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7. Clause 19.2 contains a negative covenant. The negative covenant is that upon the expiry of the term of the agreement, the First Respondent would, in the event that negotiations with the Petitioners fail to result in a concluded contract in pursuance of clause 19.1, be free to negotiate with a third party subject to the condition that before the contract is awarded to a third party, the Petitioners would have the right of first refusal. The First Respondent is precluded from concluding an agreement with a third party until an opportunity is granted to the Petitioners to match the offer. Should the Petitioners agree to match the offer of the third party, the First Respondent is under an obligation to award the contract only to the Petitioners.

The Enforceability of the Negative Covenant:

11. The issue canvassed before this Court is whether a negative covenant of the nature involved in clause 19.2 can be enforced. Section 27 of the Contract Act provides that every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is that extent void. An exception is carved out where a goodwill of the business is sold. One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business. However, such limits must appear to the Court to be reasonable, having regard to the nature of the business.

15. Now Clause 31(b) of the Contract which fell for consideration before the Supreme Court was prefaced by the words "during the term of the agreement". Prior to the completion of the first negotiation period, the Respondent agreed not to accept any offer for his endorsement or promotion. Thereafter, the First Respondent agreed not to accept any offer without furnishing an opportunity to the appellant to match an offer of a third party. The judgment of the Supreme Court considers the matter of principle from two perspectives. The first is that what the appellant has sought to enforce was a negative covenant which according to the appellant had survived the expiry of the agreement. This, the Supreme Court held, was not permissible in law as a clause which is sought to be enforced after the term of the contract would prima facie be void. The Supreme Court adverted to the position that under Section 27 of the Contract Act, a restrictive covenant extending beyond the term of the contract was void but the doctrine of restraint of trade did not apply during the continuance of a contract for employment. The second part of the judgment of the Supreme Court deals with the question as to whether, assuming that such a negative covenant is valid, it would be appropriate for the Court to grant an injunction to enforce it, at the interim stage. In the present case, clause 19.2 begins with the words "after the term of this agreement", meaning thereby that the clause contemplates an eventuality of enforcement upon the expiry of the term of the contract. The effect of the negative covenant is that upon the expiry of the term of the contract, the First Respondent is precluded from entering into a contract with a third party without offering a right of first refusal and should the First Petitioner agree to match the offer received by the First Respondent from a third party, the First Respondent is bound to award the contract to the First Petitioner alone. It is exactly this kind of negative covenant which operates beyond the term of a negotiated agreement between the parties that has been held by the Supreme Court to be void as being in restraint of trade.

17. Similarly, the observations of the Supreme Court in paragraph 66 cannot be read in isolation. The obligation to furnish details of an offer received from a third party is an adjunct to the right of first refusal. It is intended to facilitate the exercise of the right of first refusal. If that right is incapable of specific performance, the former must fall by the same logic in an interim application under Section 9 of the Arbitration and Conciliation Act, 1996.

18. The submission based on Section 42 of the Specific Relief Act, 1963 would not carry the case of the Petitioners any further. Section 41 provides for situations where an injunction cannot be granted. Amongst others, Clause (e) is a provision under which an injunction cannot be granted to prevent the breach of a contract, the performance of which would not be specifically enforced. Section 42 is prefaced by a nonobstante clause which operates notwithstanding anything contained in Clause (e) of Section 41. What Section 42 provides is that where a contract comprises an affirmative agreement 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. In other words, Section 42 lifts the bar under Section 41(e) to the grant of an injunction to prevent the breach of a contract the performance of which would not be specifically enforced. The bar is lifted in the sense that where the contract comprises of an affirmative agreement as well as an agreement not to do something, the Court is not precluded from granting an injunction to perform the negative agreement even if it is unable to compel specific performance. Lifting of the bar is not a mandate to the Court to grant an injunction for performance of a negative covenant in every case. Whether as a matter of fact an injunction should be granted for performance of a negative agreement is to be assessed on the application of sound judicial principles, on the circumstances of each case. Where as in the present case, the negative agreement would amount to a clause in restraint of trade, the Court would be justified while discharging its judicial function in declining to grant an injunction for the performance of a negative covenant of that nature. Finally it must be noted that in the concluding part of the judgment in Zaheer Khan, the Supreme Court observed that its observations were for deciding a prima facie case for interim relief. Zaheer Khan follows a line of precedent beginning with Golikari and including Murgai and Gujarat Bottling (supra).