gujarat bottling company v coca cola
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7/14/2019 Gujarat Bottling Company v Coca Cola
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← Derry v. Peek Percept D’Markr (India) Pvt. Ltd. v. Zaheer Khan & Anr. →
M/S Gujarat Bottling Co.Ltd. & Ors. v. The Coca Cola Co. & Ors.
JANUARY 30, 2013 LEAVE A COMMENT
M/S Gujarat Bottling Co.Ltd. & Ors. v. The Coca Cola Co. & Ors.
1995 SCC (5) 545
(Restraint of Trade, Substitution, Assignment)
FACTS:
GBC entered into an agreement in 1993 with Coke for grant of franchisee to prepare, bottle, sell brands of latter, but
not to be concerned with the beverages of any other brand during the subsistence of the agreement and of 1 year
period notice for its termination (Para 14) Under the agreement, GBC also had right to discontinue supplying syrup on
effective transfer of control of GBC by transfer of shares or any other indicia without the prior express consent of
Coke (Para 19). In all, 1993 agreement was for grant of license to GBC under common law by Coke.
GBC, however entered into another agreement with Coke in 1994 where under it was required to make an application
to register the agreement under the statute as Registered User Agreement . Though the period of termination notice
was reduced to 90 days but no similar provision as that of Para 14 of 1993 agreement was stipulated and neither was
1993 agreement expressly substituted.
The shareholding of GBC was transferred subsequently to Pepsi and it served Coke with a notice of 90 days to
terminate 1994 agreement, and as a matter of abundant precaution, as 1 year notice terminating 1993 agreement,
notwithstanding the contention that 1993 stands replaced by 1994 agreement. Coke sought GBC to be refrained from
dealing with the beverages of Pepsi for the period of 1 yr. of termination notice.
ISSUES:
1. Whether 1994 agreement substituted 1993 agreement?
2. Whether Para 14 of 1993 agreement was in restraint of trade u/s 27 of Indian Contrcat Act (ICA), hence void?
HELD:
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Since 1993 agreement was grant of license to GBC under common law and 1994 agreement is executed under the
requirements of statute for the purpose of registration of GBC as user under the relevant act, hence, the nature and
scope of two agreements was considerably different; such that 1994 agreement could not be considered as
substituting 1993 agreement. Mutual i ty as under S.62 required for s ubst i tut ion o f agreement requires both
cons ensus ad idem between the part ies and an intent ion to sub st i tute the or iginal agreement . No such
intention of the parties to substitute 1993 agreement could be construed from 1994 agreement.
In UK: While contracts in restraint of trade whether general or partial, are prima facie void. But, if such a restraint is
held to be reasonable in regard to publ ic po l icy and in consideration of interests of both the parties, then such a
restraint, whether general or partial, is subsisting.
In India: “A contract in restraint of trade is one by which a party restricts his future liberty to carry on his trade,
business or profession in such manner and with such person as he chooses” ( Super intendence Company of India
v. Kr ishan ) unless such a restriction is in furtherance or promotion of trade in which he is presently voluntary
engaged ( GBC v. Coca Cola ).
Under S.27 of ICA, no dist inct ion , whatsoever, exists between the contracts whether in partial or in general restraint
of trade; such that every such agreement is void. Further, no test of reasonableness in such a restraint, as applied
in UK, is applicable according to literal interpretation of S.27 in Indian context, such that notwithstanding whether a
restraint of trade is reasonable/conscionable or not, it is nevertheless vo id according to S.27 ( Upheld: Zaheer )
When the contract is in prom ot ion, fur therance or faci l i tat ing of t rade , then it cannot be said to be in restraint of
trade. Secondly, except in cases where the contract is wholly one sided and unconscionable, normally when the
restriction is subsisting only dur in g the per iod of the contract and not thereafter, such restriction isn’t held to be in
restraint of trade. However, while construing a covenant in light of S.27, balance of rights of both the parties needs to
be taken into consideration. “A negative covenant, if subsisting during the existence of contract, must not be greater
than necessary to protect the interest of employer, nor unduly harsh and oppressive to the employee”
( Super intendence Company o f India v. Kr ishan ) But, a post-contractual restriction of trade imposed upon the
party, whether partial or complete, is to be held as violative of S.27 ( Zaheer & Krishan )
Restrictions imposed on employees must be carefully scrutinized for there is inequality of bargaining power betweenthe parties in employm ent contracts ; with employees being presented with standardized forms of contract either to
accept or reject ( both cases). However, the general rules as to restraint of trade are applicable in case of all contracts
( GBC ).
1993 agreement was commercial agreement where under both parties undertook obligations to ‘wholeheartedly’
promote the sale and production of Coca Cola goods for their mutual benefit, such that the restriction not to deal with
the competing goods was for facilitating the distribution of goods of franchiser (Coke) and was not in anyway restraint
of trade.
Further, since the negative covenant is applied only during the period of sustenance of 1993 contract and not
thereafter, hence it not being ‘unduly harsh or unconscionable’ cannot be held to be in restraint of trade.
Author: Vishrut Kansal (National University of Juridical Sciences, Kolkata) About these ads
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FILED UNDER CONTRACT LAW, FUNDAMENTALS TAGGED WITH ASSIGNMENT, CONTRACT LAW, INDIAN
CONTRACT ACT 1872, RESTRAINT OF TRADE, SUBSTITUTION
About Vivek Kumar Verma
5th year law student at the W.B.National University of Juridical Sciences (NUJS), Kolkata, India.
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