Demerger/Non Compete Clause Case

Ashim Investment Co. Ltd.,

Where in view of demerger scheme, subsidiary companies of transferor-company, personally holding equity shares in transferee-company would be entitled to allotment of further equity shares in transferee-company, it would not amount to violation of Section 42; as Section 42(3) provides an exception to general rule and permits a subsidiary company to continue as member of holding company.

"42(3) This section shall not prevent a subsidiary from continuing to be a member of its holding company if it was a member thereof either at the commence­ment of this Act or before becoming a subsidiary of the holding company, but except in the cases referred to in sub-section (2), the subsidiary shall have no right to vote at meetings of the holding company or of any class of members thereof".

Held that Section 42 provides that a subsidiary company cannot hold shares or be a member of its holding company. Section 42(3) provides an exception to general rule and permits a subsidiary company to continue as member of holding company. Existing shareholding of the subsidiary company in the holding company will be protected under section 42(3), but the subsidiary companies will not have any voting rights.

Non Compete Clause

Supreme Court in Gujarat Bottling Co. Ltd v. Coca Cola, HELD that any NEGATIVE COVENANT in an agreement which was operative during the SUBSISTENCE of a contract was VALID but such negative covenant in an agreement which were purported to be made operative AFTER the expiry of the agreement were VOID being restrictive of trade under Section 27 of The Indian Contract Act, 1872.

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