1967 AIR SC 1098 . 1967 BOMLR 69 535 . 1967 FLR 14 337 . 1967 LLJ SC 1 740 .

1967
MHLJ 606 . 1967 MPLJ 454 . 1967 SCR 2 378 . 1967 SCJ 2 317 . 1967 AIR SC 1998 .
1967 AIR SC 1096 . 1967 MPLJ SC 454 . 1967 AIR 1098 . 1967 LLJ 1 740 .

Niranjan Shankar Golikari v. Century Spinning And Manufacturing Co.

Ltd. .
Supreme Court Of India (Jan 17, 1967)

CASE NO.
Appeal by Special Leave from the Judgment and Order dated 28th April, 1966 of the
Bombay High Court in First Appeal No. 526 of 1965.,Civil Appeal No. 2103 of 1966,
decided on 17th day of January, 1967

ADVOCATES
A.K Sen, Senior Advocate (Rameshwar Dial and A.D Mathur, Advocates, with him).

S.V Gupte, Solicitor- General of India (R.P Bhatt, R.A Gagrat and G.L Sanghi,
Advocates, and B.R Agarwala, Advocate of Gagrat and Co., with him).

JUDGES
The Hon'ble Justice R.S Bachawat

The Hon'ble Justice J.M Shelat

SUMMARY

1. Shelat, J.- the appeal by special leave is against the judgment and order of the
High Court of Maharashtra confirming an order of injunction against the
appellant.

2. 4. 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 respondent 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.

3. The High Court, agreeing with the trial court, found that the evidence of Dr

Printed by licensee : Siddharth Narula (Student) Page 1 of 15

 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.

4. The High Court concluded that it was not difficult to imagine why the appellant's
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 manufactures.

5. 10. 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.

6. The High Court concluded that clauses 9 and 17 related only to the business in the
tyre cord division and restraints contained in those clauses meant prohibition
against divulging information received by the appellant while working in that
Division and that clause 17 also meant a restraint in relation to the work carried
on in the said spinning department.

7. 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.

8. 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.

9. 11. Counsel for the appellant raised the following three contentions: (1) that the
said agreement constituted a restraint on trade and was opposed to public policy,
(2) that in order to be valid and enforceable the covenant in question should be
reasonable in space and time and to the extent necessary to protect the employer's
right of property, and (3) that the injunction to enforce a negative stipulation can
only be granted for the legitimate purpose of safeguarding the trade secrets of the

Printed by licensee : Siddharth Narula (Student) Page 2 of 15

 employer.

10. 13. The courts have drawn a distinction between restraints applicable during the
term of the contract of employment and those that apply after its cessation.

11. Though as a general rule restraints placed upon an employee are not against
public policy, there might, according to the learned Judge, be cases where a
covenant might exceed the requirement of protection of the employer and the
court might in such cases refuse to enforce such a covenant by injunction.

12. There was according to him, nothing unreasonable in such an agreement.

13. The decision in Gopal Paper Mills v. Malhotra cannot further the appellant's case.

14. 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.

15. There is no validity in the contention that the negative covenant contained in
clause 17 amounted to a restraint of trade and against public policy.

Shelat, J.— This appeal by special leave is against the judgment and order of the High
Court of Maharashtra confirming an order of injunction against the appellant.

2. The respondent company manufactures amongst other things tyre cord yarn at its
plant at Kalyan known as the Century Rayon. Under an agreement dated January 19,
1961 Algemene Kunstzijde Unie of Holland (hereinafter referred to as “AKU”) and
Vereinigte Clanzstoff Fabrikan AG of West Germany (hereinafter referred to as
“VCF”) agreed to transfer their technical know-how to the respondent Company to
be used exclusively for the respondent Company's tyre cord yarn plant at Kalyan in
consideration of 1,40,000 Deutsche Marks payable to them by the respondent
Company. Clause 4 of that agreement provided that the Century Rayon should keep
secret until the termination of the agreement and during three years thereafter all
technical information, knowledge, know-how, experience data and documents passed
on by the said AKU and VCF and the Century Rayon should undertake to enter into
corresponding secrecy arrangements with its employees. The respondent Company
thereafter invited applications for appointments in its said plant including
appointments as Shift Supervisors. On December 3, 1962 the appellant sent his

Printed by licensee : Siddharth Narula (Student) Page 3 of 15

application stating therein his qualifications. By its letter dated March 1, 1963 the
respondent Company offered the appellant the post of a Shift Supervisor in the said
tyre cord division stating that if the appellant were to accept the said offer he would
be required to sign a contract in standard form for a term of five years. On March 5,
1963 the appellant accepted the said offer agreeing to execute the said standard
contract. On March 16, 1963 he joined the respondent Company and executed on that
day the said contract Ex. 28.

3. Clause 6 of the agreement provided:

“The employee shall, during the period of his employment and any renewal thereof,
honestly, 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 activities 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 employee's training.”

Printed by licensee : Siddharth Narula (Student) Page 4 of 15

4. 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 respondent
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 as a Shift Supervisor was
responsible for the running of shift work, control of labour and in particular with the
specifications given by the said AKU.

5. No difficulty arose between the appellant and the respondent Company until about
September 1964. The appellant thereafter remained absent from 6th to 9th October,
1964 without obtaining leave therefor. On 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 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
employment.

6. 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
himself 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 2410 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

Printed by licensee : Siddharth Narula (Student) Page 5 of 15

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 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 Company's interests
as an employer.

7. 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 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 their 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 Supervisor 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, 1968.

(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,”

8. 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 yarn.

9. 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,

Printed by licensee : Siddharth Narula (Student) Page 6 of 15

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 Company's 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 specialised continuous
spinning process in the tyre cord yarn division of the respondent Company and that it
was evident that he left the respondent Company's 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 appellant's 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 manufactures.

10. 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 while 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

Printed by licensee : Siddharth Narula (Student) Page 7 of 15

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
Company's 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.

11. Counsel for the appellant raised the following three contentions: (1) that the said
agreement constituted a restraint on trade and was therefore opposed to public
policy, (2) that in order to be valid and enforceable the covenant in question should
be reasonable in space and time and to the extent necessary to protect the employer's
right of property, and (3) that the injunction to enforce a negative stipulation can only
be granted for the legitimate purpose of safeguarding the trade secrets of the
employer. He argued that these conditions were lacking in the present case and
therefore the respondent company was not entitled to the enforcement of the said
stipulation.

12. As to what constitutes restraint of trade is summarised in Halsbury's Laws of

England (3rd Edn.), Vol. 38, at p. 15 and onwards. It is a general principal of the
common law that a person is entitled to exercise his lawful trade or calling as and
when he wills and the law has always regarded jealously any interference with trade,
even at the risk of interference with freedom of contract as it is public policy to
oppose all restraints upon liberty of individual action which are injurious to the
interests of the State. This principle is not confined to restraint of trade in the
ordinary meaning of the word “trade” and includes restraints on the right of being
employed. The court takes a far stricter view of covenants between master and servant
than it does of similar covenants between vendor and purchaser or in partnership

Printed by licensee : Siddharth Narula (Student) Page 8 of 15

agreements. 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 competitor. [ Kores
Manufacturing Co . Ltd . v . Kolak Manufacturing Co . Ltd . 1959 Ch 108, 126 ]. The
attitude of the courts as regards public policy however has not been inflexible.
Decisions on public policy have been subject to change and development with the
change in trade and in economic thought and the general principle once applicable to
agreements in restraints of trade have been considerably modified by later decisions.
The rule now is that restraints whether general or partial may be good if they are
reasonable. A restraint upon freedom of contract must be shown to be reasonably
necessary for the purpose of freedom of trade. A restraint reasonably necessary for
the protection of the covenantee must prevail unless some specific ground of public
policy can be clearly established against it. [E. Underwood & Son Ltd . v . Barker1899
1 Ch 300 CA]. A person may be restrained from carrying on his trade by reason of an
agreement voluntarily entered into by him with that object. In such a case the general
principle of freedom of trade must be applied with due regard to the principle that
public policy requires for men of full age and understanding the utmost freedom of
contract and that it is public policy to allow a trader to dispose of his business to a
successor by whom it may be efficiently carried on and to afford to an employer an
unrestricted choice of able assistants and the opportunity to instruct them in his trade
and its secrets without fear of their becoming his competitors. [Fitch v . Dewes1921 2
AC 158, 162-167 ]. Where an agreement is challenged on the ground of its being a
restraint of trade the onus is upon the party supporting the contract to show that the
restraint is reasonably necessary to protect his interests. Once, this onus is discharged,
the onus of showing that the restraint is nevertheless injurious to the public is upon
the party attacking the contract. [See Cheshire's Law of Contract, (6th Edn.) 328,
Mason v . Provident Clothing and Supply Co . Ltd . 4 and A.G of Commonwealth of
Australia v . Adelaide Steamship Co .Ltd .5].

13. The courts however have drawn a distinction between restraints applicable during
the term of the contract of employment and those that apply after its cessation.
[Halsbury's Laws of England (3rd Edn.), Vol. 38, p. 31]. But in W.H Milsted & Son
Ltd . v . Hamp 6 where the contract of service was terminable only by notice by the
employer, Eve, J. held it to be bad as being wholly one-sided. But where the contract

Printed by licensee : Siddharth Narula (Student) Page 9 of 15

is not assailable on any such ground, a stipulation therein that the employee shall
devote his whole time to the employer, and shall not during the term of the contract
serve any other employer would generally be enforceable. In Gaumont Corporation v .
Alexander1936 2 ALI ER 1686 clause 8 of the agreement provided that—

“the engagement is an exclusive engagement by the corporation of the entire service of

the artiste for the period mentioned in clause 2 and accordingly the artiste agrees with
the corporation that from the date hereof until the expiration of her said engagement
the artiste shall not without receiving the previous consent of the corporation do any
work or perform or render any services whatsoever to any person, firm or company
other than the corporation and its sub-lessees”.

On a contention that this clause was a restraint of trade, Porter, J. held that
restrictions placed upon an employee under a contract of service could take effect
during the period of contract and are not in general against public policy. But the
learned Judge at p. 1692 observed that a contract would be thought to be contrary to
public policy if there were a restraint, such as a restraint of trade, which would be
unjustifiable for the business of the claimants in the case. He however added that he
did not know of any case, although it was possible, there might be one, where
circumstances might arise in which it would be held that a restraint during the
progress of the contract itself was an undue restraint. He also observed that though
for the most part, those who contract with persons and enter into contracts which one
might for this purpose describe as contracts of service, have generally imposed upon
them the position that they should occupy themselves solely in the business of those
whom they serve but that it would be a question largely of evidence how far the
protection of clauses of that kind would extend, at any rate during the existence of the
contract of service. Therefore, though as a general rule restraints placed upon an
employee are not against public policy, there might, according to the learned Judge,
be cases where a covenant might exceed the requirement of protection of the employer
and the court might in such cases refuse to enforce such a covenant by injunction. In
William Robinson & Co . Ltd . v . Heuer 1898 2 Ch 451 the contract provided that
Heuer would not during this engagement without the previous consent in writing of
William Robinson & Co ., “carry on or be engaged directly or indirectly, as principal,
agent, servant or otherwise, in any trade, business or calling, either relating to goods
of any description sold or manufactured by the said W. Robinson & Co . Ltd ., ... or in
any other business whatsoever”. Lindley, M.R there observed that there was no
authority whatsoever to show that the said agreement was illegal, that is to say, that it
was unreasonable or went further than was reasonably necessary for the protection of

Printed by licensee : Siddharth Narula (Student) Page 10 of 15

the plaintiffs. It was confined to the period of the engagement, and meant simply that
“so long as you are in our employ you shall not work for anybody else or engage in
any other business”. There was, therefore, according to him, nothing unreasonable in
such an agreement. Applying these observations Branson, J. in Warner Brothers
Pictures v . Nelson1937 1 KB 209 held a covenant of a similar nature not to be void.
The defendant, a film artist, entered into a contract with the plaintiffs, film producers,
for fifty-two weeks, renewable for a further period of fifty-two weeks at the option of
the plaintiffs, whereby she agreed to render her exclusive service as such artist to the
plaintiffs, and by way of negative stipulation not to render, during the period of the
contract, such services to any other person. In breach of the agreement she entered
into a contract to perform as a film artist for a third person. It was held that in such a
case an injunction would issue though it might be limited to a period and in terms
which the court in its discretion thought reasonable.

14. A similar distinction has also been drawn by 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. In Brahmaputra
Tea Co . Ltd . v . ScarthILR XI Cal 545 the condition under which the covenantee was
partially restrained from competing after the term of his engagement was over 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. At p. 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 aid
any business in direct competition with that of his employer was not hit by Section 27.
The Court 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 fulfilment,
and to the due protection of the interests of the employer, while the agreement is in
force.”

[See also Pragji v . Pranjiwan 5 Bom LR 872 and Lalbhai Dalpatbhai & Co . v .
Chittaranjan Chandulal Pandya 12]. In Deshpande v . Arbind Mills Co .48 Bom LR
90 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

Printed by licensee : Siddharth Narula (Student) Page 11 of 15

of the agreement. Relying on Pragji v Pranjiwan Charlesworth v . MacDonaldILR 23
Bom 103, Madras Railway Company v , Rust ILR 14 Mad 18, Subba Naidu v . Haji
Badsha SahibILR 26 Mad 168 and Burn & Co . v . MacDonald17 as instances where
such a negative covenant was enforced, the learned Judges observed that Illustrations
(c) and (d) to Section 57 of the Specific Relief Act in terms recognised such contracts
and the existence of negative covenants therein and that therefore 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.

15. Counsel for the appellant, however, relied on Ehrman v . Bartholomew1898 I Ch

671 as an illustration where the negative stipulation in the contract was held to be
unreasonable and therefore unenforceable. Clause 3 of the agreement there provided
that the employee shall devote the whole of his time during the usual business hours
in the transaction of the business of the firm and shall not in any manner directly or
indirectly engage or employ himself in any other business, or transact any business
with or for any person or persons other than the firm during the continuance of this
agreement. Clause 13 of the agreement further provided that after the termination of
the employment by any means, the employee should not, either on his sole account or
jointly with any other person, directly or indirectly supply any of the then or past
customers of the firm with wines etc. or solicit for orders any such customers and
should not be employed in any capacity whatsoever or be concerned, engaged or
employed in any business of a wine or spirit merchant in which any former partner of
the firm was engaged. Romer, J. held these clauses to be unreasonable on the ground
that clause 3 was to operate for a period of 10 years or for so much of that period as
the employer chose and that the word “business” therein mentioned could not be held
limited by the context to a wine merchant's business or in any similar way. So that the
court, while unable to order the defendant to work for the plaintiffs, is asked
indirectly to make him do so by otherwise compelling him to abstain wholly from
business, at any rate during all usual business hours. The other decision relied on by
him was Mason v . Provident Clothing and Supply Co . Ltd . ,. This was a case of a
negative covenant not to serve elsewhere for three years after the termination of the
contract. In this case the court applied the test of what was reasonable for the
protection of the plaintiffs' interest. It 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
contract. Herbert Morris v . Saxelby1916 AC 688 and Attwood v . Lamont1920 3 KB

Printed by licensee : Siddharth Narula (Student) Page 12 of 15

571 are also cases where the restrictive covenants were to apply after the termination
of the employment. In Commercial Plastics Ltd . v . Vincent 3 ALL ER 546 also the
negative covenant was to operate for a year after the employee left the employment
and the Court held that the restriction was void inasmuch as it went beyond what was
reasonably necessary for the protection of the employer's legitimate interests.

16. These decisions do not fall within the class of cases where the negative covenant
operated during and for the period of employment as in Gaumont Corporation case
and Warner Brothers v . Nelson where the covenant was held not to be a restraint of
trade or against public policy unless the agreement was wholly one- sided and
therefore unconscionable as in W.H Milsted & Son Ltd . v . Hamp or where the
negative covenant was such that an injunction to enforce it would indirectly compel
the employee either to idleness or to serve the employer, a thing which the court
would not order as in Ehrman v . Bartholomew. There is, however, the decision of a
Single Judge of the Calcutta High Court in Gopal Paper Mills v . MalhotraAIR 1962
Cal 61 a case of breach of a negative covenant during the period of employment. This
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 employer's
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 W.H
Milsted & Son Ltd . v . Hamp . The decision in Gopal Paper Mills v . Malhotra
therefore cannot further the appellant's case.

17. 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 . Both

Printed by licensee : Siddharth Narula (Student) Page 13 of 15

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.

18. The next question is whether the injunction in the terms in which it is framed
should have been granted. There 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 17 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
employer's 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
Company.

Printed by licensee : Siddharth Narula (Student) Page 14 of 15

19. 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.

20. The appeal fails and is dismissed with costs.

Printed by licensee : Siddharth Narula (Student) Page 15 of 15