Case: Niranjan Shankar Golikari Vs. The Century Spinning And Mfg. Co. Ltd

Clause 6 of the agreement provided:-"The employee shall, during the period of his employment and any renewal thereof honesty, faithfully. diligently and efficiently to the utmost of his power and skill(a) * * * * *(b) devote the whole of his time and energy exclusively 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 information, instruments, documents, etc., of the company that might come to his knowledge. Clause 14 provided that if the company were to close its business or curtail its activites 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:-"In the event of the employee leaving, abandoning 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 the 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 six months thereafter and shall further reimburse to the company any amount that the company may have spent on the employees training."2. 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 respondents 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 a Shift Supervisor was responsible for the running of Shift work, control of labour and in particular with the specifications given by the said AKU3. No difficulty arose between the appellant and the respondent company until about September 1964. The appellant there after remained absent from the 6th to the 9th October, 1964 without obtaining leave therefore On the 10th October, he took casual leave. On October 12, he applied for 28 days privilege leave from October 14, 1964. Before that was granted he absented himself from the 14th to the 31st October, 1964. On October 31, he was offered salary 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 31, 1964. The respondent company by its letter of November 23, 1964 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 employment4. 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 him self employed there at a higher 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 alia 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. 2,410 as damages being the salary for six months under Clause 17 of the said agreement and a perpetual injunction restraining him from divulging any or all information, instruments, documents, reports, trade secrets, manufacturing process, know-how, 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 17 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 meant 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 companys interests as an employer5. The Trial Court on a consideration of the evidence led by the parties held: (1) 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, the 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 deviations of temperature as alleged by him; (3) that the said agreement 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:"(1) 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 Supervison in the Manufacture of tyre cord yarn 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 term ending 15th March l968(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."6. It is clear that the injunction restrained the appellant: 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. It was also confined to the period of the agreement and in any concern in India manufacturing tyre cord yarn7. In the 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 evolved 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 him 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 made 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 companys 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 production 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 specailised continuous spinning process in the tyre cord yarn division of the respondent company and that it was evident that he left the respondent companys 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 appellants 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 manufacturers8. 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 letter 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 cord division and therefore restraints contained in those clauses meant prohibition against divulging information received by the appellant white 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 contained 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 and the foreign collaborators had agreed to disclose their specialised processes only on the respondent companys 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 seeking similar employment from any other manufacturer after the contractual period was over. The High Court lastly found that there was 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 specific performance of the contract of personal service.

Court's reasoning:
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 competitorAn agreementof 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 agreementIt was also not a case of the employee possessing any special talent but that of a mere canvasser. This decision, however, cannot assist us as the negative covenant therein was to operate after the termination of the contractThis 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 employer 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 employers certificate that he did not, was to be conclusive as between the parties. Such a contract would clearly fall in the class of contracts held void as being one sided as in 1927 WN 233 (Supra). The decision in AIR 1962 Cal. 61   therefore cannot further the appellants case15. 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 and - Son Ltd., 1927 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 employ of the respondent company was reasonable and necessary for the protection of the companys 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 policyThere 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 special 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 l7 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 necessary to protect the employers interests where the negative stipulation is not void. There is also nothing to show that if 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 consideration 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 company17. 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.