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."]
(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.
(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.