Enforceability of Non-solicitation of Master Supply Agreement after termination & Section 9 of AA
In Section 37 AA appeal, the interim injunction order dated 30.6.2023 of the learned Single Judge under Section 9 of the AA restraining the appellant from sourcing forgings / parts or products from an Indian entity was challenged.
On 31.3.2015, the Master Supply Agreement between the appellant and the respondent – supplier for various products was executed.
Clause 3 provided for non-compete / non-solicitation clause that the Company would have exclusive right to deal with all customers introduced to the suppliers in USA, Canada and Mexico, during MSA and thereafter, for a period of 24 months after termination of MSA.
Thus, the Company would not source forgings from any other Indian company unless Supplier refuse to supply the same.
On 27.1.2023, the Supplier invoked Clause 15 and served termination notice on the appellant. The Respondent – supplier filed arbitration petition and section 9 application for interim injunction as per clause 3 of MSA.
HELD that the plea that clause 3 of MSA is void can be raised for the first time in section 37 appeal even if it was not raised before Section 9 Court. Non-compete / non-solicitation clause would not operate after termination of the agreement as it would result in restraint of trade prohibited by Section 27 of the Contract Act. Even if the parties had engaged in some transactions post termination, that by itself would not be sufficient to compel the Company to continue such arrangement in the face of section 27. An interim injunction order against the appellant based on Clause 3 of the MSA is illegal.
Judgment dated 17.10.2024 of the High Court of Bombay (OS) in Commercial Appeal (Lodging) No.26031 of 2023 of Indus Power Tech Inc. Vs. M/s. Echjay Industries Pvt Ltd with connected matter
