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IN THE HIGH COURT OF ORISSA
D.P. Mohapatra, J.
INDO FLOGATES LTD. - APPELLANT
Versus
HEMANTA BHATTACHARYA - RESPONDENT
Civil Revision No. 319 of 1993
Decided On : 30-03-1994
CONTRACT - RESTRAINT OF TRADE - SECTION 27 OF THE CONTRACT ACT - VALIDITY OF RESTRICTIVE COVENANT - AGREEMENT IMPOSING RESTRICTION ON EMPLOYEE NOT TO CARRY ON ANY BUSINESS SIMILAR TO THE BUSINESS OF THE COMPANY AFTER CEASING TO BE IN EMPLOYMENT - SUCH RESTRICTIONS ARE PRIMA FACIE VOID AND UNENFORCEABLE BEING IN RESTRAINT OF TRADE.
Fact of the Case:
Petitioner, a company engaged in the manufacture of slide gate refractories and slide gate valves, entered into a technological collaboration with a UK company. The opposite party was employed as Deputy General Manager (Research and Development) and signed a secrecy-cum-confidentiality agreement, which included a restrictive covenant prohibiting him from engaging in any business similar to the petitioner's for 12 months after ceasing employment. The opposite party resigned and joined a competitor company. The petitioner filed a suit seeking a declaration that the opposite party was not entitled to carry on any business similar to the petitioner's and for injunctions restraining him and the competitor company from doing so. The trial court granted an interim injunction against the opposite party but dismissed it against the competitor company. On appeal, the appellate court set aside the interim injunction, holding that the restrictive covenant was only applicable if the employment was terminated by the employer and not if the employee voluntarily resigned.
Finding of the Court:
The court held that the restrictive covenant in the agreement was prima facie void and unenforceable being in restraint of trade and hit by Section 27 of the Contract Act. The court found that the agreement imposed restrictions on the opposite party not to carry on any business similar to the petitioner's, not to work on behalf of any person or firm or company, not to engage in similar business or procure orders from any person, firm, company, not to engage in similar business and not to approach any client or customer of company with whom in course of his employment with the company he shall have dealing for a period of 12 months after the ceasing to be in employment of the company. The court also found that the agreement imposed restriction on the opposite party not to be engaged directly or indirectly in any business similar to the business of the company in the States of West Bengal, Orissa and Bihar without permission of the petitioner being in writing for a period of 12 months after ceasing to be in employment. The court held that these restrictions were clearly in restraint of profession, trade or business.
Issues: Whether the restrictive covenant in the agreement was valid and enforceable.
Ratio Decidendi: The court relied on the decision of the Supreme Court in Superintendence Company of India (P) Ltd. Vs. Sh. Krishan Murgai, which held that a service covenant extended beyond the termination of the service is void. The court also noted that Section 27 of the Contract Act is general in terms and unless a particular contract can be distinctly brought within Exception 1 there is no escape from the prohibition. The court found that the present case was not covered by the Exception under Section 27 and therefore the agreement was prima facie void and unenforceable.
Final Decision: The court dismissed the revision petition filed by the petitioner, challenging the order of the appellate court setting aside the interim injunction.
JUDGMENT :
D.P. Mohapatra, J. - In this petition filed u/s 115 of the Code of Civil Procedure, the petitioner indo Flogates Limited, a company incorporated under the Companies Act has challenged the order passed by the learned Additional District Judge, Rourkela on 1-12-1993 in Misc. Appeal No. 6/1993 setting aside the order of interim injunction passed by the learned Subordinate Judge, Rourkela in Misc. Case No. 42/93 arising out of T.S. No. 42/93,
2. Facts of the case, shorn of unnecessary details, may be stated thus :
Petitioner-Company filed the afore-mentioned suit citing the opposite party, Hemanta Bhattacharya and his employer Visuvius India Limited, as defendants seeking a declaration that defendant No, 1 is not entitled either alone or jointly with or as employee, manager or agent for any person, firm or company directly or indirectly to carry on or to engage in any business similar to the business of the plaintiff, for perpetual injunction restraining the defendant No. 1 from being employed by the defendant No. 2 or continuing with the services of the defendant No. 2 or either alone or joint with or as employee, manager or agent for any person directly or indirectly to carry on or to engage in any business; similar to the business of the plaintiff and for perpetual injunction restrai- ning the defendant No. 2 from employing and/or in any way utilising the services of the defendant No. 1
3. The case of the plaintiff is that it is one of the well-known and top manufacturers in India of slide gate refractories and slide gate valves which are mostly utilised in steel plants. The Company has entered into a technological collaboration with Flogates Limited of United Kingdom for manufacture of these items in its factory at Kalunga Industrial Estates in the district of Sundargarh. According to the petitioner it meets about 80 per cent of the present market requirement in the country for these goods.
On 15th July, 1992, petitioner made an offer to the opposite party for being engaged as its Deputy General Manager (Research and Development) on diverse terms and condition which, inter alia, included that the opposite party will enter into, a secrecy agreement and/or confidentiality agreement before taking up position offered to him. The opposite party having accepted the said term signed the secretary-cw- confidentiality agreement and joined the service of the company as
Deputy General Manager (Research and Development). In the said agreement it was stipulated, inter alia, that the opposite party cannot within 12 month 3 after ceasing to be employed by the petitioner-company, without its consent in writing, carry on any business similar to the business of the petitioner on his behalf or on behalf of any person, firm or company directly or indirectly or to be employed in States of West Bengal, Orissa and Bihar or for any firm, company directly or indirectly carry on or be engaged in any business similar to the business of the petitioner. He was in charge of research and development laboratory at Kalunga and was responsible for quality control, development in technology and processing improvement and other similar activities relating to products of the petitioner. According to the petitioner in such capacity the opposite party had come to know and had acquired information relating to the technology for manufacture of the products.
4. In June, 1993, the opposite party represented to the petitioner that he had received an offer of appointment in Europe and wanted to tender his resignation from service of the petitioner in order to take up a job in Europe. The petitioner believed and relied on such representation of the opposite party; the resignation tendered by him on 14th June, 1993 was accepted on 15th June, 1993 and the opposite party was relieved from his service with effect from 29th of June, 1993, In Aug. 93 the petitioner came to know that the opposite party has joined another company in India, Visuvius India Limited, (Defendant M
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