Delhi High Court
M/S Eli Research India Pvt Ltd vs Mr Deepak Gupta & Anr on 17 May, 2017
$~12
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS(OS) 3447/2015 & I.A.Nos.4485/2016, 13603/2016, 422/2017
M/S ELI RESEARCH INDIA PVT LTD ..... Plaintiff
Through Mr.Prafulla Kumar Behera with
Ms.Asmita Chaudhary, Mr.Rohit
Rattu and Mr.Manish Kumar
Bhardwaj, Advocates.
versus
MR DEEPAK GUPTA & ANR ..... Defendants
Through Mr.A.B.Dial, Sr.Advocate with
Mr.Kunal Anand and Ms.Mani Mittla,
Advocates for D-1.
Mr.Shwetank Tripathi, Advocate for
D-2.
Mr.S.Chakraborty with Ms.Harshita
% Date of Decision : 17th May, 2017
CORAM:
HON'BLE MR. JUSTICE MANMOHAN
JUDGMENT
MANMOHAN, J (Oral):
I.A.Nos.25684/2015 & 4691/2016
1. Present suit has been filed for permanent and mandatory
injunction against infringement or breach of contract dated 29th
September, 2014, misappropriation of trade secrets, breach of trust,
delivery up, seeking damages and rendition of accounts of profits.
2. On 23rd December, 2015, the learned predecessor of this Court
by way of an ex parte order in I.A.No.25684/2014 had restrained the
defendant no.1 from breaching the
contract/reproducing/incorporating/misappropriating or misusing the
trade secret or confidential information/data of the plaintiff company
and making the same available in any manner to the members of the
public by offering to sell, sale or any other form of
communication/issuing to the public thereby amounting to
infringement of the plaintiff's rights in any manner.
3. Subsequently, on 20th October, 2016, learned predecessor of
this Court recorded the statement of defendant no.1 on oath to the
effect that he had no concern whatsoever with Skill Educators and
that he had not disobeyed the order of injunction dated 23 rd
December, 2015. The statement made by defendant no.1 on 20 th
October, 2016 is reproduced hereinbelow:-
"I am defendant no.1 in this case. I state that I have no
concern whatsoever with Skill Educators. I am neither
employed, nor in any manner even remotely concerned with
Skill Educators. I further state that I have not disobeyed the
order of injunction dated 23.12.2015."
4. The defendant no.1 filed an application being
I.A.No.4691/2016 for vacating the aforesaid injunction order on the
ground that Clauses 19 and 22 of the Non-Competition,
Confidentiality and Non-Solicitation Agreement (hereinafter referred
to as "the Agreement") dated 29th September, 2014 are void.
5. Clauses 19 and 22 of the Agreement are reproduced
hereinbelow:-
"19. Employee agrees and promises that for twenty four (24)
months following the termination (whether voluntarily or
involuntarily) of Employees employment relationship with Eli
Research, the Employee shall not, in India, the Philippines or
North America (whether directly or indirectly) own, operate or
perform services that are the same or substantially similar to
those performed by Employees while employed by Eli
Research for any person or entity engaged in a business that a
produces, markets, distributes or sells products or services of
a similar nature to those developed or commercialized by Eli
Research at the time of the termination of Employee's
employment.
xxxx xxxx xxxx xxxx
22. Employee agrees and promises that during Employee's
employment with Eli Research and for a period of twenty-four
(24) months thereafter, Employee shall not directly or
indirectly solicit, lure or hire any employee of Eli Research or
induce any third party or individual to cease to modify its
relationship with the Company or assist or aid in any such
activity even if such solicitations are undertaken without the
use (which would be impressible) of the Eli Materials."
6. Learned senior counsel for defendant no.1 submits that
defendant no.1 has a constitutional right to earn his livelihood by
using his knowledge and skills and if the said injunction is not
vacated, it would cause irreparable loss to the career and life of the
said defendant. He further submits that Clauses 19 and 22 of the
Agreement are null and void being violative of Section 27 of the
Indian Contract Act, 1872 (hereinafter referred to as "the Contract
Act"). Section 27 of the Contract Act reads as under:-
"27. Agreement in restraint of trade, void. - Every
agreement by which any one is restrained from exercising a
lawful profession, trade or business of any kind, is to that
extent void.
Exception - Saving of agreement not to carry on business of
which goodwill is sold. - 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,
carried on a like business therein, provided that such limits
appear to the Court reasonable, regard being had to the
nature of the business."
7. On the other hand learned counsel for the plaintiff contends that
as defendant no.1 had been given special training and his nature of
employment was special, the impugned clauses of the Agreement are
legal and valid. Consequently, according to him, the defendant no.1
for a period of 24 months post-termination can neither own, operate
or perform services that are the same or substantially similar to those
performed by the employees while employed by the plaintiff.
8. He further submits that even if it is assumed that Clause 19 of
the Agreement is violative of Section 27 of the Contract Act, yet the
defendant no.1 would have to comply with Clause 22 of the said
Agreement as well as the defendant no.1's own undertaking dated 20 th
October, 2016.
9. In rejoinder, learned senior counsel for defendant no.1, on
instructions of the said defendant who is personally present in Court,
states that he will neither poach any employee of the plaintiff nor
induce any third party or individual to cease or modify its relationship
with the plaintiff.
10. The law with regard to negative covenant in employer-
employee contract is well-settled. The Supreme Court in Niranjan
Shankar Golikari Vs. Century Spinning and Manufacturing Co.
Ltd; (1967) 2 S.C.R. 378 has held that the negative covenant
operative during the period of employment when the employee is
bound to serve his employer exclusively is not to be regarded as
restraint of trade and therefore not violative of Section 27 of the
Contract Act. The Supreme Court, however, held that a restrictive
covenant extending beyond the term of the contract is void and not
enforceable. The relevant portion of the said judgment is reproduced
hereinbelow:-
"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 and 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 was therefore against public policy."
11. The Supreme Court in Superintendent Company Of India (P)
Ltd. Vs. Krishan Murgai; 1981 SCC (2) 246 has also held as under:-
"58. The drafting of a negative covenant in a contract of
employment is often a matter of great difficulty. In the
employment cases so far discussed, the issue has been as to the
validity of the covenant operating after the end of the period of
service. Restrictions on competition during that period are
normally valid, and indeed may be implied by law by virtue of
the servant's duty of fidelity. In such cases the restriction is
generally reasonable, having regard to the interest of the
employer, and does not cause any undue hardship to the
employee, who will receive a wage or salary for the period in
question. But if the covenant is to operate after the termination
of services, or is too widely worded, the Court may refuse to
enforce it".
12. Subsequently, the Supreme Court in Percept D'Mark (India)
(P) Ltd.Vs. Zaheer Khan and Anr.; (2006) 4 SCC 227 has held as
under:-
"63. Under Section 27 of the Contract Act (a) a restrictive
covenant extending beyond the term of the contract is void and
not enforceable. (b) The doctrine of restraint of trade does not
apply during the continuance of the contract for employment
and it applied only when the contract comes to an end. (c) As
held by this Court in Gujarat Bottling vs. Coca Cola (supra),
this doctrine is not confined only to contracts of employment,
but is also applicable to all other contracts."
13. Consequently, a negative covenant, which bars the employees
from doing certain activities during the period of contract is valid but
the said restriction post-termination is violative of Section 27 of the
Contract Act.
14. Accordingly, Clause 19 of the Agreement, as it operates in the
post-termination phase, is void being violative of Section 27 of the
Contract Act. However, the defendant no.1 is held bound by the
undertaking/statement given on 20th October, 2016 as well as the
undertaking given today that he would not poach any employee of the
plaintiff nor induce any third party or individual to cease or modify its
relationship with the plaintiff in accordance with Clause 22 of the
Agreement.
15. With the aforesaid directions and observations, the order dated
23rd December, 2015 is vacated and the present I.As stand disposed
of.
CS(OS) 3447/2015 & I.A.Nos.4485/2016, 13603/2016, 422/2017
List the matter before the Joint Registrar on 23rd May, 2017, the
date already fixed.
List the matter before Court on 07th November, 2017.
MANMOHAN, J
MAY 17, 2017
KA
