Gujarat Bottling Co. Ltd. v. Coca-Cola Co. (1995)

Quick Summary

Case Title: M/S Gujarat Bottling Co. Ltd. v. Coca-Cola Co. & Ors. — 1995 SCC (5) 545

This case explains two points: (1) when a later agreement replaces an earlier one, and (2) how courts handle negative covenants (do-not-do clauses). The Supreme Court said the 1993 and 1994 agreements had different roles. The 1994 user-registration document did not replace the 1993 bottling licence. A limited “no-deal with rivals during the term” clause was valid and could be protected by an injunction under Section 42 of the Specific Relief Act.

Issues

• Did the 1994 agreement supersede the 1993 agreement?
• Was the 1993 agreement a restraint of trade under Section 27, Indian Contract Act, 1872?

Rules

• Section 42, Specific Relief Act, 1963: If a contract has a positive promise and a negative promise, the court may stop the breach of the negative promise by injunction, even if it cannot force the positive promise.
• Section 27, Indian Contract Act, 1872: Agreements in restraint of trade are void, but reasonable, time-bound, in-term restraints that support a working venture are often upheld.
• Section 62, Indian Contract Act, 1872 (Novation): An earlier contract is discharged only if parties clearly agree to substitute it with a new one.

Arguments

Judgment

• No supersession: The 1993 and 1994 agreements had different functions. No clear intent or consent to replace the 1993 contract (Section 62).
• Negative covenant valid: The “no-rival dealing” clause worked only during the contract period and supported product promotion; it was not an unlawful restraint under Section 27.
• Injunction proper: Under Section 42 SRA, the Court can restrain breach of the negative promise even if it does not order specific performance of the positive promise.
• Breach by GBC: GBC was held responsible for violating the binding terms of the 1993 agreement.

Ratio Decidendi

Where two agreements serve distinct legal purposes, the later document does not replace the earlier absent clear intention and mutual assent. A negative covenant that operates during the term to support a joint venture is enforceable; courts may protect it by injunction under Section 42 Specific Relief Act.

Why It Matters

• Clarifies difference between novation and supplemental/user agreements.
• Shows that reasonable, in-term non-compete clauses can stand in India.
• Key authority for granting interim injunctions to protect brand systems and distribution networks.

Key Takeaways

1. Different purpose ≠ supersession — later user registration did not replace earlier licence.
2. Section 62 — substitution needs clear intent + consent.
3. Section 27 — in-term restraints that aid performance are usually valid.
4. Section 42 — negative covenants can be enforced by injunction.

Mnemonic + 3-Step Hook

Mnemonic: “DUEN” — Different use, Unchanged contract, Enforce negative

1. Different use: 1994 = user registration.
2. Unchanged contract: 1993 still governs (no novation).
3. Enforce negative: Injunction under Section 42.

IRAC Outline

Glossary

Negative Covenant

A “do-not-do” promise in a contract (e.g., do not deal with rivals during the term).

Novation

Replacing an existing contract with a new one by consent of all parties (Section 62).

Restraint of Trade

A clause that limits business freedom. In-term, reasonable restraints that aid the venture are generally valid.

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