Case Note & Summary
The dispute arose between a company engaged in valuation and surveying and its former employee, who was subject to a post-service restrictive covenant. The employee was terminated on December 27, 1978, and subsequently started a competing business. The company sought damages and an injunction based on a clause in the employment agreement that restricted the employee from engaging in similar business for two years post-termination. The Delhi High Court initially granted an injunction, but this was reversed by a Division Bench, leading to the appeal. The Supreme Court examined whether the restrictive covenant was void under Section 27 of the Indian Contract Act and whether it was enforceable. The court concluded that the term 'leave' in the covenant referred to voluntary departure and did not encompass termination by the employer. Thus, the covenant was found to be unenforceable. The court emphasized the need for precise language in such agreements and dismissed the appeal without costs.
Headnote
A) Contract Law - Restrictive Covenants - Enforceability of Post-Service Restrictive Covenant - Indian Contract Act, 1872, Section 27 - The court held that a negative covenant preventing an employee from working elsewhere after termination of employment is in restraint of trade and thus void under Section 27. The covenant was deemed unenforceable as it did not apply to cases of termination by the employer (Paras 1285-1301).
Issue of Consideration
Whether a post-service restrictive covenant in restraint of trade is void under Section 27 of the Indian Contract Act and whether it is enforceable against the respondent.
Final Decision
The Supreme Court dismissed the appeal, holding that the negative covenant was in restraint of trade and thus void under Section 27 of the Indian Contract Act. The court found that the term 'leave' in the covenant referred only to voluntary departure and did not apply to termination by the employer.
Law Points
- restraint of trade
- negative covenant
- enforceability
- Indian Contract Act
- Specific Relief Act
- reasonableness
Case Details
1980 LawText (SC) (05) 25
Civil Appeal No. 1933 of 1979
Tulzapurkar, V.D., Untwalia, N.L., Sen, A.P.
1980 AIR 1717, 1980 SCR (3) 1278, 1981 SCC (2) 246
A. K. Sen, P. P. Rao, N. D. Garg, R. Venkataramani, S. K. Bisaria, K. K. Venugopal, H. K. Puri, S. C. Dhanda
Superintendence Company of India (P) Ltd.
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Nature of Litigation
Dispute regarding the enforceability of a post-service restrictive covenant in an employment agreement.
Remedy Sought
The appellant sought damages and a permanent injunction against the respondent.
Filing Reason
The respondent allegedly breached a negative covenant by starting a competing business after termination.
Previous Decisions
The Delhi High Court initially granted an injunction which was later reversed by a Division Bench.
Issues
Whether the post-service restrictive covenant is void under Section 27 of the Indian Contract Act.
Whether the restrictive covenant is enforceable against the respondent.
Submissions/Arguments
The appellant argued that the covenant was reasonable and necessary to protect its business interests.
The respondent contended that the covenant was in restraint of trade and thus void under Section 27.
Ratio Decidendi
A post-service restrictive covenant that does not clearly encompass termination by the employer is unenforceable as it is deemed to be in restraint of trade under Section 27 of the Indian Contract Act.
Judgment Excerpts
The negative covenant preventing an employee from working elsewhere after termination of employment is in restraint of trade and thus void under Section 27.
The word 'leave' was intended by the parties to refer only to a case where the employee has voluntarily left the services.
Procedural History
The appellant filed a suit in the Delhi High Court claiming damages and an injunction. An interim injunction was granted by a Single Judge, which was later reversed by a Division Bench, leading to the appeal to the Supreme Court.
Acts & Sections
- Indian Contract Act, 1872: Section 27
- Specific Relief Act, 1963: Section 57
