The validity of non-competition clauses under Section 27 of the Indian Contract Act, 1872.

MANMOHAN, J.

I.A. Nos. 25684/2015 & 4691/2016

1. Present suit has been filed for permanent and mandatory injunction against infringement or breach of contract dated 29th September, 2014, misappropriation of trade secrets, breach of trust, delivery up, seeking damages and rendition of accounts of profits.

2. On 23rd December, 2015, the learned predecessor of this Court by way of an ex-parte order in I.A. No. 25684/2014 had restrained the defendant no. 1 from breaching the contract/reproducing/incorporating/misappropriating or misusing the trade secret or confidential information/data of the plaintiff company and making the same available in any manner to the members of the public by offering to sell, sale or any other form of communication/issuing to the public thereby amounting to infringement of the plaintiff’s rights in any manner.

3. Subsequently, on 20th October, 2016, learned predecessor of this Court recorded the statement of defendant no. 1 on oath to the effect that he had no concern whatsoever with Skill Educators and that he had not disobeyed the order of injunction dated 23rd December, 2015. The statement made by defendant no. 1 on 20th October, 2016 is reproduced herein-below:-

“I am defendant no. 1 in this case. I state that I have no concern whatsoever with Skill Educators. I am neither employed, nor in any manner even remotely concerned with Skill Educators. I further state that I have not disobeyed the order of injunction dated 23.12.2015.”

4. The defendant no. 1 filed an application being I.A. No. 4691/2016 for vacating the aforesaid injunction order on the ground that Clauses 19 and 22 of the Non-Competition, Confidentiality and Non-Solicitation Agreement (hereinafter referred to as “the Agreement”) dated 29th September, 2014 are void.

5. Clauses 19 and 22 of the Agreement are reproduced herein-below:-

“19. Employee agrees and promises that for twenty four (24) months following the termination (whether voluntarily or involuntarily) of Employees employment relationship with Eli Research, the Employee shall not, in India, the Philippines or North America (whether directly or indirectly) own, operate or perform services that are the same or substantially similar to those performed by Employees while employed by Eli Research for any person or entity engaged in a business that a produces, markets, distributes or sells products or services of a similar nature to those developed or commercialized by Eli Research at the time of the termination of Employee’s employment.

xxx xxx xxx xxx xxx

22. Employee agrees and promises that during Employee’s employment with Eli Research and for a period of twenty-four (24) months thereafter, Employee shall not directly or indirectly solicit, lure or hire any employee of Eli Research or induce any third party or individual to cease to modify its relationship with the Company or assist or aid in any such activity even if such solicitations are undertaken without the use (which would be impressible) of the Eli Materials.”

6. Learned senior counsel for defendant no. 1 submits that defendant no. 1 has a constitutional right to earn his livelihood by using his knowledge and skills and if the said injunction is not vacated, it would cause irreparable loss to the career and life of the said defendant. He further submits that Clauses 19 and 22 of the Agreement are null and void being violative of Section 27 of the Indian Contract Act, 1872 (hereinafter referred to as “the Contract Act”). Section 27 of the Contract Act reads as under:-

“27. Agreement in restraint of trade, void. – Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

Exception – Saving of agreement not to carry on business of which goodwill is sold. – One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title