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Enforceability of ROFR as a negative covenant

19. Mr. Nayar has strenuously argued that ROFR under the SHA is in the nature of a negative covenant. He argued that Petitioner has exercised its ROFR under Clause 3.7 of the SHA and Respondent No. 1 is now bound to transfer the same to the Petitioner and Respondent No.1's understanding is based on an erroneous interpretation of the SHA, and at this stage since it has refused to comply with its obligations, Petitioner is entitled to enforce the negative covenant. Mr. Rajiv Nayar also argued that Section 42 of the Specific Relief Act, begins with the non-obstante clause "notwithstanding anything contained in Clause (e) of Section 41" and the Court is not precluded to grant an injunction to perform the negative agreement even if there are circumstances that prevent the Court to compel specific performance of the affirmative agreement. In support of this contention, Mr. Nayar has relied upon several judgments including the decisions of the Supreme Court of Canada and several other foreign judgments in support of his contentions that a right of first refusal in essence is a negative covenant. The relevant portions of the said judgments read as under:-

(g) to prevent a continuing breach in which the plaintiff has acquiesced;
(h) when equally efficacious relief can certainly be obtained by any other usual mode of proceeding except in case of breach of trust;
(i) when the conduct of the plaintiff or his agents has been such as to disentitle him to the assistance of the court;
(j) when the plaintiff has no personal interest in the matter."
"42. Injunction to perform negative agreement.-- 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: Provided that the plaintiff has not failed to perform the contract so far as it is binding on him."

(e) of the Act. However, it does not mean that it is a mandate to the Court to grant an injunction for performance of a negative covenant in every case. The principle laid down by the Supreme Court in Gujarat Bottling Co. Ltd. V. Coca Cola (1995) 5 SCC 545 enunciates the facets which must be borne in mind by the Court while granting injunction. Though in the facts and circumstances of the afore-noted case, an injunction was granted for enforcement of a negative covenant, it was observed that the Court must exercise its discretion and is not bound to grant an injunction wherever there exists a negative covenant. The Petitioner has to necessarily establish and base its case on the well known judicial principles relating to grant of interlocutory injunction i.e. (i). whether the Petitioner has made out a prima facie case; (ii). whether the balance of convenience is in favor of the Petitioner;(iii). whether the Petitioner would suffer irreparable loss or injury, if the prayer for interlocutory injunction were to be refused. The Supreme Court in the said case has held as under:

"42. 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, express or implied, not to do a certain act, the circumstances 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: Ethrman v. Bartholomew. (1927) W.N. 233; N.S.Golikari (supra) at p. 389].