Niranjan Shankar Golikari v. Century Spinning and Mfg. Co. Ltd.

A company trained a Shift Supervisor in a secret tyre cord yarn process under a five-year contract. He left within about two years for a rival at a higher salary. The Supreme Court upheld an injunction (a court order to do or not do something) that stopped him from doing similar work for others until the five years ended.

Quick Revision

Parties

Niranjan Shankar Golikari — appellant (the defendant in the suit); a Shift Supervisor in the respondent's tyre cord division who joined a rival concern.

The Century Spinning and Mfg. Co. Ltd. — respondent (the plaintiff in the suit); a company that makes tyre cord yarn at its plant at Kalyan, known as the Century Rayon.

Algemene Kunstzijde Unie of Holland (AKU) and Vereinigte Clanzstoff Fabrikan AG of West Germany (VCF) — not parties to the suit; the foreign collaborators that agreed to transfer technical know-how to the respondent.

Rajasthan Rayon Company at Kotah — not a party to the suit; the rival manufacturer of tyre cord yarn that employed the appellant.

Procedural History

1. The respondent filed a suit in the court at Kalyan. It claimed an injunction against the appellant until March 15, 1968, and Rs. 2410 as damages (money compensation) under clause 17 of the agreement. It also claimed a perpetual injunction (a final order, without time limit) against divulging information, documents, trade secrets and know-how.
2. The Trial Court held that the respondent had proved the following:
   • the appellant had used the training given by AKU on making tyre cord yarn and running the spinning machines, and was made familiar with their know-how, secrets, techniques and information;
   • his duties were not merely to supervise labour or report deviations of temperature;
   • the agreement was not void or unenforceable;
   • he committed breach of the agreement;
   • the respondent suffered loss and inconvenience and was entitled to damages under clause 17;
   • the respondent was entitled to an injunction.
3. The Trial Court granted an injunction against the appellant. It also restrained him, during that period and afterwards, from divulging secrets, processes or information on tyre cord yarn made by the continuous spinning process.
4. The Supreme Court records that the injunction stopped him only from serving as a Shift Supervisor, or in a post with substantially the same duties, in a concern making tyre cord yarn by the continuous spinning process. It was confined to the period of the agreement and to concerns in India.
5. The appellant appealed to the High Court of Maharashtra (First Appeal No. 526 of 1965). He gave up his plea of undue influence (misuse of a position of power) and coercion (forcing consent by threat) in that appeal.
6. The High Court agreed with the Trial Court and confirmed the injunction by its judgment and order dated April 28, 1966.
7. The appellant came to the Supreme Court by special leave (Civil Appeal No. 2103 of 1966). The Supreme Court dismissed the appeal with costs on 17 January 1967.

Facts

1. The respondent makes tyre cord yarn, among other things, at its plant at Kalyan known as the Century Rayon.
2. By an agreement dated January 19, 1961, AKU of Holland and VCF of West Germany agreed to transfer their technical know-how to the respondent. The know-how was to be used exclusively for the respondent's tyre cord yarn plant at Kalyan. The price was 1,40,000 Deutsche Marks.
3. Clause 4 of that agreement required the respondent to keep all technical information, know-how, experience, data and documents secret until the agreement ended and for three years afterwards. The respondent also had to enter into corresponding secrecy arrangements with its employees.
4. The respondent invited applications for posts in its plant, including Shift Supervisors. On December 3, 1962 the appellant applied, stating his qualifications.
5. By letter dated March 1, 1963 the respondent offered him the post of Shift Supervisor in the tyre cord division. It said he would have to sign a standard form contract (a ready-made contract on fixed terms) for a term of five years.
6. On March 5, 1963 the appellant accepted the offer and agreed to sign the standard contract. On March 16, 1963 he joined the respondent and signed the contract (Ex. 28).
7. Clause 6 required the employee to serve honestly, faithfully, diligently and efficiently. Under clause 6(b) he had to devote the whole of his time and energy exclusively to the company's business. He could not engage in any other business, as principal, agent, partner or employee, full time or part time.
8. Clause 9 required the employee, during employment and afterwards, to keep confidential and not divulge any information, instruments or documents of the company that came to his knowledge.
9. Clause 14 gave the company an option to end his services on three months' notice, or three months' salary in lieu. It could use the option if it closed or curtailed its business for reasons beyond its control and could no longer employ him.
10. Clause 17 covered an employee who left, abandoned or resigned the service in breach of the agreement before the five years ended. For the rest of that period he could not engage in the company's business or serve any person or firm carrying on such business. He also had to pay liquidated damages (a sum fixed in advance) equal to six months' salary and reimburse the company's training costs.
11. The appellant was trained from March to December 1963. He learned the technique, processes and machinery of the collaborators, and saw certain documents they had supplied that were to be kept secret.
12. As a Shift Supervisor he was responsible for running the shift, controlling labour and keeping to the specifications given by AKU.
13. No difficulty arose until about September 1964. He then stayed absent from the 6th to the 9th October 1964 without leave. On the 10th October he took casual leave.
14. On October 12 he applied for 28 days' privilege leave from October 14, 1964. Before it was granted he stayed absent from the 14th to the 31st October 1964.
15. On October 31 he was offered salary for the 9 days he had worked that month.
16. On November 7, 1964 he told the respondent that he had resigned from October 31, 1964. By letter of November 23, 1964 the respondent refused to accept the resignation and asked him to resume work.
17. On November 28, 1964 the appellant replied that he had already obtained other employment.
18. The evidence showed that in October he was negotiating with Rajasthan Rayon Company at Kotah, which also made tyre cord yarn. He took a job there at Rs. 560 per month, which was higher than his pay with the respondent.
19. The respondent then filed the suit. The appellant admitted he was a Shift Supervisor but denied being a specialist or technical person. He said his only duty was to supervise and control labour and report deviations of temperature.
20. He also alleged that the agreement was unconscionable, oppressive and signed under coercion, and that it was opposed to public policy.
21. He challenged clauses 9 and 17 in particular. Clause 9, he said, was too wide because it lasted for life and covered every aspect of information, not only trade secrets.
22. Clause 17, he said, barred him from serving anywhere in any capacity. That restrained his right to trade, profession or vocation and was unnecessary to protect the respondent as employer.
23. The High Court found, on the evidence of Dr. Chalishhazar, Mehta and John Jacob, that the appellant had received about nine months of training. Special processes and details of the collaborators' machinery were divulged to him.
24. The High Court also found that the benefit of his training would be lost to the respondent if he worked for the rival. The knowledge of the continuous spinning process, meant for the respondent's exclusive use, was likely to reach the rival.
25. It found that the rival's machinery might differ from the respondent's. Even so, the know-how he had gained could be used to ensure continuous spinning of yarn.
26. It found that Rajasthan Rayon started producing tyre cord yarn from January 1965. That was two or three months after the appellant joined it along with two other employees of the respondent.
27. It found that the appellant had gained enough knowledge and experience of the specialised continuous spinning process. He left only because Rajasthan Rayon promised him more lucrative employment.
28. It concluded that the respondent's fear of considerable damage from his employment with the rival was well-founded.
29. On clauses 9 and 17, the High Court held that the employment was in the business of the Century Rayon only. The training was exclusively for the spinning department of the tyre cord division, and the letter of acceptance related to the post of Shift Supervisor in that department.
30. It therefore held that clauses 9 and 17 related only to that business. They were not blanket restrictions. Clause 17 operated only if the appellant left, abandoned or resigned during the term and in breach of the agreement.
31. It held that clause 17 was reasonable to protect the respondent. The respondent had spent considerable money on training, secrets of specialised processes were divulged to him, and the collaborators agreed to disclose them only on the respondent's undertaking to obtain secrecy clauses from employees and to use the processes exclusively for its business.
32. It noted that clause 17 did not stop him from seeking similar employment with another manufacturer after the contractual period was over.
33. It found nothing to show that, if prevented from similar employment elsewhere, he would be forced into idleness. It also found nothing to show that he would be compelled to go back to the respondent, which would amount indirectly to specific performance (a court order to carry out the contract) of a contract of service (an employment contract) that is personal.

Issues Raised

1. Did the agreement constitute a restraint on trade and so oppose public policy?
2. To be valid and enforceable, must the covenant be reasonable in space and time and limited to what is necessary to protect the employer's right of property?
3. Can an injunction to enforce a negative stipulation be granted only for the legitimate purpose of safeguarding the employer's trade secrets?
4. Should the injunction, in the terms in which it is framed, have been granted?
5. Can the court apply severance (separating the good part of a clause from the bad part), and grant an injunction only to the extent that is good?

Arguments Contended

For the appellant (Niranjan Shankar Golikari):

• The agreement was a restraint on trade and so opposed to public policy.
• To be valid and enforceable, the covenant had to be reasonable in space and time and to the extent necessary to protect the employer's right of property.
• An injunction to enforce a negative stipulation can be granted only to safeguard the employer's trade secrets.
• These conditions were lacking in the present case, so the respondent was not entitled to enforce the stipulation.
• Clause 9 was too wide. It operated for life and covered every aspect of information, not only trade secrets.
• Clause 17 barred him from serving in any capacity. That restrained his right to trade or to carry on business, profession or vocation, and it was unnecessary to protect the respondent's interests as employer.
• The terms of the clause were too wide, and the court could not sever the good from the bad and issue an injunction to the extent that was good.
• Ehrman v. Bartholomew was relied on as a case where the negative stipulation was held unreasonable and unenforceable.
• Mason v. Provident Clothing and Supply Co. Ltd. was relied on as a case of a negative covenant not to serve elsewhere for three years after the contract ended.
• The Court also discussed Herbert Morris v. Saxelby, Attwood v. Lamont and Commercial Plastics Ltd. v. Vincent as cases of covenants applying after employment ended. The judgment does not say the appellant cited them.
• The Court also noted Gopal Paper Mills v. Malhotra, a Calcutta High Court case of breach of a negative covenant during employment. The judgment does not say who cited it.
• At the trial he also pleaded that the agreement was unconscionable, oppressive and made under coercion, and that he was only a supervisor of labour, not a specialist. The plea of undue influence and coercion was given up in the High Court.
• Mr. Sen took no serious objection to the injunction under clause 9.

For the respondent (The Century Spinning and Mfg. Co. Ltd.):

• The judgment does not set out the respondent's counsel's arguments as such. It records the respondent's case through the plaint and the findings below.
• The respondent claimed an injunction till March 15, 1968, damages of Rs. 2410 under clause 17, and a perpetual injunction against divulging information, documents, reports, trade secrets, manufacturing process and know-how.
• Its stated apprehension was that information about special processes and special machinery, given to the appellant in training, might be divulged. That apprehension was found to be justified by both courts below.

Court's Reasoning

Opinion of Shelat, J. (for the Court)

1. Noted: Restraint of trade is summarised in Halsbury's Laws of England (3rd ed.), Vol. 38. It is a general principle of the Common Law that a person may exercise his lawful trade or calling when he wills.
2. Noted: The law has always regarded jealously any interference with trade, even at the risk of interfering with freedom of contract.
3. Why: Public policy opposes all restraints on individual liberty of action that injure the interests of the State.
4. Noted: The principle is not limited to trade in the ordinary meaning of the word. It includes restraints on the right of being employed.
5. Noted: The court takes a far stricter view of covenants between master and servant than of covenants between vendor and purchaser or in partnership agreements.
6. Noted: An employer cannot protect himself against competition by an employee after employment has ceased. A purchaser of a business can protect himself against competition by the vendor.
7. Why: An employer has no legitimate interest in stopping an employee, after he leaves, from joining a competitor merely because the other is a competitor. Kores Manufacturing Co. Ltd. v. Kolak Manufacturing Co. Ltd. is cited.
8. Noted: The courts' attitude on public policy has not been inflexible. Decisions on public policy have changed with trade and economic thought.
9. Noted: The general principle on restraints of trade has been considerably modified by later decisions. The rule now is that restraints, whether general or partial, may be good if they are reasonable.
10. Noted: A restraint on freedom of contract must be shown to be reasonably necessary for the purpose of freedom of trade. A restraint reasonably necessary to protect the covenantee must prevail unless a specific ground of public policy is clearly established against it. E. Underwood and Son Ltd. v. Barker is cited.
11. Noted: A person may be restrained from trading by an agreement he entered into voluntarily. Freedom of trade is then applied with due regard to the public policy of utmost freedom of contract for adults of full understanding.
12. Noted: Public policy also allows a trader to sell his business to a successor. It allows an employer an unrestricted choice of able assistants and the chance to instruct them in his trade and secrets without fear of their becoming competitors. Fitch v. Dewes is cited.
13. Noted: Where an agreement is challenged as a restraint of trade, the onus is on the party supporting it to show that the restraint is reasonably necessary to protect his interests.
14. Noted: Once that onus is discharged, the onus of showing that the restraint is nevertheless injurious to the public lies on the party attacking the contract. Cheshire's Law of Contract, Mason v. Provident Clothing and Supply Co. Ltd. and A.G. of Commonwealth of Australia v. Adelaide Steamship Co. Ltd. are cited.
15. Noted: The courts distinguish restraints that apply during the term of the contract of employment from those that apply after it ends (Halsbury, Vol. 38, p. 31).
16. Noted: In W.H. Milsted and Son Ltd. v. Hamp the contract of service could be ended only by the employer's notice. Eve J. held it bad as wholly one-sided.
17. Noted: Where the contract is not open to that objection, a stipulation that the employee will devote his whole time to the employer and serve no other employer during the term would generally be enforceable.
18. Noted: In Gaumont Corporation v. Alexander, clause 8 made the engagement an exclusive engagement of the artiste's entire service. She could not do work or render services for anyone else without the corporation's prior consent.
19. Noted: Porter J. held that restrictions on an employee under a contract of service can take effect during the contract and are not in general against public policy.
20. Noted: Porter J. also observed that a contract would be contrary to public policy if it had a restraint unjustifiable for the claimants' business. He knew of no case where a restraint during the contract was held undue, though there might be one.
21. Noted: Porter J. said how far such a clause protects the employer during the contract is largely a question of evidence.
22. Noted: The Court draws from this that restraints on an employee are generally not against public policy. There may be cases where a covenant exceeds what the employer needs, and the court may then refuse to enforce it by injunction.
23. Noted: In William Robinson and Co. Ltd. v. Heuer, Heuer agreed not to carry on or be engaged in any trade or business, as principal, agent, servant or otherwise, during the engagement without written consent.
24. Noted: Lindley M.R. said there was no authority that this agreement was illegal, that is, unreasonable or wider than reasonably necessary to protect the plaintiffs. It was confined to the period of the engagement and meant that so long as he was in their employ he should not work for anybody else.
25. Noted: Applying those observations, Branson J. in Warner Brothers Pictures v. Nelson held a similar covenant not void. A film artist had agreed to render exclusive services for fifty-two weeks, renewable for fifty-two weeks at the plaintiffs' option. She was bound not to render such services to any other person.
26. Noted: She broke the agreement by contracting to perform for a third person. It was held that an injunction would issue, though it might be limited in period and terms to what the court in its discretion thought reasonable.
27. Noted: Courts in India draw the same distinction. A restraint by which a person binds himself, during the term of his agreement, not to take service with another employer or be engaged by a third party has been held not void and not against section 27 of the Contract Act.
28. Noted: In Brahmaputra Tea Co. Ltd. v. Scarth, a condition partially restraining competition with the former employer after the term ended was held bad. A condition not to compete with the employer during the term was held good.
29. Noted: That Court said an agreement to serve exclusively for a definite term is lawful. It observed: "An agreement to serve a person exclusively for a definite term is a lawful agreement". The Court added that it is hard to see how that can be unlawful which is essential to its fulfilment and to protecting the employer's interests while the agreement is in force.
30. Noted: Pragji v. Pranjiwan and Lalbhai Dalpathbhai and Co. v. Chittaranjan Chandulal Pandya are referred to on the same point.
31. Noted: In Deshpande v. Arbind Mills Co. the service agreement had a positive covenant to devote whole-time attention and a negative covenant against working elsewhere during the term.
32. Noted: Relying on Pragji v. Pranjiwan, Charlesworth v. MacDonald, Madras Railway Company v. Rust, Subba Naidu v. Haji Badsha Sahib and Burn and Co. v. MacDonald, the judges there found negative covenants of this kind enforced.
33. Noted: They observed that Illustrations (c) and (d) to section 57 of the Specific Relief Act recognise such contracts and their negative covenants. So the contention that a negative covenant made a service agreement void under section 27 had no validity.
34. Noted: The appellant's counsel relied on Ehrman v. Bartholomew. Clause 3 there required the employee to devote all usual business hours to the firm and not to engage in other business during the agreement.
35. Noted: Clause 13 there barred the employee, after the employment ended, from supplying or soliciting the firm's customers, or being employed in a wine or spirit merchant's business in which a former partner was engaged.
36. Noted: Romer J. held these clauses unreasonable. Clause 3 could operate for 10 years or as long as the employer chose, and the word business there was not limited to a wine merchant's business.
37. Noted: The result in that case was that the court, unable to order the defendant to work, would be asked to make him do so indirectly by forcing him to abstain wholly from business during usual business hours.
38. Noted: The appellant also relied on Mason v. Provident Clothing and Supply Co. Ltd. That case concerned a covenant not to serve elsewhere for three years after the contract ended. The court tested it by what was reasonable to protect the plaintiffs, and the employee was a mere canvasser with no special talent.
39. Held: Mason cannot assist the appellant because the negative covenant there was to operate after the contract ended.
40. Noted: Herbert Morris v. Saxelby and Attwood v. Lamont are also cases where the covenants were to apply after employment ended.
41. Noted: In Commercial Plastics Ltd. v. Vincent the covenant was to operate for a year after the employee left. The court held it void because it went beyond what was reasonably necessary to protect the employer's legitimate interests.
42. Held: These decisions do not fall within the class where the negative covenant operated during and for the period of employment, as in Gaumont Corporation and Warner Brothers v. Nelson.
43. Held: In that class the covenant is not a restraint of trade or against public policy. The exception is where the agreement is wholly one-sided and unconscionable, as in W.H. Milsted and Son Ltd. v. Hamp.
44. Held: Another exception is where an injunction would indirectly force the employee into idleness or to serve the employer, which the court would not order, as in Ehrman v. Bartholomew.
45. Noted: A Single Judge of the Calcutta High Court decided Gopal Paper Mills v. Malhotra, a case of breach of a negative covenant during employment.
46. Held: The High Court rightly distinguished that decision.
47. Noted: The contract there ran for as much as 20 years.
48. Noted: The contract also let the employer end the service without notice if it decided not to keep the employee during the three years of apprenticeship. Afterwards it could end the service if the employee failed to perform to the employer's satisfaction, and the employer had absolute discretion on that.
49. Noted: The employer's certificate that he had not performed was conclusive between the parties.
50. Held: Such a contract falls in the class held void as one-sided in W.H. Milsted and Son Ltd. v. Hamp. So Gopal Paper Mills cannot further the appellant's case.
51. Held: Considerations against restrictive covenants differ between a restriction that applies after the contract ends and one that applies during the contract.
52. Held: Negative covenants operative during the contract of employment, when the employee is bound to serve the employer exclusively, are generally not a restraint of trade. They therefore do not fall under section 27 of the Contract Act.
53. Held: A negative covenant that the employee will not engage in a trade or business, or get employed by another master for similar or substantially similar duties, is not a restraint of trade. The exception is where the contract is "unconscionable or excessively harsh or unreasonable or one sided", as in Milsted.
54. Held: Both the Trial Court and the High Court found, rightly in the Court's view, that the covenant here was reasonable and necessary to protect the company. It was restricted to the period of employment and to work similar or substantially similar to the appellant's work. It was not one the court would refuse to enforce.
55. Held: There is therefore no validity in the contention that the negative covenant in clause 17 amounted to a restraint of trade and was against public policy.
56. Noted: The next question is whether the injunction, in the terms framed, should have been granted. There is no doubt that courts have wide discretion to enforce a negative covenant by injunction.
57. Noted: Both courts below concurrently found the respondent's apprehension justified. The information about special processes and machinery given to the appellant in training, and afterwards, might be divulged.
58. Noted: They also found that this information was different from the general knowledge and experience he might gain while in the respondent's service. It was against his disclosing the former to the rival company that protection was needed.
59. Noted: The appellant argued that the terms of the clause were too wide and that the court could not sever the good from the bad and issue an injunction to the extent that was good.
60. Held: The rule against severance applies where the covenant is bad in law, and only then is the court barred from severing the good from the bad. The Court said "the rule against severance applies to cases where the covenant is bad in law".
61. Held: Nothing prevents the court from granting a limited injunction, to the extent necessary to protect the employer's interests, where the negative stipulation is not void.
62. Held: Nothing shows that, if the covenant is enforced, the appellant would be driven to idleness or compelled to go back to the respondent.
63. Held: He might get lower remuneration than Rajasthan Rayon agreed to pay if he cannot take similar employment. That is no consideration against enforcing the covenant.
64. Noted: The evidence is clear that the appellant broke the agreement only because he was offered higher remuneration.
65. Held: He cannot be heard to say that no injunction should be granted against him to enforce a covenant that is not opposed to public policy. The Court said "he cannot be heard to say that no injunction should be granted against him".
66. Held: The injunction is restricted as to time, the nature of employment and area. It cannot be said to be too wide, unreasonable or unnecessary to protect the respondent's interests.
67. Noted: Clause 9 concerned the injunction against divulging information, instruments, documents and reports that came to his knowledge in the respondent's service. Mr. Sen took no serious objection to it, so the Court said no more about it.
68. Held: The appeal fails and is dismissed with costs.

Provisions discussed

• Section 27 of the Indian Contract Act, 1872: the provision on agreements in restraint of trade. The appellant argued that clause 17 offended it. The Court held that negative covenants operating during the period of exclusive employment generally do not fall under it.
• Illustrations (c) and (d) to section 57 of the Specific Relief Act: mentioned only through Deshpande v. Arbind Mills Co. The judges there said these illustrations recognise service contracts and the negative covenants in them.
• Article 136 of the Constitution: the appeal came to the Supreme Court by special leave under this article, as the headnote records.
• Clause 4 of the AKU and VCF agreement (January 19, 1961): required the respondent to keep the technical information secret and to obtain secrecy arrangements from its employees.
• Clause 6(b) of the service agreement: required exclusive devotion of the whole time and energy to the company's business.
• Clause 9: required confidentiality of the company's information during and after employment.
• Clause 14: gave the company an option to end the service on three months' notice or pay in lieu if it closed or curtailed its business.
• Clause 17: barred the employee from the company's kind of business, and from serving any person carrying on such business, for the rest of the five years if he left in breach. It also provided six months' salary as liquidated damages and reimbursement of training costs.

Authorities

• Kores Manufacturing Co. Ltd. v. Kolak Manufacturing Co. Ltd., [1959] Ch. 108, 126: cited for the rule that an employer has no legitimate interest in stopping an ex-employee from joining a competitor merely because he is a competitor.
• E. Underwood and Son Ltd. v. Barker, [1899] 1 Ch. 300 C.A.: cited for the rule that a restraint reasonably necessary to protect the covenantee must prevail unless a specific ground of public policy is clearly established against it.
• Fitch v. Dewes, [1921] 2 A.C. 158, 162-167: cited for the public policy of utmost freedom of contract and for an employer's right to instruct assistants without fear of their becoming competitors.
• Mason v. Provident Clothing and Supply Co. Ltd., [1913] A.C. 724: cited on the onus in restraint of trade cases. Also relied on by the appellant, and distinguished as a case of a covenant operating after the contract ended.
• A.G. of Commonwealth of Australia v. Adelaide Steamship Co. Ltd., [1913] A.C. 781, 796: cited with Cheshire on the onus in restraint of trade cases.
• W.H. Milsted and Son Ltd. v. Hamp, [1927] W.N. 233: followed as the example of a wholly one-sided contract void even for a covenant during employment.
• Gaumont Corporation v. Alexander, [1936] 2 All E.R. 1686: followed. A covenant of exclusive service during the engagement was held not against public policy.
• William Robinson and Co. Ltd. v. Heuer, [1898] 2 Ch. 451: followed. A covenant confined to the period of engagement was not unreasonable.
• Warner Brothers Pictures v. Nelson, [1937] 1 K.B. 209: followed. A similar covenant was held not void and an injunction was issued, limited as the court thought reasonable.
• Brahmaputra Tea Co. Ltd. v. Scarth, I.L.R. (XI) Cal. 545: followed. A condition not to compete with the employer during the term was held good, and a partial restraint after the term was held bad.
• Pragji v. Pranjiwan, 5 Dom. L.R. 872 (as printed in the judgment text): referred to on the same point and relied on in Deshpande.
• Lalbhai Dalpathbhai and Co. v. Chittaranjan Chandulal Pandya, A.I.R. 1966 Guj 189: referred to on the same point.
• Deshpande v. Arbind Mills Co., 48 Bom. L.R. 90: followed. A negative covenant against working elsewhere during the term does not make the service agreement void under section 27.
• Charlesworth v. MacDonald, I.L.R. 23 Bom. 103: named in Deshpande as an instance where such a negative covenant was enforced.
• Madras Railway Company v. Rust, I.L.R. 14 Mad. 18: named in Deshpande as an instance where such a negative covenant was enforced.
• Subba Naidu v. Haji Badsha Sahib, I.L.R. 26 Mad. 168: named in Deshpande as an instance where such a negative covenant was enforced.
• Burn and Co. v. MacDonald, I.L.R. 36 Cal. 354: named in Deshpande as an instance where such a negative covenant was enforced.
• Ehrman v. Bartholomew, [1898] 1 Ch. 571 (the later footnote prints [1898] 1 Ch. 671): relied on by the appellant. The Court distinguished it as a case where an injunction would indirectly force idleness or service.
• Herbert Morris v. Saxelby, [1916] A.C. 688: discussed by the Court. Distinguished because the covenant applied after the employment ended.
• Attwood v. Lamont, [1920] 3 K.B. 571: discussed by the Court. Distinguished because the covenant applied after the employment ended.
• Commercial Plastics Ltd. v. Vincent, 3 All E.R. 546: discussed by the Court. Distinguished because the covenant operated for a year after the employee left.
• Gopal Paper Mills v. Malhotra, A.I.R. 1262 Cal. 61 (as printed in the judgment text): distinguished by the High Court, and the Court agreed. The contract ran for 20 years and gave the employer arbitrary power to end the service.
• Halsbury's Laws of England (3rd ed.), Vol. 38, pp. 15 and 31, and Cheshire's Law of Contract (6th ed.) 32.8: textbooks cited on restraint of trade, the onus, and the during-term and after-term distinction.

Judgement

1. The appeal is dismissed with costs.
2. The injunction granted by the Trial Court and confirmed by the High Court stands. It restrains the appellant from taking employment as a Shift Supervisor in tyre cord yarn manufacture, or in a post with substantially the same duties, in any concern in India until March 15, 1968.
3. The injunction also restrains him, during that period and afterwards, from divulging secrets, processes or information on tyre cord yarn made by the continuous spinning process, obtained in the course of his employment with the respondent.
4. On clause 9, the Court says nothing further, as no serious objection was taken to that injunction.

Legal Principle / Ratio

A negative covenant that operates only during the term of employment, and stops the employee from doing similar work for others, is generally not a restraint of trade under section 27 of the Contract Act. It is invalid only if the contract is unconscionable, excessively harsh, unreasonable or one-sided. Where such a stipulation is not void, the court may grant a limited injunction to the extent needed to protect the employer.

Key holding: "Negative covenants operative during the period of the contract of employment ... are generally not regarded as restraint of trade".

Subsequent Treatment

Superintendence Company v. Krishan Murgai (full title: Superintendence Company of India (P) Ltd. v. Krishan Murgai)

1980 AIR 1717, 1980 SCR (3) 1278, 1981 (2) SCC 246. Supreme Court of India; bench V.D. Tulzapurkar, N.L. Untwalia and A.P. Sen; decided 9 May 1980. This judgment has no numbered paragraphs, so the opinions are cited by judge.

• Distinguished; its in-term versus post-term distinction was accepted. The case concerned a covenant that was to apply after the employee's service ended.
• Tulzapurkar, J. (for the Court) recorded the appellant's argument. Counsel said Golikari's remark that considerations differ for restrictions after the contract ends might need a fresh look at section 27. The Court did not decide that question and disposed of the appeal on another point.
• Sen, J. (separate opinion) said Golikari drew a distinction between restrictions operating during employment and those operating after it. He set out its passages and recorded that it referred to Brahmaputra Tea Co. Ltd. v. Scarth with approval.
• Sen, J. then held that Golikari was of little assistance to the appellant. It was not seeking to enforce the covenant during the term of employment. It sought to enforce it after the services ended.
• Sen, J. held that clause 10 of the agreement was a restraint of trade and therefore illegal and unenforceable under section 27. The headnote records Golikari as distinguished.
• The Single Judge of the Delhi High Court had referred to Golikari when he applied the test of reasonableness and enforced the covenant. The Division Bench reversed him.

Gujarat Bottling v. Coca Cola (full title: Gujarat Bottling Co. Ltd. v. Coca Cola Co.)

1995 AIR 2372, 1995 SCC (5) 545. Supreme Court of India; bench S.C. Agrawal and Ahmad Saghir; dated 04/08/1995. This judgment has no numbered paragraphs, so the opinion is cited by judge.

• Followed. Agrawal, J. cited Golikari (pp. 384-85) with Halsbury for the rule that courts take a stricter view of covenants between employer and employee than between vendor and purchaser.
• He cited Golikari for the rule that the doctrine of restraint of trade is not normally attracted where the restriction operates only while the contract subsists. The exception is where the contract is wholly one-sided.
• He quoted Golikari's concluding passage on its discussion of the two kinds of covenant. The Court applied it to the negative stipulation in paragraph 14 of the bottling agreement, which operated only during the agreement.
• He cited Golikari (p. 389) for the rule that an injunction to enforce a negative covenant is refused if it would indirectly compel the employee to idleness or to serve the employer.

Vijaya Bank v. Prashant B Narnaware

2025 INSC 691, Civil Appeal No. 11708 of 2016. Supreme Court of India; bench Pamidighantam Sri Narasimha and Joymalya Bagchi; judgment of Bagchi, J.; dated May 14, 2025.

• Followed. The Court said Golikari decided whether section 27 bars a restrictive covenant during an employment contract. It distinguished covenants operating during the contract from those operating after its end (para 13).
• It quoted the passage from Golikari that negative covenants during employment are generally not a restraint of trade (para 13).
• It noted that A.P. Sen, J. reiterated the view in Superintendence Company v. Krishan Murgai and endorsed Golikari's ratio for covenants during a contract (para 14).
• It concluded that the law is well settled. It said a restrictive covenant operating during the subsistence of an employment contract "does not put a clog on the freedom of a contracting party to trade or employment" (para 15).
• It quoted Golikari on the evolving nature of public policy to support its own discussion of public policy (para 23).
• It held that the minimum-service covenant in clause 11(k) of the appointment letter was not a restraint of trade and not opposed to public policy (para 35). It allowed the bank's appeal and set aside the High Court judgment (para 36). The connected appeal No. 11499 of 2016 was dismissed (para 37).

Other later cases (not summarized)

• Percept D'Markr (India) Pvt. Ltd. v. Zaheer Khan, AIR 2006 SC 3426, 2006 (4) SCC 227, decided 22 March 2006 (bench H.K. Sema and Ar. Lakshmanan). No official text was fetched, so it is named only.

Comparative Analysis

• All three later cases accept Golikari's line between covenants during the contract and covenants after it.
• Krishan Murgai (Sen, J.) treats Golikari as limited to the during-term rule and refuses to extend it to a covenant enforced after termination.
• Vijaya Bank treats Golikari and Krishan Murgai together as settled authority that in-term covenants do not offend section 27. It applies the rule to a minimum-service clause with liquidated damages.
• Gujarat Bottling extends the in-term reasoning from employment to a bottling agreement between businesses.
• Tulzapurkar, J. in Krishan Murgai left open whether reasonable post-service covenants can survive section 27. Golikari itself decided no such case.

Critical Analysis

Analysis based on the judgment text.

• The judgment does not record the respondent's counsel's arguments. The respondent's position appears only through the plaint and the findings of the courts below.
• The Court states the exceptions as unconscionable, excessively harsh, unreasonable or one-sided. It gives no fuller test and illustrates them mainly through Milsted and the Calcutta decision on the 20-year contract.
• The Court says considerations differ for covenants that apply after the contract ends. It decides no case of that kind, so its remarks on them are only a contrast.
• The Trial Court held the respondent entitled to damages under clause 17. The Supreme Court does not discuss that relief or the liquidated damages claim of Rs. 2410.
• The injunction runs to March 15, 1968, as the Trial Court ordered. The judgment does not state any consequence once that date passes. The Court decided the matter on January 17, 1967.
• The judgment treats the appellant's lower pay elsewhere, and his motive for leaving, as relevant to enforcement. It does not say whether a different result would follow if he had left for a non-financial reason.
• The footnotes print some citations inconsistently, for example two different page numbers for Ehrman v. Bartholomew. This page reproduces them as printed.

Significance

• The case is the leading Supreme Court statement that exclusive-service covenants during employment fall outside section 27.
• It separates covenants operating during employment from those operating after it, and applies a lighter test to the first.
• It lets courts enforce such covenants by injunction even where the employer cannot compel the employee to work.
• It holds that the rule against severance does not stop a limited injunction where the covenant is not void.
• It shows that an employer's investment in training and in protected know-how supports enforcing the covenant.

Exam-Important Points

• Rule: negative covenants operating during the term of exclusive employment are generally not a restraint of trade under section 27. Trap: the same covenant operating after the term is tested for reasonableness.
• Exceptions: the contract is unconscionable, excessively harsh, unreasonable or one-sided. Example: Milsted v. Hamp, where the employer alone could end the service.
• Trap: the injunction is limited by time, nature of employment and area. Here it covered similar work in India until March 15, 1968.
• Rule: the rule against severance applies only where the covenant is bad in law. A limited injunction is possible where the stipulation is not void.
• Rule: onus. The party supporting the restraint must show it is reasonably necessary. The party attacking it must then show injury to the public.
• Trap: the court does not force him to work for the respondent. The injunction only stops him from working for others.
• Trap: a lower salary elsewhere, or a higher offer from the rival, is no ground against enforcement.
• Cases to link: Gaumont Corporation v. Alexander, Warner Brothers Pictures v. Nelson and Brahmaputra Tea Co. Ltd. v. Scarth (during-term covenants); Ehrman, Mason, Herbert Morris and Attwood (after-term or idleness).
• Result: appeal dismissed with costs; injunction stands.

Prepared from the full text of the judgment. The judgment text has no numbered paragraphs, so no paragraph numbers are cited; the report is 1967 AIR 1098.