MANU/SC/0364/1967 Equivalent Citation: AIR1967SC1098, 1967(69)BOMLR535, [1967(14)FLR337], (1967)ILLJ740SC, 1967MhLJ606, 1967MhLJ606, [1967]2SCR378 IN THE SUPREME COURT OF INDIA Decided

On: 17.01.1967 Appellants: Niranjan Shankar Golikari Vs. Respondent: The Century Spinning and Mfg. Co. Ltd. Hon'ble Judges/Coram: J. M. Shelat and R. S. Bachawat, JJ. Subject: Media and Communication Subject: Service Catch Words Mentioned IN Acts/Rules/Orders: Indian Contract Act - Section 27 Authorities Halsbury's Laws of England (3rd edition), Volume 38 Citing Discussed 10 Mentioned 12 Case Note: Contract - breach - Section 27 of Indian Contract Act,1872 appellant accepted by the respondents to post of shift supervisor signed standard form contract of five years appellant received training for nine months some difficulty between respondent and appellant appellant absented himself from work and then handed over his resignation letter which was not accepted appellant informed respondent that he had joined another company for a higher pay Trial Court issued injunction appellant restrained from employment pursuant to Clause 9 of contract for four years and not to divulge secrets as in Clause 17 High Court held that Clauses 9 and 17 not blanket restrictions restriction only on information gathered during working in particular department could seek employment in other areas High Court confirmed injunction appellant moves Supreme Court - negative covenants operative during period of contract do not fall under Section 27 Clause 17 of contract does not amount to restraint in trade held, injunction not too wide or unreasonable or unnecessary for protection of interests of respondent company. JUDGMENT Shelat, J. 1. This appeal by Special Leave is against the judgment and order of the High Court of Maharashtra

Referred: Reference:

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 Reyon. 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 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 Exhibit 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."
4. 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."
5. 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. 6. No difficulty arose between the appellant and the respondent company until about September, 1964. The appellant thereafter remained absent from the 6th to the 9th October, 1964 without obtaining leave therefore. On the 10th October, he took casual leave. On October 12, he applied for 28 days' privilege leave form October 14, 1964. Before that was granted he absented himself from the 14th to the 31st October, 1964. On October 31, he was offered salary for 9 days that he had worked during that month. On November 7, 1964, he informed the respondent-company that he had resigned from October 31, 1964. The respondent-company by its letter of November 23, 1964, asked him to resume work stating that his said resignation had not been accepted. On November 28, 1964 the appellant replied that he had already obtained another employment. 7. 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 whereas clause 9 was too wide as it was operative not for a fixed period but for life time and included not only trade secrets but each and every aspect of information, clause 17 precluded him from serving elsewhere in any capacity whatsoever which meant a restraint on his right to trade to carry on business, profession or vocation and that such a term was necessary for the protection of the respondent company's interests as an employer. 8. The Trial Court on a consideration of the evidence led by the parities 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 these findings the Trial Court passed the following order :

"(1) The injunction is granted against the defendant and he is restrained from getting in the employ of or being engaged or connected as a Shift 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."

9. 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. 10. In the appeal filed by him in the High Court, the plea taken by him as to undue influence and coercion was given up. The High Court, agreeing with the Trial Court, found that the evidence of Dr. Chalishhazar, Mehta and John Jacob established that the appellant had been imparted training for about nine months during the course of which information regarding the special processes and details of the machinery evolved by the said collaborators had been divulged to him. It also found that as a result of his getting himself employed in the said rival company, not only the benefit of training given to him at the cost of the respondent company would be lost to it but that the knowledge acquired by him in regard to the said continuous spinning process intended for the exclusive use of the respondent company was likely to be made available to the rival company which also was interested in the continuous spinning process of tyre cord. The High Court further found that though the machinery employed by the said Rajasthan Rayon might not be the same as that in the respondent 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. 11. 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 give 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 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 form 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 form 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. 12. 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 employers' 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 where lacking in the present case and therefore the respondent company was not entitled to the enforcement of the said stipulation. 13. As to what constitutes restraint of trade is summarised in Halsbury's Laws of England (3rd edition), Volume 38, at page 15 and onwards. It is a general principle 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 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. 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. Barker [1899] 1 Ch. 300 C.A.. 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 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. Dewes) [1921] 2 A.C. 158. Where an agreement is challenged on the ground of its being a restraint on 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 edition) 328, Mason v. Provident Clothing and Supply Co. Ltd., [1913] A.C. 724 and A. G. of Commonwealth of Australia v. Adelaide Steamship Co., Ltd. (1913) A.C. 781. 14. 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 edition), Volume 38, page 31). But in W. H. Milsted & Son, Ltd. v. Hamp [1927] W.N. 233, 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 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. Alexander [1936] 2 All. E.R. 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."
15. 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 page 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 described as contracts of service, have generally imposed upon them the position that they should occupy themselves solely in the business of these 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 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. Nelson [1937] 1 K.B. 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 through it might be limited to a period and in terms which the Court in its discretion thought reasonable. 16. 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. Scarth I.L.R. 11 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 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 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."
17. (See also Pragji v. Pranjiwan 5 Bom L.R. 872 and Lalbhai Dalpathbhai & Co. v. Chittaranjan Chandulal Pandva MANU/GJ/0051/1966 : AIR1966Guj189 ). In Deshpande v. Arbind Mills Co., 48 Bom. L.R. 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 of the agreement. Relying on Pragji v. Pranjiwan; 5 L.R. 872 Charlesworth v. MacDonald I.L.R. 23 Bom. 103, Madras Railway Company v. Rust, I.L.R. 14 Mad. 18 Subba Naidu v. Haji Badsha Sahib I.L.R. 26 Mad. 168 and Burn & Co. v. MacDonald I.L.R. 36 Cal. 354, 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. 18. Counsel for the appellant, however, relied on Ehrman v. Bartholomew [1898] 1 Ch. 571, 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 or 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. [1913] A.C. 724 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. Saxelby [1916] A.C. 688 and Attwood v. Lamont [1920] 3 K. B. 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. E.R. 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. 19. 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's case [1936] 2 All E.R. 1686 and Warner Brothers v. Nelson [1937] 1 K.B. 209 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 [1927] W.N. 233 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 [1898] 1 Ch. 671. There is, however, the decision of a Single Judge of the Calcutta High Court in Gopal Paper Mills v. Malhotra A.I.R. 1262 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[1927] W.N. 233. The decision in Gopal Paper Mills v. Malhotra A.I.R. 1262 Cal. 61, therefore cannot further the appellant's case. 20. 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. [1927] W.N. 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. 21. 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 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. 22. 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. 23. The appeal fails and is dismissed with costs. 24. Appeal dismissed.

Manupatra Information Solutions Pvt. Ltd.

MANU/TN/7910/2007 Equivalent Citation: AIR2007Mad237 IN THE HIGH COURT OF MADRAS O.A. No. 272 of 2007 Decided On: 27.04.2007 Appellants: Sanmar Speciality Chemicals Ltd. Vs. Respondent: Dr. Biswajit Roy Hon'ble Judges/Coram: S. Rajeswaran, J. Counsels: For Appellant/Petitioner/Plaintiff: P.S. Raman, Sr. Counsel for K. Harishankar, Adv. For Respondents/Defendant: Krishna Ravindran, Adv. Subject: Arbitration Subject: Service Catch Words Mentioned IN Acts/Rules/Orders: Arbitration and Conciliation Act, 1996 - Section 9; Indian Contract Act, 1872 - Section 27 Cases Referred: American Express Bank Limited v. Priya Puri 2006 Ind Law Del 362; G.R.V. Rajan v. Tube Investments of India Ltd. and Anr. 1995 (1) LW 274; Percept D'Mark (India) (P) Ltd. v. Zaheer Khan 2006 (4) SCC 227 : AIR 2006 SC 3426; Polaris Software Lab. Ltd. v. Suren Khiwadkar 2004 (I) LLJ 323; R. Babu and Anr. v. K LIG Ltd. (2005) 124 Comp Cas 109; V.V. Sivaram and Ors. v. Foseco India Limited 2006 (133) Comp Cas 160 (Kar) : AIR 2006 Kar 143; Zaheer Khan v. Percept D'Mark (India) Pvt. Ltd. AIR 2004 Bom 362 Citing Reference:

Mentioned 6 Case Note: Contract - Injunction - Appellant sought direction to restrain Respondent from in any manner disclosing or using confidential information of Appellant though matter was pending before conciliation officer - Hence, this Application - Held, a duty was cast upon Applicant to prima facie prove that information being used by Respondent were exclusive and were not available in public domain - However, Applicant had failed to establish same by producing valid and legally acceptable evidence - Therefore, they were not entitled to an order of injunction insofar as using information by Respondent obtained by him - Application dismissed. Ratio Decidendi: "If an employee tried to make profit out of secret information of company then legal action shall be initiated against him." Disposition: Petition dismissed ORDER S. Rajeswaran, J. 1. This Original Application has been filed for an order of interim injunction restraining the respondent

from in any manner disclosing or using the confidential information of the applicant by carrying on directly, or indirectly any business which is of competing nature, contacting the applicant's customers or employees and thereby interfering with the applicant's business, pending arbitration of the disputes between the parties. 2. The brief facts as culled out from the affidavit are as under: 3. The applicant Company is engaged in a very specialized field of business involving unique know-how and technical data and these are peculiar to them. The respondent joined the company as a Scientific Officer in January 2001. Over the years he became an integral part of the senior management team and he was given access to information which are vital for the operations of the applicant's Bangalore Genie Division namely, product and process know-how, R&D processes, procedures, raw materials sources, quality control etc. On 20-6-2005, respondent entered into a Confidentiality and NonCompete Agreement with the applicant. At the time of entering into an agreement the respondent was working as Assistant General ManagerResearch and Development. Under the Confidentiality and NonCompete Agreement, the respondent shall not disclose the confidential information to any person after cessation of employment with the applicant. Similarly the respondent shall not take up any employment or involve himself with any other person or body corporate in the similar field of activity which is competitive in nature with the business of the applicant for a period of 3 years after cessation of employment with the applicant. 4. The respondent submitted his resignation on 17-7-2006. Even though the respondent indicated that his resignation is personal and with a drive to change area of activity, to the shock of the applicant, the respondent is carrying on business which is similar to the business of the applicant by using the confidential information furnished to him by the applicant. The respondent is also soliciting the applicant's employees and is contacting the applicant's customers by using the information obtained from the applicant. The applicant sought reference of the dispute to the arbitration and by letter dated 12-3-2007 sought for appointment of arbitrator in terms of the agreement dated 20-6-2005. Pending initiation of arbitral proceedings the above application has been filed under Section 9 of the Arbitration and Conciliation Act, 1996, hereinafter called 'the Act', for an order of interim injunction. 5. This Court by order dated 15-3-2007 granted an order of interim injunction restraining the respondent from making use of any confidential information that he acquired from the applicant's company and from using the customer's base of the applicant's company. 6. The respondent entered appearance after notice and filed a counter affidavit. The respondent denied all the allegations and it is his specific case that the agreement dated 20-6-2005 is in violation of Section 27 of the Contract Act and the same is unenforceable. 7. Heard Mr. P.S. Raman, learned Senior Counsel appearing for the applicant and the learned Counsel for the respondent. I have also perused the documents filed and the judgments referred to by them in support of their submissions. 8. The learned Senior counsel for the applicant submitted that having signed an agreement willingly containing a non-compete clause, it is not open for the respondent to violate the same and contend that the same is unenforceable. Further, he submitted that the restrictive covenant contained in the agreement is only for a limited period of 3 years and therefore the same is not hit by Section 27 of the Contract Act. The learned Senior Counsel further submitted that having agreed to desist from divulging or disclosing the confidential information, he is dishonestly using the same for the purpose of his business which is in the same field of business of the applicant. 9. The learned Senior Counsel relied on the decision reported in 2006 (133) Comp Cas 160 (Kar) : AIR 2006 Kar 143 : MANU/KA/0520/2005 V.V. Sivaram and Ors. v. Foseco India Limited in support of his submissions. 10. Per contra, the learned Counsel for the respondent submitted that the agreement dated 20-6-2005 is unenforceable as it is blatantly in violation of Section 27 of the Contract Act. He further urged that the respondent is not using any of the confidential information acquired from the applicant as alleged by the applicant. He further pointed out that even otherwise the confidential information referred to by the applicant are easily available in the internet and therefore there is no confidentially at all in the information sought to be portrayed as confidential information. 11. The learned Counsel for the respondent relied on the following decisions to contend that the agreement dated 20-6-2005 is unenforceable as the same is in direct violation of Section 27 of the Contract Act. MANU/MH/1576/2003 : AIR2004Bom362 Zaheer Khan v. Percept D'Mark (India) Pvt.

Ltd.; 2006 Ind Law Del 362 American Express Bank Limited v. Priya Puri; MANU/SC/1412/2006 : AIR2006SC3426 6 Percept D'Mark (India) (P) Ltd. v. Zaheer Khan; and 2004 (I) LLJ 323 : MANU/TN/1903/2003 Polaris Software Lab. Ltd. v. Suren Khiwadkar. 12. I have considered the rival submissions carefully with regard to facts and citations. 13. The only point that arises for consideration is whether the applicant is entitled to an order of injunction on the basis of confidentiality and non-compete agreement dated 20-6-2005. 14. The following clauses in the abovesaid agreement dated 20-6-2005 are relevant for the purpose of deciding the issue:

3. The Employee agrees that he/she shall, during his/her employment with the Company, maintain the secrecy of the Confidential Information and shall not disclose or divulge the Confidential Information to any person or persons except in the proper course of his/her duties. The Employee further undertakes that after cessation, for any reason whatsoever, of his/her employment with the Company, he/she shall not disclose or divulge the Confidential Information to any person or persons. 6. In consideration of his/her employment with the Company, the receipt of salary and other employment benefits from the Company and other good and valuable consideration and for the reasons set out in clause 5 hereinabove, the Employee, during his/her employment with the Company and for a period of three years after he/she ceases to be an employee of the Company for any reason whatsoever, shall not, (i) take up employment with any other person, firm, company, body corporate or organization of any other kind whatsoever, engaged in or proposed to be engaged in any activity. (ii) involve himself/herself directly or indirectly, alone or in association with others, whether as principal officer, sole proprietor, director, agent, partner, joint venture investor, lender, lessor, consultant, advisor or otherwise or have an interest, in any business, (iii) carry on either by himself/herself or in association with any other person any business or be associated in any manner with any business, which in the opinion of the Company, is similar to or competitive with that carried by the Company. Such opinion of the Company shall be final conclusive and binding on the Employee. 15. In the event a dispute arises between the parties hereto during the subsistence of this Agreement or thereafter in connection with the validity, interpretation, implementation or alleged breach of any provision of this Agreement, the parties shall attempt in the first instance to resolve such dispute through friendly consultations. If the dispute is not resolved through friendly consultations, then either party may refer the dispute for resolution by binding arbitration to a Director in charge of the affairs of the Company. The Arbitration referred to hereinabove shall be by a Sole Arbitrator. 15.1. On receipt of a request to refer the disputes to arbitration from the Company or the Employee, the said Director shall within 7 days propose three names for acting as Arbitrator and from and out of the said 3 persons the Employee shall nominate one person to be the Sole Arbitrator. In the event of the Employee not choosing ones among the three persons within a period of 7 days of their nomination, then the said Director shall nominate one among the three persons to act as Sole Arbitrator to adjudicate the disputes. The Arbitration shall be held in Chennai and the Courts in the City of Chennai alone shall have jurisdiction over the subject-matter of this Agreement. 15.2. The award of the Arbitrator so appointed will be final, conclusive and binding on the parties to this Agreement and the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof and the Rules made

thereunder and for the time being in force shall apply to the arbitration proceedings under this clause. 15.3. The award shall be made in writing and published by the Arbitrator within six months after entering upon the reference or within such extended time not exceeding four months as the sole arbitrator shall by a writing under his own hands fix. The arbitrator shall have power to order and direct either of the parties to abide by, observe and perform all such directions as the arbitrator may think fit having regard to the matter in difference i.e., dispute before him.
15. The case of the applicant is that the respondent is violating Clause 3 and Clause 6 of the agreement and therefore an order of interim injunction is to be granted against the respondent. Even though it is prayed by the applicant that the respondent shall be restrained from disclosing the confidential information by carrying on any business which is of competing nature, contacting the applicant's customers or employees and thereby interfering with the applicant's business, this Court on 15-3-2007 made it very clear that the respondent is not injuncted in making use of any other such information which was simultaneously obtained by him from some other means. 16. It is the respondent's specific contention that he is not using any of the confidential information that he acquired from the applicant's company and all the information he is making use of are easily available in the public domain. In such circumstances, a duty is cast upon the applicant to prima facie prove that the information being used by the respondent are exclusive and arc not available in the public domain. But the applicant has failed to establish the same by producing valid and legally acceptable evidence. Therefore as the applicant has failed to establish a prima facie case, they are not entitled to an order of injunction insofar as using the information by the respondent obtained by him from the applicant's company. Further, it is for the applicant to establish and substantiate this allegation before the arbitrator by letting in evidence. Further, clause IJ of the agreement deals with so many remedies available to the applicant which includes payment of compensation and indemnification by the respondent and in such circumstances it cannot be said that the applicant would be put to irreparable damage if the order of injunction is not granted. 17. Insofar as the non-compete clause contained in Clause 6 of the agreement is concerned, I am of the opinion that the negative covenant contained thereon is unenforceable in law and the same is contrary to the provisions of Section 27 of the Indian Contract Act. Even assuming the same is enforceable, it is inappropriate to grant an order of injunction to enforce it at the interim stage itself. When a similar clause arises for consideration in O.A. No. 493/2006 and Application No. 3847/2006, by order dated 6-12-2006,1 have held that such a negative clause is unenforceable and is contrary to Section 27 of the Indian Contract Act. I have come to such conclusion after following the decision of the Division Bench reported in 1995 (1) LW 274 G.R.V. Rajan v. Tube Investments of India Ltd. and Anr. decision of a Division Bench of this Court reported in (2005) 124 Comp Cas 109 R. Babu and Anr. v. K LIG Ltd. 18. It is now represented by the learned Senior Counsel that an Advocate of this Court has already been appointed as an Arbitrator who has seized of the entire matter and award is likely to be passed in a matter of three to four months. That being so, the balance of convenience is also not in favour of the applicant as the entire matter could be very well agitated before the arbitrator. 19. In the result, I find no merits in the injunction application and the same is therefore dismissed. No costs. 20. It Is needless to mention that the views expressed by me for the purpose of disposing of the above application are tentative and prima facie conclusion which will not affect the applicant's case before the arbitrator. The arbitrator can very well decide the issue on his own uninfluenced by any of the observations/findings made by me in this order. Manupatra Information Solutions Pvt. Ltd.
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MANU/TN/1163/1995 Equivalent Citation: IN THE HIGH COURT OF MADRAS O.S.A. Nos. 313 to 316 of 1994 Decided On: 02.02.1995 Appellants: G.R.V. Rajan Vs. Respondent: Tube Investments of India Ltd. rep. by its Company Secretary, Madras- 1 Hon'ble Judges/Coram: Srinivasan and S.S. Subramani, JJ. Counsels: For Appellant/Petitioner/Plaintiff: Mr. S. Govind Swaminathan, Senior Advocate for M/s. Sriram Panchu, N.L. Rajan & Ms. Aparna Mukerjee For Respondents/Defendant: Mr. P.S. Surana for M/s. Surana & Surana for Respondent Subject: Company Catch Words Mentioned IN Acts/Rules/Orders: Code Of Civil Procedure, 1908 - Section 80; Constitution Of India - Article 141, Constitution Of India Article 145(5); Indian Contract Act, 1872 - Section 27, Indian Contract Act, 1872 - Section 28,Indian Contract Act, 1872 - Section 57, Indian Contract Act, 1872 - Section 74; Specific Relief Act 1963 Section 38, Specific Relief Act 1963 - Section 42 ORDER Srinivasan, J. 1. These four appeals arise out of orders passed on interlocutory applications pending the suit C.S. No. 1280 of 1994 filed by the respondent on the Original Side of this Court. It will be convenient to refer to the parties by their rank in the suit. The appellant will be referred to as the defendant and the respondent will be referred to as the plaintiff. The case as set out in the plaint is as follows:- The plaintiff is a Public Limited Company of All India repute. Its sales turnover for the year ending 31-31994 was Rs. 417.15 Crores. The exports made by the plaintiff and the foreign exchange earned were Rs. 67.13 Crores in the said year. The plaintiff is having about 18,350 shareholders and 6,300 employees. It is engaged in manufacturing among other products bicycles, components and accessories of bicycles for more than 40 years through its manufacturing unit, namely, TI Cycles of India and the present capacity is 25,00,000 cycles per annum. It is known for its efficiency and quality products. It has various manufacturing units in various places in and around Madras City, two factories at Hyderabad and one factory at Tarapur, Bombay. The plaintiff has marketing network throughout India and exports its products to several foreign countries including U.S.A., U.K., Germany, Prance, Holland and Sri Lanka. 2. The defendant was employed by the plaintiff on 25-11-1982 in the management cadre. As per the order of appointment dated 25-11-1982, a copy of which was duly accepted and signed by the defendant on January 2, 1983, the defendant agreed to be governed by the terms and conditions of services as may be in force from time to time. A copy off general service conditions was given to the defendant and he initialled the same. Some of the relevant general service conditions to which the defendant agreed to abide by are briefly as follows:-

"(a) That the defendant shall not engage in any other business or occupation whatsoever or be interested directly or indirectly in any business or undertaking having interest, opposed or competitive with the interest of the plaintiff or in any business or undertaking having transactions with the plaintiff except with the plaintiffs consent in

writing. (b) That the defendant, either during or after his employment, will not divulge or utilise any confidential information belonging to the plaintiff or any of its associate Companies including confidential information as to formulae, processes and manufacturing methods and confidential information as to the business and affairs of the Company which may have come to his knowledge during his employment. (c) Except so tar as may be necessary for the purpose of his duties, the defendant shall not without the consent of the plaintiff retain or make originals or copies of any drawings, calculations, specifications, formulae or other documents of whatever nature belonging to the plaintiff which may come into the possession of the defendant by reason of his employment. If on the termination of the defendant's employment, he is in possession of any originals or copies of any of the aforesaid documents, he shall deliver the same to the plaintiff."
3. In November 1983, the defendant was promoted as Regional Sales Officer, Western Region and transferred to the Chains and Lamps Division with effect from 1-12-1983. In or about June, 1984, TI & M. Limited, which earlier employed the defendant, ceased to require the services of the defendant, who became an employee of the plaintiff. The defendant accepted the said arrangement and agreed to be retained as an employee of the plaintiff. He was promoted as Regional Sales Manager, Western Region, with effect from 1-3-1985. From 31-1-1986 the defendant was transferred to Cycle Division in the same capacity. On 12th December, 1986 he was promoted as Manager (West). In November 1987 he was posted as Manager (Production Engineering). In October, 1988 he took charge as Works Manager, responsible for the operation of A, B and C Factories, export production and Central Warehouse of TI Cycles of India. From 4th June, 1990 he took over as Works Manager, TI Miller and Satellite Units, which are manufacturing components of bicycles. In October 1990 he was again promoted as Manufacturing Manager of the Bicycles Components Group. On 30th June 1992 he was promoted as General Manager, Operations. The terms and conditions of service remained unaltered and in particular the general service conditions detailed earlier. During his employment, he was sent abroad by the plaintiff at a huge cost. The purposes of the foreign trips were for learning the working of various bicycle factories in the world, for attending various international meetings on such manufacturing and for export promotion of the products of the plaintiff. During those trips, the defendant had come into possession of confidential information about the manufacturing process and the customers of the plaintiff, technical informations and drawings which, as per the general service conditions, the defendant should not divulge to anybody or use for his own benefit except for the benefit of the plaintiff. On account of his employment in the various units in various capacities, he has come to know the total and entire manufacturing process, inland and foreign customers of the plaintiff and all the confidential information and documents of the plaintiff, including its crucial information of pricing policy. 4. In September 1993 the defendant submitted a report to the plaintiff, called "critical factors, 199394", which would show that the defendant had become familiar with each and every aspect of the manufacturing, sale and export of the products of the plaintiff because of the employment of the defendant with the plaintiff. On 17th February 1994, the defendant resigned his job and requested that he be relieved. By letter dated 18-2-1994, the plaintiff accepted the resignation and allowed the defendant to be relieved by 30-4-1994. 5. When the plaintiff started its industry with U.K. collaboration, all the machineries for the manufacture of bicycle components were imported machineries. They were imported at heavy cost. In due course of time, the plaintiff started the process of indigenisation. The plaintiff has a wing called Technical Research Quality Development Wing, wherein highly efficient technical persons are employed, whose work is to do research in development by focusing its attention on development of new products, improvement in production, design engineering, automation, cost reduction and import substitution. The efforts of the Research and Development Wing resulted in development of new products like hexagonal tubes for textile industries, front fork tubes for two wheelers, specially CDW tubes for the export market and import substitution products like Polyurethane Saddles and Brake Levers for certain MTB Models. The plaintiff has also introduced three new Models. A wide variety of new welded frames were designed and developed using computer aided design. In the said process,

the plaintiff has developed a set of sub-contractors for manufacturing and supplying exclusively to the plaintiff certain machineries and tools, especially manufactured as per the drawing supplied by the experts of the plaintiff from the Research and Development Section. One such machine is called swaging machine. The drawings for the said machine were made after thoroughly studying the earlier imported machine. Hundreds of working hours were spent by the senior Engineers and Draftsmen for making the drawing ready for the said machine. Lakhs of rupees were spent by the plaintiff for making the final drawings and a sample machine. The plaintiff has been supplying copies of those drawings to its sub-contractors who agreed not to divulge the secret drawings to anybody else, not to use those secret drawings supplied by the plaintiff for anybody except for the plaintiffs units and not to manufacture and/or supply the said machine to anybody else under any circumstance. Another machine is called Dooming Machine and the third machine is called Fork Blade Bending Machine. They are manufactured by the sub-contractors of the plaintiff exclusively for the use of the plaintiff. 6. When the defendant was General Manager (Operations), he was having the absolute control and authority over the total manufacturing operations of bicycles and components and custody and control of all the confidential and secret drawings, designs, trade secrets,' specifications ,of certain exclusive machines and tools used for the production of cycles and components including the aforesaid three machines. The defendant was in constant touch with the heads of Departments and Units of the plaintiff company and also the sub-contractors exclusively employed for the manufacture and supply of the machines referred to above. He made use of his official capacity and authority and collected drawings of aforesaid swaging machine from Mr. S. K. Subramaniam, Manager (Design and Development) of the plaintiff and made use of the same for his personal use. While in employment, the defendant misused the trust and faith placed in him and secretly contacted a sub-contractor and gave him a copy of the drawings and design of the swaging machine and told him that he must manufacture a swaging machine and supply to a firm called Frames Specialized and that the said firm is one of the associates of the plaintiff company. As the defendant was the General Manager of the plaintiff, the subcontractor believed him and as per the instructions given by the defendant manufactured a swaging machine as per the copy of the drawings and designs supplied by the defendant. The order was placed by the defendant on 22-2-1994 by making such false and misguiding representation to the subcontractor while the defendant was still in the employment of the plaintiff till 30-4-1994. The defendant had himself signed the delivery note of the machine and taken delivery of the machine from the said sub-contractor. The defendant similar committed breach of trust, misused his office as the General Manager and clandestinely used the drawings and specifications, toolings, data, dealings of the plaintiff and placed orders on the respective sub-contractors by making false and misguiding representations and took delivery of Dooming Machine (one number) and Fork Bending Machines (two numbers). In fact, the sub-contractor for Fork Blade Bending Machine after manufacturing the same came to know that the defendant had misrepresented that the machine was required by an associate company of the plaintiff and refused to supply the same to the defendant. The defendant went to the factory of the said sub-contractor with his men and forcibly took away all the parts so manufactured and kept ready there and had himself assembled those parts. The defendant has committed misappropriation and criminal breach of trust and made fraudulent misrepresentation and thereby made the sub-contractors of the plaintiff to believe his fraudulent misrepresentation that the machines were required for the associate units of the plaintiff and illegally obtained the machines. 7. The defendant is misusing the confidential information which he has acquired by virtue of his position as General Manager and the knowledge of the customers of the plaintiff to the detriment of the plaintiff. The plaintiff reserves its right to claim damages as and when necessary and ascertained. The plaintiff apprehends that the defendant would contact the customers and suppliers of the plaintiff and make misrepresentations and false representations both in India and abroad and would get orders from the customers and suppliers as he has done successfully with the sub-contractors for machineries. 8. The plaintiff, therefore, prays for a judgment and decree (a) directing the defendant to deliver to the plaintiff (i) the swaging machine, (ii) the dooming machine and (iii) the fork blade bending machine now lying at the place of business of the defendant, (b) for a permanent injunction restraining the defendant from in any manner using or working on the said machines, (c) appointing a Receiver or Commissioner to take charge of the said machines and keep them in his custody at a place to be provided by the plaintiff at its own cost, (d) granting a permanent injunction restraining the defendant from in any manner contacting directly or indirectly the customers/suppliers/buyers of the plaintiff

listed in the Schedule to the plaint, (e) directing the defendant to return to the plaintiff the drawings and specifications, data, details, concept and toolings of the three machines, (f) granting a permanent injunction restraining the defendant from in any manner selling or transferring the drawings and specifications etc., (g) granting a permanent injunction for at least ten years restraining the defendant from doing competitive business as that of the plaintiff, namely, manufacture, sale, supply and export of bicycles and components and (h) directing the defendant to pay the costs of the suit. 9. Along with the plaint, the plaintiff filed four applications O.A. Nos. 882 to 885 of 1994. The prayer in O.A. No. 882 of 1994 is for grant of an interim injunction restraining the defendant from in any manner using or working on the three machineries described in the Schedule. The prayer in O.A. No. 883 of 1994 is for an injunction restraining the defendant from contacting the foreign customers of the plaintiff listed in Schedule I therein or their associates either directly or indirectly, either himself or through his agents, servants or associates. The Schedule contains the particulars of 24 foreign customers. The prayer in O.A. No. 884 of 1994 is for an interim injunction restraining the defendant from, in any manner, selling, transferring or using the drawings and specifications and other information about the machineries or business of the plaintiff to anybody. The prayer in O.A. No. 885 of 1994 is for an interim injunction restraining the defendant from doing competitive business as that of the plaintiff namely, manufacture, sale, supply and export of bicycles and components. The Court ordered notice and interim injunction on the applications on 14-9-1994. After service of notice, the defendant filed Application Nos. 5866 to 5869 of 1994 to vacate the interim injunction granted on 149-1994. 10. In the affidavit filed in support of the said applications, the case of the defendant is stated as follows:-

He is a qualified Engineer, having obtained the degree of B. Tech. (Mechanical Engineering) from IT, BHU with an overall rank of 4 in the University in the year 1975-80. He obtained his PGDM (MBA) from IIM, Ahmedabad. He joined TI & M Limited as a Management Trainee on 25-1982 and was confirmed as a Sales Officer in the Management Cadre of the Company with effect from 25-11-1982. It was only in June 1984 he was appointed to the plaintiff company. The averment in paragraph 6 of the plaint that he was employed from 25-11-1982 by the plaintiff is false. He was promoted to various responsible jobs in the company on account of his good performance and substantial contribution. Sometime in June 1984, 'TI & M Limited, which was marketing most of the products of the plaintiff, decided to close down its unit. But the plaintiff decided that it would carry on both manufacture and sales operations. In June-July 1984, the services of nearly 120 employees of TI & M Limited were terminated with the option to join the plaintiff company. The defendant opted to join the plaintiff and was accordingly appointed on 15-6-1984. The appointment order was issued only by TI & M Limited. At the time of appointment with the plaintiff, the defendant did not sign any contract relating to the service conditions applicable to him. In October 1988, the defendant took charge as Works Manager, responsible for operations of A,B and C factories and Central Warehouse of TI Cycles. He was given the exclusive task of setting up an Export Line for manufacture of brazed frames and forks for exports. Till then, the Company exports were insignificant (less than Rs. 10 lakhs). During his tenure as Works Manager, the exports flourished largely on account of the quality. From 4th June, 1990, he was transferred to Miller and Satellite Units to stabilise operations in those units. He was promoted as Divisional Manager of the plaintiff in November 1991. Owing to his efforts, the company's exports rose from Rs. 6 Crores to Rs. 67 Crores between 1991 and 1993. He was in the meanwhile promoted as General Manager (Operations) in July 1992. During his tenure, he was responsible for all manufacturing activities of the company. The technical department had control over all the confidential and secret drawings, designs, trade secrets, specifications of machines etc. His knowledge of such documents was limited to the extent required for effective control over manufacturing operations. During his tenure, he traveled abroad to solve problems faced by foreign buyers with the cycles supplied by the plaintiff. He saved the company huge sums of money in claims for damages by effectively solving the problems faced by customers abroad. In January 1994 he approached his superiors in the plaintiff company and informed them that he intended to resign from the

services of the company to set up a SSI Unit to manufacture and export TIG welded frames and forks. They agreed to the same. The company accepted the defendant's resignation on 172-1994 and named his successor by Office Order. The plaintiff agreed to purchase a large part of the defendant's goods and discussed with him the possibility of his supplying TIG welded frames and forks to the plaintiff exclusively for their own manufacturing and export. Based on the assurances from his superiors in the plaintiff company, in March 1994, the defendant proceeded to set up M/s. Frames Specialized, based on the assurance from his superiors in the plaintiff company and slopped attending office from February 1994 though he was officially relieved only on 30th April, 1994. The defendant had ordered machines from the plaintiffs subcontractors who are engaged in manufacturing general purpose machines including those for the plaintiff company's use. The plaintiff did not object to the order at that time. All the three machines mentioned in the plaint are freely available in the market and the plaintiff does not have any exclusive right to the design or drawing.
11. As the plaintiff was intending to support the defendant, it allowed the use of the company car TN04-A-8213 by the defendant till 15th July 1994. The plaintiff also paid the petrol and maintenance bills incurred by the defendant for the months of March and April, though he had ceased to attend office. The company phone bearing No. 2344462 was allowed to be retained by the defendant at his residence till he got alternate phone connection, which he got in fact by the end of July 1994. Though the defendant did not attend the office from February end, the plaintiff did not adjust the two months' leave (March and April 1994) against his leave eligibility and further allowed encashment of the entire leave of 120 days to his credit. The company also paid LFA of Rs. 14,000/- for the year 1994-95 in spite of his having resigned from the services. Besides, the gratuity amount due to him bad also been paid on 15th July, 1994. The above facts show that the plaintiff, in spite of being aware of the activities of the defendant, had not thought it to be against its interest till July 15th, by which time, the swaging machine had been taken delivery by the defendant. Having realised that there is a tremendous potential for TIG welded frames and forks and the market for conventional brazed frames and forks is on a rapid decline and also that the export of MIG welded cycles is likely to substantially come down in the near future, the plaintiff wants to enter manufacturing of TIG welded frames and forks on its own. It has therefore, with malicious intent framed fictitious charges against the defendant to ensure that his time and energy are spent in fighting the plaintiff and he would be ultimately discouraged from going through with the venture. 12. The suit has to fail on the legal grounds that there is no contract of service between the plaintiff and the defendant as set out in paragraph 6 of the plaint and the plaintiff has deliberately misled the Court by projecting that there were terms and conditions stipulated by the plaintiff. Secondly, when the plaintiff appointed the defendant, the order of appointment did not have any terms and conditions attached and there is no valid and binding contract. Thirdly, in any event, the conditions are illegal and void on account of being unreasonable contract in restraint of trade and being against public policy and, therefore, unenforceable. 13. The various averments in the affidavit filed on behalf of the plaintiff are specifically denied by the defendant. It is stated that the defendant was not sent to any foreign country at any point of time to learn anything new but only to protect and promote the interests of the company abroad. In paragraph 26 of the affidavit, the defendant has stated that he had no doubt come to learn about the manufacturing process of the cycles and in his capacity as an employee of the company had been in touch with the foreign customers of the plaintiff, but that does not vest any right with the plaintiff empowering it to stop his using the said experience for ever. In paragraph 28 it is stated that there is no wing called Technical Research Quality Development Centre with the plaintiff. But, there is a Research and Development Department of Tube Products of India, which is another division of the plaintiff company and the plaintiff has no development wing as claimed by it. There was no secret or confidential information about the three machines set out in the plaint. Actually, the swaging machine is available all over India and there are at least two companies in Madras alone who are selling those machines. The defendant could have easily purchased the same from them and only because the plaintiff had encouraged the defendant openly to start a unit, the defendant purchased the same from one of the sub-contractors of the plaintiff. The plaintiff cannot claim any originality as the drawings are only copied by studying the imported machines and handed over to the manufacturers. Similarly, the

drawings of other machines are also on a study of the imported machines. 14. The averment that the defendant had taken the drawings from one S.K. Subramanian, Manager, is false. The averments in paragraph 16 of the plaint are contrary to the averments in paragraph 17. That itself would show the false nature thereof. The averments in para 18 are contrary to the averments in para 15 of the plaint. The allegation that the defendant had misrepresented the facts to the sub-contractors is absolutely false. The defendant had used only the letter-head of M/s. Frames Specialized and there were no representations that the machines were required for an associate company of the plaintiff. The sub-contractors are fully aware that the orders were not placed by the defendant on behalf of the plaintiff company. The allegation that the defendant forcibly took possession of the dooming machine and fork blade bending machine from the sub-contractor is absolutely false. They had been delivered to the defendant under delivery challan. The averments in the plaint are only part of a concocted story. The plaintiff cannot get any relief on the basis of vague and ambiguous averments contained in the plaint. The plaintiff has no right to claim damage. The plaint does not disclose whether the plaintiff had suffered any damage. All the customers and other dealers of the plaintiff are fully aware that the defendant has quit the company and started on his own. The balance of convenience is entirely in favour of the defendant. He has already borrowed on a high rate of interest and spent a sum of nearly Rs. 40 lakhs for establishing the concern. It was started only with the blessings of the plaintiff company and just because the plaintiff wants to enter the said business, it is trying to check the defendant's efforts. The defendant has employed 30 workmen whom he has to retain without any job on account of the interim injunction. On the other hand, if the plaintiff succeeds in the suit, it can claim damages. On account of the injunction, the defendant is put to severe monetary loss and hardship which are irreparable. 15. A common counter affidavit was filed on behalf of the plaintiff in the applications filed by the defendant. The averments contained therein are only in reiteration of what was stated earlier in the plaint and the affidavit filed in support of the applications. It is stated therein that the defendant was in service of the plaintiff till 30th April, 1994 and he was relieved only on the close of the working hours on that date, though his resignation was accepted in principle earlier. From 18-2-1994 to 30-4-1994 the defendant was in the service of the plaintiff handing over charge to his successor Mr. T.R. Venkatesh, G.M. (Marketing), who got himself acquainted with the work of G.M. (O) from the defendant. It is also stated that the swaging and other machines were imported by the plaintiff at a huge cost and dismantled part by part. The entire team of the plaintiff in the T.I. Cycle Unit, Design and Development Department, consisting of several bright Engineers worked for several months on the machine and produced the drawings and specifications of the machine to suit the manufacturing process of the plaintiff. This involved complete team work of the whole Design and Development Department with the assistance and guidance of various senior executives of other departments of the plaintiff. Thus, the drawings and the specifications created by the team of the plaintiff and engineers of the plaintiff regarding the machines, exclusively belong to the plaintiff. These machines are not freely available in the market and the drawings and specifications of the machines are secret and confidential and exclusive to the plaintiff. It is further stated that the averment that the plaintiff does not manufacture TIG welded frames and forks is false. The plaintiff company is already in the advanced stage and process of the manufacture, sale and export of TIG welded frames. Even when the defendant was in service, the plaintiff purchased certain machineries for the purpose of manufacturing TIG welded frames and forks and the defendant was well aware of the affairs. The plaintiff sent several skilled workers to BHEL, Trichy and Engineers abroad for training in 110 welding process when the defendant was in service. In fact, the plaintiff has already manufactured and exported TIG welded frames and forks. The manufacture started from March 1994. The defendant was sent abroad while in service to deal with the customers on behalf of the plaintiff and he is now trying to exploit what he gained at that time. It is illegal and against the contract. The plaintiff has strong business dealings with those customers. The balance of convenience is in favour of the plaintiff. It will be against the public interest if the plaintiff suffers loss of reputation which it has maintained on international standard for over forty years. If the interest of the plaintiff is affected adversely, 6300 employees of the plaintiff and 18.350 shareholders will also be adversely affected. If by chance the defendant succeeds in the suit, the plaintiff is prepared to compensate him for all the loss and damage that he might suffer. 16. The learned Judge rejected the contentions of the defendant and made the interim injunction already granted absolute. Thus, he allowed O.A. Nos. 882 to 885 of 1994 filed by the plaintiff and dismissed Application Nos. 5866 to 5869 of 1994 filed by the defendant. The learned Judge has mainly

relied upon the report of the Advocate-Commissioner who had inspected the defendant's premises. According to the said report, the defendant had started establishing the factory. But, the Commissioner did not find any activity and any workman There were only security men and the fixing of machinery and electrical fittings was going on Secondly, the learned Judge held that the Supreme Court laid down the entire law on the subject of restraint of trade in Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd. (MANU/SC/0364/1967 : AIR 1967 SC 1098) and mat the restraint on trade is reasonable and necessary to protect the interests of the plaintiff and, therefore, not violative of Section 27 of the Contract Act. After referring to the judgment in Superintendence Co. of India (P) Ltd. v. Krishan Murgai (MANU/SC/0457/1980 : AIR 1980 SC 1717), the learned Judge said that the view expressed by A.P. Sen, J. ran counter to the rule laid down in the earlier case and, therefore, the earlier decision would prevail over the later and the earlier rule is applicable to the present case. As regards the three machines claimed by the plaintiff, and the secret or confidential information relating to the same, the learned Judge held that he was of the prima facie view that the allegations of the defendant were not true and that the plaintiff had a legal right to make the claim. The learned Judge also held that the balance of convenience was in favour of the plaintiff. 17. Normally, in an appeal against an interlocutory order, the appellate Bench will be slow to interfere with the discretion exercised by the learned single judge of the High Court. The question of granting temporary injunction is within the judicial discretion of the trial judge and if it had been reasonably exercised, the appellate Court will not interfere. But, in a case where it appears that the fundamental condition for the grant of injunction viz., a prima facie case is not fulfilled and if the appreciation of the facts of the case made by the learned special judge is based on an erroneous view of the law, the appellate Court has necessarily to correct the same. In this case, the learned judge has started with an erroneous premise that the rulings of the Supreme Court in "Niranjan Shankar Golikari" (MANU/SC/0364/1967 : AIR 1967 SC 1098) and "Superintendence Company of India (P) Ltd." (MANU/SC/0457/1980 : AIR 1980 SC 1717 : 91 L.W.17(S.C.)(S.N.)) are contradictory to each other and that the earlier judgment having been rendered by two learned Judges while in the later judgment, though rendered by three learned Judges, the relevant question has been considered only by one of them and the other two not having expressed any opinion, the earlier ruling will prevail. Secondly, the learned judge has not referred to any relevant material excepting the report of the Advocate-Commissioner on the basis of which he has expressed his prima facie view on the question of fact. In all the relevant paragraphs of his judgment, he has only referred to the arguments of counsel on both sides and at the end expressed his prima facie view. The learned judge has also overlooked that the relevant issues between the parties are highly contentious and it would require volume of evidence, both oral and documentary, for the parties to establish their respective cases and that it is not a matter which can be decided merely on the averments in the plaint or the affidavits. Hence, we find it necessary to consider all the materials available on record and give our own findings. 18. Before discussing the facts of the case in detail, we would like to briefly state the law on the subject. Section 27 of the Contract Act provides that "every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void". The Section is absolute in its terms and admits of only one exception as at present, though when it was enacted there were three exceptions. The only exception now continuing on the statute book is that "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 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". A reading of the main Section and the exception places beyond doubt that there is only one exception to the rule as it stands now and that exception can come into play only in the case of a goodwill and the like business being carried on by the purchaser. In such a case, the Court has to find out whether the limits imposed by the agreement are reasonable, having regard to the nature of the business. The Section does not make a distinction between a partial restraint and an absolute restraint. The significance thereof is brought out by the language of Section 28, which deals with agreements in restraint of legal proceedings. In that Section, the restraint is void only if it is absolute. The section uses the word "absolutely". 19. The Contract Act was passed in 1872. In 1877, the Specific Relief Act was passed. Section 57 of the Specific Relief Act enables the Court to grant an injunction to perform a negative agreement, where a contract comprises an affirmative agreement to do a certain act coupled with a negative agreement, express or implied, not to do a certain act, even though the Court is unable to compel specific performance of the affirmative agreement. That Act was repealed and replaced by the Specific Relief Act, 1963. Section 42 is the corresponding Section in the new Act. Section 27 of the Contract Act

is taken almost word for word from Section 833 of the New York draft Code. The law in England, which was generally followed before the codification of the law in India and also in matters not covered by the enactment, has been thus summarised:-

"(1) The fundamental principle is that every restraint whether partial or general is contrary to public policy and is prima facie void. (2) This presumption of invalidity is rebutted by a proof of the restraint being reasonable. (3) The restraint must be reasonable in the interests of both contracting parties and also in the interests of the public. The onus of proving reasonableness lies upon the covenantee. But the onus of proving that the contract tends to injure the public lies upon the covenantor.

(4) The restraint to be reasonable must not be more than what is reasonably necessary to protect the covenantee's interest. (5) Existence of proprietary interest necessary for protection of the covenantee has to be proved and it must be shown to the satisfaction of the court that the restraint as regards its area and time of operation and the trades against which it is directed, is not excessive. (6) Whether restraint is reasonable or not is a question for the Court to decide." (Vide: Pollock & Mulla on "Indian Contract and Specific Relief Acts", 9th Edn., 272 & 273.)
20. In Sutton and Shannon on "Contracts", 7th Edn., it is pointed out in pages 294 and 295 that special considerations are taken into account in the case of contracts between master and servant. It is said that the use of more general technical knowledge, acquired in the course of employment, must be carefully distinguished from confidential information and it is not a valid interest which the employer can claim to protect by a restraining covenant. The case referred to in the foot-note for that proposition is Commercial Plastics, Ltd. v. Vincent (1964) 3 All E.R. 546). 21. In "Cheshire and Fifoot's Law of Contract", 10th Edition, at page 360, it is stated that a restraint imposed upon a servant is never reasonable, unless there is some proprietary interest owned by the master which requires protection and the only matters in respect to which he could be said to possess such an interest are his trade secrets, if any, and his business connection. It is also pointed out that the employer must prove definitely that the servant has acquired substantial knowledge of some secret process or modes of manufacture used in the course of his business. At page 361, while stating that the employer is also entitled to protect his trade connexion, i.e., to prevent his customers from being enticed away from him by a servant who was formerly in his employ, pointed out the difficulty to specify the kind of business or the class of servant in respect to which this protection is legitimate. The following test proposed by Romer L.J. in Gifford Motor Co. v. Hornse ((1933) Ch. 935) is quoted:-

"It is in my opinion established that when an employee is being offered employment which will probably result in his coming into direct contact with his employer's customers, or which will enable him to obtain knowledge of the names of his employer's customers, then the covenant against solicitation is reasonably necessary for the protection of the employer."
The comment of the learned author is that the test would seem to be too wide. The author proceeds to state "This, however, is surely too sweeping, for most shop assistants come into direct contact with customers, and even where this is not so they frequently have access to lists of clients". The author referred to the case in Herbert Morris Ud. V. Saxelby ((1916) i AC 688) and the dictum of Lord Parker that before any restraint is justifiable, the servant must be one who will acquire, not merely knowledge of customers, but in addition influence over them and observed that it seems a reasonable and workable criterion. It is stated by the author that a restraint is not valid unless the nature of the employment is such that customers will either learn to rely upon the skill or judgment of the servant or will deal with him directly and personally to the virtual exclusion of the master, with the result that he

will probably gain their custom if he sets up business on his own account. 22. In Chitty on "'Contracts", 25th Edn. Volume I, paragraph 1105 at page 594 it is stated that the doctrine of restraint of trade has always been applied to covenants contained in contracts of employment and such covenants are viewed by the courts much more jealously than the other of the principal traditional categories of covenant to which the doctrine applies, namely, covenants between the vendor and purchaser of a business. At page 595 it is stated that it is for the employer who seeks to enforce such a covenant against an employee to show that it is reasonable in the interests of the parties and in particular that it is designed for the protection of some proprietary interest owned by the employer for which the restraint is reasonably necessary. Referring to Trade secrets and connection with customers', at pages 597 and 598, in paragraph 1108, the learned author has pointed out that the only reason for upholding the restraint on the part of the employee is that the employer has some proprietary right, whether in the nature of trade connection or in the nature of trade secrets, for the protection of which such a restraint is - having regard to the duties of the employee-reasonably necessary. 23. In Treitel's "Law of Contract", 8th Edition, the law is stated as follows at pages 404 and 405:-

"Unlike the purchaser of a business, an employer cannot protect himself by a covenant in restraint of trade against his former employee's competition as such. He cannot restrain the employee from using his own skill even though that skill was learnt from the employer. To establish that he has an interest meriting protection, the employer must show either that the employee has learnt the employer's trade secrets, or that he has acquired influence over the employer's clients or customers. Trade secrets include secret formulae or processes, and certain other similar kinds of highly confidential information (but not information which is merely confidential in the sense that the employee must not disclose it during employment). It used to be thought that "know-how" could not be protected but now that such expertise has become a saleable commodity, it is likely that the courts will recognise it as an interest meriting protection. In respect of clients or customers, the employer is entitled to protection only if the nature of the employment was such as to enable the employee to acquire influence over them e.g. where the employee was a solicitor's managing clerk, or a hairdresser's assistant, but not where he was a factory worker, who never came into contact with customers. It the employee comes into contact with some customers, the employer may be able to protect himself also in respect of some others."
24. We have already referred to the rulings in Herbert Morris Ltd. v. Saxelby ((1916) 3 AC 688) and Commercial Plastics Ltd. v. Vincent ((1964) A11 E.R. 546) cited in the textbooks. In the first of those cases, Lord Atkinson referred to the two principles or views of public policy, which came into conflict in cases relating to restraint to trade viz., freedom of trade and freedom of contract. It is observed that "while the community is vitally interested in trade being free, it is also vitally interested in people being free to contract and being held to their contracts." After referring to the case law on the subject, the resemblance between the case of sale of goodwill and the case of master and servant or employer and employee is referred to. It is stated that in all cases, one has to ask oneself what are the interests of the employer that are to be protected, and against what is he entitled to have them protected. After referring to the facts of the case and holding that the enticing away of customers was really out of question and the information contained in the confidential documents was so detailed and minute that it would be impossible for any employee to carry it away in his head, the learned Judge pointed out that the respondent cannot, however, get rid of the impressions left upon his mind by his experience on the appellants' works and they are part of himself and he violates no obligation express or implied arising from the relation in which he stood to the appellants by using in the service of some persons other than them the general knowledge he had acquired of their scheme of organisation and methods of business. The following passage from the judgment of Farwell LJ. in Sir W.C. Leng & Co. v. Andrews ((1909) 1 Ch. 763) is quoted: -

" The argument which has been addressed to us on behalf of the respondents does not bring the case within that doctrine. That doctrine does not mean mat an employer can prevent his employee from using the skill and knowledge in his trade or profession which he has learnt in the course of his employment by means of directions or instructions from the employer. That

information and that additional skill he is entitled to use for the benefit of himself and the benefit of the pubic who gain the advantage of his having had such admirable instruction. The case in which the Court interferes for the purpose of protection is where use is made not of the skill which the man may have acquired, but of the secrets of the trade or profession which he had no right to reveal to any one elsematters which depend to some extent on good faith. A good deal has been said about organisation. The evidence is singularly scanty in regard to details upon the exact meaning of that word in the present case; but I apprehend that a man who goes into an office is entitled to make use in any other office, whether his own or that of another employer, of the knowledge which he has acquired, in the former of details of office organization, such as the establishment of one department with a chief or head and grades of subordinates under him, the desirability of establishing local centres of information in various towns and villages round about Sheffield, and the like. To acquire the knowledge of the reasonable mode of general organization and management of a business of this kind, and to make use of such knowledge cannot be regarded as a breach of confidence in revealing anything acquired by reason of a person having been in any particular service, although the person may have learnt it in the course of being taught in his trade; but it would be a breach of confidence to reveal trade secrets, such as prices, (c)., or any secret process or things of a nature which the man was not entitled to reveal."
And then the learned Judge said that the agreement, binding for a period of seven years and applying to the whole of the three kingdoms, is not, having regard to all the circumstances of the case, reasonable in reference to the respective interests off the parties concerned, and is prejudicial to the interests of the public. Lord Paker of Waddington in his concurring judgment said that all that the employee could carry away was the general method and character of the scheme of organization practised by the plaintiff-company and such scheme and method can hardly be regarded as a trade secret. 25. In the second case, viz., Commercial Plastics, Ltd. v. Vincent ((1964) 3 ALL E.R. 546), the restriction was held to be void since it went beyond what was reasonably necessary for the protection of the plaintiffs legitimate interests, (i) having no geographical limitation, the restriction was clearly world-wide, and the competitors to whom it referred were competitors at the time when the defendant's employment terminated, but there was no evidence that the plaintiffs needed a potentially world-wide restriction and (ii) the protection conferred by the restriction would extend to the whole P.V.C calendering field, but the plaintiffs required protection only for trade secrets or confidential information relating to the production of sheeting for adhesive tape. The Court of Appeal rejected the argument that the provision may be construed as containing two clauses and the offending portion can be set aside and the remaining portion can be held to be valid. 26. In Faccenda Chicken Ltd. v. Fowler ((1986) 1 ALL ER 617), the Court of Appeal held that the duty of fidelity owed by an employee to a former employer was not as great as the duty implied in the employee's contract of employment and owed during the subsistence of the employment, when use or disclosure of confidential information, even though it did not amount to a trade secret, would be a breach of the duty of good faith and accordingly, confidential information concerning an employer's business acquired by an employee in the course of his service could be used by the employee after his employment had ceased unless the information was classed as a trade secret or was so confidential that it required the same protection as a trade secret. The Court also held that in order to determine whether information was a trade secret or equivalent to a trade secret, it was necessary to have regard to (a) the nature of the employment, for example whether the status of the employee was such that he regularly handled confidential information and recognised it as such or whether the information was only handled by a restricted number of employees, (b) the nature of the information itself, (c) whether the employer had stressed the confidentiality of the information to the employee and (d) whether the relevant information could easily be isolated from other non-confidential information which was part of the same package of information. 27. Turning to the Indian case law on the subject, in Oakes & Company v. Jackson and another (I.L.R. I Mad 134), this Court held that the agreement, even if valid by the taw of England, could not be enforced in India, inasmuch as its object was to contravene Section 27 of the Contract Act. It was also held that the covenant would have been void even by the law of England because the limit of the

restriction was unreasonable. 28. In The Brahmaputra Tea Co. Ltd. v. E. Scarth (I.L.R. 11 Cal 545), a Division Bench of the Calcutta High Court held that a contract under which a person is partially restrained from competing, after the term of his engagement is over, with his former employer, is bad under Section 27 of the Contract Act. 29. In Pragji Soorji v. Pranjiwan Tooljaram (5 Bombay Law Reporter 878), the Bombay High Court held that Section 57 of the Specific Relief Act, 1877 and Section 27 of the Contract Act impose restrictions only during the period of affirmative agreement for service and after the expiry of that period, the negative agreement could form no part of a contract to exercise the business or trade and would then be void as agreements purporting to do nothing else than restrain. Reliance was placed on Oakes & Co. v. Jackson (I.L.R. 1 Mad 134) and The Brahmaputra Tea Co. v. Scarth (I.L.R. 11 Cal 545). 30. In Burn & Co. v. McDonald (I.L.R. 36 Cal 354), a Bench comprising three Judges held that where the law had been codified, it is of little avail to enquire what is the law apart from such codification and the Code itself must be looked to as the guide in the matter. The Bench referred to Section 57 of the Specific Relief Act and Section 74 of the Contract Act. 31. In Shree Gopal Paper Mills Ltd. v. Surendra K. Ganeshdas Malhotra (MANU/WB/0016/1962 : AIR 1962 Cal 61), the law is summarised thus:-

"The validity of a restraint of trade has to be tested. The tests are two-fold. First, what is the restraint directed against? Secondly, is the restraint justified? A covenant of restraint is designed to protect the legitimate proprietary interests of the covenantee. In no case will the law allow a covenant merely to avoid competition. Nor will law allow a restraint wider than the protection of the proprietary interests required. In master and servant contracts restraint can be imposed upon a servant in respect of trade secrets and business connection of the master. The employer must prove definitely that the servant has acquired substantial knowledge of some secret process or mode of manufacture used in the course of his business. In our country the restriction beyond the period of employment would not, however, be valid. Similarly, an employer is entitled to protect his trade connection. The nature of the business and the nature of the employment are important considerations justifying a restraint. It may appear that the servant had no access to the trade secrets of his master or to his customers. In that case, the covenant is in gross and unenforceable. In all cases of covenants of restraint between master and servant the two questions are first what are the interests of the employer that are to be protected and secondly, against what is he entitled to have them protected. The master is entitled to be protected in regard to his interests in trade secrets and secret process of manufacture. That protection is secured by restraining the employee from divulging those trade secrets or putting me to the use of the servant. The master is also entitled to be protected against invasion of his customers or clientele but the master is not entitled to be protected against competition."
32. The terms of Section 27 of the Contract Act came up for consideration before the Supreme Court in Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co, Ltd. (MANU/SC/0364/1967: AIR 1967 SC 1098). The appellant was offered the post of Shift Supervisor in Tyre cord division of the respondent-company by its letter dated March 1, 1963. On March 5, 1963 he accepted the offer and on March 16, 1963 he joined the Company and executed the contract of service in the standard form for a term of five years. Clause 6 related to the period of his employment. Clause 17 provided that in the event of his leaving, abandoning or resigning the service in breach of the terms of the agreement of service before the expiry 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 then 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 his training. He received training from March to December 1963 and acquired knowledge of the technique, processes and the machinery as also certain documents which were to be kept secret and in respect of which the company had undertaken to obtain, secrecy undertakings from its employees. The appellant remained absent from 6th to 9th October, 1964 without obtaining leave therefor. On the 10th October, he took casual leave and on October 12, he applied for 28 days' privilege leave from October 14, 1964. Before that was granted, he absented himself from October 14th to 31st. On October 31, he was offered salary for nine days that he had worked during that

month. On November 7, 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 resignation had not been accepted. On November 28, 1964, he replied that he had already obtained another employment. Thereupon, the company filed a suit claiming inter alia an injunction restraining him from serving in any capacity whatsoever or being associated with any person, firm or company including the concern which he had joined. The company also claimed damages as per Clause 17 of the 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. After trial, the Court held that the company had established that the appellant had availed himself of the training imparted in relation to the manufacture of tyre cord, the yarn, the operation of the spinning machines and that he was made familiar with their know-how, secrets, techniques and information and that his duties were not merely to supervise labour or to report deviation of temperature as alleged by him. The agreement was held to be valid and enforceable and it was held that he committed breach of the said agreement. Consequently, the trial Court granted a decree restraining the appellant 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 any part of India for the term ending 15th March, 1968. He was further restrained from divulging any of the secrets etc., obtained by him in the course of and as a result of his employment with the company. His plea that the contract was vitiated by undue influence and coercion was found against. On appeal in the High Court that plea was given up. The High Court agreed with the trial Court on the other matters and dismissed the appeal. On further appeal, the Supreme Court confirmed the judgments of the Courts below. While discussing the law on the subject, the Supreme Court referred to the English law and said that restraints, whether general or partial, may he good, if they are reasonable and a restraint upon freedom of contract must be shown to be reasonably necessary he purpose of freedom of trade. The Court pointed out that a distinction has been maintained between restraints applicable during the term of the contract of employment and those that apply after its cessation. Again it referred to the English law on the subject and referred to an observation of Lindley M.R. in William Robinson & Co. Ltd v. Heuer (1898-2 Ch.451) that the relevant clause in the contract considered in that case was confined to the period of the engagement, and meant simply that so long as a person was in employment, he shall not work for anybody else or engage in any other business and, therefore, according to him, there was nothing unreasonable in such an agreement. Referring to the Indian case law, the Court said that a similar distinction has been drawn by Courts in India and 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. Reference is made to The Brahmaputra Tea Co. Ltd. Case [(1885) ILR 11 Cal 545] and other cases. After referring to Gopal Paper Mills case (MANU/WB/0016/1962 : AIR 1962 Cal 61), the Court said:-

"(15) 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 be 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., 1927 WN 233 (supra). Both the Trial Court and the High Court have found, and in our view, rightly, that the negative covenant in the present case restricted as it is to the period of employment and to work similar or substantially similar to the one carried on by the appellant when he was in the employ of the respondent company was reasonable and necessary for the protection of the 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."
33. The learned single judge in the judgment under appeal has taken the view that the above ruling of

the Supreme Court is exhaustive on the subject relating to restraint on the trade. With respect, we are unable to agree. It is very clear from a reading of the judgment that the Court dealt with only a case of restraint during the period of contract. The applicability of the judgment to a case in which the question arises after the expiry of the contract was considered in Krishan Murgai v Superintendence Co. of India (AIR 1979 Delhi 232). A Division Bench of the Delhi High Court held that Section 27 of the Contract Act is in absolute terms and it is subjected only to the exception found in the Section. The Bench also held that the Act is exhaustive as far as it goes and cannot be controlled by the English decisions based on common law. After referring to the case law on the subject, the Bench observed that any restraint imposed by the employer on the employee would prima facie be illegal and void as being directly hit by Section 27 of, the Contract Act, if it is to operate after the expiry of service contract. It is to be noted that the Bench was considering an appeal against an interlocutory order. The trial Judge granted temporary injunction pending the suit and the Bench reversed the same on appeal. After holding that the English decisions which relate to exceptions to the rule against restraint of trade which go beyond the exceptions in the Indian statute are not relevant and applicable to the construction of the Indian Contract Act, the Bench considered the position under the English law also and pointed out that only three grounds as justifying restraints placed on the freedom of an employee to carry on business similar to that of the employer after the termination of the employment on the ground that such restraint is reasonable have been upheld by the English decisions. They were set out as follows:-

"(1) Protection of a proprietary or quasi-proprietary or commercial interest of the employer. (2) Protection of the trade secrets of the employer; and (3) Protection of the trade connection of the employer."

As regards the meaning of 'interest, the Bench held that interest to be enforceable must be based on common law, some previous contract other than the impugned one or a statute. As regards the trade secret, the Bench held that it was the duty of the plaintiff to have disclosed the relevant facts in the pleadings to show that any trade secret as such was imparted to the employee by the employer. With reference to trade connections, the Bench said that it is necessary for the employer to show that during the employment, the employee had acquired influence over the employer's clients or customers. Ultimately, the Bench said:-

"(21). If the law applicable to the facts of the present case set above is correct at, men the view of law taken in the order under appeal does not, with respect, seem to be in accordance with it. This will be apparent by the perusal of the following extracts from the order: 1. "Under the S. 27 of the Contract Act to determine whether the agreement is void, one has to determine whether the restraint is reasonable. If the restraint is reasonable the agreement will not be void. The negative covenant has been enforced from time to time. Injunctions are granted under Section 42 of the Specific Relief Act, 1963 to enforce negative agreement, express or implied". With respect, all post-service restrictive covenants are prima facie void. The only exceptions are those given in the statute or those developed by the English case law stated above. 2. "It is well known that if the covenant is unreasonable the same is void and unenforceable. In case the covenant is reasonable the same can be enforced...: In case before the Supreme Court (Niranjan Shankar Gotikari. v. Century Spinning & Manufacturing Co. Ltd. AIR 1967 SC 1908), the injunction was issued on the ground that it was restricted as to the time, the nature of employment and as to area and cannot, therefore, be said to be too wide or unreasonable or unnecessary". (22). With respect, it may be pointed out that the injunction upheld in the Supreme Court case related to the negative covenant operating during the period of service. The Court has repeatedly emphasised mat Section 27 does not apply to a negative covenant operating during the period of service. The Supreme Court has not upheld in that case any restrictive covenant which prevented the employee from carrying on a similar

business or working with a rival employer after the period of service was confined to the divulgence of trade secrets only."
34. It was that judgment of the Delhi High Court which was challenged on appeal before the Supreme Court in Superintendence Co. of India v. Krishan Murgai (MANU/SC/0457/1980 : AIR 1980 SC 1717 : 91 L.W.17(SC)(SN)). The Bench comprised three learned Judges. Justice Tulzapurkar wrote a judgment of himself and on behalf of Untwalia, J., while A.P. Sen, J. wrote a separate judgment concurring with the judgment of the other two learned Judges. In the judgment of Tulzapurkar, J. the two questions which arose for consideration were: "(a) whether a post-service restrictive covenant in restraint of trade as contained in clause (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?" The learned Judges took the view that the appeal was capable of being disposed of on the second question and thought it unnecessary to decide or empress their opinion on the first question which was "hotly and ably debated at the bar by counsel on either side". The judgment, however, referred briefly to the arguments advanced by both sides. In the judgment of A.P. Sen, J. he observed that the appeal cannot be decided without deciding the first question referred to earlier. In that view, he proceeded to refer to the case law on the subject including the judgment of the Supreme Court in Niranjan Shankar Golikari's case (MANU/SC/0364/1967 : AIR 1967 SC 1098). The learned Judge said:"(23). The decision in Niranjan Shankar Golikari's case (MANU/SC/0364/1967 : AIR 1967

SC 1098) (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.'' It is worth extracting the following passages in that judgment, which are very relevant for this case:-

"25. While the Contract Act, 1872, does not profess to be a complete code dealing with the law relating to contracts, we emphasize 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 hore 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 Hm. 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 analogous 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 restraint of trade. xxxxx (28). 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 27to suggest mat 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 facts fall within the exception to the section. xxxxx (32). The agreement in question is not a 'goodwill of business' type of contract and, therefore, does not fall within the exception, of 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. xxxxxxxxx

(34). 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." xxxxx (35). 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. xxxxx (48). Referring to the judgment of Sir Richard Couch in Madhub Chunder Rajcoomar Doss, [(1874) 14 Beng LR 76] (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 v Reynolds, [(1711) 1 P Wi181] (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. (49). In Shaikh Kalu v. Ram Saran Bhagat, (1908) 13 Cal WN 388 Mookerjee and Carnduff, JJ., referred to the history of the legislation 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 Chunder v. Raj Coomer Doss, (supra), is plainly justified by the language used, and that the section had abolished the distinction between partial and total restraints of trade and said: "The result is that the rule as embodied in Section 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 Section 27, in its original form, though other provisions of the Contract Act have from time to time been amended. The inference 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 he pronounced to be void." (Emphasis supplied)." xxxxx (52). Neither the test of reasonableness nor the principle that the restraint being partial was reasonable is 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. (53). 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."
Thus, the learned Judge held that no injunction can be granted against an employee after the termination of his employment restraining him from carrying on a competitive trade. After laying down the law thus, the learned Judge proceeded to consider the second question as formulated and referred to earlier. Thus, all the three learned Judges held that the judgment of the Delhi Bench was correct and dismissed the appeal. The judgment of A. P. Sen, J. was not one of dissent. It is a case in which two learned Judges of the Bench did not deal with the question, while the third learned Judge dealt with it and also declared the law. The dictum of A.P. Sen, J. is undoubtedly the law declared by the Supreme Court, as contemplated by Article 141 of the Constitution of India and it shall be binding on all courts within the territory of India. There is no escape from that conclusion. Unfortunately, the learned single Judge has erroneously thought that the judgment of A.P. Sen, J. runs counter to the judgment of the two learned Judges in Niranjan Shankar Golikari's case (MANU/SC/0364/1967 : AIR 1967 SC 1098) and, therefore, the earlier one would prevail. In feet, there is no conflict between the two judgments and it has been clearly laid down in the later judgment that the decision in the earlier case is not applicable to a case in which a situation has arisen after the expiry of contract of service between the employer and the employee. It is not open to the High Court to consider whether A.P. Sen, J. was right in distinguishing the earlier ruling and holding it to be inapplicable to a case arising after the expiry of the contract of service. The law as laid down by him on an interpretation of the earlier judgment is binding on the High Court. 35. In Mohendra Bhawanji Thakar v. S.P. Pande (MANU/MH/0035/1964 : AIR 1964 Bom 170), a Division Bench of that Court has held that "the law declared" referred to in Article 141 of the Constitution of India is the law to be gathered from any judgment in a case decided by the Supreme Court, whether it is the judgment of a Judge forming the majority or of a Judge in a minority and dissenting. The Bench had to con sider the effect of the judgment of the Supreme Court in S.G. Prashar v. Vasantsen Dwarkadas (MANU/SC/0203/1962 : AIR 1963 SC 1356). One of the learned Judges held that the second proviso to Section 34(3) of the Income-tax Act, 1922 was unconstitutional . The argument before the Division Bench was that only one learned Judge had expressed that view and the other learned Judges not having dealt with that point, it could not be considered to be the law laid down by the Supreme Court. That argument was rejected by the Division Bench. In that connection, the Bench said:-

"(23) We do not think that we can accede to the contention of Mr. Natu having regard to the provisions of Article145(5) read with Article 141 of the Constitution. Article 141 says that "The law declared by the Supreme Court shall be binding on all courts within the territory of India". It is the law declared by the Supreme Court that binds this Court and not the judgments. This is made clearer when we consider Article 145(5). In Article 145(5) the words used are, "No judgment and no such opinion shall be delivered by the Supreme Court save with the concurrence of a majority of the Judges present at the hearing of the case, but nothing in this clauses shall be deemed to prevent a Judge who does, not concur from delivering a dissenting judgment or opinion." It is clear from Article 145(5) that a judgment delivered by the Supreme Court is the one delivered by a majority of the Judges where there is a difference of opinion, but in that case the Judge who does not concur also delivers a judgment albeit a dissenting judgment. Article 145(5) therefore uses the word 'judgment' both with regard to the Final pronouncement of the Court itself as well as for the dissenting pronouncement of an individual Judge who does not concur. There does not appear to be any warrant for reading the provision of Article 145(5) into the provisions of Article 141, and we do not think that the "law declared" can be approximated to the judgment delivered by the Supreme Court. On the other hand, having regard to the provisions of Article 145(5) that

a Judge who does not concur may also deliver a judgment, it is clear that the law declared may as well be in a dissenting judgment as in a majority judgment. The argument, therefore, that the three Judges whose decision resulted in the allowing of the appeal in Purshottam's case did not form a majority of those holding that Article 14 applied to the second proviso to S. 34(3) does not make that the law declared. On the other hand, as we have already shown three Judges out of the five who decided Civil Appeal No. 705 of 57: (MANU/SC/0203/1962 : AIR 1963 SC 1356) had clearly agreed that Article 14 applied and the proviso was ultra vires and we think that for the purposes of this Court that was "the law declared by the Supreme Court". We hold that "the law declared" referred to in Article 141 is the law to be gathered from any judgment in a case decided by the Supreme Court, whether it is the judgment of a Judge forming the majority or of a Judge in a minority and dissenting. The contention must, therefore, be negatived."
36. A similar question arose in Prem Prakash Gupta v. Union of India (MANU/UP/0131/1977 : AIR 1977 All 482). The learned Judge referred to the judgment of the Supreme Court in State of Seraikella v. Uinon of India 9AIR 1951 SC 255) in which the majority did not express any opinion on the question of maintainability of a suit without a notice under Section 80 of the Code of Civil Procedure against the Dominion of India and the Province of Bihar by a Ruler of an Orissa State filed in the Federal Court of India on 16th January, 1950. While the majority of the Judges did not express any opinion, Mahajan, J. examined the issue and answered it in the negative. That dictum was held to be binding by the learned Judge of the Allahabad High Court. 37. With respect, we agree with the reasoning of the Bombay High Court and Allahabad High Court in the above two cases and adopt the same. Thus, the ratio in the judgment of A.P. Sen, J. in Superintendence Co. of India v. krishan Murgai (MANU/SC/0457/1980 : AIR 1980 SC 1717 : 91 L.W. 17 (SC)(SN)) is binding on this Court and a contract containing a restriction of trade is not enforceable after the expiry of the contract of service. 38. On the facts of the case, there is a dispute whether there is a contract between the plaintiff and the defendant setting out the terms and conditions of service. According to the defendant, he has not signed any such contract while according to the plaintiff, there was a tripartite agreement to which the plaintiff and the defendant were parties in addition to TI & M. Ltd., which was the former employer of the defendant. Significantly, the relevant statement in the plaint relating to the employment of the defendant is admittedly not correct. In paragraph 6 it is stated that on 25-11-1982, the defendant was employed by the plaintiff in their management staff cadre and that as per the order of appointment dated 25-11-1982, a copy of which was duly accepted and signed by the defendant on January 2, 1983, he undertook to be governed by the terms and conditions of services as may be in force from time to time. Admittedly, the defendant did not enter the service of the plaintiff in November, 1982. The defendant became a Management Trainee on 2-5-1982 under TI & M Limited, which in law is a different entity and a different legal person and cannot be considered to be the plaintiff. On 25-111982, he was confirmed as a Sales Officer. He continued to be in service of that company till 15-61984. The only explanation offered by learned counsel for the plaintiff is that he committed a mistake while drafting the plaint. For the present we intend to accept that explanation, without prejudice to the contentions of the defendant. Paragraph 6 sets out some of the relevant general service conditions of plaintiff company, which have already been extracted by us. The extract is not an exact reproduction of the clauses found in the general service conditions, which is now placed before us. There is no express reference in any part of the plaint to the tripartite agreement now relied on by the plaintiff. There is no need to point out that the contents of paragraph 8 are inconsistent with the contents of paragraph 6 of the plaint. While in para 6 it is stated that the defendant entered the service of the plaintiff in 1982, para 8 reads as if the defendant was earlier employed under TI & M. Limited and it had ceased to require his services. An implied reference is stated to have been made to the tripartite agreement in paragraph 8. 39. Whatever it may be, in the course of arguments before the learned trial Judge and also before us, reliance is placed on clauses 1 to 4 of the General Service Conditions of the plaintiff. It is stated by learned counsel that they are identical with the service conditions of TI & M. Limited in which the defendant was employed in the first instance. The learned single Judge has extracted fully the four clauses in paragraph 9 of his judgment. We do not think it necessary to repeat the process here. Clause (1) applies to the period of the contract of service as it contains the expression "so long as you

are in the service of the company". Hence, that clause has no application in this case. Clause (2) contains a similar expression and will not apply. Clause (3) refers to both periods, during and after the employment. That relates to divulgence or utilisation of any confidential information belonging to the company or any of its Associate Companies, which may have come to the knowledge of the defendant during his employment. Clause (4) relates to retention or making originals or copies of telegrams, letters, maps, reports etc., or other documents of whatever nature belonging to the Company or any of its Associate Companies or notes thereof and retention of samples of specimens in which the Company or any of its Associate Companies may be or may have been interested and which have come into possession of the defendant by reason of his employment. The defendant is bound, on the termination of his employment to deliver the same to the Company without being asked except so far as consent to retain them has been given to him by the company. As clauses (3) and (4) relate only to the information, documents etc., the injunction granted in O.A. No. 885 of 1994 restraining the defendant from doing competitive business as that of the plaintiff, viz., manufacture, sell, supply and export of bicycles and components is unsustainable in view of the position in law stated by us earlier. For the purpose of this conclusion, we are assuming that the contention of the plaintiff that the defendant is bound by the General Service Conditions is correct, without holding that the plaintiff has proved its case. In other words, even if the plaintiff's case is true, the defendant cannot be restrained by an injunction as granted by the learned Judge in O.A. No. 885 of 1994. 40. The next question to be considered is whether the plaintiff has made out a case for grant of injunction relating to the three machines described in the Schedule to O.A. No. 882 of 1994 and the drawings etc. therefore as prayed for in O.A. No. 884 of 1994. The three machines are stated to be swaging machine, dooming machine and Fork Blade Bending Machine. It is admitted in paragraph 15 of the plaint that there is no originality or patent with the plaintiff in relation to the said machines or their drawings. Admittedly, the machines were imported from foreign countries and on a study thereof, drawings were prepared by the Engineers of the plaintiff. The relevant portion in paragraph 15 of the plaint reads thus:-

(15). In the above process the plaintiff has developed a set of sub contractors for manufacturing and supplying exclusively to the plaintiff certain machineries and tools, especially manufactured as per the drawings supplied by the experts of the plaintiff from the Research and Development Section. One such machine is called swaging machine. Mr. S. C.S. Prabahakar and Mr. M. Shanmughanv Technical Experts employed by the plaintiff made drawings of this machine after thoroughly studying the earlier imported machine. Hundreds of working hours were spent by the senior Engineers and Draftsmen for making the drawings ready for the said machine. Lakhs of rupees were spent by the plaintiff for making the final drawings and a sample machine. There-afterwards, the plaintiff has been supplying copies of those drawings to its sub contractors (1) Mr. Shanmugham, Proprietor, S.R. Enterprises; and (2) his son S. Vijayaraghavan, Proprietor, Madras Machine Tool Equipments, both at Ambattur Industrial Estate, Madras 600 058.
Similar averments are found in the same paragraph with regard to the other two machines viz., Dooming Machine and Fork Blade Bending Machine. It is rightly pointed out by the defendant that there cannot be any confidentiality or secrecy with reference to the drawings pertaining to the machines and the plaintiff cannot claim any proprietary interest therein. It is the further case of the defendant that such machines are freely available in the market and the defendant placed orders with the sub contractors of the plaintiff only because the plaintiff was openly supporting the defendant in his venture. The question whether the plaintiff gave its blessings to the defendant before he ventured on a concern of his own, is to be decided only in the suit after evidence is recorded. For the present purpose, the defendant has produced some documents which are found in pages 79 to 126 of the typed set filed by him. Those documents show that the machines are available in the market and several concerns are dealing with the same. It is also evident therefrom that the swaging machine is used for different purposes and not merely for making components of bicycle. A swaging machine is not peculiar to cycle industry but it is used in a wide range of industrial processes. At page 117 of the typed set of papers filed by the defendant a User Reference List regarding the application for swaging process is found. It is seen therefrom that it is used for automotive components thermocouples, automotive components, forged tools, sports equipment, furniture, writing instruments, bicycle components, cylinders, street furniture such as lamp posts and lighting components and aerospace.

The plaintiff has not made out a prima facie case to show that it has an exclusive proprietary interest in the three machines referred to in the application. 41. The allegation of the plaintiff that the defendant placed orders with its sub-contractors making misrepresentations that they were required for the purpose of the plaintiff when he was functioning as General Manager (O) of the plaintiff, is not established prima facie. It is seen from the orders placed by the defendant that he had used only the letter papers of Frames Specialised, a new firm started by him. There is no indication whatever that it has any connection with the plaintiff company. Nor is there any representation that the orders were placed on behalf of the plaintiff company. Such documents are found in pages 49, 55, 57, 61, 63 and 65 of the typed set of papers filed by the defendant. On a comparison of the same with the purchase orders of the plaintiff at pages 87 and 149 of the typed set of papers filed by the plaintiff it is seen that there is a vast difference between the two types of purchase orders and there is no chance of anybody confusing with the orders placed by the defendant as that of the plaintiff. 42. The allegation of the plaintiff that some of the machines were forcibly taken by the defendant from the sub-contractors when he refused to deliver the same on coming to know that the defendant had made a misrepresentation is not established by the evidence at present on record. On the other hand, the defendant has produced before us the delivery :halan which is found at page 51 of his typed set of papers. It is clear therefrom that the machine was delivered to the defendant by adopting the normal procedure under delivery chalan dated 30-6-1994. 43. There is also considerable force in the contention of the defendant that the plaintiff has started manufacturing TIG welded frames and forks only for its internal purposes and not for purposes of sale and exports, inasmuch as the plaintiff has not produced even one invoice to show that it has been manufacturing the same through its sub-contractors for the purpose of export and sale. Admittedly, the manufacture of the same commenced only in March 1994 after the defendant tendered his resignation letter and the plaintiff accepted the same. No doubt, the acceptance took effect only on 304-1994, but the fact remains that the defendant's successor was nominated and he was directed to take over charge immediately as General Manager (O) and report to the Vice President. The Organisation Advice dated 17.2.1994 found at page 29 of the defendant's typed set of papers directs one P. Sridhar, Sr. Manager (MSR) to take over as Deputy General Manager (O) with immediate effect and be responsible for activities of Plant I, along with his responsibility as Change Manager for MSR and he was to report to GM(O). Another person by name M. Rathinavelu, Works Manager - TICI Plant II henceforth was to report to Mr. T.R. Venkatesh, General Manager (O), the successor to the defendant, Thus, the Organisation makes it clear that though the defendant was to be relieved at the close of work on 30th April, 1994, the duties of General Manager (O) were to be performed by his successor. In feet, the letter dated 18-2-1994 addressed to the defendant accepting his resignation contains the following:-

"You will be relieved at close of work on 30th April, 1994. Your dues, if any will be settled according to the rules as soon as we receive confirmation from the concerned Departments that your out-standings, if any, have been cleared, and any company property entrusted to you has been duly accounted for. Please let us have the address to which communication can be sent to you."
An inference can, therefore, be drawn that the de facto relieving of the defendant from service was with immediate effect whereas, he was relieved de jure at the close of work on 30th April, 1994. 44. There is no merit in the contention of the plaintiff that the defendant surreptitiously acquired the drawings relating to the machines from Mr. S. K. Subramanian and passed it on to sub-contractors. In fact, the averments relating to the same are not quite consistent. In paragraph 15 of the plaint, it is stated that the drawings were prepared and handed over to the sub-contractors of the plaintiff. In paragraph 16 it is averred that the defendant was having the custody and control of all the confidential and secret drawings, designs etc., by virtue of his position as General Manager. If that is true, there is no question of his collecting the drawings from Mr. S. K. Subramanian, Manager (Design and Development) as alleged in paragraph 17 of the plaint. The defendant is supposed to have taken those drawings on 17-2-1994. In the typed set of papers filed by the plaintiff, a document is found at page

99, which is supposed to be a note signed by Mr. S. K. Subramaniam. The contents read as if the drawings relating to the swaging machine were sent to G.M. (O) as instructed by him. The defendant has not signed the document and the genuineness, of the same is disputed by the defendant. When according to Organisation Advice the successor Mr. T.R. Venkatesh was to take charge with immediate effect as G.M.(O), there is no question of Mr. S. K. Subramanianm acting on the instruction of the defendant. At any rate; the plaintiff has to adduce more evidence to substantiate its case that the defendant had surreptitiously taken away the drawings by misusing his position as G.M.(O). 45. The learned single Judge has not given any finding that the drawings of the machines constitute confidential or secret information. As pointed out already, the drawings cannot be considered to be confidential or secret documents inasmuch as they are only copies prepared on the basis of the machines imported. Taking that admitted fact along with the fact that the machines are available freely in the market and at any rate manufactured by other concerns, it cannot be said that the plaintiff had made out a prima facie case of proprietary interest in the machines or in the drawings. Nor has the plaintiff made out that the drawings constituted confidential and secret information. 46. Reliance is placed on a letter dated 4-8-1994 produced by the plaintiff. The letter is supposed to have been written by Madras Machine Tools Equipments to the plaintiff. A perusal of the letter gives an impression that the letter has been brought into existence for the specific purpose of using in this suit. Without the author of the letter being produced for cross-examination, the letter cannot be accepted on its face value and put against the defendant for the purpose of granting relief in favour of the plaintiff in these applications. The learned single Judge is in error in relying on the said letter and holding that the defendant is guilty of making misrepresentation to the sub contractors of the plaintiff. 47. Learned counsel for the defendant has drawn our attention to paragraph 22 of the plaint in which the plaintiff has reserved its right to claim damages as and when necessary and ascertained. The claim for damages is with reference to the user of the three machines and the drawings, specifications etc., by the defendant as referred to in earlier paragraphs. Learned counsel submits that under Section 38 of the Specific Relief Act an injunction shall not be granted if compensation in money would afford adequate relief to the plaintiff. It is not necessary for us to consider that contention at this stage. For the present we hold that the plaintiff has not made out a prima facie case that it has proprietary interest in the machines and the drawings. Nor has the plaintiff made it clear as to what exactly are the trade secrets, which the defendant acquired while in service of the plaintiff. 48. The contention of the plaintiff's counsel that the defendant was given training in the manufacturing process and was acquainted with the trade secrets as G.M.(O) is not proved prima facie by any acceptable evidence. The defendant cannot certainly be prevented from using his own skill and knowledge derived during the course of his employment even if there had been some training during that period. What is required to be proved is that certain trade secrets were as such imparted to the defendant while he was in employment. There is no evidence at present in support of the same. As stated earlier, the discussion on this aspect of the matter in the judgment of the learned single Judge merely refers to the arguments of both sides and at the end the finding is given as to the prima facie conclusion of the learned Judge. The relevant materials on record on which the learned Judge is supposed to have relied are not referred to. Apart from the plaint and the affidavits, the learned Judge has made reference only to the letter dated 4-8-1994 to which we have already adverted. We are unable to accept the conclusion of the learned Judge that the defendant's contentions are not correct. It can even be said that the learned Judge has thrown the burden wrongly on the defendant. It is the plaintiff who has to prove that secret information was available to the defendant on account of his position as General Manager (O). Consequently, it follows that the orders passed in O.A. Nos. 882 and 884 of 1994 granting injunction in favour of the plaintiff are unsustainable and require to be set aside. 49. The next matter to be considered relates to the foreign customers of the plaintiff listed in Schedule I to O.A. No. 883 of 1994. We have already referred to the relevant case law on this aspect of the matter and pointed out that the plaintiff has to prove that the defendant had acquired influence over the plaintiffs customers. It is not sufficient for the plaintiff to prove that the defendant had been contacting the foreign customers during his foreign trips which he undertook on behalf of the plaintiff company. In paragraph 35 of the affidavit of the defendant it is stated as follows:-

"The averment that I am trying to exploit the special trade connections is once again vague and in any case the plaintiff has no manner of legal right to base such a claim. As regards the list of the customers appended by the plaintiff. I state that the customers have themselves

placed orders with other manufacturers for welded frames and forks. On account of the fact that the plaintiff does not manufacture these products. It is therefore obvious that I would in no manner be interfering with the business of the plaintiff. I state that the list of customers appended to the application are not exclusively the customers of TI Cycles, the plaintiff herein, for these customers have placed orders with several other manufacturers in India for both bicycle component and finished products. The plaintiff therefore is not entitled to claim any exclusivity to sales to these customers."
50. In the common counter filed by the plaintiff, while traversing the said averment of the defendant it is stated that the plaintiff has strong business dealings with those customers and that the defendant while in the employment of the plaintiff was sent to deal with those customers and is now trying to exploit what he gained at that time. The averments of the plaintiff in the original affidavit as well as the affidavit filed in reply to the affidavit of the defendant are vague. They do not make out that the customers listed in the Schedule to the application are the exclusive customers of the plaintiff. When a specific averment has been made by the defendant in his affidavit the plaintiff has not chosen to deny the same, but instead stated vaguely that they have strong business dealings with those customers. There is no averment that the defendant has influence over those customers which he acquired on account of his position as G.M. (O). There is also no clause in the General Service Conditions referred to already preventing the defendant from contacting any customer of the plaintiff after the expiry of the contract of service. The learned Judge has not given any finding that the defendant has influenced the foreign customers of the plaintiff so as to make them sever their connections with the plaintiff and approach the defendant for their business. The various documents to which our attention was drawn by learned counsel for the plaintiff showing that the defendant had taken several foreign trips and met several of its customers and come to arrangements on behalf of the plaintiff are not sufficient to prove that the defendant had acquired any influence over such customers. It goes without saying, therefore, that the order of injunction passed in O.A. No. 883 of 1994 is unsustainable. 51. The only other aspect to be considered is the balance of convenience. According to the learned Judge, the defendant had not started manufacturing and the machines were only being erected. He has placed reliance on the report of the Advocate-Commissioner that he had seen only security men and no workers. The defendant has categorically stated in his affidavit that he had engaged 30 workmen for whom he had to pay the wages without there being any job on account of the interim injunction. The defendant has also stated that he has borrowed a sum of Rs. 40 lakhs at a high rate of interest for the purpose of establishing his concern. On the other hand the plaintiff has not stated clearly in the plaint or in the affidavits as to how the business of the plaintiff would be affected and loss would be caused to the plaintiff by the defendant being permitted to carry on his activity during the pendency of the suit. As stated in the beginning, the plaintiff is a recognised export house and it had a sales turnover of Rs. 417.15 Crores in the year ending 31-3-1994. It has marketing network throughout India and supplies its products in every nook and corner of India. It exports its products to several foreign countries. It passes one's comprehension as to how the defendant can cause a dent in the business of the plaintiff within a matter of few years after commencing a new venture, within which period the suit can be disposed of after full-fledged trial. The learned Judge has not pointed out how the plaintiff would be put to irreparable loss and hardship and that the plaintiff would suffer loss of reputation. There is no merit in the offer made by the plaintiff that it would compensate the defendant in the event of its failure in the suit ultimately. 52. We are convinced that the plaintiff has not made out a prima facie case on the facts; nor has it made out that the balance of convenience is in its favour. In fine, the appeals are allowed. The judgment of the learned single Judge is hereby set aside. The orders of injunction passed in O.A. Nos. 882 to 885 of 1994 are vacated Those applications are dismissed. The appellant will have his costs from the respondent - one set. Counsel's fee Rs. 5,000/-. Manupatra Information Solutions Pvt. Ltd.
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