Percept D'Markr (India) Pvt.

Ltd
vs.
Zaheer Khan & Anr.
SUPREME COURT, 2006

Presented by: Aditya Kumar [17IP63002]

 FACTS
• Appellant carrying business related to event management including
model and celebrity endorsement and management, charity events, etc.

• The appellant entered into a promotion agreement with the respondent

for a period of 3 years (30.10.2000 - 29.10.2003).

• Clause 31(b) of Contract laid down a condition that respondent was

required to give an opportunity to the appellant to match any offer made
to him by any third party.

• Appellant forwarded a draft terms on 29.07.2003 for extension of said

agreement for a further period of 5 years.

• Respondent replied to the same stating that he did not wish to renew or
extend the promotion agreement.
 FACTS
• On 28.10.2003, one day before the expiry of the initial term of Promotion
Agreement, respondent replied to another letter sent to him by the appellant,
dated 27.10.2003, arguing that clause 31(b) of the Contract was void under
Section 27 of the Contract Act, 1956.

• After expiry of the Agreement, respondent entered into a contract with another
company.

• On 14.12.2003, the appellant filed an Arbitration Petition before Bombay High

Court (single judge), with a prayer of an interim order to restrain respondent from
entering into any agreement with the third party.

• The single judge granted an injunction . Respondent filed an appeal before

Division Bench of Bombay High Court. The Division Bench passed an order
holding clause 31(b) of the Contract to be void under section 27 of Contract Act.

• Aggrieved by the decision, appellant filed SLPs before the Supreme Court.
 ISSUE

• Whether the right of first refusal under Clause

31(b) of the Permission Agreement entered into
between the appellant and the respondent is void
under Section 27 of the Indian Contract Act,
1872, or not.
 ANALYSIS
31(b). FIRST REFUSAL: During the Term of the Agreement, prior to
completion of the first negotiation period provided for in sub-clause (a)
above, Zaheer Khan agrees not to accept any offer for his endorsement,
promotion, advertising, or other affiliation with regard to any products or
services. Thereafter, Zaheer Khan agrees not to accept any offer for
his endorsement, promotion, advertising, or other affiliation with
regard to any goods or services or for arrangement similar to the
transaction hereunder without first providing Percept with written
notice of such offer and all the material terms and conditions
thereof and offering Percept the right to match the third party offer.
Percept shall thereafter have right, exercisable by written notice to
Zaheer Khan within ten(10) days of receipt, to accept Zaheer Khan's offer
on the same terms and conditions offered by such third party. If Percept
does not accept Zaheer Khan's offer, Zaheer Khan shall thereafter have
the right to enter into an agreement with such third party.
 ANALYSIS
• Court perused the contract and found that the contract was
expressly limited to 3 years from 30.10.2000 to 29.10.2003,
unless extended by mutual agreement, and all obligations and
services under the contract were to be performed during the term.

• Clause 31(b) was valid and enforceable for the period mentioned,
and respondent complied with it during such period.

• Clause 31(b) is a negative covenant, and if it is enforced as

against subsequent contract entered into on 20.11.2003 then it
constitutes an unlawful restriction on respondent’s freedom to
enter into fiduciary relationships with persons of his choice -
Restraint of Trade under Section 27 of the Contract Act.
 ANALYSIS
• Appellant prayed for injunction for non-performance of
agreement terms (clause 31(b)) under section 42 of Specific
relief Act, 1963.

42. Injunction to perform negative agreement.—

Notwithstanding anything contained in clause (e) of section
41, where a contract comprises an affirmative agreement to do
a certain act, coupled with a negative agreement, express or
implied, not to do a certain act, the circumstance that the court
is unable to compel specific performance of the affirmative
agreement shall not preclude it from granting an injunction
to perform the negative agreement:

Provided that the plaintiff has not failed to perform the contract
so far as it is binding on him.
 ANALYSIS
• Court held that there can not be specific performance of a
contract for personal, confidential and fiduciary service,
which is barred by Clauses (b) and (d) of Section 14(1) of the
Specific Relief Act, 1963.

14. Contracts not specifically enforceable.—

(1) The following contracts cannot be specifically enforced,

namely:

(b) a contract which runs into such minute or numerous details or

which is so dependent on the personal qualifications or volition
of the parties, or otherwise from its nature is such, that the court
cannot enforce specific performance of its material terms;

(d) a contract the performance of which involves the performance

of a continuous duty which the court cannot supervise.
 ANALYSIS
• Court observed that:

“In view of the personal nature of the service and

relationship between the contracting parties, a contract of
agency/management such as the one entered into between
the appellant and respondent No.1 is incapable of specific
performance and to enforce the performance thereof would
be inequitable. Likewise, grant of injunction restraining first
respondent would have the effect of compelling the first
respondent to be managed by the appellant, in substance
and effect a decree of specific performance of an agreement
of fiduciary or personal character or service, which is
dependent on mutual trust, faith and confidence.”
 CONCLUSION
A restrictive covenant in restraint of trade which:

• restricts any person to enter into an agreement

of personal service in his future,

• liberty to deal with the persons he choses, and

• restriction extending beyond the tenure of the

contract

is VOID under Section 27 of the Contract Act.

THANK YOU !