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

A branch manager's employment letter barred him from working for a competitor for two years after he "left" the company. The company fired him — and then sued to enforce that very clause against him. Two Supreme Court judges dodged the constitutional question by parsing a single word; the third tackled it head-on and declared post-service non-competes void. Either way, the employee walked free, and Indian law on non-compete clauses has never looked back.

Parties

Superintendence Company of India (P) Ltd. — appellant; the employer company that sought to enforce a two-year post-service restrictive covenant against its former Branch Manager.

Krishan Murgai — respondent; the former Branch Manager, terminated by the company, who started a competing business and resisted enforcement of the restrictive covenant.

Facts

Krishan Murgai was employed by Superintendence Company of India (P) Ltd. as Branch Manager of its New Delhi office from 27 March 1971, on terms including a restrictive covenant, Clause 10 of his letter of appointment, which provided that he would not, for two years after he "left" the company, serve any competitive firm or carry on a similar business of his own at the place of his last posting. On 24 November 1978, the company terminated Murgai's services, with the termination taking effect from 27 December 1978. Murgai subsequently started a competing business under the name "Superintendence and Surveillance Inspectorate of India" in South Extension, New Delhi. The company sought to restrain him by invoking Clause 10. A single judge of the Delhi High Court granted an interim injunction, upholding the covenant as reasonable in both time (two years) and place (New Delhi); a Division Bench of the Delhi High Court reversed this, holding the covenant void under Section 27 of the Indian Contract Act, 1872. The company appealed to the Supreme Court by special certificate.

Issues Raised

1. Does a post-service restrictive covenant of this kind fall within Section 27 of the Indian Contract Act, 1872's prohibition on agreements in restraint of trade, rendering it void?
2. Independent of the Section 27 question, does the word "leave" in Clause 10 cover a termination of service initiated by the employer, or is it confined to a voluntary resignation by the employee?
3. If Clause 10 does not apply to Murgai's case at all because his service was terminated rather than voluntarily left, is it necessary for the Court to decide the underlying Section 27 question?

Arguments Contended

On behalf of Superintendence Company of India (Appellant): It was argued that Clause 10 was a reasonable restrictive covenant, limited to two years and to the place of Murgai's last posting, protective of the company's legitimate business interests, and enforceable notwithstanding Section 27, since post-service restraints reasonable in scope should be treated no differently from other reasonable contractual protections; it was further argued that the word "leave" in the clause was broad enough to cover any cessation of service, including a termination initiated by the company, and that Murgai's competing business fell squarely within the restraint he had agreed to.

On behalf of Krishan Murgai (Respondent): It was argued that Section 27 of the Indian Contract Act renders void every agreement restraining a person from exercising a lawful trade or business, without importing the English common-law "reasonableness" exception for restraints outside the statutory sale-of-goodwill carve-out — a post-service restraint of this kind, however narrow in time and place, is accordingly void on the strict Indian rule; it was further argued, in the alternative, that Clause 10's use of the word "leave" naturally connoted a voluntary act by the employee, not a termination imposed on him by the employer, so that the clause, on its own terms, never applied to Murgai's situation at all.

Court's Reasoning

Tulzapurkar, J., with whom Untwalia, J. concurred, held that the appeal could be, and should be, disposed of on the narrower construction point without needing to resolve the broader constitutional and statutory question of whether Section 27 renders all post-service restrictive covenants void. The majority construed the word "leave" in Clause 10 as connoting voluntary departure by the employee — resignation — and held that it did not extend to a case where the employer itself had terminated the employee's services; since Murgai's service had been terminated by the company rather than voluntarily left by him, Clause 10 never came into operation against him at all, making it unnecessary to decide whether such a covenant would otherwise have been valid under Section 27.

Sen, J. arrived at the same result but declined to avoid the underlying Section 27 question, holding that it could not properly be sidestepped. He reasoned that Section 27 renders void every agreement restraining the exercise of a lawful profession, trade, or business, and that the sole statutory exception is for a reasonable restriction on the seller of a business's goodwill; the English common-law distinction between reasonable and unreasonable restraints, and its qualified tolerance for restraints operating after employment ends, has no place under the Indian statute, which deliberately adopts an absolute rule outside its one narrow exception. On this view, Clause 10, being a restraint operating after the termination of service, was void under Section 27 regardless of how "leave" was construed, and Murgai could not be restrained in any event.

Judgement

The Supreme Court dismissed the company's appeal. The majority (Tulzapurkar and Untwalia, JJ.) held that Clause 10 did not apply to Murgai's case at all, since the word "leave" meant voluntary resignation and Murgai's services had instead been terminated by the company; Sen, J., concurring in the result, held additionally and directly that a post-service restraint of this kind is in any event void under Section 27. The interim injunction restraining Murgai was vacated.

Legal Principle / Ratio

A restrictive covenant drafted to operate only upon an employee's voluntary "leaving" of service will not be construed to extend to a case where the employer has instead terminated the employee, and cannot be enforced against a dismissed employee on its own terms. Independently, per Sen, J.'s reasoning (not the majority's basis for decision but now the widely followed view in subsequent Indian case law), a restrictive covenant that operates only after the termination of employment falls within Section 27's general prohibition on restraint of trade and is void, since it does not come within the statute's sole exception for the sale of a business's goodwill.

Significance

Superintendence Company of India v. Krishan Murgai is the leading Indian authority on post-employment non-compete clauses, frequently cited for the broad proposition that such clauses are unenforceable in India — though the case is doctrinally more nuanced than that shorthand suggests, since the majority actually avoided deciding the Section 27 question by construing the word "leave" narrowly, and it was only Sen, J., concurring in the result, who addressed Section 27 directly. Subsequent Indian courts have overwhelmingly followed Sen, J.'s reasoning in substance, treating post-service restrictive covenants as void under Section 27 outside the narrow goodwill-sale exception, so that the case's practical legacy — non-compete clauses that bind an employee after they leave are generally unenforceable in India — holds regardless of which judge's reasoning is followed. It is regularly read alongside Madhub Chander v. Raj Coomar Doss (1874) as the two leading illustrations of Section 27's strict, no-general-reasonableness-exception approach, one in the context of an independent trader, the other in the context of employment.

Exam-Important Points

• Facts in one line: a company fired its Branch Manager and then tried to enforce a two-year post-service non-compete clause against him after he started a rival firm.
• Holding: appeal dismissed — the majority held the clause's word "leave" meant only voluntary resignation, not termination, so it never applied; Sen, J. additionally held such clauses are void under Section 27 in any event.
• Key principle: courts read restrictive covenants narrowly against the drafting employer; independently, Section 27 is generally understood (per Sen, J.'s reasoning, now the dominant view) to void post-service restraints outside the goodwill-sale exception.
• Classic exam trap: students often state simply "the Supreme Court held the clause void under Section 27" — in fact the majority avoided that question entirely on a contract-construction point; only Sen, J. decided Section 27 directly. Get the two separate grounds right for full marks.
• Always read together with Madhub Chander v. Raj Coomar Doss (1874) — the same strict Section 27 principle applied to an independent trader's restraint rather than an employee's.

Facts, bench and reasoning verified against IndianKanoon's report of the Supreme Court judgment — the bench (V.D. Tulzapurkar and N.L. Untwalia, JJ. in the majority on the "leave" construction; A.P. Sen, J. concurring in the result but deciding Section 27 directly), the procedural history through the Delhi High Court, and the 9 May 1980 decision date are confirmed from the judgment text itself.