Court holds that a franchisee cannot bypass a non-compete clause by shifting rival activity to a connected group entity; orders restraint on “SURE” water and disclosure of records pending arbitration.
The Bombay High Court has partly allowed a Section 9 petition filed by Parle Agro Private Limited, granting urgent interim protection against what it found to be a prima facie breach of franchise non-compete and confidentiality obligations by entities of the KL Group.
Justice Amit Borkar held that Parle Agro had made out a strong prima facie case that competing packaged drinking water, marketed as “SURE”, was being manufactured and dealt with through KL Beverages Pvt. Ltd., a sister concern connected to Udayak Agro Products Pvt. Ltd., despite the continuing subsistence of the 2014 franchise agreement between Parle Agro and Udayak.
The Court noted that the 2014 agreement expressly barred Udayak from carrying on competing activity “directly or indirectly through any associate/sister concern or in any other manner.” It also contained wider restrictions under Clause 14(a), which extended the non-compete obligation to sister concerns, group companies, associates and affiliates, and Clause 16, which protected the franchisor’s facilities, know-how, procedures, quality manual, machinery and distribution networks.
According to the Court, the contractual language could not be read narrowly so as to make the words “indirectly through any associate/sister concern” meaningless. The judge observed that a franchisee cannot circumvent a negative covenant merely by shifting the competing business to another connected entity.
The decision was based on a combination of factors, including:
- common ownership and control within the KL Group,
- shared premises in the KL Industries Estate,
- common personnel and operational arrangements,
- a common email domain and shared departments,
- related-party transactions,
- and an audit report from March 2026 showing competing water activity at the KL Beverages facility.
The Court also relied on material suggesting that competing activity had already commenced or was in the process of commencing, including a tax invoice dated 1 March 2026 and audit findings showing a separate RO system and water production setup at the premises.
Rejecting the objection that KL Beverages was not a signatory to the 2014 agreement, the Court held that Section 9 of the Arbitration and Conciliation Act permits interim protective relief even against a non-signatory where such relief is necessary to preserve the subject matter of arbitration and the third party is claiming through or under a contracting party. However, the Court clarified that this was only a prima facie finding and not a final declaration that KL Beverages was bound by every term of the 2014 agreement.
The Court also rejected the argument that Parle Agro’s remedy was only in damages. It held that the alleged injury went beyond measurable sales loss and included possible diversion of customers, distributors, goodwill, market relationships and misuse of confidential know-how—harm that may not be adequately compensated monetarily.
In its operative order, the Court restrained the respondents, their affiliates, associates, sister concerns and group companies from directly or indirectly manufacturing, preparing, packaging, distributing, marketing, selling or otherwise dealing in “SURE” water or any competing packaged drinking water product in a manner contrary to the franchise obligations. The respondents were also restrained from using or exploiting Parle Agro’s confidential information, trade secrets, technical know-how, manufacturing processes, quality manuals, SOPs, customer and vendor information, supply-chain information and distribution networks for such competing activity.
At the same time, the Court clarified that KL Beverages is not barred from carrying on independent lawful business outside the prohibited competing field. The respondents were further directed to disclose on affidavit particulars of competing packaged drinking water products manufactured, bottled, packaged, distributed, marketed or sold from 5 February 2014 onwards.
The Court emphasized that all findings are interim and will not bind the arbitral tribunal, which will decide the final rights and obligations of the parties.
Bottom Line :
Arbitration and Conciliation Act, 1996 Section 9 Franchise agreement containing non-compete covenant restraining franchisee from carrying on competing business directly or indirectly through associate/sister concern - During subsistence of packaged drinking water franchise agreement, competing packaged drinking water found to be manufactured by sister concern from common compound with common personnel and operational links - Held, Court can grant interim protection even against non-signatory third party under Section 9 where relief is necessary to preserve subject matter of arbitration - Separate identity of entities does not defeat covenant against indirect competition - Respondents restrained from dealing in competing packaged drinking water and from using petitioner's confidential information, know-how and business networks for such competing activity pending arbitration.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 9
Parle Agro Private Limited v. Udayak Agro Products Pvt. Ltd., (Bombay) : Law Finder Doc id # 2983943
