1979 (7) TMI 245 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the temporary injunction granted under Order XXXIX Rule 2.
2. Existence of a prima facie case for the plaintiff.
3. Interpretation and applicability of Section 27 of the Indian Contract Act, 1872.
4. Reasonableness and enforceability of post-employment restrictive covenants.
5. Protection of trade secrets, proprietary interests, and trade connections.

Detailed Analysis:

1. Validity of the Temporary Injunction Granted Under Order XXXIX Rule 2:
The court examined whether the temporary injunction granted by the learned single judge was justified. The injunction was to be justified only if a good prima facie case was made out by the plaintiff, showing that the plaintiff was entitled to obtain a permanent injunction ultimately. The court found that no prima facie case was made out by the plaintiff on the pleadings and applicable law to sustain the temporary injunction.

2. Existence of a Prima Facie Case for the Plaintiff:
The court scrutinized the facts and pleadings to determine if a prima facie case existed. The plaintiff claimed to have established reputation and goodwill, developed unique techniques for quality testing, and possessed trade secrets. The defendant, previously employed by the plaintiff, started a similar business after termination, allegedly violating terms of his employment. The court concluded that the plaintiff failed to establish a prima facie case justifying the temporary injunction.

3. Interpretation and Applicability of Section 27 of the Indian Contract Act, 1872:
Section 27 of the Indian Contract Act states, "Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void." The court emphasized that Section 27 is in absolute terms and does not differentiate between reasonable and unreasonable restraints. The court noted that the only exceptions to this rule are specified within the statute itself, such as the sale of goodwill and certain partnership agreements. The court concluded that the restraint imposed on the defendant was directly hit by Section 27 and thus void.

4. Reasonableness and Enforceability of Post-Employment Restrictive Covenants:
The court reviewed English and Indian case laws to determine the enforceability of post-employment restrictive covenants. It was established that any restraint imposed by the employer on the employee to operate after the expiry of the period of service contract would be prima facie illegal and void under Section 27. The court cited several cases, including Niranjan Shankar Golikari v. The Century Spinning & Mfg. Co. Ltd., to support this interpretation. The court concluded that the restrictive covenant in the defendant's employment contract was unreasonable and void.

5. Protection of Trade Secrets, Proprietary Interests, and Trade Connections:
The court examined whether the restrictive covenant could be justified on the grounds of protecting trade secrets, proprietary interests, or trade connections. The court found no evidence of trade secrets or proprietary interests imparted to the defendant. It was noted that the plaintiff did not plead any specific trade secrets or proprietary information that the defendant could have misused. Regarding trade connections, the court held that mere acquaintance with customers during employment does not justify a restraint. The court concluded that the plaintiff failed to show that the defendant had acquired influence over the plaintiff's clients that would justify the restrictive covenant.

Conclusion:
The court vacated the temporary injunction granted by the learned single judge, stating that the plaintiff failed to establish a prima facie case and that the restrictive covenant was void under Section 27 of the Indian Contract Act. The appeal was allowed, and there was no order as to costs.