In a recent decision, the Delhi High Court dealt with the tort of unlawful interference in contractual relationships and inter alia held that the said tort has no place in India in view of Section 27 of the Indian Contract Act, 1872 ("Contract Act").1
The developer of a certain property at Amritsar agreed to lease the said property to the Plaintiff for fifteen years, by way of a term sheet. The Plaintiff paid a security deposit to the developer as per the term sheet and proceeded to draw up the main transaction document.
Upon learning that the Defendant (a competitor of the Plaintiff) had been pursuing the developer for the purpose of entering into an agreement with respect to the same property, the Plaintiff informed the Defendant about the term sheet executed by the developer with the Plaintiff and requested the Defendant to desist from pursuing the developer. However, the Plaintiff learnt that the developer had entered into an agreement with the Defendant with respect to the said property. Soon thereafter, the Plaintiff was informed by the developer that the term sheet stood terminated on account of the Plaintiff's failure to execute the main transaction document within the stipulated time. The developer refunded the security deposit, which was accepted by the Plaintiff without protest. The Plaintiff alleged that (a) the Defendant induced the developer to terminate the term sheet with the Plaintiff; and (b) the Defendant had similarly attempted to interfere with transactions between the Plaintiff and developers of other properties in different cities.
The Plaintiff filed a suit against the Defendant inter alia seeking a permanent injunction to restrain the Defendant from inducing a breach of any agreement between the Plaintiff and third parties in respect of non-functional properties of the Plaintiff across India.
The court referred to its earlier decision in Modicare Limited v. Gautam Bali,2 where an injunction was sought to restrain ex-employees from enticing customers and consultants in the marketing network of the plaintiff therein. The following principles were laid down:
- Agreements in restraint of profession, trade or business are void under Section 27 of the Contract Act. It is incongruous to suggest that the law would disable a party from enforcing such an agreement on the one hand, but enable the same party to the same relief under the law of tort, on the other. What is not contractually enforceable cannot be enforced by invoking the law of tort;
- Unlike the United Kingdom, which recognises the tort of unlawful interference in contractual relationships as well as reasonable restraints on trade, the same does not have any place in India in view of Section 27 of the Contract Act. Principles of English law cannot be imported once the Parliament has codified the law;3
- The right to carry on trade or business or to practice any profession is a fundamental right under Article 19 of the Constitution of India and any restriction thereon can be imposed only by making a law as provided in Article 19 itself;4 and
- A claim founded on unlawful interference with business or of enticement to commit a breach of contract is not enforceable in a court of law, whether contractually or by invoking the law of tort.
The court was of the view that the principles laid down in Modicare (supra), in the context of employers and ex-employees, are equally applicable to competitors. The court found it to be incomprehensible that an employee would be entitled to practice the same trade or profession as his employer even if there is an agreement to the contrary (as this would be void under Section 27 of the Contract Act), but a person who does not have any contractual relationship with his competitor would not be entitled to approach prospective clients, customers and associates (in advancement of his own trade and business), who have been approached by his competitor.
The court held that the Plaintiff is entitled under law to seek specific performance against those with whom the Plaintiff had a contractual relationship, and with which contractual relationship the Defendant is alleged to have interfered, but cannot be permitted to expand its remedies beyond what is provided for in law. In view of the aforesaid, the Delhi High Court held that the Plaintiff had indulged in 'judicial adventurism' and dismissed the suit with costs.
A person is liable for tortious interference, if he ".intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract and is subject to liability for pecuniary loss."5
This tort necessarily requires the following ingredients -
- The existence of a valid business relationship between two parties, governed by a contract;
- The knowledge of such business relationship by a third party;
- Intentional and unwarranted interference by the third party in such business relationship, which must affect the performance of the contract; and
- Breach of the business relationship or contract (by unlawful means) and damage to the party (the proposed plaintiff) thereto on account of such interference.
Under English law, interference with contract or business is a form of accessory liability, that is to say the person who induces the breach incurs additional liability in tort for the effects of the "primary" breach of contract.6 For the occurrence of a tort of interference with contract, A must, without lawful justification, procure that B breaches its contract with C.7 Now, to clarify, if A uses lawful means, it is not a tort for A to persuade B not to contract with C, as this is what competitors normally do. Also, it would not be tortious for A to persuade B to terminate its contract with C by proper notice (or otherwise in accordance with the contract). Further, if the contract between B and C is otherwise void, there can be no action for inducing its breach; if the contract is voidable, and A persuades B to avoid its contract with C, no fault can be laid at A's door. Also, if any such act is done by A negligently, it would not attract any liability under this tort. For this tort to be attracted, not only must A have knowledge of the contract between B and C, (mere knowledge of the existence of a contract, without any knowledge as to details or actual terms is adequate), but must also know that what he is asking B to do is a breach of its contract with C (therefore A must have the requisite intent). There must be an intention on the part of A to bring about a breach of contract. It is not enough that A knows that he is procuring an act, which would be a breach of B's contract with C, A must actually realise that it will have this effect. A must not merely advise B to avail of its contractual entitlement against C (like the advice a lawyer may give a client), but must persuade/induce B to break its contract with C. Liability under this head may also arise from A entering into a contract with B, knowing that the contract is inconsistent with a prior contract of B with C.
Interestingly, the act of wrongfully inducing a person not to enter into a contract does not amount to tortious interference.8 There is a fine line between free and fair competition on the one hand, and tortious interference on the other. The decision of the Delhi High Court is a reassurance that lawful competition will not be curtailed by courts. Common law principles must be weighed against codified law and the fundamental rights available under the Constitution of India. In this decision, the Delhi High Court observed that the parties involved in this case are the only two major players in the country in their business and the relief sought for is of such a nature that it will (a) drive the Defendant out of competition; and (b) prejudice the owners of certain kinds of properties, of which the Plaintiff and the Defendant are the only dominant consumers, by compelling them to deal with the Plaintiff alone, thereby enabling the Plaintiff to "beat down the prices".
However, it may be possible (though incorrect) to misconstrue the judgment as a drum beat proclamation of the law that the tort of interference with contract or business is not recognised or enforceable in India. This, in our view, would be incorrect and also contrary to earlier decisions of the Delhi High Court9 itself as well as the Bombay10 and Calcutta High Courts11, which have accepted and applied this tort in the past. The present judgment must, therefore, be read in congruence with the facts of this case. Pertinently, in appeal in the present matter, a Division Bench of the Delhi High Court held that tortious interference with a binding agreement is a well-known concept for the purpose of constituting a cause of action to file a suit for damages/injunction, though the tort was not made out in the present case.12 The Division Bench also found that the finding of 'judicial adventurism' and the imposition of costs were not warranted in the present case and modified the Single Judge's order to this extent. The appeal itself was disposed of as the Plaintiff elected not to press the same on merits.
1 Judgment dated May 18, 2020 in CS(OS) No. 196/2018, I.A. No. 2291/2019 & I.A. No. 5775/2018 (Inox Leisure Limited v. PVR Limited)
2. 2019 SCC OnLine Del 10511
3. Superintendence Company of India (P) Ltd. v. Krishan Murgai (1981) 2 SCC 246
4. Independent News Service Pvt. Ltd. v. Sucherita Kukreti (2019) 257 DLT 426
5. Restatement of Torts (1939), Introduction, at p.5
6. OBG Ltd. v. Allan  UKHL 21
7. The origin of this form of liability lies in Lumley v. Gye, (1853) 2 Bl. & Bl. 216.
8. Midland Cold Storage Ltd. v. Steer & Ors. (1972 Ch. 630 at 645)
9. Amazon Seller Services Pvt. Ltd. v. Amway India Enterprise Pvt. Ltd. (2020) 267 DLT 228 (DB); and Oravel Stays Private Limited v. Hotelier Welfare Association, through President and Ors. Order dated June 19, 2019 in CS(OS) 322/2019
10. Aasia Industrial Technologies Ltd. & Ors. v. Ambience Space Sellers Ltd. & Ors. 1997 SCC OnLine Bom 681
11. Balailal Mukherjee & Co. Ltd. & Ors. v. Sea Traders Pvt. Ltd. & Ors. 1990 SCC OnLine Cal 55; and Lindsay International Pvt. Ltd. & Ors. v. Laxmi Niwas Mittal & Ors. 2017 SCC OnLine Cal 14920
12. Order dated June 24, 2020 in RFA (OS) 26/2020
July 15, 2020
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