General or Partial interest may be good if they are reasonable. [Niranjan Shankar Golikari vs The Century Spinning And Mfg. Co.]

Niranjan Shankar Golikari vs The Century Spinning And Mfg. Co., 1967 AIR 1098

Decided on: 17 January 1967

The author of the judgement: Shelat, J.M.

Bench: Shelat, J.M. and Bachawat, R.S.

Advocate for the appellant: K. Sen, Rameshwar Dial and A. D. Mathur.

Advocate for the respondent: V. Gupte, Solicitor-General, R.P. Bhatt, R. A. Gagrat, G.L Sanghi and B. R. Agarwala.

Procedural History:

The present appeal to the Supreme Court is by special leave and it is against the judgment and order of the High Court of Maharashtra confirming an order of injunction against the appellant.

Brief Facts:

The respondent company manufactures amongst other things tyre cord yarn at its plant at Kalyan known as the Century Rayon. Under an agreement, Algemene Kunstzijde Unie of Holland (hereinafter referred to as AKU) and Vereinigte Clanzstoff Fabrikan AG of West Germany (hereinafter referred to as VCF) agreed to transfer their technical know-how to the respondent company to be used exclusively for the respondent company’s tyre cord yarn plant at Kalyan in consideration of 1,40,000 Deutsche Marks payable to them by the respondent company.

Clause 4 of that agreement provided that the Century Rayon should keep secret until the termination of the agreement and during three years thereafter all technical information, knowledge know- how, experience, data and documents passed on by the said AKU and VCF and the Century Rayon should undertake to enter into corresponding secrecy arrangements with its employees.

The respondent company thereafter invited applications for appointments in its said plant including appointments as Shift Supervisors. On December 3, 1962, the appellant sent his application stating therein his qualifications. By its letter dated March 1, 1963, the respondent company offered the appellant the post of a Shift Supervisor in the said tyre cord division stating that if the appellant were to accept the said offer he would be required to sign a contract in standard form for a term of five years. On March 5, 1963, the appellant accepted the said offer agreeing to execute the said standard contract. On March 16, 1963, he joined the respondent company and executed on that day the said contract.

The appellant received training from March to December 1963 and acquired during that training- knowledge of the technique, processes and the machinery evolved by the said collaborators as also of certain documents supplied by them to the respondent company which as aforesaid were to be kept secret and in respect of which the respondent company had undertaken to obtain secrecy undertakings from its employees. According to the evidence, the appellant as a Shift Supervisor was responsible for the running of Shift work, control of labour and in particular with the specifications given by the said AKU.

The chronology of events thereafter as follows:

Date Events
6th to the 9th October 1964 The appellant thereafter remained absent without obtaining leave therefore
10th October The appellant took a casual leave
October 12 he applied for 28 days’ privilege leave from October 14, 1964.
14th to the 31st October 1964 He was absent without any notice
October 31 He was offered a salary of 9 days
November 7 1964 He informed the respondent company that he had resigned from October 31, 1964
November 23 1964 The respondent company by its lettermasked him to resume work stating that his said resignation had not been accepted.
November 28 1964 the appellant replied that he had already obtained another employment.

It is clear from the evidence that in October he was negotiating’ with Rajasthan Rayon Company at Kotah which was also manufacturing tyre cord yarn and got himself employed there, at a higher salary of Rs. 560/- per month than what he was getting from the respondent company.

The respondent company thereupon filed a suit in the court at Kalyan claiming inter alia an injunction restraining the appellant from serving in any capacity whatsoever or being associated with any person, firm or company including the said Rajasthan Rayon till March 15, 1968. The Company also claimed Rs. 2410/- as damages being the salary for six months, under Clause 17 of the said agreement and a perpetual injunction restraining him from divulging any or all information, instruments, documents, reports, trade secrets, manufacturing process, knowhow, etc. which may have come to his knowledge.

Appellants Arguments:

(1) that the said agreement constituted a restraint on trade and was therefore opposed to public policy,

(2) that in order to be valid and enforceable the covenant in question should be reasonable in space and time and to the extent necessary to protect the employer’s right of property and

(3) that the injunction to enforce a negative stipulation can only be granted for the legitimate purpose of safeguarding the trade secrets of the employer. He argued that these conditions were lacking in the present case and therefore the respondent company was not entitled to the enforcement of the said stipulation.

Ratio Decidendi:

The evidence established that the appellant had been imparted training for about nine months during the course of which information regarding the special processes and details of the machinery evolved by the said collaborators had been divulged to him.

It also found that as a result of his getting himself employed in the said rival company, not only the benefit of training given to him at the cost of the respondent company would be lost to it but that the knowledge acquired by him in regard to the said continuous spinning process intended for the exclusive use of the respondent company was likely to be made available to the rival company which also was interested in the continuous spinning process of tyre cord.

Rajasthan Rayon started production of tyre cord yam from January 1965, that is, two or three months after the appellant joined them along with two other employees of the respondent company, that the Cumulative effect of the evidence was that the appellant had gained enough knowledge and experience in the specialised continuous spinning process in the tyre cord yarn division of the respondent company and that it was evident that he left the respondent company’s employment only because the said Rajasthan Rayon promised him a more lucrative employment.

Clauses 9 and 17 related only to the business in the tyre cord division and therefore restraints contained in those clauses meant prohibition against divulging information received by the appellant while working in that Division and that clause 17 also meant a restraint in relation to the work carried on in the said spinning department. Therefore the inhibitions contained in those clauses were not blanket restrictions

There was no indication at all that if the appellant was prevented ‘from being employed in a similar capacity elsewhere he would be forced to idleness or that such a restraint would compel the appellant to go back to the company which would indirectly result in specific performance of the contract of personal service.

The attitude of the courts as regards public policy however has not been inflexible. The rule now is that restraints whether general or partial may be good if they are reasonable. A restraint upon freedom of contract must be shown to be reasonably necessary for the purpose of freedom of trade. A restraint reasonably necessary for the protection of the covenantee must prevail unless some specific ground of public policy can be clearly established against it.

A person may be restrained from carrying on his trade by reason of an agreement voluntarily entered into by him with that object. In such’ a case the general principle of freedom of trade must be applied with due regard to the principle that public policy requires for men or full age and understanding the utmost freedom of contract and that it is public policy to allow a trader to dispose of his business to a successor by whom it may be efficiently carried on and to afford to an employer an unrestricted choice of able assistants and the opportunity to instruct them in his trade and its secrets without fear of their becoming his competitors.

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.

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.

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.

Held: The appeal fails and is dismissed with costs.


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