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Maganlal Rambhai Gandhi Vs. Ambica Mills Ltd., Ahmedabad - Court Judgment

LegalCrystal Citation
SubjectService;Contract
CourtGujarat High Court
Decided On
Case NumberA.F.A.D. No. 851 of 1962
Judge
Reported inAIR1964Guj215; (1963)IILLJ522Guj
ActsContract Act, 1872 - Sections 23 and 27; Constitution of India - Article 19(1), 19(2), 19(3), 19(4), 19(5) and 19(6); Specific Relief Act, 1877 - Sections 21, 22, 56 and 57
AppellantMaganlal Rambhai Gandhi
RespondentAmbica Mills Ltd., Ahmedabad
Appellant Advocate C.T. Daru, Adv.
Respondent Advocate G.P. Vyas, Adv.
DispositionAppeal allowed
Cases Referred(Lumely v. Wagner
Excerpt:
.....can be granted restraining a person from doing a certain act and to perform the negative covenant. illustration (d) clearly shows that a negative covenant can be implied in some cases. the issue of an injunction restraining a person from serving any person or any firm except that of the plaintiff during a certain period would clearly offend the right given by article 19 of the constitution......contract act, and therefore void and unenforceable. (b) the suit agreement hits section 21 of the specific relief act and therefore void, illegal and unenforceable. (c) the discretion exercised by the learned judge is exercised contrary to the principles laid down in section 22 of the specific relief act.(d) section. 57 of the specific relief act in so far as and to the extent that it empowers the court to grant an injunction restraining a person from serving any employer of his choice after having left service of any employer is unconstitutional and void because it is inconsistent with the fundamental right guaranteed in article 19(1)(g) of the constitution of india. the said section takes away or restricts the appellant's freedom of trade, occupation or business and the restriction.....
Judgment:

V.B. Raju, J.

1. This is an appeal by the original defendant. The admitted facts, giving rise to this litigation, are that the defendant who is a graduate of the Engineering College entered into a contract with the respondent plaintiff, the Ambica Mills Ltd., agreeing to serve the plaintiff for a period of five years from 1st November 1960. The agreement also provided that the defendant was not to serve anywhere else during that period. From 15th February 1961, the defendant left the service of the plaintiff and started service in another firm, namely, Swastik Textile Trading Co., on a better salary. The respondent-plaintiff therefore filed a suit, and, inter alia, claimed an injunction to restrain the defendant from serving the Swastik Textile Trading Co., or any other Company or person or firm directly or indirectly till 1st January 1965. The injunction prayed for by the plaintiff has been granted by the trial Court, and in appeal some slight variation was made in the form of the injunction. The variation was that the injunction would not, apply to service to any Company, firm or person outside India. With this modification, the trial Court's decree was confirmed. Hence this second appeal by the original defendant.

2. Before me, the learned counsel for the appellant has urged the following points:

(a) The agreement was hit by Sections 23 and 27 of the Indian Contract Act, and therefore void and unenforceable.

(b) The suit agreement hits Section 21 of the Specific Relief Act and therefore void, illegal and unenforceable.

(c) The discretion exercised by the learned Judge is exercised contrary to the principles laid down in Section 22 of the Specific Relief Act.

(d) Section. 57 of the Specific Relief Act in so far as and to the extent that it empowers the Court to grant an injunction restraining a person from serving any employer of his choice after having left service of any employer is unconstitutional and void because it is inconsistent with the fundamental right guaranteed in Article 19(1)(g) of the Constitution of India. The said section takes away or restricts the appellant's freedom of trade, occupation or business and the restriction imposed by it is not reasonable nor is it imposed in the interests of the general public.

(e) Assuming that Section 57 is not void on the ground stated above, the order of injunction passed by the learned Judge is violative of Articles 19(1)(g) and 23 of the Constitution of India and is therefore illegal.

3. There is no merit in the contention that the agreement between the parties is hit by Section 23 of the Contract Act. That section reads as follows:

'The consideration or object of an agreement is lawful, unless:

it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy.

In each o these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.'

4. The agreement to serve a particular person for a particular period implies an agreement not to serve any other person during that period. This was recognised in Burn and Co. v. McDonald, ILR 36 Cal 354. Such an agreement would not therefore be hit by Section 23 of the Contract Act, even if the contract consists of two covenants, namely a positive covenant undertaking to serve a particular person during a particular period and also a negative covenant agreeing not to serve any other person during that particular period. That such an agreement would not offend the provisions of the Contract Act was also recognised in Charles-worth v. McDonald, ILR 23 Bom 103.

5. There is also no merit in the contention that the agreement is hit by Section 27 of the Contract Act, which relates to agreement in restraint of trade. Section 27 reads as follows:

'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 1 -- One who sells the good-will 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 good-will from him, carries on a like business therein: Provided that such limits appear to the Court reasonable, regard being had to the nature of the business.'

6. The question whether such a contract was void under the Contract Act or whether such as agreement was enforceable agreement or not was considered in ILR 23 Bom 103 (supra), and the following observations were made at p. 112, with which I fully agree:

'In other words, is it an agreement which restrains the defendant from exercising his lawful profession? Is it an agreement in restraint of: trade? I think not. I do not think that an agreement of this class falls within the section. If it did, all agreements for general service for a fixed, period would be void. An agreement to serve exclusively for a week, a day, or even for art hour, necessarily prevents the person so agreeing to serve from exercising his calling during that period for any one else than the person with whom he so agrees. It can hardly be contended that such an agreement is void. In truth, a man who agrees to exercise his calling for a particular wage and for a certain period agrees to exercise his calling, and such an agreement does not restrain him from doing so. To hold otherwise would, I think, be a contradiction in terms. The authorities appear to me to support this view. The case of Mackenzie v. Striramiah, ILR 13 Mad 472 is directly in point as a decision, and in Carlisles Nephews and Co. v. Ricknauth, ILR 8 Cal 809 the same view is taken. There is also the dictum of Candy, J. in Callianji v. Narsi Tricum, ILR 18 Bom 702, and illustration (d) to Section 57 of the Specific Relief Act is what I may call a legislative decision to the same effect.'

The following observations were also made at pp. 116 and 117 in ILR 23 Bom 103 (supra):

'I agree with the remarks of the Calcutta High Court in Brahmaputra Tea Co. Ltd. v. Scarth, ILR 11 Cal 545 at p. 550: 'an agreement to serve a person exclusively for a definite term is a lawful agreement, and it is difficult to see how that can be unlawful which is essential to its fufilment, and to the due protection of the interests of the employer, while the agreement is in force.'.....

Section 57 of the Indian Specific Relief Act, passed in 1877, evidently contemplates a valid agreement, express or implied, on the part of a servant not to serve any one else during the period of engagement of service- The service may be in a lawful profession, trade or business of any kind. Are we then to assume that to that extent the provisions of Section 27 of the Contract Act are impliedly repealed? I feel quite unable to answer that question in the affirmative. On the contrary, I hold that, when B contracts with A to serve him for three years as assistant in his profession as physician and surgeon at a certain place, and at the same time there is the ordinary clause against practising (presumably at that place during the period of engagement), there is a valid agreement in furtherance, and not in restraint, of the exercise of a profession.'

7. Section 56 of the Specific Relief Act provides that an injunction cannot be granted to prevent a breach of a contract, the performance of which would not be specifically enforced. Under Section 21 of the Specific Relief Act, a contract of service cannot be specifically enforced. But it as provided in Section 57 of the Specific Relief Act as under:

'Notwithstanding Section 56, Clause (f), where a contract comprises an affirmative agreement to do a certain act, coupled with a negative agreement, express or implied, not to do a certain act, the circumstance that the Court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement; provided that the applicant has not failed to perform the contract so far as it is binding on him.'

Illustrations (a), (b), (c) and (d) of this section read as follows:

(a) A, contracts to sell to B, for Rs. 1,000 the good-will of a certain business unconnected with business premises and further agrees not to carry on that business in Calcutta. B pays A, the Rs. 1000, but A, carries on the business in Calcutta. The Court cannot compel, to send his customers to B, but B, may obtain an injunction restraining A, from carrying on the business in Calcutta.

(b) A contracts to sell to B, the good-will of a business. A then sets up a similar business close by B's shop, and solicits his old customers to deal with him. This is contrary to his implied contract, and B may obtain an injunction to restrain A, from soliciting the customers, and from doing any act whereby their good-will may be withdrawn from B.

(c) A contracts B, to sing for twelve months at B's theatre and not to sing in public elsewhere. B, cannot obtain specific performance of the contract to sing, but he is entitled to an injunction restraining A, from singing at any other place of public entertainment. (Lumely v. Wagner, (1852) 1 D. M. and G. 604 : 91 R. R. 193).

(d) B, contracts with A that he will serve him faithfully for twelve months as a clerk. A is not entitled to a decree for specific performance of this contract. But be is entitled to an injunction restraining B, from serving a rival house as clerk'.

8. These illustrations clearly show that in some cases a negative covenant can be implied and that in proper cases where there is a specific negative covenant or where a negative covenant can be implied, an injunction can be granted restraining a person from doing a certain act and to perform the negative covenant. Illustration (d) clearly shows that a negative covenant can be implied in some cases. But the illustration is limited in scope, as in that illustration the implied negative covenant refers to a certain rival house.

9. It is therefore clear that there is nothing in the Contract Act or in the Specific Relief Act apart from Section 22 of the Specific Relief Act, which would be considered later, which comes in the way of the issue of such an injunction restraining the contract of a negative covenant.

10. It is next contended that Section 57 of the Specific Relief Act is itself void as being inconsistent with the fundamental rights guaranteed under Article 19(1)(g) of the Constitution. Article 19(1)(g) provides that all citizens shall have the right to practice any profession or to carry on any occupation, trade or business. This Article is, of course, subject to certain qualifications contained in the provisos which are to be found in Article 19 (2), (3), (4), (5) and (6). This Article of the Constitution does not make the contract void, because it is open to a person to agree to put any limitation on his freedom and his right to practice any profession or to carry on any occupation, trade or business. Article 19 of the Constitution only prohibits the State from placing any restrictions on the rights given under Article 19 subject, of course, to the qualifications placed in Article 19 (2) (3) (4) (5) and (6). But if any restrictions placed by the State do not come within the scope of Clauses (2) to (6), then those restrictions would offend Article 19 of the Constitution.

11. Acts of Courts and acts of Judicial Officers would come within the purview of the expression 'Act of the State'. If a Court or a judicial officer imposes restrictions on the right given by Article 19 of the Constitution, that would offend the provisions of Article 19 of the Constitution.

12. The learned counsel for the respondent relies on ILR 23 Bom 103 (supra). In that case, Section 57 of the Specific Relief Act was considered. But the question whether that section or whether any injunction issued under that section would be hit by Article 19 of the Constitution was not considered, as that case was prior to the Constitution. It is true that in that case, the Bombay High Court upheld the grant of an injunction restraining a person from practising as a physician and surgeon during a certain period at a certain, place. But as observed, above, the learned Judges of the Bombay High Court did not consider whether such an injunction would offend Article 19(1)(g) of the Constitution.

13. In my opinion, under Article 19(1)(g) of the Constitution, every citizen has the right which is unqualified except by Clauses (2) to (6) of that Article, to practice any profession or to carry any occupation, trade or business in any manner he likes in any part of India. The issue of an injunction restraining a person from serving any person or any firm except that of the plaintiff during a certain period would clearly offend the right given by Article 19 of the Constitution. Such an injunction should not, therefore, be granted by a Court of law. Courts are established by the Government of India and by the States referred to in the Constitution of India. Courts exercise their functions as organs of the State. They rely on State for their operation and for enforcing their orders. Courts are limbs of the State. The State includes the State Legislature, the State Executive, and the State Judiciary. None of them can act in contravention of the Constitution. It is not, therefore, open to a Court to issue an injunction such as the one issued in the present case. It is not necessary to consider whether the whole Section 57 of the Specific Relief Act is void and repugnant to Article 19 of the Constitution of India, because what is being decided by me now is only that the issue of an injunction such as the one ordered to be issued in the present case offends Article 19(1)(g) of the Constitution. I am not deciding the question whether the whole Section 57 of the Specific Relief Act is void, as it is not necessary to be decided in this litigation.

14. It is also contended that the discretion exercised by the Court of law is contrary to the principles laid down in Section 22 of the Specific Relief Act. Section 22 of the Specific Relief Act provides as follows: --

'The jurisdiction to decree specific performance is discretionary, and the Court is not bound to grant such relief merely because it is lawful to do BO; but the discretion of the Court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a Court of Appeal.'

The rest of the section deals with the cases in which the Court properly exercises a discretion not to decree specific performance and also to cases in which the Court may properly exercise a discretion to decree specific performance.

15. The injunction ordered to be issued in this case is, in effect, to decree specific performance of a negative covenant in a contract. Section 22 of the Specific Relief Act provides that specific performance should not be decreed where the circumstances under which the contract is made are such as to give the plaintiff an unfair advantage over the defendant, though there may be no fraud or misrepresentation on the plaintiff's part, and where the performance of the contract would involve some hardship on the defendant which he did not forsee, whereas its non-performance would involve no such hardship on the plaintiff.

16. In the instant case, the negative covenant provided not merely that the defendant should not serve in a rival firm or rival company but also provided that the defendant should not serve any one else during that period in any part of India. To specifically enforce such a negative covenant would amount to specifically enforcing the positive covenant also because the defendant cannot serve any other firm in any part of India. It is open to the plaintiff to employ any other person to perform the same job. It may be that it may have to pay higher salary to such a person. If that is so, it can be compensated by damages. It is, therefore, clear that the issue of an injunction such as the one ordered to be issued by the Court below would be to decree specific performance of a negative covenant and to give the plaintiff an unfair advantage over the defendant and would involve some hardship on the defendant, whereas the non-performance would not involve such hardship on the plaintiff. For these reasons, I hold that in this case the discretion was not exercised properly in ordering the issue of an injunction such as the one ordered to be issued.

17. The appeal is, therefore, allowed and the order of the lower Court is set aside. There will be no order as to costs.


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