Home » Between The Lines » High Court of Delhi: An injunction against contractual relations of two parties in absence of law would violate Article 19(5) of The Constitution of India

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The High Court of Delhi (“DHC”) in the case of Inox Leisure Limited v. PVR Limited (decided on May 18, 2020) held that an injunction seeking interference with the contractual relations of parties, without an explicit law in place, would violate the fundamental rights under Article 19(5) of the Constitution of India (“Constitution”).

Inox Leisure Limited (“Plaintiff”) had instituted the suit against PVR Limited (“Defendant”) praying for a permanent injunction to restrain the Defendant from attempting to procure and/or attempting to induce a breach/termination of any agreement/ arrangement between the third parties and the Plaintiff in respect of non-functional properties of the Plaintiff across India; a permanent injunction, to restrain the Defendant from entering into any agreement or arrangement with any third party in relation to any non-functional properties across India and recovery of damages.

The Plaintiff’s submission was primarily that the Defendant was inducing the third-party developer from breaching contracts already executed with the Plaintiff. It was the Plaintiff’s statement that this inducement was being blatantly perpetrated by the Defendant in other locations as well. An important point to note here is that the Plaintiff and third-party developer had entered into a term sheet which had all the essential provisions governing their contractual relationship, while mandating a transaction document to be subsequently executed, although it was a mere formality.

At the time when the Plaintiff had started negotiating with respect to the property, neither the Defendant nor the developer thereof had informed the Plaintiff of any agreement already entered into by the Defendant and the Plaintiff learnt of the same from market sources much later. Immediately after the Plaintiff learnt of the agreement entered into by the developer with respect to the same property, with the Defendant, the developer who had not proceeded with the transaction since the signing of the term sheet with the Plaintiff, informed the Plaintiff that the term sheet stood automatically terminated on account of Plaintiff’s failure to execute the main transaction document within the stipulated time. The security deposit of the Plaintiff was returned, and the same was accepted without demur. Thus, for the aforesaid reasons, the Plaintiff instituted a suit against the Defendant in the DHC.

Whether the present suit with the aforementioned factual matrix is maintainable in law.

The Plaintiff submitted that the actions of the Defendant have been in the nature of interfering between the contractual relationship of the Plaintiff and the developer. Interestingly the Plaintiff stated that they along with the Defendant are probably the only two major players in the country, and the Defendant wishes to sabotage the Plaintiff’s market capitalisation. It was also submitted that the Defendant is attempting to piggyback on the success of the Plaintiff, and this conduct has resulted in a grave injury to the Plaintiff.

The primary legal submissions of the Plaintiff were:

  • If all the essential terms of a contract are contained in the document which also provides for signing of a further formal agreement, it is not always that without the formal agreement being signed, the document already signed is not enforceable. (Relying on Kollipara Sriramulu v. T. Aswatha Narayana [AIR 1968 SC 1028])
  • Inducement to breach a contract is recognised as a tort. (Relying on Aasia Industrial Technologies Limited v. Ambience Space Sellers Limited [1997 SCC OnLine Bom 681 (DB)]; Zimmerman v. Bank of America [191 Cal. App. 2d 55]) The primary legal submissions of the Defendant were:

I) No cause of action is stated for other properties as submitted by the Plaintiff, and thereby they do not require any consideration in the present case.
ii) Plaintiff was informed of the lapse of the term sheet upon failure to execute a transaction document, and the security deposit was consequently refunded, and the termination was not impugned. Thus, the contract has ceased to exist and the Plaintiff cannot seek a relief before this court.

  • The term sheet signed by the Plaintiff was not binding in itself and transaction document had to be executed subsequently to make the agreement binding on the parties.
  • The relief of injunction claimed in the suit is barred by Sections 41(e) and (j) of the Specific Relief Act, 1963.
  • Injunctive relief cannot be obtained to curtail competition and freedom in a free economy. (Relying on Pepsi Foods Limited v. Bharat Coca-Cola Holdings Private Limited [1999 SCC Online Del 530]).
  • Agreement to enter into an agreement is not enforceable. (Relying on Hansa V. Gandhi v. Deep Shankar Roy [(2013) 12 SCC 776])
  • The Plaintiff’s suit requires to be dismissed due to non-joinder of a necessary party, that is, the developer. (Relying on Mumbai International Airport Private Limited v. Regency Convention Centre and Hotels Private Limited [(2010) 7 SCC 417])

Observations of the Delhi High Court

Commercial damage if prayers are granted

The DHC rejected the contentions, prayers and submissions of the Plaintiff in toto. It was observed by the DHC that the suit as framed, is directed not only against the Defendant but also against others who have not been impleaded. During the hearing, it emerged that besides the Plaintiff and the Defendant, there are only one or two others carrying on same business but on a much smaller scale than the Plaintiff and the Defendant. The effect of granting injunction as sought against the Defendant, would be that the Defendant even if has entered into agreements with the developer/owner of the Amritsar and Mumbai properties, would be unable to proceed under the said agreements, leaving the developer/owner aforesaid in a lurch with respect to their properties meant for running and operating multiplex cinemas and who will have no option but to accept whatever commercial terms the Plaintiff offers. Such damage is also sought to be inflicted on the owners of other multiplex properties across India, without affording them even an opportunity to be heard.

Inappropriate reliefs sought

The DHC observed that the Plaintiff had erred in its prayers and reliefs sought. If according to the Plaintiff, it had a binding lease with the developer/owner of the properties at Amritsar and Mumbai and had not been put into possession of the property, the remedy of the Plaintiff in law was to seek to be put into possession of the property; on the contrary if according to the Plaintiff it did not have a binding agreement or a lease but only an agreement to lease, the remedy of the Plaintiff was to sue for specific performance thereof; yet further, if according to the Plaintiff, the Plaintiff only had a promise from the developer/ owner of the said properties to grant a license to the Plaintiff of the said properties and the developer/owner were in violation thereof, the remedy of the Plaintiff was to claim damages from them.

The DHC considered the candour of the Plaintiff in not raising any objection while taking the refund of the security deposit, signifying termination of the agreement with the developer.

Non-joinder of necessary party

The DHC also remarked that due to the developer not being made a party, it cannot also be determined whether it was the Plaintiff who was in breach/violation of its obligations under the agreement entered into with respect to the said properties or it was the said developer/owner. Thus, the suit suffered from the blunder of non-joinder of necessary party as well.

Claim of tortious liability

The DHC rejected the Plaintiff’s claim of tortious liability on an interesting analogy drawn from precedents. The court while relying upon Modicare Limited v. Gautam Bali [2019 SCC OnLine Del 1051] had dealt with the issue of exemployees enticing customers and consultants. A similar argument of interference in contractual relations being a tort was raised and rejected by the DHC. The reasoning behind this is simple, it would be illogical that the law under Section 27 of the Indian Contract Act, 1872 on the one hand would disable a Plaintiff from enforcing a contract where the Defendant had voluntarily agreed not to do something, by going to the extent of declaring such contract void, but on the other hand, enable the same Plaintiff to the same relief under the law of tort.

The DHC observed further that after the coming into force of the Constitution, the restriction if any, on the fundamental right to carry on any trade or business or to practice any profession can be imposed only by making a law, that is, a law prohibiting unlawful interference in business and enticing another to commit breach of existing contractual obligations, and the constitutionality of which law if challenged would be tested on the anvil of Article 19(6) of the Constitution.

In another case of Emergent Genetics India Private Limited v. Shailendra Shivam [2011 SCC OnLine Del 318], a suit brought by the Plaintiff against its ex-employees/ex-directors for permanent injunction to restrain them from selling similar seeds as the Plaintiff was involved in breeding during the term of employment of the Defendants, and after finding the invention claimed by the Plaintiff to be not falling in the ambit of the Copyright Act, 1957 or Patents Act, 1970 or the Protection of Plant Varieties and Farmers’ Rights Act, 2001, denied the injunction and held that “the danger of enclosing as a monopoly, under the umbrella of trade secret or confidential information, what is clearly commonly shared information and resources, in the absence of a statutory regime is, that the Courts of law would at one fell stroke, not only make policy choices which would impact livelihoods of millions, but would be ordaining, unwittingly, legislation, which cannot be tested for its reasonableness”.

Applying this analogy of employment contracts to the present factual scenario, the DHC observed that the grant of injunction claimed by the Plaintiff on the premise of the actions of the Defendant comprising a tortious act of interference with contractual relations of the Plaintiff, would be in violation of the fundamental right of the Defendant, its promoters and directors to carry on trade and business, without any law having been enacted by the State in this respect in the interest of general public, within the meaning of Article 19(5) of the Constitution.

Decision of the Delhi High Court

The suit was dismissed by the DHC, and a cost of INR 5,00,000 was imposed on the Plaintiff. The reasoning for imposing the cost by the DHC was that the Plaintiff did not have a cause of action, and the remedies sought were barred in law.

Vaish Associates Advocates View
The present case as described by the DHC, was truly a case of judicial adventurism. The reliefs sought although seem reasonable in the first instance, they are in reality capable of wreaking havoc over commercial relations, specifically in those domains where there are only a few large players in the market. The suit of the Plaintiff was suffering from non-joinder of a necessary party, whose rights would have been directly affected if the reliefs were to be granted. In our view, this alone would have been a ground enough to dismiss the suit.

The DHC has cleared the air around the position of tortious liability in case of inducement of breach of contract, especially in commercial transactions. Although the position in respect of tort and employment contracts had been settled, the analogy was helpful in establishing the principle of grant of injunction in the absence of specific laws. This judgement further remarks (as an obiter dicta) on the extent of importing principles of English law into the Indian domain, specifically when there is a law in place addressing the issues. In this case, the principles of tort from English law were not allowed to be applied in the factual context, when the law was against Article 19(5) of the Constitution. This also stands as a warning to tread carefully in applying the principles of equity, and colorable prayers cannot be sought in the garb of these principles.

For more information please write to Mr. Bomi Daruwala at [email protected]