The Bombay High Court's Commercial Division granted interim protection to Parle Agro Private Limited against Respondent No. 2 (KL Beverages LLP) for alleged indirect violation of non-compete obligations under a subsisting franchise agreement, holding that Section 9 of the Arbitration and Conciliation Act, 1996 permits restraints on connected entities where competing activity is prima facie shown to be carried on through associates or sister concerns.
Background & Facts
The Dispute
Parle Agro Private Limited (PAPL), manufacturer of beverages including BAILLEY, BAILLEY ONE, Frooti, Appy and Appy Fizz, alleged that Respondent No. 1 (Udayak Agro Products Pvt. Ltd.) and Respondent No. 2 (KL Beverages LLP) were manufacturing and distributing competing packaged drinking water under the brand "SURE" using PAPL's confidential information, facilities and business networks, thereby breaching non-compete and exclusivity clauses in their respective franchise agreements. PAPL contended that Respondent No. 2 was acting as an associate or sister concern of Respondent No. 1 to indirectly carry on the prohibited competing activity.
Key Facts
- PAPL appointed Respondent No. 1 as franchisee for packaged drinking water under trademarks "BAILLEY" and "BAILLEY ONE" in the North-Eastern region via Franchise Agreement dated 5 February 2014 ("Udayak Franchise Agreement"), valid and subsisting until 31 March 2028
- PAPL appointed Respondent No. 2 as franchisee for beverages under trademarks "Frooti", "Appy" and "Appy Fizz" via Franchise Agreement dated 16 July 2018 ("KL Franchise Agreement")
- Both respondents belong to the "KL Group" controlled and managed by the Agarwal family (M.K. Agarwala, Raj Shekhar Agarwal, Sangeeta Agarwal and Nikita Agarwal)
- The Udayak Franchise Agreement contains Clause 5 prohibiting Respondent No. 1 from carrying out said activities "directly or indirectly through any associate /sister concern or in any other manner" and Clause 14(a) extending the restriction to "sister concern, group company, associates, affiliates or such other organisations" where Respondent No. 1 has ownership, partnership, contract, agreement or other interest
- During a plant audit conducted by PAPL on 18 and 19 March 2026 at the KL Industries Estate compound, competing packaged drinking water production under the brand "SURE" was discovered at Respondent No. 2's premises
- The audit report recorded: (i) separate RO water system being established for competing water supplies, (ii) changes in finished goods warehouse, (iii) presence of quality control executive Chandra Hajongh and store incharge Subash Sharma working for both respondents
- A tax invoice dated 1 March 2026 showed production and sale of "SURE" had commenced before the audit, bearing the KL Group logo and address
- The QR code on "SURE" bottles identified KL Beverages as the manufacturer
- PAPL's sales of BAILLEY packaged drinking water declined by 32% in value and 24% in volume in FY 2025-26 compared to FY 2024-25
- PAPL communicated the alleged breach to respondents via email dated 25 March 2026 and sought meetings in April and June 2026, which failed to resolve the dispute
Procedural History
- 18-19 March 2026: PAPL conducted plant audit at KL Industries Estate compound discovering competing "SURE" water production
- 1 March 2026: Tax invoice for "SURE" packaged drinking water issued (predating audit)
- 25 March 2026: PAPL communicated alleged breach to respondents via email
- April-June 2026: PAPL sought meetings with respondents to resolve dispute (unsuccessful)
- July 2026: Present Commercial Arbitration Petition (L) No. 25994 of 2026 filed before Bombay High Court's Commercial Division
- 16 September 2026: Judgment reserved
- 23 September 2026: Judgment pronounced
Relief Sought
PAPL sought: (i) interim injunction restraining respondents from manufacturing, marketing, distributing or dealing in "SURE" or any competing packaged drinking water product, (ii) interim injunction restraining respondents from using or exploiting PAPL's confidential information, know-how, Quality Manual, manufacturing processes, facilities, distribution and retail networks in connection with competing activity, (iii) direction to respondents to disclose particulars of competing packaged drinking water activity from 5 February 2014 till date.
The Legal Issue
The central question was whether, under Section 9 of the Arbitration and Conciliation Act, 1996, the Court could grant interim protection against Respondent No. 2 (a non-signatory to the 2014 Franchise Agreement) for alleged breach of non-compete obligations through indirect conduct via an associate or sister concern, where the subject matter of arbitration (the 2014 Agreement) remains subsisting.
Arguments Presented
For the Petitioner
Mr. Birendra Saraf, Senior Advocate for PAPL, relied on Elster Instromet B.V. v. Mrunal Gandhi, 2024 SCC OnLine Bom 350 to argue that negative covenants containing words "directly or indirectly through any associate/sister concern" must be given effect to prevent defeat of the restriction's purpose. He contended that Clauses 5 and 14(a) of the Udayak Franchise Agreement expressly contemplated indirect competition through connected entities. Mr. Saraf emphasized the audit evidence showing competing water production at Respondent No. 2's premises, the tax invoice dated 1 March 2026 and QR code linking "SURE" to KL Beverages, and the corporate linkages (common ownership, shared premises, personnel and business functions). He argued the balance of convenience favoured protection as the competing activity risked establishing irreversible market relationships during arbitration, and that PAPL had shown prima facie material indicating indirect breach without requiring proof of direct manufacture by Respondent No. 1.
For the Respondents
Mr. Prathamesh Kamat for Respondent No. 1 contended that Udayak and KL Beverages are separate legal entities with distinct franchise agreements, arguing that PAPL sought to improperly enforce the Udayak agreement against KL Beverages. He asserted no breach by Respondent No. 1 occurred as it continued manufacturing BAILLEY products under its agreement. Mr. Ravi Kadam, Senior Advocate for Respondent No. 2, relied on Section 27 of the Contract Act to argue that post-termination non-compete restraints are void, noting the KL Franchise Agreement's termination on 20 August 2025 and its entire agreement clause (Clause 39) superseding prior contracts. He cited Niranjan Shankar Golikari v. Century Spinning and Manufacturing Ltd., (1976) 2 SCR 378 and Messe Frankfurt Trade Fairs India Pvt. Ltd. v. Netlink Solutions India Limited, (2026) SCC OnLine Bom 210 to maintain that KL Beverages, as a non-signatory to the 2014 Agreement, could not be bound by its obligations, and that the alleged competing activity related to KL Beverages' independent business outside the scope of PAPL's franchise.
The Court's Analysis
The Court began by noting the subsisting nature of the 2014 Agreement between PAPL and Respondent No. 1, observing that Clause 5 expressly prohibited indirect competition "through any associate /sister concern or in any other manner" and Clause 14(a) extended the restriction to connected entities where Respondent No. 1 has interest. It held that the words "indirectly" and "associate/sister concern" cannot be rendered ineffective by a narrow interpretation, citing Elster Instromet B.V. v. Mrunal Gandhi where the Court refused to construe "directly" and "indirectly" as synonymous terms that would defeat the proviso's purpose.
Applying Girish Mulchand Mehta v. Mahesh S. Mehta, 2009 SCC OnLine Bom 1986, the Court affirmed that Section 9 jurisdiction is not limited to parties to the arbitration agreement but extends to protect the subject matter of arbitration. It stated: "The fact that the order would affect the person who is not party to the Arbitration Agreement or Arbitration Proceedings does not affect the jurisdiction of the Court under section 9 of the Act which is intended to pass interim measures of protection or preservation of the subject-matter of the Arbitration Agreement." The Court emphasized that Section 9 is not merely procedural but confers protective power to prevent defeat of arbitral rights before the tribunal decides the dispute.
On the prima facie case, the Court found sufficient material connecting Respondent No. 2 to the competing activity: (i) common ownership and control by the Agarwal family, (ii) shared registered office and factory compound at KL Industries Estate, (iii) shared email domain (kigrroup.com) and functional mailboxes for purchase/accounts/logistics, (iv) shared personnel including Chandra Hajongh (QC Executive/Plant Head for both) and Subash Sharma (Store Incharge for both), (v) audit showing competing water production at Respondent No. 2's premises with separate RO system being established, (vi) tax invoice dated 1 March 2026 and QR code identifying KL Beverages as "SURE" manufacturer, and (vii) concurrent decline in BAILLEY sales. The Court clarified it was not making final findings on misuse of confidential information or the extent of competing activity, but only assessing whether material showed a reasonable apprehension of indirect breach warranting interim protection to preserve the arbitral subject matter.
Addressing Respondent No. 2's Section 27 argument, the Court held that the instant restraint related to the subsisting 2014 Agreement (not post-termination), as Clause 5 operates "during the subsistence of this Agreement" which remained valid until 31 March 2028. It distinguished the case from post-termination restraints, noting the relief sought was to preserve the position during arbitration, not to enforce obligations beyond the 2014 Agreement's term.
The Court stressed the limited nature of the order: it would not prevent Respondent No. 2 from carrying on independent lawful business outside the competing packaged drinking water field, nor would it restrain Respondent No. 1 from its permitted BAILLEY operations under the subsisting agreement. The restraint was confined to the competing activity prima facie shown to be connected with PAPL's protected facilities, know-how and business networks.
The Verdict
The Petition was partly allowed regarding prayers (a) and (b). Pending adjudication before the Sole Arbitrator, Respondent No. 1, Respondent No. 2, their affiliates, associates, sister concerns, group companies and/or such other organisations claiming through or under them are restrained, 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 PAPL's products in a manner contrary to the obligations contained in the Franchise Agreements. Furthermore, the respondents are restrained from using, disclosing, communicating, exploiting or deriving any benefit from PAPL's confidential information, trade secrets, technical know-how, manufacturing processes, Quality Manuals, standard operating procedures, customer information, vendor information, supply-chain information, pricing information, distribution networks and other proprietary business information made available under the Franchise Agreements in connection with such competing activity. The restraint shall not be understood as preventing Respondent No. 2 from carrying on any independent and lawful business which does not involve manufacture, preparation, packaging, distribution, marketing, sale or dealing in the competing packaged drinking water products referred to above and which does not involve use or exploitation of PAPL's protected information, know-how, facilities, machinery or business networks contrary to the obligations under the 2014 Franchise Agreement. Respondents shall, within four weeks from today (23 September 2026), disclose on affidavit the particulars available in their records concerning competing packaged drinking water products manufactured, bottled, packaged, distributed, marketed or sold by them or through their affiliates, associates, sister concerns and/or group entities from 5 February 2014 till date. The disclosure shall be confined to the competing packaged drinking water activity forming the subject matter of the present proceedings. No order as to costs was passed.
What This Means For Similar Cases
Interim Protection Extends to Non-Signatories Under Section 9
Practitioners must now recognize that Section 9 of the Arbitration and Conciliation Act, 1996 permits interim restraints against entities not party to the arbitration agreement where the subject matter of arbitration is shown to be affected through connected entities. The judgment confirms that a party to an arbitration agreement may invoke the court's jurisdiction under Section 9 to protect the arbitral subject matter from indirect breach via associates or sister concerns, even if the third party is not a signatory. This expands the protective scope of Section 9 beyond the immediate parties, requiring drafters of arbitration agreements to consider group structures when seeking interim relief.
Group Company Doctrine Informs Non-Compete Enforcement
The judgment reinforces that non-compete clauses containing words like "indirectly through any associate/sister concern" or "sister concern, group company, associates, affiliates" must be interpreted to give effect to the restriction's purpose of preventing defeat through connected entities. Franchisors should ensure such language is explicit in agreements to cover indirect competition, while franchisees must assess whether their group entities' activities fall within the prohibited scope. The Court's reliance on Elster Instromet signals that courts will scrutinize whether the restriction's language was intended to cover indirect conduct and will not permit avoidance through mere corporate restructuring.
Prima Facie Sufficiency for Section 9 Relief
For interim applications under Section 9, parties need not prove final breach but must show sufficient prima facie material indicating a reasonable apprehension that the arbitral subject matter is being defeated. Here, the Court accepted combined evidence of corporate linkages (shared premises, personnel, business functions), audit findings of competing production, temporal coincidence with sales decline and documentary proof (tax invoice, QR code) as adequate to warrant protection. This lowers the evidentiary threshold at the interim stage, focusing on preserving the status quo for arbitral determination rather than requiring conclusive proof of breach or damages.
