# SlJPERJNTENDENCE COMPANY OF INDIA (P) LTD v. KRJSHAN MURGAI

- **Citation:** [1980] 3 S.C.R. 1278
- **Court:** Supreme Court of India
- **Decided:** 1980-05-09
- **Case number:** Civil Appeal No. 1933 of 1979
- **Bench:** N. L. Untwalia, V. D. TuLZAPURKAR, Ap .. Sen
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sljperjntendence-company-of-india-p-ltd-v-krjshan-murgai-7992
- **Pages:** 24

## Headnote

Covenant in restruiflf of trade-Contract Act, 1872, Section 27, scope off-
W lzetht:r a post-service restrictive cpvenant. in restraint of. trade
in service
t1greement b~tween the parties is void-Even if it be valid, whether it could
be enfiorceable. as enjoined by ittustrations (c) and (d) ,to Section 57 of th•
C
Specific Relief Act, 1963.
y
The- appellant company carries on busine$ as valuers and surveyor! undertaking inspection of quality, weighment analysis, sampling of merchandise and
commodities, cargoes, industrial products, machinery, textiles etc. It has
established a reputation and gocxlwill in its business by developing its
own
techniques for quality testing and control and possess trade secrets in the
D
form of these techniques and clientele. It has its headoffice at Calcutta and
a branch at New Delhi and employs various persons as
managers
and
in
other c~cities in Calcutta; New Delhi and other pla.ces~
E
F
G
H
On March 27, 1971, the respondent was employed by the appellant company as the Branch Manager of its New Delhi office on terms and conditions contained in the letter of appointment issued to him on the same
date. Clause ( 10) of the terms and conditions of employment placed the
respondent under a post service restraint• that he shall not serve any other
competitive firm nor carry on business on Q.is own in similar line as that
of the appellant company for two Y"'l"' at tho place of his
last posting.
On November 24, 1978, the appellant company terminated the respondent's
semces with effect from December 27, 1978. Thereafter, respondent started his own business under the name and style of "Superintendence and
Surveillence Inspectorate of India" at E.-22 South Extension New Delhi on
lines identical with or substantially similar to that of the appellant company.'
On April 19, 1979 the appellant company brought a suit in the Delhi HighJ
Court on its original side, claiming Rs. 55,000/- as dama8"8 on account ofT
the b~ch of negative covenant contained in clause ( 10); and for permanent\
injunction restraining the respondent by himself, his servants, agents or otherwise, from carrying on the said business or any other business
on Imes
similu to that of the appellant conipany or associating or representing
any
competitors of the appellant company 'before the expiry of two ye;m from
December 27, 1978.
After filing the suit the appellant company sought an
ad interim injuncilon by way of enforcing the aforesaid
negative
covenant
a1*i a Single Judge of the Delhi High O>uft initially granted an ad interim
injunction on April 29, 1979 which was confirmed by him on May 25, 1979
after hearing the respondent.
On appeal by the respondent, the
Division
Bench" of the High Court reversed the interim ord~r and hence the
appeal
by certificate.
Dimlissing the appoal, the Court
'
I I
SUPERINTl!NDBNGB COMP ANY V. KRISHAN MURGA!
12 7 9
HELD: (Per Tulzapurkar l., on behalf of Untwali~ l. and himself).
i ...
!. Assuming that the negative covenant contained in clause (10) of the
service agreement is valid and not hit by section 27 of the Indian Contract
Act, it is not enforceable against the respondent at the
instance of the
appellant company. The appellant company should have taken care to uae
appropriate language, while incorporating such reStrictive covenant so as to
include every case of 1 cessation of employment arising from
any
reason
whatsoever and not llsed the expression "leave", which normally is synonypious to the expression "quit" and indicates voluntary act on the part of the
employee. [1285 F, 1287 A, B-C]
T
,,
~
(2) The word "leave" has various shades of meaning depending
upon
the context or intent with which it is used. According to the plain grammaticel meaning that word in relation to an employee
would
normally
be
'\j'coostrued a& meaning voluntary leaving of the service by him and
would
~ not iI}.clude a case 'where he is discharged or dismissed or his services are
terminated by his employer.
Ordinarily, the word conn

## Text

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12:78
A
SlJPERJNTENDENCE COMPANY OF INDIA (P) LTD.
B
v.
KRJSHAN MURGAI
May 9, 1980
[N. L. UNTWALIA,
V. D. TuLZAPURKAR AND AP .. SEN, JJ.]
Covenant in restruiflf of trade-Contract Act, 1872, Section 27, scope off-
W lzetht:r a post-service restrictive cpvenant. in restraint of. trade
in service
t1greement b~tween the parties is void-Even if it be valid, whether it could
be enfiorceable. as enjoined by ittustrations (c) and (d) ,to Section 57 of th•
C
Specific Relief Act, 1963.
y
The- appellant company carries on busine$ as valuers and surveyor! undertaking inspection of quality, weighment analysis, sampling of merchandise and
commodities, cargoes, industrial products, machinery, textiles etc. It has
established a reputation and gocxlwill in its business by developing its
own
techniques for quality testing and control and possess trade secrets in the
D
form of these techniques and clientele. It has its headoffice at Calcutta and
a branch at New Delhi and employs various persons as
managers
and
in
other c~cities in Calcutta; New Delhi and other pla.ces~
E
F
G
H
On March 27, 1971, the respondent was employed by the appellant company as the Branch Manager of its New Delhi office on terms and conditions contained in the letter of appointment issued to him on the same
date. Clause ( 10) of the terms and conditions of employment placed the
respondent under a post service restraint• that he shall not serve any other
competitive firm nor carry on business on Q.is own in similar line as that
of the appellant company for two Y"'l"' at tho place of his
last posting.
On November 24, 1978, the appellant company terminated the respondent's
semces with effect from December 27, 1978. Thereafter, respondent started his own business under the name and style of "Superintendence and
Surveillence Inspectorate of India" at E.-22 South Extension New Delhi on
lines identical with or substantially similar to that of the appellant company.'
On April 19, 1979 the appellant company brought a suit in the Delhi HighJ
Court on its original side, claiming Rs. 55,000/- as dama8"8 on account ofT
the b~ch of negative covenant contained in clause ( 10); and for permanent\
injunction restraining the respondent by himself, his servants, agents or otherwise, from carrying on the said business or any other business
on Imes
similu to that of the appellant conipany or associating or representing
any
competitors of the appellant company 'before the expiry of two ye;m from
December 27, 1978.
After filing the suit the appellant company sought an
ad interim injuncilon by way of enforcing the aforesaid
negative
covenant
a1*i a Single Judge of the Delhi High O>uft initially granted an ad interim
injunction on April 29, 1979 which was confirmed by him on May 25, 1979
after hearing the respondent.
On appeal by the respondent, the
Division
Bench" of the High Court reversed the interim ord~r and hence the
appeal
by certificate.
Dimlissing the appoal, the Court
'
I I
SUPERINTl!NDBNGB COMP ANY V. KRISHAN MURGA!
12 7 9
HELD: (Per Tulzapurkar l., on behalf of Untwali~ l. and himself).
i ...
!. Assuming that the negative covenant contained in clause (10) of the
service agreement is valid and not hit by section 27 of the Indian Contract
Act, it is not enforceable against the respondent at the
instance of the
appellant company. The appellant company should have taken care to uae
appropriate language, while incorporating such reStrictive covenant so as to
include every case of 1 cessation of employment arising from
any
reason
whatsoever and not llsed the expression "leave", which normally is synonypious to the expression "quit" and indicates voluntary act on the part of the
employee. [1285 F, 1287 A, B-C]
T
,,
~
(2) The word "leave" has various shades of meaning depending
upon
the context or intent with which it is used. According to the plain grammaticel meaning that word in relation to an employee
would
normally
be
'\j'coostrued a& meaning voluntary leaving of the service by him and
would
~ not iI}.clude a case 'where he is discharged or dismissed or his services are
terminated by his employer.
Ordinarily, the word connotes voluntary action.
[1286-D]
(3) In the instant case, having regard to the context in which the expression leave occurs in clause (10) of tho service agreement and
reading it
alongwith all the other terms of agreement, it is clear that the word •ieave•
was. intended by the parties to ·refer to a case where the employee voluntarily left the services of his own.
[1286 G-H, 1287 A]
Murray v. Close, 32 Law Times Old series p. 89; held inapplicable to
Indian Law.
Muesling v. International Rly. Co., 147 N.Y.S.
177,' 178 85
Misc 309;
A
B
c
D
y
quoted with approval.
E
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Per, Sen 1.:
1. Agreements of service, containing a negative covenant preven.ting the
employee from working elsewhere are not void under section 27
of the
Contract Act, on the ground that they are in restraint Of trade. Such agreements are enforceable, the reason being that the doctrine of restraint of trade
never applies during the continuance of a contract of employment and applies
only when the contract comes to an end. While during the pet:iod of employ-
\. ment the Courts undoubtedly would not grant any specific performance of
i a contract of personal service, nevertheless Section 57 of the Specific Relief
Act clearly provides for the grant of an injunction to restxain the breach
of such a covenant, as it is not in restraint of, but in furtherance of trade.
[1289 C-EJ
2. There is a clear distinction between a restriction in a ' contract
of
employment Which is operative during the period of employment and one
which is to operate after the termination of employment. Mere existence of
negative covenant in a service agreement does not make it
void
on the
ground that it was in restraint of trade and contrary to the Contxact Act.
The restriction contained in clause 10 of the agreement in this
case
is
clearly in restraint of trade and therefore illegal under section 27 of the
Cootract Act. It is not seeking to enforce the negative covenant
during
the term of employment of the respondent but after the tennination of his
. serviceo. [1289 F-G, 1290 F-0, 1291 C-D]
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SUPREME COURT REPORTS
[1980] 3 s.c.R.
, A
Niranjan Shankar Golikari v, Century Spinning and Manufacturing Co.,
c
D
E
F
G
H
Ltd., [1967] 2 SCR 378, distinguished.
3. \Vhen a rule of English law receives statutory recognition by the Indian
Legislature, it is the language of the Act which determines the scope, un·
influenced by the manner in which the anologous provision comes . to
be
construed narrowly or otherwise modified in order to bring the construc.tion
within the scope and limitations of the rule governing the English doctrine of
trade.
[1291 H, 1292 A]
Satyavrata Ghosh v. Kurmee Ram Bangor, [1954] SCR 310. followed.
4. A contract which has for its object a restraint of trade is, prima facie
~oid. The question whether an agreement is void under section 27 must
be decided upon the wording of that section. There is nothing in the woro----v--
ing of section 27 to suggest that the principle stated therein does not apply
when the restraint is for a limited period only or is confined to a particular
area.
Such matters of partial restriction have effect only when the fact fall
within the exception to the section. Section 27 of the Contracts Act is general
in terms, and declares aU agreements in restraint void pro tanto, except in the
case specified in the application and unless a particular contract
can
be
distinctly brought within Exception I there is no escape from the prohibition.
Here the agreement in question is not a "good will
of business",
type of
contract, and, therefore does not fall within the exception. If the agreement
on the pa.rt of the respondent puts a restraint even though partial, it
wa.o
void, and, therefore, the contract must be treated as one which cannot be
enforced. [1292 E.H, 1293 A, F-GJ
Madhub Chander v. Rai Coomar Dass, (1874) Bom.L.R. 76 @ 85-86;
approved.
5. A contract in restraint of trade is one by which a party restricts
liis
. future liberty to carry on his trade, business or profession in such maniier
and with such persons as he choooes. A contract of this class is prima facie
void, but it becomes binding upon proof that the restriction is justifiable in
the circumstances as being reasonable from the point
of
view
of
the
parties themselves and also of the community. Under Section 27
of the
Contract Act the onus is upon the covenanter. [1292 H, 1293 A. & 1294 D·E] {
6. A law does not cease to be operative because it is an anachronism or
because it is antiquated or because the reason why it originally became the
law could_ be no reason for the introduction of such a law at the present
times. Neither the test of reasonableness nor the
principle
of
that
the
restraint being partial was reasonable are applicable to a case governed by
Section 27 of the Contract Act, unless it falls within Exception I.
Under
Section 27 of the Contract Act, a service covenant extended
bey00d'
the
termination of the service is void.
[1299 AMC:/
Nor<Je.nfelt v. Maxim. Nordenfelt Guns 'am! Ammunition
Co. Ltd.. L.R.
[1894] A.C. 535; Mason v. Pruvident Clothing and Supply Co. Ltd.. L.R.
[1930] A.C. 724; Herbert Morris Ltd. v. Saxe/by; discussed.
r
/
7. On a true construction of clause 10 of the agreement the negative convenant not serve elsewhere or enter into a competitive business does not,
arise
\.
SUPERINTENDENCE COMPANY V. KRISHAN MU!lGAl
1281
.when. fhe employee does not leave the services but is dismissed from Service.
A
Wrongful dismissal is a repudiation of contract of service which relieves
the
employee of the restrictive covenant. [1299 &F]
General Bil/posting Co. v. Atkinson, L. R. [1909] AC 118; referred to.
8. The word 'leave' has various shades of meaning depending upon
the
context of intent with which it is used. According to the plain meaning, the
word 'leave' in relation to an employee, should be construed to mean where
he "voluntarily" leaves i.e. of his ovm volition and does not include a. case of
dismissal.
The word 'leave' appears to connote voluntary actiOn, and is synoDJDlOUS with the word 'quit'. It cloes not refer to the expulsion of an emp- ·
luyee by the act of his employer without his consent and against his remonstrance. That is a meaning in consonance with justice and fair play.
·
[1299 H, 1300 A-BJ
9. Restrictions on com~titions during the period of service a.re Jilormally
valid and indeed may be implied by law by virtue of the servant's duty of fidelity.
Ill such cases t,he restriction is generally reasonable, 'having regard to the inlernit of the employer and does not cause a.ny undue hardship to the employee,
who wi11 receive a wage or salary for the period in question. But if the covenant is to operate after the termination of services, or is too widely v"orded.
tile Conrt may refuse to enforce it. [1300 CD]
10. It is well established that employee's covenants should he carefully
scrutinised because there is inequality of bargaining power between the pa.rties;
iacleed no bargaining -power may occur because the employee is presented with
a standard form of contract to accept or reject. At the lime of the agree-
' ment, the employee may have given little thought to the restriction becauae
'. of' his eagerness for a job; such contracts "tempt improvident persons, for the
\~ of present gain, to deprive themselves of the power to make future acqui-
~ms and expose them to impooition and oppression". [1300 E-F]
\ 11. The Courts view. with disfavour a restrictive covenant by an employee
nol. to engage in a business similar to or competitive with that of the employer
aft¢ the termination of his contract of employment since a. restrictive covenant ,.,,cillary to a contract of employment is likely to affect the employee's
means, or procuring a livelihood for himself and hi• family.
[1301 B-C]
12\ The true rule of construction is that when a covenant or agreement is
impea~hed on the ground that it is in restraint of trade, the duty-of the Court
is, frrst 'to interpret the covenant or agreement itself, and to ascertain according to the ordinary rules of construction what is the fair meaning of the parties.
If there i,o;: an ambiguity it must receive a narrower construction than the
wider. The restraint ma.y not be greater than necessary to prptect the employer, nof l,mduly harsh and oppressive to the employee. Even if
the
word
'leave' cont3ined in clause 10 of the a'greement is susceptible of another construction as ~ing operative on termination,
however,
accomplished
of the
service e.f?. by dismissal without notice, would having regard to the provisions
of oection 27 'of the Contract Act, 1972, try to preserve the Government in
clause l 0 by il,ving to it a restrictive meaning, as implying volition i.e. wher,e
the employee ~igns or voluntarily leaves the services. The restriction being
too wide, and violative Of section 27 of the Contract Act, must be subjected·
to a narrower co~truction. [1301 C-G]
.
\
.
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II
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1282
SUPREME COURT REPORTS
[1980] 3 s.c.R.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1933 of 1979.
-
Appeal by Special Leave from the Judgment and Order dated the
20th July, 1979 of the Delhi High Court in F.A.O. (OS) No. 86 of
1979.
A. K. Sen, P. P. Rao, N. D. Garg, R. Venkataramani and S. K.
Bisaria for the Appellant.
K. K. Venugopal, H. K. Puri and S. C. Dlumda for the Respondent .
. The following Judgments were delivered
TuLZAPURKAR, J. This appeal at the instance of the appellant
company (original plaintiff) is directed against an inter-locutory order
passed by the High Court in F.A.O. (0.S.) 86 of 1979 refusing to ~y
grant temporary injunction in a suit which is stil\ pending. Principally it raises two substantial questions : (a) whether a post-service
restrictive covenant in restraint of trade as contained in cl. ( 10) of
the service agreement between the parties is void under s. 27 of the
Indian Contract Act ?
and (b) whether the said restrictive covenant,
assruning it to be valid, is on its terms enforceable at the instance of
the appellant company against the respondent ?
On March 21, 1980 we dismissed the appeal at the·copclusion of
the hearing and it was stated that our reasons will follow.
We now
proceed to give .our reasons for the dismissal.
I
'
Briefly stated the facts are these.
The appellant company carries
on business as valuers and· surveyors, undertaking inspection of quality,
weighment, analysis, sampling of merchandise and commodities, cargoes, industrial products, machinery, textiles, etc. It has estabilshetl
a reputation and goodwill in its business by developing its own tQilniques for quality testing and control and possesses trade secrets in. the
form of these. teohniques and clientele. It has its head oflicd at
Calcutta and a branch at New Delhi and employs various persons as
managers and in other capacitie~ in Calcutta, New Delhi and other
places.
On March 2 7, 1971 the respondent was emplayed
by · the
appellant company as the Branch Manager of its New Delhi office on
terms and conditions contained in the letter of appointment issued to
him on the same date.
Cause (10) of the terms and conditions of
employment placed the respondent under a post-service restraint that
ho shall·not serve any other competitive firm nor carry on business on
his own in similar line as that of the appellant company for two years
at the place of his last posting.
Since it is vital we set out the< said
clause which ran thus :-
. "10. That you will not be permitted to join any firm
of our competitors or run a business of your ow11 ln similar
f
•
I
SUPBIUNTBNDENCB COMPANY V. KR!SHAN MURGA!
1283
(Tulz.apurkar, J.)
lines directly and/ or indirectly, for a period of two years at
A
the place of your lllst posting after you leave the company."
On November 24, 1978 the appellant company terminated tbei
re.11pondent's services with effect from December 27, 1978. Thereafter the respondent started his own business under the name and
style of. "Superintendence and Surveillance Inspectorate of India" at
B-'.i?2, South Extension, New Delhi on lines identical with or subStan~
tially 'similar to that of the appellant company. On April 19, 1979
the appellant company brought a suit in the Delhi High Court on its
Original Side claiming Rs. 55,000/- as damages on account of the:
'-,,.,J.-
breach of the aforesaid negative covenant ccntained in cl. (10) and
~
for permanent injunction restraining the respondent by himself, his
servants, agents or otherwise, from carrying on the said business ,or
any other business on lines similar to that of the appellant company or
associating or representing any competitors of the appl'.J!ant cqmpany
before the .expiry of two years from December 27, 1978.
After filing
the suit the appellant company sought an interim injunction by way of
enforcirig the aforesaid negative cQlvenant and a Single Judgei 'of the
Dt:lhi High Court initially granted an ad interim injunction on: April
29, 1979 which was confirmed by him on May 25, 1979 after hearing
. the respondent.
The learned Single Judge took the view that the
ne~ve covenant, being in partial restraint of trade, was reasonable
y
inasmuch as it was limited both in point of time (two years) as well:
1 as the area of operation (New Delhi which was his last posting) and,
therefore, ll(as not hit by s. 2 7 of the Contract Act.
He also took the
view that the negative covenant was enforceable as the expression,
"leave" in cl. ( 10) was not confined to voluntarily leaving of the service
by the respondent but was wide enough to include termination of his:
services by the appellant company. On appeal by. the respondent, a
Division Bench ef the High Court reversed the order of the learned
Single Judge on both the points and that is how the two questioru;
indicated at the commencement of this judgment arise for our determination in this appeal.
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Since in our vieW the appeal ii; capable of being dispooed of ,,n
G
1be second .point we think it unnecessary to decide or express our
opinion on the fiist question which was hotly and ably debated at the
bar by counsel on either< sidei but we will indicate briefly the rival lines
on which the arguments proceeded. On the one ·hand counsel for th~
reipO!ldent tried to support the view of the Division Bench by pointiilg
out that in India the law on the subject was codified by statute which
B
wu edlaustive and on the topic of agreements in restraint of trade and
excefl(ions in that behalf the Indian Courts cannot invoke oc derive
A
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12S4
SUPREME COURT REPORTS
[1980] 3 s.c.R.
assistance from the English Common Law and the exceptionsi developed thereto by English decisions from time to time, that s. 27 ol. the
Indian Contract Act was absolute in terms .in that it did not make any
distinction between par_tial or general restraints and that unless. a case
was covered by the Exception provided thereunder every restraint ol'
trade, whether partial or general would be void under that section. In
this behalf reliance was placed on a number of decisions of various
High Courts commencing from the celebrated decision of Sir Richard
Couch, C.J. in M.adhub Chunder v. Rajcoomar Doss(') wheres. 27
was interpreted in the aforesaid manner. Counsel urged that a distinction between a negative covenant operative during the period of
employment and one that is operative during post-service period has
been well recogttised and that all post-service restrictive
covenants'
were prima facie void, that the only exceptions were those given in the
statute and that the exceptions developed by' the English case .law
could not be invoked here.
According to him the tes~ of reaso~ble
ness had been wrongly adopted by the learned Singlei Judge.
He
pointed out that accepting the interpretation placed on s. 27 by High·
Courts even the Law Commission has recommended a change in that
by suitable legislation.
He further pointed out that the Division
Bench has gone a step further and after considering whether the instim~
case would fall wi_thin those exceptions developed by English case .
Law has come to a negative conclusion against the appellant company.
On the other hand counsel for the appellant company contended
that the interpretation of s. 27 as given by various Hfgh Courts including Sir Richard Couch's decision in Madlmb Chzmder's case (supra)
has not been so far considered by this Court and it requires to be·
examined and considered by this Court, especially in view of certain
observations made by this Court in· Niranjan Shankar Golikari's (2)
case which warrant such reconsideration.
Though i_t was a casei dealing with negative c01Venant that was operative during the employment
period counsel pointed out that entire case law Indian as well as
English was discussed and this Court at page. 389 of
th<1 repo<t
observed thus :
"The result of the above discussion ,is that considerations
against restrictive covenants are different in cases where the
restriction is to apply during the period after the termination
of the contract than those in cases where it is to operate
during the period of the contract.'"
I
(I) [1874] 14 Beng. L. R. 76.
(2) [1967] 2 SCR 378.
i
•
...
.
SUPERINTENDENCE COMPANY v. KRISllAN MURGA!
1285
.
(Tulzapurkar, J.)
According to counsel the very fact that this Court has observed that
A
considerations qua post-service restrictions are different from those
that are· to be considered in cases of restrictiops during the employiμent
suggests that perhaP5 a rigorou~ test of reasonableness may have to be
adopted in the former cases but there would be cases where postservice restrictions, if !eason:able, even after app_lying
the rigorous
tests may be valid as not falling under s. 2 7 of the Act, it was, there-.
fore, not correct to ·say that aU post-service restrictions were volp.
B
His precise contention was that even a post-service restrictive covenart,t,
if it was reasonable, qualified or limited in operation both iD point bf
time l\Ild area, as was the case here, does not amount to any restraint
of trade at all within the meaning of s. 27 and such restrictive covenan
could· be justified as being necessary and essential to protect th
employer's interests, his trade secrets and his trade connections and,
therefore, valid.
As regards the argument based on codified exception, counsel pointed out, that even the case of a restrictive covenant
operative during the period of employment between master and servant
c
had not been provided for as an exceptiOl!I below s. 27 but even sa
1 o
such restrictive covenant was never regarded as amounting to restraint
of trade under s. 27 mainly because it was always; regarded as reason-·
able and necessary tOI protect the employer's interests, which shows that
the statutory exceptions were not exhaustive. . Lastly,· counsel urged
that the Law Commission's recommendation on which reliance wa•
· placed by respondent's coousel would be inconsequential because it
proceeds on the acceptance of the interpretation placed on s. 27 by
various High•Courts and he is seeking tol get that interpretation eimmined and considered bY-:this Court.
However, as we have said above, we do not propose to discuss or
decide the aforesaid question inasmuch as this appeal can be disposed
of by deciding the second question that has been raised before us and
··,
for that purpose we shall proceed on tbe assumption tbat the negative
l
c~venant contained in cl. (10) of tbe service agreement is valid and
not hit by s. 27 of tbe Contract Act. The question is whether tbe said
restrictive covenant is on its terms enforceable against the respondent
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at tbe instance of tbe appellant1 company.
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We have already quoted the restrictive covenant contained
in
cl. ( 10). In terms tbe clause provides that the restriction contained
!herein will come into operation "after you (respondent) leave the
company". Admittedly in tbe instant case the respondent had not on
his own left the .company but his services were terminated by the appelB
!ant COOlpany by a. notice dated November 24, 1978 with effect from
December 27, 1978. The question is whether the phrase "after you
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1286
SUPREME COURT REPORTS
[1980] 3 s.c.R.
leave the company" ml!llllS the leaving of service by the responde!llt
voluntarily or would include even ~e case of termination of his services
by the appellant company.
The Division Bench of the High Court
has ,taken the view that the word "leave" does not include termination
Of service by the employer. Counsel for the appellant company con~
tended that the word "leave" occurring in the phrase "after you leave
the company" would be wide enough to include all cases of cessation
of service whether brought about by voluntary quitting on the part of
the employee or termination of his services by the employer and in
that behalf reliance was placed upon an English decision in Murray v.
Giese(•) where it was held that an agreement restricting competition
with an employer "after leaving his ser'1ice" would be operative on the
termination, however accomplished, of the service, e.g. by a disnrissal
without notice.
( vide : Stroud's Judicial Dictionery, 4th Edn., Vol. 3,
page 1508, Item 13, under the word 'leaving').
In our view, the word "leave" has various shades
of
meaning
depending upon the context or intent with which it is used. According
to the plain grammatical meaning that word in relation to an employee
would normally be construed as meaning voluntary leaving of the service by him and would not include a case where he is discharged or
dismissed or his services are terminated by his employer.
Ordinarily
the word "leave" appears to connote voluntary action. In Words &
Phrases Permanent Edition Vol. 24 at page 499 the following statement
of law based on an American decision occurs:
"An application for the employment of a street car conductor provided that in the event of his leaving the services
for any reasons whatever within six months, the money paid
to him for work under instruction while on trial shol1ld be
deducted from such moneys as should be due from the company on the date of his_ "leaving".
Held, that the word
"leaving'; meant to quit or depart, implying, volition on the
part of the person leaving, and limited the forfeiture of the
instruction wages to a case where plaintiff left defendant's
employ of his own volition, nor was such instruction effected
by the words, "for any reason whatsoever."
Muesling v.
International Ry. Co., 147 N.Y.S. 177, 178, 85 Misc. 309_
In our view having regard to the context in which the expression
"leave" occurs in cl. (10) o~ the service agreement and reading it
alongwith all the other terms of employment it seems to us clear that
in the instant case the word "leave" was intended by the parties to
refer only to a case where the employee has voluntarily left the services
(I) 32 Law Times Old Series 89.
i
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SUP!!RINTBNDENCB COMPANY v. KRISHAN MURGA!
1287
(Sen, 1.)
of the appellant company of bis own, and since hem the respondent's
services were terminated by the appellant company the restrictive
covenant contained in cl. (10) would be inapplicable and, therefore,
not enforceable against the respondent at the instance of the appellant
company. Counsel for the appellant company urged that our constru~-
ing such restrictive covenant so as to include every case of cessation
A
B
tion would lead to puttin8. a premium upon an dishonest employee who
by his own misdemeanour and misbehaviour may invite termination
of his services . .All that we can say is that the appellant company
sholl1d have taken care · td use appropriate language while incorporat~
of employment arising from any reason whats0ever and not used the
expression "leave," which normally is synonymous to the expression · C
"quit" and indicates voluntary act on the part of the employee.
In the reswt the appeal is dismissed with no order as to costs.
SEN, J.
I regret that my learned brethren propose to express nd
opinion on the question on which, in my view, the appeal turns.
The
question is whether a negative covenant which restricts the right of
the employee, after the cdnclusion of
the term of service, or the
termination of the employment for other reasons, to engage in any
business similar to or competitive with that of the employer, is in
restraint of1 trade and, therefore, void under section 27 of the Contract Act,' 1972. i have no doubt in my mind that the
appeal
· can'not be decided without deciding this question.
This appeal on certifiCate from a judgment of the Delhi
High
court, relates to a covenant in
restraint of trade contained in an
agreement between the appellant
company and the respondent in
circumstances which we will explain.
The appellant company carr-
\..
ies on the business of valuer, surveyor, inspection of quality, weigh-
~ ment, analysis, sampli'ng of merchandise and commodities, cargoes,
industrial products, machinery, textiles, etc.
It has its head office at
Calcutta with a branch at New Delhi.
On or about March 27, 1971,
the respondent who is a surveyor and· valuer was employed
by the appellant as the B~anch Manager of its New Delhi office.
One
of the terms and conditions of the employment was that the
respondent would 'not serve elsewhere or enter into any business for a
period of 2 years after leaving the service.
The term is contained in
cl~use 10 of the agreement which reads :
D
E
F
G
10. That you will not be permitted to join any firm of our
e
competitors or run a business of your own in similarity as
directly and/or indirectly, for a period of two years at the
. <!i·--.
'
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128f3
I
SUPREME COURT REPORTS
[1980] 3 :;.C.R.
A
place
of your
last
posting
after
you
leave
the
. B
c
' ' /D
! Company.
The appellant terminated the services of the
cespandent by its ·
Jetter dated December 27, 1978. Thereafter the respondent started a business of his own under the name and styic of "Superintendence aild Surveillance Inspectorate of India" at E-22, South Bxtensian, New Delhi on Jines identical° with and
substantially similar to that of th_e appellant.
On April 19, 1979, the appellant
commenced a suit in the Delhi High Court in its original side
claiming Rs. 55,000/-
as damages on account of breach of the
covenant and for permanent injunction to restrain the respondent
by himself, his servants or agents or otherwise from carrying on the
said busi'ness or any other business on Jines similar to thg.t
of the
appellant or associating or representing any Competitors of the appellant before the expiry q_f two years from December 27, 1978.
A Single Judge of the Delhi High Court/adopting the test
cf
reasonableness,
held
that
under
sectian
27 of the Cantract
Act to determine whether the agreement is void, one
has to
see
whether
the
restraint
is
reaSO'nable;
and
if
so
the negative
covenent can be enforced as
enjoined by
illustratians ( c)
and (d) to section 57 of
the
specific
Relief
Act, 1963. He
t
•
E
held that Clause 10 of the agreement is not unreasonab:e, because
"'-
F
G
the
area
of restraint is
re&tricted
to New
Delhi, the
place
of last posting of the responde'nt and is not unlimited, being
limited to a period of two years from the date
he left
the
service.
He went on to say that negative covenant in a contract of
employment has always been enforced, if it is in the protection of
the employer, and referred to Niranjan Shankar GoUkari v. Century
Spinning and Mfg. Co. Ltd. [1967] 2 S.C.R.
p.
378. He further ../
held that the negative covenant was operative as the word "leave" '
in clause 10 was wide enough to include terminatio)J of service.
He, i
accordingly, by his
order dated May 25, 1979. made the earlier
ex parte ad interim injunction granted by him on April· 24, 1979
I
ab~lute but restricted its operation to New· Delhi and for the period
ending 27th December, 1980 or till the decision of suit, whichever
is earlier.
~
On appeal by the
respondent, a Division
Bench of the High
Court reversed the order of the learned
Single Judge holdH
ing that negative covenant operating beyond the period of employment was in restraint of trade and, therefore, void under sectioll
27 of the Contract Aot.
'
. I
SUPERINTENDENCE COMPANY V. KRISIIAB: MURGA!
1289
(Sen, !.)
Four questions arise in this appeal : 1. Whether Clause 1 O of
the agreement was in restraint of trade; and if so, being partial was
}.
valid and enforceable being reasonable?; 2. Whether according to
the test of reasonableness laid down by Lor!! Macnaghten irt
Norden/ell v. Hakim Nordenfelt Guns & Ammunition Co. Ltd.,(')
an injunction to enforce the negative covenent can be granted under
illustrations ( c) and ( d) to section 57 of the Specific Relief Act,
1963, despite section 27 of the Contract Act, 1872? 3. Whether,
and to what extent, the provisions of Section 27 of the Contract Act
are subject to the common law doctrine of restraint of trade ? 4.
Whether the word "leave" in Clause 10 of the agreement between
y the parties makes the negative covenant operative only when a servant voluntarily leaves his employment, or, applies even in a case of
termination of his services by an order of dismissal or termination of his services?
Agreements of service, contajl;ting a negative covenant preventing the employee fmm working elsewhere during the term
covered by the agreement, are not void under section 27 of
the
Contract Act, on the ground that !hey are in restraint of trade.
Such
agreements are enforceable.
1be reason
is obvious.
The
doctrine of restraint of trade never applies during the continuance of a contract of employment; it applies only when the
¥
contract comes to an end.
While during the period of employment,
the
Courts
undoubtedly would
not grant any specific
performance of a contract of personal service, nevertheless; Section 57
of the Specific Relief A_ct clearly provides for the grant of an injunction to restrain the breach of such a covenant as it is not in
restrafut of, but ill furtherance of trade.
\
\_
In Niranjan Shankar GoUkari's case, supra, this Court drew a
, distinction between a restriction
in a contract
of
employment
which is operative du.ring the period of employment and one which
is
to
operate after
thP,
rermi'nation
of
employment.
After
referring to certain Englisn cases where such distinction had been
drawn, the Court observed:
"A similar distinction has also been drawn by the 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."
(1) L. R. [1894] A. C. 535
23-610SCI/80
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D
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F
G
n
A
B
c
1290
SUPREME COURT REPORTS
[1980] 3 s.c.R.
It referred to with
approval the decision in The Brahmaputra
·rea Cv. Ltd. v. Scarth, LL.R. (1885) 11 Cal, 545, where the condition under which the covenantee was partially restrained from competing after the term of his engagement with his former employer,
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,
and observed:
"At page 550 of the report the Court observed tha1
an
agreement
of
service
by which
a person binds
himself
during
the term
of the
agreement
'not
to
take
service with any one
else, or
directly, or indirectly
take
part in,
promote or did
any
business
in direct competition with that of his employer was not hit
by section 27."
The Court further observed:
D
"An agreement
to
serve
a person
exclusively for
E
F
G
a
definite term
is a
lawful
agreement, a'nd
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."
The Court also approved of the several Indian decisions where 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, and flte
High Courts have enforced such a negative covena'nt during the t~
of employment having regard to illustrations ( c) and ( d) to section :{
57 of the Specific Relief Act which, in terms, recognised such contraets and the existence of negative covenants therein, a:nd stated
that the contention that the existence of such a negative covenant
in .a service agreement made the agreement void on the ground
that it was in restraint of trade and contrary to section 2 7 of the
Contract Act had no validity.
In conclusion, the Court observed:
"The result of the above discussion is that considerations against restrictive covenants are different in
H
cases whete the restriction is to apply during the period after
the te.J'mination of the qmtract than those in cases where
it is to operate during !he period of the contract. Negative
i
•
SUPERINTENDENCE COMPANY V. KRISHAN MURGA!
1291
(Sen, /.)
·covenants operative during the period of the contract of
A
. employment when the employee is bound to serve his employer exclusively are generally not regarded as restraint of
trade and therefwe do not fall under section 27 of the Con-
. tract Act. A negative covenant that the employee would not
engage himself in a trade or business or would not get himself
1 8
·
employed by any other master for whom he would perform
similar or substantially similar duties is not therefore a restraint
of trade unless the c9ntract as aforesaid is unconscionable or
excessively harsh or unreasonable or one sided."
(Emphasis supplied)
The decision in Niranjan Shankar Golikari's case supra is therefore
C \
of little assistance to the appellant. It is not seeking to enforce the
.ll!egative covenant during the term of employment of the respondent
but after the termination of his services. The restriction contained in
Clause 10 of the agreement is obviously in restraint of trade and, therefore, illegal and unenforceable under section 27 of the Contract Act.
D
In support of the appeal, learned counsel for the appellant has, in
·substance, advanced 11. two-fol.d contention. It is submitted, firstly,
upon the common law doctrine of restraint of trade that though the
y
-covenant is in restraint of trade, it satisfies the 'test of reasonableness',
.as laid down by Lord Macnaghten in Nordenfelt v. Maxim Nordenfelt
E
·Guns & Ammunition Co. Ltd., supra, and is, therefore, enforceable
despite section 27 of the Contract Act, 1872, and, secondly, that the
word "leave" in Clause 10 of the agreement is wide enough to make
the covenant operative even on the termination of employment i.e. it
1includes the case of dismissal. I am afraid, the contentions are wholly
·'devoid of substance.
F
While the Contract Act, 1872, does not profess to be a complete
code dealing with the law' relating to contracts, we emphasise that to
'\.
· the extent the Act deals with a particular subject, it is exhaustive upon
the same and it is not permissible to import the principles of English
Law de hors the statutory provision, unless the statute is such that it
G
•
.. cannot be understood without the aid of the English Law. The provi-
•-"° sions of Section 27 of the Act were lifted from Hom. David D. Field's
Draft Code for New York based upon the old English doctrine of
restraint of .