Property Law

Hukmi Chand v. Jaipur Ice and Oil Mills Co.

AIR 1980 Raj 155

Facts

Jaipur Ice and Oil Mills was originally operated as a partnership.
When the partnership was dissolved, one partner, Kalicharan, retired.
Under the dissolution deed:
a specified portion of land and a residential house were allotted to Kalicharan;
he was given rights of sale and mortgage;
he received ₹11,001 as his share in the goodwill of the firm.
Clause 13 of the dissolution deed required him not to operate an ice factory on the land allotted to him.
Kalicharan later sold part of that land to his father.
His relatives then entered into arrangements to operate an ice-manufacturing business from the transferred land.
The continuing partners sought an injunction to enforce the negative covenant.
The transferees argued that they were not parties to the dissolution deed and were therefore not bound by its restriction.

Whether the condition prohibiting operation of an ice factory on the land was valid.
Whether the restriction was a personal covenant or an obligation attached to the land.
Whether transferees who had notice of the covenant were bound by it under Section 40 TPA.
Whether the covenant constituted an unreasonable restraint of trade.

A negative covenant restricting the use of land may be enforced against a subsequent transferee who takes the property with notice.
Section 40 TPA recognises obligations:
arising from contract;
annexed to ownership of immovable property;
not amounting to an interest or easement;
enforceable against a transferee with notice.
Under the principle in Tulk v. Moxhay, the burden of a negative restrictive covenant may run with the land in equity.
A restraint protecting the goodwill of a business may be valid when it is reasonable in relation to:
the parties’ interests;
geographical scope;
duration; and
public interest.

Kalicharan had voluntarily agreed not to operate an ice factory from the allotted land.
The restriction was not imposed without consideration.
He received a specific amount representing his share in the firm’s goodwill.
If he or persons claiming through him could immediately establish a competing ice factory next to the existing business, the goodwill purchased by the continuing partners would lose much of its value.
The covenant was connected with a particular parcel of land and a particular kind of competing activity.
It did not prohibit Kalicharan from:
carrying on all businesses;
using the land for every commercial purpose; or
conducting an ice business everywhere.
The restriction was therefore limited and directed towards protecting a legitimate proprietary and commercial interest.
Although expressed in connection with a partnership dissolution, it directly regulated how the land could be used.
It was therefore more than a purely personal promise.
The transferees were close relatives of Kalicharan and had notice of the dissolution arrangement and its restrictive clause.
A transferee with notice cannot obtain the land at a potentially enhanced value by ignoring a burden which the transferor had lawfully accepted.
Under Section 40, such a transferee takes the property subject to the negative obligation.
The Court also held that the restraint-of-trade doctrine could apply to a covenant concerning the commercial use of land, but the present restraint was reasonable.

The covenant was valid and enforceable.
Kalicharan and the transferees claiming through him with notice could not operate an ice factory on the specified land.
The negative covenant ran with the land in equity and could be enforced by injunction under Section 40 TPA.
The special appeal was dismissed.