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2004 Supreme(Cal) 672
High Court Of Calcutta
A. N. RAY, ARUN KUMAR MITRA
ELECTROSTEEL CASTINGS LTD. - Appellant
Versus
SAW PIPES LTD. - Respondent
A. P. O. T. 558 Of 2004
Decided On : 10/04/2004
ABHRAJIT MITRA, BHASKAR SEN, DEBNATH GHOSH, Jayanta Mitra, JISHNU CHAUDHURY, KAMAL SHARMA, NASRIN SULTANA, Navnit Mishra, P.K.GHOSH, PRADYUMNA SINHA, RAJSHRI KAJARIA, RANJAN BACHAWAT, S.K.KAPOOR, S.N.MUKHERJEE, SHEWTA BHARTI, SINHA, VIPUL KUNDALIA
A clause restraining the employee, even after cassation of the first employment, from joining a second employer is void.
Headnote:
INJUNCTION - CONTRACT OF EMPLOYMENT - RESTRAINT OF TRADE - SECTION 27 OF THE INDIAN CONTRACT ACT, 1872 - ILLUSTRATIONS (C) AND (D) OF SECTION 57 OF THE SPECIFIC RELIEF ACT, 1877 - WHETHER A CONTRACT OF EMPLOYMENT IS OUTSIDE THE SCOPE OF SECTION 27 - WHETHER A FIVE-YEAR PERIOD TO WORK FOR A SINGLE EMPLOYER IS A GOOD CLAUSE - WHETHER A CLAUSE RESTRAINING THE EMPLOYEE, EVEN AFTER CASSATION OF THE FIRST EMPLOYMENT, FROM JOINING A SECOND EMPLOYER IS VOID - WHETHER THE COURT CAN GRANT AN EQUITABLE INJUNCTION FOR THE PERIOD OF FIVE YEARS DURING WHICH THE EMPLOYEE HAD AGREED TO SERVE THE EMPLOYER - WHETHER THE VALIDITY OR OTHERWISE OF THE AGREEMENT CAN BE DETERMINED AT THE TIME OF TRIAL - WHETHER THE TORT OF INDUCEMENT OF BREACH OF CONTRACT IS COMMITTED.
Fact of the Case:
The appellant, a manufacturer of ductile iron pipes, filed a suit against its six former employees and the first respondent, a rival manufacturer, for breach of contract and inducement of breach of contract. The appellant alleged that the employees had broken their employment contracts, which contained a clause prohibiting them from joining any competitors within five years after they leave service. The appellant also alleged that the first respondent had enticed away the employees for the purpose of divulging trade secrets and know-how to the first respondent and this help it in setting up its factory for producing competing goods.
Finding of the Court:
The Court held that the five-year period to work for a single employer is a good clause, but a clause restraining the employee, even after cassation of the first employment, from joining a second employer is void. The Court also held that the Court can grant an equitable injunction for the period of five years during which the employee had agreed to serve the employer. The Court further held that the validity or otherwise of the agreement cannot be determined at the time of trial and that the tort of inducement of breach of contract is not committed if an employee has a right to terminate his employment with a month's notice and somebody induces the employee to serve that month's notice.
Issues: 1. Whether a contract of employment is outside the scope of section 27 of the Indian Contract Act, 1872? 2. Whether a five-year period to work for a single employer is a good clause? 3. Whether a clause restraining the employee, even after cassation of the first employment, from joining a second employer is void? 4. Whether the Court can grant an equitable injunction for the period of five years during which the employee had agreed to serve the employer? 5. Whether the validity or otherwise of the agreement can be determined at the time of trial? 6. Whether the tort of inducement of breach of contract is committed if an employee has a right to terminate his employment with a month's notice and somebody induces the employee to serve that month's notice?
Ratio Decidendi: 1. A contract of employment is not outside the scope of section 27 of the Indian Contract Act, 1872. 2. A five-year period to work for a single employer is a good clause. 3. A clause restraining the employee, even after cassation of the first employment, from joining a second employer is void. 4. The Court can grant an equitable injunction for the period of five years during which the employee had agreed to serve the employer. 5. The validity or otherwise of the agreement cannot be determined at the time of trial. 6. The tort of inducement of breach of contract is not committed if an employee has a right to terminate his employment with a month's notice and somebody induces the employee to serve that month's notice.
Final Decision: The appeal and the application are both dismissed. The Court did not vacate the infructuous order of injunction which prevents the employees from divulging their know-how since there is no practical way of enforcing it or proving that they are divulging their know-how, as they will all be working with the first respondent in its privacy.
( 1 ) THIS is an application for interim reliefs in aid of an appeal preferred from an interlocutory order passed on the 18th April, 2004, whereby the learned Judge, granted only one part of the prayers of injunction made by the plaintiff/appellant. An order was granted restraining defendants 2 to 7 from divulging secrets, but an order restraining them altogether from working with the first defendant was refused.
( 2 ) THE matter is pending final disposal before the Interlocutory Court and directions for affidavits have been given. However, the matter is due to appear again only in December this year. The appeal has been filed on grounds of urgency. In these circumstances, we propose to dispose of the appeal along with the application for stay and the appeal is, therefore, treated as on the day's list. Since the appeal is from an ad interim order only, it would not be right to keep the appeal pending and to allow subsequent interim order of the interlocutory Court to wipe out the appellate ad interim order for all purposes while the appeal goes on being in the pending state.
( 3 ) THE grievance of the appellant is in regard to six of its employees who are defendants Nos. 2 to 7 in the suit. They also complain against the defendant no. 1 who is the first respondent and who is a rival manufacturer. The case of the appellant against its erstwhile employees is that they have broken their contract of employment which contained a clause prohibiting them from joining any competitors within five years after they leave service. The complaint against the first respondent is for inducement of breach of contract and for enticing away the said six employees; the appellant urges that the first respondent poached upon its employees.
( 4 ) THE factory of the appellant is situated at Khardah in West Bengal. It produces specialty goods which are ductile iron pipes known in the trade D. I. pipes. These are produced in the appellant's unit from as raw a material as iron ore. It is said that the ore is converted through a blast furnace into pig iron which is mixed up with certain other metals to form alloys and that the molten alloy is put through a centrifuge to produce the necessary pipes. These are of wide diameter and several meters long, principally put in use for the purpose of underground sewerage systems. The inside of the pipe is coated with a special slurry to prevent the sewage effluents from chemically reacting with the pipes. The outside surface which is under the roads, has, because of special production techniques, a greater stress bearing capacity. It is said that the appellant is practically the sole manufacturer of D. I. pipes in India. It has a large market. Its turnover in the last year is claimed to be above Rs. 700 crore and its export during that year is claimed to be of the order of Rs. 120 crore.
( 5 ) THE complaint is that the respondent No. 1 has set up a factory for producing D. I. pipes at Bhuj in Gujarat. Since the process has a lot of trade secrets and practical knowhow involved in it, allegedly the respondent No. 1 has enticed away the appellant's key workers for the purpose of divulging these trade secrets and knowhow to the respondent No. 1 and this help it in setting up its factory for producing competing goods.
( 6 ) THE employees all left the plaintiff appellant in the months of April and may this year and had put in between 5 and 14 years of service with the appellant. Their salaries ranged between Rs. 6200/- per month and rs. 26,500/ -. They filled diverse designations such as Engineer, Manager, supervisor and Sales/market Technician.
( 7 ) IT is complained that the respondent No. 1 though admitting that the employees are now all in their employment has not produced the letters of employment of any one of the employees. The allegation is that these employees have been enticed with larger salary than they were earlier drawing. It appears that the employment of these employees with th
