P. KODDANDA RAMAYYA, J.

( 1 ) THE main question for consideration in this appeal is whether Rule 15 of the Managerial Staff Gratuity Fund Rules of the Defendant-company constitutes a restraint of trade within the meaning of S. 27 of the Contract Act (Act 9 of 1872) and if so is it valid.

( 2 ) THE defendant is the appellant. The sole respondent-plaintiff filed a suit for recovery of Rs. 25,000. 00 the sum due towards gratuity from the defendant-company wherein he worked as a manager till he resigned on 4/10/1976. The plaintiff avers that on 4/10/1976, he submitted his resignation and the same was accepted by the defendant on 3/12/1976, but when he demanded payment of the gratuity, the defendant instead that he should give an undertaking or confirmation in terms of Rule 15 of the companys gratuity scheme, which is wholly unnecessary, and the defendant failed to pay the gratuity due to him though he has not engaged himself or has not done any act prejudicial to the interests of the company and hence the suit. The defence is that no gratuity would be payable if any member acted prejudicially against the interests of the company either during the service of the company or engaged himself without prior consent for such an activity within a period of three years from his retirement and that the technical know how was important for the successful running of the defendant-company and the plaintiff was sent abroad and given training in sophisticated companies and plaintiff should not part with his knowledge to competitors without their prior sanction and hence they insisted that the plaintiff should give an undertaking not to act prejudicially to its interest and consequently the withholding of the gratuity is justified when the plaintiff refused to give such undertaking.

( 3 ) ON this controversy the trial Court found that on a true construction of Rule 15 of the above rules the defendant cannot insist that the plaintiff should give an undertaking, and there is no evidence that the plaintiff has contravened Rule 15 and that the defendant has no right to restrain the plaintiff from carrying on a competitive business in view of S. 27 of the Contract Act and consequently decreed the suit. Against the said judgment and decree, the above appeal is filed.

( 4 ) THERE is no dispute about the quantum of the amount payable. The only question is about the right to receive the said amount in view of the noncompliance of Rule 15 of the Managerial staff Gratuity Fund Rules.

( 5 ) SRI K. Srinivasa Murthy, the learned counsel for the appellant raised the following contentions :- (1) Irrespective of the nature of the restrictions imposed by Rule 15 of the said rules, noncompliance of the conditions imposed in the said rule entitles the defendant to withhold the payment of gratuity. (2) Once the employee has to comply with the conditions imposed in the said rule, the insistence of the undertaking not to violate the said rule is well-founded. (3) The rule imposes a reasonable restriction in the interests of the trade of the defendant company and not him by S. 27 of the Contract Act and hence valid even if it operates as restraint of trade after the cessation of service. (4) The evidence in the case establishes that there is violation of rule.

( 6 ) BEFORE construing the Rule and examining its validity, it is necessary to note briefly the events that took place with reference to the correspondence between the parties.

( 7 ) ON 4/10/1976 the plaintiff resigned and he requested the defendant-company to relieve him by 3/01/1977 (Ex. B-2 ). The resignation was accepted under Ex. A. 1 on 3/12/1976. It was stated in that letter :"in accordance with the terms of employment, we are sure that you will not divulge any confidential and proprietary information that you have acquired during your association with us. "on 23/12/1976, the plaintiff requested the Board of Trustees of the Gratuity fund to pay the gratuity amount in lumpsum (Ex. A. 2 ). Under Ex. A. 3 date

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