2002 Indlaw MUM 407

[BOMBAY HIGH COURT]

Weiler International Electronics Private Limited

v
Punita Velu Somasundaram
HON'BLE JUSTICE C K THAKKER
11/10/2002

BENCH
HON'BLE JUSTICE C K THAKKER
COMPARATIVE CITATIONS

2003 (50) ARBLR 553, 2003 (2) LLJ 197

CASES REFERRED TO

R. S. Seth Gopikrishan Agarwal v R. N. Sen, Assistant Collector 1967 Indlaw SC 155

Superintendence Company of India v Krishan Murgai 1980 Indlaw SC 302
Gujarat Bottling Company Limited and Others v Coca Cola Company and Others 1995 Indlaw SC 1001
LEGISLATIONS REFERRED

Indian Contract Act, 1872 [s. 27]

CASE NO

Appeal From Order No. 1084 of 2001

KEYWORDS
ARBITRATION & ADR, Breach Of Contract, Error Of Law, Injunction Restraining, CONTRACT & COMMERCIAL,
Breach Of Contract, Contract, Negative Covenants, Public Policy, Reasonable Time, Restraint Of Trade, Indian
Contract Act, 1872, Maharashtra, Appeal dismissed.

LAWYERS

A. V. Anturkar, S. C. Dharmadhikari, N. V. Bandiwadekar

JUDGMENT TEXT

The Order of the Court was as follows :

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.
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.
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 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.
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. 1967 Indlaw SC 155 = 1967 Mh. LJ (SC) 606), 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.
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. In
spite 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, 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." *
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.
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.
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
circumstances 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" *
.
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 and Sons Ltd., 1927 WN
233. 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
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." *
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. 1988 AIR(Bombay) 157).
Considering Golikari as also a subsequent decision in Superintendence Company of India (P)
Ltd. vs. Krishna Murgai 1980 Indlaw SC 302), 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.
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.
The learned counsel for the respondent also relied on a decision of the Supreme Court in M/s.
Gujarat Bottling Co. Ltd. and others vs. Coca Cola Company and others 1995 Indlaw SC 1001 =
1995 (2) Arb. LR 249 (SC)), wherein the principles laid down in earlier cases had been
reiterated.
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.
Appeal is accordingly dismissed with no order as to