The petitioner Company entered into an employment contract between with the Respondent. Petition was filed for seeking interim relief against the Respondent thereby preventing him from joining any other employment or engaging directly or indirectly in any business similar to that of the petitioner for the remaining period of his employment. [The agreement in question contained a peculiar termination clause: "As committed above, Mr. Ramakar Jha shall work with the company for 5 years with 3 years as minimum compulsory period, but in case of some extra ordinary situation, if Mr. Jha decides to quit his job after the completion of the compulsory period, then he can do so by serving a prior notice of at least 6 months in writing to the company."]
The contentions of the parties as contained in the Judgement are herebelow:
Petitioner:
(a) a negative covenant restraining the right of the employee, during the subsistence of his service contract, to engage in any business similar to, or competitive with that of the employer, cannot be said to be a covenant in restraint of trade and, therefore, hit by Section 27 of the Contract Act.
(b) Even de hors the law, in equity jurisdiction, it is not open for the respondent to state that the relief prayed for by the petitioner of restraining the respondent from joining any other employment or engaging directly or indirectly in any business similar to that of the petitioner for the remaining period of his employment, is unjustified.(c) A contract of service is essentially a contract of trust and faith and the material resources, infrastructure, etc. of the employer cannot be allowed to be used by a rival, through the conduit of an employee divulging the confidential systems developed and used by the petitioner, and that too during the subsistence of the employee's service agreement with the employer.
(a) a negative covenant restraining the right of the employee, during the subsistence of his service contract, to engage in any business similar to, or competitive with that of the employer, cannot be said to be a covenant in restraint of trade and, therefore, hit by Section 27 of the Contract Act.
(b) Even de hors the law, in equity jurisdiction, it is not open for the respondent to state that the relief prayed for by the petitioner of restraining the respondent from joining any other employment or engaging directly or indirectly in any business similar to that of the petitioner for the remaining period of his employment, is unjustified.(c) A contract of service is essentially a contract of trust and faith and the material resources, infrastructure, etc. of the employer cannot be allowed to be used by a rival, through the conduit of an employee divulging the confidential systems developed and used by the petitioner, and that too during the subsistence of the employee's service agreement with the employer.
Respondent:
(a) Section 9 of the Arbitration and Conciliation Act, 1996 cannot be invoked by the petitioner to claim interim relief as the aforesaid provision does not empower the Court to grant interim measures save those which are necessary for the preservation of "property".
(b) The consequences for the breach of the negative covenant are not contained in the contract and, as such, the said covenant cannot be enforced.
(c) The negative covenant relied upon by the petitioner is in restraint of trade and, therefore, hit by Section 27 of the Contract Act.
(b) The consequences for the breach of the negative covenant are not contained in the contract and, as such, the said covenant cannot be enforced.
(c) The negative covenant relied upon by the petitioner is in restraint of trade and, therefore, hit by Section 27 of the Contract Act.
In the Petition before this Court, the Court had to firstly decide whether a Section 9 relief as prayed can be claimed. In this regard, the Delhi High Court held that it had the power to issue the interim injunction as prayed for by the Petitioner because:
1. Sub-clause (e) of Clause (ii) of Section 9 clearly stipulates that the Court shall have the power to order "such other interim measure of protection as may appear to the Court to be just and convenient"
2. "the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it". There is no reference in the said Sub-clause to any property, whether movable or immovable.
3. To curtail the width and magnitude of the said clause so as to make it applicable only to movable and immovable property, in my view, would be wholly unjustified, apart from being in violation of all canons of interpretation. Clearly, the provisions of Section 9 of the Act must be allowed to go to the rescue of the petitioner, who has already invoked the arbitration clause.
Further:
The contention of the learned Counsel for the respondent that since the consequences for the breach of the negative covenant are not contained in the contract and in view of the fact that no penal consequences, either of a civil nature or of a criminal nature, are spelt out for the aforesaid breach, the said negative covenant cannot be enforced, is, to my mind, equally specious and unsustainable in law
On the contention that the Covenant contained in this agreement is in restraint of trade, the Court, relying on Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd. (1967) 2 SCR 378, Superintendence Company of India (P) Ltd. v. Sh. Krishan Murgai (1981) 2 SCC 246 and Percept D'Mark (India) (P) Ltd. v. Zaheer Khan and Anr. (2006) 4 SCC 227, held:
Finally, as regards the submission of the learned Counsel for the respondent that the covenant in the instant case is a negative covenant, which is in restraint of trade and the said covenant cannot, therefore, be enforced against the respondent, in my considered opinion, the Supreme Court in Golikari's case and in Murgai's case has unambiguously laid down the law in respect of negative covenants which are hit by Section 27 of the Contract Act and those which are valid under the said Act... 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.
In the instant case, indubitably the respondent is in breach of the negative covenant contained in his service agreement, during the subsistence of his service agreement with the petitioner, and the doctrine of restraint of trade cannot therefore be held to apply. The respondent must, accordingly, in my opinion, be held to be bound by the terms of his service agreement, at least till such time as the arbitrator renders his award on the dispute between the parties.
The petitioner has thus made out a prima facie case for the grant of interim relief under Section 9 of the Act, restraining the respondent from seeking employment with any business rival of the petitioner or with any organization dealing in Stock Market/Capital Market/Financial Market Education Institute.
The balance of convenience also tilts in favour of the petitioner, as the petitioner cannot be monetarily compensated, if any of its trade secrets or information relating to its courses, course materials and business is divulged by the respondent to any other organization carrying on a business akin to that of the petitioner.
Irreparable injury would also undoubtedly be caused to the petitioner's business, if such an eventuality occurs.
In view of the aforesaid conclusion, the respondent is restrained, during the pendency of the arbitration proceedings before the Arbitrator, from joining any employment or engaging directly or indirectly in any business or associating himself in any capacity with any organization dealing in Stock Market/Capital Market/Financial Market Education Institute or serving whether as principal, agent, partner or employee or in any other capacity, either full time or part time in any business whatsoever similar to that of the petitioner. The respondent is further restrained from divulging to any other business/firm or company any of the secret processes or information relating to the courses, course material and business of the petitioner as per the proprietary, confidential systems developed and used by the petitioner. The respondent is also restrained from joining any competitor of the respondent and from alluring or enticing any of the existing employees of the petitioner to join any other business/firm or company
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