Mercantile Law

Injunction against Partners from competing

Comment : This pronouncement concerns a case where a partnership firm sought to injuct it’s ertwhile(retired) partners from carrying on competing business in contravention of Retirement Deed. The Court did not grant the relief for the reason that the plaintiff/applicants could not bring a prima facie – insofar as there was no apprehension objectively determinable that they start the business in the name of partnership firm, and in absence of such tangible fears no Injunction to be granted. 
Delhi High Court
Shri Gagandeep Singh S/O Shri … vs Shri B.R. Arya, Shri Ranbir Singh … on 18 April, 2006
Equivalent citations: 129 (2006) DLT 544
Author: M B Lokur
Bench: M B Lokur

JUDGMENT

Madan B. Lokur, J.

1. The Plaintiff has filed a suit praying for a permanent injunction restraining the Defendants, jointly or severally, from carrying on any business in the name and style of ‘Perfection House’ or its variations. In the suit, he has filed an application under Order XXXIX Rules 1 and 2 of the CPC praying for a similar injunctive relief.

2. In his written submissions, the Plaintiff has expressed the issue raised by him in the following words:

The issue that arises in the suit and in the application is whether the defendants No. 2 and 3 who are the former partners of the partnership Perfection Silk and Saree Kendra, after retirement, can be permitted to use the trade name in any form or not.

3. The grievance of the Plaintiff has arisen because Defendants No. 2 and 3 are using the premises bearing No. E-19, N.D.S.E. Part-I, New Delhi (owned by Defendant No. 1), for carrying on business under the name and style of ‘Perfection House’. According to the Plaintiff this is impermissible.

4. The Plaintiff, Defendants No. 2 and 3 and two others constituted a partnership firm carrying on business in the name and style of ‘Perfection Silk and Saree Kendra’. By executing a deed dated 1st April, 2000 Defendants No. 2 and 3 retired from the firm and their accounts were duly settled. Clause 6 of the retirement deed is of importance because it was strongly relied on by learned Counsel for the Plaintiff in support of his case. This Clause reads as follows:-

6. That first, second and fifth parties shall be entitled to and have exclusive right over goodwill of the partnership business including the name ‘Perfection Silk and Saree Kendra and the retiring partners Shri Ranbir Singh and Shri Manpreet Singh have no right, title or interest whatsoever in any asset or the partnership business including its goodwill and the name’ M/s. Perfection Silk and Saree Kendra.

5. Learned counsel for the Plaintiff submitted, on the basis of the above Clause read with Section 36 of the Indian Partnership Act, 1932 (the Act) that Defendants No. 2 and 3 had no right to use the word ‘Perfection’ in any business that they may be concerned with. Section 36 of the Act reads as follows:- 36. Right of outgoing partner to carry on competing business. – (1) An outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but, subject to contract to the contrary, he may not, –

(a) use the firm name,

(b) represent himself as carrying on the business of the firm, or

(c) solicit the custom of persons who were dealing with the firm before he ceased to be a partner.

Agreements in restraint of trade. – (2) A partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within a specified local limits; and, notwithstanding anything contained in Section 27 of the Indian Contract Act, 1872 (9 of 1872), such agreement shall be valid if the restrictions imposed are reasonable.

6. I am afraid that on a plain reading of the retirement deed and Section 36 of the Act, the Plaintiff has not made out any case for the grant of an injunction. The language of Clause 6 of the retirement deed, as also Section 36 of the Act, make it clear that Defendants No. 2 and 3 cannot carry on business in the name and style of ‘Perfection Silk and Saree Kendra’. There is nothing to show that these Defendants are carrying on business in the name and style of ‘Perfection Silk and Saree Kendra’. Nor is there anything in the retirement deed or Section 36 of the Act that prevents these Defendants from using the word ‘Perfection’ in any business that they may be carrying on. Ex facie, the Plaintiff has not been able to make out any case in his favor. In the absence of any restrictive covenant in their agreement with the Plaintiff or any restrictive provision in the Act, Defendants No. 2 and 3 are free to use the word ‘Perfection’ in their business. The Plaintiff has failed to make out any prima facie case in his favor.

7. Even otherwise, there is no injury caused to the Plaintiff. In paragraphs 7 and 8 of their written statement, Defendants No. 2 and 3 have stated that the Plaintiff had closed down his business of ‘Perfection Silk and Saree Kendra’ about five years ago. It is stated as follows-

It is submitted that neither the plaintiff nor the other 2 partners continued the business of ‘PERFECTION SILK and SAREE KENDRA’ and in fact after about 6 months of the retirement deed dated 1.4.2000 the plaintiff and others closed down the business of ‘PERFECTION SILK and SAREE KENDRA’ and sub-let the premises to Metro Shoes and presently the show room at Metro Shoes is in operation and running from premises No. A-6, South Extension Part-I, New Delhi for last about 5 years.

8. The Plaintiff has filed a replication but he has not denied this averment of Defendants No. 2 and 3. What he says is this:-

7-8. The submissions of paras 7-8 are denied and it is submitted that subsequent to the retirement of the Defendant, the plaintiff reconstituted the Partnership as indicated in the documents filed Along with the suit. It is also submitted that the averments of the Defendant with regards to discontinuance of the business are wrong and misconceived. It is also submitted that pursuant to the rights vested in the plaintiff exclusively the plaintiff inter alia continues to use the name Perfection in the name and style of Perfection Silk and Saree Kendra Along with Perfection House Collection without any interruption and/or interference whatsoever.

9. It appears that this issue came up for consideration when the injunction application was heard on 29th September, 2005 and learned Counsel for the Plaintiff took time to file an affidavit explaining the factual position with regard to the contents of the above paragraphs. An affidavit dated 3rd October, 2005 was filed by the Plaintiff but unfortunately this does not at all advert to the averment of Defendants No. 2 and 3 that the Plaintiff is not carrying on any business called ‘Perfection Silk and Saree Kendra’ and that in the premises where that business was being carried on (before it closed down about five years ago) a showroom of Metro Shoes is operating. In the absence of any clear denial by the Plaintiff, the averment made by Defendants No. 2 and 3 must be deemed as accepted. This being the position, it cannot be said that the Plaintiff will suffer any injury if the injunction is declined.

10. On the issue of balance of convenience, Defendants No. 2 and 3 have categorically stated in their written statement that there are two businesses in garments in the same vicinity using the word ‘Perfection’, while in Delhi there are about five other businesses in garments using the ‘Perfection’. For this reason, it was submitted that the Plaintiff cannot seek to restrain Defendants No. 2 and 3 from using the word ‘Perfection’ in their business. Learned counsel for the Plaintiff clarified that he is not making out a case of passing off, but only a case of violation of the terms of the retirement deed and Section 36 of the Act. Under these circumstances, it is not necessary for me to consider this contention, since it has already been held that there has been no violation of the retirement deed or the Act.

11. In view of the above, the application for injunction is dismissed. The Plaintiff will pay costs of Rs. 5000/- to Defendants No. 2 and 3 within four weeks from today.

12. Any observation touching the merits of the case is only for the purposes of disposing of this application and will not bind the parties in the trial of the case.

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