Appeal From Order No.1084 of 2001

11th October, 2002

Petitioner Counsel: Mr. A.V. ANTURKAR
Respondent Counsel: Mr. S.C. DHARMADHIKARI, Mr. N.V. BANDIWADEKAR

Cases Cited:
Niranjan Shankar Golikari Vs. Century Spinning and Manufacturing Co. Ltd., AIR 1967 SC 1098 [Para 4]
Taprogge Gesellschaft MBH Vs. IAEC India Ltd., AIR 1988 Bombay 157 [Para 9]
Superintendence Company of India (P) Ltd. Vs. Krishna Murgai, AIR 1980 SC 1717 [Para 9]
M/s. Gujarat Bottling Co. Ltd. Vs. Coca Cola Company, AIR 1995 SC 2372 [Para 11]

JUDGMENT

JUDGMENT:- This appeal is filed against an order passed by the 3rd Joint Civil Judge, Senior Division, Pune, on 29th September, 2001, in an application below Exhibit 5 in Special Civil Suit No.539 of 2001.

2. The appellant was the original plaintiff and the respondent was the original defendant. The case of the plaintiff was that there was an agreement between the plaintiff and the defendant under which the defendant was employed by the plaintiff for designing development and screening work. The defendant after some time was relieved from services as per Memorandum of Understanding (MoU) dated 12th May, 2001. The plaintiff filed Special Civil Suit No.539 of 2001 in the Court of the 3rd Joint Civil Judge, Senior Division, Pune, for permanent injunction restraining the defendant from divulging information and material pertaining to thick film hybrid micro circuits as per secrecy clause of the contract. It was plaintiff's case that since the defendant left the services by submitting his resignation, such a covenant, which was negative in nature, could be performed. As there was reasonable apprehension in the mind of the plaintiff that the defendant would divulge the said information and technical know-how, the plaintiff instituted the suit. Along with the plaint, the plaintiff submitted an application, Exh.5, for interim relief.

3. Notice was issued, pursuant to which the defendant appeared, filed his reply and contended that the application filed by the plaintiff was not maintainable. No case had been made out by the plaintiff against the defendant. Once the contract of employment came to an end and the defendant had resigned and left service, it was not open to the plaintiff to implement such a covenant. It was, therefore, submitted that the plaintiff was not entitled to interim relief prayed in Exhibit-5.

4. The learned Judge, after hearing the parties and considering the provisions of Section 27 of the Indian Contract Act, 1872 (hereinafter referred to as "the Act"), and in the light of the decision of the Supreme Court in Niranjan Shankar Golikari Vs. Century Spinning and Manufacturing Co. Ltd.(AIR 1967 SC 1098) held that the clause on which reliance was placed by the plaintiff was in the nature of "mental slavery" and it could not be implemented. Reasonable restriction could be placed on an employee. But when the defendant had resigned from service and no time was prescribed as to for how much period after the contract of employment would come to an end, the restriction clause could not be enforced. The plaintiff had not made out prima facie case and the application was dismissed. Against that order, the present appeal is filed by the plaintiff-appellant.

5. The learned counsel for the appellant contended that the trial court has committed an error of law in not properly appreciating, interpreting and applying Golikari. It was submitted that in that case also, a similar provision was found in the agreement. Clause 9 which was material provided that "during the continuance of his employment as well as thereafter the employee shall keep confidential and prevent divulgence of any and all information, instruments, documents, etc., of the company that might come to his knowledge". The counsel submitted that even in that case, prohibition was almost total and complete. Inspite of that, interim relief was granted. For that, the counsel relied on the order passed by the trial court in that case and in particular direction No.2 which read as under:-

"(2) The defendant is further restrained during the said period and, thereafter, from divulging any of the secrets, process 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."

The matter was taken to the High Court and then to the Supreme Court and, according to the counsel, even the Supreme Court did not interfere with the order. Such a covenant, in the submission of the learned counsel for the appellant, cannot be said to be arbitrary, unreasonable or violative of Section 27 of the Act.

6. Alternatively, the counsel argued that even if this court is of the view that there could be no permanent prohibition, the court can fix an appropriate period so as to save the vice of unreasonableness in the contract by providing reasonable time. It, however, cannot be said that no such covenant could be implemented or effected at all by an employer. To that extent, therefore, the order deserves to be interfered with.

7. The learned counsel for the respondent, on the other hand, submitted that the trial court was fully justified in dismissing the application Exh.5 by passing the order impugned in the present appeal. He submitted that the ratio in Golikari would not apply to present case. In that case, an employee had agreed to serve the company for a period of five years during which period he was under an obligation not to divulge any information, etc. Undisputedly, he left the service during that period. He was engaged by another employer and wanted to use the information which was received by him from the former employer. In the light of that fact and the circumstance that the period for which the service contract was entered into between the parties was not over, the court held that for that period, negative covenant could be implemented. It is apparent if one reads para 8 of the decision in which it was stated that clause 17 of the contract 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".

8. Paragraph 15 is further clear wherein Their Lordships observed:-

"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. Negative covenants operative during the period of the contract of employment when the employee is bound to serve his employer exclusively 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.H. Milsted & Son Ltd., 1977 WN 233 (supra). 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 substantially similar to the one carried on by the appellant when he was in the employment of the respondent company was reasonable and necessary for the protection of the company's interests and not such as the court would refuse to enforce. There is therefore no validity in the contention that the negative covenant contained in clause 17 amounted to a restraint of trade and therefore against public policy." (emphasis supplied)

9. My attention was also invited by the learned counsel for the respondent to a decision of a single Judge of this court in Taprogge Gesellschaft MBH Vs. IAEC India Ltd. (AIR 1988 Bombay 157). Considering Golikari as also a subsequent decision in Superintendence Company of India (P) Ltd. Vs. Krishna Murgai, (AIR 1980 SC 1717) wherein Golikari was considered, this court held that contracts are of two types; (i) Contracts wherein during the period of employment, an employee would not serve anywhere else and if he leaves service, he will not use or divulge any information; (ii) after the period of employment or contract, some restriction is put on him in connection with the information or technical know-how obtained by him in the course of employment. In the former class of cases, the restriction must be held reasonable and would not be hit by Section 27 of the Act. In the latter class, however, the position is different. If such restrictions are not reasonable, the provisions of Section 27 of the Act would get attracted and the restrictions may be held to be unlawful and unenforceable.

10. Since the present case deals with latter class of cases, obviously, the trial court had not committed any error of law in passing the impugned order and in holding that it was unreasonable restriction as no time limit was prescribed.

11. The learned counsel for the respondent also relied on a decision of the Supreme Court in M/s. Gujarat Bottling Co. Ltd. and Ors. Vs. Coca Cola Company and Ors. (AIR 1995 SC 2372) wherein the principles laid down in earlier cases had been reiterated.

12. In my view, when the respondent employee had resigned, the resignation was accepted and he was no more in service, there was no breach of contract on his part, it cannot be said that by refusing interim relief relying on the decision in Golikari, the trial court has committed any error of law or of jurisdiction. I, therefore, do not find any substance in the argument of the learned counsel for the appellant that the order suffers from illegality. The appeal, therefore, deserves to be dismissed and is accordingly dismissed. All other contentions on merits are left open. The learned counsel for the parties may raise such contentions before the trial court. The plaintiff is at liberty to request the trial court for early disposal of the suit. It is, however, clarified that the court will consider the said request and take an appropriate action considering the cases before it.

13. Appeal is accordingly dismissed with no order as to costs.

Appeal dismissed.