Restrained Without Signing: Indirect Competition And Limits Of Section 9
Dushyant Krishnan
14 Nov 2026 3:00 PM IST
Companies often enter into agreements with non-compete clauses, especially when those agreements require them to provide confidential information and know-how. But what happens when the recipient attempts to run a competing business through a related entity that is not a signatory to the agreement? If the agreement contains an arbitration clause, can the sister concern be restrained without first deciding whether it is bound to arbitrate?
In Parle Agro Private Limited v. Udayak Agro Products Pvt. Ltd. & Anr.[1], the Bombay High Court considered this issue in the context of a franchise agreement. The Court granted limited protection against the indirect competition, while reserving adjudication on the non-signatory's contractual status for arbitration.
In 2014, Parle Agro entered into a franchise agreement with Udayak Agro Products (Udayak) in respect of its 'BAILLEY' packaged drinking water brand. The term of the agreement was till March 2028. Clauses 5 and 14 of the contract prohibited Udayak from directly or indirectly operating any competing packaged drinking water business. Clause 16 restricted unauthorized use of franchise facilities, know-how and other resources.
KL Beverages was a sister concern of Udayak. Both entities were owned by the Agarwal family, operated from a common compound, and shared personnel. KL Beverages was also a former franchisee of Parle Agro, having entered into a franchise agreement in 2018 for Frooti, Appy and Appy Fizz. The agreement with KL Beverages ended in August 2025.
In March 2026, during an audit of the facilities Udayak and KL Beverages shared, Parle Agro found that KL Beverages was producing a competing packaged drinking water product, 'SURE'. It therefore filed a Petition under Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), based on the existing agreement with Udayak, seeking relief against both entities.
Parle Agro's Arguments
Parle Agro's primary argument was that Udayak could not circumvent the non-compete clause by having a sister concern manufacture the competing product. It argued that the agreement between Parle Agro and Udayak specifically prohibited both direct and indirect competition through affiliates or sister concerns.
To substantiate its argument that Udayak and KL Beverages were related entities, Parle Agro relied on their common ownership, management, premises, and personnel, as well as the audit findings. Parle Agro argued that, because it was a sister concern of Udayak, even though the agreement with KL Beverages was no longer in force, it was bound by the non-competition clauses in Udayak's agreement.
Parle Agro cited Elster Instromet B.V. v. Mrunal Gandhi[2] on giving effect to restrictions against indirect competition through affiliates, and Cox and Kings Ltd. v. SAP India Pvt. Ltd.[3] concerning non-signatories. It argued that Section 9 relief could extend to KL Beverages despite it not being a party to the 2014 agreement.
Lastly, it argued that the potential loss of goodwill and distribution relationships, and the possible use of confidential information, could not be adequately compensated with damages.
Respondents' Arguments
Udayak relied on the respondents' separate legal identities. Common ownership, it argued, did not make one entity responsible for the other's business. It also disputed the alleged misuse of proprietary material and maintained that damages were an adequate remedy.
KL Beverages pointed to its own agreement, with a separate arbitration and entire-agreement clauses, arguing that it could not be bound by the terms of a contract it never signed. Furthermore, since its own franchise arrangement had admittedly ended, it argued an injunction would amount to a post-termination restraint contrary to Section 27 of the Contract Act, 1872. KL Beverages relied on Gujarat Bottling Co. Ltd. v. Coca Cola Co.[4] and Percept D'Mark (India) (P) Ltd. v. Zaheer Khan[5] to support the proposition on the distinction between restrictions on competition during and after a contract.
The respondents also sought to distinguish Elster on the facts, since it concerned a joint venture and emphasized the hardship that an injunction would cause, including for KL Beverages' employees and lenders.
Court's Reasoning and Decision
The Court first dealt with the restrictions on competition in the Udayak franchise agreement. The agreement prohibited indirect competition through sister concerns. The question was whether the restriction would apply to KL Beverages' 'SURE' packaged drinking water business, and whether relief could be granted against a non-signatory without deciding whether it was required to be a party to the arbitration.
The Court found that the audit findings, corporate and financial connections, shared personnel and infrastructure made out a prima facie case for interim protection. However, the Court did not pierce the corporate veil or treat the respondents as a single entity.
On jurisdiction, the Court relied on the judgment in Girish Mulchand Mehta v. Mahesh S. Mehta[6] to hold that Section 9 relief could be granted against a non-signatory. Here, the evidence, when viewed cumulatively, connected Udayak with the production of packaged drinking water, i.e., the very activity it was prohibited from doing. That justified limited protection to Parle Agro without restricting KL Beverages' activities entirely or deciding whether it was was required to be a party to the arbitration itself.
As regards KL Beverages' contention that any restraint would amount to a post-termination restraint, the Court held that, although KL Beverages' franchise agreement had ended, Udayak's 2014 agreement continued. Hence, a limited injunction restraining a sister concern from carrying out a competing business could be granted and was necessary to give a meaningful interpretation to the terms of the agreement.
As to the balance of convenience, the Court considered the respondents' financial commitments but declined to treat them as grounds for permitting a prima facie breach to continue. It found that Parle Agro faced the risk of the competing business acquiring customers and commercial relationships during the arbitration, consequences that damages might not adequately remedy.
The petition was thus partly allowed. The Court restrained the respondents from carrying out competing packaged drinking water activities and from using Parle Agro's protected information and resources. It also ordered disclosure of relevant records. However, the Court made it clear that KL Beverages could continue to conduct independent, lawful business unrelated to packaged drinking water.
The Court has right to grant limited protection on the evidence before it.
Firstly, the Court struck a balance between giving a meaningful interpretation of the contract and not piercing the corporate veil. Udayak's contained unambiguous terms prohibiting direct or indirect competition. Giving meaningful effect to such a non-compete clause required the Court to examine KL Beverages' operations. Otherwise, the express prohibition against indirect competition would have little purpose.
Secondly, the Court distinguished KL Beverages' operations, which were permitted since its franchise agreement had been terminated, from a breach of the indirect competition restriction under Udayak's subsisting agreement. The alleged breach was indirect competition by a continuing franchisee. The Court addressed the breach without enforcing a post-termination restriction under KL Beverages' own agreement.
Finally, the Court rightly observed that even if an injunction granted in a Section 9 Petition can bind a third party, that does not amount to consent to arbitrate. Under Cox and Kings, mutual intention to be bound by the arbitration agreement remains necessary for the group of companies' doctrine to apply. An entity's involvement in a sister concern's alleged breach does not, by itself, establish such intention. Treating the injunction as sufficient to compel arbitration would merge two separate inquiries and would have gone beyond the Court's jurisdiction under Section 9.
The significance of Parle Agro lies in the balance it strikes between giving meaningful effect to the terms of an agreement in a Section 9 Petition by restricting indirect competition through a non-signatory, without overstepping the Tribunal's domain by adjudicating whether the non-signatory is to be a party to the arbitration or by restricting all its activities.
