R.G. Ketkar, J.

1. Both these appeals are instituted against the common judgment and order dated 23.12.2004 passed by the learned Single Judge in the Notice of Motion No. 553 of 2004 and the Notice of Motion No. 2382 of 2004 in Suit No. 233 of 2004. By the impugned order, the learned Single Judge made the Notice of Motion No. 553 of 2004 absolute in terms of prayer Clauses (a) to (c)(i), (ii) & (iii) with clarification that the order will not affect the Defendant No. 3s rights vis-a-vis Seaclor Mac regarding the manufacturing and distributing. In view of granting of prayer Clauses (c)(i), (ii) & (iii) of the Notice of Motion No. 553 of 2004, the learned Single Judge disposed of the Notice of Motion No. 2382 of 2004 as not surviving.

2. The facts giving rise to the present appeals, briefly stated are as under:

Appeal No. 24 of 2005 is preferred by Severn Trent Water Purification Inc, Defendant No. 1. Respondent No. 1 is the Plaintiff and Respondent Nos. 2 to 11 are the Defendant Nos. 2 to 11. Appeal No. 528 of 2005 is preferred by Hi Point Services Pvt. Ltd., Defendant No. 4, wherein the Respondent No. 1 is the Plaintiff and Respondent No. 2 to 11 are the Defendant Nos. 1 to 3 and 5 to 11 respectively. The parties shall hereinafter be referred as per their status in the suit.

3. Plaintiff is a private limited company incorporated under the Indian Companies Act, 1956 and is a holding company incorporated to hold 50% share holdings in the Capital Controls India Private Limited (Defendant No. 5), which is the Joint Venture Company. The Plaintiff is registered and beneficial holder of 375000 equity shares (being 50% of the equity share capital) of and in the 5th Defendant Company. Defendant No. 1 is a Corporation organised and existing under the laws of the State of Pennsylvania, Unites States of America (for short U.S.A.). Defendant No. 2, Capital Controls (Delaware) Company Inc is the Corporation organised and existing under the laws of the state of Delaware, U.S.A. Defendant Nos. 1 & 2 carry on business of manufacture, supply, sale and distribution of Chlorination equipments including gas and electro chlorination equipments. Defendant Nos. 1 & 2 are group companies and were earlier part of Capital Controls group not being Defendant No. 5 herein.

4. Defendant No. 3 is the company incorporated under the Indian Companies Act, 1956 and carries on business of manufacture and marketing of electro Chlorination equipments. In or about in the year 1989-90, Defendant No. 3 was floated as Joint Venture in technical and financial collaboration with De Nora group of Italy who hold 51% of equity share capital of the Defendant No. 3. Hi Point Services Pvt. Ltd., Defendant No. 4 is a private limited company incorporated under the Indian Companies Act, 1956 and interalia carries on business in electro chlorination equipments. Defendant No. 4 had a tie up with American Company called Exceltec Inc who were engaged in the business of electrolytic disinfection equipment.

5. Defendant No. 5 viz. Capital Controls India Pvt. Ltd., is a private limited company incorporated under the Indian Companies Act, 1956 in implementation of the Joint Venture Agreement dated 16.11.1995 executed between the Plaintiff and Madhusudan B. Kocha (Defendant No. 9) on one hand and Defendant Nos. 1 & 2 on the other. 50% share capital of Defendant No. 5 is held by the Plaintiff and the balance 50% share capital is held in the name of Defendant No. 2. Plaintiff and Defendant No. 2 are the Joint Venture partners constituting Defendant No. 5. Defendant No. 6 (W.A. Stimeling), Defendant No. 7 (Marwan Nesicolasi) and Defendant No. 8 (R. Fernandez) are the directors of Defendant No. 5 Company appointed by Defendant No. 2 Company for and on behalf of Defendant No. 1 Company. Defendant Nos. 6 to 8 are Directors/officers of various Severn Trent group companies. Defendant No. 6 is also the director of Defendant No. 1.

6. Defendant No. 9 is the Managing Director of Defendant No. 5 and Defendant Nos. 10 (Milin M. Kocha) & 11 (Nilesh M. Kocha) are whole time directors of Defendant No. 5. The entire share holding of the Plaintiff is held by Defendant Nos. 9 to 11, who shall hereinafter be referred as the Kocha family.

7. Plaintiff instituted Suit No. 233 of 2004 on 19.01.2004 interalia praying for (a) a declaration that the Joint Venture Agreements dated 16.11.1995 at Exhibit B and Supplemental Collaboration Agreement at Exhibit M are valid, subsisting and binding and that the scope of business of Defendant No. 5 includes manufacture, sale, distribution and services of the entire range of chlorination equipments, including electro chlorination equipments of the Defendant Nos. 1 & 2, their parents, associates and affiliated companies as well as of the Kocha family/ Chloro Controls Equipment Company; (aa) a declaration that the notice dated 23.01.2004 (Exhibit BBBB) is illegal, invalid, malafide and of no effect whatsoever; (aaa) a declaration that the notice dated 21.07.2004 (Exhibit CCCC) is wrongful, illegal, invalid, malafide in breach of the joint venture agreement and of no effect whatsoever; (b) an order and permanent injunction restraining the Defendant Nos. 1 & 2, their parents, associates and affiliated companies from committing breach of their obligations under the joint venture agreements read with the supplementary collaboration agreement (Exhibits B & M) and/or from committing breach of their obligations as partners in Defendant No. 5; (c) an order and permanent injunction restraining the Defendant Nos. 1 & 2, their parents, associates and affiliated companies from directly or indirectly selling, distributing, manufacturing, dealing in or being financially interested in chlorination equipments, parts, accessories and related equipments, including electro chlorination equipments in India and the designated territory, save and except through Defendant No. 5 or from conducting any competing business in India or the designated territory; (d) an order and permanent injunction restraining Defendant Nos. 1 & 2, their parents, associates and affiliated companies from in any manner interfering with and/or preventing Defendant No. 5 from conducting its business of chlorination equipments, including electro chlorination equipments, of the Kocha family/Chloro Controls Equipment Company, Proprietary concern of Defendant No. 9, among other prayers. The Plaintiff as beneficial and registered owners of 3,75,000 equity shares of th 5th Defendant has instituted this suit, a derivative action to correct and remedy the illegality and wrong done to the 5th Defendant and its share holders by Severn Trent through Defendant Nos. 1, 2 and 6 to 8.

8. It is the case of the Plaintiff that Defendant No. 5 was incorporated on 14.11.1995 and the main object mentioned in the Memorandum of Association of Defendant No. 5 is to the following effect:

"A" THE MAIN OBJECT OF THE COMPANY TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION:

1. To design, manufacture, import, export, act as agent, deal in assembling, testing, erecting, servicing and marketing of gas and electro chlorination equipments...

Before formation of 5th Defendant company the Kocha family carried on business of manufacture and sale of gas chlorination equipments. On and from 1980 the Kocha family developed and commenced manufacturing of electro chlorination equipments. The business of Kocha family was done in the name of Chloro Controls Equipments Company which is the sole proprietory concern of Defendant No. 9. Prior to formation of Defendant No. 5, the Chloro Controls Equipment Company was the distributor in India for the products of Capital Controls for more than a decade. The joint venture agreements between Defendant Nos. 1 & 2 and the Plaintiff/ Defendant No. 9 were executed on 16.11.1995. The financial and technical know how licence agreement was entered into between Defendant No. 1 & Defendant No. 5, under which Defendant Nos. 1 & 2 (Capital Controls) agreed to furnish technical know how relating to the manufacture, quality control, installation, testing and servicing of its products existing on the date of the agreement. The International Distributor Agreement (being Appendix II to the Share Holders Agreement) was entered into between Defendant No. 1 and Defendant No. 5 whereunder Defendant No. 1 appointed Defendant No. 5 as its exclusive distributor for the products manufactured and marketed by Defendant No. 1 viz.chlorination and water disinfection equipments, machineries, parts, accessories and related equipments and services in the territory of India, Afganisthan, Nepal and Bhutan. The list of products offered for distribution at attachment A to the said agreement, included "Hypogen Equipment Series 3300" which is electro chlorination equipment and which was the only brand of electro chlorination equipment of Capital Controls (Defendant Nos. 1 & 2). However the Plaintiff has specifically asserted in Paragraph 20 of the plaint that the Defendant No. 5 did not deal with "Hypogen" brand in view of its exorbitant pricing.

9. It is the case of the Plaintiff that it was also the intention of the parties that the business of Defendant No. 5 would include the entire range of chlorination business of Chloro Controls Equipments Company (Proprietary concern of Defendant No. 9) including its range of electro chlorination equipments. It was also intended that the entire range of chlorination equipment of Severn Trent which was initially divided between the Technical Know How Agreement and Distributors Agreement, was ultimately to be manufactured by Defendant No. 5 indigenously. The purpose of formation of Defendant No. 5 was to fuse and pull together the resources and technology and business in the range of chlorination equipments including electro chlorination equipment of Severn Trent (which at that time was conducted through Defendant Nos. 1 & 2 only) with that of Kocha family/ Chloro Controls Equipment Company (Proprietary concern of Defendant No. 9). Plaintiff has set out various circumstances in the plaint to contend that these circumstances establish that to the knowledge and with the acquiescence of Defendant Nos. 1 & 2, Defendant No. 5 was in fact carrying on business of manufacture, sale and distribution of electro chlorination equipments.

10. It is the case of the Plaintiff that some of the actions of Severn Trent (including Defendant Nos. 1 & 2) on and from December 1998 onwards were in breach of joint venture agreement, the negative covenants contained therein and to the detriment of Defendant No. 5. Some of those acts were clear systematic scheme and design to thwart, scuttle and throttle the business of Defendant No. 5 and to illegally conduct the competing business through their group, affiliated and associated companies, as Severn Trent (including Defendant Nos. 1 & 2) envisaged Defendant No. 5 becoming a serious competitor on the termination of joint venture agreements and the Severn Trent did not have the majority /controlling interest in Defendant No. 5.

11. In or about December, 1998, Severn Trent acquired Exceltec Inc and thereafter Defendant No. 1 issued circular which was received by Defendant No. 5 on 01.02.1999 stating that Defendant Nos. 1 & 2s Hypogen brand of electro chlorination equipment was to be completely replaced by Exceltecs "Omnipure" and "Sanilec". Upon such replacement of Hypogen, Defendant No. 5 was exclusively entitled to conduct business of "Omnipure" and "Sanilec" in India. As noted earlier, the Plaintiff has asserted that Defendant No. 5 did not deal with "Hypogen" brand in view of its exorbitant pricing.

12. Prior to acquisition of Exceltec by Severn Trent, Exceltec had existing tie up and arrangement with Defendant No. 4 in India. Upon such acquisition of Exceltec by Severn Trent and replacement of Hypogen by Exceltec brand of "Omnipure" and "Sanilec", the said brands of electro Chlorination equipments could only be dealt with in India through Defendant No. 5. However, upon such acquisition, Exceltec was none the less supplying its products through both Defendant No. 4 and Defendant No. 5. Plaintiff through Defendant No. 9 repeatedly protested against this conduct at the Board meeting of Defendant No. 5 of 26.09.2001.

13. While discussion with Exceltec were still pending, in or about September 2001, Severn Trent Services Inc and one "Gruppo De Nora" purported to merge their sea water and marine disinfection business into a single joint venture under the name of "Severn Trent De Nora LLC to market and service the products manufactured by Exceltec and De Nora. As electro chlorination equipment (Omnipure, Sanilec and Seaclor) fell within the range of Severn Trents range of electro chlorination equipment, the same could not be dealt with in India except through Defendant No. 5.

14. It is the case of the Plaintiff that several discussions were held and 13 it was pointed out that the failure to honour the joint venture agreement and lack of support of Severn Trent was leading to Defendant No. 5s market share in electro chlorination equipment, being captured by competitor. In order to salvage the situation, the Defendant No. 9 at the Board meeting of 10.12.2001 and in e-mail dated 12.01.2002 wrongly contended that the Plaintiff be permitted to conduct the business of electro chlorination equipment of the Kocha family outside the scope of the joint venture by interpreting the joint venture agreements to be in respect of gas chlorination equipment only and keeping Defendant No. 5 away from electro chlorination business. Defendant No. 1 through their Advocates letter dated 06.09.2002 addressed to Defendant No. 5, for the first time, alleged as an afterthought, that the scope of the joint venture agreement was restricted to marketing and sale of gas chlorination equipment only, with the exception of right to distribute the "Hypogen Equipment Series 3300" product line and that any venture by Defendant No. 5 into electro chlorination business was in violation of the joint venture agreement. Plaintiff has referred to the correspondence ensued between the parties. In substance, the case of the Plaintiff is that having regard to the main object for which Defendant No. 5 was incorporated, as also by virtue of agreement entered into between the parties, electro chlorination business of both Severn Trent as well as Kocha family.

15. Chloro Controls Equipments Company (Proprietary concern of Defendant No. 9) clearly fell within the scope of business of Defendant No. 5. Defendant No. 2 being the joint venture partner cannot carry on competing business in gas or electro chlorination equipments in India and cannot divert such business of Defendant No. 5 to other concerns either through device of acquisitions and mergers or in any other manner whatsoever. Plaintiff relied upon Clause 4.5 of the Share Holders Agreement and contended that in view thereof, the Plaintiff is entitled to specific enforcement of the said negative covenant.

16. During the pendency of the suit, Defendant Nos. 1 & 2 issued notice dated 23.01.2004 to be a notice to settle the dispute in terms of clauses 22.2 (i) and 21.2.(iv) of the Share Holders Agreement dated 16.11.1995, as also Defendant No. 1 terminated the joint venture agreements contained in (i) Shareholders Agreement, (ii) International Distributors Agreement, (iii) Financial and Technical Know How Agreement, (iv) Export Sales Agreement, (v) Trademark Registered User Agreement, by a fax dated 21.07.2004. Plaintiff suitably amended the plaint and has challenged the notice dated 23.01.2004 and the fax dated 21.07.2004. Plaintiff took out Notice of Motion No. 553 of 2004 claiming interim reliefs during the pendency of the suit substantially in terms of prayer Clauses (c), (d), (e) & (k) of the Plaint.

17. Affidavit in reply was filed by Mr. K.V. Ramesh on behalf of Defendant No. 1 on 27.04.2004. In substance, it was contended that the Memorandum and Articles of Defendant No. 5 cannot be interpreted to expand the scope of activities as the object clause of the Memorandum of Association is in general and broad based terms and includes objects which the company may undertake in future. The actual scope of activities of Defendant No. 5 as well as terms, rights and obligations of the parties are set out in the Joint Venture Agreement alone. The Joint Venture Agreement clearly describe and specifically set out the list of products which the Defendant No. 5 can manufacture, sell or distribute. Clause 4.5 of the Shareholders Agreement dated 16.11.1995 clearly provides 16 that the Plaintiff, Defendant No. 9 and Kocha family shall not during the term of agreement, engage directly or indirectly or be financially interested in the manufacture, sale or distribution of chlorination equipments and related products which are similar to those manufactured or sold by Defendant No. 5 Joint Venture Company. There is no such provision under the said clause restricting the erstwhile Defendant No. 2 now Defendant No. 1, and further goes on to say that during the term of this agreement the erstwhile Defendant No. 2 now Defendant No. 1, its parents & associates will not directly or indirectly engage and/or be financially interested in the manufacture, sale and distribution in India of the products manufactured or sold by Defendant No. 5. The non-compete obligations of the Plaintiff and Defendant No. 9 on one hand and that of Defendant No. 1 on the other, are conspicuously different. It is further contended that the specific products list in the joint venture agreement and in particular International Distributors Agreement (Appendix II to the Shareholders Agreement) only lists the Hypogen Equipment Series 3300" brand line of electro chlorination equipments. At the time of joint venture agreement, erstwhile Defendant No. 2 manufactured the Hypogen Equipment Series 3300, the electro chlorination equipment. The erstwhile Defendant No. 2 discontinued the manufacture of hypogen product line in U.S.A., and said discontinuation was done before acquisition of Exceltec. Hypogen brand was not superseded by the brands of Exceltec viz. "Omnipure" and "Sanilec". It was further contended that had the parties actually intended in 1995 to include all present and future lines of Defendant No. 1s lines of electro chlorination products, they would have (i) made the non-compete provision identical for both parties, (ii) drafted the list of products to include all lines of gas and electro chlorination equipment produced then or to be produced in future. It was reiterated that the scope of joint venture agreement can be clearly ascertained from the bare perusal of these agreements, and by Plaintiffs own admission the Plaintiff has shown clearly that the scope of joint venture did not extend to electro chlorination business.

18. By the impugned order dated 23.12.2004, the learned Single Judge partly allowed the Notice of Motion No. 553 of 2004 as mentioned earlier and in view thereof disposed of the Notice of Motion No. 2382 of 2004 as it does not survive. It is against this order, Defendant No. 1 has preferred Appeal No. 24 of 2005 and Defendant No. 4 has preferred Appeal No. 528 of 2005.

19. In support of Appeal No. 24/2005 we have heard Mr. Rohit Kapadia, learned Senior Advocate and Mr. J.P. Sen, learned Advocate. In support of Appeal No. 528/2005 we have heard Mr. Pradip Sancheti, learned Senior Advocate. We have also heard Mr. S.H. Doctor, learned Senior Advocate and Mr. Naval Aggarwal, learned Advocate on behalf of Respondent No. 1-original Plaintiff in both the appeals.

20. Mr. Kapadia in support of Appeal No. 24/2005 submitted that the learned Single Judge posed the question whether the joint venture agreement between the parties was only for gas chlorination equipment or whether it was also for electro chlorination equipments. He submitted that the scope of business between the parties has to be ascertained from the joint venture agreement alone and that the learned Single Judge committed serious error in issuing the injunction without considering the scope of negative covenant viz. Clause 4.5 in the Shareholders Agreement. If the joint venture agreement is carefully perused, it would be clear that the joint venture agreement between the parties was only for gas chlorination equipments. In so far as electro chlorination equipments are concerned, the only one product viz. Hypogen Equipment Series 3300 manufactured by Defendant No. 1 was to be distributed by Defendant No. 5. The joint venture agreement did not contemplate manufacture or sale of electro chlorination equipment by Defendant No. 5.

21. On the other hand, Mr. Doctor appearing for Respondent No. 1-Plaintiff submitted that having regard to the main object of Defendant No. 5 as mentioned in its Memorandum of Association, it would be clear that Defendant No. 5 was to design, manufacture, import, export, act as an agent, deal in assembling, testing, erecting, servicing and marketing of gas and electro chlorination equipments. Thus manufacture and sale of electro chlorination equipments was one of the main objects for which Defendant No. 5 was incorporated. This fact is fortified by the conduct of the parties. At any rate, having regard to the circumstances and the material on record, Defendant No. 5 has a right to manufacture and sell electro chlorination equipments, and the actions of Defendant No. 1 in acquiring Exceltec, as also merger with De Nora LLC was with a view to competing with the business of Defendant No. 5, which was wholly improper in view of Clause 4.5 of the Shareholders Agreement. He therefore supported the impugned order passed by the learned Single Judge.

22. We have considered the rival submissions made by learned Counsel appearing for the parties. In order to properly understand and appreciate the controversy between the parties it would be relevant and material to note some of the clauses of various agreements entered into between the parties. Clauses 1, 4.5, 7, 14, 17, 20, 21, 26 and 28 of the Shareholders Agreement dated 16.11.1995 entered into by and between Defendant No. 2 on one hand and the Plaintiff and Defendant No. 9 on the other, are relevant, and which read as under:

(1) Registration of the Company - The parties shall, subject to obtaining all necessary approvals, licenses, and authorizations from the Government of India, register a company with the name "Capital Controls India Private Limited", or if such name is not available for any reason, then with such other name as may be mutually agreed upon b y the parties, (hereinafter called the "Company) having as its main object the manufacture, sale and service of the Products (as such terms is defined n the Financial and Technical Know-How License Agreement between Capital Controls and the Company referred to in Section 14 of this Agreement. The companys registered office shall be located in Bombay.

4.5 Mr. Kocha (and also his wife and sons) and Chloro Controls shall not, during the terms of this Agreement, engage, directly or indirectly, or be financially interested in the manufacture, sale or distribution of chlorination equipment and related products which is similar to those manufactured or sold by the Company. During the terms of this Agreement, Capital controls, its parent and its associates will not directly or indirectly engage in or be financially interested in the manufacture, sale or distribution in India of the products manufactured or sold by the Company."

7. Distributor Agreement: Capital Controls agrees to appoint the Company as a Distributor in India of the Products manufactured by Capital Controls subject to the terms and conditions of the Distributor Agreement attached hereto as Appendix II. This appointment will normally be renewed as long as Capital Controls holds at least twenty-six (26%) of the shares in the Company.

14. Financial and Technical Know-How License Agreement - Chloro Controls and Capital Controls shall together cause the Company to enter into the Financial Technical Know-How License Agreement with Capital Controls attached hereto (hereinafter referred to as the License Agreement). Under the said License Agreement and subject to the terms and conditions specified therein, Capital Controls agrees to grant the Company the right and license to manufacture the products in India in accordance with the Technical Know-How and other technical information possessed by Capital Controls.

17. Sale and Purchase of Chlorination Equipment Assets. -Chloro Controls and Mr. Kocha agree to transfer such of the assets as related to the gas chlorination equipment business presently carried on by Chloro Controls or Mr. Kocha as per Appendix IV attached hereto."

20. Performance by Capital Controls - The subscription of the equity shares of the Company and the performance of the other obligations assumed by Capital Controls hereunder shall be subject to the fulfillment of the following conditions:

(i) Mr. Kocha and/or the Company shall have obtained the necessary approval of the terms of foreign collaboration and the Company shall have received the licenses, approvals and permissions described n Section 20.1 hereof or Chloro Controls shall have transferred and assigned to the Company anysuch licenses and approvals, if any, obtained by it for the manufacture of the products.

(ii) Chloro Controls shall have subscribed and paid for the equity shares of the Company as provided in Section 4.1(ii) hereof.

(iii) Mr. Kocha/Chloro Controls shall have entered into the Lease Agreement as provided in Section 2 hereof for leasing the premises in Andheri to the Company.

(iv) Chloro Controls shall have transferred the assets of the gas chlorination bus9ness to the Company as provided in Section 17 hereof.

(v) The Company shall have obtained long-term loans as provided in Section 12 hereof, on terms and conditions satisfactory to Capital Controls or it shall have obtained a commitment letter from the Financial Institutions for the grant of the said loan or shall have made such other arrangement, which is deemed adequate by Capital Controls.

21. Terms and Condition

21.1 This agreement shall continue in force and effect for so long as each party, its parents, associates, permitted assigns, shall held not less than twenty-six percent (26%) of the total paid up equity shares of the Company or in the event that the Company fails to achieve a cumulative sales valumen of Rupees 120 million over three (3) years and a cumulative profit of fifteen percent (15%) per year over three (3) years from the signing of this Agreement by both parties, then either party may at its option, terminate this Agreement and dispose of its shares as provided in Section 6.

21.2 In the event of any of the following:

(i) any material breach of this Agreement (other than the payment of money) not cured or revolved within ninety (90) days after the date of written notice thereof;

(ii) Insolvency or bankruptcy of either party;

(iii) if either party is unable to pay its debts as they become due, passes a binding resolution for winding up, goes into liquidation or is dissolved, or has a received appointed over any of its assets and undertakings, or makes a composition with its creditors;

(iv) if there is a deadlock regarding the management of the Company which shall remain unresolved for a period of ninety (90) days following written notice thereof from one party to the other;

then the party not in default may terminate this Agreement by notice in writing to the other party.

21.3 In the event of the termination of this Agreement, the Company will be would up and all obligations undertaken by Chloro Controls under the Financial and Technical Know-How Agreement or the Trademark Registered User Agreement/Trademark License Agreement or Tradename Agreement regarding the use of the tradename Capital Controls in the name of the Company shall cease with immediate effect. The name of the Company shall be changed so that the word "Capital" either individually or in combination with any other word or words does not appear in the name of the Company and the said words shall not be used by the Company in any manner in connection with its business.

26. Entire Agreement - This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and supersedes all negotiations, commitments and writings prior to the date hereof pertaining to the subject matter of this Agreement.

28. Modifications - This Agreement shall not be altered, modified or supplemented except with the prior written approval of the parties hereto.

23. Appendix II to the Shareholders Agreement which is referred in Clause 7 provides for International Distributors Agreement, whereunder Defendant No. 2 appointed the Plaintiff as its exclusive distributor of its products in India. The products offered for distribution were set out in Attachment A. Attachment A among other products included only one electro chlorination equipment viz. Hypogen Equipment Series 3300. As noted earlier, the Plaintiff asserted that the Defendant No. 5 did not deal with "Hypogen" brand in view of its exorbitant pricing. It is not in dispute, that the rest of the products in Attachment A are the equipments other than electro chlorination equipments. The Financial and Technical Know How Licence Agreement dated 16.11.1995 was entered into by and between Defendant No. 2 and the Plaintiff. Clauses 1.1, 1.2, 2.4, 2.5 and 24 thereof are relevant, which read as under:

1.1 The term "Products" shall mean Capital Controls chlorination equipment as more fully described in Appendix I attached hereto, and parts and components thereof. The Appendix forms an integral part of this Agreement.

1.2. The term "Technical Know-How" shall mean Capital Controls secret drawings, designs, formulae and manufacturing procedures and methods and other technical information owned by capital controls or in respect of which Capital Controls has the right to disclose and license hereunder, relating to the manufacture, quality control, installation, testing and servicing of the products, existing on the date of this Agreement, and any improvement thereto, but shall not include any manufacturing data with respect to Appendix II.

2.4. Licensee agrees that it shall not during the terms of this Agreement manufacture or have manufactured for it, sell or offer for sale or be financially interested in any other venture for the manufacture and sale of any goods similar to the products, without the prior written permission of Capital Controls.

2.5 During the terms of this Agreement, Capital Controls and its affiliated companies shall sell the products in India only through the Licensee.

24 Modifications - No modification or amendment of this Agreement and no waiver of any of the terms or conditions hereof shall be binding unless made in writing duly executed by both parties.

24. Appendix-I to this agreement lists the products manufactured by Defendant No. 5 i.e. the Joint Venture, for chlorine service only.

Perusal of this Appendix-I would indicate that it does not include any electro chlorination equipment. Appendix II to this agreement specifically deals with the products and parts not manufactured by Defendant No. 5 viz.the Joint Venture and reads thus 26

"All Capital Control products not listed in Exhibit I and the following series of parts -

All diaphrams,

All Springs."

25. Thus Appendix II clearly sets out the list of products and parts not manufactured by the Joint Venture and it further provides all capital control products not listed in Exhibit I. We have already noted that Appendix I to this agreement provides for products manufactured by Defendant No. 5 for chlorine service only, and deals only with gas chlorination equipment and does not include any electro chlorination equipment.

26. In order to succeed in getting interim reliefs, the Plaintiffs will have to establish first that Defendant No. 5 is entitled to manufacture and sell electro chlorination equipments under the joint venture agreements, so as to enforce the negative covenants contained in Clause 4.5 of the Shareholders Agreement. We have already extracted Clause 4.5 of the Shareholders Agreement dated 16.11.1995. In our opinion, Clause 4.5 is in two parts viz. (i) Mr. Kocha, Defendant No. 9 (including his wife and sons), Chloro Controls, the Plaintiff shall not, during the term of this agreement, engage, directly or indirectly, or be financially interested in the manufacture, sale or distribution of chlorination equipments and related products which are similar to those manufactured or sold by Defendant No. 5 Company. In so far as obligation cast on Defendant No. 9 and the Plaintiff is that during the term of this agreement, they shall not deal in any manner, in the manufacture, sale or distribution of chlorination equipments and related products which are similar to those manufactured or sold by the Defendant No. 5 Company. (ii) During the term of this agreement the Capital Controls (Defendant Nos. 1 & 2), its parents and associates will not directly or indirectly engage in or be financially interested in the manufacture, sale or distribution in India of the products manufactured or sold by Defendant No. 5 Company. Thus, in so far as Plaintiff and Defendant No. 9 are concerned, the negative covenant is wide enough to include chlorination equipment and the related products which are similar to those manufactured or sold by Defendant No. 5. Thus, the said negative covenant in so far as Plaintiff and Defendant No. 9 are concerned, is widely worded, whereas in so far as Defendant Nos. 1 & 2 are concerned, it only prohibits them from dealing in any manner with the products manufactured or sold by Defendant No. 5 Company. In other words, this covenant is not as widely worded as compared with the wordings of negative covenant qua the Plaintiff and Defendant No. 9.

27. With the assistance of learned Counsel appearing for the parties, we have been taken through the material on record. Learned Counsel for the Plaintiff however could not point out any material to substantiate that in fact, Defendant No. 5 was manufacturing and selling electro chlorination equipments. The prohibition contemplated against Defendant Nos. 1 & 2 in Clause 4.5 is that they shall not deal with the products manufactured or sold by Defendant No. 5. In the first place, perusal of the joint venture agreements together with their annexures would indicate that the electro chlorination equipments was not part of these agreements. The only one product viz. Hypogen Equipment Series 3300 was to be distributed by Defendant No. 5. Thus, Defendant No. 5 was not authorised to manufacture and sell electro chlorination products. Even otherwise, from the material on record, we do not find that in fact Defendant No. 5 was manufacturing or selling electro chlorination equipments. As noted earlier, in the plaint the Plaintiff has asserted that Defendant No. 5 did not deal with "Hypogen" brand in view of its exorbitant pricing. That apart, Plaintiff has not led any foundation in the plaint for invoking Clause 4.5 of the Shareholders Agreement.

28. Mr. Kapadia invited our attention to Section 27 of Indian Contract Act, 1872 (for short Act) to contend that even otherwise Clause 4.5 is void. In support of this submission, he relied upon the judgment of the Apex Court in the case of Superintendence Company of India (P) Ltd.vs. Shri. Krishan Murgai 1981 (1) LLJ 121. [LQ/SC/1980/249] The appeal before the Apex Court preferred by the Company-original Plaintiff, principally raised two substantial questions viz.(i) whether a post service restrictive covenant is in restraint of trade, as contained in Clause (10) of the Service Agreement between the parties is void under Section 27 of the Indian Contract Act, 1872, (ii) Whether the said restrictive covenant assuming it to be valid, is on its terms enforceable at the instance of the Appellant Company against the Respondent In that case, the Appellant company which was carrying on business as valuers and surveyors, undertaking inspection of quality, weighment, analysis, sampling of merchandise and commodities, cargoes, industrial products, machinery, textile etc., having its head office at Calcutta and branch at New Delhi, appointed the Respondent as Branch Manager of its New Delhi office on 27.03.1971. The letter of appointment contained terms and conditions and Clause (10) thereof placed the Respondent under post service restraint that he shall neither serve any other competitive firm, nor carry on business on his own in similar lines as that of the Appellant company for two years at the place of his last posting. Clause (10) reads as under:

10. That you will not be permitted to join any firm of our competitors or run a business of your own in similar lines directly and/or indirectly, for a period of two years at the place of your last posting after you leave the company.

On 24.11.1978 Appellant terminated services of the Respondent w.e.f. 27.12.1978. Respondent started his own business under the name and style of Superintendence and Surveillance Inspectorate of India in New Delhi on lines identical with or substantially similar to that of Appellant company. On 19.04.1979, Appellant company instituted suit in Delhi High Court on its original side claiming Rs. 55,000/-as damages on account of breach of the negative covenant contained in Clause (10) and for permanent injunction restraining the Respondent, by himself, his servants, agents or otherwise, from carrying on the said business or any 31 other business on lines similar to that of Appellant company or associating or representing any competitors of the Appellant company before expiry of two years from 27.12.1979. After filing the suit, the Appellant company sought temporary injunction by way of enforcing the negative covenant. On 29.04.1979 the learned single Judge granted ad-interim injunction, and after hearing the Respondent confirmed the ad-interim order on 25.05.1979. Learned Single Judge took a view that the negative covenant being in partial restraint to trade was reasonable inasmuch as it was limited both in point of time (two years) as well as the area of operation (New Delhi which was his last posting), and therefore was not hit by Section 27 of the Act. Learned Single Judge was also of the opinion that the negative covenant was enforceable as the expression "leave" in Clause (10) was not confined to voluntarily leaving of service by the Respondent but was wide enough to include the termination of his services by the Appellant company. On appeal by the Respondent, the Division Bench of the High Court reversed the order of the learned Single Judge on both the points. In the Apex Court, Honble Mr. Justice V.D. Tulzapurkar speaking for himself and Honble Mr. Justice Untwalia disposed of the appeal on the 2nd point whether the restrictive covenant contained in Clause (10), assuming to be valid, was on its terms enforceable at the instance of the Appellant company against the Respondent. Honble Mr. Justice Tulzapurkar came to the conclusion that the expression "leave" occurring in Clause (10) of the agreement was intended by the parties to refer only to a case where the employee has voluntarily left the service of the company of his own, and since the services of the Respondent were terminated by the Appellant company, restrictive covenant contained in Clause (10) would be inapplicable, and therefore, not enforceable against the Respondent at the instance of the Appellant company. In a separate but concurring judgment Honble Mr. Justice Sen was of the view that the appeal cannot be decided without deciding the question as to whether the negative covenant which restricts the right of the employee after conclusion of the terms of service or the termination of the employment for the other reasons to engage in any business similar to or competitive with that of the employer, is in restraint of trade, and therefore void under Section 27 of the Act. Honble Mr. Justice Sen considered various cases viz.(i) Niranjan Shankar Golikari v. Century Spinning and Mfg. Co. Ltd. : 1967 (I) LLJ 698(ii) Brahmaput Tea Co. Ltd.vs. Skarth ILR (1885) Cal 545 (iii) Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd. L.R. (1894) A.C.535 (iv) Satyavrata Ghosh v. Mugnee Ram Bangor (1954) SCR 310 (v) Madhub Chunder v. Rajcoomar Doss (1974) Beng.L.R.76 among Ors.and considered the english law on this point in contrast with Section 27 of the Indian Contract Act, and in paragraph Nos. 49 and 50 of the judgment, observed thus:

49. In Shaikh Kalu v. Ram Saran Bhagat (1908) 13 C.W.N. 388 Mookerjee and Carnduff, J.J., referred to the history of the legislation on the subject and observed that the framers of the Act deliberately reproduced Section 883 of Fields Code, with the full knowledge that the effect would be to lay down a rule much narrower than what was recognised at the time by the common law, while the rules of the common law, on the other hand, had since been considerably widened and developed, on entirely new lines. They held that the wider construction put upon Section 27 by Sir Richard Couch in Madhub Chunder v. Rajcoomar Doss, (supra), is plainly justified by the language used, and that the section had abolished the distinction between partial and total restraints of trade and said.

The result is that the rule as embodied in Section 27 of the Indian Contract Act presents an almost starting dissimilarity to the most modern phase of the English rule on the subject.

They went on to observe:

As observed, however, by Sir Richard Couch in the case to which we have referred, we have nothing to do with the polity of the law, specially as the Legislature has deliberately left the provision in Section 27, in its original form, though other provisions of the Contract Act have from time to time been amended. The interference would be almost irresistible under these circumstances, that the Courts have rightly ascertained the intention of the Legislature. The silence of the Legislature in a case of this description is almost as emphatic as an express recognition of the construction which has been judicially put upon the statute during many years past. In this view of the matter, if we adopt the construction of Section 27 of the Indian Contract Act as first suggested by Sir Richard Couch and subsequently affirmed in the cases to which we have referred, a construction which is consistent with the plain language of the section, the agreement in this case must be pronounced to be void.

50. The law Commission, in its Thirteenth Report, has recommended that Section 27 of the Act should be suitably amended to allow such restrictions, and all contracts in restraint of trade, general or partial, as were reasonable, in the interest of the parties as well as of the public. That, however, involves a question of policy and that is a matter for Parliament to decide. The duty of the Court is to interpret the section according to its plain language.

29. Section 27 of the Contract Act reads as under:

27. Agreement in restraint of trade void - Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind is to that extent void.

Exception 1: 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 other person deriving title to the good will from him, carries on a like business therein,; provided that such limits appear to the Court reasonable, regard being had to the nature of the business.

30. Section 27 of the Contract Act is general in terms and declares all agreements in restraint void pro tanto except in the case specified in the exception. The observations of Sir Richard Couch, the learned Chief Justice, in Madhub Chunder v. Rajcoomar Doss (supra) which have become the locus class classicus were these:

The words restraint from exercising a lawful profession, trade or business do not mean an absolute restriction, and are intended to apply to a partial restriction, a restriction limited to some particular place, otherwise the first exception would have been unnecessary. Moreover, in the following Section 28 the legislative authority when it intends to speak of an absolute restraint and not a partial one, has introduced the word absolutely. The use of this word in Section 28 supports the view that in Section 27 it was intended to prevent not merely a total restraint from carrying on trade or business, but a partial one. We have nothing to do with the policy of such a law. All we have to do is to take the words of the Contract Act, and put upon them the meaning which they appear plainly to bear.

31. Perusal of Section 27 of the Indian Contract Act, in our opinion, casts onus of proving reasonableness under Exception I on the covenanted .The Plaintiff has not prima-facie established that the agreements entered into between the parties fall in Exception 1 to Section 27 of the Act. The view we are taking is also supported by the decision of the Apex Court in the case of Percept DMarle (India) (P) Ltd.V/s. Zaheer Khan, : (2006) 4 SCC 227 [LQ/SC/2006/242] . Prima facie we are not satisfied on the basis of material on record that the negative covenant contained in Clause 4.5 of the Shareholders Agreement can be invoked by the Plaintiff. As indicated earlier the Plaintiff has not prima-facie established that Defendant No. 5 was manufacturing or selling electro chlorination equipments, having regard to various joint venture agreements. Assuming that the Plaintiff is right in contending that Clause 4.5 of the Shareholders Agreement prohibits Defendant Nos. 1 & 2 from dealing in any manner with the products manufactured or sold by Defendant No. 5 that includes electro chlorination equipments, none the less, having regard to the judgment of the Honble Mr. Justice Sen in the case of Superintendence (supra), the said clause being in restraint of trade is prima facie void. That apart, even in the minutes of the meeting No. 3 of the Board of Directors of the Plaintiff held on 10.12.2001 which was attended by Defendant Nos. 9 to 11 and in particular Clause 4.4.5 and 4.4.6 thereof clearly set out the stand of the Plaintiff and Defendant No. 9. These clauses read as under:

4.4.5. Mr. M.B. Kocha owns the company wherein the electro chlorination business was developed since 1972 onwards as mentioned above, along with Gas Chlorination business. While the gas chlorination was covered in the said JV Agreement, the electro chlorination was excluded in the JV Agreement.

4.4.6. The technology is in the hands of Mr. M.M. Kocha. Seeing the present scenario between STS, CCI and CCU, it would be prudent for all to keep JV Company away from the electro chlorination business and continue the electro chlorination business in the company owned by Mr. M.B. Kocha. This will resolve most of the present problems and no complications will take place at the time of bidding for the tender and no embarrassing situations will arise at any time in future between the companies.

32. Perusal of Clause 4.4.5 would indicate that the gas chlorination was covered in the joint venture agreement and electro chlorination was excluded in the joint venture agreement. Perusal of Clause 4.4.6 would indicate that it was suggested that it would be prudent for all to keep the joint venture company away from electro chlorination business and continue the electro chlorination business in the company owned by Defendant No. 9. This would resolve the most of the problems and no complications would take place at the time of bidding for the tender and no embarrassing situations would arise at any time in future between the companies. It is relevant to note that only Defendant Nos. 9 to 11 attended the said meeting and none of the Directors of Defendant Nos. 1 & 2 attended the said meeting. This aspect has been sought to be explained in Paragraph No. 23 of the plaint, which reads as under:

23. Again the electro chlorination equipments were initially supplied to both Defendant Nos. 4 and the 5th Defendant in India. Several discussions were held, and it was pointed out that the failure to honour the Joint Venture Agreements and the lack of support of Severn Trent was leading to the 5th Defendants market share in electro chlorination equipments being captured by competitors. In view of the frustrating predicament in which Severn Trent had placed the 5th Defendant and in view of its resultant deteriorating financial position, the 9th Defendant, at the board meeting of 10th December, 2001 and in e-mail dated 12th January, 2002, in order to salvage the situation and in a state of utter helplessness, wrongly contended that the Plaintiff be permitted to conduct the business of electro chlorination equipments of the Kocha family outside the scope of the joint venture by interpreting the Joint Venture Agreements to be in respect of gas chlorination equipments only, and keeping the 5th Defendant away from electro chlorination business. Severn Trent, however, refused to accept this suggestion.

33. Prima-facie, at this stage, we are of the opinion that even the Plaintiff and Defendant No. 9 accepted that the joint venture agreements were only in respect of gas chlorination equipments and did not cover electro chlorination business. Plaintiff strongly relied upon various circumstances which found favour by the learned Single Judge. Mr. Doctor strenuously contended that the Under Secretary to the Government of India, Ministry of Industry, addressed the letter dated 11.10.1996 to Defendant No. 5 (Exhibit 39 I to the plaint) conveying approval of the Government of India to the proposal for foreign collaboration with Defendant No. 2 subject to the terms and conditions set out therein. Defendant No. 5 replied this on 21.12.1996 (Exhibit I to the plaint) and in so far as point No. 2 of letter dated 11.10.1996 is concerned, approval was requested to be amended so as to include manufacture of gas chlorination and electro chlorination equipments among other products. This was responded by the Under Secretary to the Government of India, Ministry of Industry on 21.04.1997 (Exhibit L to the plaint) conveying the approval of the Government of India to the amendment of clauses 2, 3 and 4 of the approval letter dated 11.10.1996. Pursuant to the approval dated 21.04.1997 Supplementary Collaboration Agreement was executed between Defendant No. 2 and Defendant No. 5 wherein parties confirmed that they shall adhere to the terms and conditions as stipulated by the Government of India vide letter dated 11.10.1996, amended on 21.04.1997. The said Supplementary Collaboration Agreement is at Exhibit M to the plaint. Relying upon this correspondence alongwith the other circumstances, Mr. Doctor contended that the object of the Joint Venture Agreement was not only to manufacture gas chlorination equipments, but also to manufacture electro chlorination equipments.

34. We do not find any substance in this contention. Clause 26 of the Shareholders Agreement dated 16.11.1995 provides that the said agreement sets-forth entire agreement and understanding between the parties as to the subject matter and superseded all negotiations, commitments and writings prior to the date of agreement pertaining to the subject matter of the said Agreement. Clause 28 thereof further provides that the Shareholders Agreement shall not be altered, modified or supplemented except with the prior written approval of the parties thereto. As noted earlier the Shareholders Agreement was entered into by and between Defendant No. 2 on one hand and the Plaintiff & Defendant No. 9 on the other. Similarly, Clause 24 of the Financial & Technical Know How Licence Agreement dated 16.11.1995 provides that no modification or amendment to the said agreement and no waiver of any of the terms and conditions set out therein shall be binding, unless made in writing, duly executed by both the parties. Plaintiff has not brought on record any material to indicate that various agreements entered into between the parties were suitably modified pursuant to the approval dated 21.04.1997 accorded by the Government of India. Even otherwise, no material is brought on record by the Plaintiff to substantiate that pursuant to the approval dated 21.04.1997, Defendant No. 5, was in fact manufacturing electro chlorination equipments.

35. Clause 17 of the Shareholders Agreement provides that the Plaintiff and Defendant No. 9 agreed to transfer such of the assets as are related to gas chlorination equipments business presently carried on by the Plaintiff and Defendant No. 9 as per the Appendix IV of the said Agreement. Thus, prima-facie, the assertions made by the Plaintiff that the Plaintiff and Defendant No. 9 transferred assets of their electro Chlorination equipment business to Defendant No. 5 Joint Venture Company, is also factually incorrect, and further having regard to the joint venture agreement there was inherent possibility of deadlock regarding the management of the company viz. Defendant No. 5. In that regard clauses 6, 7, 8 and 9 of the Shareholders Agreement indicate inherent possibility of deadlock in the management of the Company and consequently, if there is a deadlock, obviously, Defendant No. 5 would not be in a position to carry on its business. Having regard to clauses 6, 7, 8 & 9 of the Shareholders Agreement and having further due regard to the fact that the disputes and differences arose between the Plaintiff & Defendant No. 9 on one hand and Defendant Nos. 1 & 2 on the other from December, 1998 onwards and the said disputes and differences continued between them even in the year 2001, would prima-facie indicate that Defendant No. 5 was not in a position to carry on business. It is in these circumstances, we are of the opinion that the Plaintiff has not made out a prima-facie case for issuance of injunction as prayed for. This is to be appreciated on the backdrop of the fact that in for as Defendant No. 4 is concerned, even in the plaint the Plaintiff has admitted that prior to acquisition of Exceltec by Severn Trent, the Exceltec had an existing tie up and arrangement with Defendant No. 4 in India.

36. Even otherwise, there is one more reason for denying any interim relief to the Plaintiff and that is the delay in approaching the Court. The Plaintiff has specifically averred in the plaint itself that Defendant Nos. 1 & 2 started committing breaches since December 1998 and even in the year 2001 they continued to commit breaches. In the meeting of Board of Directors held on 10.12.2001 Defendant No. 9 in terms of clauses 4.4.5 and 4.4.6 declared that the joint venture agreements are only in respect of gas chlorination equipments and the electro chlorination was excluded. Despite this position, the Plaintiff has instituted a suit as late as on 19.01.2004. This is the additional reason for denying any interim relief to the Plaintiff.

37. In view of the aforesaid discussion, we are of the opinion that the interim order passed by the learned Single Judge on 23.12.2004 in the Notice of Motion No. 553 of 2004 and Notice of Motion No. 2382 of 2004 is liable to be quashed and set aside and is accordingly set aside. Notice of Motion No. 553 of 2004 and Notice of Motion No. 2382 of 2004 are dismissed. Both the appeals are allowed, leaving the parties to bear their respective costs.

38. At the request of learned Counsel appearing for the Respondents, it is directed that though we have dismissed the notices of motion by our judgment, the interim arrangement which is presently in force will continue for a period of eight weeks from today.