Parle Agro Pvt. Ltd. v. Udayak Agro Products Pvt. Ltd. & Anr.

What happened

Parle Agro Private Limited (PAPL) owns the packaged water brands BAILLEY and BAILLEY ONE and the beverage brands Frooti, Appy and Appy Fizz, among others, and carries on business in Assam and Meghalaya through franchisees in the KL Group, which is controlled by one family. By a Franchise Agreement of 5 February 2014 it appointed Udayak Agro Products Pvt. Ltd. (the first respondent) to manufacture, fill, pack, distribute and sell BAILLEY and BAILLEY ONE packaged drinking water in Meghalaya and Assam, and that agreement is valid and subsisting up to 31 March 2028. By a separate Franchise Agreement of 16 July 2018 it appointed K.L. Beverages LLP (KL Beverages, the second respondent) as franchisee for Frooti, Appy and Appy Fizz, and production under that agreement stopped on 20 August 2025, although no disassociation was executed. In a plant audit on 18 and 19 March 2026 at the compound shared by the two respondents, PAPL found that a competing packaged drinking water, which its pleadings call SURE, was being manufactured and stored by KL Beverages, and it says that KL Beverages does not deny making SURE and that Udayak admits that SURE and BAILLEY compete in the same territory through the same channels.

PAPL petitioned under section 9 of the Arbitration and Conciliation Act, 1996 for interim protection pending arbitration, asking that the respondents be restrained from manufacturing, marketing, distributing or dealing in competing packaged drinking water, that they be restrained from using its proprietary know-how, confidential information, manufacturing processes, quality manuals and customer relationships for any competing business, and that they disclose records of the competing business. It relied on clauses 5, 14(a) and 16 of the 2014 agreement, on the audit, on a tax invoice of 1 March 2026 bearing the KL Group logo and address, a QR code on the bottles identifying KL Beverages as manufacturer, the approval of packaged drinking water in KL Beverages' FSSAI licence, the description of KL Beverages as an Associate in Udayak's financial statements for 2024-25, the common address, e-mail domain and personnel, and a fall in its packaged water sales in the territory of 32% in value and 24% in volume in 2025-26. It raised the breach by e-mail on 25 March 2026, sought meetings in April and June and came to court in July.

Udayak argued that it is a separate entity with no connection to KL Beverages, that it does not make SURE and continues to make BAILLEY, that the petition identifies no confidential information, and that damages suffice. KL Beverages argued that it is not a party to the 2014 agreement, that its own agreement has its own non-compete clause 15(d), an entire agreement clause 39 superseding earlier contracts and a separate arbitration clause, that a restraint after termination is void under section 27 of the Indian Contract Act, 1872, that PAPL itself began to have its products made by another company from 1 August 2025, and that restraining it would idle a plant with about 455 employees, monthly fixed expenses of ₹1,50,88,784 and borrowings of ₹11,93,45,285 secured by guarantees and collateral of about ₹25,07,00,000.

Questions before the court

• May a court under section 9 of the Arbitration and Conciliation Act, 1996 restrain, pending arbitration, a connected concern that is not a signatory from carrying on a competing packaged drinking water business that a franchisee agreed not to carry on directly or indirectly through an associate or sister concern?

Why the court ruled this way

The Court read the 2014 agreement as a franchise for one business, the packaged drinking water of PAPL, and treated the 2018 agreement for Frooti, Appy and Appy Fizz as a separate agreement that is not a continuation of it, but held that this does not answer whether the first respondent could carry on through the second what it had agreed not to carry on (paragraphs 69-72). Clause 5 bars the said activities in relation to products similar to the said products directly or indirectly through any associate or sister concern or in any other manner during the agreement, and those words must be given meaning, so that the restriction covers a similar product such as another manufacturer's packaged water and is not limited to the first respondent's own acts (paragraphs 73-76). Clause 14(a) is wider, covering a sister concern, group company, associate, affiliate or other organisation in which the franchisee has an interest and every form of involvement in competitive products including mineral and packaged drinking water, so that reading it as applying only to the franchisee's own factory would make the words useless and allow avoidance by changing the name of the entity, and clause 16 separately bars use of the franchise facilities, know-how, Quality Manual information, networks and machines for another product without approval (paragraphs 77-84). The Court respected the separate identity of the two respondents and did not hold that they are one entity, that common family ownership proves it or that the second respondent is a party to or bound by the 2014 agreement, but said that the question is what the first respondent promised and whether the conduct is prima facie indirect activity through the second, relying for the principle of reading a negative covenant as a whole on Elster Instromet v. Mrunal Gandhi, a joint venture case on different facts, and holding that clause 39 of the 2018 agreement does not release the first respondent from its 2014 covenant (paragraphs 85-95).

On the material, the audit of 18 and 19 March 2026 recorded the BAILLEY operation in the first building and, in the building of KL Beverages where Frooti and Appy had earlier been filled, production of another water under trial, a new water treatment system and a rearranged warehouse, with the audit naming the brand differently from the pleadings, which the Court left for the arbitration. Together with the invoice of 1 March 2026, the QR code, the description of KL Beverages as an Associate in the first respondent's accounts, the common estate, e-mail domain and personnel, it gave a prima facie case that the competing activity had started or was starting while the 2014 agreement subsisted and was carried on through a connected concern, without piercing the corporate veil, and the fall in sales was treated only as a limited supporting circumstance, the whole decline not being attributed to the competing product (paragraphs 96-106). Clause 16 showed that the risk that franchise facilities and know-how could be used for another product was not imaginary, although misuse was not found (paragraphs 107-109). Section 9 can be invoked by the petitioner as a party to the arbitration agreement with the first respondent, its power is wide and not controlled by the Code of Civil Procedure, and following Girish Mulchand Mehta v. Mahesh S. Mehta it is not limited to parties to the arbitration agreement, although it cannot affect a third party's independent right, and the second respondent is the connected concern through which the covenant says the competing activity may be carried on, not an unrelated stranger (paragraphs 110-118 and 124). The relief rests on the subsisting obligation under clause 5, so the Court did not decide whether the post-termination part of clause 14(a) or clause 15(d) of the 2018 agreement can be enforced after termination in view of section 27 of the Contract Act (paragraphs 119-120).

On the balance of convenience the Court considered the second respondent's employees and lenders, but held that a prima facie prohibited activity cannot gain a right to continue because it has employees and financial commitments, and limited the relief to the disputed field so that independent lawful business is unaffected (paragraphs 121-122 and 129-130). Damages would not be adequate because a competing business would build customers, distributors and goodwill and might use know-how, so that the injury is not easily measurable and the position would become harder to restore (paragraphs 127-128 and 138).

Controlling point

Where a franchisee has agreed not to carry on competing activity directly or indirectly through an associate or sister concern during the agreement, a court under section 9 may, on prima facie material connecting a non-signatory concern with the competing activity, restrain that activity and the misuse of the franchisor's confidential information and know-how pending arbitration, without deciding that the non-signatory is a party to or bound by the agreement.

Order and next steps

The Court partly allowed the petition in terms of prayer clauses (a) and (b). Pending adjudication before the Sole Arbitrator it restrained the respondents and their affiliates, associates, sister concerns, group companies and those claiming through them, directly or indirectly, from manufacturing, preparing, packaging, distributing, marketing, selling or otherwise dealing in SURE water or any other packaged drinking water product competing with the petitioner's products in a manner contrary to the obligations in the Franchise Agreements, and from using, disclosing, exploiting or deriving benefit from the petitioner's confidential information, trade secrets, know-how, manufacturing processes, Quality Manuals, standard operating procedures, customer, vendor, supply chain and pricing information and distribution networks made available under the Franchise Agreements, in connection with that activity. It clarified that the second respondent is not prevented from any independent lawful business that does not involve the competing products or the protected information, and, on prayer clause (c), directed the respondents to disclose on affidavit within four weeks the particulars available in their records of competing packaged drinking water products manufactured, packaged, distributed, marketed or sold by them or through affiliates and group entities from 5 February 2014 till date, confined to that competing activity. It recorded that the findings are prima facie, that the order is not a final declaration that the second respondent is a party to the 2014 agreement or bound by every provision of it, that all questions are left to the Sole Arbitrator, that the respondents may raise all defences, disposed of the petition and made no order as to costs.

Practical implications

A franchisee group should treat a covenant against competing directly or indirectly through associates or sister concerns as reaching a connected company, whatever its separate name or separate franchise, and a franchisor seeking interim protection should rely on the subsisting covenant and on plant audit records, invoices, marks of origin and the corporate and operational links between the entities, and should frame the relief around the competing field. An entity that holds its own franchise agreement should not assume that its entire agreement clause releases the covenants that a related entity gave in another agreement.

Limits of this ruling

• The findings are prima facie and for section 9 only, and the Court did not decide that the second respondent is a party to the 2014 agreement, the extent of the competing activity, any misuse of know-how, the damages, or whether the post-termination covenants can be enforced in view of section 27 of the Contract Act. It did not attribute the whole fall in sales to the competing product, and it noted that the audit report names the competing water differently from the pleadings, without deciding the identity of the brand. The first respondent's permitted BAILLEY business is unaffected.