A negative covenant in an employment contract that restricts the employee from engaging in similar employment during the term of the agreement is generally not regarded as a restraint of trade and therefore does not fall under Section 27 of the Contract Act.

Judgment

SHELAT, J. : This appeal by special leave is against the judgment and order of the High Court of, Maharashtra confirming an order l of injunction against the appellant .

The respondent company manufactures amongst other things tyre cord yarn at its plant at Kalyan known as the Century Rayon. Under an agreement dated January 19, 961 Algemene Kunstzijde Unie of Holland (hereinafter 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 thc 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 3-12-1962 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 Ex. 28.

Clause 6 of the agreement provided :-

"The employee shall, during the period of his employment and any renewal thereof honesty, faithfully. diligently and efficiently to the utmost of his power and skill

(a) * * * * *

(b) devote the whole of his time and energy exclusively to the business and affairs of the company and shall not engage directly or indirectly in any business or serve whether as principal agent partner or employee or in any other capacity either full time or part time in any business whatsoever other than that of the company."

Clause 9 provided that during the continuance of his employment as well as thereafter the employee shall keep confidential and prevent divulgence of any and all information, instruments, documents, etc., of the company that might come to his knowledge. Clause 14 provided that if the company were to close its business or curtail its activites due to circumstances beyond its control and if it found that it was no longer possible to employ the employee any further it should have option to terminate his services by giving him three months notice or three months salary in lieu thereof. Clause 17 provided as follows :-

"In the event of the employee leaving, abandoning or resigning the service of the company in breach of the terms of the agreement before the expiry of the said period of five years he shall not directly or indirectly engage in or carry on of his own accord or in partnership with others the business at present being carried on by the company and he shall not serve in any capacity, whatsoever or be associated with any person, firm or company carrying on such business for the remainder of the said period and in addition pay to the company as liquidated damages an amount equal to the salaries the employee would have received during the period of six months thereafter and shall further reimburse to the company any amount that the company may have spent on the employee s training."

2. 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 resp