The main legal point established in the judgment is that negative covenants in employment agreements are unenforceable under Section 27 of the Indian Contract Act, 1872, as per the principles established in the Supreme Court case of Superintendence Company of India (P) Ltd., vs. Krishan Murgai and the Division Bench decision in Rajan, G.R.V. v. Tube Investment of India Ltd.

N. Kannadasan, J.

The appellants are the defendants and the respondent herein is the plaintiff in the suit. The suit is filed for permanent injunction restraining the first defendant from continuing employment in the second defendant and for other reliefs. The plaintiff has filed an application in Application No.353 of 2002 for an injunction restraining the second defendant from in any manner using or utilising any information whatsoever obtained from the first defendant with respect to manufacture of rubber latex condoms pending disposal of the suit. The plaintiff has also filed another application in Application No.354 of 2002 to pass an order of injunction restraining the first defendant from continuing his employment with the second defendant or in any manner violating the terms of negative covenants contained in the agreement dated 1.5.1990 entered into between the plaintiff/applicant and the first defendant pending disposal of the suit. The plaintiff has filed the abovesaid applications on the ground that the first defendant while employed with the plaintiff has entered into an agreement on 1.5.1990 wherein it was specifically agreed that the first defendant should not furnish any data and information relating to the formulation for manufacture of condoms and other items and he would also not seek any employment in any establishment elsewhere of similar nature for a period of five years after he ceases to be an employee. However, when the first defendant has submitted a letter of resignation on 16.1.2002 on personal grounds, the plaintiff without suspecting anything has accepted his resignation with effect from 15.2.2002. The plaintiff came to know during the second week of May 2002 that the first defendant had taken employment with the second defendant company as Manager (Production). Hence, there is a breach on the part of the first defendant with regard to the terms of the agreement dated 1.5.1990 and prayed for the grant of interim orders. The application was resisted by the first defendant that he would give an undertaking to the effect that he would not disclose any information whatsoever with regard to the knowledge which has been acquired by him during his employment in the plaintiff company. But however, resisted the claim of the plaintiff in application No.354 of 2002 to the effect that the negative covenant is unenforceable in law and violative of Section 27 of the Indian Contract Act, 1872. The learned Judge has allowed the applications by order dated 20.12.2002. Aggrieved against the same, the appellants have filed the above appeal.

2. The appellants have filed the above appeal challenging the order of the learned Judge passed in application No.354 of 2002 alone. The learned counsel for the appellant has contended that there is no privity of contract between the first appellant with the plaintiff inasmuch as he was originally employed in the Company called London Rubber Company (India) Limited and the agreement was entered into only with the said company and as such, the said agreement is unenforceable by the plaintiff. It is further contended that the learned Judge has not correctly applied the principles laid down by the Honourable Supreme Court in its judgment rendered in Superintendence Company of India (P) Ltd., vs. Krishan Murgai (AIR 1980 Supreme Court 1717). According to the learned counsel, the Supreme Court in the judgment referred to above has clearly held that the negative covenant after the employment has come to an end is unenforceable in law and contrary to Section 27 of the Indian Contract Act, 1872. It is also contended by him that the Division Bench of this Court in its decision in Rajan, G.R.V. v. Tube Investment of India Ltd (1995 1 LW 274) has clearly set out the proposition of law by following the principle laid down by the Supreme Court in the decision referred to above. According to the judgment of the Division Bench, the Supreme Court has held that such a negative covenant