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V.N. Deshpande Vs. Arvind Mills Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectContracts
CourtMumbai
Decided On
Case Number First Appeal No. 86 of 1945
Judge
Reported inAIR1946Bom423; (1946)48BOMLR90
AppellantV.N. Deshpande
RespondentArvind Mills Co. Ltd.
Excerpt:
indian contract act (ix of 1872), section 27 - specific relief act (1 of 1877), section 57, illus. (c), (d)-agreement of service-covenant preventing employee working elsewhere during term of agreement-whether such agreement enforceable-whether covenant unreasonably wide, how determined.;agreements of service, containing a negative covenant preventing an employee from working elsewhere during the term coverted by the agreement are enforceable.;the existence of a negative covenant in such agreements does not make the agreements void under section 27 of the indian contract act, 1872, on the ground that it is in restraint of trade. illustrations (c) and (d) to section 57 of the specific relief act, 1877, in terms recognise such contracts and the existence of a negative covenant therein.;the.....harilal kania, kt., ag. c.j.1. this is an appeal from the judgment of the joint first class sur-judge at ahmedabad. the respondents filed this suit against the appellant to restrain him from working in the rohit mills, as a weaving master. the appellant had agreed to serve the second respondents under an agreement dated march 28, 1944. the period of service was three years commencing from january 1, 1944. it appears from the record that the appellant was in the service of the second respondents as a weaving master for several years before this agreement was entered into. as the second respondents are the managing agents of a number of mills they reserved liberty to engage the appellant in any of the mills of which they were managing agents. with this general idea the agreement in question.....
Judgment:

Harilal Kania, Kt., Ag. C.J.

1. This is an appeal from the judgment of the Joint First Class Sur-Judge at Ahmedabad. The respondents filed this suit against the appellant to restrain him from working in the Rohit Mills, as a weaving master. The appellant had agreed to serve the second respondents under an agreement dated March 28, 1944. The period of service was three years commencing from January 1, 1944. It appears from the record that the appellant was in the service of the second respondents as a weaving master for several years before this agreement was entered into. As the second respondents are the managing agents of a number of mills they reserved liberty to engage the appellant in any of the mills of which they were managing agents. With this general idea the agreement in question was entered into. Clauses 4, 8, 9 and 10 of the agreement are relevant. They run in these terms:-

4. That the said weaving master will neither absent himself from his work without leave nor engage himself directly or indirectly to work for any other person firm or company in any capacity whatever nor attempt to impede his employers in their business nor divulge any of the secrets', information or connections to any other person whatever.

8. That the said weaving master shall devote his whole time and attention to the services of the said agents, or if so directed to other agencies, wherein any of the above partners is interested as such, as aforesaid during the said term of three years and shall not during the said term whether he be in the employment or not, get in the employ of or be engaged or be connected as weaving master or as an employee under any title discharging substantially the same duties he may be discharging here with any firm or company or individual in any part of India including. the Indian States for the space of the said years or any portion of the remaining period of the said term.

9. That the 'said weaving master shall not during the continuance of this agreement or thereafter divulge any of the secrets, process or information etc. relating to the manufacturers or generally relating to any affairs of the agents and companies for whom he may work as weaving master in pursuance of these presents.

10. That the said weaving master hearby agrees not to leave the services of the said agents and not serve or engage himself directly or indirectly to work for any other person, firm or company in India, including the Native States in the same capacity and if the said weaving master attempts to do so the Agents have a right to prevent the said weaving master from doing so. The said agents shall have this right in addition to and without prejudice to any right they may have to claim damages from the said weaving master....

2. After working under this agreement for a year the appellant left the respondents' .service and joined the Rohit Mills as a weaving master. The Arvind Mills, in which the appellant was at the time actually engaged as a weaving master, and the managing agents, the second respondents, thereupon filed this suit. After reciting the agreement and the fact that it is difficult to get weaving masters in present times the plaintiffs prayed for an injunction against the defendant from serving elsewhere in breach of the negative covenant contained in the agreement. The prayer is found in para. 12A of the plaint. By his written statement the appellant contended inter alia that the -agreement was not binding on him for the reasons mentioned therein. According to him he had not read and understood the agreement. It was further alleged that at the time of signing the agreement Mr. Kasturbhai of the second respondent firm had agreed that if the appellant obtained service elsewhere on a salary of Rs. 1,000 to 1,200 the second respondents will not object to the appellant accepting such service. The appellant further contended that the agreement was penal and inequitable and therefore should not be enforced. In the trial Court oral evidence was led and the trial Judge accepted the evidence of the second respondents' witnesses in preference to the evidence led on behalf of the appellant. Before us the learned Counsel for the appellant has not argued the question whether the agreement was binding or not. Having regard to the conclusion of the trial Court, he has frankly conceded that he cannot ask the Court to set aside that finding of fact.

3. On behalf of the appellant three points only were urged before us: (1) Whether the covenants of this agreement are unreasonable and in restraint of trade. It was argued that the whole agreement was therefore unenforceable. (2) That this is not a case of granting injunction. The burden of proof is on the respondents and they have failed to show that an injunction is the proper remedy under the circumstances of the case. i(3) That even, if an injunction were to be granted, the terms thereof are so wide that the Court should either refuse to grant the injunction or modify the terms suitably.

4. On the first question it must be pointed out that no issue had been raised in the trial Court to covers the contention that the agreement was void, as it was in restraint of trade. Counsel for the appellant drew our attention to issue No. 4. On looking at the relevant portion of the judgment (para. 17) it appears that under this issue it was only contended that the clauses in question were hard, inequitable and penal and therefore the Court should not grant the injunction under the circumstances. I do not find any argument advanced in the trial Court that the agreement was in restraint of trade and therefore void under Section 27 of the Indian Contract Act. Mr. Amin cited several English decisions. I shall briefly deal with them towards the end of the case, as they were sought to be applied also in connection with the third point. It is sufficient to note at this stage that agreements of service, containing a negative cwenant preventing the employee from working elsewhere during the term covered by the agreement, are known to Indian Courts. They were enforced in Pragji v. Pranjiwan (1903) 5 Bom. L.R. 878, Charlesworth v. MacDonald I.L.R. (1898) Bom. 103, Madras Railway Company v. Rust I.L.R. (1890) Mad. 18 which was approved in Subba Naidu v. Haji Badsha Sahib I.L.R (1902) Mad. 168, and Bum & Co. v. McDonald I.L.R (1908) Cal. 354 Illustrations (c) and (d) to Section 57 of the Specific Relief Act in terms recognise such contracts and the existence of a negative covenant therein. It is therefore futile to contend that the existence of a negative covenant in a service agreement makes the agreement void on the ground that it is in restraint of trade and against the principles found in Section 27 of the Indian Contract Act. All agreements for personal service for a fixed period would, if the appellant's argument were; accepted, be void. An agreement to serve exclusively for a week, a day, or even for an hour necessarily prevents the person so agreeing to serve, from working during that period for anyone other than the person with whom he has so agreed. It can hardly be contended that such an agreement is void. In truth a man who works for a particular wage and for a certain period agrees to work in fact and such an agreement does not restrain him from doing, so. To hold otherwise Would, I think, be a contradiction in terms. In Pragji V. Pranjiwan, the Court dealt with this argument in these terms (p. 881):-

The section extends to agreements of a .negative character such as are necessarily implied from contracts for whole time service, even if not expressed therein and the operation of .such contracts as contracts for service, appears in such cases to prevent the application of Section 27 of the Contract Act to, such negative agreements so far as they purport to impose restrictions only during the period of affirmative agreement for service.

5. The decisions mentioned above show that the High Courts in India; have enforced such agreements and have enforced the negative covenant contained therein. It was contended that the restriction preventing the applicant from taking up service elsewhere in India including the Native States was unreasonable and very wide and made the agreement void. The question whether a particular covenant in a particular agreement was unreasonably wide has to be decided by the nature of the agreement, the qualifications of the employee and the service he has to render, along with the places where the employee can get alternative service of the same -nature. I shall observe at this stage only that under the circumstances of this case, I do not think that the covenant is unreasonably wide, as contended by the appellant. 1 shall consider this aspect of the question in detail when dealing with the English cases.

6. The second contention that no injunction should be granted must depend on the evidence on record. In the; plaint it is alleged that the appellant is a technical employee and in these days of war it is difficult to secure the services of technical men. It is pointed out that if technical employees were allowed arbitrarily to leave service,, after engaging themselves under a definite agreement for a fixed term, the working of' industrial concerns in these days would be impossible. In support of this contention Mr. Kasturbhai gave evidence. After referring to this point generally it was only pressed in a somewhat lukewarm fashion. I can' understand that attitude having regard to the evidence on record. It appears that in the trial Court also this point was not seriously urged. It is not disputed that the appellant is a man of experience and the agreement was made for a definite period of 'three years at an increased salary to maintain stability of service of at technical employee. Having considered the evidence on record I do not see any reason to differ from the conclusion of the trial Court that this is a fit case for granting an injunction.

7. That leaves the question of the terms of the injunction. At this stage I shall notice the English decisions on which Mr. Amin relied in support of his contention.

8. In Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Company [1894] A. C. 535, a patentee and manufacturer of guns and ammunition for purposes of war covenanted with a company to which his patents and business had been transferred that he would not for twenty-five years engage, except on behalf of the company, either directly or indirectly in the business of a manufacturer of guns or ammunition. The Court granted' the injunction in the terms of the covenant. Before the House of Lords it was argued that the clause was void as being in restraint of trade. It was further contended that it was unrestricted as to space and therefore injurious to the public interest of the country. Both these arguments were negatived and the House of Lords confirmed the injunction as granted. In dealing with the question of the terms being unreasonable Lord Macnaghten observed as follows (p. 565):-

The true view at the present time, I think, is 'this: The public have an interest in every person's carrying on his trade freely: so has the individual. All: interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable -reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is no way injurious to the public. That, 1 think, is the fair result of all the authorities.

These observations have been accepted in a later case as laying down the correct standard for deciding whether particular covenants are in restraint of trade or not I have already pointed that the covenant in that particular case, although it extended to over twenty-five years, was held binding and an injunction was granted in terms thereof.

In Ehrmm v. Bartholomew [1898] 1 Ch. 671, a traveller for the plaintiffs, a firm of wine merchants, agreed to devote the whole of his attention and time to the business of the plaintiffs, and not directly or indirectly to engage or employ himself in any other business, or transact any business with any other person or persons than the plaintiffs, for a term -of ten years. The traveller having left the plaintiffs' employment after one year and entered the service of another firm, the plaintiffs moved for an injunction to restrain him from engaging in any other business, and from acting as a traveller for any other firm of wine merchants during the term of ten years. It was noticed that that agreement was terminable by the plaintiffs (the employers) after the first year by three months' notice in writing. The employee had no such right. In dealing with the question of granting the injunction Romer J. doubted whether the clause was intended to apply to the state of things existing after the employee had; taken up service with another firm and was no longer acting as a servant of the plaintiffs and cannot be compelled so to act. The learned Judge pointed out that the covenant was unreasonably wide, because it prevented the employee from doing any work at all in connection with any business with any other employer. It was not restricted to the wine business or any other kind of business. Under the circumstances the application for injunction was refused. The observations of Romer J. in connection with the applicability of the negative covenant after the employee ceased to be an employee under the agreement perhaps has led in the present case to the structure of Clause 8, in which, in terms, it is provided as follows: '... and that shall not during the said term, whether he;be in the employment or not, get in the employ of. ..

9. In Mason v. Provident Clothing and Supply Company, Limited [1913] A. C. 724 a canvasser (appellant) was employed by the employers (respondents) a clothing and supply company having branches all over England, The appellant agreed that he would not within three years after the termination of the employment be in the service of any person, firm, or company carrying on or engaged in a business the same as or similar to that of the plaintiff company, or assist any person employed or assisting in any such business, ' within twenty-five miles of London aforesaid where the company -did carry on its business.' It was held, assuming, without deciding, that the agreement was not too vague as regards the area of restriction to be enforced by injunction, that the restriction was wider than was necessary for the plaintiffs' protection. The facts as noted in the report show that the canvasser was a part-time employee and was paid 'by commission. It was particularly noticed that the restraint was for three years after he ceased to work for the employers. Mr. Amin relied on various passages in the judgments in the case. Briefly put the propositions of law are these: (1) That the party who seeks to enforce a covenant has to establish his right to do so. The burden of proof is on the party coming to Court. (2) The test laid down by Lord Macnaghten about the extent to which a covenant in, restraint of trade may be agreed upon was approved. (3) Whether the particular restrictions are necessary for the protection of the rights of the employers must depend on the character of the business and the nature of the employment. In the view of Lord Shaw using Lord Mac-naghten's language in Nordenfelt v. Maxim Nordenfelt Gun and Ammunition Company there is obviously more freedom of contract between a buyer and a seller than between a masteri and a servant, or between an employer and a person seeking employment. The observations of Tindal C. J. in Hitchcock v. Coker (1837) 6 A. & E. 438 were accepted as good law-The observations were these (p. 454): .where the restraint of a party from carrying on a trade is larger and wider than the protection of the party with whom the contract is made can possibly require, such restraint must be considered unreasonable in law, and the contract which would enforce it must be therefore void.

In their judgments their Lordships observed that negative covenants must not be considered as a means of coercing and punishing the workman and putting him under a tyrannous and therefore a legally indefensible restraint. At the same time it was pointed out that a compromise should be made between the rights of two individuals freely to enter into such contracts as they liked and the right of a party to obtain protection to the extent it is necessary to do so for the performance of the contract agreed between them, and the right of the public to obtain free service of a man. In my opinion, these general observations are not in conflict with the law as found in illustrations (c) and (d) to Section 57 of the Specific Relief Act. It is a well known principle? of law that observations in every case have to be read in the light of the facts which the Court has to decide upon, and it will be a wrong principle of interpretation to merely take up a sentence and treat it as a general proposition of law, deprived of its context and the facts of the case in which the observation was made. Mason's case does not lay down anything which contravenes the right of the respondents in the present case to obtain an injunction,

10. Herbert Morris, Limited v. Saxelby [1916] 1 A. C. 688 was also relied upon. In' that case there was, a sale of the goodwill of a business. The defendant had been in the company's employment as a draughtsman and otherwise from the time he left school. After several years' service he was engaged as an engineer for two years certain and thereafter subject to four months' notice on either side, upon the terms and conditions contained in the contract. The negative covenant was for a period of seven years from his ceasing to be in the employ of the company and was in very wide terms. The Court refused to enforce the covenant. The decision is obvious in view of the fact that the man's liberty of action, was sought to be curtailed for a long time after the period of employment came to an end. The observations at p. 714 in that case are material to show that an injunction in terms of Clause 9 in the present case is not inappropriate. It was observed by Lord Shaw as follows (p, 714):-

Trade secrets, the names of customers, all such things which in sound philosophical language are denominated objective knowledge-these may not be given away by a servant; they are his master's property, and there is no rule of public interest which prevents a transfer of them against the master's will being restrained. On the other hand, a man's aptitudes, his skill, his dexterity, his manual or mental ability-all those things which in sound philosophical language are not objective, but subjective-they may and they ought not to be relinquished by a servant; they are not his) master's property; they are his own property; they are himself. There is no public interest which compels the rendering of those things dormant or Sterile or unavailing; on the contrary, the right to use and to expand his powers is advantageous to every citizen, and may be highly so for the country at large. This distinction, which was also questioned in argument, is just as plain as the other.

11. In Vancouver Malt and Sake Brewing Co. v. Vancouver Breweries, Ld. [1934] A. C. 181, the brewers' license was transferred, as a part of the business and goodwill. It was covenanted that for fifteen years they would not engage in the trade or business of manufacturing or selling beer. In view of the wide words of the covenant and the fact that it was to be operative for a long time after the transfer of the goodwill the Court refused to enforce the negative covenant. Their Lordships only reaffirmed the principles which were stated in Nordenfelt V. Maxim Nordenfelt Guns and Ammunition Company, and confirmed in Mason's case.

12. In most of these cases the point the Court had to consider was whether the particular covenant was in restraint of trade. I have already noticed that this point was not urged before the trial Court, and is not good in the present case, because of the circumstances here. Clause 4 of the agreement in terms provides that the defendant-appellant during the period of three years commencing from January 1, 1944, will be in the exclusive employment of the second respondents, who were the contracting parties. That is an affirmative agreement on the part of the employee to serve the employer, and no one else, during that period. By the first part of: Clause 8 the appellant agreed to devote his whole time and attention to the service of the second respondents, or to any other firm in which the partners of the second respondents firm were partners, but limited during the said term of three years. The later part of that clause contains the negative covenant preventing the appellant during the said term, and whether he was in the employment of the respondents or not, from getting in the employment of any one else as a weaving master or as an employee under any title discharging substantially the same duties, with any firm, individual or company in any part of India including the Native States for the said period of three years or any portion of the remaining period of the said term. Three points have been urged in connection with this clause. The first was that as the right to prevent the defendant from service, whether he was in the employment of the respondents or not, was a very wide restriction, no injunction should be granted in terms thereof. I have already pointed out that these words were perhaps included as a result of the observations of Romer J. in Ehrman v. Bartholomew. Apart from the reason why they were so included, the clause,, in my opinion, is perfectly clear and plain. If the respondent had committed a breach of the agreement, they could not rely on any terms thereof and enforce any covenant against the appellant. But, when the appellant commits a breach, he might contend that all those covenants were enforceable only when he was in service. After he ceased to be bound by the agreement, the terms thereof could not be enforced against him. To prevent such an argument being advanced the words ' whether he be in the employment or not' are inserted in this clause, I do not think these words are meant to operate beyond the period of the agreement, i.e. three years or the remaining period of the said term, according to the date the appellant commits a breach thereof. There is no room for doubt because the words in question have been preceded by the words ' during the said term.' This contention therefore fails.

13. The second point was that under the covenant the appellant was prevented from taking any employment elsewhere in any capacity. This contention is based on a misreading of the words used in this clause. The appellant was a weaving master; The intention is that if he commits a breach of the agreement he shall not serve as a weaving master, with any other party, and it makes no difference whether he is described in that service as- a weaving master or by any other designation provided lie in fact and in substance is performing the duties of a weaving master or work connected with it. In order to leave no room for doubt the injunction should show that the appellant is prevented from working as a weaving master or doing any work of weaving master under whatever designation he is engaged.

14. The third objection was about the prevention against taking up service in the whole of India including the Native States. It was argued that this is a far wider area than is necessary for the respondents' protection. As pointed out in the English cases, the question of extent of area in each case depends on the particular circumstances of the case. A weaving master is employed only in the textile mills, In India, the textile mills are generally located in well denned areas in British India. It is however well-known that within a distance of a few miles from these industrial centres there are Native States in which spinning and weaving mills are erected. The inclusion of the words 'Native States' under the circumstances cannot be considered unreasonable. It was argued, why should this man be prevented from working in Calcutta, or Amritsar which are at a distance of over a thousand miles? The answer to that is twofold; first, that a textile mill is not erected in every town of India. The fact that a particular textile company is at a distance of over 500 or 1000 miks makes little difference in the appellant obtaining employment to the detriment of the respondents. The cloth manufactured by the respondents is sold all over India and known as cloth manufactured by their particular textile mill. It is stated in evidence that the second respondents are the managing agents of eight mills in Ahmedabad and have a very large production. The service of the appellant could be used in any of those mills, and. therefore the fact that the restriction extendte to the whole of India does not by itself make it unreasonable. In fact on the evidence there is ample material to hold -that it was reasonable for the respondents' protection. The second answer is that knowing the conditions of trade in India, knowing the capacity of the second respondents to work as managing agents and knowing the capacity of the defendant also as an expert the parties have freely entered into this agreement. Under the circumstances; the Court is entitled to assume that it was a reasonable agreement between the parties. The evidence does not show that it was unreasonable in any way. Therefore, an injunction in terms of paragraph 8 is proper.

15. Clause 9 of the agreement prevents the appellant from divulging any secret information of the nature mentioned in that clause after the termination of his service. As pointed out in Herbert Morns, Ltd. v. Saxelby the defendant is not prevented from acquiring knowledge which makes him a better employee for the public for future employment. It only prevents him from divulging information which he has received as respondents' employee to another party. It is therefore clear that the clause as worded is proper and an injunction granted in terms thereof is not unreasonable or of wider latitude than justified in law. Clause 10 only expressly gives the employer the right to apply for an injunction, in addition to the right to obtain damages. It is not intended to be operative after the three years period comes to an end. Although the words ' during the said term ' are not used in that clause, that is dearly the intention because it is put side by side with the right to obtain damages and is considered an. additional right to the right to recover damages. In law, if damages could be awarded, it is ctear that they could not be so awarded beyond the period of three years. The right to restrain the defendant is therefore similarly limited to the period of three years. That was the, only claim put forth by the plaintiffs and the written statement does not show that the defendant understood the agreement to contain any more extensive right.

16. The four Indian cases mentioned above clearly recognise the existence of a service agreement and show that an injunction was granted in terms of the negative covenant contained or implied, therein. In Burn & Co. v. MacDanald I.L.R (1908) Cal. 354, the facts were these: One M was engaged by B & Co. as an assistant in their firm for a period of five years. It was provided in the agreement as follows:.he should diligently and to the best of his ability devote himself to the duties incumbent upon him and should faithfully observe and comply with such instructions as he night from time to time receive from the firm.

17. M. left the service of the firm and took employment with another firm. On a suit being filed for an injunction, although there were no express negative covenants in the agreement, relying on Section 57, ills, (c) and (d), of the Specific Relief Act, the Court granted the injunction in the following terms:.to restrain the defendant from serving, working, or being employed by the said R or any person or persons other than the plaintiff company until the said agreement.. should have been determined by effluxion of time.. .

That injunction was not restricted to any area in which the defendant was not to take employment. We, therefore, grant an injunction against the defendant-appellant restraining him from getting in the employ of or being engaged or connected as a weaving master or as an employee under any title discharging substantially the same duties as a weaving malster, in the Rohit Mills or any other company or with any firm or individual in any part of India including the Native States for the term ending on December 31, 1946. The defendant-appellant is further restrained during the said period and thereafter from divulging any of the secrets, prooessesi, or information relating to the manufacture or generally relating to the affairs of the respondents' companies for whom he had worked as a weaving master in pursuance of the agreement exhibit 36. The terms of the injunction are varied to that extent. The appeal is dismissed with costs. The interim stay is discharged and the appellant should pay the costs of that application.


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