Case analysis of Gujarat Bottling Company v. Coca Cola Ltd.

Table of Contents

1. Introduction…………………………………………………………………...…………….3

2. Story of the case…………………………………………………………………………….3

3. The facts of the case are as follows…………………………………………………………4

4. Applicable laws and the issue………………………………………………………………4

5. Judgment……………………………………………………………………………………5

6. Reasoning of the judges…………………………………………………………………….5

7. Critique……………………………………………………………………………………...6

8. Conclusion…………………………………………………………………………………..7

9. References…………………………………………………………………………………..8

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Case analysis of Gujarat Bottling Company v. Coca Cola Ltd.

Equivalent citations: 1995 AIR 2372, 1995 SCC (5) 545

INTRODUCTION

The current case, Gujarat Bottling Co ltd v Coca-Cola Co, is a landmark franchise agreement
decision that is frequently cited. The divisional bench was made up of J. S.C. Agarwal and J.S.
Saghir Ahmed, with the latter agreeing with the former. The matter was initially heard in the
Bombay High Court by Dhanuka J., who imposed temporary injunctions against Gujarat
Bottling Co.'s trade. Dissatisfied with the learned bench's decision, GBC appealed to the
Supreme Court. It's a 33-page decision that's been panned for the void it created for a vivid
judicial interpretation of Section 27 of the Indian Contract Act, which deals with agreements
in restriction of commerce, and the misery of GBC workers after the temporary injunction was
granted.

STORY OF THE CASE

Ahmedabad Advertising & Marketing Consultants Ltd. and Mr Pinakin K. Shah are the two
shareholders in the Gujarat Bottling Company. The latter holds 79 percent of the company's
entire shares, which are divided between two more family members, while the former controls
the remaining 21%. As its name suggests, the company is based in Gujarat and has factories in
Ahmedabad and Rajkot.

The firm had a deal with Coca-Cola Co. that was signed in 1993 and then renewed in 1994.
The company's facilities in Ahmedabad and Rajkot were scheduled to receive upgrades in
1995. Because the major investor was disinterested, the company's shares were transferred to
two PepsiCo officials, who now claim ownership rights because they received 79 percent of
the company's share, the current plaintiff.

Coca-Cola had a foothold in India until 1977, according to the defendant. The trade agreement,
however, was hampered by the government's shift in economic policies. A number of
indigenous companies formed, including Parle, which manufactured Limca and Maaza. When
the Coca-Cola Company was resurrected in 1980, Parle gave Coca-Cola the trademarks for a

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handful of its products. GBC was then contracted by Coca-Cola to manufacture bottles and
packaging.

THE FACTS OF THE CASE ARE AS FOLLOWS

On September 20, 1993, Gujarat Bottling Company and Coca-Cola Company agreed to bottle
and market "Thumbs Up," "Maaza," "Limca," "Rim Zim," and "Gold Spot," which were bought
by Coca-Cola from Parle. GBC was prohibited from bottling, distributing, or simply interacting
with any other firm or trademarks for the duration of the contract, according to paragraph 14
of the same contract. It was to last until 1998 and may be dissolved at either party's discretion
by providing a one-year notice or by mutual consent.

The aforesaid contract also prohibited GBC from supplying syrup in the event of a later transfer
of control without Coca-approval. Cola's

In 1994, another contract was signed for the purpose of registering under the registered user
agreement. The agreement included the product's specifications and standards, as well as its
proper registration and composition under the Trademarks Act. A contract term lowered the
length of prior notice from a year to 90 days. Due to internal problems with GBC's expansion,
the bulk of shares were sold to PepsiCo officials in 1995, thus surrendering ownership rights.
The new owners claimed that the 1994 contract replaced the previous 1993 contract.

As a result, they gave Coca-Cola a 90-day notice before terminating the 1994 agreement. They
also sent Pepsi product ideas that went beyond the boundaries of the 1993 agreement.

APPLICABLE LAWS AND THE ISSUE

The Trade Marks Act of 1999 and the Trade and Merchandise Marks Act of 1958 were used to
decide the case. The Indian Contract Act of 1872 is also used, namely sections 27, 41, and 82.
The issues in the lawsuit are as follows:

1. Is the 1994 agreement a replacement for the 1993 accord?

2. Whether the 1993 agreement violated section 27 of the Indian Contract Act of 1872,

which prohibits trade restriction.

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JUDGMENT

The 1994 and 1993 accords were deemed to be unique in character. The 1993 agreement
granted Gujarat Bottling Company a licence to deal with Coca-Cola goods, while the 1994
agreement dealt with the registration of user agreements. Both agreements served different
purposes and had different applicability scopes. Furthermore, no agreement can supplant an
existing agreement without the permission of the contracting parties or without the aim of
substitution, which was missing in this case. As a result, GBC was found res judicata for failing
to act in accordance with the contract binding both parties.

As a result, it was determined that GBC failed to operate in accordance with the contract
binding both parties and was found liable for the breach. It was also determined that paragraph
14 of the 1993 agreement did not restrict commerce because its effect was limited to the
duration of the agreement and not beyond. It was also mutually engaged into by the parties for
the mutual advantage of promoting Coca-Cola goods, thus it does not come within the
restricting trade umbrella. It was also argued that the interim injunction granted to the
appellants was consistent with the terms of the negative covenant of the 1993 contract, which
barred GBC and numerous other parties involved in the proper manufacture and distribution of
Coca-Cola products from entering into any contract with any other company or trademark for
a period of one year from the date of termination notice, and that

The appellants' plea was rejected on the grounds stated above.

REASONING OF THE JUDGES

Hon'ble Justice SC Agarwal has analysed the different nature of both the 1993 and 1994
accords in paragraphs 14, 15, 16, 17 of the judgement. The 1993 deal was for the transfer of a
licence to GBC for the use of trademarks that Coca-Cola had purchased. The agreement spells
forth the terms and conditions that govern the production, quality, and distribution of GBC-
prepared beverages.

As a result, this arrangement was classified as a franchise agreement, with Coca-Cola acting as
the franchisor and GBC acting as the franchisee. The 1994 agreement was created to allow for
the registration of user agreements, and it is not intended to be a substitute for the 1993
agreement.

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By using English jurisprudence, the learned bench determined on the problems of trade
constraint as indicated in paragraph 14 of the 1993 agreement. The history of common law
concepts dealing with trade restrictions is detailed in paragraph 21 of the judgement. Any trade
restrictions are against English public policy, and there are only two exceptions where the
reasonableness of a restriction can be questioned: when a former employee of a business tries
to compete with the employer after leaving the job, and when the previous owner of a business
competes with the new owner to whom the business was sold.

However, as time passed and public policy changed, the foundations for reasonability shifted.
Due to the limited scope of section 27 of the Indian Contract Act, the courts forego its
interpretation in favour of precedents in determining whether or not paragraph 14 of the 1993
agreement imposes any restrictions on GBC's commerce. As a result, the ratio centred on the
decisions in the Esso Petroleum Co. and Niranjan Shankar Golikari cases. As a result, it was
ruled that because the applicability of paragraph 14 was limited to the duration of the agreement
and not beyond, it could not be regarded as a restriction on GBC's trading activities.

The court did not waive the interim injunction imposed on GBC, which is now owned by
PepsiCo. GBC contended that the order would result in the layoff of many of the company's
employees. The court, on the other hand, disagreed with their demands. Before contracting
with Coca-Cola, GBC was aware of all of the provisions of the 1993 agreement, and Coca-
Cola denied the appellants the syrup due to their violation of those requirements. GBC clearly
behaved inequitably in forwarding its shares to PepsiCo in order to reveal the secret of Coca-
syrup, Cola's and will therefore suffer the consequences of its intentional choice.

The injunction included everyone who had even a tangential relationship with GBC or the
factories in Ahmedabad and Rajkot.

CRITIQUE

Section 27 of the Indian Contract Act, 1872, governs trade restraint. The infamous Niranjan
Shankar Golikari case, which took place in 1967, was the first instance of a trade restriction
problem. Unlike common law principles and the approach followed in English jurisprudence,
the quantity of reasonability is not an issue under the scope of the provision in question. The
section's purpose at the time of its creation was to defend the interests of aspiring merchants.
However, decades later, there has been no significant change in its scope or meaning.

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The above decision is an excellent illustration of this insufficiency, since the court relied on
English jurisprudence standards to assess whether or not the 1993 agreement article was in
trade restriction. The section's scope is limited, leaving no space for ambiguous interpretations.
It made me happy that the words constraint and rationality go together.

As a result, reasonableness must be deduced from the context. Ironically, whenever the
question of trade constraint is raised, it is always pointed out that India varies from common
law in that the reasonableness inquiry is not conducted. Despite this, there are situations like
this one where decisions are based on the same common law grounds. Restrictions that are
limited to the duration of a contract or a certain region are not specifically stated in section 27,
which regulates such restraints.

The preceding decision offered no addition to our understanding of section 27's consequences.
The judges stated in paragraph 24 of the judgement that they did not want to go into the weeds
of the section and relied on English decisions to reach a decision.

The plight of all GBC employees was another troubling problem that developed as a result of
the judgement. Every single person who was even remotely related to the company's dealings
was served with an interim injunction. The members, including the servants of the transferees
to affiliated businesses, are discussed in paragraph 50 of the judgement. This resulted in a one-
year spell of unemployment for them. Following GCB's ill-treatment, Coca-Cola took the right
decision to pursue contract termination.

The temporary injunction, on the other hand, was broad in reach and applied to a large number
of persons. The court's decision to dismiss all challenges and uphold the Bombay High Court's
judgement proved catastrophic for all employees. The court might have issued an order
allowing all of these employees to seek relief from GCB, but no such action was taken.

CONCLUSION

This case highlighted the beverage industry's deep-seated rivalry and the extent to which
competition may flourish. We're also shown how some parts of the Indian Contract Act are
insufficient and need to be amended and expanded. Agreements in trade restrictions must
identify and prove strong reasons before being embarked as terms. This will permit free
commerce and reduce traders' and businessmen's aversion to it. The decision in favour of Coca-
Cola was fair and equitable, but the temporary injunction's fury on the employees was
unwelcome. The court might have created a procedure for all such workers to seek redress.

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Nonetheless, the decision established a precedent that has been referenced in a number of
cases, and it broadened the scope of trade restrictions, trademarks, and interim injunctions.

REFERENCES

• https://indiankanoon.org/
• https://www.manupatrafast.com/