K.D. Campus Pvt. Ltd vs Metis Eduventures Private ...
2018 Latest Caselaw 516 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI
%                                     Date of decision: 22nd January, 2018
+                                CS(COMM) No.485/2017

      K.D. CAMPUS PVT. LTD.                               ..... Petitioner
                   Through:             Ms. Rajeshwari H. and Mr. Kumar
                                        Chitranshu, Advs.
                                    Versus
    METIS EDUVENTURES PRIVATE LIMITED INDIA
    & ORS                                     ..... Respondents

Through: Mr. Amit Sibal, Sr. Adv. with Mr. Rajat Kumar, Mr. Mani Gupta and Mr. Aditya Gupta, Advs. for D-1.

Mr. Harsh Parashar and Mr. Aman Pandey, Advs. for D-2 to 8.

CORAM:

HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

I.A.No.8356/2017 (u/O XXXIX R-1&2 CPC).

1. The plaintiff, engaged in the business of imparting coaching for examinations held by State Services Commission (SSC) and for various other competitive exams, during the pendency of the suit seeks to restrain,

(a) defendants no.2 to 6, contractually committed with the plaintiff to during the period of their contract from teaching in defendant no.1, carrying on the same business/vocation as plaintiff and thus a competitor of the plaintiff; and

(b) defendants no.7 & 8 contractually committed with the plaintiff in administrative capacity, from joining the employment of defendant no.1.

2. The plaintiff, on 24th August, 2017 was granted ad-interim order restraining the defendants no. 2 to 6 from imparting private tuitions to any student of the plaintiff's coaching institute or of any other coaching institute;

it was however, clarified that the said order would not restrain the defendants no.2 to 6 from teaching students who are not enrolled with plaintiff's institute or any other coaching institute.

3. The defendant no.1 preferred FAO(OS)(COMM) 167/2017 and defendant no.2 to 6 preferred FAO(OS)(COMM) 168/2017 against the aforesaid interim orders and which were allowed on 7 th September, 2017 and the parties relegated to addressing on the application for interim relief before this Bench. Thus, as of today, there is no ad-interim order in favour of the plaintiff.

4. On 22nd November, 2017, issues were framed in the suit and parties relegated to leading evidence on the issues framed.

5. The hearing on this application was also undertaken on 22 nd November, 2017 and after some hearing attention of the counsel for the plaintiff was drawn to Arvinder Singh Vs. Lal Pathlabs Pvt. Ltd. 2015 SCC OnLine Del 8337 (DB) and the hearing adjourned to today.

6. Counsel for the plaintiff and the senior counsel for defendant no.1 Metis Eduventures Private Limited India and counsel for defendants no.2 to 8 i.e. Neeraj Kukreja, Harvinder Kumar, Dheeraj Singh, Rahul Bainsla, Prateek Chaturvedi, Vikas Kumar Mishra and Savitesh Kumar Mishra have been heard.

7. The contention of the counsel for the plaintiff is:-

(i) that the defendants no.2 to 6, during the term of their contract with the plaintiff, are liable to be restrained from taking private tuitions and/or from teaching in the defendant no.1 or in any

other Institute; attention is invited to the following clause in the agreements of the plaintiff with each of the defendants no.2 to 6:

"That the Teacher shall not do any private tuition to any student whether of this Coaching Institute or other Coaching Institute nor be interested in any other educational Coaching Institute unless otherwise expressly permitted by the Coaching Institute nor be concerned in plots or conspiracies against the Coaching Institute in any manner till this agreement exists."

(ii) that though the plaintiff may not be able to enforce the contract of personal service whereunder the defendants no.2 to 6 have undertaken to teach at the plaintiff's institute till the period varying from July, 2018 till the year 2019 but the plaintiff is entitled to enforce the negative covenant aforesaid;

(iii) that the defendants no.2 to 8 have abandoned the employment with the plaintiff by unilaterally ceasing to serve the plaintiff and which the defendants no.2 to 8 are not entitled to; no resignation even has been submitted and/or accepted;

(iv) that such actions of the defendants no.2 to 8 are interfering in the business of the plaintiff;

(v) that careers of the students of the plaintiff are at stake and defendants no.2 to 6 should be directed to at least complete the coaching of the batches of students which they had commenced; however on enquiry it is stated that the term of the said batches has since been completed;

(vi) reliance is placed on (a) The Brahmaputra Tea Co. Ld. Vs. E.

Scarth MANU/WB/0175/1885 (b) V.N. Deshpande Vs. Arvind Mills Co. Ltd. MANU/MH/0080/1945 (c) Lalbhai Dalpatbhai & Co. Vs. Chittranjan Chandulal Pandya AIR 1966 Guj 189

(d) Niranjan Shankar Golikari Vs. The Century Spinning and Mfg. Co. Ltd. AIR 1967 SC 1098 (e) Superintendence Company of India (P) Ltd. Vs. Shri Krishna Murgai (1981) 2 SCC 246 (f) Electrosteel Castings Ltd. Vs. Saw Pipes MANU/WB/0490/2004 (g) Wipro Limited Vs. Beckman Coulter International S.A. (2006) 131 DLT 681 (h) Hi-Tech Systems & Services Ltd. Vs. Suprabhat Ray. MANU/WB/0464/2015 (i) Percepts D'Markr (India) Pvt. Ltd. Vs. Zaheer Khan (2006) 4 SCC 227 and attention is also drawn to dicta of Coordinate Benches of this Court dated 21st September, 2016 in CS(OS)407/2016 titled M/s Paramount Coaching Centre Pvt. Ltd. Vs. Bhagvati Prasad and dated 24th August, 2017 in CS(COMM) 465/2017 titled M/s Paramount Coaching Centre Pvt. Ltd. Vs. Rakesh Ranjan Jha and it is contended that the said two cases also concerned coaching institutes and interim injunctions were granted therein and the said orders have attained finality and were not appealed against;

(vii) that Lal Pathlabs Pvt. Ltd., to which attention was drawn, has been noticed in Rakesh Ranjan Jha supra and after taking notice of the same, ad-interim injunction has been granted.

8. Per contra, the senior counsel for defendant no.1 has contended:-

(a) that there is no public interest involved in the present case, as is sought to be contended;

(b) that interim injunction is claimed solely to curb competition;

(c) that the interest of any student is not suffering;

(d) that the defendant no.1 did not approach any of the defendants no.2 to 8; rather they approached the defendant no.1 for employment stating that the plaintiff had not paid their salaries / bills; that it has been pleaded so in the written statement and there is no denial in the replication and though the suit is ripe for evidence but no document has been filed by the plaintiff;

(e) that the plaintiff has been avoiding filing affidavits by way of examination-in-chief of its witnesses and have not filed the same in spite of time granted vide order dated 22nd November, 2017 having lapsed and further time sought and granted having so lapsed;

(f) that in fact any interim injunction in favour of the plaintiff would harm the students whom the defendants no. 2 to 6 are now teaching in the defendant no.1 institute;

(g) that the defendants no.2 & 3 have placed before this Court documents to show that they both have given one month's notice to the plaintiff and within the said one month, completed the course which they had commenced for the batch concerned;

(h) that the plaintiff has not sought any declaration of the termination effected by the defendants no.2 to 8 as unlawful and

without seeking such declaration, cannot claim any injunction;

(i) that any interim injunction would result in the defendants no.2 to 8 being rendered idle;

(j) that there can be restraint only in such circumstances where the employee is in possession of any proprietary information/ interest of the employer and for protection or safeguarding of which, the employee has undertaken to serve the employer for a minimum particular duration and not leave prior thereto;

(k) attention in this regard is drawn to Gujarat Bottling Co. Ltd.

Vs. Coca Cola Co. (1995) 5 SCC 545 and Niranjan Shankar Golikari supra;

(l) that the plaintiff herein has not even pleaded any such proprietary interest to safeguard which the defendants no.2 to 6 can be so restrained;

(m) that as far as the defendants no.4 to 6 are concerned, it is the plaintiff itself which had expressed desire for them to leave;

(n) that in the present case, no student of the plaintiff has protested and no document that any student had claimed refund of fee has been filed;

(o) that the facts of Rakesh Ranjan Jha supra and Bhagvati Prasad supra are different and the said facts which prevailed with the Coordinate Benches of this Court are not to be found in this case; moreover, neither of the said judgment considers the aspect of proprietary interest;

(p) that the plaintiff has not complied with the proviso to Section 42 of Specific Relief Act, 1963;

(q) that the grant of any injunction would be very harsh and work injustice towards defendants; and,

(r) reliance has also been placed on Jet Airways (I) Ltd. Vs. Mr. Jan Peter Ravi Karnik 2000 SCC OnLine Bom 241 and DGS Realtors Pvt. Ltd. Vs. Realogy Corporation 2009 SCC OnLine Del 2726.

9. The counsel for the defendants no.2 to 8 has reiterated what has been contended by the senior counsel for the defendant no.1 qua being not paid and defendants no.2&3 having given notice and the plaintiff having expressed desire for the defendants no.4 to 6 to leave and has drawn attention to the documents in this regard. Attention is also invited to the plea of the said defendants, of the plaintiff having obtained their signatures on blank paper and having fabricated the agreements thereon and the said plea is sought to be supported by the agreement with the defendant no.5 which is stated to be of a date prior to the institution of the suit. It is further contended that issue has already been framed on the said plea of the defendants no.2 to 8.

10. The counsel for the plaintiff, in rejoinder has contended that the issue is, whether the contracts with the plaintiff stood terminated, unless the contract was mutually terminated, the plaintiff is entitled to injunction during the subsistence of the contract. It is further contended that paras 18 & 19 of Niranjan Shankar Golikari supra are also to the said effect. With respect to the contention of the defendants no.2 to 8 having not been paid, it is vaguely

argued that the plaintiff had paid them in cash and the said defendants are taking advantage thereof.

11. I had in Lal Pathlabs Pvt. Ltd. Vs. Dr. Arvinder Singh 2014 SCC OnLine Del 2033, though in different set of facts, granted an interim injunction restraining the defendants therein from carrying on their business/profession/practise as Pathologist or as Radiologist in the city in which they were earlier carrying on the said vocation and for the period for which they had agreed with the plaintiff, invoking exception to Section 27 of the Contract Act, 1872 but the Division Bench, allowing the appeal, held that injunction restraining the defendants in that case from carrying on their profession as Pathologist and Radiologist in any manner would render them incapable of working as a Pathologist or Radiologist in any capacity and would be contrary to Section 27 of the Contract Act, 1872. The defendants no.2 to 6 herein are teachers and defendants no.7 & 8 herein are administrators. The ratio of the dicta of Division Bench squarely applies to them. The subsequent decisions of Coordinate Benches, taking the same view, which I sitting singly had taken in Lal Pathlabs Pvt. Ltd. supra are clearly contrary to the dicta of the Division Bench. Though Rakesh Ranjan Jha supra, notices the judgment of the Division Bench but does not apply the same. Merely because three Single Judges have taken a different view from the Division Bench would still not constitute the said Three Judges a full Bench for the dicta of the Division Bench to be not followed.

12. The paragraph of Niranjan Shankar Golikari supra relied upon by the counsel for the plaintiff is as under:-

"20. 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 & Son Ltd. 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 therefore against public policy.

21. The next question is whether the injunction in the terms in which it is framed should have been granted. There is no doubt that the courts have a wide discretion to enforce by injunction a negative covenant. Both the courts below have concurrently found that the

apprehension of the respondent Company that information regarding the special processes and the special machinery imparted to and acquired by the appellant during the period of training and thereafter might be divulged was justified; that the information and knowledge disclosed to him during this period was different from the general knowledge and experience that he might have gained while in the service of the respondent Company and that it was against his disclosing the former to the rival company which required protection. It was argued however that the terms of clause 17 were too wide and that the court cannot sever the good from the bad and issue an injunction to the extent that was good. But the rule against severance applies to cases where the covenant is bad in law and it is in such cases that the court is precluded from severing the good from the bad. But there is nothing to prevent the court from granting a limited injunction to the extent that is necessary to protect the employer's interests where the negative stipulation is not void. There is also nothing to show that if the negative covenant is enforced the appellant would be driven to idleness or would be compelled to go back to the respondent Company. It may be that if he is not permitted to get himself employed in another similar employment he might perhaps get a lesser remuneration than the one agreed to by Rajasthan Rayon. But that is no consideration against enforcing the covenant. The evidence is clear that the appellant has torn the agreement to pieces only because he was offered a higher remuneration. Obviously he cannot be heard to say that no injunction should be granted against him to enforce the negative covenant which is not opposed to public policy. The injunction issued against him is

restricted as to time, the nature of employment and as to area and cannot therefore be said to be too wide or unreasonable or unnecessary for the protection of the interests of the respondent Company.

13. The contention of the counsel for the plaintiff is that the plaintiff is only seeking restraint against the defendants for the period for which they have contracted with the plaintiff and not for the period beyond that and as per the aforesaid logic the plaintiff is entitled to injunction for the said period.

14. In this context the following paragraphs of Shri Krishna Murgai supra may also be noticed:-

"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.

59. It is well settled that employees covenants should be carefully scrutinised because there is inequality of bargaining power between the parties; indeed no bargaining power may occur because the employee is presented with a standard form of contract to accept or reject. At the time of the agreement, the employee may have given little thought to the restriction because of his eagerness for a job; such contracts "tempt improvident

persons, for the sake of present gain, to deprive themselves of the power to make future acquisitions, and expose them to imposition and oppression."

60. There exists a difference in the nature of the interest sought to be protected in the case of an employee and of a purchaser and, therefore, as a positive rule of law, the extent of restraint permissible in the two types of case is different. The essential line of distinction is that the purchaser is entitled to protect himself against competition on the part of his vendor, while the employer is not entitled to protection against mere competition on the part of his servant. In addition thereto, a restrictive covenant ancillary to a contract of employment is likely to affect the employee's means or procuring a livelihood for himself and his family to a greater degree than that of a seller, who usually receive ample consideration for the sale of the goodwill of his business.

61. The distinction rests upon a substantial basis, since, in the former class of contracts we deal with the sale of commodities, and in the latter class with the performance of personal service-altogether different in substance; and the social and economic implications are vastly different.

62. The Courts, therefore, view with disfavour a restrictive covenant by an employee not to engage in a business similar to or competitive with that of the employer after the termination of his contract of employment.

63. The true rule of construction is that when a covenant or agreement is impeached on the ground that it is in restraint of trade, the duty of the Court is, first to interpret the covenant or agreement itself, and to ascertain according to the ordinary rules of construction what is the fair meaning of the parties. If there is an ambiguity it must receive a narrower construction than the wider. In Mills v. Dunham, L.R. [1891] 1 Cha 576 Kay, LJ. observed: If there is any ambiguity in a

stipulation between employer and employee imposing a restriction on the latter, it ought to receive the narrower construction rather than the wider-the employed ought to have the benefit of the doubt. It would not be following out that principle correctly to give the stipulation a wide construction so as to make it illegal and thus set the employed free from all restraint. It is also a settled canon of construction that where a clause is ambiguous a construction which will make it valid is to be preferred to one which will make it void.

64. The restraint may not be greater than necessary to protect the employer, nor unduly harsh and oppressive to the employee. I would, therefore, for my part, even if the word „leave‟ contained in Clause 10 of the agreement is susceptible of another construction as being operative on termination, however, accomplished of the service e.g. by dismissal without notice, would, having regard to the provisions of Section 27 of the Contract Act, 1872, try to preserve the covenant in Clause 10 by giving to it a restrictive meaning, as implying volition i.e. where the employee resigns or voluntarily leaves the services. The restriction being too wide, and violative of Section 27 of the Contract Act, must be subjected to a narrower construction."

15. I have also wondered whether the expressions "period of the contract", "period of employment" used in Niranjan Shankar Golikari supra would extend to the period when one of the parties to the contract or employer - employee relationship, has illegally terminated the contract/employment prior to the contracted period. In other words, whether an employee who has ceased to serve the employer before the expiry of the period for which he had contracted to serve the employer can be restrained by the employer from serving anywhere else for the remaining contracted period. As per Niranjan Shankar Golikari supra, negative covenants

operate during the period of the contract of employment when the employee is bound to serve his employer exclusively are generally not regarded in restraint of trade and do not fall under Section 27 of the Contract Act. However it has further been explained that the Courts have a wide discretion to enforce by injunction a negative covenant and will enforce the same where it is necessary to protect the employer's interest and where there is nothing to show that if the negative covenant is enforced, the employee would be driven to idleness or would be compelled to go back to the earlier employer. In Shri Krishna Murgai supra it was further explained that injunction shall be granted where the restriction is reasonable, having regard to the interest of the employer and does not cause hardship to the employee, who will receive a wage or salary for the period in question. It was further held that if the covenant is to operate after the termination of service or is too widely worded, the Court may refuse to enforce it.

16. In the present case the contract of employment has admittedly been prematurely terminated. According to the plaintiff, unilaterally and illegally by the defendants no.2 to 8. It is not the case of the plaintiff that the plaintiff, notwithstanding such unilateral and illegal termination of the contract of employment by the defendants no.2 to 8, is continuing to treat the defendants no.2 to 8 as in the employment of the plaintiff or is continuing to pay the emoluments which the plaintiff under the contract had agreed to pay to the defendants no.2 to 8. Rather, it is the plea of the defendants no.2 to 8 that their past emoluments, for the period for which they served the plaintiff, were also not paid and which compelled them to look for employment elsewhere. Once the plaintiff itself is treating the contract of employment with each of the defendants no.2 to 8 as terminated and has stopped

performing his obligations under the said contract to the defendants no.2 to 8, in my view the present case would fall in the genre of employer seeking to enforce the negative covenant after the termination of service and which is not permissible in law.

17. I may in this regard also notice the following passage in the concurring opinion of Bhagwati J. in Executive Committee of Vaish Degree College, Shamli Vs. Lakshmi Narain (1976) 2 SCC 58:-

".....If an employer repudiates the contract of employment by dismissing his employee, can the employee refuse to accept the dismissal as terminating the contract and seek to treat the contract as still subsisting ? The answer to this question given by general contract principles would seem to be that the repudiation is of no effect unless accepted, in other words, the contracting party faced with a wrongful repudiation may opt to refuse to accept the repudiation and may hold the repudiation to a continuance of his contractual obligation. But does this rule apply to wrongful repudiation of the contract of employment? The trend of the decisions seems to be that it does not. It seems to be generally recognized that wrongful repudiation of the contract of employment by the employer effectively terminates the employment: the termination being wrongful, entitles the employee to claim damages, but the employee cannot refuse to accept the repudiation and seek to treat the contract of employment as continuing. What is the principle behind this departure from the general rule of law of contract? The reason seems to be that a contract of employment is not ordinarily one which is specifically enforced. If it cannot be specifically enforced, it would be futile to contend that the unaccepted repudiation is of no effect and the contract continues to subsist between the parties. The law in such a case, therefore, adopts a more realistic posture and holds that

the repudiation effectively terminates the contract and the employee can only claim damages for wrongful breach of the contract...."

18. In my opinion, it is only during the period for which the employee continues to serve the employer and receives emoluments from the employer can the employer enforce the negative covenant unless it is shown that the enforcement of negative covenant beyond the period of wrongful repudiation of the contract is necessary to protect the interest of the employer. However such restraint can be to protect any proprietary right of the employer and not to prevent competition.

19. The plaintiff in the present case has indeed not shown any proprietary right which may be infringed by the defendants no.2 to 8 joining employment elsewhere or by indulging in the activity of teaching. Moreover, the defendants no.2 to 6 who are teachers cannot be expected to teach any subject other than that in which they are qualified to teach and it is also not the plea that they are capable of getting employment elsewhere in any other capacity. We are today living in an age where employment avenues are scarce and if the defendants no.2 to 8 are restrained as sought, they would necessarily be driven to idleness and a state of penury.

20. Else, enough has been said on the subject in the various judgments cited by the counsels and need to say anything further and/or to further burden this order, is not felt.

21. According to me, the plaintiff is not entitled to any interim injunction against any of the defendants.

22. The application is dismissed.

CS(COMM) 485/2017.

23. At request of the counsel for the plaintiff, the plaintiff is granted time till 13th February, 2018 to file affidavits by way of examination-in-chief of all its three witnesses sought to be examined and all of whom are stated to be the private witnesses of the plaintiff. However, on non-filing of the affidavits, as aforesaid, the right of the plaintiff to file the same shall stand closed.

24. The counsels state that the Commissioner appointed to record evidence has already scheduled the case on 15th-16th February, 2018.

RAJIV SAHAI ENDLAW, J.

JANUARY 22, 2018 rekha / pp..

(corrected and released on 15th February, 2018).