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IN THE HIGH COURT OF DELHI
Sanjeev Narula, J.
Chem Academy Pvt. Ltd. - Appellant
Versus
Sumit Mehta - Respondent
O.M.P.(I) (COMM.) 356 of 2021, I.A. 14374 of 2021, I.A. 14375 of 2021 and I.A. 14376 of 2021 and O.M.P.(I) (COMM.) 357 of 2021, I.A. 14377 of 2021, I.A. 14378 of 2021 and I.A. 14379 of 2021
Decided On : 11-11-2021




Restrictions in employment contracts must not compel employees into idleness or against their will; such covenants are generally void under Section 27 of the Contract Act.

Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 9 - Specific Relief Act, 1963 - Employment agreements - Employees resigned without serving notice period and joined a competitor, seeking to restrain them from further actions - Clauses in the agreements deemed too restrictive and void under Section 27 of the Contract Act - No prima facie case established by employer for injunction. (Paras 3, 6, 13, 19)

(B) Contracts - Validity of negative covenants - The court will not enforce covenants that render employees idle or compel continued service against their will, considering overall circumstances. (Paras 8, 15)

Facts of the case:
The appellant, a coaching institute, sought to restrain former employees from joining a competitor based on clauses in their employment agreements. Employees resigned without serving notice and joined a rival organization.

Findings of Court:
The agreements were terminated by the employees’ resignations; thus, negative covenants could not be enforced post-termination, and no evidence supported allegations of intentional harm to the previous employer’s business.

Issues: Whether a court can restrain employees from joining competitors based on negative covenants after voluntary resignation.

Ratio Decidendi: The court rejected the application for interim injunction, clarifying that enforcing a negative covenant in these circumstances would violate the employees' right to work and is contrary to public policy under Section 27 of the Contract Act.

Result: Petitions dismissed.

Table of Content
1. background facts of the case (Para 1 , 2)
2. arguments regarding the enforceability of the agreements (Para 3)
3. contentions from both parties (Para 4 , 5)
4. court's analysis on the non-compete clause (Para 6 , 7 , 8)
5. court's observations on negative covenants (Para 9 , 10 , 11 , 12)
6. implications of the employees' resignations (Para 13 , 14 , 15 , 16)
7. conclusion on the merits of chem academy's claim (Para 17 , 18)
8. final decision and order of dismissal (Para 19)

JUDGMENT

[VIA HYBRID MODE]

Sanjeev Narula, J. (Oral)--The background facts and reliefs sought in both the Petitions are similar, and therefore, the same are being disposed of by way of a common order.

2. Briefly stated, the facts of the case are as follows:

    (a) The Petitioner - viz. Chem Academy Pvt. Ltd. [hereinafter "Chem Academy"] is engaged in the business of commercial coaching and training services. The Respondents - viz. Mr. Sumit Mehta in O.M.P.(I) (COMM) 356/2021 and Mr. Anoop Lamba in O.M.P.(I) (COMM) 357/2021 [hereinafter collectively referred to as "the Employees"] joined Chem Academy as "Trainee Faculty" and were subsequently, confirmed on 31st December, 2020 vide separate `"FACULTY" AGREEMENT' both executed on 31st December, 2020 [hereinafter collectively referred to as "the Agreements"], whereunder the terms and conditions of employment were laid down. [The terms and conditions of the employment qua both the Employees/Respondents are identical.]

    (b) As per the Agreements, inter-alia, the Employees were designated as `Professors'. Their appointment was initially for a period of three years from the date of signing the Agreements - viz. 31st December, 2020 till 30th December, 2023. It was provided that the Agreements would not expire with efflux of time on expiry of three years, unless Chem Academy did not wish to extend the employment tenure. [As per Clause 1.3 of the Agreement.]

    (c) Clause 1.4 stipulated that in case the Employees were desirous of leaving Chem Academy prior to completion of the agreed period of three years, they were bound to give a notice in writing, providing a three months' prior notice [hereinafter "notice period"]. The rationale behind the above clause was that the termination of the Employees would coincide with the academic session ending on 31st December, 20XX. Nevertheless, even during the notice period, Employees were duty bound to perform their work with utmost sincerity.

    (d) As professors, they were required to take classroom, live and recorded lectures, fulfil other assignments relating to creation of booklet contents, study material, YouTube classes, etc. Reliance is placed upon Clauses 2.14, 4.3, 5 of the Agreements extracted as under [The aforesaid clauses extracted above from the Agreements are identical.]:

    "2.14 The "Faculty" agrees not to interact with any media, press or with any social media platform, discussion sites or websites without the prior written consent of "Company". At no time shall the "Faculty" make any comments or discuss with any third-party any topic or information in relation to "Company" without first obtaining a written permission from "Company".

    xx..xx..xx

    "4.3 All work Product/Services are developed as works for hire. The "Faculty" acknowledge that the intellectual property rights in the work product or any other work in the course of the employment shall be the proprietary property of "Company", and all rights, title and interests therein shall vest in "Company"."

    xx..xx..xx

    "5.2 At all times during the employment and thereafter, for the longest period permitted by law, the "Faculty" agree to and shall hold Confidential Information in strict confidence in accordance with the provisions hereof and shall protect all Confidential Information with the same level of care the "Faculty" applied to his own confidential information, and in any event no less than reasonable care.

    5.3 The "Faculty" shall not disclose the Confidential Information to any third person without the

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