JUDGMENT

V. D. TULZAPURKAR, J. (for himself and on behalf of N. L. Untwalia, J. ) :— This appeal at the instance of the appellant company (origninal plaintiff) is directed against an interlocutory order passed by the High Court in F. A. O. (O. S.) 86 of 1979 refusing to grant temporary injunction in a suit which is still pending. Principally it raises two substantial questions : (a) whether a post-service restrictive covenant in restraint of trade as contained in clause (10) of the service agreement between the parties is void under Section 27 of the Indian Contract Act? and (b) whether the said restrictive covenant, assuming it to be valid, is on its terms enforceable at the instance of the appellant company against the respondent?

2. On March 21, 1980 we dismissed the appeal at the conclusion of the hearing and it was stated that our reasons will follow. We now proceed to give our reasons for the dismissal.

3. Briefly stated the facts are these. The appellant company carries on business as valuers and surveyors, undertaking inspection of quality, weighment, analysis, sampling of merchandise and commodities, cargoes, industrial products, machinery, textiles, etc. It has established a reputation and goodwill in its business by developing its own techniques for quality testing and control and possesses trade secrets in the form of these techniques and clientele. It has its head office at Calcutta and a branch at New Delhi and employs various persons as managers and in other capacities in Calcutta, New Delhi and other places. On March 27, 1971 the respondent was employed by the appellant company as the Branch Manager of its New Delhi office on terms and conditions contained in the letter of appointment issued to him on the same date. Clause (10) of the terms and conditions of employment placed the respondent under a post-service restraint that he shall not serve any other competitive firm nor carry on business on his own in similar line as that of the appellant company for two years at the place of his last posting. Since it is vital we set out the said clause which ran thus :-

"10. That you will not be permitted to join any firm of our competitors or run a business of your own in similar lines directly and/or indirectly, for a period of two years at the place of your last posting after you leave the company."

4. On November 24, 1978 the appellant company terminated the respondents services with effect from December 27, 1978. Thereafter the respondent started his own business under the name and style of "Superintendence and Surveillance Inspectorate of India" at E-22, South Extension, New Delhi on lines identical with or substantially similar to that of the appellant company. On April 19, 1979 the appellant company brought a suit in the Delhi High Court on its original side claiming Rs. 55,000/- as damages on account of the breach of the aforesaid negative covenant contained in clause (10) and for permanent injunction restraining the respondent by himself, his servants, agents or otherwise, from carrying on the said business or any other business on lines similar to that of the appellant company or associating or representing any competitors of the appellant company before the expiry of two years from December 27, 1979. After filing the suit the appellant company sought an interim injunction by way of enforcing the aforesaid negative covenant and a single Judge of the Delhi High Court initially granted an ad interim injunction on April 29, 1979 which was confirmed by him on May 25, 1979 after hearing the respondent. The learned single Judge took the view that the negative covenant, being in partial restraint of trade, was reasonable inasmuch as it was limited both in point of time (two years) as well as the area of operation (New Delhi which was his last posting) and, therefore, was not hit by Section 27 of the Contract Act. He also took the view that the negative covenant was enforceable as the expression "leave" in clause (10) was