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Hukmi Chand Vs. the Jaipur Ice and Oil Mills Co. and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtRajasthan High Court
Decided On
Case NumberS.B. Civil Second Appeal No. 319 of 1963
Judge
Reported in1969WLN570
AppellantHukmi Chand
RespondentThe Jaipur Ice and Oil Mills Co. and ors.
DispositionAppeal dismissed
Cases ReferredBut Tulk v. Moxhay
Excerpt:
contract act - restraint in trade is void--onus of proof is on party supporting contract.;contracts in restraint of trade are prima facie void. the onus of proof is upon the party supporting the contract to show that the restraint goes no further than it is reasonably necessary to protect the interest of the covenantee. if this onus is discharged, the onus showing that the restraint is nevertheless injurious to the public is upon the party attacking the contract.;(b) contract act - valid restraint in trade--conditions for.;in order to be valid, a contract in restraint of trade must satisfy the following conditions, namely.;;(1) it must be reasonable;;(2) it must be founded on good consideration; and;(3) it must not be too vague.;(c) interpretation of statutes language of statute plain -.....c.m. lodha, j.1. this is a defendants's second appeal arising out of a suit]for injunction.2 the respondent-plaintiff the jaipur ice and oil mills, company filed the suit through its partner mahadeo prashad out of which this second appeal aries on 31-3-69 against kalicharan, his son hukmichand, his father ramniranjanlal, his wife smt. geenia and his minor son rajgopal for issuing a permanent injunction restraining the defendants from putting up an ice factory on the disputed land shown in green colour in the plan ex. 3 and for prohibiting them to do any business on it pertaining to manufacture of ice. the jaipur ice oil mills company was originally composed of six partners, viz. kishenlal, mahadev prasad, satyanarain kalicharan, bishamberedas. and jeewan prasad and a partnership deed.....
Judgment:

C.M. Lodha, J.

1. This is a defendants's second appeal arising out of a suit]for injunction.

2 The respondent-plaintiff the Jaipur Ice and Oil Mills, Company filed the suit through its partner Mahadeo Prashad out of which this second appeal aries on 31-3-69 against Kalicharan, his son Hukmichand, his father Ramniranjanlal, his wife Smt. Geenia and his minor son Rajgopal for issuing a permanent injunction restraining the defendants from putting up an ice factory on the disputed land shown in green colour in the plan Ex. 3 and for prohibiting them to do any business on it pertaining to manufacture of ice. The Jaipur Ice Oil Mills Company was originally composed of six partners, viz. Kishenlal, Mahadev Prasad, Satyanarain Kalicharan, Bishamberedas. and Jeewan Prasad and a partnership deed between them was executed on 28-2-1947. It started manufacturing ice, oil and soap in Bani Park, Jaipur. Bishamber Das and Jeewan Prasad left this firm on 27-4-49 and the rest of the four partners continued the partnership business upto 31-2-1958 on which date the firm was dissolved by a dissolution deed Ex. 2. The plaintiff's case is that Kalicharan defendant No. 1 retired from the partnership and was paid Rs. 25,454.02 as his share of the capital invested by him and over and above that he was also paid Rs. 11.001/- as his share of the price of the goodwill of the firm The firm had acquired a plot of land No. 1-VII measuring 260' x 325' at Bani Park. Jaipur on a part of which the factory had been constructed. Defendant No. 1 Kalicharan too had constructed a tesidential house on a piece of this land measuring 385' x 83' with his own money and it was agreed between Kalicharan, the retiring partner on the one hand and Kishanlal, Mahadev Prasad and Satyanarain, on the other, (vide Clause 12 of the dissolution deed Ex. 2) that the aforesaid land measuring 325' x 88' and the house standing therein would be the exclusive property of Kalicharan with full rights of sale and mortgage and that Kalicharan would get a boundary wall constructed or have a wire fencing on that piece of land and open a separate door towards the road side but would not have any entrance or exit towards the factory compound. It was also agreed (vide C. 13 of this deed) that Kalicharan would not carry on the same kind of business i.e. ice factory on the land in his possession. It appears that Kalicharan sold a part of the land in his possession measuring 88' x 162' to his father Ramniranjanlal for a consideration of Rs. 3168/- by a registered sale deed Ex. A/18 dated 12-1-1959. By deed dated 11th February, 1959 (Ex. A/23) Ramiranjanlal entered into partnership with Smt. Geenia Bai wife of Kalicharan and Hukmichand son of Kalicharan for carrying on business of manufacturing ice and also admitted Rajgopal Kanodia miner son of Kalicharan to the benefits of partnership. The plaintiff's case is that the defendants 2 to 5 thereafter applied for a licence put up an ice factory on the aforesaid land measuring 88' x l62' in their possession and started making further preparations in this direction. It was alleged that according to the terms of the dissolution deed Ex. 2 the defendants were not entitled to put up an ice factory on this land or to do any other business incidental to it, and, therefore, the plaintiff prayed that the defendant may be restrained a perpetual injunction from putting up an ice factory or, doing any business pertaining to it on the above mentioned land.

3. Kalicharan and Hukmichand filed separate written statements. Both of them took a number of pleas but the only one which survives now in this appeal is as to the effect of Clause 12 and 13 of the Dissolution Deed Ex. 2.

4. The trial court came to the conclusion that Clause 13 of Ex. 2 did not impose unreasonable restraint of trade on the defendant Kalicharan' and his transferees and consequently the defendants were bound by the restrictive covenant, and were not entitled to put up an ice factory on the land in question in pursuance of that clause. On appeal by the defendants, the learned Senior Civil Judge Jaipur City No. 2, affirmed the judgment and decree of the trial Court and consequently the defendant Hukmichand has come in second appeal to this Court.

5. Mr. D.P. Gupta learned Counsel for the appellant has argued that the restrictive covenant in the present case is rot reasonable, inasmuch as the defendant Kali Charan has been restrained from exercising a lawful trade for an indefinite period and therefore it is void. In the second place it has been contended that even if it is held that Kalicharan is bound by the covenant, it is not at any rate binding on his transferee viz. Ram Niranjanlal as it is not a covenant running with the land. In support of his contention learned Counsel has relied upon a large number of English and Indian decisions and has also referred to the relevant provision of the Indian Contract Act and the Indian Partnership Act, 1932.

6. 1 may deal with the first contention of Mr. Gupta namely, whether the agreement by which Kalicharan was restrained from running an ice factory in the premises in question is void being a restraint of trade. The law regarding Restraint of Trade, has been dealt with in Halsburys Laws of England (Third Edition Volumes 28 and 38). While dealing with 'In junctions after Dissolution ' it has been observed in Volume 28 para 1092 (P-561).

It a partner, who has sold his share of the business to his partners, has under taken not to compete with them, he will be restrained by injunction from acting contrary to such undertaking.

In Paragraph 1144. while dealing with 'Covenants in restraint of trade', it has .been said,-

Articles of partnership often contain provision prohibiting an outgoing partner from carrying on a similar trade or profession within specified limits of time and distance. Such provisions are not enforced unless the restrictions are reasonable.

Lord Halsbury has summarised the law regarding 'Restraint of Trade Agreement' in volume 38 at page 15 in these words,-

Freedom of trade:--It is the general principle of the common law that a man is entitled to exercise any lawful trade or calling as and where he wills, and the law has always regarded jealously any interference with trade even at the risk of interference with freedom of contract, as it is public policy to oppose all restraints upon liberty of individual action which are injurious to the interests of the State.

The learned author has classified restraints upon the general freedom to trade into three Classes , (1) by custom, (2) by statute, and (3) restraints imposed by virtue of agreement.

7. It appears at that one time contracts in restraint of trade, whether general or partial, were void; but the severity of this principle was gradually relaxed and it became the rule that a partial restraint might be good if reason able, but general restraint was of necessarly void. A restraint was regarded as general if it was unlimited as to space, that is. apparently , if it extended over the whole of the United Kingdom or substantially so even though limited as to time; it was not, however, so regarded if, though unlimited as to the persons with whom the covenantor .might deal, or as to the manner in which or the name under which the trade might be carried on, or, it would appear, as to the capacity in which the covenantor might engage in the trade. The mere fact that it was unlimited as to the time did not constitute it a general restraint. Eventually the doctrine that there was an essential distinction between a general and partial restraint was repudiated, and the rule now is clear that restraints whether general or partial may be good if they are reasonable. Any restriction upon freedom of contract must be shown to be reasonably necessary for the purpose of freedom of trade. A person may be restrained from carrying on his trade by reason of an agreement voluntrarily entered into by him with that objects and in such a case the general principle of freedom of trade must be applied with due regard to the principle that public policy requires for man of full age and understanding the utmost freedom to contract, and that it is public policy to allow a trader to dispose of his business to a successor by whom it may be efficiently carried on. Agreements in restraint of trade are, generally speaking, made (1) between vendors and purchasers of business (2) between partners; (3) between emplyers and employed; and so forth and so on. Contracts in restraint of trade are prima facie void. The onus of proof is upon the party supporting the contract to show that the restraint goes no further is reasonably necessary to protect the interest of the covenantee. If this onus is discharged, the onus showing that the restraint is nevertheless injurious to the public is upon the party attacking the contract. In order to be valid, a contract in restraint of trade must satisfy the following conditions, namely,-

(1) It must be reasonable;

(2) it must be founded on good consideration; and

(3) it must not be too vague.

In estimating the reasonableness of an agreement in restraint of trade, extravagant possibilities should not be taken into account, Evidence as to the mode in which the agreement has been carried out is not relevant to the question of its construction, nor is evidence that the covenantee or other1 persons think it reasonably necessary. A covenant in restraint of trade must) be reasonable with reference to the interest of the public. The covenant must't also be reasonably necessary for the protection of the interest of the covenantee and regard must be had to the interests of the covenantor.

8. As to the extent of area of operation it has been said, that the reasonableness of an area of restraint depends upon the nature of business to be protected and the manner in which it is carried on. Regarding duration 1 of restraint I am tempted to reproduce para 35 of Halsbury's Laws of England? Third Edition (Volume 38):

35 Restraint as to time in general. A limit of time is an important matter for consideration; but the absence of such limit will not make a restraint void if it is otherwise for it is reasonable that a restraint imposed, in respect of the limit as to time, for the protection of a| business, should be wide enough to protect that business not only in the hands of the covenantee, but also of his legatee, representative, or J assignee, and with this object the restraint may be co-extensive with the life time of the convenantor & is not affect d by the fact that the original covenantee has ceased to carry on business, or is dead.

9. It may not be out of place here to refer to the law regarding 'Bargains in Restraint of Trade' in United States of America. In Restatement of the law of Contract of the American Law Institute (1932 Edition) Volume II, the topic regarding bargains in restraint of trade has been summarised, thus.

A bargain is in restraint of trade when its performance would limit competition in any business or restrict a promissory in the exercise of gainful occupation. A bargain in restraint trade is illegal if the restraint is unreasonable. A restraint of trade is unreasonable, in the absence of statutory authoritation or dominant social or economic justification, if it,

(a) is greater than is required for the protection of the person for whose benefit the restraint is imposed, or

(b) imposes undue hardship upon the person restricted, or

(c) tends to create, or has for its purpose to create, a monopoly, or control price or to limit production artificially, or

(d) unreasonably restricts the alienation or use of any thing that is a subject of property, or

(e) is based on a promise to refrain from competition and is not ancillary either to a contract for the transfer of good-will or other subject of property or existing employment or contract of employment.

The following instances of reasonable restraint have been given under Section 516 of that book.-

(1) A bargain by the transferor of property or of a business not to compete with the buyer in such a way as to injure the value of the property or business sold;

(2) A bargain by a partner not to interfere by competition or otherwise with the business of the partnership while it continues, or subject to reanonable limitations after his retirement.

10. The following illustrations given in that book may be quoted with advantage.-

1. A sells to C the assets of A's business & the good-will thereof1, and agreed never to engage in a similar business in that town in competition with B B's business extends throughout the town Though the agreement is unlimited in time, its limitation in space makes it reasonable.

2. A, B, and C form a mercantile partnership for a term of ten years. Each agrees with the others that he will not engage individually in the business of the partnership during its continuance, and that if the business is continued by the other two members of the partner hip after its termination, he will not compete with the business as carried on by those two. The restraint of trade is reasonable.

Thus according to American Law an agreement by partner not to compete with the business of partnership either directly or indirectly is not opposed to public policy; but such an agreement must be ancillary to the contract of partnership itself or to a contract by which a partner disposes of the business at the time of his retirement, provided it is reasonable in its limit.

11. The law in India on the point is modified. Section 27 of the Contract Act provides as follows:

27 Agreement in restraint of trade void - Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

Exception 1 - Saving of agreement not to carry on business of which goodwill is sold: One who sells goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business there in : Provided that such limits appear to the Court reasonable, regard being has to the nature of the business.

12. The relevant section in the Indian Partnership Act 1932 are these:

'Section' 36. Rights 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 specified local limits; and, not withstanding any thing contained in Section 27 of the Indian Contract Ac?, 1872 such agreement shall be valid if the restrictions imposed are reasonable.

Section 54, Agreements in restraint of trade. - Partners may, upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits; and not withstanding contained any thing in Section 27 of the Indian Contract Act, 1872, such agreement shall be valid if the restrictions impose are reasonable.

Section 55. Sale of goodwill after dissolution. (1) In settling j the accounts of a firm after dissolution, the goodwill shall, subject to contract between the partners, be included in the assets, and it may ; be sold either separately or along with other property of the firm.

Rights of buyer and seller of goodwill (2) Where the goodwill of a firm is sold after dissolution, a partner may carry on a business competing with that of the buyer and he may advertise such business, but, subject to agreement between him and the buyer, 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 its dissolution.

Agreement in restraint of trade. - (3) Any partner may, upon the sale of the goodwill of a firm, make an agreement with the buyer that such partner will not carry on any business similar to that of the firm within a specified period of within specified local limits, and, not withstanding anything contained in Section 27 of the Indian Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable.

13. Thus according to the provisions of the Contract Act as well as the Partnership Act any partner may, upon the sale of a goodwill of a firm, make an agreement with the buyer that such partner will not carry on any business similar to that of the firm within a specified period or within specified local limits, and, such agreement shall be valid if restrictions imposed are reasonable.

14. learned Counsel for the appellant streneously urged that the word 'or' used between the words 'within a specified period' and 'within local limits' in the above quoted relevant provisions of the Indian Partnership Act should be read as 'and'. In support of his contention he has relied upon:

AIR 1968 SC 861 Mazagaon Dock Ltd. v. Commissioner of Income-Tax and Excess Profits Tax;

: [1964]1SCR561 Shri Govindlalji v. State of Rajasthan;

: [1965]2SCR328 Chunibhai v. Narayanrao.

He has also urged that the restriction imposed upon Kalicharan is not reasonable as it is for an definite period. I would first consider the question whether the word 'or' should be read as 'and' in Section 36(2), Section 54 and Section 55(3).

15. It is well established that when the language is not only plain, but admits of but one meaning the task of interpretation can hardly be said to rise. The rule of construction is 'to intend the legislature to have meant what they have actually expressed.' The intention of a statute must be collected from the plain and unambiguous expression used there in rather than from any notions which may be entertained by the court as to what is just or expedient. It was observed in The New price Goods Bazar Co. Ltd., Bombay v. Commissioner of Income-Tax, Bombay AIR 1960 SC 165 that.

It is elementary that the primary duty of a Court is to give effect to the intention of the Legislature ' as expressed in the words used by it and no outside consideration can be called in aid to find that intention.

Again in Jugalkishore v. Raw Cotton Co. 1955 SC 376 S.R. Das J. observed as follows.

The cardinal rule of construction of statutes is to read the statute literally, that is, by giving to the words used by the legislature their ordinary, natural and grammatical meaning. If, however, such a reading leads to absurdity and the words are susceptible of another meaning the Court may adopt the same. But if no such alternative construction is possible, the Court must adopt the ordinary rule of literal interpretation.

In Ramnarain v, State of Bombay : AIR1959SC459 Bhagwati, J. speaking for the court stated the law as follows.

If the language of the enactment is clear and unambiguous it would not be legitimate for the Court to add any words thereto and evolve there-from some sense which may be said to carry out the supposed intentions of the legislature. The intention of the Legislature is to be gathered only from the words used by it and no such liberties can be taken by the Courts for effectuating a supposed intention of the Legislature.

In Mazagaon Dock Ltd. v. Commissioner of Income-Tax and Excess Profits tax AIR 1968 SC 861 (supra), relied on by the learned Counsel for the appellant their Lordships were pleased to hold.

The word 'or' in the clause would appear to be rather inappropriate as it is susceptible of the interpretation that when some profits are made out they are less than the normal profits, tax could only be imposed either on the one or on the other, and that accordingly a tax on the actual profits earned would bar the imposition of tax on profits which might have been received. Obviously, that could not have been intended, and the word 'or' would have to be read in the context as meaning 'and'

Similarly in Shri Govindlalji v. State of Rajasthan : [1964]1SCR561 (supra) it was held that,-

There can be no doubt that 'or' in Clause (g) must mean 'and for the context clearly indicates that way.

So also in Chunibhai v. Narayanrao : [1965]2SCR328 (supra) it was held that the word 'or' between Sub-section (1) (b) (ii) and Sub-section (1) (b) (iii) in the Bombay Tenancy and Agricultural Lands Act (67 of 1948) in conjunction with the succeeding nagative is equivalent to and should be read as 'not'

16. However, it appears to me that there is absolutely no necessity to read the conjunction 'or' as 'and' in the above cited provisions of the Partnership Act. There is no warrant for the proposition that the intention of the Legislature while making the above mentioned provisions was that the restraint of trade on the retiring partner must be within a specified period and also within specified local limits. As would appear from the English Law and American Law referred to above that the absence of a limit of time will not make a restraint void if it is otherwise reasonable. I am, therefore unable to accept the contention of the learned Counsel for the appellant that the word 'or' must be read as 'and' in the above cited provisions of the Partnership Act. In my opinion all that is required is that the validity of an agreement in restraint of trade must be tested by the reasonableness of the restraint imposed with respect to the protection of convenantee and the public interest involved.

17. This brings me to the question of reasonableness of the restraint imposed on the covenantor which has to be determined with reference to the particular facts and circumstances. In the present case the restraint has been reasonably limited in space in as much as the covenantor has agreed not to carry on the same kind of business that is Ice Factory only on the land measuring 325' x 88' that is within the compound of his house which was before the retirement of the defendant Kalicharan from partnership a part of the premises of the factory. It is this clear that there is no restraint on the defendant against his carrying on similar business any where else outside the limits of the house. The agreement is, however, silent as to the limit of time. The submission of the learned Counsel for the appellant is that being unlimited in time it is unreasonable. It may be observed that there is no statutory requirement that such an agreement must be limited by time. Exception 1 to Section 27 Contract Act itself provides that the restriction would remain in force so long as the buyer, or any person deriving title to the goodwill from him carries on a like business therein. It is not the defendant's case that the plaintiff has stopped his Ice Factory. In these circumstances I fail to see how the agreement in question can be branded as unreasonable merely because no time limit has been fixed. It may be recollected here that the defendant Kalicharan, while retiring from the partnership business received from the plaintiff not only Rs. 16459. 02 on account of capital invested by him, but he was also paid Rs. 1100)/- as price of the goodwill. The agreement, regarding restraint imposed upon the defendant Kalicharan, was entered into to reasonably protect the interest of the covenantee, that is, the plaintiff. Then again, the learned Counsel for the appellant failed to show who the restraint is injurious to the public. Hence it cannot be said to be incompatible with public interest. It is quite obvious that but for such a condition the plaintiff would not have been in a position to derive the intended benefit out of the transaction. The defendant Kalicharan sold the goodwill and agreed not to compete. To permit him to derogate from his own grant would be a sure deterrent in commercial energy and activity. In this view of the matter, I am of the opinion that the restrictions imposed upon the defendant of not carrying on a similar trade that is Ice Factory, in the compound of the house, which was formerly a part of the premises of the factory was reasonable and cannot be struck down as illegal and void.

18.Learned Counsel for appellant cited the following cases in support of his contention that the agreement is unreasonable and must not be enforced:

AIR 1934 PC 101 V.M. & S. Brewing Co. v. Creverise, Ltd; 1947 A.E.R. (1) 758 Routh v. Jenes; 1938 A.E.R. 409 Way v Bishop; 1894 (2) Ch.Div. 377 Smith v. Hancock; AIR 1941 PC 75 Connors Bros. v. Bernard Connors; ILR 1921 (XLVII) Cal. 1030 Bhandra Kanta Das v. Parasullah Mullick; and AIR 1954 Bom. 532 Krishnarao v. Shanker.

I have examined these authorities and in my opinion, these cases are altogether distinguishable on facts, and, therefore, I do not consider it worthwhile to refer so i ach of them in detail. learned Counsel for the appellant conceded that he has not been able to lay his hands on a single authority Indian, English or American where the agreement regarding restraint of trade has been held to be illegal and void only on the ground that no time limit has been fixed for its operation. On other hand as I have already stated in the earlier part of my judgment, an agreement of this nature cannot be struck down merely because it does not fix a time limit and all the facts and circumstances of the case have to be looked into, order to judge its reasonableness. On a careful consideration of all the facts &circumstances; of the case I have definitely come to the conclusion that the agreement in present case is reasonable and, therefore, valid.

19. Now it remains to consider another important branch of the argument of the learned Counsel for the appellant that the covenent in the present case does not run with the land, and therefore, at any rate defendants Nos. 2 to 5, who have derived their title to the land in question from defendant No. 1 cannot be bound down by the personal covenant entered into by the latter. It is urged that the defendant No. 1 Kalicharan alone has undertaken not to carry on the same kind of business that is Ice Factory within the area of the land in his possession and he has not bound his assignees and heirs. It has also been contended that the lower court has erred in pressing into service sections 11 and 40 of the Transfer of Property Act, which deal with covenants running with the land. In support of his contention learned Counsel has relied upon Mabaraj Eahadur v Balchand AIR 1922 PC 165; Miti Lal Daga v. Iswar Radha Damodar AIR 1936 Cal. 727; Zetland v. Driver 1938(2) A.E.R. 158; and Harihas Singh v. Kamta Prasad AIR 1944 Oudh. 35.

20. On the other hand the contention of the learned Counsel for the respondent is that the restrictive covenant in the present case is a benefit of an obligation arising out of contract annexed to the ownership of immovable property and such a right or obligation may be enforced against a transferee with notice thereof. It is urged that the transferee Ramniranjanlal is the father of the covenantor Kalicharan and the other defendants are his wife and sons, who has notice of the restrictive covenant in as much as it is mentioned in the sale-deed executed by Kalicharan in favour of Ramniranjanlal (Ex. A18) that as a result of the dissolution of the firm Jaipur Ice and Oil Mill Co. on 13-3-58, the vendor Kalicharan became owner of the residential house and a part of the land measuring 88' x 325'. It is also mentioned in the sale deed that the plot has been sold together with all rights, title and interest of the said vendor that is Kalicharan. It is submitted that looking to the relationship of the transferee with Kalicharan and the recitable in the sale-deed itself, it cannot be gain-said that the defendants Nos. 2 to 5 had ample notice of the covenant entered into by Kalicharan and, therefore, defendants Nos 2 to 5 are also bound by it. In support of his contention, learned Counsel has relied upon Lordstrathoona Steamship v. Dominion Coal Co. Limited 1926 IAC 108; Tulk v. Moxhay 41 E.R.C. 1143; Rambriksh v. Shyamsunder AIR 1920 Pat. 349; Dhannulal v. Banshidhar AIR 1920 Pat. 349; and Lodha Colliery Co. v. Bepin Behari AIR 1920 Pat. 383(2).

21. The general principle underlying section 40 of the Transfer of Property Act is that personal contract even though it may have reference to property is binding only as between the parties thereto and their privies. It is not, as a general rule, enforceable against third persons into whose hands the property might have passed Section 11 of the Transfer of Property Act provides that where, on a transfer of property, an interest therein is created absolutely in favour of any person, but the terms of the transfer direct that such interest shall be applied or enjoyed by him in a particular manner, he shall be entitled to receive and dispose of such interest as if there were no such direction- However, the second paragraph or this section makes an exception to the general rule and recognizes the validity of such a direction, if it has been made for the purpose of securing beneficial enjoyment of other property belonging to the transferor. Such a contract would be valid and enforceable as between the parties and also their privies to the contract. The English Law in connection with the restrictive covenant seems to have undergone consideration change and distinction seems to have been drawn between an affirmative covenant and a negative covenant. Under Section 40 as is it stood prior to the amendment in 1929 the obligation of either kind that is affirmative or negative could be enforced not only against the purchaser, but also against transferees from him with notice of such right or gratutious transferees. This was in accordance with the decision of Tulk v. Moxhay 41 E.R.C. 1143 (supra) decided in 1848 in England, but that decision, it appears, was not followed in England in later cases so far as affirmative obligation was concerned and Section 40 has now been amended so as to bring the law in this country in line with the present English Law by providing that only rights to restrain the enjoyment of property 'that is negative obligations can be enforced against transferees with notice or gratuitous transferees. The English Common Law general rule that the burden of a covenant affecting land does not run with the land applies in this country also. But although at law the burden of a covenant did not run with the land, Courts of Enquiry, in the exercise of their equitable jurisdiction, enforced such covenants against the assigns of the covenantor under certain circumstances. A direction in an absolute transfer that the interest transfered shall be applied or enjoyed by the transferee in a particular manner is not binding on the transferee. The position would, however, be different where the transferee agrees for consideration to restrict his enjoyment of the property transferred to him. The enforcement of such an agreement depends upon the validity thereof under the law of Contract. Thus Section 40, Transfer of Property Act, provides that an obligation of this nature, that is to say, an obligation arising out of restrictive covenant may be enforced against a transferee with notice thereof, (vide; Dhannulal v. Bansidhar AIR 1920 Pat. 349 (supra).

22. Again in Lodha Colliery Co. v. Bepin Behary AIR 1920 Pat. 383 (supra) it was observed by Das J. that whether the covenant runs or does not run with the land, and whether the interest of the defendant is that of an under lessee or that of an assignee, the defendant is liable on the covenant. It was further held that the covenant was restrictive in nature in as much as it restricted one right of the lessee to conduct his mining operations in any portion of the barrier. By reason of the equitable doctrine of notice, the assignee was treated on the same footing as the lessee on the ground that if an enquiry is attached to the property by the owner, no one purchasing or taking an under-lease with notice of that equity can stand in a different situation from the party from whom he purchased or took an under-lease. As Lord Chancellor Cottenham pointed in Tulk v. Moxbay; 'If that namely, the argument that the purchaser was not bound by any covenant that did not run with land; If that were so, it would be impossible for an owner of land to sell part of it without incurring the risk of rendering what he retains worthless.

In this view of the matter the question is not whether the covenant runs with the land, but whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor, and with notice of which he purchased. Nothing could be more inequitable than that the original purchaser should be able to sell the property next day for a greater price, in consideration of the assignee being allowed to escape from the liability, which he had himself under-taken.

23. In Mati Lal Daga v. Iswar Radha Damodar AIR 1936 Cal. 727 (supra) relied upon by the learned Counsel for the appellant, the learned Judges of the Patna High Court observed that the equitable doctrine of restrictive covenants has been brought to a focus in the leading case of Tulk v. Moxhay 41 E.R.C. 1143 (supra). That doctrine has been affirmed in later decision: Haywood v. Brunswick Permanent Benefit Society (23); and has been approved by their Lordships of the Judicial Committee of the Privy Council in Lord Strathcona Ltd. v. Dominion Coal Co. Ltd 1926 IAC 108. These authorities lay down that a negative covenant will be binding on assignee. In this connection I am tempted,' to reproduce the following illuminating passage from the judgment of Lord Shaw in Lord Strathcona Ltd. v. Dominion Coal Co. Ltd. 1926 IAC 108 at page 119:

But Tulk v. Moxhay is important for a further and vital consideration namely, that it analyses the true situation of a purchaser who having bought upon the terms of the restriction upon free contract existing, thereafter when vested in the lands, attempts to divest himself of the conditions under which he had bought; 'it is said that the covenant being one which does not run with the land, this Court cannot enforce it; but the question is, not whether the covenant runs with the land, but whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor, and with notice of which he purchased. Of course, the price would be affected by the covenant, and nothing could be more inequitable than that the original purchaser should be able to sell the property the next day for a greater price, in consideration of the assignee being allowed to escape from the liability which he had himself undertaken. In the opinion of the Board this views much expressive of the justice and good faith of the situation, are still part of English equity jurisprudence and an injunction can still be granted there under to compel, as in a Court of conscience, one who obtains a covenance or grant sub conditions from violating the conditions of his purchase to the prejudice of the original contract of Honesty forbids this; and of Court of equity will grant an injunction against it.

The Calcutta case was no doubt one of a lease, but the learned Judges of the Calcutta High Court followed the dictum laid down by Lord Shaw in a case where the question involved was whether the purchaser of a ship, who had notice of the terms of a charterparty had entered into a contract for its employment may be restrainted, at the suit of the charters from employing the ship in any view inconsistent with the charter-party

24. In view of the foregoing discussion I am clearly of the opinion that the defendants Nos. 2 to 5 who are father, sons, and wife of the defendant No. 1 Kalicharan, the covenantor, had ample notice of the restrictive covenant entered into by the vendor Kalicharan by the deed Ex. 2 and are bound by the same. They are very close relations of the covenantor and must be deemed to have notice of the covenant contained in the deed Ex. 2. It further appears from the recital in the sale-deed Ex. A 18 that they had full knowledge of the restrictive covenant entered into by Kalicharan with respect to the use of the land purchased by them.

25. In the result this appeal fails and is here by dismissed, but in the circumstances of the case, I leave the parties to bear their own costs.


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