters into with all prospective franchisees. The Operations Manual, encapsulates in detail, inter alia, the following policies and procedures which are mandatorily required to be followed by all its franchisees are as under:
a) The training program for all its employees;
b) Working guidelines for stylists;
c) The Ozone Unisex Salon Designing Standards: This particular segment in the Operations Manual lays down elaborate guidelines in relation to tile selection, the salon design, wall panelling, work stations etc. to be present in the salon. This ensures that uniformity is maintained across all Ozone salons throughout the country;
d) Clients policy, with specific emphasis on how to take special care of first-time clients;
e) Guidelines in relation to consultation with clients, dealing with and addressing client's problem etc.;
f) The pricing policy along with refunds and credits;
g) Client retention policy; and
h) Management policies and other day-to-day policies for conducting business.
(i) It is claimed by the plaintiff that the aforementioned Operations Manual forms an integral part of all Franchise Agreements and forms part of the plaintiff's confidential proprietary information/trade secrets.
It is of utmost importance that all prospective franchisees adhere to CS(OS) No.1815/2015 Page 7 of 80 the conditions/guidelines stipulated in the Operations Manual, as the same not only ensures uniformity and consistency across all the franchisees of the plaintiff, but such arrangement/layout/colour scheme of the salons operating under the brand OZONE, forms part of the valuable intellectual property of the plaintiff.
(j) The plaintiff is the registered proprietor of the trademark OZONE in various classes, the details of which are as under:
Sr. Mark Registration Class w.e.f User
No. claimed
since
1 OZONE 1104249 16 13.05.2002 01.04.2002
(OZO3ne)
2 OZONE 1205587 30 11.06.2003 01.05.2001
(OZO3ne)
3 OZONE 1205588 32 11.06.2003 01.05.2001
(OZO3ne)
4 OZONE 1205590 33 11.06.2003 01.05.2001
(OZO3ne)
5 OZONE 1205586 16 11.06.2003 01.01.2003
(OZO3ne)
6 OZONE 1285723 42 24.05.2004 01.05.2001
(OZO3ne)
7 O3 1343509 16 09.03.2005 15.01.2003
Case against the defendants as alleged in the plaint:
(k) In or around September 2012, defendants No.1 and 2 approached the plaintiff and expressed their interest in the said plaintiff's Franchise Model of business. After detailed negotiations and based upon the representations and assurances made by defendants No.1 and 2, the plaintiff agreed to grant to the said CS(OS) No.1815/2015 Page 8 of 80 defendants a non-exclusive, non-transferable, non-assignable franchise to establish, run and operate a gymnasium and a spa under the brand name 'Ozone Fitness n Spa', from the premises viz. 23, NWA, Punjabi Bagh, New Delhi ('Franchisee Premises'). Accordingly, a Franchise Agreement dated 5th November, 2012 was entered into between the plaintiff and defendants No.1 and 2 for a term of 12 years. (hereinafter the defendant Nos.1 and 2 shall be referred as defendants who are parties to the agreements).
(l) Subsequent to entering into the Franchise Agreement, an Agreement dated 1st April, 2013 was entered into between the plaintiff and defendants No.1 and 2, which merely set out certain additional liabilities on both the parties concerned. Thereafter, a Supplementary Agreement dated 29th March, 2014 was entered into between the plaintiff and defendants No.1 and 2 wherein it was inter alia agreed that a fixed Franchise fees of INR 2,10,000/- per month + Service and other taxes (as applicable) would be paid to the plaintiff by defendants No.1 and 2. Both the aforesaid agreements form part and parcel of the Franchise Agreement and the Franchise Agreement, as amended by the subsequent agreement and the supplementary agreement, which is valid and subsisting as on date, continue to govern the rights and liabilities of the parties herein.
(m) It is claimed that the Franchise Agreement continues to be valid and subsisting as on date, and defendants No.1 and 2 are operating a gymnasium, spa and a unisex salon under the brand Ozone Fitness n Spa from the Franchise Premises.CS(OS) No.1815/2015 Page 9 of 80
(n) In the last week of May, 2015, the plaintiff gained knowledge of the fact that the defendants were promoting the Hairmasters Salon (defendant No.3) on the plaintiff's official Facebook page.
Immediately, the plaintiff investigated further into the matter and was shocked to find out that the defendants have incorporated defendant No.4-Company on 12th May, 2015. On further investigation, the plaintiff learned of, inter alia, the following illegal activities of the defendants:-
a) Defendants No.1 and 2 in brazen and blatant violation of the Franchise Agreement, which is valid and subsisting as on date, utilized the plaintiff's know-how, expertise etc. and set up a competing business in the same neighbourhood. In fact, a glimpse of defendant No.3 salon makes it amply evident that the expertise, know-how etc. as provided by the plaintiff has been utilized in toto inasmuch as identical set up specifications, standards, arrangements, methods etc. have been employed in defendant No.3 salon.
(o) Defendant No.1, M/s. Pure Fitness is a proprietary concern of defendant No.2, as per the information available with the plaintiff. He entered into a Franchisee Agreement with the plaintiff on behalf of defendant No.1. Defendant No.3, Hair Masters Luxury Salon, is a unisex salon, which has been opened collusively by the defendants in the same neighbourhood as Ozone Fitness n Spa, Punjabi Bagh, in blatant and brazen violation of the Franchise Agreement and during the term of the Franchise Agreement. Defendant No.4, Hair Masters Salon Private Limited is a company incorporated on 12th May, 2015, CS(OS) No.1815/2015 Page 10 of 80 in which defendant No.2 is one of the Directors. It is stated that defendant No.1 and defendant No.4 Companies have the same address, and thus, it is alleged that there is collusion amongst the defendants.
(p) It is also alleged that the entire look and feel, layout, choice of colour combination etc. of defendant No.3 salon has been directly lifted from the plaintiff's Operations Manual, which admittedly is the confidential proprietary information of the plaintiff, and which acts are blatant breach of such confidentiality.
It is alleged that defendants No.1 and 2 set up a competing business in the same neighbourhood, during the subsistence of the Franchise Agreement and they are actively promoting defendant No.3 salon through Ozone Fitness n Spa. On the official Facebook page of the Ozone Fitness n Spa (https://www.facebook.com/ danish.batra.7) which is maintained by defendants No.1 and 2, defendant No.2 is advertising defendant No.3 salon.
(q) The allegation of the plaintiff is that the defendant No.3 salon is being advertised by defendants No.1 and 2 as the customers of the Ozone Fitness n Spa are being diverted to defendant No.3 salon premises, which is in the same neighbourhood as Ozone Fitness n Spa. Defendant No.2 is also involved in actively poaching the well- trained staff employed in Ozone Fitness n Spa's premises to work in defendant No.3's salon premises, as on 14th May, 2015 the Manager of Ozone Fitness n Spa had resigned and had commenced work in defendant No.3 salon. The staff employed in Ozone Fitness n Spa is being made to wear defendant No.3's salon uniform.
CS(OS) No.1815/2015 Page 11 of 80The defendant No.4 Company is even proposing to enter into franchisee agreements and is keen on expanding the Hair Masters Salon across the length and breadth of the country. The same is evident from the defendants' website viz. http://hairmasters.co.in/. Even on the Facebook page of Ozone Fitness n Spa, the defendants are openly advertising the launch of a second franchise under the brand Hairmasters in Ashok Vihar, New Delhi on their website.
(r) It is submitted that such acts of the defendants would cause grave and irreparable injury to the plaintiff and it would also tarnish the goodwill, reputation, industry which has been acquired from the plaintiff. All of this is being done during the subsistence of a valid Franchise Agreement inter se the parties herein, and by utilizing the confidential proprietary information/trade secrets passed on by the plaintiff in pursuance to the Franchise Agreement.
(s) The conduct of the defendants is malafide, illegal, dishonest, unethical and unlawful and is solely motivated to encash upon the goodwill and reputation of the plaintiff's OZONE brand. The defendants are developing their brand Hairmasters/Hair Masters by catapulting themselves off the well-established goodwill and reputation of the plaintiff under the OZONE brand equity. The conduct of the defendants thus constitutes:
a) Breach of Contract;
b) Breach of Confidentiality/trade secrets;
c) Infringement of trademarks, get-up, layout,
arrangement, trade dress of Ozone Fitness Centre, Salon and Spa;
CS(OS) No.1815/2015 Page 12 of 80d) Dilution and acts of unfair competition. (t) It is stated that the defendants are bound by the terms and
conditions as stipulated in the Franchise Agreement, which is valid and subsisting as on date. It is submitted that the Franchise Agreement, as entered between the parties, is a valid and legal contract and has been entered into by both parties consensually. During the term of the Franchise Agreement and three years thereafter, the defendants are prohibited contractually from engaging in any competing business. The said term forms a material term of the contract. Therefore, by setting up a competing business, during the subsistence of the Franchise Agreement, the defendants have committed material breach of the terms of the Franchise Agreement. Thus, they are guilty of breach of contract.
It is submitted that it was the obligation of the plaintiff to provide to defendants No.1 and 2 the requisite know-how, including but not limited to the Operations Manual, training of staff, details of products and services to be provided, details of vendors etc. who provide such products etc., in relation to setting up of the Franchise and also in continuance of such franchise successfully. (u) The defendants are attempting to mislead the general public into thinking that there exits an association between their salon and that of the plaintiff where none exists. The defendants are attempting to ride piggy back on the hard earned and well-established goodwill and reputation of the plaintiff, and are attempting to use the same as a stepping stone in order to launch their own brand, i.e. Hairmasters/Hair Masters.
CS(OS) No.1815/2015 Page 13 of 80Therefore, it is stated that all the aforesaid acts of the defendants would establish that they are attempting to associate their brand with that of the plaintiff. The acts of the defendants are causing irreparable harm and injury to the plaintiff, as the acts are diluting the said plaintiff's brand. By adopting identical colour schemes, arrangement etc. the defendants have diluted the brand of the plaintiff.
(v) The acts of the defendants also amount to unfair competition inasmuch as while defendant No.3 salon has been opened by utilizing the know-how, confidential proprietary information/trade secrets provided by the plaintiff, the defendants are promoting defendant No.3 salon through Ozone Fitness n Spa. Some of such instances are reiterated herein under:
• Promotion of defendant No.3 Salon on the Notice Board/Bulletin Board of Ozone Fitness n Spa; • Promotion of defendant No.3 Salon on the official Facebook page of Ozone Fitness n Spa;
• Actively poaching the well-trained employees of Ozone Fitness n Spa.
• Encouraging the staff at Ozone Fitness n Spa to wear the uniforms of defendant No.3 salon; and • Blatantly diverting the clients who visit Ozone Fitness n Spa to defendant No.3 salon, since both the salons are in the same neighbourhood.
It is, therefore, submitted that all the aforesaid acts by the defendants apart from causing breach of confidentiality and contracts CS(OS) No.1815/2015 Page 14 of 80 also tantamount to unfair competition and the defendants cannot be allowed to ride on the goodwill and reputation earned by the plaintiff. The plaintiff has put in enormous amount of hard work and has made huge investments and expenditure just to make its name a house- hold name and a well-known mark/brand and the defendants cannot be allowed to capitalize from the same.
(x) It is averred in the plaint that the defendant No.3, Hair Masters Luxury Salon is a unisex salon which has been opened collusively by the defendants in the same neighbourhood in a blatant and brazen violation of the Franchise Agreement and during the term of the Franchise Agreement. Defendant No.4, Hair Masters Salon Private Limited, is a company incorporated on 12th May, 2015, in which defendant No.2 is one of the Directors. The defendant No.1 and defendant No.4 Companies have the same address and thus, the collusion amongst the defendants is quite apparent.
It is alleged that not only have the defendants brazenly violated the terms of the Franchisee Agreement and have committed breach of terms of confidentiality/trade secrets but they also have violated the trademark rights which vest in the plaintiff in its brand viz. OZONE, inasmuch as defendants No.1 and 2 are openly and blatantly advertising and promoting their brand Hairmasters/Hair Masters, not only in the premises of Ozone Fitness n Spa but also online, through the official webpage of the Ozone Fitness & Spa on Facebook. It is submitted that the defendants have also caused the diversion of the customers of the plaintiff who visited their health clubs for salon purposes/ for using salon services by inducing them to CS(OS) No.1815/2015 Page 15 of 80 go for the salon services under the mark HAIR MASTER by visiting the premises located adjacent to the health club which is to the detriment of the saloon business of the plaintiff under the mark OZONE running through the defendants and thereby defendants are competing unfairly with that of the plaintiff. Submissions of the Defendants
12. Mr.Dushyant Dave, learned Senior counsel appearing on behalf of the defendants has made his submissions on behalf of defendants. His submissions are outlined as under:-
I. His first submission is that the ex parte ad-interim injunction order dated 24th June, 2015 has been passed on account of misrepresentation made by the plaintiff who has not come before the Court with clean hands. Further, the plaintiff has concealed the material facts from this Court which led to the passing of ex parte order dated 24th June, 2015 on an erroneous presumption and, therefore, the same is liable to be vacated. II. The second submission of Mr. Dave is that all the three agreements between the parties i.e. Franchise Agreement dated 5th November, 2012, Management Agreement dated 1st April, 2013 and Supplementary Agreement dated 29th March, 2014 are to be read together and clauses mentioned therein to be interpreted strictly. No different interpretation can be possible as per law, even inference of any kind cannot be drawn which may be contrary to the clauses. His submission is that perusal of said agreements would show that the main Franchise Agreement relates to the licence/ permission to the defendants to use the services of Fitness Centre and Spa only and CS(OS) No.1815/2015 Page 16 of 80 not Saloon business. The services of Salon have been explicitly excluded. The Agreement provides that the Franchisor (plaintiff) and the Franchisee (defendants No.1 and 2) would enter into a separate agreement for Salon if the Franchisee opts to do so.
In support of his submissions, Mr.Dave has referred clause 1.7 of the Agreement dated 5th November, 2012 as well as Annexure A to the agreement.
III. By referring the abovementioned clause and Annexure, it is submitted by the learned Senior counsel that the Franchise Agreement between the plaintiff and the defendants was only with respect to the setting up of a Fitness centre and a Spa. The defendants set up a Fitness Centre and a Spa as per the Franchise Agreement and have been complying with all the terms of the Franchise Agreement and its Supplementary Agreements in its operations. The plaintiff has not produced any document to show about any breach of the terms of the agreements in the running of the Fitness centre and Spa, which was the subject matter of the Agreements. It is argued that in fact, the plaintiff has misled the Court by pleading that the Agreement was for the service of Salon also at the time of obtaining the injunction order. In clause 8.25, the word 'Salon' has come due to oversight. There was never the intention of the parties and the same was not the subject matter of the said Franchise Agreement. In order to create a camouflage of a cause of action in its favour, the plaintiff has misused the process of the Court. In fact, it was within the knowledge of the plaintiff that service of CS(OS) No.1815/2015 Page 17 of 80 Salon was not permitted under the Franchise Agreement. Thus, the plaintiff is guilty of playing a fraud upon the Court.
It is stated that even the Local Commissioner noted in the commission carried out on 29th June, 2014 under the orders of this Court that there is no salon running in the name of "Ozone Fitness Centre n Spa". The Fitness Centre and Spa is being run from the First, Second and third Floors and the Basement which is used as a godown and not a Salon as it had been falsely claimed by the plaintiff. The question of restraining the defendants from running a salon under different name at different place does not arise. Such use is completely outside the purview of the contractual relations between the plaintiff and the defendants. IV. The third submission of Mr. Dave is that as the defendants only entered into the Franchise Agreement for the service of Fitness centre and Spa, thus, they were given the Operations Manual for Fitness Centre and Spa only. They do not have access to the Operations Manual/Trade Secrets for Salon. The plaintiff has wrongly claimed that his Operations Manual has been used by the defendants for the know-how in setting up the salon "Hair Masters." The Operations Manual filed by the plaintiff is only of Salon and the same has never been given to the defendants, except the Operations Manual for Fitness Centre and Spa. The order of the Court at the time of granting ex-parte injunction to the effect, that the defendants have used the proprietary information as per the manual of the plaintiff, is thus based on a false averment made in the plaint and injunction application and incorrect information given to the Court.CS(OS) No.1815/2015 Page 18 of 80
V. Mr. Dave's fourth submission is that the Salon Hair Masters is the result of much hard work and immense investment on the part of defendant No.2 who is a young man trying to set up his own bonafide business separately. It is the source of income of the defendant No.2's family other than the Ozone Fitness Centre. If the interim order about the Salon would continue, the defendant No.2 would suffer irreparable loss and injury as he has various prior commitments by his regular clients in the salon for which he is not in a position to honour if the salon is not reopened.
The plaintiff has wrongly mentioned in various paras of the plaint that the services of unisex salon is mentioned in the Franchise Agreement particularly in para 5 of that plaint wherein it is mentioned that franchisee as per Franchise Agreement were assigned by the plaintiff in setting up the ozone fitness and spa which comprises of a fitness centre, spa and a unisex salon. The said averment in the plaint is contrary to clause 1.7 of the Franchise Agreement and Annexure A which is part of agreement. As the false and incorrect statement has been made in the plaint and injunction application, the entire plaint is misconceived and the same is liable to be rejected.
Mr.Dave has referred the decision of the Supreme Court in support of his submission which was reported as S.P. Chengalvaraya Naidu v. Jagannath, (1994) 1 SCC 1. Relevant paras 5 and 6 reads as under:-
"5. The High Court, in our view, fell into patent error. The short question before the High Court was whether in the facts and circumstances of this case, Jagannath obtained the preliminary decree by playing fraud on the CS(OS) No.1815/2015 Page 19 of 80 court. The High Court, however, went haywire and made observations which are wholly perverse. We do not agree with the High Court that "there is no legal duty cast upon the plaintiff to come to court with a true case and prove it by true evidence". The principle of "finality of litigation"
cannot be pressed to the extent of such an absurdity that it becomes an engine of fraud in the hands of dishonest litigants. The courts of law are meant for imparting justice between the parties. One who comes to the court, must come with clean hands. We are constrained to say that more often than not, process of the court is being abused. Property-grabbers, tax-evaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the court-process a convenient lever to retain the illegal gains indefinitely. We have no hesitation to say that a person, who's case is based on falsehood, has no right to approach the court. He can be summarily thrown out at any stage of the litigation.
6. The facts of the present case leave no manner of doubt that Jagannath obtained the preliminary decree by playing fraud on the court. A fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another's loss. It is a cheating intended to get an advantage. Jagannath was working as a clerk with Chunilal Sowcar. He purchased the property in the court auction on behalf of Chunilal Sowcar. He had, on his own volition, executed the registered release deed (Ex. B-15) in favour of Chunilal Sowcar regarding the property in dispute. He knew that the appellants had paid the total decretal amount to his master Chunilal Sowcar. Without disclosing all these facts, he filed the suit for the partition of the property on the ground that he had purchased the property on his own behalf and not on behalf of Chunilal Sowcar. Non- production and even non-mentioning of the release deed at the trial is tantamount to playing fraud on the court. We do not agree with the observations of the High Court that the appellants-defendants could have easily produced the CS(OS) No.1815/2015 Page 20 of 80 certified registered copy of Ex. B-15 and non-suited the plaintiff. A litigant, who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If he withholds a vital document in order to gain advantage on the other side then he would be guilty of playing fraud on the court as well as on the opposite party."
13. In a nut-shell, it is submitted on behalf of the defendants that the scope of the Franchise Agreement dated 5th November, 2012 has been misrepresented inasmuch the Franchise Agreement (read with the Agreement dated 1st April, 2013 and the Supplementary Agreement dated 29th March, 2014) entered into between the plaintiff and defendants. The same were only related to the services of a fitness centre and a spa.
14. After making his submissions, Mr.Dave learned Senior counsel has also fairly stated on behalf of the defendants that in case, this Court after going through all agreements entered into between the parties comes to the conclusion on fair reading of the same that services of salon was a part of the licensed business to the defendants No.1 and 2 under the Franchise Agreement apart from the services of gymnasium and spa, then the valid case of negative covenant is made out and in such a case non compete clause contained in the Franchise Agreement would also work against the defendants.
Submissions of the plaintiff
15. Per contra, Dr.Abhishek Manu Singhvi, learned Senior counsel appearing on behalf of plaintiff has refuted the arguments addressed on behalf of defendants. His argument is that it is rank case of CS(OS) No.1815/2015 Page 21 of 80 dishonesty on the part of defendants. The plaintiff has made out a strong case of confirmation of injunction order. The question of concealment of material facts and documents does not arise as all the facts and documents were already placed on record when the ad- interim order was passed. He submits that no case has been made out by the defendants for vacation of the interim orders. He has referred various clauses from the agreements and submits that the present case is the best example of appropriation of IPR rights of the plaintiff by the defendants knowingly, intentionally and deliberately.
16. The submissions of Dr. Singhvi are outlined as under:-
(i) His first submission is that admittedly, the plaintiff entered into a Franchise Agreement dated 5th November, 2012 with defendants No.1 and 2 vide which the defendants were granted a non-exclusive, non-transferable, non-assignable franchise, to establish, run and operate a gymnasium and a spa under the brand name 'Ozone Fitness n Spa' in Punjabi Bagh, New Delhi. The relevant clauses on topic-wise of the Agreement referred by him are as under:-
(a) Rights of Plaintiff under the Franchise Agreement Clauses B, 1.9, 1.13, 1.16 & Annexure B of the Agreement:
(b) Trade & Intellectual Property: 14.6, 14.7. 14.11.
(c) Confidentially & Trade Secrets: 15.1, 15.2, 15.3, 15.4
(d) Initial obligations of the plaintiff under the Franchise Agreement: Clauses 6.2, 6.4, 6.5 CS(OS) No.1815/2015 Page 22 of 80
(e) Continuing obligations of the plaintiff under the Franchise Agreement: Clauses 7.1, 7.2, 7.5, 7.6, 7.7
(f) Obligations of the defendants: 8.6, 8.7, 8.11, 8.13
(g) Negative Covenants: 5.2, 5.3, 15.5, 17 Dr.Singhvi has also referred clause 3 of the Franchise Agreement wherein the term is 12 years. He submits that as such, the same is legally binding and subsisting inter se the parties.
(ii) It is stated by him that subsequent to entering into the aforesaid Franchise Agreement, the parties herein entered into a Management Agreement dated 1st April, 2013. The said Management Agreement formed part of the Franchise Agreement and there was clear understanding between the parties that the Franchise Agreement would remain in force along with the Management Agreement. The Management Agreement was entered into between the plaintiff and defendants No.1 and 2, wherein, as per Clause 4 of the said Agreement, it was mutually agreed between the parties that as and when the total business turnover exceeds INR 3 Crores (inclusive of all applicable taxes), defendants No.1 and 2 would be liable to pay an additional amount of 8% of the total business turnover. As the defendants as per Annexure-A opted for service of salon, with the consent of parties, Clause 2 was included. The said clause of the Management Agreement defined "Total Business Turnover" as:
"...........
2.......total business turnover shall consist of total sales realised from fitness club memberships, personal training, revenue from salon services, spa services, revenue generated from all promotional services and from the CS(OS) No.1815/2015 Page 23 of 80 'franchised business' as mentioned in schedule A of the Franchise Agreement dated November 05, 2012 and any other revenue generated out of any other business activities concluded in the fitness Centre".
(iii) It is submitted by Dr.Singhvi that defendants No.1 and 2 were permitted by the plaintiff to the defendants' service of salon in addition to fitness and spa services, under the mark/brand/name Ozone from the Punjabi Bagh premises. As opted by the defendants, they had been operating a salon under the brand/name/mark Ozone from November 2013 to March 2015, in addition to the fitness Centre and spa from the franchised premises.
(iv) Post commencing of Ozone salon by defendants No.1 and 2 from the franchisee premises, a Supplementary Agreement dated 29th March, 2014 was entered into between the parties. It was mutually agreed that the Franchise Agreement dated 5th November, 2012 would continue to remain in operation, except as amended by the Management Agreement and the Supplementary Agreement. In the Supplementary Agreement, it was mutually agreed inter alia between the parties that the Franchise Fee, henceforth, for the operation of Ozone fitness centre, spa and salon, from the Punjabi Bagh premises by defendants No.1 and 2, would be a fixed amount of INR 2,10,000/- (plus service tax and other taxes as applicable) per month, which is admittedly being paid by the said defendants till date to the plaintiff. It is argued by Dr. Singhvi that the main purpose of the supplementary agreement was to change the payment terms. The defendants by that time had already commenced the Fitness 'n' Spa CS(OS) No.1815/2015 Page 24 of 80 as also service of Salon which they continue to run even after the supplementary agreement for more than one year.
(v) Dr.Singhvi has referred the reports of two Local Commissioners appointed by this Court as well as the documents filed along with the plaint and submits that on running of Ozone salon by defendants No.1 and 2 from the franchised premises from November, 2013, the intention and conduct of the defendants can be gathered without any dispute from the admission of the defendants themselves in their rejoinder to the review application at paragraphs, the report along with the annexures of Mr.Harsit Khurana, Local Commissioner appointed by this Court at para 9, page 5, and Annexure F; copies of invoices wherein the said defendants have paid to the plaintiff Franchise Fee for salon, in terms of the Franchise Agreement; and correspondence exchanged inter se the parties in relation to the day-to-day running of the Ozone salon by the defendants.
(vi) Dr. Singhvi in order to show the malafide conduct of the defendants about the contradictory statement has referred the defendants initially filed application under Order 47 Rule 1 of CPC (which was read as under Order 39 Rule 4 CPC) making a statement to the following effect:
"............
10. That the agreement relied upon by this Hon'ble Court in passing the order dated 26.06.2015 does not apply to services of salon, which operations are completely outside the purview of the contractual relation between the plaintiff and defendant.
........CS(OS) No.1815/2015 Page 25 of 80
13. That as has been stated above the defendants only entered into the Franchise Agreement for the service of Fitness Centre and Spa. Thus, they were given the operations manual for Fitness Centre and Spa. The answering defendant state and submit that they do not have access to the Operations Manual/Trade Secrets for salon and have never desired so either.
........."
He submits that in the reply, the plaintiff pointed out the above documents to convincingly establish that the defendants were making a false statement. In the rejoinder, the defendants admitted that he had run the salon services. The relevant portion is extracted herein below:
"5. ......The defendants had opened an Ozone Salon in December 2013 and talks with respect to the modalities and entering into a contract were on. In the meantime, as an ad hoc agreement, the answering defendants did pay to the plaintiff Royalty for Ozone salon for 3 months. However, when the parties were entering into the Franchise Agreement for salon, the terms and conditions thereof were not agreeable to the defendants. Thus, the deal never materialized, and in pursuance thereof the answering defendants shut down Ozone Salon in December 2014."
It is stated that in view of the above, the defendants are making misleading and false statements. Dr. Singhvi has referred para 25 of the decision of Gujarat Bottling Co. Ltd. and Ors. v. Coca Cola Company and Ors., AIR 1995 SC 2372, (at page 2389) wherein it was held that a person who seeks vacation under Order 39 Rule 4 CS(OS) No.1815/2015 Page 26 of 80 CPC has to come with clean hands, otherwise he is not entitled to any relief.
vii) It is also argued by Dr. Singhvi that having entered into a Franchise Agreement (read with the Management Agreement and the Supplementary Agreement), defendants No.1 and 2 are bound by the terms of the said Agreements, especially the non-compete clauses, and as such are committing breach of the said agreements. The defendants have opened up a salon under the mark HAIRMASTERS in order to compete with the business of the plaintiff in the same neighbourhood where the franchise business was being carried out by the defendants. It is stated by Dr. Singhvi that the competing business has been set up by defendants No.1 and 2, by utilizing and/or misappropriating the confidential information, including even not limited to the Operations Manual which was shared with the said defendants but the similar kind of modus operandi used by them in order to earn easy profits on the goodwill of the plaintiff. Four photographs have been filed to the comparative pictures of Ozone Salon and Hairmasters Salon and pictures of Ozone Salon, Defence Colony and Ozone Salon, Punjabi Bagh.
17. Dr. Singhvi in support of his submissions has referred the following decisions (topic-wise) and submits that although the statement was made on behalf of defendants that if as per the agreements the services of salon were permitted, then the Clauses of negative covenants and non-compete clause would apply. It is settled that during the subsistence of contract would not be normally regarded as restraint of trade. He referred the following decisions:
CS(OS) No.1815/2015 Page 27 of 801. M/s. Gujarat Bottling Co. Ltd. and Ors. vs. Coca Cola Company and Ors., (supra) Para 33, 34, 36, 45 and 50.
2. Wipro Ltd vs. Beckman Coulter International S.A., 131 (2006) DLT 681. Para 21, 26, 47 and 48.
3. FL Smidth Pvt. Ltd vs. Secan Invescast (India) Pvt. Ltd., 2013(1)CTC 886.
4. Independent News Service Pvt. vs. Mr. Anuraag Muskaan., 2013 (199) DLT 300. Para 23, 30, 31, 44.
It is also stated that the Court no doubt is to interpret the clause of agreements but also the intention and conduct of the parties. Counsel has relied upon the following judgments in support of his submission:
1. Abdulla Ahmed vs. Animendra Kissen Mitter., AIR 1950 SC 15, para 27.
2. The Godhra Electricity Co. Ltd. and Anr vs. State of Gujarat and Anr., (1975) 1 SCC 199, paras 11, 16 and 18.
3. Baker Hughes Limited & Ors. vs. Hiroo Khushalini, 1998 (2) Arb LR 273, paras 25, 31, 32, 38, 48 & 58.
4. Nathmal Jodharaj through LR's Ramesh Nathmal Agrawal vs. Chandrarao Vijaysingh Deshmukh., 2008 (2) MhLJ 691, para 9.
On estoppel by conduct of the party, the reliance is placed on the judgment of Tata Iron & Steel Co. Ltd. v. Union of India and Ors., (2001) 2 SCC 41, paras 20, 21 and 22.
18. I have gone through the pleading of the parties, documents placed on record, reports of the Local Commissioners as well as the rival submissions of the parties. Let me now discuss the points which fall for consideration in the present case in order to answer the submissions raised by the parties.
CS(OS) No.1815/2015 Page 28 of 8019. The parties rely upon three agreements viz. Franchise Agreement, management agreement and supplementary agreement to contend that there exists breach or no breach of the terms of the agreement as Salon service does or does not fall within the ambit of the agreements entered between the parties. Therefore, it is necessary to first consider the relevant terms of the agreements that are reproduced and discussed below which would throw some light on the intention of the parties at the time of the entering of the agreements. The said terms are :
I. Firstly there was a franchise agreement dated 5th November 2012 entered between the plaintiff and defendants. The relevant terms of the said agreement are discussed below:
a) The recital A of the franchise agreement states that the plaintiff/ franchisor is engaged in the business of creating, marketing and selling facilities of fitness clubs, spa and hair care salons in India. The services offered by the franchisor are related to the category of fitness and wellness business which include the services describe in Annexure A.
b) The recital B of the agreement reads that the Franchisor is the absolute owner of the intellectual property as described in Annexure-B of Ozone brand, mark and logo and operate the Business in accordance with a fully owned distinctive system, plan, utilizing and comprising certain proprietary marks, confidential information, standards, specifications, techniques, identifying schemes and materials, insignia, arrangement method and standard operational procedures CS(OS) No.1815/2015 Page 29 of 80 and the Franchisor has expended substantial time, effort and money in the development and implementation of the same.
c) The recital G of the agreement reads that the franchisor on being satisfied with the financial capabilities of the franchisee is willing to grant the franchise the franchisee to establish, run and operate the fitness center services as given in Annexure A by utilizing the intellectual property and therefore both the parties have discussed and agreed to the basic terms subject to the conditions set out below.
II. Thereafter, the Franchise Agreement provides for definitions and interpretation clause which provides certain definitions and the relevant ones are reproduced herein below:
a) "Agreement" has been defined as the meaning stated in the recitals and includes the schedules, exhibits and other addenda thereto.
b) "Franchise Business" has been defined as the franchised business of the fitness club and spa as per Annexure A to be run and operated by the Franchisee in accordance with the system and standards under the proprietary marks of the franchisor......
III. After the definition clause, the clause 2 provides for the grant of the rights wherein clause 2.1 reads as under:
"2.1 Upon the representations of the Franchisee that it has the requisite experience, knowledge, qualification, skill and financial capability to carry out its obligations under this Agreement, the Franchisor hereby grants to the Franchisee CS(OS) No.1815/2015 Page 30 of 80 and the Franchisee hereby accepts the non-exclusive, non- transferable, non-assignable franchise to establish, run and operate the Franchised Business in the Territory as per the Systems and Standards and under the Intellectual Property of the Franchisor, during the terms of this Agreement. Franchisee's rights under the Agreement are limited as provided under the Agreement and the Franchisee does not have the right to sub-franchise or sub-license the rights granted under this Agreement to any third person."
20. From the reading of the recitals of the agreement, definition clauses reproduced herein above and also the clause relating to grant of the licence/franchise as per clause 2.1 under the Franchise Agreement collectively, the following position emerges uptil the said reading of the clauses :
i. Though the business activities of the franchisor/ plaintiff has been described in recital A as covering the business of the fitness club, spa and hair salons, the relevant places of the agreement uses the term "fitness club and spa" in connection with the franchised business as well as at the places of the grant.
ii. The use of the term "hair salons" in recital A atleast makes both the parties including the franchisee aware of the scope of the business activities of the franchisor which includes the business of the hair salons. Although, it is altogether different matter whether the said business of salon is actually covered within the ambit of the franchised business under the agreement or not.CS(OS) No.1815/2015 Page 31 of 80
iii. The definition of the agreement makes it apparent that the agreement means recitals and includes schedules and exhibits. Thus, the schedules and exhibits shall be considered as the part of the agreement as the recitals and other clauses. The relevance of the same shall be discussed later on under this head.
iv. The definition of the franchised business again makes it clear that the same means the franchised business of fitness club and spa as per Annexure A to be run and operated by the franchisee. The said definition though uses the terms fitness club and spa in unambiguous terms also connects the franchised business with that of Annexure A to the agreement. Thus, Annexure A to the agreement has some relevance to define the scope and limits of the franchised business and this much is clear from the reading of the definition of the franchised business. (This aspect is not undisputed as both the parties place reliance upon Annexure A to the agreement. The defendant placed heavy reliance on Annexure A to contend that the business of the salon was expressly excluded from the scope of the agreement) v. Likewise, the clause 2.1 provides for the grant of the rights, which reads that the franchisor has granted the franchisee the non exclusive, non transferable, non assignable franchise to establish, run and operate the franchised CS(OS) No.1815/2015 Page 32 of 80 business in the territory. In the said clause, the term used in connection with the grant is "franchised business" which can be connected with the definition clause of the agreement to state the said grant relates to the franchised business of the fitness club and spa as per Annexure A as defined under the definition clause.
21. Thereafter, in the Franchisee Agreement, there are some more clauses which require discussion and analysis which are reproduced herein below:
a) Clause 5.2 "The Franchisee shall not operate, run, conduct or offer any services as are directed in Schedule A or any other cognate / allied goods / services during the term of the Agreement either directly or indirectly through itself, its directors, its promoters and/or their family members within or outside the territory except as permitted under this Agreement.
b) Clause 5.3 The Franchisee will not allow the Premises used for the Franchised Business under this Agreement for undertaking any other trade or business or activities other than the Franchised Business."
s
c) Clause of Non-Competition
Clause 17.1
Neither the Franchisee nor the individuals (a sole proprietor/ partner / associate) shall during the term of the Franchisee and FOR THREE MORE YEARS AFTER CS(OS) No.1815/2015 Page 33 of 80 TERMINATION/EXPIRY DATE OF THE AGREEMENT:
a) Carry on, own, engage in, be employed by, provide assistance to, or have any interest in any other similar or competing Franchised Business as in schedule A. If, after the termination of the Franchise Agreement, franchisee carries on the same business he shall have to pay to the Franchisor a sum of Rs. 1.00 Crore.
b) Employ employees from the Franchisor or other Franchisees.
c) Use or disclose Confidential Information for any purpose other than a purpose set out in this Agreement.
d) Clause 17.2 says that 17.2 Neither Franchisee nor any Person bound by the restrictions of this clause may circumvent such restrictions by engaging in prohibited activity indirectly through any other person or entity.
e) ANNEXURE A which is part of Franchisee
Agreements is necessary to be referred to :
'FRANCHISED BUSINESS'
Franchisor shall grant the Franchisee the rights, for a term of the franchise agreement, to operate franchised business of Fitness Club and Spa for men and women, to be run and operated by the Franchisee in accordance with the System and Standards under the Proprietary Marks of the Franchisor.
The franchise business includes:
- Gym Membership
CS(OS) No.1815/2015 Page 34 of 80
- Personal Training
- Group Exercise (Aerobic, Spinning, Kick boxing,
Jumba, Yoga, etc.)
- Massage Therapy
- Spa Packages
- Nutrition Package
- Business generated in the Food Cafe operated in
the club.
- The sale of various merchandise on offer in the
club, if applicable.
- Any other business activities carried out in the
club, duly permitted by the Franchisor from time to time.
As the franchisor is also engaged in the business of skin care, beauty care, hair care salon and if the franchisee opts to enter into this business he shall essentially be required to apply for separate franchise for salon business with the Franchisor and pay to the Franchisor the prescribed Franchise Fee separately. The Franchise business shall be executed strictly as per the Standard Operating Procedures (SOPs) prescribed by the Franchisor for the purpose, any deviation is not permitted unless the prior consent of the Franchisor is taken thereon."
22. From the combined reading of clauses 5.2, 5.3, clause 17 relating to non competition clause and Annexure A which can be said to be another set of the clauses contained in the Franchise Agreement, the following position emerges:
a) Firstly that all these clauses 5.2, clause 17 provides for the negative covenants and state that the franchisee shall not operate, run or conduct or offer any services or carry on or CS(OS) No.1815/2015 Page 35 of 80 engage in or have any interest in franchised business as Schedule A. These two clauses while providing prohibitory nature of the acts clearly connects the franchised business with that of Annexure A or Schedule A of the agreement.
Therefore, there are clauses under the agreement wherein expression "franchised business" is either used as solely without reference to Annexure A like clause 2.1 relating to grant and other places under the agreement. As against the same, there are clauses like 5.2, clause 17 which immediately connects the acts and businesses defined under Annexure A/Schedule A under the agreement as the acts which the franchisee is prevented to do under the agreement or any similar competing business. Thus, the annexure A/Schedule A has an inextricable nexus with that of the clauses contained in the agreement and thus cannot be totally severed from the agreement in order to give full effect to the clauses contained in the agreement.
b) The reading of the Annexure A/schedule A to the agreement which is considered to be part of the agreement as per the definition of the agreement, it becomes clear that the Annexure A provides the extended definition of the expression Franchised business. This can be seen while comparing the definition of franchised business as provided under the definition clause which describes franchised business as "means franchised business of fitness club and spa" with that of the definition of franchise business CS(OS) No.1815/2015 Page 36 of 80 which as per schedule A includes "Gym Membership, personal training etc. any other business activities carried out in the club duly permitted by the franchisor from time to time." Thus, in totality the reading of the Annexure A along with the definition of expression 'Franchised business' would make the said definition inclusive in nature which may include any other business activities carried out in the club duly permitted by the franchisor from time to time. The said aspect is significant especially considering the term of the agreement which is 12 years from the date of the agreement and thus the franchised business by the very definition read with Annexure A under the agreement would not merely be confined to the acts of fitness center and spa but would also include any other business activities permitted by the franchisor in future from time to time to be carried out within the club. This also means that the definition of the expression franchised business is not static in nature as on the date of the execution of the agreement but would also include all the acts which the franchisor may agree to permit the franchisee to carry out within the club after forming the consensus with the franchisee even after the date of the execution of the agreement as this inclusive definition of franchised business as business duly permitted by the franchisor from time to time leave a room within the scope to cover future permitted acts.
CS(OS) No.1815/2015 Page 37 of 80c) The later part of the Annexure A also provides that the franchisor is engaged in the business of skin care, beauty care, hair care salon and if the franchisee opts into this business, he shall essentially be required to apply for the separate franchise of the salon business with the franchisor and pay to the franchisor the prescribed fee separately. This clause in Annexure A mandates that the franchisee is required to opt for the business of the salon and he shall require for separate franchise for the salon business and shall pay prescribed franchise fee separately.
23. The above were certain relevant clauses of the Franchise Agreement dated 5th November 2012, which would come in the aid of answering the contentions raised by the parties. I shall now proceed to discuss the relevant clauses of Management Agreement dated 1st April 2013 which were entered into subsequent to the execution of Franchise Agreement dated 5th November 2012. The relevant terms of the Management Agreement are reproduced herein below:
"2. The salary of the General Manager/Center Manager/Business Head as mentioned in Clause 1 shall be paid by the "FIRST PARTY" post achieving a total business turnover of Rs.3.00 crores inclusive of all taxes, at the Fitness Center of "SECOND PARTY". Total business turnover shall consist of total sales realized from fitness club memberships, personal training, revenue from salon services, spa services, revenue generated from all promotional services and from the "franchised business" as mentioned in schedule A of the franchised agreement dated: 5th November 2012 and any other revenue CS(OS) No.1815/2015 Page 38 of 80 generated out of any other business activities conducted in the fitness center.
3. The "SECOND PARTY" shall be liable to pay the salary of the General Manager/Center Manager as mentioned in clause 1 until the turnover exceeds Rs.3.00 crores as mentioned in clause 2.
4. An amount equal to 8% of the total business turnover shall be payable to the "FIRST PARTY" by the "SECOND PARTY" after the business turnover of the fitness center exceeds Rs.3.00 crores (inclusive of all applicable taxes) as mentioned in clause 2. This amount shall be payable latest by the 5th day of every next month following the month in which the sales occur."
24. The reading of the clause 2 of the Management Agreement dated 1st April, 2013 makes it clear that the position as it existed between the parties in the year 2013 clearly mandated the parties, in particular the defendants to share the revenue of the businesses done by the defendants on behalf of the plaintiff. The said business also included the Salon business. The clause 2 again provides that the total business turnover shall include the revenue from Salon and any other revenue generated out of any other business activities conducted in the fitness center. Therefore, in April, 2013, the Management Agreement obligated the defendants who were party of the second part to share the revenue of the salon business or any other business carried out at the fitness center with that of the party of the first part.
25. Sequentially, as the events so transpired in the month of November, 2013, the defendants operated the Salon under the name CS(OS) No.1815/2015 Page 39 of 80 and style of the OZONE at the basement of the same premises located at 23, NWA, Punjabi Bagh, New Delhi and proceeded to continue to operate the same atleast uptil December 2014. Though, it is case of the plaintiff that the defendants continued to operate the OZONE Spa even as on March, 2015 or immediately prior to the incorporation of the defendants company namely Headmaster Salon Pvt. Ltd. in the month of May, 2015. It was put to the counsel for the defendants in the Court as to whether the defendants have ever operated salon under the name and style of OZONE at the premises located at 23, NWA, Punjabi Bagh, New Delhi where the fitness center and Spa of the franchised business is located, the learned counsel for the defendants responded that the business of OZONE Salon was carried on between December, 2013 to December, 2014 thereafter, the defendants proceeded to wind up the said business. However, as per the case of the defendants the royalty/revenue sharing of the said business was only done for the period of 3 months and not thereafter as the said business was not falling within the scope of the Franchise Agreement dated 5th November 2012. The plaintiff controverted this position by informing that the royalty/ revenue sharing was done by the defendants for all along uptil the entering of the Supplementary Agreement dated 29th March 2014.
26. The Supplementary Agreement dated 29th March 2014 further modified the financial terms between the parties and the relevant clauses 2 to 5 are reproduced herein below :
"2. WHEREAS the "PARTY OF THE FIRST PART" and "PARTY OF THE SECOND PART" had detailed CS(OS) No.1815/2015 Page 40 of 80 discussions for granting franchise to M/s. Co-incept Hospitality Pvt. Ltd. at Rajouri Garden, New Delhi and "PARTY OF THE SECOND PART" has no objection since the "PARTY OF THE SECOND PART" has not exercise its right as stipulated in the Franchise Agreement dated 5th November, 2012. However, "PARTY OF THE FIRST PART" agrees that no new franchisee shall be granted in Punjabi Bagh, subject to the condition that "PARTY OF THE SECOND PART" shall not violate the terms of the original Franchise Agreement dated 05th November, 2012.
3. WHEREAS it has been agreed by "PARTY OF THE SECOND PART" that, with effect from 1st March 2014, a fixed Franchise Fees of Rs.2,10,000/- per month plus service tax and other taxes will be paid to the "PARTY OF THE SECOND PART" which is payable by 5th of every month till the Franchise Agreement subsists between "PARTY OF THE FIRST PART" AND "PARTY OF THE SECOND PART".
4. WHEREAS the payment of Rs.2,10,000/- plus service tax and other taxes to the "PARTY OF THE SECOND PART" every month is irrevocable and non- negotiable.
5. WHEREAS the "PARTY OF THE SECOND PART"
has undertaken to give standing instructions to its Bankers for transfer of the Franchise fees of Rs.2,10,000/- plus service tax and other taxes every month to the "PARTY OF THE SECOND PART" by 15th of every month. Copy of the standing instructions form annexed."
In the said Supplementary Agreement the following terms are also mentioned :
"whereas the management agreement entered on 1st April, 2013 will be abrogated on signing this agreement between the parties with immediate effect."
"whereas it is expressly stipulated between the party of first part and party of the second part that all other terms and CS(OS) No.1815/2015 Page 41 of 80 conditions of the franchise agreement dated 5th November 2012 will remain valid and continue to be fully enforceable."
27. From the reading of the aforementioned clause contained in the Supplementary Agreement, the following position emerges :
a) That the Supplementary Agreement altered the financial terms between the party of the first part and the second part as the plaintiff and defendants by fixing the royalty as Rs.
210000/- per month instead of the revenue sharing of the business activities as mentioned in the Management Agreement earlier.
b) The Management Agreement dated 1st April 2013 is stated to be abrogated in terms of the Supplementary Agreement. These are the two discerning points, which emerge from the fair reading of the clauses of the Supplementary Agreement dated 29th March 2014.
28. Now, if one were to examine the combined effect of the three agreements as they existed at the relevant time and to put the things in perspective in view of the happenings of the events so transpired sequentially, the same can be done by arranging and analysing them in the following manner :
a) No doubt that the Franchise Agreement dated 5th November 2012 between the plaintiff and defendants grants the franchise to the defendants to operate the fitness center and spa for the period of 12 years. The definition of the expression of 'Franchised business' read alongside with the Annexure A clearly covers any other business activities CS(OS) No.1815/2015 Page 42 of 80 carried out in the club, duly permitted by the franchisor from time to time. Thus, the definition of the franchise business was not static as on 5th November 2012 but can also include the further permission which can be granted by the plaintiff to the defendants by mutually forming the consensus.
b) It is also true that as on the date of execution of the agreement dated 5th November 2012, the business of Salon was not included in the franchise business and it was left to the option of the defendants/ franchisee to opt to enter into this business and for which he can apply for separate franchisee for salon business and pay the fees separately in this respect. This position was existing as on 5th November 2012.
c) Even if it is to be assumed that the franchise business as on 5th November 2012 did not explicitly contain the word "Salon"
within its sweep, still the definition of the franchise business on the combined reading of Annexure A and the definition clause clearly permits any other business activities to be carried on in the club duly permitted by the franchisor from time to time. This business activity would include the activity of Salon to be carried on in the premises of the club as the Salon is ancillary and connected activity to be carried out in the club only.
d) Consequently, by entering into the Management Agreement dated 1st April 2013 which is in continuation of the Franchise Agreement dated 5th November 2012 containing the express CS(OS) No.1815/2015 Page 43 of 80 provision/ clause for revenue sharing for Salon activities and any other business activity by virtue of its clause 2 would be clearly termed as option of entering into salon exercised by the defendants which was duly availed by the defendants as the franchisee by opening the Salon in the month of December 2013 later and paying the royalty/ revenue sharing as acknowledged by the defendants through its counsel as recorded above. The said business activity is in turn permitted by the plaintiff by entering into Management Agreement dated 1st April 2013 which is in continuation of the Franchise Agreement and nowhere effected the Franchise Agreement and rather acknowledged that the terms of the Franchise Agreement would continue to bind the parties. In such circumstances, the business activities of the Salon though initiated later on in November/December 2013 but in consonance with the management agreement dated 1st April 2013 which provides for revenue sharing for Salon would thus fall within the ambit of the Annexure A to the agreement dated 5th November 2012 as the activity permitted by the plaintiff as licensor/franchisor to the defendants as a franchisee and the same was also acted upon between the parties by opening of the Salon in the month of November/December 2013 pursuant thereto and thus would fall in the inclusive definition of franchise business permitted from time to time. It is also pertinent to mention that as the said permission is given by the plaintiff during the CS(OS) No.1815/2015 Page 44 of 80 subsistence of the term of 12 years of Franchise Agreement and thus would be termed as valid permission in terms of the agreement and would fall within the ambit of the franchised business.
e) The plea of the defendants that the Salon business was excluded and was at the option of the defendants wherein the defendants as a franchisee has to apply for separate franchise for Salon business and pay separate prescribed fee for the same is not satisfied in the present case and is also unsustainable. This is due to the reason that it is true that the Annexure A provided for such provision to opt for entering into the business of Salon by the defendants/franchisee by seeking the permission separately and pay separate fees. However, the mere fact that the said permission was required to be sought separately does not imply that the said franchise has to be necessarily form the subject matter of the separate agreement dehors the franchise agreement dated 5th November 2012 and more so when the definition of the franchise business is inclusive enough to cover any other business activities carried out in the club duly permitted by the franchisor from time to time.
f) It is a settled principle of law that one has to give the effect to each and every clause of the agreement so as to make the agreement workable and no clause of the agreement should be left redundant or dead letter or inoperative or otiose and the interpretation to the effect of making the clauses CS(OS) No.1815/2015 Page 45 of 80 operational should be preferred over the one which leads to redundancy. Applying the said principle of law to the facts of the present case, once there exists a definition of the franchised business clearly allowing any other business activity to be carried out at the club and simultaneously mandated the franchisee to separately apply for the franchise for the salon business and pay the prescribed fee separately, it does not imply that the salon activity cannot be applied separately by the defendants as a franchisee and the same cannot be permitted by the plaintiff as franchisor within purview of the same agreement. The fact that the defendants proceeded to enter into the Management Agreement in continuation of the Franchise Agreement with the plaintiff dated 1st April, 2013 containing the express provision of revenue sharing of the Salon business and later on also proceeded to open the Salon in the month of December, 2013 under the mark OZONE in terms of the said permission and thereafter paid the royalty/revenue sharing under the separate head of the Salon business is sufficient compliance of the last paragraph of Annexure A. After all, the last paragraph of Annexure A never contemplated a separate agreement and only provided a separate permission and separate fees. Therefore, the plea of the defendants that the franchised business does not include Salon business as it was expressly excluded is untenable. The same was never excluded but it was only agreed that the permission was CS(OS) No.1815/2015 Page 46 of 80 required separately and the same was given later on which was availed of by the defendants themselves.
g) Even in practice and implementation the Salon activity is not such which is treated totally outside or alien to the activity of fitness and spa. The pictures of the hoardings/ premises of the defendants produced along with the list of the documents show that intention of the parties is to treat the business fitness, salon and spa together and collectively. This can be seen from the local commissioners' report wherein outside the building it is prominently written "OZONE" "FITNESS SALON SPA" prominently and all these activities are run within the same premises and connected to each other. In such circumstances, treating the business of Salon as something which is totally divorced from the Fitness and SPA as something which would be requiring a totally new agreement when the said activities are the one which can be categorised as any other business activities to be carried out at the club would be totally impracticable and would be against the will of the parties when the parties understood the said businesses are to be carried out at the same premises within the same club though at the different floors. Therefore, the said view of terming a "separate franchise" existing in Annexure A as something warranting different agreement and thus cannot be falling within the same agreement when parties were at ad idem at the relevant time between 2013 to CS(OS) No.1815/2015 Page 47 of 80 2014 and the Franchise Agreement permits so would be far fetched and cannot be accepted.
h) It is also true that the Management Agreement was abrogated by virtue of the entering into Supplementary Agreement dated 29th March 2014. However, the said abrogation merely altered the financial terms between the parties from paying the royalty from percentage basis of the turnover of the respective businesses to fixed royalty/ fees. The said alteration nowhere again excludes the payment towards the Salon business which was earlier also paid by the defendants to the plaintiff in the intervening period between December 2013 uptil the entering of the Supplementary Agreement. Once, the defendants agreed to pay the royalty or revenue sharing towards salon business under the Management Agreement, the Supplementary Agreement which substituted the Management Agreement would implicitly inferred to include the will/ consensus between the parties towards payment of the royalty for Salon business as well. This is more so when both the parties formed consensus to proceed to go ahead with the working arrangement, then it shall be deemed that the fixed royalty/ fee computed under the Supplementary Agreement would include the fees for Salon business as well. No contrary inference can be drawn in the absence of any stipulation speaking to the contrary in the Supplementary Agreement.
CS(OS) No.1815/2015 Page 48 of 80i) Further, the mere abrogation of the Management Agreement as on date does not deprive the Court to analyse the events so transpired between the parties in the past and at the relevant time nor does it wipe out the consent provided by the defendants agreeing to share the revenue for the Salon business between 2013 uptil the entering into the Supplementary Agreement dated 29th March 2014. The said consensus ad idem was understood by both the parties and the defendants in fact thereafter open the Salon business on behalf of the plaintiff and thereafter acted upon the terms of the Management Agreement by paying the royalty/ sharing the revenue with the plaintiff for whatsoever months be it 12 or 13 which is disputed point between the parties. But the fact remains that both the parties understood the agreement in the same manner and proceeded on the same lines. It is altogether different matter that later on dispute arose between the parties resulting into entering of the Supplementary Agreement. All this makes it clear that the Salon business was considered as the part of the management agreement entered into between the parties which is a continuation of the franchise agreement and was acted upon by the parties. This also answers the plea of the defendants that Salon business was run by the defendants on adhoc understanding between the parties. The answer is that it was never the oral or adhoc understanding between the parties but due to contractual obligations contained in the CS(OS) No.1815/2015 Page 49 of 80 management agreement which mandated the defendants to open the Salon and pay the royalty as well under the separate head till the time of entering into the supplementary agreement.
j) The following decisions are referred by the plaintiff's counsel on this issue:-
i. In Abdulla Ahmed vs. Animendra Kissen Mitter (supra) it was held as under:
"27. The subsequent conduct of both the parties to the agreement very strongly supports this view. The evidence of such conduct is relevant in this case because, as pointed out by Viscount Simon, L.C., in the case already referred to, the phrase "finding a purchaser" is itself not without ambiguity. Here the phrase is "securing a purchaser". This phrase similarly is not without ambiguity. The evidence of conduct of the parties in this situation as to how they understood the words to mean can be considered in determining the true effect of the contract made between the parties. Extrinsic evidence to determine the effect of an instrument is permissible where there remains a doubt as to its true meaning. Evidence of the acts done under it is a guide to the intention of the parties in such a case and particularly when acts are done shortly after the date of the instrument. (Vide para 343 of Hailsham Edn. of Halsbury, Vol. 10, p. 274)."
ii. In The Godhra Electricity Co. Ltd. and Anr. Vs. State of Gujarat and Anr. (supra) it was held as under :
"11. In the process of interpretation of the terms of a contract, the court can frequently get great assistance from the interpreting statements made CS(OS) No.1815/2015 Page 50 of 80 by the parties themselves or from their conduct in rendering or in receiving performances under it. Parties can, by mutual agreement, make their own contracts; they can also by mutual agreement remake them. The process of practical interpretation and application, however, is not regarded by the parties as a remaking of the contract; nor do the courts so regard it. Instead, it is merely a further expression by the parties of the meaning that they give and have given to the terms of their contract previously made. There is no good reason why the courts should not give great weight to these further expressions by the parties, in view of the fact that they still have the same freedom of contract that they had originally. The American Courts receive subsequent actings as admissible guides in interpretation. It is true that one party cannot build up his case by making an interpretation in his own favour. It is the concurrence therein that such a party can use against the other party. This concurrence may be evidence by the other party's express assent thereto, by his acting in accordance with it, by his receipt without objection of performances that indicate it, or by saying nothing when he knows that the first party is acting on reliance upon the interpretation (see Corbin on Contracts, Vol. 3, pp.249 & 254-56).
16. We are not certain that if evidence of subsequent acting under a document is admissible, it might have the result that a contract would mean one thing on the day it is signed but by reason of subsequent event it would mean something a month or year later. Subsequent "interpreting" statements might not always change the meaning of a word or a phrase. A word or a phrase is not always crystal clear. When both parties subsequently say that by the word or CS(OS) No.1815/2015 Page 51 of 80 phrase which, in the context, is ambiguous, they meant this, it only supplies a glossary as to the meaning of the word or phrase. After all, the inquiry is as to what the intention of the parties was from the language used. And, why is it that parties cannot clear the latent ambiguity in the language by a subsequent interpreting statement? If the meaning of the word or phrase or sentence is clear, extrinsic evidence is not admissible. It is only when there is latent ambiguity that extrinsic evidence in the shape of interpreting statement in which both parties have concurred should be admissible. The parties themselves might not have been clear as to the meaning of the word or phrase when they entered into the contract. Unanticipated situation might arise or come into the contemplation of the parties subsequently which would sharpen their focus and any statement by them which would illuminate the darkness arising out of the ambiguity of the language should not be shut out. In the case of an ambiguous instrument, there is no reason why subsequent interpreting statement should be inadmissible.
"The question involved is this: Is the fact that the parties to a document, and particularly to a contract, have interpreted its terms in a particular way and have been in the habit of acting on the document in accordance with that interpretation, any admissible guide to the construction of the document? In the case of an unambiguous document, the answer is 'No.' (See Odgers' Construction of Deeds and Statutes, 5th Edn. by G. Dworkin, pp. 118-19)."
But, as we said, in the case of an ambiguous one, the answer must be "yes". In Lamb v. Goring Brick Co. [(1932) 1 KB 710, 721] a selling agency contract contained the words "the price shall be CS(OS) No.1815/2015 Page 52 of 80 mutually agreed". Documents showing the mode adopted for ascertaining the price were put in evidence without objection. In the court of appeal Greer, L.J. said:
"In my opinion, it is not necessary to consider how this contract was acted on in practice. If there had been an ambiguity and the intention of the parties had been in question at the trial, I think it might have been held that the parties had placed their own construction on the contract and, having acted upon a certain view, had thereby agreed to accept it as the true view of its meaning."
18. In these circumstances, we do not think we will be justified in not following the decision of this Court in Abdulla Ahmed v. Animendra Kissen Mitter [AIR 1950 SC 15 : 1950 SCR 30, 46] where this Court said that extrinsic evidence to determine the effect of an instrument is permissible where there remains a doubt as to its true meaning and that evidence of the acts done under it is a guide to the intention of the parties, particularly, when acts are done shortly after the date of the instrument."
iii. In Tata Iron & Steel Co. Ltd. Vs. Union of India and Ors. (supra) it was held as under :
"20. Estoppel by conduct in modern times stands elucidated with the decisions of the English Courts in Pickard v. Sears [(1837) 6 Ad & El 469] and its gradual elaboration until placement of its true principles by the Privy Council in the case ofSarat Chunder Dey v. Gopal Chunder Laha [(1891-92)
19 IA 203 : ILR 20 Cal 296] whereas earlier Lord Esher in the case of Seton. Laing Co. v. Lafone [(1887) 19 QBD 68 : 56 LJQB 415 :
CS(OS) No.1815/2015 Page 53 of 8057 LT 547 (CA)] evolved three basic elements of the doctrine of estoppel to wit:
"Firstly, where a man makes a fraudulent misrepresentation and another man acts upon it to its true detriment: Secondly, another may be where a man makes a false statement negligently though without fraud and another person acts upon it: And thirdly, there may be circumstances under which, where a misrepresentation is made without fraud and without negligence, there may be an estoppel."
Lord Shand, however, was pleased to add one further element to the effect that there may be statements made, which have induced other party to do that from which otherwise he would have abstained and which cannot properly be characterised as misrepresentation. In this context, reference may be made to the decisions of the High Court of Australia in the case of Craine v. Colonial Mutual Fire Insurance Co. Ltd. [(1920) 28 CLR 305] Dixon, J. in his judgment in Grundt v. Great Boulder Gold Mines Pty. Ltd. [(1939) 59 CLR 641] stated that:
"In measuring the detriment, or demonstrating its existence, one does not compare the position of the representee, before and after acting upon the representation, upon the assumption that the representation is to be regarded as true, the question of estoppel does not arise. It is only when the representor wished to disavow the assumption contained in his representation that an estoppel arises, and the question of detriment is considered, accordingly, in the light of the position which the representee would be in if the representor CS(OS) No.1815/2015 Page 54 of 80 were allowed to disavow the truth of the representation."
(In this context see Spencer Bower and Turner: Estoppel by Representation, 3rd Edn.) Lord Denning also in the case of Central Newbury Car Auctions Ltd. v. Unity Finance Ltd. [(1956) 3 All ER 905] appears to have subscribed to the view of Lord Dixon, J.
pertaining to the test of "detriment" to the effect as to whether it appears unjust or unequitable that the representator should now be allowed to resile from his representation, having regard to what the representee has done or refrained from doing in reliance on the representation, in short, the party asserting the estoppel must have been induced to act to his detriment. So long as the assumption is adhered to, the party who altered the situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs, the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment (vide Grundts: High Court of Australia [(1939) 59 CLR 641] ).
21. Phipson on Evidence (14th Edn.) has the following to state as regards estoppels by conduct.
"Estoppels by conduct, or, as they are still sometimes called, estoppels by matter in pais, were anciently acts of notoriety not less solemn and formal than the execution of a deed, such as livery of seisin, entry, acceptance of an estate and the like, and whether a party had or had not concurred in an act of this sort was deemed a CS(OS) No.1815/2015 Page 55 of 80 matter which there could be no difficulty in ascertaining, and then the legal consequences followed. (Lyon v. Reed [(1844) 13 M&W 285] M&W at p. 309). The doctrine has, however, in modern times, been extended so as to embrace practically any act or statement by a party which it would be unconscionable to permit him to deny. The rule has been authoritatively stated as follows: 'Where one by his words or conduct wilfully causes another to believe the existence of a certain state of things and induces him to act on that belief so as to alter his own previous position, the former is concluded from averring against the latter a different state of things as existing at the same time.' (Pickard v. Sears [(1837) 6 Ad & El 469] A&E at p. 474). And whatever a man's real intention may be, he is deemed to act wilfully 'if he so conducts himself that a reasonable man would take the representation to be true and believe that it was meant that he should act upon it'. (Freeman v. Cooke [(1848) 2 Exch 654 : 18 LJEx 114] : Exch at p. 663) Where the conduct is negligent or consists wholly of omission, there must be a duty to the person misled (Mercantile Bank v. Central Bank [1938 AC 287 : (1938) 1 All ER 52 : 107 LJPC 25 : 158 LT 269 (PC)] AC at p. 304 and National Westminster Bank v. Barclays Bank International [1975 QB 654 : (1974) 3 All ER 834 :
(1975) 2 WLR 12] ). This principles sits oddly with the rest of the law of estoppel, but it appears to have been reaffirmed, at least by implication, by the House of Lords comparatively recently (Moorgate Mercantile Co. Ltd. v.Twitchings [1977 AC 890 : (1976) 2 All ER 641 : (1976) 3 WLR 66 (HL)] ). The explanation is no doubt that this aspect of estoppel is properly to be considered a CS(OS) No.1815/2015 Page 56 of 80 part of the law relating to negligent representations, rather than estoppel properly so-
called. If two people with the same source of information assert the same truth or agree to assert the same falsehood at the same time, neither can be estopped as against the other from asserting differently at another time (Square v. Square [1935 P 120 : 104 LJP 46 :
153 LT 79] )."
22. A bare perusal of the same would go to show that the issue of an estoppel by conduct can only be said to be available in the event of there being a precise and unambiguous representation and on that score a further question arises as to whether there was any unequivocal assurance prompting the assured to alter his position or status. The contextual facts however, depict otherwise. Annexure 2 to the application form for benefit of price protection contains an undertaking to the following effect :
"We hereby undertake to refund to EEPC Rs ... the amount paid to us in full or part thereof against our application for price protection. In terms of our application dated against exports made during ... In the case any particular declaration/certificate furnished by us against our above-referred to claims are found to be incorrect or any excess payment is determined to have been made due to oversight/wrong calculation etc. at any time. We also undertake to refund the amount within 10 days of receipt of the notice asking for the refund, failing which the amount erroneously paid or paid in excess shall be recovered from or adjusted against any other claim for export benefits by EEPC or by the licensing authorities of CCI & C."CS(OS) No.1815/2015 Page 57 of 80
and it is on this score it may be noted that in the event of there being a specific undertaking to refund for any amount erroneously paid or paid in excess (emphasis supplied), question of there being any estoppel in our view would not arise. In this context correspondence exchanged between the parties are rather significant. In particular letter dated 30-11-1990 from the Assistant Development Commissioner for Iron & Steel and the reply thereto, dated 8-3-1991 which unmistakably record the factum of non-payment of JPC price."
29. All these judgments cited by Dr. Singhvi are relevant in the present case as the defendants cannot resile back after expressly agreeing to become a licensee/ franchisee under the Management Agreement which is in continuation of the Franchise Agreement and the said business agreed to would fall within the ambit of the franchised business under Annexure A to the Franchise Agreement.
30. The upshot of afore-noted events so transpired between the parties analysed alongside the terms of the agreements entered between the parties is that the Franchise Agreement dated 5th November 2012 would also include Salon business within the ambit of the franchise business as provided under the agreement along with Annexure A which leaves the room for inclusion of the future business activities to be carried out at the club from time to time to be permitted by the plaintiff. The said business activities of Salon were in fact allowed by the plaintiff to be carried on by the defendants between December, 2013 to December, 2014 or for that matter May 2015, when the defendants discontinued using Salon business under CS(OS) No.1815/2015 Page 58 of 80 the mark OZONE and on the contrary started diverting the customers to its own Salon under the mark HAIR MASTERS by inducing the customers visiting the clubs to offer them discounts or asking them to go the defendants salon under the mark Hair master during the subsistence of valid and subsisting arrangement between the plaintiff and defendants as franchisor and franchisee respectively under the franchised business. Thus, the said acts of the defendants by forming a new company under the name Hair Masters Salon Private Limited in the month of May 2015 and thereafter proceeding to do the business of salon services in neighbourhood in Punjabi Bagh and also creating misrepresentation by mixing up the franchised business with that of the defendants' own business is clearly in violation of the clause 5.2 which prohibits the defendants not to run or operate or offer any services described in Schedule A or within or outside the territory which is 4 kilometers from the specified location or outside. Further, the said business activities are also in violation of the non compete clause contained under clause 17.1 which prohibits the defendants to carry on, own or engage in or have any interest in any other similar or competing franchised business as in schedule A during the term of the agreement. Prima facie, the business activities of the defendants especially pursuant to forming of the company and proceeding to carry on their own business of Salon under the mark Hairmasters which is a competing business to that of the plaintiff and that to the detriment of the plaintiff and causing losses to the plaintiff is in the breach of the express terms of the franchise agreement including the non compete clause which is valid and subsisting.
CS(OS) No.1815/2015 Page 59 of 8031. As already mentioned in earlier part of this judgement that Mr.Dave, learned Senior counsel appearing on behalf of the defendants has fairly stated that if Court ultimately finds that the services of Salon are the subject of any agreement that the case is made out of negative covenant and the clause of non-compete would be applicable. It is already indicated in the analysis done by me above that the services of salon by virtue of entering into Management Agreement would be termed as franchised business under the Franchise Agreement in view of the non static definition of the expression franchised business under the Franchise Agreement leaving the room for permission for future business in the club. Considering the same, the injunction should follow or be confirmed as a matter of course considering the statement of Mr. Dave and my finding to the said effect. Still, I choose to deal with the said issue of negative covenant and non-compete clause which are imposed to the defendants in case of violation of the clause(s) of the agreements.
32. It is well settled principle of law that the negative covenants contained in the agreement which are aimed at to operate during the subsistence/ validity of the agreement in a commercial contract can be validly enforced and injunction for enforcement of the said covenant cannot be refused on the ground that the same are in restraint of the trade as the underlying purpose of the said negative covenant prohibiting the party to conduct the competing business is to serve the contractual relationship and there exists no such restraint of trade in such a case as the party so restricted is already doing the business as per commercial arrangement under the contract.
CS(OS) No.1815/2015 Page 60 of 8033. In Taprogge Gesellschaft MBH v. IAEC India Ltd., AIR 1988 Bombay 157, learned Single Judge of the Bombay High Court while explaining the reason why covenants pertaining to the duration of the contract was not in restraint of trade observed as under:-
"The distinction between the restraints imposed by a Contract, operative during the subsistence of the contract and those operative after the lifetime of the contract is of a fundamental character .... Generally speaking, the negative covenants operative during the term of the contract are not hit by S.27 of the Contract Act because they are designed to fulfil the contract and not to restrict them.... This distinction which is of a fundamental nature has to be borne in mind; otherwise the perspective will be lost.... the restraints which operate during the term of the contract have to fulfil one kind of purpose viz. Furthering the contract. On the other hand, the restraints operative after the termination of the contract strive to secure freedom from competition from a person who no longer works within the contract...." (Emphasis supplied)
34. Likewise, in the case of Wipro Limited vs Beckman Coulter International, (supra) the learned Single Judge of this Court after elaborately examining the decision of Gujarat Bottling case (supra) and other line of authorities on the subject of the restrictive covenant proceeded to summarise the legal position by observing as under:
"After a review of all the decisions of the Supreme Court and the High Courts, including this Court, the following points become clear:
i) Negative covenants tied up with positive covenants during the subsistence of a contact be it of employment, partnership, commerce, agency or the like, would not normally be regarded as being in restraint of trade, CS(OS) No.1815/2015 Page 61 of 80 business of profession unless the same are unconscionable or wholly one-sided;
ii) Negative covenants between employer and employee contracts pertaining to the period post termination and restricting an employee's right to seek employment and/or to do business in the same field as the employer would be in restraint of trade and, therefore, a stipulation to this effect in the contract would be void. In other words, no employee can be confronted with the situation where he has to either work for the present employer or be forced to idleness;
iii) While construing a restrictive or negative covenant and for determining whether such covenant is in restraint of trade, business or profession or not, the courts take a stricter view in employer-employee contracts than in other contracts, such as partnership contracts, collaboration contracts, franchise contracts, agency/distributorship contracts, commercial contracts.
The reason being that in the latter kind of contracts, the parties are expected to have dealt with each other on more or less an equal footing, whereas in employer- employee contracts, the norm is that the employer has an advantage over the employee and it is quite often the case that employees have to sign standard form contracts or not be employed at all;
iv) The question of reasonableness as also the question of whether the restraint is partial or complete is not required to be considered at all whenever an issue arises as to whether a particular term of a contract is or is not in restraint of trade, business or profession." (Emphasis Supplied)
35. Likewise, so far as the power to grant the injunction in the case of the negative covenant is concerned, it has been discussed by the Supreme Court in the case of Gujarat Bottling case at paragraph 45 observing as under:
CS(OS) No.1815/2015 Page 62 of 80"In India Section 42 of the Specific Relief Act, 1963 prescribes that notwithstanding anything contained in clause
(e) of Section 41, 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 performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement. This is subject to the proviso that the plaintiff has not failed to perform the contract so far as it is binding on him. The Court is, however, not bound to grant an injunction in every case and an injunction to enforce a negative covenant would be refused if it would indirectly compel the employee either to idleness or to serve the employer." (See : Ehrman v. Bartholomew (1898) 2 Ch 45): (1927) WN 233; N.S. Gohkari. (Emphasis supplied)
36. Applying the same principle of Gujarat Bottling (supra) to the facts of the case from time to time, the courts in India have proceeded to pass the interim injunction after evaluating the case from the standpoint of the prima facie case, balance of convenience, irreparable loss to the parties in the commercial contracts wherever the need be. Let me now evaluate the case of the parties in the present case. The plaintiff has prima facie case in the present case as the plaintiff is the licensor/ franchisor of the business, know how, intellectual property rights in relation to fitness center, spa and salon by way of the Franchising Agreement containing a non compete clause during the term of the agreement and even after the same. As indicated above, prima facie, by entering into the Management Agreement dated 1st April, 2013 containing the terms of revenue sharing of Salon services and thereafter by acting upon the same by CS(OS) No.1815/2015 Page 63 of 80 opening the Salon on behalf of the plaintiff, the defendants have agreed to become the licensee/ franchisee of the plaintiff and the said business would fall within the purview of the franchised business under Annexure A of the Franchisee Agreement dated 12th November 2012 in view of the inclusive definition of franchised business provided under the agreement. The balance of the convenience would also lie favour of the plaintiff and against the defendants as the defendants have been doing the business on behalf of the plaintiff for fitness services, spa and salon uptil recently when the defendants have incorporated its own company in May 2015 and also filed the trademark application claiming the use since April 2015 for Salon services. In such circumstances, the defendants would be less inconvenienced if they are prevented from doing the competing business of Salon services with that of the plaintiff in a valid and subsisting contract containing a non compete clause when they are recent entrant in the market. Rather, it would be in the interest of the fulfilment of the obligation under the commercial contract, if the defendants are directed to continue with the valid agreement between the plaintiff by not doing unfair competing business with that of the plaintiff. The irreparable loss would accrue to the plaintiff and even has already been accrued to plaintiff as the Salon services of the plaintiff has already suffered prejudicially from the acts of the defendants wherein the defendants have malafidely diverted customers of the plaintiff by inducing them to visit their own Salon instead of the plaintiff and have caused losses to the plaintiff and the further continuance of the same would cause further loss to CS(OS) No.1815/2015 Page 64 of 80 customer base and would enable the defendants to further flout the valid contract between the parties. On the contrary, there is no serious harm to the defendants, if they are directed to proceed in terms of the franchise agreement and not engage in to the competing business. Therefore, the present case is such where interest of the justice requires that the interim injunction should be granted to restrain the defendants from engaging themselves into any competing business with that of the plaintiff either directly or indirectly during the term of the contract especially when the defendants have signed commercial contract with open eyes and were following the terms of the agreement uptil recently when they became dishonest and started competing with the plaintiff in breach of the terms of the Franchise Agreement dated 5th November, 2012.
37. Let me now discuss the case of the passing off made out by the plaintiff. The passing off is an action in deceit where there are three ingredients which are required to be satisfied in order to make out the case of the tort of passing off which are goodwill, misrepresentation in the course of the trade and resultant damage occurred to the plaintiff. In order to determine whether the plaintiff has established the ingredients for successfully bringing an action for passing off it will be appropriate to advert to the broad principles of the law of passing off. In 'Kerly's Law of Trade Marks and Trade Names'- pages 42 and 43, paragraph 16-02, the concept of passing off is stated here as under:
"The law of passing-off can be summarised in one short general proposition -no man may pass off his goods as CS(OS) No.1815/2015 Page 65 of 80 those of another. More specifically, it may be expressed in terms of the elements which the plaintiff in such an action has to prove in order to succeed. These are three in number.
a) Firstly, he must establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the purchasing public by association with the identifying 'get-up' (whether it consists simply of a brand name or a trade description, or the individual features of labelling or packaging) under which his particular goods or services are offered to the public, such that the get-up is recognised by the public as distinctive specifically of the plaintiff's goods or services.
b) Secondly, he must demonstrate a misrepresentation by the defendant to the public (whether or not intentional) leading or likely to lead the public to belief that the goods or services offered by him are the goods or services of the plaintiff.
c) Thirdly, he must demonstrate that he suffers or, in a quick time action, that he is likely to suffer damage by reason of the erroneous belief engendered by the defendant's misrepresentation that the source of the defendant's goods or service is the same as the source of those offered by the plaintiff..."
38. In the present case, all the three ingredients of the tort of the passing off are satisfied. The plaintiff has goodwill in the business of the fitness center, spa and salon services which has been generated from the business done by the plaintiff prior to that of the defendants. The defendants being the franchisee and the licensee of all these businesses under the mark OZONE cannot dispute the said position seriously being the beneficiary under the contract. No submission has CS(OS) No.1815/2015 Page 66 of 80 been canvassed to dispute the goodwill of the plaintiff in the said business. The case of the misrepresentation and resultant damage is glaring in the present case which can be seen by carefully examining the conduct of the defendants which is completely malafide and is aimed at the encashing the goodwill of the plaintiff business by inducing the customers by offering discount coupons, associating with the plaintiff OZONE spa with that of Hair master salons, by having common staff roaming at the fitness center and salon services etc so as to cause confusion and deception amongst the customers and to encash upon the already made customer base of the plaintiff and cause damage to the goodwill of the plaintiff in relation to Salon services.
39. It has been informed that the plaintiff's own Salon services have been discontinued by the defendants and the said space is used as godown by the defendants and instead the defendants are enriching itself unfairly from the customer base and goodwill of the plaintiff by increasing its turnover of its own Salon services. The reports of two Local Commissioners, who visited the premises of defendant No.1 as well as the new place where the defendants No.1 and 2 through defendant No.3 have started salon services under the name of Hairmaster, are also evidence of the said position. The first report of the Local Commissioner appointed vide order dated 24th June, 2015 who visited the franchisee premises, i.e. defendants No.1 and 2, the relevant paras 6, 7, 9 and 10 of the said report are reproduced here as under:
CS(OS) No.1815/2015 Page 67 of 80"6. In the reception area, the undersigned found a notice board in which Hair Masters Luxury Salon was being advertised/ publicized. The undersigned also found a pamphlet in the reception area promoting Hair Masters Luxury Salon. The advertisement in the notice board of Hair Masters Luxury Salon and the Pamphlet promoting Hair Masters Luxury Salon are enclosed herewith and marked as ANNEXURE C (Colly) and ANNEXURE D respectively.
7. The undersigned also found two different sets of gift vouchers promoting Hair Masters at the reception desk which are redeemable at Hair Masters. Out of the two sets one set of the gift vouchers was of Hair Masters Luxury Salon bearing Serial No. HM-004 to HM100, i.e. 97 gift vouchers which are redeemable only at Hair Masters. The other set of gift vouchers was of Ozone Fitness n Spa bearing Serial No. OZ-003 to OZ-099 which is also redeemable at Hair Masters as per their terms and conditions. Photographs of the two different sets of gift vouchers are enclosed herewith and marked as ANNEXURE E (Colly).
9. That after inspecting the first floor the undersigned went to the basement by using the lift as the staff members had informed the undersigned that the main door of the basement was locked and the key has been misplaced. The basement was found to be a salon area but no customers were there at the time of the commission only some staff members were there. A stack of massage oils were found in the basement and apart from some chairs no other equipment or consumables to be used in a salon were found there. The basement seemed to be used as a godown area as boxes containing paper glasses were kept there. On enquiring from one of the staff members one Mr. Shivam Sethi informed the undersigned that the salon has been shut down for the past few months and on asking for the reason of shutting down of the salon he said that he does not know. The undersigned also enquired from Mr. CS(OS) No.1815/2015 Page 68 of 80 Devesh Chawdhary as to why the salon was shut down to which he said that he does not have any information regarding the reason why the salon was shut down and only the management knows the reason. Photographs of the basement/ salon area were taken and are enclosed herewith and marked as ANNEXURE F (Colly).
10. The undersigned also noticed cameras installed in the basement and on asking to show the video recordings of the cameras they said there are no recordings. The undersigned also visited the 2 nd and the 3rd floor but no publicity or advertisements of Hair Masters were found in these two floors. During the commission the undersigned also came across staff members wearing shirts of Hair Masters bearing logo `HM'. Photographs of the staff members wearing shirts of Hair Masters bearing the logo '14M' is enclosed herewith and marked as ANNEXURE G (Colly)."
40. The second Local Commissioner who visited Hairmaster premises, i.e. defendant No.3 in his report, particularly in paras 12 and 13 has disclosed very vital information to the Court. The said paras reads as under:
"12. Mr. Jassi (Manager), informed me that there are no visiting cards available with them as they have given it for printing. I was further informed by Mr. Tarun (Defendant No.2) that they do not maintain their book of accounts in the salon and the same is being maintained on a computer system in the ozone office. He also informed me that Mr. Himanshu Arora (C.A. of the defendant's company) has gone to bring a printout of the book of accounts from a nearly cyber cafe as they do not have printer in the salon.
13. It was further informed to me by the receptionist that the defendants do not have access to the old bills and details of the members on the computer available in the CS(OS) No.1815/2015 Page 69 of 80 salon. She informed me that all the old bills and details of their members are stored on a computer in the ozone office. She further informed me that the computer in the defendant's salon was accessible from the main computer in the ozone office."
41. The balance sheets/profit and loss accounts of Ozone Salon and the Hair Masters salon, the details of which were provided to the Local Commissioner by the CA of the defendants, demonstrate how defendants No.1 and 2 have promoted their Hair Masters/ Hairmasters salon on the goodwill and reputation of the plaintiff. A comparative chart in order to show the depreciation of the Ozone salon owing to the unlawful acts of defendants No.1 and 2 is extracted as mentioned in the report of Local Commissioner namely, Mr. Harsit Khurana, Annexure I. Sr. No. Year Sales Sales Accounts Accounts of of Hair Masters, Ozone Salon, Punjabi Bagh Punjabi Bagh
1. 2013-2014 20,86,384 Nil
2. 2014-2015 35,21,429 1,65,50,432
3. 2015-2016 Nil 45,02,204 (from 01.04.2015 to 30.06.2015)
42. From the material available on record and as per reports of Local Commissioners, it can be said that prima facie the defendants have promoted his Hair Master Salon by riding upon the goodwill and reputation of the Ozone brand:
CS(OS) No.1815/2015 Page 70 of 80a) Distributing Ozone vouchers to Ozone clients, which are redeemable at Hair Masters (LC Report of Harsit Khurana at para 7 at page 4)
b) Promotion of defendant No.3 Salon on the Notice Board/Bulletin Board of Ozone Fitness n Spa: (Report of Harsit Khurana Para 6 page 3 and Annexure C)
c) Promotion of defendant No.3 Salon on the official Facebook page of Ozone Fitness n Spa.
d) Actively poaching the well trained employees of Ozone Fitness n Spa (LC Report of Shivam Sharma Para 6 page 3)
e) Encouraging the staff at Ozone Fitness n Spa to wear the uniforms of defendant No. 3 salon (LC Report of Shivam Sharma Para 9, 10 page 4, Annexure D; Also LC Report of Harsit Kurana at Para 10 page 6, Annexure G).
43. Prima-facie, it appears that the defendants have been in a clandestine and surreptitious manner trying to filch the business of the plaintiff and tarnish the goodwill of the plaintiff by diverting the business of the plaintiff by carrying on their own competing business viz. Hair Masters/Hairmasters.
44. During the course of hearing, the suggestion was also made to the defendants that if they are agreeable, they may continue to provide the service of salon to the customers either from the franchisee premises i.e. from basement on the same terms and royalty or from the new premises, i.e. neighbourhood where the independent service of salon was opened under the name CS(OS) No.1815/2015 Page 71 of 80 Hairmaster and the defendants may change the name from Hairmaster to OZONE and understanding between the parties may continue as per clause 2 of the Management Agreement and parties may meet together and discuss about the perk of royalty. Even an impression was also given on behalf of the plaintiff that it may be very less and unreasonable if service of salon is operated from the new place and the plaintiff would not charge any extra royalty if said services are provided from the basement of franchisee premises. But both the suggestions were not acceptable to the defendants. Dr. Singhvi submits that under this situation of refusal of suggestion, the plaintiff cannot allow the defendants to run parallel business, otherwise, all the franchisees would do the same activities in order to avoid paying the royalty to the plaintiff despite of agreement and the plaintiff who has the exclusive rights in the intellectual property in this trade, confidentiality and trade secrets, without any fault, would suffer loss in its business. Dr. Singhvi says that in order to show the hardship, the defendants very clearly in their pleadings gave an impression to the Court that defendant No.3 had already given the franchise agreements to third parties, i.e. at Chandigarh and Ashok Vihar (New Delhi) by placing the photographs that those premises are ready for operation of salon business.
45. On query, learned counsel for the defendants has clarified and admitted that the defendants had placed only the computer prints otherwise, those premises are under construction/renovation and they have not yet started salon business. When the Court wanted to verify from the counsel about the copies of franchisees agreements CS(OS) No.1815/2015 Page 72 of 80 executed if any with the third parties, there was no positive response. The defendant No.3, who was sitting in the Court, was unable to assure to the Court to produce copies thereof. All this clearly show that the defendants are attempting to rest their case on the falsity by showing some sense of the urgency in vacation of the injunction, when on balance of convenience, the defendants are the recent entrant in the business in the month of April and May 2015 and the entire aim seems to damage the goodwill of the plaintiff and earn easy profits out of the same when the defendants are also contractually bound by the agreement and not indulge into such acts. Conduct of the Defendants
46. Let me now discuss the conduct of the defendants in the present case. Firstly in the application filed by the defendants, two main issues were raised by them on merits namely:
i) That, the scope of the Franchise Agreement dated 5th November, 2012 has been misrepresented inasmuch the Franchise Agreement entered into between the plaintiff and defendants, the same is only related to the services of a fitness center and a Spa and that the same did not relate to Salon services; and
ii) No 'Operations Manual' or any trade secret was ever provided to defendants for Salon services under the Agreements executed inter se the parties and the answering defendants set up a Fitness Centre and a Spa under the aegis of the Franchise Agreement who have been adhering to the terms of the CS(OS) No.1815/2015 Page 73 of 80 Franchise Agreement and its Supplementary agreements in its operations." (emphasis added) In the reply, the plaintiff pointed out that the defendants were running Salon under the brand Ozone and thus the aforesaid statement in their application for vacation of order is false.
In the rejoinder, the defendants admitted that he had run the salon services. The relevant portion is extracted herein below:
".........
5. The Defendants had opened an Ozone Salon in December 2013 and talks with respect to the modalities and entering into a contract were on. In the meantime, as an ad hoc arrangement, the answering Defendants did pay to the Plaintiff Royalty for Ozone salon for 3 months. However, when the parties were entering into the Franchise Agreement for Salon, the terms and conditions thereof were not agreeable to the Defendants. Thus, the deal never materialized, and in pursuance thereof the answering defendants shutdown Ozone Salon in December 2014.
..............."
47. It was admitted by the plaintiff's counsel at the time of hearing that the defendants have filed trademark application on 11th July, 2014 for the name 'Hair Masters' under class 44 wherein the defendants have categorically stated that the mark Hair Masters is being used since April 2014 in relation to both Salon as well as Spa Services. A copy of the T.M-1 as filed by the defendants for registration of mark "Hair Masters' under class 44, has been annexed as Annexure A with the application filed by the plaintiff under Section 340 of Cr.P.C.
CS(OS) No.1815/2015 Page 74 of 8048. It is pertinent to mention that on one hand, it is stated by the defendants that they have adhered to the terms of the agreements and on the other hand, they have filed an application seeking registration for their mark HAIRMASTERS not only for SALON services but also for SPA services. As per supplementary agreements, the defendants have been estopped not only from entering into competing business but also from applying for registration of, any trademark, copyright, or patent directly or indirectly relating to the proprietary mark or franchisor's standards anywhere in the world.
49. In the rejoinder filed by the defendants, they have also given an impression that the Hairmasters salon, which according to them were/are to be opened at Chandigarh and Ashok Vihar has nothing to do with the design of the Ozone salons and that the design of Hairmasters salon and Ozone salon are completely different. The relevant portion of the rejoinder are extracted herein below:
"16..............
....................
It is further submitted that a bare perusal of the pictures of the layout/design/colour scheme of the Hairmasters Salon which were/are to be opened at Chandigarh and Ashok Vihar would amply show that it has nothing to do with the design any of the Ozone Salons and is completely different" (emphasis added) The Annexure D-3 (Colly), as filed by the defendants along with its rejoinder would show that the functional/operational salon in Chandigarh and Ashok Vihar when later on it has come on record that both the premises are under construction. The said fact has CS(OS) No.1815/2015 Page 75 of 80 been admitted by the learned counsel for the defendants in Court at the time of hearing.
Hence, it is evident that defendants have made certain contradictory statements.
50. It is settled law that competition must remain free, it is true. This is the life blood of free enterprise system. Yet it is essential that "trading must not only be honest but must not even unintentionally be unfair". If it is shown that a business of a trader has acquired a distinctive character, the law will restrain a competitor from using the same and prohibition order can be passed by Courts for unlawful activities. A line must be drawn somewhere between honest and dishonest trading fair and unfair competition. One cannot do business of the plaintiff's expensive labour and effort. One cannot deliberately reap and cannot be allowed to filch a rival trades. Passing off is thus a redemp for injury to goodwill.
51. In view of the facts in the present case and settled law on the subject, the clear case of the passing off in the form of the misrepresentation in the course of the trade and damage by taking unfair advantage of the goodwill of the plaintiff is made out warranting the interim injunction not merely on the count of the contractual rights but also on the applicability of the principles of the common law of the passing off.
52. With regard to other plea of the defendants that the plaintiff has concealed the material fact, I have already discussed that when the interim order was passed all the agreements were placed on record. The statement that the salon services was also provided under the CS(OS) No.1815/2015 Page 76 of 80 Franchise Agreement may be said to be statement which is subject matter of interpretation of the contracts or agreement. The said statement is not such which is aimed at to deliberately misrepresent the Court in order to secure any advantage over the defendants. On the contrary, I have interpreted all the three agreements by meaningfully reading them collectively and found that the definition of the franchised business under the Franchise Agreement is not static as on the execution of the agreement but shall also take into consideration the other permissions of the businesses which may be given by the plaintiff as a licensor to the defendants as a licensee from time to time. Going by the same, the statement that the Salon services are included in the franchise agreement is at the highest inaccuracy or something which is subject to interpretation of the contracts entered into between the parties and cannot be said to be misstatement which would be such that would enable the Court to vacate the injunction on count of the misrepresentation.
53. In the light of the aforesaid reasons given and discussion done above of the prima facie case, balance of convenience and irreparable damage, I am of the considered view that the present case is a fit case for the grant of the interim injunction. However, considering the nature of the covenants contained in the franchise agreement and to balance out the competing interests between the parties, the order dated 24th June, 2015 requires slight modification. This is due to the reason that the Franchise Agreement is to operate the franchise in the form of franchised business only for the CS(OS) No.1815/2015 Page 77 of 80 designated territory or within the range of four kilometres of the designated territory as provided in Schedule C of the agreement. Therefore, the corresponding restriction to operate the said services upon the defendants in the competing business during the term of the agreement has also to be within the designated territory or within the range of 4 kms thereafter which should be fair, just and reasonable as the absolute restriction on the basis of negative covenant without any affirmative covenant corresponding to the same would be too harsh upon the defendants and would be even greater than the licensed area. Therefore, there shall be an interim order against the defendants till the decision of the suit or subsisting period of Franchisee Agreement whichever is earlier to the following effect with the modified terms:
a) The defendants, their partners, directors or any person acting on their behalf are restrained till the time the present suit is decided finally from establishing, running, setting up any competing business including fitness centers, salons, spas under the name Hairmasters or any other name at the premises located at 23, NWA, Punjabi Bagh, New Delhi-
110026 or any area which falls within the range of 4 kms from the said premises
b) The defendants, their partners, directors or any person acting on their behalf are restrained till the time the present suit is decided finally from establishing, running, setting up any competing business including fitness centers, salons, spas under the name Hairmasters or any other name at the areas/ CS(OS) No.1815/2015 Page 78 of 80 premises where the plaintiff salons, fitness centers and spas are located or their franchisees are carrying their business or any nearby area which falls within 4 km of the said premises which may prevent any such false association or misrepresentation in the course of the trade and unfair competition thereof between the plaintiff and defendants.
c) The defendants, their partners, directors or any persons acting on their behalf are restrained till the time suit is decided finally from providing any coupons, brochures, cards, other stationary material to any of the customers visiting the franchised premises indicating the connection of the franchised business with that of the defendant's business under the mark Hairmaster or causing any connection and affiliation with that of the plaintiff by showing common employees or any other sort of the connection so as to cause confusion and deception amongst the customers and resultant diversion of their customers to the defendants.
54. In any event, the defendants so desire, they are also at liberty to approach the plaintiff as agreed by the counsel to run the services of salon from the new place under the name OZONE and the plaintiff would meet them and settle the reasonable amount of royalty. Counsel for the plaintiff has assured that the defendants even otherwise would also be entitled to operate the service of salon from the franchisee premises without any extra charges as per the terms of the agreements.
CS(OS) No.1815/2015 Page 79 of 8055. It is clarified that the findings arrived at are tentative and shall have no bearing when the suit is decided after trial.
56. Both the applications are accordingly disposed of.
57. No costs.
CS(OS) No.1815/2015List the matter on 10th August, 2015, the date already fixed.
(MANMOHAN SINGH) JUDGE JULY 29, 2015 CS(OS) No.1815/2015 Page 80 of 80