Elster Instromet B.V. v. Mrunal Gandhi

(iv) The costs of this Application shall be decided in the fnal award.”

12. The legality and sustainability of this order is the bone of contention in the Petition fled by Instromet, by invoking Section 37 of the Arbitration and Conciliation Act, 1996.

13. The learned senior counsel Mr.Nankani, on behalf of Instromet, would rest his argument on the premise that three issues fall for consideration, in the present Petition; the frst being the scope of the ‘non-compete’ agreement in the form of clause No.6.[2] and whether it is enforceable against its Affliates and the second issue, being whether the non-compete agreement can be enforced beyond the validity of the JVA and thirdly, whether the Arbitral Tribunal was justifed in granting the relief beyond what was prayed for in clause (d), being worded as under:- “(d) this Hon’ble Court be pleased to grant an order of injunction restraining Respondent No.1 and Respondent No.3 and person claiming through or under it from carrying on business (including participating in tenders) in gas fow meters (including domestic gas fow meters and domestic diagraph meters) in India.” In contrast, what has been granted by the Tribunal is an injunction, restraining Instromet from carrying on business in Gas Flow Meters (including domestic Gas Flow Meters and domestic Diagraph Meters) in India directly or indirectly or through subsidiaries, except through the JVC. While emphasizing on the said point, he would submit that, the ‘non-compete’ clause in 6.[2] has applied the words, “directly or indirectly or through its subsidiary companies” and there is a conscious omission of the word ‘Affliates’, although the word ‘Affliates’ feature in the preceding parts of clause No.6.[2] and its intentional omission in the second proviso was indicative of its exclusion. Mr.Nankani would submit that while interpreting a contract between the parties, the endeavour should be to give effect to the intention of the parties and in any case, it was not permissible for the Arbitrator to re-write the contract. According to him, the term “directly or indirectly” are misconstrued by the Arbitrator and while granting the relief, what could not have been covered directly, has been attempted to be introduced indirectly, contrary to the contract and thus the injunction granted by the impugned order travel beyond the scope of the contract and in specifc, since the ‘noncompete’ restrict only the parties or their subsidiaries.

14. Apart from the above, it is submitted on behalf of Instromet, that the notice of termination was issued on 01/04/2020 and in any case, there is no JVA after 01/11/2020 and, therefore, the ‘non-compete’ clause cannot be enforced beyond its validity. Mr.Nankani has made a serious attempt to draw a distinction between the JVA and JVC and he assert that the ‘non-compete’ clause cannot be enforced, as the relationship between the parties do not survive beyond the contract and the understanding, in form of ‘non-compete’, shall subsist only during the period of contract. By making reference to Section 54 of the Contract Act, the learned senior counsel submits that as long as the Agreement continued, the relationship between the parties continued, but what the Arbitrator has observed that as long as JVC continued, the ‘non-compete’ clause shall operate, intending to keep it operational for an indefnite period and to cover the Affliates. As per Mr.Nankani, the order passed by the Tribunal suffers from perversity on these two counts. Apart from this, the Arbitrator has not considered the parameters for grant of injunction, as the Claimant had failed to make out the case of irreparable loss and there were no pleadings to that effect and despite the Applicant/Claimant not laying any foundation for grant of injunction in his favour, the relief granted cannot be upheld. Further, the impugned order has travelled even beyond the second proviso of clause No.6.2, as the Arbitrator, in impugned order has covered the term “directly/indirectly”, by bringing it in clause (g) i.e. a residual prayer clause. Yet another point, which is put forth is, the Arbitrator could not have passed order against third party and in no case, it was permissible for him to grant the relief by modifying the prayer.

15. Mr.Nankani has placed reliance upon the decision of the Apex Court in the case of Gujarat Bottling Co. Ltd. & Ors. Vs. Coca Cola Co. & Ors.[1] as well as two decision of the Bombay High Court in the case of Novartis Vaccines & Diagnostics Inc. Vs. Aventis Pharma Limited 2 and another decision in the case of Hindustan Construction Corporation Vs. Mazgaon Dock Ltd.3. It is his submission that the learned Arbitrator has vitally ignored the Petitioner’s argument that it was not the pleaded case of the Claimant and the Arbitrator had no jurisdiction to arbitrate over an expired Agreement and the further point that the decision did not intend to imply a ‘non- compete’ provision, where the discontinuation of the legal relationship between the parties was acknowledged and admitted. The learned senior counsel would further submit that assuming that the negative covenant survives despite the JVA coming to an end on 01/11/2020 and if the Court is satisfed that it does survive, even in that case, if his client does any business outside the JVC, Gandhi would be entitled for 30% of his profts and he is ready to maintain the accounts, which shall be placed before the Arbitrator, at the time of adjudication of the dispute before him. Another contention of Mr.Nankani, is the belated approach for interim relief, seeking injunction, only in September 2019 whereas, alleged breaches of ‘non-compete’ clause pertain to the year 2017, but the Tribunal completely ignored the aspect of delay. Apart of this, the Tribunal has also failed to consider that the Claimant has failed to establish prima facie case, irreparable harm and damages was adequate remedy, in the event when the Claimant’s assertions eventually stand in arbitration proceedings.

16. Opposing the submissions advanced on behalf of Instromet, the learned senior counsel Mr.Khambata would at the outset invite my attention to the scope for interference in an Appeal fled under Section 37 of the Arbitration Act and he would press into service the settled principle, being the Appellate Court shall not interfere with the discretion exercised by the Court of frst instance nor shall it substitute its own view, as long as the discretion exercised is not arbitrary, capricious, perverse or in ignorance of the settled principle of law and is a plausible view, in such case, the Appellate Court would not replace its discretion. He would place reliance upon the decision of the Apex Court in the case of Wander Ltd. & Anr. Vs Antox India (P) Ltd.,[4] as well as the decision of the Bombay High Court in case of Board of Control of Cricket in India Vs. Jaipur IPL Cricket Private Limited and a further decision in case of Swan Energy Ltd.vs. Peninsula Land Ltd. (Commercial Arbitration Petition

(L) No.40252/2022 decided on 06/02/2023)

While exercising the jurisdiction available under Section 37(2)(b) of the Act, according to Mr.Khambata, the law is well settled that merely because another view may be possible on the basis of interpretation of documents, the same cannot be a suffcient ground to interfere with the impugned order and particularly, when the impugned order under the challenge is an interlocutory and discretionary order and according to him, the scope is more limited than the jurisdiction which the Court can exercise under Section 37(1)(a) or Section 34 of the Act. In this background, it is his submission that unless the Court comes to a conclusion that the exercise of discretion by the Arbitrator under the impugned order is wholly unsustainable and it is an impossible view or it ‘gravely perverse’, this Court shall not tinkle with the same and as the petitioner has failed to establish that the order is either arbitrary, capricious or perverse or contrary to settled principle of law, the scope to interfere is limited.

17. Relying upon the the decision of the Apex Court in the case of Ssangyong Engineering & Construction Company Limited Vs. National Highways Authority of India (NHAI) 5, he would submit that the scope of interference under Section 34 is restricted only to the principles, which have been well recognized and even if an order is erroneous, it may not be necessarily perverse. The test of perversity, according to him, is well settled by this time, and in the present case, if the Arbitrator has held that the Affliates are covered by the injunction and the fnding that the ‘non-compete’ clause survive beyond the JVA, he would pose a question, whether this fnding is so shocking? According to Mr.Khambata, the Tribunal was bound by the law laid down and holding the feld and when the Arbitrator has followed the decision in the case of Novartis Vaccines & Diagnostics Inc. (supra), which was the law prevailing, there is no perversity, but if he would not have followed the binding law, his decision would have been perverse. Apart from this, Mr.Khambata submit that Instromet is a company incorporated under the laws of Netherlands and the arbitration contemplated is an international commercial arbitration as a result, any award arising thereunder, cannot be challenged on the ground of patent illegality or perversity, as this ground is no longer available for challenge under public policy of India, but would fall under patent illegality and if this is the fnal scope of interference in an award, it would defnitely govern the premise, which would determine the scope of interference of an interlocutory order in such proceedings.

18. Opposing the argument advanced on behalf of Instromet, Mr.Khambata urge that the stand of Instromet before the Arbitrator, that JVA pertain only to non-domestic gas meters and not to domestic gas meters and hence, the ‘non-compete’ would not extend to it, was highly misleading argument and rightly rejected, by holding that the language of JVA was not restrictive. Further, according to him, the Respondent was only an investment company and was not engaged in any manufacturing activity and if the JVA did not include its affliates, it would have rendered several of its provisions, if not the entire JVA redundant. Referring to clause No.6.2, the most controversial clause in the JVA, Mr.Khambata want the clause to be read in parts as it stands; for discerning the intention of the parties, as the Agreement uses different expressions, hence, each must be given its due meaning. Clause No.6.2, according to MR.Khambata postulate difference scenario pertaining to Affliates of the parties to the Agreement and determine the relationship inter se as well as the JVC, so formed, the ‘noncompete’ being one of a facet of their interface. As per Mr.Khambata, the term ‘directly or indirectly’ is of a wide canvass and has been rightly held so by the learned Arbitrator. Infusing life into the terms, ‘directly or indirectly or through its subsidiary’, according to Mr.Khambata, the proviso contemplated three distinct categories which were disjuncted by the use of the word ‘or’ and the term ‘Indirectly’ is broader than Affliates and the parties intentionally omitted to use the word ‘Affliates’ in the second proviso as Instromet was an investment company and when it carried business, it was always indirect and that is the specifc reason why the word ‘Affliates’ is excluded in the second proviso to clause No.6.2.

19. Mr.Khambata would fairly admit that the restriction contained in the second proviso to clause No. 6.2, about not entering or carrying any business in competition with JVC in India, exist as long as the contract exist and, hence, if the contract do not remain in force beyond November 2022, the ‘non-compete’ clause in the JVA, shall cease to have its effect, but he would invoke the ‘partnership principle’ to justify the restraint on Instromet in carrying any competing business, either directly or indirectly. It was his submission even before the Tribunal that even if JVA was not in existence or it did not contain the ‘noncompete’ or exclusivity clause, the principles embodied in the Indian Partnership Act, 1932, would nonetheless apply to it and bind the parties to the JVA. Drawing a comparison with the employer employee relationship as dealt with in Niranjan Shankar Golikari Vs. The Century Spinning & Mfg. Co. Ltd.6, Mr.Khambata do not dispute the proposition laid down in Niranjan Golikari (supra) and Gujarat Bottling Co. Ltd. (supra), i.e. negative covenant cannot be applied beyond the terms of the Agreement but according to him, the JVC is governed by the principles of partnership law, which prohibit a partner from carrying a competing business of partnership and this position is not altered even though the JVA is terminated as long as the business of the JVC subsists and the parties continue with its shareholding in the same.

The learned senior counsel would assertively press into service the observations of the Apex Court in case of New Horizons Limited & Anr. Vs. Union of India & Ors.[7] where the Apex Court has dealt with a scope and ambit of a joint venture and had concluded that on seeing through the corporate veil of the Company appearing to be in the nature of partnership between the Indian companies and a foreign company, it would be necessary to lift the corporate veil. The said proposition is followed in a subsequent ruling, in the case of Faqir Chand Gulati Vs. Uppal Agencies Private Limited & Anr.8, and according to Mr.Khambatta, the above principle was applied by the Bombay High Court in case of Novartis Vaccines & Diagnostics Inc. (supra). In short, the submission of Mr.Khambata is that as long as JVC exist and the partners continue to be the shareholders in the JVC and continue to be governed by JVC’s Articles of Association, the partnership subsists with its principles in full force and the parties cannot escape their obligations as partners. Lastly, Mr.Khambata has strenuously asserted that the sole Arbitrator has appreciated the circumstances surrounding the Application fled under Section 17 and on fnding that the balance of convenience is in favour of Gandhi and he would suffer irreparable loss, injunction is granted by a well reasoned order. In any case, it is the submission of Mr.Khambata that the Court may not agree with the outcome of the Application and may form an alternative view but interference on that count, if the view of the Arbitrator was a plausible view is not permissible while exercising the power under Section 37. Dealing with the objection of Mr. Nankani about the timelines as, interim prayer is sought after two years, of the alleged breach and Section 9 petition being fled in the year 2019, Mr.Khambata has responded, by submitting that the argument is based on a convenience and isolated reading of the Application, but if the same is read in its entirety, it would reveal that though Instromet sought to conduct gas business through its Affliate and on Gandhi objecting, Instromet agreed to withdraw its Affliates bid and rectify its wrong and there was no reason, to seek any relief in this situation.

20. Responding to the submissions advanced involving the principles of partnership law, it is argued by Mr.Nankani that this point is not pleaded in Section 9 petition, but it has come only by way of a rejoinder. This objection is, however, rebutted by Mr. Khambata, by pointing out the relevant pleading in Section 9 Petition where it was specifcally pleaded as under:- “The conduct of respondent no.1 and the Honey Well Group to start competing business activity is in breach of the JVA and in breach of its good faith duties as Joint Venture Partners in respondent no.2.” In other words, according to Mr.Khambata, Gandhi from the very beginning had based his cause of action on the JVA and the Instromet’s duties as ‘Joint Venture Partner’ and it was once again reiterated in his rejoinder to Instromet’s affdavit in reply. In order to bolster his stand without prejudice to the above submission, Mr.Khambata has also submitted that the arbitration proceedings are not governed by strict rule of pleadings and it is permissible, for the Tribunal at times to travel beyond the Code of Civil Procedure, with the only fetter on its power being to observe the principles of natural justice. It is also the submission of Mr.Khambata that the plea of applicability of the principles of partnership having been strongly contested before the Arbitrator, it is not now open to raise a ground that this plea was not raised/set up in the petition, but has been raised in the rejoinder for the frst time. In any case, Instromet had an opportunity to deal with the submission before the Tribunal and even before this Court and therefore, Khambata would insist that such a frivolous objection at this stage must be turned down.

ANALYSIS OF THE SUBMISSIONS

21. The JVA executed between the parties reveal the background and the circumstances in which the parties aligned together and ventured to explore their respective corporate skills, knowledge, resources, experience and expertise. The parties, together set up a JVC for the purpose of carrying out its object and this included the business as manufacturers, erectors, installers, testers, commissioners, traders, distributors, supplies etc. and service providers of Gas Flow Meters, Flow Computer Systems as well as Gas flters, Gas Pressure Regulators etc. The Agreement highlighted the main purpose of JVC as to promote, sell and service gas metering products and solutions of Instromet on an exclusive basis in India and the JVC was expected to be equipped to engineer, manufacture and construct metering skids/stations and electronic systems with limited technical risk at short notice.

22. Mr.Mrunal Gandhi, the Respondent, is engaged in the trading of gas measurement equipments, whereas Instromet, a company incorporated under the laws of Netherlands, is engaged in the business of gas measurement and control. The mutual covenants contained in the JV represented to each other that it had the power and authority to execute and deliver the Agreement and to perform the transactions contemplated thereunder and none of them nor any of its Affliates had any outstanding contractual commitments, liabilities or obligations which would in any way confict with the arrangement or prevent fulfllment of its obligations or to conduct the business contemplated thereunder. Apart from this, each party agreed to indemnify and hold harmless the other party as well as the ‘JVC’ from any and all liabilities, losses, costs, damages, commissions and expenses and costs of litigation, which the other party or JVC may sustain by reason of breach of, any of the representations and warranties. The parties agreed to subscribe to the shares of the company into the ratio of 70:30 and the JVC was authorised to issue such further shares to either party or the respective Affliates, which shall be held into proportion of 70:30.

23. The relevant clauses necessary for consideration of the issue before me deserve a reproduction. The frst and the foremost is the understanding of the parties as to certain terms and the relevant terms are defned thus:- “(d) “Affliates” means, with respect to a Party, any other Person who;

(i) directly or indirectly, owns or controls such Party; or

(ii) is directly or indirectly owned or controlled by such Party;

(iii) is directly or indirectly under common ownership or contract with such Party; and For the purposes of this defnition, the terms “control” (including the terms “controlling”, “controlled” and “under common control”) shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Party or Person, as the case may be, whether through the ownership of Shares, by contract or otherwise.” (r) “Joint Venture” means the operating Joint Venture established between Instromet and Gandhi under this Agreement to carry out the Purpose. (s) “Joint Venture Company” or “JVC” means a company incorporated in India in accordance with Article 3 to carry out the Purpose.”

24. Since the operation and implementation of clause 6.[2] is the bone of contention between the parties, I shall reproduce the same. “ARTICLE -6 FUNCTIONING/OPERATIONS OF THE JVC 6.[1] Instromet and Gandhi shall be responsible for all operations and decisions of the JVC and will be compensated for providing various services. 6.[2] Validity of Transactions Of validates - Affliates of the parties to this Agreement may be engaged to perform services for the JVC. The validity of any transaction, agreement or payment involving the JVC and any Affliates of the parties to this Agreement otherwise permitted by the terms of this Agreement shall not be affected by reason of the relationship between them and such Affliates or the approval of said transactions, agreement tor payment: Provided that parties to this Agreement, before their Affliates entering into any contracts with the JVC, shall disclose interest or concern in the transaction or otherwise in its Affliate. The parties to this Agreement and their respective Affliates may have interests in business other than the business of JVC. The JVC shall not have the right to the income or proceeds derived from such other business interests. Provided that the parties to this Agreement, directly or indirectly or through its subsidiary companies, shall not enter in or carry on any business in competition with the JVC in India unless unanimously agreed upon by parties to this Agreement.

25. From the reading of the impugned order, two major questions fell for consideration before the Arbitral Tribunal; whether the ‘non-compete’ provision in clause 6.[2] shall apply only to Instromet or would cover even its Affliates and secondly, whether the ‘non-compete’ apply only to the products and services that Instromet dealt in and/or whether the restriction apply only when the JVA remain in force. Clause 3.[5] of the JVA contemplated that the JVC shall deal with the goods and services of Instromet “on exclusive basis in India”. The object of JVC was clearly highlighted in JVA, to promote, sell and service gas metering products and solutions for Instromet “on exclusive basis” i.e. to the exclusion of others and that is the reason why the Agreement also contemplated that local manufacturing of the products by Instromet or its Affliates is excluded from the scope of the Agreement. The term “Affliates”, which was applied in clause 6.[2] and which focused on the functioning/operations of JVC is defned and, defnitely, with its wide import would include upstream and downstream companies. The JVA while introducing Instromet has contemplated that it shall include its successors and permitted assigns and Mrunal Gandhi to include his legal heirs and legal representatives.

26. The term “joint venture” is indicative of business project or activity undertaken by two or more entities to work together on a particular project. As per the Oxford Dictionary, the term “joint venture” is defned to mean a business project or activity that is begun by two or more companies etc., which are separate organizations. Joint Venture, is thus a business enterprise in which two or more companies/entities enter a temporary relationship for some assigned purpose and in the case of New Horizons Ltd. & Anr. (supra), a distinct facet of a Joint Venture, received a clear exposition in the following words:- “24. The expression "joint venture" is more frequently used in the United States. It connotes a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual proft or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It requires a community of interest in the performance of the subject-matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share both in proft and losses. (Black's Law Dictionary, 6th Edn., p. 839) According to Words and Phrases, Permanent Edn., a joint venture is an association of two or more persons to carry out a single business enterprise for proft (p. 117, Vol. 23). A joint venture can take the form of a corporation wherein two or more persons or companies may join together. A joint venture corporation has been defned as a corporation which has joined with other individuals or corporations within the corporate framework in some specifc undertaking commonly found in oil, chemicals, electronic, atomic felds. (Black's Law Dictionary, 6th Edn., p. 342) Joint venture companies are now being increasingly formed in relation to projects requiring infow of foreign capital or technical expertise in the fast developing countries in East Asia, viz., Japan, South Korea, Taiwan, China, etc. [See Jacques Buhart: Joint Ventures in East Asia - Legal Issues (1991).] There has been similar growth of joint ventures in our country wherein foreign companies join with Indian counterparts and contribute towards capital and technical know-how for the success of the venture.”

27. In the case of Faqir Chand Gulati (supra), the Construction Agreement between the land owner and the builder was tested on the touchstone of it being a joint venture, only to conclude that, absence of common/joint control or participation in the management of the activity as well as non-existence of sharing or proft and losses being missing, the Agreement cannot fall in the fold of a joint venture, in a legal sense and it will not be so, merely because it is captioned as “joint venture” or “collaboration”. Applying the test, the Apex Court observed that in order to refer to an entity as ‘joint venture’, there must exist an actual partnership or corporate designation or an association of two or more persons to carry out a single business enterprise for proft and the highlights of a JV were enlisted by the following characteristics:- “23. To the same effect is the defnition in Corpus Juris Secundum (Vol. 48-A pp.314-15): "Joint venture," a term used interchangeably and synonymous with 'joint adventure', or coventure, has been defned as a special combination of two or more persons wherein some specifc venture for proft is jointly sought without any actual partnership or corporate designation, or as an association of two or more persons to carry out a single business enterprise for proft or a special combination of persons undertaking jointly some specifc adventure for proft, for which purpose they combine their property, money, effects, skill, and knowledge... Among the acts or conduct which are indicative of a joint venture, no single one of which is controlling in determining whether a joint venture exists, are: (1) joint ownership and control of property; (2) sharing of expenses, profts and losses, and having and exercising some voice in determining division of net earnings; (3) community of control over, and active participation in, management and direction of business enterprise; (4) intention of parties, express or implied; and (5) fxing of salaries by joint agreement." (emphasis supplied)

24. Black's Law Dictionary (7th Edn., p. 843) defnes `joint venture' thus: "Joint Venture.- A business undertaking by two or more persons engaged in a single defned project. The necessary elements are: (1) an express or implied agreement; (2) a common purpose that the group intends to carry out; (3) shared profts and losses; and (4) each member's equal voice in controlling the project."

25. An illustration of joint venture may be of some assistance. An agreement between the owner of a land and a builder, for construction of apartments and sale of those of apartments so as to share the profts in a particular ratio may be a joint venture, if the agreement discloses an intent that both parties shall exercise joint control over the construction/development and be accountable to each other for their respective acts with reference to the project.”

28. The learned senior counsel Mr.Khambata, has conceded to the fact that the restriction imposed in clause 6.[2] in form of a ‘non-compete’ clause exist only during the subsistence of the contract, which assuming to have been continued till its termination in November 2022 but not thereafter, and he has invoked the partnership principle, as contemplated in the Indian Partnership Act, 1932 and in particular, the obligations cast upon the partners by virtue of the relationship between them as partners. When the provisions of the Indian Partnership Act, 1932 are carefully scanned, it has culled out the nature of a partnership and contemplate ‘Partnership’ as a relation between persons, who have agreed to share the profts of a business carried on by all or any of them acting for all. The persons entering into partnership with one another, individually are referred to as “partners” and collectively the entity which come into existence is “a frm”. As per Section 5 of the Act, the relation of partnership arises from contract and not from the status. Section 9 of the Act, set out the general duties of partners and provide that the partners shall carry on the business of the frm to the greatest common advantage and to be just and faithful to each other and shall render true accounts and full information of all things affecting any partner. Duty of good faith is the underlying salient feature in a partnership.

29. Section 11, sub-section (2) of the Partnership Act is a specifc provision, which imposes a restraint on a partner carrying on a business other than that of the frm while he continue to be a partner and sub-section (2) reads thus:- “(2) Notwithstanding anything contained in section 27 of the Indian Contract Act, 1872 (9 of 1872), such contracts may provide that a partner shall not carry on any business other than that of the frm while he is a partner.” Section 16 which relates to the profts earned by the partners is also of a great signifcance, as it determines the manner in which the proft of the frm shall be shared and the said section reads thus:- “16. Personal profts earned by partners.-Subject to contract between the partners,- (a) if a partner derives any profts for himself from any transaction of the frm, or from the use of the property or business connection of the frm or the frm name, he shall account for that proft and pay it to the frm; (b) if a partner carries on any business of the same nature as and competing with that of the frm, he shall account for and pay to the frm all profts made by him in that business.” Yet Another relevant provision in the Partnership Act is Section 54, which permit the partners of a frm, in an anticipation of its dissolution to make an agreement that some or all of them will not carry on a business similar to that of the frm within a specifed period or within specifed local limits and if such an arrangement is agreed between the parties, then it shall be valid, notwithstanding anything contained in Section 27 of the Indian Contract Act, provided the restrictions imposed are reasonable.

30. The joint venture entered between the parties is an arrangement, for attaining a particular purpose/object, with an agreed arrangement, as to the obligations to be discharged by each of them, including the ratio of proft sharing and investment. Such a relationship necessarily possess the requisite elements of partnership i.e. an association of two or more persons coming together to carry out a single business enterprise for proft and who by way of contract bound themselves into a venture by combining their property, money, skill, knowledge, then such a joint venture is governed by the same rules as applicable to ‘Partnership’. The relations of the parties to the joint venture and the nature of their association are so similar and closely akin to a partnership that their rights, duties and liabilities are generally tested by rules, which are closely analogous to and substantially the same, if not exactly the same as those which govern partnerships. Since the legal effect of a joint venture is equivalent to that of a partnership, it is not uncommon for the Courts to apply partnership law to the joint ventures, whenever necessary. Under the American Jurisprudence, which defne the term “joint venture” (2nd Edn., Vol.46,pp.19,22 and 23), it is observed as under:- “In fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to the other. Thus, the liability for torts of parties to a joint venture agreement is governed by the law applicable to partnerships."

31. When a joint venture is created as a special combination of two or more persons or entities to venture out something in specifc, without any specifc designation, but the association of such persons or entity carry out a single business enterprise for proft by reposing their special skill, knowledge, investment with a collective/joint control over the property, collective share of expenses, proft and losses and collective control and participation in management and direction of the business/venture, it is obvious that such an entity, is but a partnership concern. The parties to a joint venture may contribute capital, labour, assets, skill, experience, knowledge or other resources useful for a joint enterprise or project for which they have associated with one another. The creation of a joint venture is a matter of facts specifc to each case and although there is no statutory defnition of joint venture, Courts have recognized the following elements of such type of association; (1) An agreement (written or oral) between the parties manifesting their intent to associate as joint venturers; (2) Mutual contributions by the parties to the joint venture; (3) Some degree of joint control over the single enterprise or project; (4) A mechanism or provision for the sharing of profts or losses.

32. Joint ventures are widely formed, to gain entrance in arenas where the specialized agencies are required to operate and in foreign markets, where the domestic entities are already present for being associated with foreign entities, for bringing new technologies or business practices, while the domestic entity already has commercial relationships and requisite governmental documents within the country, along with being entrenched in the domestic arena. It is not uncommon to have joint ventures to gain positive synergy from their competitors, as various entities may expand, either by infusing more capital or through the medium of joint ventures, being formed with a defnite purpose. The joint venture provides a fexible modalities and with the mutual understanding between the two entities or companies, detailing the terms and conditions of their association, would create a joint venture, which they agree to undertake for the purpose of reaching that extra mile which an individual venturer, would not have been able to reach and helps the organization to scale up their limited capacity and the strength of the one can be utilized by other, giving competitive advantage to generate economy of scalability with a potential to grow and develop.

33. On signing of the JVA by Gandhi and Instromet, with its various terms and stipulations, the element of faith, trust and understanding are evident and need to be carefully appreciated. Though the JVA has come to an end w.e.f. 01/11/2020 in the wake of alleged termination notice, the JVC that had come into existence alongwith its Article of Association, continue to exist and it presently survive alongwith its shareholding and, hence, merely because the JVA has come to an end, the JVC has not become extinct. Assuming for a moment that clause 6.[2] in the JVA perishes with it i.e. upon its termination from November 2020, which was in form of a negative covenant, as a joint venturer in the joint venture, the relationship which was based on mutual trust and good faith akin to a partnership, there is no reason why the principles of partnership shall not be made applicable to such venturers in the joint venture.

34. The decision of this Court in the case of Novartis Vaccines & Diagnostics Inc. (supra), where Justice Anoop V. Mohta (As His Lordship was then) has culled out a connect between a joint venture and a partnership entered into for carrying out particular business has premised the foundation of meeting of mind, with an intention to carry joint business in cooperation, in trust and in good faith. Whilst dealing with a clause in the agreement, with submission that since it is the policy of law not to restrain any of the partner or a person or director from carrying on rival or competing business, in form of a express negative covenant, invoke the principle provided under Section 11(2) of the Partnership Act and recorded the following observation:- “42. ….. The mutual rights and duties of the partners of the frm or the company need to be determined by the contract between the partners. Such contract may be express or may be implied by a course of dealing as contemplated under Section 11 of the Partnership Act. Section 11(2) of the Partnership Act specifes and permit that such contracts may be providing that a partner shall not carry on any business other than that of the frm while he is a partner. This itself means knowing fully the effect and the purpose of Section 27 of the Indian Contract Act, it is permitted to such partners to agree by express or by implication not to permit other partners to do any business other than that of the frm while he is a partner. This does not, according to me, entitle the other partners to say and submit that in the absence of any negative covenant of this nature he is entitled to do competing business or any other rival business. The party may be agree that a partner shall not carry on any other business than that of the frm while he is a partner. This itself does not mean that in the absence of any agreement/negative covenant, he is free to do any competing business, unless agrees specifcally by the partners/parties, as contemplated under Sections 16,17, 34, 54 of the Partnership Act and/or even otherwise as it is always subject contract between the parties. If both the parties/partners agree and allow other partners to do the rival or competing business then only such partner is free to do such permissive rival business. Such contract between the partners may be expressly provided and/or may be implied by a course of dealing, but the submission that in the absence of negative covenant, they are free to do rival and competitive business, in my view, affects the whole purpose and object of the Partnership and/or Joint Venture. It creates confusion and disturbs the company's management, structure and the business and creates all sorts of bad impression and complications in the market for the supporting Groups and this internal fght supports the rival groups. Such competing business cannot be said to be permissible, unless agreed specifcally by the parties/partners. In absence of specifc contract between the parties, such rival competing business by one of the Directors and/or the partner creates more complication than solving and doing the good business of the company. ”

35. The learned Arbitrator, relying upon the above decision has concluded that two of the three elements of the partnership i.e. coming together of persons for business and the decision to share proft and losses was evident in the nature of their relationship and the third element of agency, prima facie, existed. The Arbitrator accepted Gandhi’s submission that even if the JVA did not persist, on the principles of partnership law, the negative covenant deserves to be enforced. While concurring with the submissions, advanced on behalf of Gandhi, the Arbitrator noted that joint ventures, in general, are governed by the same rules as are applicable to the partnership; that the relations of the parties to the joint venture and the nature of their association is similar to that of the partnership, and they are closely analogous and substantially the same, if not exactly the same, which govern a partnership and the courts would freely apply principle of partnership to joint ventures. The Arbitrator found support in arriving at this conclusion from the decision of the Apex Court in the case of Faqir Chand Gulati (supra).

36. The learned senior counsel Mr.Nankani appearing for Instromet attempted to persuade me, by submitting that the principles of partnership cannot be made applicable with such a straitjacket formula to a JV and he has specifcally focused his attention on the decision in the case of Niranjan Shankar Golikari and Gujarat Bottling Co. Ltd. (supra), in support of his submission that the negative covenant cannot be applied beyond the term of the Agreement in which it is contained. In any case, I need not hold myself to this argument, as Mr.Khambata has conceded to the position that a negative covenant cannot be applied beyond the term of the Agreement and this is what Niranjan Shankar Golikari and Gujarat Bottling Co. Ltd. (supra) have propounded upon. The test laid down in Gujarat Bottling Co. Ltd. (supra), upon examining whether a negative stipulation contained in a 1993 Agreement entered between the parties, being in restraint of trade is void in view of the provisions of Section 27 of the Indian Contract Act 1872, the position under common law in England was comparatively analysed to hold that the general principles once applicable to agreements in restraint of trade, have consequently been considerably modifed by later decisions in England, where in the earliest times all contracts in restraint of trade, whether general or partial, were void. Noting that the severity of this principle was gradually relaxed to give rise to a rule that a partial right might be good, if reasonable, although a general restraint of necessity is void and even this distinction between general and partial restraint was subsequently repudiated and the rule now is that restraints, whether general or partial may be good, if they are reasonable and any restraint on freedom of contract, must be shown to be reasonably necessary for the purpose of freedom of trade. What ultimately fows from Gujarat Bottling Co. Ltd. (supra) is the principle, that the Court has to decide as the matter of law, whether a contract is or is not in restraint of trade and whether, if in restraint of trade, the restriction is reasonable. However, it is not necessary for me to take this principle any further, as I am not called upon to determine the reasonableness of the restriction at present, as it is best left to the Arbitrator, when he would test the restraint on the principle of reasonableness, but since I am persuaded to accept the submission of Mr.Khambata that the principles of partnership would govern the joint venture and the negative covenant in the Agreement is liable to be enforced, as the JVC was formed with a purpose and it still survive, though the JVA has come to an end. I must, therefore, record that as long as the JVC subsists alongwith the continued relationship of being shareholder in JVC, governed by its Article of Association, the covenant of not undertaking competing business of JVC, would govern the parties till the relationship between the parties comes to an end, which can either by sale of shares of JVC or by its liquidation.

37. The argument that the plea is raised by Gandhi at the stage of rejoinder does not hold good as in fact it was specifcally pleaded in the affdavit-in-reply and, since, it was also extensively debated before the Arbitrator and also before me, I see no reason why it cannot be considered.

38. Another point extensively argued, which deserve a decision, is about the applicability of the negative covenant to the Affliates. In resisting the claim of Gandhi for interim relief, Instromet took a stand before the Arbitrator that the JVA pertain only to non domestic gas meters and not to domestic gas meters and this argument is rejected by holding that the language of JVA is not restricted, as the main object of JVC was to permit business of Instromet entities. Further attempt to argue that while describing the Respondent, the JVA did not include Affliates and, hence, the goods and services offered by its Affliates were irrelevant to JVA, this argument also met with same fate ad the Arbitrator has concluded that the Respondent ‘Elster Instromet B.V.’ in its original form was only an investment company and never indulged in manufacturing and it was not to include its Affliates, it would render several provisions of JVA redundant.

39. Another argument of Instromet is, even if the business of Affliates are to be included, it should be restricted to Instromet Group. The learned Arbitrator, by relying upon the contemporaneous correspondence addressed by the Instromet’s representative and the certifcates issued by ‘Elster Instromet N.V.’ recorded a fnding that the formal merger of Elster-Instromet group took place on 23/10/2007 and the certifcates placed, indicated that Elster Instromet were the part of the same group even before the formal order of merger and, Honeywell Group took over entire Elster- Instromet Group of companies on 17/10/2016 and a specifc fnding of the Arbitrator is to the effect that the certifcate issued on 17/10/2016 also refer to Gas Metering and Gas Meters generally, and without restricting the same to the nondomestic Gas Metering and Gas Meters. Apart from this, the brochure of “Elster Instromet” relating to its supply programme, which made a specifc reference to JVC, also had reference to domestic Gas Diaphragm Meters and the fnding of the Arbitrator that the JVA was not restricted to nondomestic Gas Metering and Gas Measurement equipment is a plausible fnding, with a specifc caveat that the evidence led may indicate otherwise, but it will be ultimately to be determined at the stage of trial. The learned senior counsel Mr.Nankani do not seriously contest this point and prefer not to take it ahead.

40. Another important aspect of the matter being whether the Arbitrator was justifed in extending the relief sought by the Claimant against its Affliates, as there is a strong contest on the said aspect. Under the impugned order, the learned Arbitrator has restrained the Respondent by an order and injunction from carrying on business in India directly or indirectly or through subsidiaries except through the JVC and this according to Mr.Nankani has travelled beyond the prayers, before the Arbitrator. The relevant non compete clause, in the form of proviso in clause No.6.2, when carefully read, stipulate that the parties to the Agreement, directly or indirectly or through its subsidiary companies shall not enter in any business in competition with the JVC in India unless unanimously agreed upon by parties. When the question fall for consideration, whether the second proviso in clause 6.[2] would extend to Affliates, the answer has to be found in the purpose of the formation of JVC and the nature of the JVA. Clause 6.[2] has to be read as a whole for the operation of JVC and when the joint venture was conceived, it was defnitely indicative of the two parties coming together and clause 6.[2] contain a reference to the Affliates of the parties to the Agreement, conduct of business by the parties to the Agreement, directly or indirectly or through subsidiary companies. What is implicit in the proviso is conduct of any competing business directly or indirectly or through a subsidiary company and it is the duty of the Arbitrator as well as of the Court to give effect to the intention of the parties. Clause 6.2, which relate to validity of transactions, cover the Affliates of the parties to perform the services for the JVC and contemplate that the validity of any transaction, agreement or payment involving the JVC and any Affliates of the parties, which is otherwise permitted by the Agreement shall not affected by relationship between them, with an exception that before the parties enter into contracts with the JVVC, they shall disclose interest or concern in the transaction or otherwise in its Affliates. This clause is a validating clause, according validity to the transactions. However, second portion of clause 6.[2] identify the arena, where the Affliates may venture into and by indicating that the respective Affliates of the parties may have interest in business other than the business of the JVC and they may continue with the same and the JVC shall have no right to the said income from such business interests. This arrangement is, however, subject to the second proviso to clause 6.[2] in form of non compete clause. This liberty is transact and venture into any other business cut short by adding a proviso, that the parties to the Agreement shall not enter in or carry on any business in competition with the JVC in India, either directly or indirectly or through its subsidiary companies. The second proviso carved out three categories; directly or indirectly or through the subsidiary companies and the learned Arbitrator has extensively propounded upon the term “Affliates”, which is defned in clause 1.1.(d), with respect to a Party, as other person who directly or indirectly owns or controls such party or is directly or indirectly owned or controlled by such party or is directly or indirectly under common ownership or control with such party. On reading of the said defnition, it is evident that it is to be construed widely and prima facie would contain upstream and downstream companies and the learned Arbitrator, on considering the object of the joint venture, has rightly construed the arrangement between the parties, as the main of the JVC was to promote the business not only of the Respondent, but also of the entities in the group to which the Respondent belongs and when it was noticed that Instromet is only an investment company, it could carry out the business only through its Affliates, the Tribunal has rightly concluded that at this stage, the proviso to clause 6.[2] cannot be construed not to extent to the Affliates. The observation of the Arbitrator in paragraph 20 is most relevant and I must reproduce the same:- “20. It was at one stage suggested by Mr.Naresh Thacker that while describing the Respondent, the JVA does not include the Respondent’s affliates and, therefore, the goods and services that the Respondent’s affliates dealt in were irrelevant to the JVA. However, at the interim stage it is diffcult to exclude the Respondent’s affliates for, as rightly agreed by Mr.Thacker, when the JVA was entered into, the Respondent carried on business only as an investment company. If “Instromet” did not include its affliates, it would render several provisions of the JVA, if not the entire JVA redundant” The clause providing for a restriction in permitting a competitive business to be carried out must receive a wide interpretation and it cannot be defeated by permitting an Affliate of either party to indulge itself in competing business indirectly. Keeping in mind the purpose of JVA i.e. to promote business not only of Instromet, but also of the entities in the group to which, Instromet is a part of and the defnition of the term “Affliates” alongwith the explanation appended indicate that the term ‘control’ shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the parties, as the case may be, whether to ownership of shares or by contract or otherwise. This is exactly the point which prompted the Arbitrator to reject the contention that the negative covenant would not apply to Instromet’s Affliates. The Arbitrator has rightly referred to clause 4(a) of the Articles of Association of JVC, which clearly contemplated the company to a joint venture between Instromet Investment B.V. (referred to as Group 1) and Gandhi group represented by Mrunal Gandhi (referred to as Group 2) and the parties to the JVA, being referred as Group 1 and Group 2, is indicated that it was a venture not merely between the two parties, but involved their group also.

41. The JVC was formed with the participation of Elster, which was subsequently struck out and replaced by Instromet Investments B.V. and the shareholding pattern was determined by the Articles of Association. Mr.Khambata rightly submitted that the Claimant and the Respondent were referred to as Group 1 and Group 2 companies, indicating that the JVA pertains not only to the two parties, but the Group as well and the Tribunal, by referring to Article 5.1.[3] of the Agreement, noted that Instromet was a part of the Elster Group, as Article 5.1.[3] read as under:- “5.[1] Financing from Promoters, Banks, Financial Institutions 5.1.3. Always provided and understood that Instromet is under certain fnancial and security obligations as being part of the Elster Group and that therefore the JVC shall always be obliged to fulfl any existing and/or arising obligations as being a part of the Elster Group as well.”

42. The Arbitrator has referred to Article 1.1.(d) of JVA, which has defne the term “Affliate”, while pronouncing upon the scope of negative covenant in clause 6.[2] held it to be covere even Elster’s Affliates. The conclusion of the Tribunal is based upon an undisputed position that at the time of execution of JVA. The Arbitrator premised his conclusion on the prima facie evidence produced before him and rejected Elster’s submission that exclusivity clause in the Agreement would not extend to Elster Group and extensively referred to the correspondence addressed by Elster’s representative, following the Agreement, to reach a conclusion that the correspondence read as a whole, is indicative of an association between the two Groups even prior to 2016. Apart from this, reliance is placed upon the certifcates issued by Elster and the dates on which they were issued, concluded that even prior to the formal merger of Elster and Instromet, they were part of the same group, at the time of arguments, it was never suggested that a false or incorrect declaration was made and, therefore, at the interim stage, it was proper to give effect to the certifcates placed on record. The reliance upon the Brochure of “Elster-Instromet” relating to its product for supply was rightly rejected, as it could not be conclusively determined at the interim stage.

43. Though the fnding of the Arbitrator is subjected to severe criticism by Mr.Nankani on the aspect of interpretation of the provision by contending that clause 6.[2] does not refect the word “Affliate” and only prohibited the parties themselves directly or indirectly competing with JVC. I am in agreement with Mr.Khambata, who has submitted that the matters of interpretation of provision of a contract, are primarily for the Arbitrator to decide and there is no question of reinterpreting the contract, and taking an alternative view.

44. The position of law as regards the power to be exercised under Section 37(2)(b) being well settled, that the Appellate Court will not interfere with the exercise of discretion of an Arbitrator and substitute its own discretion except on noting that the discretion by the Arbitrator have been exercised arbitrarily, or capriciously or where the learned Arbitrator had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. The Appellate Court, surely, cannot reassess the material in an attempt to reach a conclusion different from the one reached by the Arbitrator, if the one reached by the Arbitrator is reasonably possible, on the material placed before him. The Appellate Court shall not interfere with the exercise of discretion under Appeal solely on the ground that if it had considered the material, it would have come to a contrary conclusion, if the discretion has been exercised by the Arbitrator reasonably and in a judicial manner. Applying the aforesaid test, which by this time is well accepted proposition, the fnding recorded by the Arbitrator, in my opinion, is neither arbitrary nor capricious or perverse and is a plausible view. An attempt on the part of Mr.Nankani to read the words “directly” and “indirectly” synonymously would defeat the entire purpose of the proviso appended to clause 6.[2] in form of a non compete clause, which was intended to ensure that the parties do not compete with the business of the JVC i.e. deal in the products of Elster, Instromet and its Affliates. The understanding of the parties defnitely was not only to restrict it to the products of Instromet, as an investment company, as it did not carry any activity and specifcally manufacturing or sale of any product. Feeling the pulse of the discord, the learned Arbitrator has refused to construe them as synonymous terms and opined that the parties intended to have a wide sweep of this clause and its intent cannot be defeated, by permitting the Affliates to carry on competing business, which would be nothing short, to carry on business “indirectly”.

45. The learned Arbitrator’s interpretation of clause 6.[2] is consistent with the scope and purpose of the JVA, being to promote the business not only of the Respondent, but also of the entities in the Group to which the Respondent belongs and if the restrictive interpretation was to be applied to the proviso, it would cause damage to the very clause 6.2, by construing that the negative covenant did not extend to its Affliates and thus permit the Affliates to carry on competing business, and this would amount to circumventing the JVA and defeat the purpose for which the JVC was founded.

46. The JVA, being a long term partnership arrangement, requires a high level of co-operation between the joint venture partners and expect good faith requiring mutual trust, confdence and loyalty between the joint venture partners and, since, I fnd myself in agreement with the fnding of the learned Arbitrator that despite the JVA coming to an end, shareholders of the JVC, which still subsists, must continue to operate on the principles of partnership, which would embrace good faith, mutual trust, confdence and loyalty and, hence, shall not indulge in competing business with the existing JVA.

47. I do not fnd much substance in Mr.Nankani’s submission that Gandhi did not invoke the principles of partnership law in his Section 9 Petition and though Mr.Khambata has made every attempt to point out that the said argument is incorrect, I do not deem it appropriate to delve deep into this issue as it is a technical objection, as it is a well accepted position that the Arbitral Tribunal can travel beyond the Code of Civil Procedure, when required, the only fetter imposed upon its power, being to adhere to the principles of natural justice. The Arbitral Tribunal is not constrained by strict rules and procedure and apart from this general rule that as long as the matters, which are otherwise pleaded, are touched on, even indirectly or obscurely and the parties had knowledge of it and had the opportunity to address it, I see no substance in the said objection and it is not worth the consideration, as I conclude that the objection is just superfcial and in any case, when Elster had aruged this point with full force and rigor, I fnd no merit in the same.

48. The order passed by the Arbitrator, in my opinion, is a plausible view, based on the material placed before him and the premise that the Arbitrator has granted the relief beyond the prayer do not make the order perverse and the argument of Mr.Nankani that the test of perversity is also applicable to an Award, I am unable to persuade myself to accept the said submission, as the principle that the Court shall not reappreciate the evidence while hearing an Appeal, will even apply with equal force while dealing with an Appeal, assailing the order passed under Section 17 by the Arbitrator. The argument of Mr.Nankani that the Arbitrator has re-written the contract and, hence, the order passed by him is liable to be set aside, being perverse, do not appeal to me, as the Arbitrator has not recorded any conclusive fnding and have kept the issue between the parties left for trial. In the wake of the above, fnding no merit and substance in the Petition, posing a challenge to the impugned order dated 09/10/2020 passed by the learned Arbitrator, and by upholding the same the Arbitration Petition is dismissed. ( SMT.

BHARATI DANGRE, J.)