# NIRANJAN SHANKAR GOLIKARI v. TIIE CENTURY SPINNING AND MFG. CO. LTD

- **Citation:** [1967] 2 S.C.R. 378
- **Court:** Supreme Court of India
- **Decided:** 1967-01-17
- **Case number:** CIVIL APPELLAn: JURISDICTION : Civil Appeal No. 2103 of 1966
- **Bench:** R. S. 8Achawat Andj. M. Shelat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/niranjan-shankar-golikari-v-tiie-century-spinning-and-mfg-co-ltd-3969
- **Pages:** 13

## Headnote

Indian Contract Act (9 of 1872), s. 21-Public po/icy-Rt$traint on
ultematlvt emp/oymtnt during contracted period of service when justified.
1be appellant joined the service of the respondent company as Shift
Supervisor and was given training in the manufacture of tyre cord yarn.
The contract was for live years aod it was stipulated that during the said
period the appellant would oot work in similar capacity in any other con.
cem and would maintain secrecy as to the technical aspects of bis work.
HOwt\W, shortly after completing his training tho appellant joined a rival
concern a~ hiFer emoluments. The respondent company therenpoo llled
a suit for an mjunction against the appellant ratraining him from worki!sg
elsewhere as a Shift Supervisor in the manufacture of tyre cord yam <[7 in
similar capacity aod from divulging the trade secrets of the respondent
company. The injunction was granted.
His appeal
before
the High
Court having failed, tbe appellant came to this Court under Art.
136 of
the Constitution.
It was contended on his behalf that the covenant was
agaimt public policy within the meaning of s. 27 of the Indian Contract
Act, lhat it was unrea.""1able, and that it was unnecessary for safeguarding
the trade interest of the eompnny.
HELD: The appeal must fail.
(i) Negative covenants operative during the period of cmpl.:>yment
when the employee is bound to serve his employer exclusively are not to
be regarded is restraint of trade and therefore do not fall under s. 27 of
the Contract Act.
A negative covenant that the employee would not engage himself in trade or business or would not get himself employed by
any other master for whom he would perform similar or
substallliaDy
similar duties is not a restraint Qf trade unless the contract as aforesaid
is unconscionable or excessively harsh
or
unrcasona.ble or one.sided
[389 FJ
Caselaw considered.
In the present case tbe injunction issued against the appellant was res·
tricted as to time, the nature of the employment and as to area and could
not therefore be said to be too wide or unreasonable or unnecessary for
the protection of the interests of
the respondent company. [389 G-H]
(ii) There is nothing to prevent a court from granting a limited injunction to the extent that is necessary to protect the employers"s interests
where the negative stipulation is not void. The rule against severance
applim only to cases where the covenant is bad in law, and it i• only ID
such cases that the couri is precluded from severing the good from the
bad [390 DI
CIVIL APPELLAn:
JURISDICTION : Civil Appeal No. 2103 of
1966.
Appeal by special leave from the judgment and order dated
April 28, 1966 of the Bombay High Court in First Appeal No.
526 of 1965.
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N. S. GOLIKARI v. CENTURY SPINNING CO. (She/at, J:)
379'
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A. K. Sen, Ramesl11rnr Dial and A. D. Mathur, for the appel-
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lant.
S. V. Gupte, Solicitor-General, R.P. Bhatt, R. A. Gagrat, G. L
Sanglri and B. R. Agarwa/a, for the respondent.

## Text

NIRANJAN SHANKAR GOLIKARI
V.
TIIE CENTURY SPINNING AND MFG. CO. LTD.
January 17, 1967
[R. S. 8ACHAWAT ANDJ. M. SHELAT, JJ.)
Indian Contract Act (9 of 1872), s. 21-Public po/icy-Rt$traint on
ultematlvt emp/oymtnt during contracted period of service when justified.
1be appellant joined the service of the respondent company as Shift
Supervisor and was given training in the manufacture of tyre cord yarn.
The contract was for live years aod it was stipulated that during the said
period the appellant would oot work in similar capacity in any other con.
cem and would maintain secrecy as to the technical aspects of bis work.
HOwt\W, shortly after completing his training tho appellant joined a rival
concern a~ hiFer emoluments. The respondent company therenpoo llled
a suit for an mjunction against the appellant ratraining him from worki!sg
elsewhere as a Shift Supervisor in the manufacture of tyre cord yam <[7 in
similar capacity aod from divulging the trade secrets of the respondent
company. The injunction was granted.
His appeal
before
the High
Court having failed, tbe appellant came to this Court under Art.
136 of
the Constitution.
It was contended on his behalf that the covenant was
agaimt public policy within the meaning of s. 27 of the Indian Contract
Act, lhat it was unrea.""1able, and that it was unnecessary for safeguarding
the trade interest of the eompnny.
HELD: The appeal must fail.
(i) Negative covenants operative during the period of cmpl.:>yment
when the employee is bound to serve his employer exclusively are not to
be regarded is restraint of trade and therefore do not fall under s. 27 of
the Contract Act.
A negative covenant that the employee would not engage himself in trade or business or would not get himself employed by
any other master for whom he would perform similar or
substallliaDy
similar duties is not a restraint Qf trade unless the contract as aforesaid
is unconscionable or excessively harsh
or
unrcasona.ble or one.sided
[389 FJ
Caselaw considered.
In the present case tbe injunction issued against the appellant was res·
tricted as to time, the nature of the employment and as to area and could
not therefore be said to be too wide or unreasonable or unnecessary for
the protection of the interests of
the respondent company. [389 G-H]
(ii) There is nothing to prevent a court from granting a limited injunction to the extent that is necessary to protect the employers"s interests
where the negative stipulation is not void. The rule against severance
applim only to cases where the covenant is bad in law, and it i• only ID
such cases that the couri is precluded from severing the good from the
bad [390 DI
CIVIL APPELLAn:
JURISDICTION : Civil Appeal No. 2103 of
1966.
Appeal by special leave from the judgment and order dated
April 28, 1966 of the Bombay High Court in First Appeal No.
526 of 1965.
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N. S. GOLIKARI v. CENTURY SPINNING CO. (She/at, J:)
379'
A.
A. K. Sen, Ramesl11rnr Dial and A. D. Mathur, for the appel-
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lant.
S. V. Gupte, Solicitor-General, R.P. Bhatt, R. A. Gagrat, G. L
Sanglri and B. R. Agarwa/a, for the respondent.
The Judgment of the Court was delivered by
Sbelat, J. This appeal by special leave is against the judgment
and order of the High Court of Maharashtra confirming an order
of injunction against the appellant.
The respondent company manufactures amongst other things
tyre cord yarn at its plant at Kalyan known as the Century Rayon.
. Under an agreement dated January 19, 1961 Algemene Kunstzijde
Unie of Holland (hereinafter referred to as AKU) and Vereinigte·
Ciaozstoff Fabrikan AG of West Germany (hereinafter referred
to as ".\'CF) agreed to transfer their technical know-how to the
respondent company to be used exclusively for the respondent
company's tyre cord yarn
plant at Kalyan in consideration of
1,40,000 Deutsche Marks payable to them by the respondent company. Clause 4 of that agreement provided that the Century
Rayon should keep secret until the termination of the agreement
and during three years thereafter all technical information, knowledge know-how, experience, data and documents passed on by
the said AKU and VCF and the Century Rayon should undertake
to enter into corresponding secrecy arrangements with its employees.
The
respondent company
thereafter
invited applications for
appointments in its said plant including appointments
as Shift
Supervisors. On December 3, 1962 the appellant sent his application stating therein his qualifications.
By its letter dated March I,
1963 the respondent company offered the appellant the post of a
Shift Supervisor in the said tyre cord division stating that if the
appellant were to accept the said offer he would be required to sign
a contract in standard form for a term of five years. On March 5,
1963 the appellant accepted the said offer agreeing to execute the
said standard contract. On March 16, 1963 he joined tae respondent company
and executed on that day the said contract
Ex. 28.
Clause 6 of the agreement pr'>vided
"The employee shall '1•1dng the period of his employment and
any
renewal. ihereof, honestly, faithfully.
diligently and efficiently to the utmost of his power and
skill
(a)
380
SUP.RBMB COUllT IUIPOATS
(1967] 2 S.C.R.
(b) devote the whole of his time and energy ellclusively to the business and affairs of the company and shall
not engage directly or indirectly in any business or serve
whether as principal, agent, partner or employee or in
any other capacity either full time or part time in any
business whatsoever other than that of the company."
Clause 9 provided that during the continuance of his employment
as well as thereafter the employee shall keep confidential and
prevent divulgence of any and all informatior., instruments, documents, etc., of the company that might come to his knowledge.
Clause 14 provided that ifthe company were to close its business
or curtail its activities due to circumstances beyond its control
and if it found that it was no longer possible to employ the employee any further it should have option to terminate his services
by giving him three months' notice or three months' salary in lieu
thereof. Clause 17 provided as follows :
. ·
"Jn the event of the employee leaving, abandonin~
or resigning the service of the company in breach of the
terms of the agreement before the expiry of the said·
period of five years he shall not directly or indirectly
engage in or carry on of his own accord or in partnership
with others tht" business at present being carried on by the
company and he shall not serve in any capacity, whatsoever
or be associated with any person, firm or company carrying on such business for the remainder of the said period
and in addition pay to the company as liquidated damages
an amount equal to the salaries the employee would have
received during the period of sill
months thereafter
and shall further reimburse to the company any amount
that the company may have spent on the employee's
training."
The appellant received training from March to December 1963
and acquired during that training,
knowledge of the technique,
processes and the machinery evolved by the said collaborators as
also of certain documents supplied by them to the respondent
company which as aforesaid were to be kept secret and in respect
of which the respondent company had undertaken to obtain
secrecy undertakings from its employees. According to the evidence, the appellant as a Shift Supervisor was responsible for the
running of Shift work, control of labour and in ;>articular with the
specifications given by the said AKU.
No difficulty arose between the appellant and the respondent
-company until about September 1964. The appellant thereafter remained absent from the 6th to the 9th October 1964 without obtaining leave therefor. On the 10th October, he took casual leave. On
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R s. GOLIKARI v. CENTURY SPINNING co. (She/at, /.)
381
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October 12, he applied for 28 days' privilege leave form Oct0ber14,
1964. Before that was granted he absented himself from the 14th
to the 31st October, 1964. On October 31, he was offered s1lary
for 9 days that he had worked during that month. On November
7, 1964, he informed the respondent company that he had resigned
from October 3 I, 1964. The respondent company by its letter of
November 23,
I 964 asked him to resume work stating that his
said resignation had not been accepted. On November 28, 1964
the appellant replied that he had already obtained another employment.
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It is clear from the evidence that in October he was negotiating
with Rajasthan
Rayon Company at Kotah which was
also
-manufacturing tyre cord yarn and got himself employed there
at a liigher salary of Rs. 560/- per month than what he was getting
from the respondent company. The respondent company thereupon filed a suit in the court at Kalyan claiming inter a/ia an injunction restraining the appellant from serving in any capacity whatsoever or being associated with any person, firm or company including
the said Rajasthan
Rayon till March 15, 1968. The Company
also claimed Rs. 2410/- as damages being the salary for six month
under Clause 17 of the said agreement ahd a perpetual injunction
restraining him from divulging any or all information, instruments,
documents,
reports, trade secrets, manufacturing process, knowhow, etc. which may have come to his knowledge. The appellant,
while admitting that he was employed as a Shift Supervisor, denied
that he was a specialist or a technical personnel asserting that his
only duty was to supervise and control labour and to report deviations of temperature etc. He also alleged that the said agreement was
unconscionable, oppressive and executed under coercion and challenged its validity on the ground that it was opposed to public
policy. He challenged in particular clauses 9 and I 7 of the said
agreement on the ground that whereas clause 9 was too wide as it
was operative not for a fixed period but for life time and included
not only trade secrets but each and every aspect of information,
clause 17 precluded him from serving elsewhere in any capacity
whatsoever which !'1eant a restraint on his right to trade or to
carry on business, profession or vocation and that such a term
was unnecessary for the protection of the respondent company's
interests as an employer.
The Trial Court on a consideration of the evidence led by
the parties held : (!) that the respondent company had established
that the appellant had availed himself of the training imparted
by the said AKU in relation to the manufacture of tyre cord yarn,
the operation of the spinning machines and that he was made familiar
with their know-how, secrets, techniques and information; (2)
that his duties were not merely to supervise labour or to report
382
SuPREME COURT REPORTS
[1967] 2 S.C.R.
deviatiorn; of temperature as alleged by him; (3) that the said agreeA
ment was not void or unenforceable; ( 4) that he committed breach
of the said agreement; (5) that as a result of the said breach the
respondent
company
suffered loss and inconvenience and was
.entitled to damages under clause 17 and lastly that the company
was entitled to an injunction.
On these findings the Trial Court
passed the following order :
"(I) The injunction is granted against the defendant
and he is restrained from getting in the employ of or being
engaged or connected as a Shift Supervisor in the Manufacture of tyre cord yam or as an employee under any title
discharging substantially the same duties as a Shift Supervisor in Rajasthan Rayon, Kotah or any other company
or firm or individual in any part of India for the tern!'
ending 15th March 1968.
(2) The defendant is further restrained during the
said period and, thereafter, from divulging any
of the
secrets,
processes or information
relating
to
the
manufacture of tyre cord yarn by
continuous spinning
process obtained by him in the course of and as a result of
his employment with the plaintiffs."
It is clear that the injunction restrained the aripcllant only from
serving as a Shift Supervisor and in a concern manufacturing tyre
cord yarn by continuous spinning process or as an employee under
any designation substantially discharging duties of a Shift Supervisor. lt was also confined to the period of the agreement and in
any concern in India manufacturing tyre cord yarn.
'
In lhe appeal filed by him in the High Court, the plea taken by
him as to undue influence and coercion was given up.
The High
Court, agreeing with the Trial Court, found that the evidence of
Dr. Chalishhazar,
Mehta and John Jacob established that the
appellant had been imparted training for about nine months
during the course of which information regarding the special processes and details of the machinery evol\'ed by the said collaborators had been divulged to him. It also found that as a result of
his getting himself employed in the said rival company, not only the
benefit of training given to hjm at the cost of the respondent company would be lost to it but that the knowledge acquired by him
in regard to the said continuous spinning process intended for the
exclusive use of the respondent company was likely to be r.iade
available to the rival company which also was interested in the
continuous spinning process of tyre cord. The High Court further
found that though the machinery employed by the said Rajasthan
Rayon might not be the same as that in the respondent company's
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N. s. GOLIKARI v. CENTURY SPINNING co. (She/at, J.)
383
plant the know-how which the appellant acquired could be used for
ensuring continuous spinning yarn. The High Court further found
that Rajasthan Rayon started productfon of tyre cord yarn from
January 1965, that is, two or three months after the appellant joined
them along with two other employees of the respondent company,
that the cumulative effect of the evidence was that the appellant
had gained enough knowledge and experience in the specialised
continuous spinning process in the tyre cord yarn division of the
respondent company and that it was evident that he left the respondent company's employment only because the said Rajasthan
Rayon promised him a more lucrative employment. The High
Court concluded that it was not difficult to imagine why the appellant's services were considered useful by his new employers and
that the apprehension of the respondent company that his employment with the rival'company was fraught with considerable damage
to their interest was well-founded and justified its prayer for an
injunction restraining him from undertaking an employment with
the said rival manufacturers.
As regards the challenge to the validity of clauses 9 and 17,
the High Court held that though the said agreement was with the
respondent company and the company carried on other businesses
as well, the employment was in the business of Century Rayon. The
appellant was employed as a Shift Supervisor in that business only.
the training given to him was exclusively for the spinning department of the tyre cord division and his Jetter of acceptance was also in
relation to the post of a Shift Supervisor in that department. The
High Court therefore concluded that Clauses 9 and 17 related only
to the business in the tyre coFd division and therefore restraints
contained in those clauses meant prohibition against divulging information received by the appellant while working in that Division
and that clause 17 also meant a restraint in relation to the work
carried on in the said spinning department. Therefore the inhibitions wntained in those. clauses were not blanket restrictions as
alleged by the appellant, and that the prohibition in clause 17 operated only in the event of the appellant leaving, abandoning or resigning his service during the term of and in breach of the said agreement. On this reasoning it held that clause 17, besides not being
general, was a reasonable restriction to protect the interests of the
respondent company particularly as the company had spent considerable amount in training,
secrets of know-how of specialised
processes were divulged to him avd the foreign collaborators had
agreed to disclose their specialised processes only on the respondent
company's undertaking to obtain corresponding secrecy clauses
from its employees and on the guarantee that those processes would
be exclusively used for the business of the respondent company.
Furthermore, Clause 17 did not prohibit the appellant even from
seelcing similar employment from any other manufacturer after
384
SUPREME COURT REPORTS
(1967] 2 S.C.R.
the contractual period was over. The High Court lastly
found
that there \\i\S no indication at all that if the appellant was prevented from being employed in a similar capacity elsewhere he
would be forced to idleness or that such a restraint would compel
the appellant to go back to the company which would indirectly
result
in
sr,ecific
performance of the contract of personal
service.
Counsel for the appellant raised the following three contentions : (1) that the said agreement constituted a restraint on trade
and was therefore opposed to public policy, (2) that in order to
be valid and enforceable the covenant in question should be
reasonable in space and time and to the extent necessary to protect
the employer's right of property and (3) that the injunction to
enforce a negative stipulation can only be granted for the legitimate
purpose of safeguarding the trade
secrets of the employer.
He
argued that these conditions were lacking in the present case and
therefore the
respondent
company
was not entitled to the
enforcement of the said stipulation.
As to what conslilutes restraint of trade is summarised in
Halsbury's Laws of England (3rd ed.) Vol.
38, at page 15 and
onwards. It is a general principle of the Common Law that a
person is entitled to exercise his lawful trade or calling as and when
he wills and the law has always regarded jealously any interference
with trade. even at the risk of interference with freedom of contract
as it is public policy to oppose all restraints upon liberty of individual
action which arc injurious to the interests of the State. This principle is not confined to restraint of trade in the ordinary meaning of
the word "trnde" and includes restraints on the right of being
employed.
The court takes a far stricter view of covenants
between master and servant than it docs of similar covenants between vendo1· and purchaser or in partnership agreements. An
employer, for instance, is not entitled to protect himself against
competition on the part of an employee after the employment
has ceased but a purchaser of a business is entitled to protect himself
against competition per se on the part of the vendor. This principle
is based on the footing that an employer has no legitimate interest
in preventing an employee after he leaves his service from entering
the service of a competitor merely on the ground that he is a competitor. (Kores Manufacturing Co. Ltd. v. Ko/ak Manufacturing
Ca. Ltd.(1 ).
The
attitude of the courts as regards public policy
however has not been inflexible.
Decisions on public policy have
been subject to ch;mgc and development with the change in trade
and in economic thought and the general principle once applicable
to 1grcemcnts in re,traints of trade have been considerably modified
by 1-lter decisions. The rule now is that restraints whether general
:1) (19591 Cl:. 108, 126.
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N. s. GOLJKARI v. CENTURY SPINNING co. (She/at, J.)
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or partial may be good if they are reasonable. A restraint upon
freedom of contract must be shown to be reasonably necessary
for the
purpo5e of freedom of trade. A restraint reasonably
necessary for the protection of the covenantee must prevail unless
some specific ground of public policy can be clearly established
against it. (E. Underwood and Son Ltd. v. Barker (1). A person
may be restrained from carrying on his trade by reason of an agreement voluntarily entered into by him with that object. In such
a case the general principle of freedom of trade must be applied
with due regard to the principle that public policy requires for men
or full age and understanding the utmost freedom of contract and
that it is public policy to allow a trader to dispose of his business to
a successor by whom it may be efficiently carried on and to afford
to an employer an unrestricted choice of able assistants and the
opportunity to instruct them in his trade and its secrets
wi~hout
fear of their becoming his competitors. (Fitch, v. Dewcs)(Z). Where
an agreement is challenged on the ground of its being a restraint
on trade the onus is upon the party supporting the contract to show
that the restraint is reasonably necessary to protect his interests.
Once, this onus is discharged, the onus of showing that the restraint is nevertheless injurious to the public is upon the party
attacking the contract. (See Cheshire's Law of contract, (6th ed.)
328,
Mason v. Provident Clothing and Supply Co. Ltd.(3). and
A. G. of Commonwealth of Australia v. Adelaide Steamship Co.
Ltd.().
The courts however have drawn a distinction between restraints applicable during the term of the contract of employment
and those that apply after its cessation. (Halsbury's
Laws of
England (3rd ed.) Vol. 38, p. 31). But in W. H. Mi/sted and Son
Ltd. v. Hamp(') where the contract of service was terminable only
by notice by the employer, Eve J. held it to be bad as being wholly
one-sided. But where the contract is not assailable on any such
ground, a stipulation therein that the employee shall devote his
whole time to the employer, and shall not during the term of the
contract serve any other employer would generally be enforceable.
In Gaumont Corporation v. Alexander(6) clause 8 of the agreement
provided that :
"the engagement is an exclusive engagement by the
corporation of · the entire service of the artiste for
the period mentioned in clause 2 and accordingly the artiste
agrees with the corporation that from the date hereof
until the expiration of her said engagement the artiste
(1) [1899] 1 Ch. 300 C.A.
(2) [1921] 2 A.C. 158, 162-167.
(3) [1913] A.C. 724
(4) [1913] A.C. 781 796.
(5) [1927] W.N. 233.
(6) [1936] 2 All.E.R. 1686.
Ml Sup Court/67-11
386
surREME COURT REPORTS
(1967] 2 S.C.R.
shall not without receiving the previous consent of the cor·
poration do any work or perform or render any services
whatsoever to any person firm or company other than the
corporauon and its sub-lessees".
On a contention that this clause was a restraint of trade, Porter J.
held that restrictions placed upon an employee under a contract
of service could take effect during the period of contract and are not
in general against public policy.
But
the learned Judge
at
p. 1692 observed that a contract would be thought to be contrary
to public policy if there were a restraint, such as a restraint of trade,
which would be unjustifiable for the business of the claimants in
the case. He however added that he did not know of any case,
although it was possible, there might be one, where circumstances
might arise in which it would be held that a restraint during the
progress of the contract itself was an undue restraint. He also
observe that though for the most part, those who contract with
persons and enter into contracts which one might for this purpose
described
as contracts of service, have generally imposed upon
them the position that they should occupy themselves solely in
the business of those whom they serve but that it would be a question
largely of evidence how far the protection of clauses of that kind
would extend, at any rate during the existence of the contract of
service. Therefore, though as a general rule restraints placed upon
an employee are not against public policy, there might, according to the learned Judge, he cases where a covenant might exceed
the requirement of protection of the employer and the court might
in such cases refuse to enforce such a covenant by injunction.
In
William Robinson and Co. ltd. v. Heuer( I) the contract provided
that Heuer would not during this engagement without the previous
consent in writing of William Robinson & Co., "carry on or be
engaged directly or indirectly, as principal, agent, servant or otherwise, in any trade, business or calling, either relating to goods of
any description sold or manufactured by the said W. Robinson &
Co.
Ltd., .... or in any other business whatsoever." Lindley
M.R. there observed that there was no authority whatsoever to
show that the said agreement was illegal, that is to say, that it was
unreasonable or went further than was reasonably necessary for
the protection of the plaintiffs. It was confined to the period of the
engagement, and meant simply that "so long as you are in our
employ you shall not work for anybody else or engage in any other
business". There was, therefore, according to him, nothing unreasonable in such an agreement. Applying these observations
8ranson J. in Warner Brothers Pictures v. Nelson(Z) held a covenant
of a similar nature not to be void. The defendant, a film artist,
entered into a contract with the plaintiffs, film producers, for
lifty-two weeks. renewable for a further period of fifty-two weeks
(I) (1898) 2 Ch. 451.
(2) (1937] I K.B. 209.
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at the option of the plaintiffs, whereby she agreed to render her
exclusive service as such artist to the plaintiffs, and by way of negative stipulation not to render, during the period of the contract,
such services to any other person. In breach of the agreement she
entered into a contract to perform as a film artist for a third person.
It was held that in such a case an injunction would issue though
it might be limited to a period and in terms which the court in its
discretion thought reasonable.
A similar distinction has also been drawn by courts in India
and a restraint by which a person binds himself during the term of
his agreement directly or indirectly not to take service with any
other employer or be engaged by a third party has been held not
to be void and not against section 27 of the Contract Act. In
Brahmaputra Tea Co. Ltd. v. Scarth(!) the condition under which
the covenantee was partially restrained from competing after
the term of his engagement was over with his former empkyer was
held to be bad but the condition by which he bound himself during
the term of his agreement, not, directly or indirectly, to compete
with his employer was held good. At page 550 of the report the
court observed that an agreement of service by which a person
hinds himself during the term of the agreement not to take service
with any one else, or directly or indirectly take part in, promote
or aid any business in direct competition with that of his employer
was not hit by section 27. The Court observed;
"An agreement to serve a 'person exclusively for a
definite term is a lawful agreement, and it is difficult to
see how that can be unlawful which is essential to its
fulfilment, and to the due protection of the interests of
the employer, while the agreement is in force."
(See also Pragji v. Pranjiwan(2) and La/bhai Dalpathbhai and Co
v.
Chittaranjan
Chandulal Pandva(3). In Deshpande v. Arbind
Mills Co.(4) an agreement of service contained both a positive covenant, viz., that the employee shall devote his whole-time attention
to the service of the employers and also a negative covenant
preventing the employee from working elsewhere during the term
of the agreement.
Relying on Pragji v. Pranjiwan(2), Charlesworth v. MacDonald(s), Madras Railway Company v. Rust,(•) Subba
Naidu
v. Haji Badsha Sahib(?) and Burn & Co: v. MacDonald(•)
as instances where such a negative covenant was enforced, the
learned Judges observed that Illustrations (c) and (d) to section 57
of the Specific Relief Act in terms recognised such contracts and
the existence of negative covenants therein and that therefore the
(I) l.L.R. (XI) Cal. 545.
(3) A.l.R. 1966 Guj 189.
!5) l.L.R. 23. Born. 103.
\7) l.L.R. 26 Mad .. 168.
(2) 5 Born. L.R. 872.
(4) 48 Born. L.R. 90.
(6) l.L.R. 14 Mad. 18
(8) l.L.R. 36 Cal. 354.
:1ss
SUPREME COURT RBPORTs
(1967] 2 S.C.R.
uintcntion that the existence of such a nega1i1·c co\'enanl in
a service agreement made the agreement \'Oid on the ground that
it was in restraint oftradc and contrary 10 section 27 of the Conlracl
Acl had no validity.
Counsel for lhe appcllanl. however. relied on Ehrman v. Bar·
//10/onrrH·(I) as an illustration where the negative stipulation in the
contract was held to be unreasonable and therefore unenforceable.
Cleuse 3 of the agreement there provided that the employee shall
devote the whole of his time during the usual business hours in
the transaction of the business of the firm and shall not in any
manner directly or indirectly engage or employ himself in any
other business, or transact any business with or for 11ny person or
persons other than the firm during the continuance of this agreement. Clause 13 of the agreement further provided that after the
termination of the employment by any means, the employee shonld
not, either on his sole account or jointly with any other person,
directly or indirectly supply any of the then or past customers of
the firm with wines etc. or solicit for orders any such customers and
should not be employed in any capacity whatsoever or be concerned, engaged or employed in any business of a wine or spirit
merchant in which any former partner of the firm was engaged.
Romer J. held these clauses to be unreasonable on the ground that
clause 3 was to operate for a period of 10 years or for so much of
that period as the employer chose and that the word "business"
therein mentioned could not be held limited by the context to
a wine merchant's
business or in any similar way.
So that the
court, while unable to order !he defendant to work for the plaintiffs,
is asked indirectly to make him do so by otherwise compelling him to
abstain wholly from business, at any rate during all usual busin~.s
hours. The other decision relied on by him was Mason v. Provident
Clothini:: and Supply Co. Ltd.(2). This was a case of a negative
covenant not to serve elsewhere for three years after the termination
of the contract. In this case the court applied the test of what was
reasonable for the protection of the plaintiffs' interest. It was
also not a case of the employee possessing any special talen:. but
that of a mere canvasser. This decision, however, cannot assist
us as the negative covenant therein was to operate after the tc•-
mination of the contract. Herbert Morris v. Saxrlby(') and
Allwood v. Lamonr(4 ) arc also cases where the restrictive covenants
were to apply after the termination of the employment.
In Commercial Plasrics Ltd. v. Vincent(') also the negatil'c covenant was to
operate for a year after the employee left the employment and the
court held that the restriction was void inasmuch as it went beyond
what was reasonably necessary for the protection of the employer's
legitimate int:rcsts ...
(!) [1898} I Cb. 571.
(3) Jl9t6] A.C. 688.
(5) 3 Alt.J:.R. 546.
(2) (19131 A.C. 724.
(4) Jl92oi 3 K.B. 571.
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N, S, GOLIKARJ v. CENTURY SPINNING co. (She/ar. J.)
389
These decisions do not fall within the class of cases where
the negative covenant operated during and for the period of employment as in Gaumont Corporation's
Case(') and
Warner
Brothers v. Nelson(2) where the covenant ws held not to be a restraint of trade or against public policy unless the agreement was
whoJly one-sided and therefore unconscionable as in IV.H. Milstcd
and Son Ltd. v. Hamp(>) or where the negative covenant was such '
that an injunction to enforce it would indirectly compel the employee
either to idleness or to serve the employer, a thing which the court
would not order, as in Ehrman v. Bartlwlomew(4). There is, however.
the decision of a Single Judge of the Calcutta High Court in Gopal
Paper Mill.f v .. Malhotra(5), a case of breach of a negative covenam
during the period of employment. This decision, in our view, was
rightly distinguished by the High Court as the period of contract
there was as much as 20 years and the contract gave the employer an
arbitrary power to terminate the service without notice if the emloyer decided not to retain the employee during the three years
of apprenticeship or thereafter if the employee failed to perform
his duties to the satisfaction of the employer who had absolute
.discretion to decide whether the employee did so and the employer's
certificate that he did not, was to be conciusive as between the
parties. Such a contract would clearly fall in the class of contracts
held void as being one sided as in W.H. Milsted and Son Ltd. v.
Hamp('). The decision in Gopal Paper Mills v. Malhorra(5) therefore ca,mot further the appellant's case.
The result of the above discussion is that considerations against
restrictive covenants arc different in cases where the restriction
is to apply during the pc~iod after the termination of the contract
than those in cases where it is to operate during the period of the
contract. Negative covenants operative during the period of the
contract of employment when the employee is bound to serve his
employer er.elusively are generally not regarded as restraint of trade
and therefore do not fall under section 27 of the Contract Act.
A negative covenant that the employee would not engage himself
in a trade or business or would not get himself employed by any
other master for whom he would perform similar or substantially
similar duties is not therefore a restraint of trade unless the contract
as aforesaid is unconscionable or excessively harsh or unreasonable
or one sided as in the case of W.11. Milsted and Son Ltd.(3). Both
the Trial Court and the High Court have found, and in our view,
rightly, that the negative covenant in the present case restricted as
it is to the period of employment and to work similar or substantiaJly similar to the one carried on by the appellant when he was
in the employ of the respondent company was reasonable and necessary for the protection of the company's interests and not such
(I) \193612 All E.R. 1686.
(2) (1937) I K.B. 209.
(3) 19271 W. N. 233.
(4) (1898) I Ch. 671.
(5) A. I. R. 1262 Cal. 61.
390
SUPRFME
comT JllPOl.TS
[1967) 2 S.C.R.
as the court would refuse lo enforce. There is therefore no validity in
the contention that the negative covenant contained in clause 17
amounted to a restraint of trade and was therefore against public
policy.
The next question is whether the injunction in the terms in
which it is framed should have been granted. There is no doubt
that the courts have a wide discretion to enforce by injunction a
negative covenant.
Both the courts below have concurrently
found that the apprehension of the respondent company
that
information regarding the specia! processes and the special machinery
imparted to and acquired by the appellant during the period of
training and thereafter might be divulged was justified; that the
information and knowledge disclosed to him during this period
was different from the general knowledge and experience that he
might have gained while in the service of the respondent company
and that it was against his disclosing the former to the rival company which required protection. It was argued however that the terms
of clause were too wide and that the court cannot sever the good
from the bad and issue an injunction to the extent that was good.
But the rule against severance applies to cases where the covenant
is bad in law and it is in such cases that the court is precluded from
severing the good from the bad.
But there is nothing to prevent
the court from granting a limited injunction to the extent that is
nea:ssary to protect the employer's interests where the negative
stipulation is not void. There is also nothing to show that if the
the negative covenant is enforced the appellant would be driven to
idleness or would be compelled to go back to the respondent company.
It may be that if he is not permitted to get himself employed
in another similar employment he might perhaps get a lesser remuneration than the one agreed to by Rajasthan Rayon. But that
is no considc;·ation against enforcing the covenant. The evidence is
clear that the appellant has torn the agreement to pieces only because
he was offered a higher remuneration. Obviously he cannot be
heard to say that no injunction should be granted against him to
enforce the negative covenant which is not opposed to public policy.
The injunction issued against him is restricted as to time. the nature
of employment and as to area and cannot therefore be said to be too
wide or unreasonable or unnecessary for the protection of the interests of the respondent company.
As regards Clause 9 the injunction is to restrain him from
divulging any and all information. instruments, documents, reports
etc. which may have come to his knowledge while he was
serving the respondent company. No serious objection was taken
by Mr. Sen against this injunction and therefore we need say no
more about it.
The appeal fails and is dismissed with costs.
G.C.
Appeal dismissed
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