Case Note & Summary
The dispute arose from appeals filed against a judgment by the Bombay High Court regarding the validity of a right of first refusal clause in a contract between a celebrity and an event management company. The appellant, Percept D’Markr (India) Pvt. Ltd., entered into a Promotion Agreement with cricketer Zaheer Khan on 01.11.2000, which was set to expire on 29.10.2003. The agreement included a clause that required Zaheer Khan to offer the appellant the right to match any third-party offers for endorsements after the contract's expiration. After expressing his intent not to renew the agreement, Zaheer Khan entered into a contract with another company, prompting the appellant to file an arbitration petition seeking interim relief. The Single Judge granted relief, but the Division Bench of the High Court later dismissed the petition, declaring the right of first refusal clause void under Section 27 of the Indian Contract Act, 1872. The Supreme Court heard arguments from both sides regarding the interpretation of the clause and its implications on trade. The appellant contended that the clause was regulatory and not a restraint of trade, while the respondents argued it was void. The court ultimately upheld the High Court's decision, emphasizing the long-standing interpretation of restraint of trade in contractual agreements. The court noted that the right of first refusal imposed restrictions that were not permissible after the contract's termination, thus affirming the Division Bench's ruling that the clause was void.
Headnote
A) Contract Law - Restraint of Trade - Validity of Right of First Refusal - Indian Contract Act, 1872, Section 27 - The court examined whether the right of first refusal in the agreement constituted a restraint of trade. It held that the clause was void as it imposed restrictions post-contract termination, thus violating Section 27 (Paras 1-15).
Issue of Consideration
Whether the right of first refusal under clause 31(b) of the permission agreement is void under Section 27 of the Indian Contract Act, 1872 as being in restraint of trade.
Final Decision
The Supreme Court upheld the Division Bench's ruling that the right of first refusal clause in the agreement was void under Section 27 of the Indian Contract Act, 1872, affirming that it constituted a restraint of trade.
Law Points
- restraint of trade
- right of first refusal
- arbitration
- interim relief
- negative covenant
