Restrictive Covenants In Joint Venture Agreements

Typically, a partnership creates a single business for broad purposes, while a joint venture (whether it is a contractual legal entity or a separate legal entity such as a partnership) is often used for commercial cooperation or a single project. The practical differences between a joint venture and a partnership are listed below: there are alternatives to entering into a joint venture, such as: the case is, however, a useful window into the principles that a court will apply to the issues. It shows that it is possible that even a long-standing restrictive pact may not be subject to the doctrine of trade restriction where the restriction is essential for trade agreements between the parties and such a restriction may be appropriate in the right circumstances. Undertakings bound by non-competition should be carefully defined. Partners at risk negotiate not only activities limited by a non-competition clause, but also persons bound by non-competition. In addition to the partner and the companies subject to its control, for example. B its subsidiaries, broader prohibitions on competition may apply to undertakings or persons which the partner cannot necessarily control, such as for example. B the partner`s parent companies and/or associated companies. Often, joint ventures are entities within a multi-entity structure.

The larger and more complex its organizational structure, the more difficult it will be for a joint venture partner to agree to limit all of its subsidiaries. For example, a partner may be associated with one or more listed companies (for example. B one of the owners of the joint venture may also hold more than Y% of the equity of a public limited company, or one of the directors of the partner may also be the director of a public limited company). In principle, it is not possible to retain subsidiaries of a joint venture partner or affiliates of a public company partner. In those circumstances, the parties should consider whether the non-competition clause can be effective where related undertakings cannot be linked and whether there are other safeguard measures that should be implemented in addition to or in place of a non-competition clause. For example, if the partner is itself bound by the non-compete clause, the joint venture agreement may stipulate that the partner`s senior officers and directors must not be related to another company whose activities would be contrary to non-competition (if that company were subject to the non-compete clause) and that the information provided by the partner cannot be linked to any of the partner`s associated enterprises it is possible to make competing undertakings available to interested parties. [8] Overall, the application of a non-compete clause in India is governed by section 27 of the Indian Contract Act, 1872, which deals with the doctrine of trade restriction. The general interpretation of the courts regarding the application of Section 27 on non-competition rules in all forms of agreements (including joint venture agreements) was that any restriction going beyond the duration of the agreement or a post-contractual restriction is unlawful and is considered non-existent for all practical purposes. The most important cases in this regard are Gujarat Bottling Company Ltd.

& Ors. vs Coca Cola Co. &Ors, which examines the scope and applicability of a non-compete clause, and Percept D`Markr India (P) Ltd. .