Judgment Case ID: 4239

Judgment:
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 section K. Bisaria for the Appellant. K. K. Venugopal	 H. K. Puri and section C. Dhanda 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 interlocutory order passed by the High Court in F.A.O. (O.S.) 86 of 1979 refusing to grant temporary injunction in a suit which is still 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 section 27 of the Indian Contract Act ? and (b) whether the said restrictive covenant	 assuming 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 conclusion of the hearing and it was stated that our reasons will follow. We now proceed to give our reasons for the dismissal. 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 estabilshed a reputation and goodwill in its business by developing its own techniques for quality testing and control and possesses trade secrets in the form of these techniques and clientele. It has its head office at Calcutta and a branch at New Delhi and employs various persons as managers and in other capacities in Calcutta	 New Delhi and other places. 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 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 own in similar 1283 lines directly and/or indirectly	 for a period of two years at the place of your last posting after you leave the company. " On November 24	 1978 the appellant company terminated the respondent '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 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 High Court on its Original Side claiming Rs. 55	000/ as damages on account of the breach of the aforesaid negative covenant contained 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 appellant company before the expiry of two years from December 27	 1978. After filing the suit the appellant company sought an interim injunction by way of enforcing the aforesaid negative covenant and a Single Judge of the Delhi 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 negative covenant	 being in partial restraint of trade	 was reasonable inasmuch as it was limited both in point of time (two years) as well as the area of operation (New Delhi which was his last posting) and	 therefore	 was not hit by section 27 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 of the High Court reversed the order of the learned Single Judge on both the points and that is how the two questions indicated at the commencement of this judgment arise for our determination in this appeal. Since in our view the appeal is capable of being disposed of on the second point we think it unnecessary to decide or express our opinion on the first question which was hotly and ably debated at the bar by counsel on either side but we will indicate briefly the rival lines on which the arguments proceeded. On the one hand counsel for the respondent tried to support the view of the Division Bench by pointing out that in India the law on the subject was codified by statute which was exhaustive and on the topic of agreements in restraint of trade and exceptions in that behalf the Indian Courts cannot invoke or derive 1284 assistance from the English Common Law and the exceptions developed thereto by English decisions from time to time	 that section 27 of the Indian Contract Act was absolute in terms in that it did not make any distinction between partial or general restraints and that unless a case was covered by the Exception provided thereunder every restraint of 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 Madhub Chunder vs Rajcoomar Doss(1) where section 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 recognised 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 test of reasonableness had been wrongly adopted by the learned Single Judge. He pointed out that accepting the interpretation placed on section 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 instant case would fall within 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 section 27 as given by various High Courts including Sir Richard Couch 's decision in Madhub Chunder '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 it was a case dealing with negative covenant 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 the report 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." 1285 Tulzapurkar	 J.) According to counsel the very fact that this Court has observed that considerations qua post service restrictions are different from those that are to be considered in cases of restrictions during the employment suggests that perhaps a rigorous test of reasonableness may have to be adopted in the former cases but there would be cases where post service restrictions	 if reasonable	 even after applying the rigorous tests may be valid as not falling under section 27 of the Act	 it was	 therefore	 not correct to say that all post service restrictions were void. His precise contention was that even a post service restrictive covenant	 if it was reasonable	 qualified or limited in operation both in point of time and area	 as was the case here	 does not amount to any restraint of trade at all within the meaning of section 27 and such restrictive covenant could be justified as being necessary and essential to protect the 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 had not been provided for as an exception below section 27 but even so such restrictive covenant was never regarded as amounting to restraint of trade under section 27 mainly because it was always regarded as reasonable and necessary to 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 was placed by respondent 's counsel would be inconsequential because it proceeds on the acceptance of the interpretation placed on section 27 by various High Courts and he is seeking to get that interpretation examined 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 the assumption that the negative covenant contained in cl. (10) of the service agreement is valid and not hit by section 27 of the Contract Act. The question is whether the said restrictive covenant is on its terms enforceable against the respondent at the instance of the appellant company. We have already quoted the restrictive covenant contained in cl. In terms the clause provides that the restriction contained therein will come into operation "after you (respondent) leave the company". Admittedly in the instant case the respondent had not on his own left the company but his services were terminated by the appellant company by a notice dated November 24	 1978 with effect from December 27	 1978. The question is whether the phrase "after you 1286 leave the company" means the leaving of service by the respondent voluntarily or would include even the 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 contended 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 vs Clese where it was held that an agreement restricting competition with an employer "after leaving his service" would be operative on the termination	 however accomplished	 of the service	 e.g. by a dismissal without notice. (vide: Stroud 's Judicial Dictionary	 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 should 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 vs International Ry. Co.	 	 178	 85 Misc. In our view having regard to the context in which the expression "leave" occurs in cl. (10) of 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 1287 of the appellant company of his own	 and since here 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 construction would lead to putting 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 should have taken care to use appropriate language while incorporating such restrictive covenant so as to include every case of cessation of employment arising from any reason whatsoever and not used the expression "leave	 which normally is synonymous to the expression quit" and indicates voluntary act on the part of the employee. In the result the appeal is dismissed with no order as to costs. SEN	 J. I regret that my learned brethren propose to express no 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 conclusion 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 of trade and	 therefore	 void under section 27 of the Contract Act	 1972. I have no doubt in my mind that the appeal cannot 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 carries on the business of valuer	 surveyor	 inspection of quality	 weighment	 analysis	 sampling 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 Branch 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 clause 10 of the agreement which reads: 10. That you will not be permitted to join any firm of our competitors or run a business of your own in similarity as directly and/or indirectly	 for a period of two years at the 1288 place of your last posting after you leave the Company. The appellant terminated the services of the respondent by its letter dated December 27	 1978. Thereafter the respondent started a business of his own under the name and style of "Superintendence and Surveillance Inspectorate of India" at E 22	 South Extension	 New Delhi on lines identical with and substantially similar to that of the 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 business or any other business on lines similar to that of the appellant or associating or representing any Competitors of the appellant before the expiry of two years from December 27	 1978. A Single Judge of the Delhi High Court adopting the test of reasonableness	 held that under section 27 of the Contract Act to determine whether the agreement is void	 one has to see whether the restraint is reasonable; and if so the negative covenant can be enforced as enjoined by illustrations (c) and (d) to section 57 of the specific Relief Act	 1963. He held that Clause 10 of the agreement is not unreasonable	 because the area of restraint is restricted to New Delhi	 the place of last posting of the respondent 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 Golikari vs 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 termination of service. He	 accordingly	 by his order dated May 25	 1979	 made the earlier ex parte ad interim injunction granted by him on April 24	 1979 absolute 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 holding that negative covenant operating beyond the period of employment was in restraint of trade and	 therefore	 void under section 27 of the Contract Act. 1289 Four questions arise in this appeal: 1. Whether Clause 10 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 Lord Macnaghten in Nordenfelt vs Hakim Nordenfelt Guns & Ammunition Co. Ltd.	(1) an injunction to enforce the negative covenent can be granted under illustrations (c) and (d) to section 57 of the 	 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 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	 containing a negative covenant preventing the employee from working elsewhere during the term covered by the agreement	 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 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 clearly provides for the grant of an injunction to restrain the breach of such a covenant as it is not in restraint of	 but in furtherance of trade. In Niranjan Shankar Golikari 's case	 supra	 this Court drew a 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. After referring to certain English 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." 1290 It referred to with approval the decision in The Brahmaputra Tea Co. Ltd. vs Scarth	 I.L.R. 	 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 that 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: "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 fulfillment	 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 the High Courts have enforced such a negative covenant during the term of employment having regard to illustrations (c) and (d) to section 57 of the which	 in terms	 recognised such contracts and the existence of negative covenants therein	 and 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 27 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 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 1291 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." (Emphasis supplied) The decision in Niranjan Shankar Golikari 's case supra is therefore of little assistance to the appellant. It is not seeking to enforce the negative 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. In support of the appeal	 learned counsel for the appellant has	 in substance	 advanced a two fold contention. It is submitted	 firstly	 upon the common law doctrine of restraint of trade that though the covenant is in restraint of trade	 it satisfies the 'test of reasonableness '	 as laid down by Lord Macnaghten in Nordenfelt vs Maxim Nordenfelt 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 includes the case of dismissal. I am afraid	 the contentions are wholly devoid of substance. 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 cannot be understood without the aid of the English Law. The provisions 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 trade	 as prevailing in ancient times. When a rule of English law receives statutory recognition by the Indian Legislature	 it is the language of the Act which determines the scope	 uninfluenced by the manner in which the anologous provision comes to be construed narrowly	 or	 otherwise modified	 in order to bring the construction 1292 within the scope and limitations of the rule governing the English doctrine of restraint of trade. It has often been pointed out by the Privy Council and this Court that where there is positive enactment of Indian Legislature the proper course is to examine the language of the statute and to ascertain its proper meaning uninfluenced by any consideration derived from the previous state of the law or the English law upon which it may be founded. In Satyavrata Ghosh vs Kurmee Ram Bangor	 ; 	 Mukherjee J. while dealing with the doctrine of frustration of contract observed that the Courts in India are to be strictly governed by the provisions of Section 56 of the Contract Act and not to be influenced by the prevailing concepts of the English Law	 as it has passed through various stages of development since the enactment of the Contract Act and the principles enunciated in the various decided cases are not easy to reconcile. What he says of the doctrine of frustration under section 56 of the Contract Act is equally true of the doctrine of restraint of trade under section 27 of the Act. Now	 so far as the present case is concerned	 the law is to be found in section 27 of the Contract Act 1872	 which reads: "27. Agreement in restraint of trade void Every agreement by which any one is restrained from exercising a lawful profession	 trade or business of any kind is to that extent void. Exception: One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business	 within specified local limits	 so long as the buyer or any other person deriving title to the goodwill from him	 carries on a like business therein	 provided that such limits appear to the Court reasonable	 regard being had to the nature of the business. " The section is general in terms	 and declares all agreements in restraint void pro tanto	 except in the case specified in the exception. The question whether an agreement is void under section 27 must be decided upon the wording of that section. There is nothing in the wording 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. A contract	 which has for its object a restraint of trade	 is prima facie	 void. Section 27 of the Contract Act is general in terms and 1293 unless a particular contract can be distinctly brought within Exception 1 there is no escape from the prohibition. We have nothing to do with the policy of such a law. All we have to do is to take the words of the Contract Act and put upon the meaning which they appear plainly to bear. This view of the section was expressed by Sir Richard Couch C.J. in celebrated judgment in Madhub Chunder vs Rajcoomar Doss at pp. 85 86 laying down that whether the restraint was general or partial	 unqualified or qualified	 if it was in the nature of a restraint of trade	 it was void. The observations of Sir Richard Couch	 C.J.	 in Madhub Chunder vs Rajcoomar Doss	 supra	 which have become the locus classicus were these: "The words 'restraint from exercising a lawful profession	 trade or business ' do not mean an absolute restriction	 and are intended to apply to a partial restriction	 a restriction limited to some particular place	 otherwise the first exception would have been unnecessary. " Moreover	 "in the following section (section 28) the legislative authority when it intends to speak of an absolute restraint and not a partial one	 has introduced the word 'absolutely '. The use of this word in section 28 supports the view that in section 27 it was intended to prevent not merely a total restraint from carrying on trade or business but a partial one. We have nothing to do with the policy of such a law. All we have to do is to take the words of the Contract Act	 and put upon them the meaning which they appear plainly to bear. " The test laid down by Sir Richard Couch	 C.J. in Madhub Chunder vs Rajcoomar Doss	 supra	 has stood the test of time and has invariably been followed by all the High Courts in India. The agreement in question is not a 'goodwill of business ' type of contract and	 therefore	 does not fall within the exception. If the agreement on the part of the respondent puts a restraint even though partial	 it was void	 and	 therefore	 the contract must be treated as one which cannot be enforced. It is	 however	 argued that the test of the validity of a restraint	 whether general or partial	 is dependent on its reasonableness. It is pointed out that the distinction drawn by Lord Macclesfield in Mitchel vs Reynolds (1711) 1 PMas 161 between general and partial restraint	 was removed by the House of Lords in Nordenfelt vs Maxim Nordenfelt Guns and Ammunition Co. (supra). According to the judgment of 1294 Lord Macnaghten in Nordenfelt 's case	 the validity in either case was reasonableness with reference to particular circumstances. It is urged that all covenants in restraint of trade partial as well as general are prima facie void and they cannot be enforced	 according to the test laid down by Lord Macnaghten in Nordenfelt 's case and accepted by the House of Lords in Mason vs Provident Clothing and Supply Co. Ltd.	 	 unless the test of reasonableness is testified. It is also urged that while an employer is not entitled to protect himself against competition per se on the part of an employee after the employment has ceased	 he is entitled to protection of his proprietory interest viz. his trade secrets	 if any	 and a business connection. The test of reasonableness which now governs the common law doctrine of restraint of trade has been stated in Chitty on Contracts	 23rd Edn.	 Vol. I. p. 867: "While all restraint of trade to which the doctrine applied are prima facie unenforceable	 all	 whether partial or total	 are enforceable	 if reasonable." A contract in restraint of trade is one by which a party restricts his future liberty to carry on his trade	 business or profession in such manner and with such persons as he chooses. A contract of this class is prima facie void	 but is 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. In Elizabethan days	 all agreements in restraint of trade	 whether general or restrictive to a particular area	 were held to be bad; but a distinction came to be taken between covenant in general restraint of trade	 and those where the restraints were only partial. According to the test laid down by Parker	 C.J. (later Earl of Macclesfield) in Mitchel vs Reynolds	 supra	 the general restraint was one which covered an indefinite area	 and was	 as a rule held bad while a partial restraint was valid if reasonable	 the onus being upon the covenanter to show it to be unreasonable. There is no higher authority upon this subject than Tindal	 C.J.	 who had to do much with moulding of the law on this subject and bringing it into harmony with the needs of the changing times. In Mornen vs Graves ; 	 Tindal	 C.J. said: "The law upon this subject (i.e. restraint of trade) has been laid down with so much authority and precision by Parker	 C.J.	 in giving the judgment of the Court of B.R. (King 's Bench) in the case of Mitchel vs Reynolds which has been the leading case on the subject from that time to 1295 the present	 that little more remains than to apply the principle of that case to the present. Now the rule laid down by the court in that case is 'that voluntary restraints	 by agreement between the parties	 if they amount to a general restraint of trading by either party	 are void	 whether with or without consideration	 but particular restraints of trading	 if made upon a good and adequate consideration	 so as to be a proper and useful contract	 that is	 so as it is a reasonable restraint only	 are good. " Later on he goes on to observe: "Parker	 C.J.	 says	: a restraint to carry on a trade throughout the kingdom must be void; a restraint to carry it on within a particular place is good	 which are rather instances and examples than limits of the application of the rule	 which can only be at least what is a reasonable restraint with reference to the particular cases. " By decrees	 the common law doctrine of restraint of trade	 has been progressively expanded and the legal principles applied and developed so as to suit the exigencies of the times	 with the growth of trade and commerce	 rapid industrialisation and improved means of communication. In Nordenfelt vs Maxim Nordenfelt Guns & Ammunition Co. Ltd.	 (supra)	 Lord Macnaghton held that the only true test in all cases	 whether of partial or general restraint	 was the test proposed by Tindal	 C.J.: What is a reasonable restraint with reference to a particular case ? Thereby he denied that general and partial restraints fall into distinct categories. A partial restraint in his opinion was not prima facie valid. It was on the same footing as a general restraint i.e. prima facie void	 but valid	 if reasonable. In Mason vs Provident Clothing and Supply Co. Ltd.	 supra	 the House of Lords held that Lord Macnaghton 's proposition was a correct statement of the modern law. The House of Lords in this case developed the law in two respects: First	 it held that all covenants in restraint of trade	 partial as well as general	 prima facie void and that they cannot be enforced unless the test of reasonableness as propounded by Lord Macnaghton is satisfied. Secondly	 it made a sharp distinction	 stressed as long ago as 1869 by James	 L.J.	 in Leather Cloth Co. vs Lorsont ; 	 between contracts of service and contracts for the sale of a business. In Herbert Morris Ltd. vs Saxelby	 supra	 the House of Lords held that a master cannot protect himself from competition by an ex servant 1296 or his new employer. He cannot stipulate freedom from competition. But he can protect his trade secrets or his confidential information. The 'test of reasonableness ' evolved in common law after the decision of Lord Macnaghton	 in Nordenfelt 's case	 supra	 and re affirmed by the two decisions in Mason vs Provident Clothing & Supply Co. Ltd. and Herbert Morris Ltd. vs Sexelby	 supra	 is that such covenants are prima facie	 void and the onus rests upon the covenante to prove that the restraint is reasonable. In Nordenfelt 's case	 Lord Macnaghton also adverted to the distinction between covenant entered by the seller of the business on the one hand and the covenant by the employee on the other. Framers of section 833 of Field 's Draft Code for New York designed some hundred and twenty five years ago	 expressed the intention to replace the common law stating that "contracts in restraint of trade have been allowed by modern decisions to a very dangerous extent"	 and they proceeded to draft the provision with the deliberate intention of narrowing the law. The provision was never applied to New York	 but found its way into the Contract Act	 1872 as section 27. Several sections of the Field 's Code were enacted in the Act. The Code was anathema to Sir Frederick Pollock who in his preface to Pollock and Mulla 's Indian Contract Act	 p. 5	 described the Code as the evil genius of the Act	 the worst principles of codification ever produced	 and advocated that 'whenever the Act was revised every thing taken from the Code should be struck out '. It must be remembered that the test of reasonableness comes from the judgment of Lord Macnaghten in Nordenfelt 's case in the House of Lords in 1894. In 1862	 however	 when the Field provision was drafted	 it was not easy to foresee that the common law would shortly discard the distinction drawn by Lord Macclesfield in Mitchel vs Reynolds in 1711	 between general and partial restraints. A general restraint was one which covered an indefinite area	 and was	 as a rule	 held bad	 while a partial restraint was valid	 if reasonable. the onus being upon the covenantor to show it to be unreasonable. This was a mere rule of thumb	 but was stubbornly adhered to by as great a common lawyer as Bowen	 L.J.	 as late as 1893	 when the Nordenfelt 's case was in the Court of Appeals: Be that as it may	 in Field 's draft	 as early as 1862	 are clearly expressed two principles that govern the modern common law today	 but were unknown to it at that stage	 and were not unequivocally stated until 1916	 first that restrictive covenants are prima facie invalid	 and secondly between master and servant covenants on the one hand and vendor and purchaser covenants on the other	 there is a great gulf 1297 fixed. The onus of proving reasonableness under Exception 1	 was placed on the covenantee	 while the common law at the time placed it upon the covenanter to show unreasonableness. Sir Frederick Pollock 's criticism of the substantive part of section 27 was that it laid down too rigid a rule of invalidity	 not merely for general but also for partial restraints	 and of the exceptions that they were too narrow	 being based upon an idea of the common law	 now outmoded	 that a restraint must be confined within local limits. His views on the main body of the section may be illustrated by two quotations: "The law of India. is tied down by the language of the section to the principle	 now exploded in England	 of a hard and fast rule qualified by strictly limited exceptions. " "To escape the prohibition	 it is not enough to show that the restraint created by an agreement is partial	 and general." Two passages from his comments on Exception 1 may also be cited: "The extension of modern commerce and means of communication has displaced the old doctrine that the operation of agreements of this kind must be confined within a definite neighbourhood. But the Anglo Indian law has stereotyped that doctrine in a narrower form than even the old authorities would justify." "Meanwhile the common law has	 on the contrary	 been widening the old fixed rules as to limits of space have been broken down	 and the court has only to consider in every case of a restrictive agreement whether the restriction is 'reasonable in reference to the interests of the parties concerned reasonable in reference to the interests of the public." Reverting to the judgment of Sir Richard Couch in Madhub Chunder vs Rajcoomar Doss	 supra	 we find that that eminent Judge held that section 27 of the Contract Act does away with the distinction observed in English cases following upon Mitchel vs Reynolds	 supra	 between partial and total restraints of trade	 and makes all contracts falling within the terms of section void	 unless they fall within the exceptions. As already stated	 that decision has always been followed. In Shaikh Kalu vs Ram Saran Bhagat	 [1908] 13 C.W.N. 388 Mukherjee and Carnduff	 JJ	 referred to the history of the legislation 1298 on the subject and observed that the framers of the Act deliberately reproduced Section 833 of Field 's Code with the full knowledge that the effect would be to lay down a rule much narrower than what was recognised at the time by the common law	 while the rules of the common law	 on the other hand	 had since been considerably widened and developed	 on entirely new lines. They held that the wider construction put upon section 27 by Sir Richard Couch in Madhub Chundur vs Raj Coomar Doss	 supra	 is plainly justified by the language used	 and that the selection had abolished the distinction between partial and total restraints of trade and said: "The result is that the rule as embodied in sec. 27 of the Indian Contract Act presents an almost startling dissimilarity to the most modern phase of the English rule on the subject. They went on to observe: "As observed	 however	 by Sir Richard Couch in the case to which we have referred	 we have nothing to do with the policy of the law	 specially as the Legislature has deliberately left the provision in sec. 27	 in its original form	 though other provisions of the Contract Act have from time to time been amended. The interference would be almost irresistible under these circumstances	 that the Courts have rightly ascertained the intention of the legislature. The silence of the Legislature in a case of this description is almost as emphatic as an express recognition of the construction which has been judicially put upon the statute during many years past. In this view of the matter	 if we adopt the construction of sec. 27 of the Indian Contract Act as first suggested by Sir Richard Couch and subsequently affirmed in the cases to which we have referred	 a construction which is consistent with the plain language of the section	 the agreement in this case must be pronounced to be void." (Emphasis supplied) The Law Commission	 in its Thirteenth Report	 has recommended that Section 27 of the Act should be suitably amended to allow such restrictions and all contracts in restraint of trade	 general or partial	 as were reasonable	 in the interest of the parties as well as of the public. That	 however involves a question of policy and that is a matter for Parliament to decide. The duty of the Court is to interpret the section according to its plain language. The question for consideration is whether	 assuming that the wider construction placed by Sir Richard Couch in Madhub Chundur vs 1299 Raj Coomar Doss	 supra	 to have been the law	 at the time of enactment	 it has since become obsolete. 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	 would be no reason for the introduction of such a law at the present time. 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 1. We	 therefore	 feel that no useful purpose will be served in discussing the several English Decisions cited at the Bar. Under Section 27 of the Contract Act	 a service covenant extended beyond the termination of the service is void. Not a single Indian Decision has been brought to our notice where an injunction has been granted against an employee after the termination of his employment. There remains the question whether the word 'leave ' in clause 10 of the agreement is wide enough to make the negative covenant operative on the termination of employment. We may for convenience of reference	 reproduce that covenant below: "10. that you shall not be permitted to join any firm of our competitors or run business of your own in similarity as directly and/or indirectly for a period of 2 years at the place of your last posting after you leave the Company. " On a true construction of clause 10 of the agreement	 the negative covenant not to serve elsewhere or enter into a competitive business does not	 in my view	 arise when the employee does not leave the services but is dismissed from service. Wrongful dismissal is repudiation of contract of service which relieved the employee of the restrictive covenant General Billposting vs Atkinson L.R. [1909] A.C. 116. It is	 however	 urged that the word 'leave ' must	 in the context in which it appears	 be construed to mean as operative on the termination of employment. Our attention is drawn to Stroud 's Judicial Dictionary	 4th Edn.	 Vol. II	 Pr. 13 p. 1503. There is reference to Mars vs Close	 An agreement restricting competition with an employer "after leaving his service" was held to be operative on the termination	 however	 accomplished	 of the service	 e.g. by a dismissal without notice. The word 'leave ' has various shades of meaning depending upon the context or intent with which it is used. According to the plain meaning	 the word 'leave ' in relation to an employee	 should be 1300 construed to mean where he "voluntarily" leaves i.e. of his own volition and does not include a case of dismissal. The word 'leave ' appears to connect voluntary action	 and is synonymous with the word 'quit '. It does not refer to the expulsion of an employee by the act of his employer without his consent and against his remonstrance. That is a meaning in consonance with justice and fair play. It is also the ordinary plain meaning of the word 'leave '. In shorter Oxford English Dictionary	 3rd Ed. X	 page 1192	 the following meaning is given "to depart from; quit; relinquish	 to quit the service of a person. " The drafting of a negative covenant in a contract of employment is often a matter of great difficulty. In the employment cases so far discussed	 the issue has been as to the validity of the covenant operating after the end of the period of service. Restrictions on competition during that period are normally valid	 and indeed may be implied by law by virtue of the servant 's duty of fidelity. In such cases the restriction is generally reasonable	 having regard to the interest of the employer	 and does not cause any undue hardship to the employee	 who will 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 worded	 the Court may refuse to enforce it. It is well settled that employees covenants should be carefully scrutinised because there is inequality of bargaining power between the parties; indeed no bargaining power may occur because the employee is presented with a standard form of contract to accept or reject. At the time of the agreement	 the employee may have given little thought to the restriction because of his eagerness for a job; such contracts "tempt improvident persons	 for the sake of present gain	 to deprive themselves of the power to make future acquisitions	 and expose them to imposition and oppression. " There exists a difference in the nature of the interest sought to be protected in the case of an employee and of a purchaser and	 therefore	 as a positive rule of law	 the extent of restraint permissible in the two types of case is different. The essential line of distinction is that the purchaser is entitled to protect himself against competition on the part of his vendor	 while the employer is not entitled to protection against mere competition on the part of his servant. In addition thereto	 a restrictive covenant ancillary to a contract of employment is likely to affect the employee 's means or procuring a livelihood for himself and his family to a greater degree than that of a seller	 who usually receive ample consideration for the sale of the goodwill of his business. 1301 The distinction rests upon a substantial basis	 since	 in the former class of contracts we deal with the sale of commodities	 and in the latter class with the performance of personal service altogether different in substance; and the social and economic implications are vastly different. The Courts	 therefore	 view with disfavour a restrictive covenant by an employee not to engage in a business similar to or competitive with that of the employer after the termination of his contract of employment. The true rule of construction is that when a covenant or agreement is impeached on the ground that it is in restraint of trade	 the duty of the Court is	 first 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 is an ambiguity it must receive a narrower construction than the wider. In Mills vs Dunham	 	 Kay	 LJ. observed: "If there is any ambiguity in a stipulation between employer and employee imposing a restriction on the latter	 it ought to receive the narrower construction rather than the wider the employed ought to have the benefit of the doubt. It would not be following out that principle correctly to give the stipulation a wide construction so as to make it illegal and thus set the employed free from all restraint. It is also a settled canon of construction that where a clause is ambiguous a construction which will make it valid is to be preferred to one which will make it void. " The restraint may not be greater than necessary to protect the employer	 nor unduly harsh and oppressive to the employee. I would	 therefore	 for my part	 even if the word 'leave ' contained in clause 10 of the agreement is susceptible of another construction as being operative on termination	 however	 accomplished of the service e.g. by dismissal without notice	 would	 having regard to the provisions of Section 27 of the Contract Act	 1872	 try to preserve the covenant in clause 10 by giving to it a restrictive meaning	 as implying volition i.e. where the employee resigns 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 construction. In the result	 the appeal must fail and is dismissed but there shall be no order as to costs. S.R. Appeal dismissed.

Summary:
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 established a reputation and goodwill in its business by developing its own techniques for quality testing and control and possess trade secrets in the form of these techniques and clientele. It has its head office at Calcutta and a branch at New Delhi and employs various persons as managers and in other capacities in Calcutta; New Delhi and other places. 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 his own in similar line as that of the appellant company for two years at the place of his last posting. On November 24	 1978	 the appellant company terminated the respondent 's services with effect from December 27	 1978. Thereafter	 respondent started his own business under the name and style of "Superintendence and Surveillance 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 High Court on its original side	 claiming Rs. 55	000/ as damages on account of the breach 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 lines similar to that of the appellant company or associating or representing any competitors of the appellant company before the expiry of two years from December 27	 1978. After filing the suit the appellant company sought an ad interim injunction by way of enforcing the aforesaid negative covenant and a Single Judge of the Delhi 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. On appeal by the respondent	 the Division Bench of the High Court reversed the interim order and hence the appeal by certificate. Dismissing the appeal	 the Court 1279 ^ HELD: (Per Tulzapurkar J.	 on behalf of Untwalia	 J. and himself). 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 use appropriate language	 while incorporating such restrictive covenant so as to include every case of cessation of employment arising from any reason whatsoever and not used the expression "leave"	 which normally is synonymous to the expression "quit" and indicates voluntary act on the part of the employee. A	 B C] (2) 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 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 the service agreement and reading it alongwith all the other terms of agreement	 it is clear that the word "leave" 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 vs Close	 32 Law Times Old series p. 89; held inapplicable to Indian Law. Muesling vs International Rly. Co.	 	 178 ; quoted with approval. Per Sen J.: 1. Agreements of service	 containing a negative covenant preventing 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 period of employment the Courts undoubtedly would not grant any specific performance of a contract of personal service	 nevertheless Section 57 of the clearly provides for the grant of an injunction to restrain the breach of such a covenant	 as it is not in restraint of	 but in furtherance of trade. [1289 C E] 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 Contract 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 Contract Act. It is not seeking to enforce the negative covenant during the term of employment of the respondent but after the termination of his services. [1289 F G	 1290 F G	 1291 C D] 1280 Niranjan Shankar Golikari vs Century Spinning and Manufacturing Co.	 Ltd.	 ; 	 distinguished. When a rule of English law receives statutory recognition by the Indian Legislature	 it is the language of the Act which determines the scope	 uninfluenced by the manner in which the anologous provision comes to be construed narrowly or otherwise modified in order to bring the construction within the scope and limitations of the rule governing the English doctrine of trade. [1291 H	 1292 A] Satyavrata Ghosh vs Kurmee Ram Bangor	 ; 	 followed. A contract which has for its object a restraint of trade is	 prima facie void. The question whether an agreement is void under section 27 must be decided upon the wording of that section. There is nothing in the wording 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 all 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 part of the respondent puts a restraint even though partial	 it was void	 and	 therefore	 the contract must be treated as one which cannot be enforced. [1292 E H	 1293 A	 F G] Madhub Chander vs Raj Coomar Dass	 @ 85 86; approved. A contract in restraint of trade is one by which a party restricts his future liberty to carry on his trade	 business or profession in such manner and with such persons as he chooses. 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 beyond the termination of the service is void. [1299 A C] Nordenfelt vs Maxim. Nordenfelt Guns and Ammunition Co. Ltd. ; Mason vs Provident Clothing and Supply Co. Ltd.	 ; Herbert Morris Ltd. vs Saxelby; discussed. 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 1281 when the employee does not leave the services but is dismissed from service. Wrongful dismissal is a repudiation of contract of service which relieves the employee of the restrictive covenant. [1299 E F] General Billposting Co. vs Atkinson	 L. R. ; referred to. 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 own volition and does not include a case of dismissal. The word 'leave ' appears to connote voluntary action	 and is synonymous with the word 'quit '. It does not refer to the expulsion of an employee 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 B] 9. Restrictions on competitions during the period of service are normally valid and indeed may be implied by law by virtue of the servant 's duty of fidelity. In such cases the restriction is generally reasonable	 having regard to the interest of the employer and does not cause any undue hardship to the employee	 who will 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 worded	 the Court may refuse to enforce it. [1300 C D] 10. It is well established that employee 's covenants should be carefully scrutinised because there is inequality of bargaining power between the parties; indeed no bargaining power may occur because the employee is presented with a standard form of contract to accept or reject. At the time of the agreement	 the employee may have given little thought to the restriction because of his eagerness for a job; such contracts "tempt improvident persons	 for the sake of present gain	 to deprive themselves of the power to make future acquisitions and expose them to imposition and oppression". [1300 E F] 11. The Courts view with disfavour a restrictive covenant by an employee not to engage in a business similar to or competitive with that of the employer after the termination of his contract of employment since a restrictive covenant ancillary to a contract of employment is likely to affect the employee 's means or procuring a livelihood for himself and his family. [1301 B C] 12. The true rule of construction is that when a covenant or agreement is impeached on the ground that it is in restraint of trade	 the duty of the Court is	 first 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 is an ambiguity it must receive a narrower construction than the wider. The restraint may not be greater than necessary to protect the employer	 nor unduly harsh and oppressive to the employee. Even if the word 'leave ' contained in clause 10 of the agreement is susceptible of another construction as being operative on termination	 however	 accomplished of the service e.g. by dismissal without notice	 would having regard to the provisions of section 27 of the Contract Act	 1972	 try to preserve the Government in clause 10 by giving to it a restrictive meaning	 as implying volition i.e. where the employee resigns 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 construction. [1301 C G] 1282