Holding

A post‑service restrictive covenant that is a restraint of trade is void under Section 27 of the Indian Contract Act and, because the word ‘leave’ is limited to voluntary resignation, the covenant is not enforceable against the respondent.

Summary

The Superintendence Company employed the respondent as its New Delhi branch manager and inserted a clause prohibiting him from joining a competitor or starting a similar business for two years after he "leaves" the company. The company terminated his employment and he started a competing business. The company sued for damages and a permanent injunction. The Supreme Court examined (1) whether the post‑service restrictive covenant fell within the prohibition on restraints of trade under Section 27 of the Indian Contract Act, and (2) whether, assuming it were valid, it could be enforced. The Court held that the covenant is a restraint of trade and is void under Section 27 because it does not fall within the statutory exception. Moreover, the word "leave" was interpreted in its ordinary sense of voluntary resignation and does not cover dismissal, so the covenant could not be invoked against the respondent. Consequently, the appeal was dismissed.

Issues considered

Whether clause 10 of the employment agreement constitutes a restraint of trade void under Section 27 of the Indian Contract Act.
Whether the covenant, if valid, is enforceable by injunction under Section 57 of the Specific Relief Act.
Whether the term "leave" in the covenant includes termination by the employer or only voluntary resignation.
Whether the reasonableness test under common law applies to post‑service restrictive covenants.

Legislation cited

Indian Contract Act, 1872s. 27
Specific Relief Act, 1963s. 57

Subjects

restraint of tradepost‑service restrictive covenantSection 27 Indian Contract ActSpecific Relief Actinjunctioninterpretation of "leave"employment contracttrade secrets

Judgment

12:78

A SlJPERJNTENDENCE COMPANY OF INDIA (P) LTD.
v.
KRJSHAN MURGAI
May 9, 1980
B
[N. L. UNTWALIA, V. D. TuLZAPURKAR AND AP .. SEN, JJ.]

Covenant in restruiflf of trade-Contract Act, 1872, Section 27, scope of- f-
W lzetht:r a post-service restrictive cpvenant. in restraint of. trade in service
t1greement b~tween the parties is void-Even if it be valid, whether it could
be enfiorceable. as enjoined by ittustrations (c) and (d) ,to Section 57 of th•
C Specific Relief Act, 1963. y
The- appellant company carries on busine$ as valuers and surveyor! under-
taking inspection of quality, weighment analysis, sampling of merchandise and
commodities, cargoes, industrial products, machinery, textiles etc. It has
established a reputation and gocxlwill in its business by developing its own
techniques for quality testing and control and possess trade secrets in the
D form of these techniques and clientele. It has its headoffice at Calcutta and
a branch at New Delhi and employs various persons as managers and in
other c~cities in Calcutta; New Delhi and other pla.ces~

On March 27, 1971, the respondent was employed by the appellant com-
pany as the Branch Manager of its New Delhi office on terms and condi-
tions contained in the letter of appointment issued to him on the same
E date. Clause ( 10) of the terms and conditions of employment placed the
respondent under a post service restraint• that he shall not serve any other
competitive firm nor carry on business on Q.is own in similar line as that
of the appellant company for two Y"'l"' at tho place of his last posting.
On November 24, 1978, the appellant company terminated the respondent's
semces with effect from December 27, 1978. Thereafter, respondent start-
ed his own business under the name and style of "Superintendence and
F Surveillence Inspectorate of India" at E.-22 South Extension New Delhi on
lines identical with or substantially similar to that of the appellant company.'
On April 19, 1979 the appellant company brought a suit in the Delhi HighJ
Court on its original side, claiming Rs. 55,000/- as dama8"8 on account ofT
the b~ch of negative covenant contained in clause ( 10); and for permanent\
injunction restraining the respondent by himself, his servants, agents or other-
wise, from carrying on the said business or any other business on Imes
G similu to that of the appellant conipany or associating or representing any
competitors of the appellant company 'before the expiry of two ye;m from
December 27, 1978. After filing the suit the appellant company sought an
ad interim injuncilon by way of enforcing the aforesaid negative covenant
a1*i a Single Judge of the Delhi High O>uft initially granted an ad interim
injunction on April 29, 1979 which was confirmed by him on May 25, 1979
after hearing the respondent. On appeal by the respondent, the Division
H Bench" of the High Court reversed the interim ord~r and hence the appeal
by certificate.
Dimlissing the appoal, the Court
SUPERINTl!NDBNGB COMPANY V. KRISHAN MURGA! 12 7 9

HELD: (Per Tulzapurkar l., on behalf of Untwali~ l. and himself). A
!. Assuming that the negative covenant contained in clause (10) of the
service agreement is valid and not hit by section 27 of the Indian Contract
i ... Act, it is not enforceable against the respondent at the instance of the
appellant company. The appellant company should have taken care to uae
appropriate language, while incorporating such reStrictive covenant so as to
' T include every case of 1cessation of employment arising from any reason
I whatsoever and not llsed the expression "leave", which normally is synony- B
I ,, pious to the expression "quit" and indicates voluntary act on the part of the
employee. [1285 F, 1287 A, B-C]
~

(2) The word "leave" has various shades of meaning depending upon
the context or intent with which it is used. According to the plain gramma-
ticel meaning that word in relation to an employee would normally be
'\j'coostrued a& meaning voluntary leaving of the service by him and would c
~ not iI}.clude a case 'where he is discharged or dismissed or his services are
terminated by his employer. Ordinarily, the word connotes voluntary action.
[1286-D]
(3) In the instant case, having regard to the context in which the expres-
sion leave occurs in clause (10) of tho service agreement and reading it
alongwith all the other terms of agreement, it is clear that the word •ieave•
was. intended by the parties to ·refer to a case where the employee volunta- D
rily left the services of his own. [1286 G-H, 1287 A]
Murray v. Close, 32 Law Times Old series p. 89; held inapplicable to
Indian Law.
Muesling v. International Rly. Co., 147 N.Y.S. 177,' 178 85 Misc 309;
y quoted with approval. E
Per, Sen 1.:
1. Agreements of service, containing a negative covenant preven.ting the
employee from working elsewhere are not void under section 27 of the
Contract Act, on the ground that they are in restraint Of trade. Such agree-
ments are enforceable, the reason being that the doctrine of restraint of trade
never applies during the continuance of a contract of employment and applies F
only when the contract comes to an end. While during the pet:iod of employ-
\. ment the Courts undoubtedly would not grant any specific performance of
i a contract of personal service, nevertheless Section 57 of the Specific Relief
Act clearly provides for the grant of an injunction to restxain the breach
of such a covenant, as it is not in restraint of, but in furtherance of trade.
[1289 C-EJ
\
2. There is a clear distinction between a restriction in a ' contract of G
employment Which is operative during the period of employment and one
which is to operate after the termination of employment. Mere existence of
negative covenant in a service agreement does not make it void on the
ground that it was in restraint of trade and contrary to the Contxact Act.
The restriction contained in clause 10 of the agreement in this case is
clearly in restraint of trade and therefore illegal under section 27 of the
Cootract Act. It is not seeking to enforce the negative covenant during
the term of employment of the respondent but after the tennination of his
. serviceo. [1289 F-G, 1290 F-0, 1291 C-D]
1280 SUPREME COURT REPORTS [1980] 3 s.c.R.

, A Niranjan Shankar Golikari v, Century Spinning and Manufacturing Co.,
Ltd., [1967] 2 SCR 378, distinguished.

3. \Vhen a rule of English law receives statutory recognition by the Indian
Legislature, it is the language of the Act which determines the scope, un·
influenced by the manner in which the anologous provision comes . to be
construed narrowly or otherwise modified in order to bring the construc.tion
within the scope and limitations of the rule governing the English doctrine of
trade. [1291 H, 1292 A]

Satyavrata Ghosh v. Kurmee Ram Bangor, [1954] SCR 310. followed.

4. A contract which has for its object a restraint of trade is, prima facie
~oid. The question whether an agreement is void under section 27 must
be decided upon the wording of that section. There is nothing in the woro----v--
c ing of section 27 to suggest that the principle stated therein does not apply
when the restraint is for a limited period only or is confined to a particular
area. Such matters of partial restriction have effect only when the fact fall
within the exception to the section. Section 27 of the Contracts Act is general
in terms, and declares aU agreements in restraint void pro tanto, except in the
case specified in the application and unless a particular contract can be
distinctly brought within Exception I there is no escape from the prohibition.
D Here the agreement in question is not a "good will of business", type of
contract, and, therefore does not fall within the exception. If the agreement
on the pa.rt of the respondent puts a restraint even though partial, it wa.o
void, and, therefore, the contract must be treated as one which cannot be
enforced. [1292 E.H, 1293 A, F-GJ

Madhub Chander v. Rai Coomar Dass, (1874) Bom.L.R. 76 @ 85-86;
E approved.

5. A contract in restraint of trade is one by which a party restricts liis
. future liberty to carry on his trade, business or profession in such maniier
and with such persons as he choooes. A contract of this class is prima facie
void, but it becomes binding upon proof that the restriction is justifiable in
the circumstances as being reasonable from the point of view of the
F parties themselves and also of the community. Under Section 27 of the
Contract Act the onus is upon the covenanter. [1292 H, 1293 A. & 1294 D·E] {
r
6. A law does not cease to be operative because it is an anachronism or
because it is antiquated or because the reason why it originally became the
law could_ be no reason for the introduction of such a law at the present
times. Neither the test of reasonableness nor the principle of that the /
G restraint being partial was reasonable are applicable to a case governed by
Section 27 of the Contract Act, unless it falls within Exception I. Under
Section 27 of the Contract Act, a service covenant extended bey00d' the
termination of the service is void. [1299 AMC:/

Nor<Je.nfelt v. Maxim. Nordenfelt Guns 'am! Ammunition Co. Ltd.. L.R.
[1894] A.C. 535; Mason v. Pruvident Clothing and Supply Co. Ltd.. L.R.
[1930] A.C. 724; Herbert Morris Ltd. v. Saxe/by; discussed.
H
7. On a true construction of clause 10 of the agreement the negative conven-
ant not serve elsewhere or enter into a competitive business does not, arise -
SUPERINTENDENCE COMPANY V. KRISHAN MU!lGAl 1281

.when. fhe employee does not leave the services but is dismissed from Service. A
Wrongful dismissal is a repudiation of contract of service which relieves the
employee of the restrictive covenant. [1299 &F]
General Bil/posting Co. v. Atkinson, L. R. [1909] AC 118; referred to.
8. The word 'leave' has various shades of meaning depending upon the
context of intent with which it is used. According to the plain meaning, the
word 'leave' in relation to an employee, should be construed to mean where B
he "voluntarily" leaves i.e. of his ovm volition and does not include a. case of
dismissal. The word 'leave' appears to connote voluntary actiOn, and is syno-
DJDlOUS with the word 'quit'. It cloes not refer to the expulsion of an emp- ·
luyee by the act of his employer without his consent and against his remons-
trance. That is a meaning in consonance with justice and fair play. ·
[1299 H, 1300 A-BJ
c
9. Restrictions on com~titions during the period of service a.re Jilormally
valid and indeed may be implied by law by virtue of the servant's duty of fidelity.
Ill such cases t,he restriction is generally reasonable, 'having regard to the in-
lernit of the employer and does not cause a.ny undue hardship to the employee,
who wi11 receive a wage or salary for the period in question. But if the cov-
\. enant is to operate after the termination of services, or is too widely v"orded.
tile Conrt may refuse to enforce it. [1300 CD] D
10. It is well established that employee's covenants should he carefully
scrutinised because there is inequality of bargaining power between the pa.rties;
iacleed no bargaining -power may occur because the employee is presented with
a standard form of contract to accept or reject. At the lime of the agree-
' ment, the employee may have given little thought to the restriction becauae
'. of' his eagerness for a job; such contracts "tempt improvident persons, for the I!
\~ of present gain, to deprive themselves of the power to make future acqui-
~ms and expose them to impooition and oppression". [1300 E-F]

\ 11. The Courts view. with disfavour a restrictive covenant by an employee
nol. to engage in a business similar to or competitive with that of the employer
aft¢ the termination of his contract of employment since a. restrictive coven-
ant ,.,,cillary to a contract ofemployment is likely to affect the employee's F
means, or procuring a livelihood for himself and hi• family. [1301 B-C]

12\ The true rule of construction is that when a covenant or agreement is
impea~hed on the ground that it is in restraint of trade, the duty-of the Court
is, frrst 'to interpret the covenant or agreement itself, and to ascertain accord-
ing to the ordinary rules of construction what is the fair meaning of the parties.
If there i,o;: an ambiguity it must receive a narrower construction than the G
wider. The restraint ma.y not be greater than necessary to prptect the emp-
loyer, nof l,mduly harsh and oppressive to the employee. Even if the word
'leave' cont3ined in clause 10 of the a'greement is susceptible of another cons-
truction as ~ing operative on termination, however, accomplished of the
service e.f?. by dismissal without notice, would having regard to the provisions
of oection 27 'of the Contract Act, 1972, try to preserve the Government in
clause l 0 by il,ving to it a restrictive meaning, as implying volition i.e. wher,e II
the employee ~igns or voluntarily leaves the services. The restriction being
too wide, and violative Of section 27 of the Contract Act, must be subjected·
to a narrower co~truction. [1301 C-G] .
\ .

\
•
1282 SUPREME COURT REPORTS [1980] 3 s.c.R.

A
-
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1933 of 1979.
Appeal by Special Leave from the Judgment and Order dated the
20th July, 1979 of the Delhi High Court in F.A.O. (OS) No. 86 of
1979.
A. K. Sen, P. P. Rao, N. D. Garg, R. Venkataramani and S. K.
B Bisaria for the Appellant.
K. K. Venugopal, H. K. Puri and S. C. Dlumda for the Respondent .
. The following Judgments were delivered
TuLZAPURKAR, J. This appeal at the instance of the appellant
company (original plaintiff) is directed against an inter-locutory order
c passed by the High Court in F.A.O. (0.S.) 86 of 1979 refusing to ~y
grant temporary injunction in a suit which is stil\ pending. Princi-
pally it raises two substantial questions : (a) whether a post-service
restrictive covenant in restraint of trade as contained in cl. ( 10) of
the service agreement between the parties is void under s. 27 of the
Indian Contract Act ? and (b) whether the said restrictive covenant,
D assruning it to be valid, is on its terms enforceable at the instance of
the appellant company against the respondent ?
On March 21, 1980 we dismissed the appeal at the·copclusion of
the hearing and it was stated that our reasons will follow. We now
proceed to give .our reasons for the dismissal.
I '
E Briefly stated the facts are these. The appellant company carries
on business as valuers and· surveyors, undertaking inspection of quality,
weighment, analysis, sampling of merchandise and commodities, car-
goes, industrial products, machinery, textiles, etc. It has estabilshetl
a reputation and goodwill in its business by developing its own tQil-
niques for quality testing and control and possesses trade secrets in. the
F form of these. teohniques and clientele. It has its head oflicd at
Calcutta and a branch at New Delhi and employs various persons as
managers and in other capacitie~ in Calcutta, New Delhi and other
places. On March 2 7, 1971 the respondent was emplayed by · the
appellant company as the Branch Manager of its New Delhi office on
f
G terms and conditions contained in the letter of appointment issued to I
him on the same date. Cause (10) of the terms and conditions of
employment placed the respondent under a post-service restraint that
ho shall·not serve any other competitive firm nor carry on business on
his own in similar line as that of the appellant company for two years
at the place of his last posting. Since it is vital we set out the< said
H clause which ran thus : -
."10. That you will not be permitted to join any firm
of our competitors or run a business of your ow11 ln similar
SUPBIUNTBNDENCB COMPANY V. KR!SHAN MURGA! 1283
(Tulz.apurkar, J.)
lines directly and/ or indirectly, for a period of two years at A
the place of your lllst posting after you leave the company."
On November 24, 1978 the appellant company terminated tbei
re.11pondent's services with effect from December 27, 1978. There-
after the respondent started his own business under the name and
style of. "Superintendence and Surveillance Inspectorate of India" at B
B-'.i?2, South Extension, New Delhi on lines identical with or subStan~
tially 'similar to that of the appellant company. On April 19, 1979
the appellant company brought a suit in the Delhi High Court on its
Original Side claiming Rs. 55,000/- as damages on account of the:
'-,,.,J.- breach of the aforesaid negative covenant ccntained in cl. (10) and
~ for permanent injunction restraining the respondent by himself, his c
servants, agents or otherwise, from carrying on the said business ,or
any other business on lines similar to that of the appellant company or
associating or representing any competitors of the appl'.J!ant cqmpany
before the .expiry of two years from December 27, 1978. After filing
the suit the appellant company sought an interim injunction by way of
enforcirig the aforesaid negative cQlvenant and a Single Judgei 'of the D
Dt:lhi High Court initially granted an ad interim injunction on: April
29, 1979 which was confirmed by him on May 25, 1979 after hearing
. the respondent. The learned Single Judge took the view that the
ne~ve covenant, being in partial restraint of trade, was reasonable
y inasmuch as it was limited both in point of time (two years) as well:
E
1 as the area of operation (New Delhi which was his last posting) and,
therefore, ll(as not hit by s. 2 7 of the Contract Act. He also took the
view that the negative covenant was enforceable as the expression,
"leave" in cl. ( 10) was not confined to voluntarily leaving of the service
by the respondent but was wide enough to include termination of his:
services by the appellant company. On appeal by. the respondent, a F
Division Bench ef the High Court reversed the order of the learned
Single Judge on both the points and that is how the two questioru;
indicated at the commencement of this judgment arise for our deter-
mination in this appeal.

" ' Since in our vieW the appeal ii; capable of being dispooed of ,,n
1be second .point we think it unnecessary to decide or express our
G

opinion on the fiist question which was hotly and ably debated at the
bar by counsel on either< sidei but we will indicate briefly the rival lines
on which the arguments proceeded. On the one ·hand counsel for th~
reipO!ldent tried to support the view of the Division Bench by pointiilg
out that in India the law on the subject was codified by statute which B
wu edlaustive and on the topic of agreements in restraint of trade and
excefl(ions in that behalf the Indian Courts cannot invoke oc derive
12S4 SUPREME COURT REPORTS [1980] 3 s.c.R.

A assistance from the English Common Law and the exceptionsi deve-
loped thereto by English decisions from time to time, that s. 27 ol. the
Indian Contract Act was absolute in terms .in that it did not make any
distinction between par_tial or general restraints and that unless. a case
was covered by the Exception provided thereunder every restraint ol' i
trade, whether partial or general would be void under that section. In
this behalf reliance was placed on a number of decisions of various
High Courts commencing from the celebrated decision of Sir Richard
Couch, C.J. in M.adhub Chunder v. Rajcoomar Doss(') wheres. 27 •
was interpreted in the aforesaid manner. Counsel urged that a dis-
tinction between a negative covenant operative during the period of
c employment and one that is operative during post-service period has
been well recogttised and that all post-service restrictive covenants'
were prima facie void, that the only exceptions were those given in the
statute and that the exceptions developed by' the English case .law
could not be invoked here. According to him the tes~ of reaso~ble
ness had been wrongly adopted by the learned Singlei Judge. He
D pointed out that accepting the interpretation placed on s. 27 by High·
Courts even the Law Commission has recommended a change in that
by suitable legislation. He further pointed out that the Division
Bench has gone a step further and after considering whether the instim~
case would fall wi_thin those exceptions developed by English case .
Law has come to a negative conclusion against the appellant company.
E
On the other hand counsel for the appellant company contended
that the interpretation of s. 27 as given by various Hfgh Courts includ-
ing Sir Richard Couch's decision in Madlmb Chzmder's case (supra)
has not been so far considered by this Court and it requires to be·
examined and considered by this Court, especially in view of certain
F observations made by this Court in· Niranjan Shankar Golikari's ( 2 )
case which warrant such reconsideration. Though i_t was a casei deal-
ing with negative c01Venant that was operative during the employment
period counsel pointed out that entire case law Indian as well as
English was discussed and this Court at page. 389 of th<1 repo<t
observed thus :
G
"The result of the above discussion ,is that considerations
against restrictive covenants are different in cases where the
restriction is to apply during the period after the termination
of the contract than those in cases where it is to operate
during the period of the contract.'"
B I
(I) [1874] 14 Beng. L. R. 76.
(2) [1967] 2 SCR 378.
SUPERINTENDENCE COMPANY
.
v. KRISllAN MURGA! 1285
. (Tulzapurkar, J.)
According to counsel the very fact that this Court has observed that A
considerations qua post-service restrictions are different from those
that are· to be considered in cases of restrictiops during the employiµent
suggests that perhaP5 a rigorou~ test of reasonableness may have to be
adopted in the former cases but there would be cases where post-
service restrictions, if !eason:able, even after app_lying the rigorous
tests may be valid as not falling under s. 2 7 of the Act, it was, there-. B
fore, not correct to ·say that aU post-service restrictions were volp.

... His precise contention was that even a post-service restrictive covenart,t,
if it was reasonable, qualified or limited in operation both iD point bf
time l\Ild area, as was the case here, does not amount to any restraint
of trade at all within the meaning of s. 27 and such restrictive covenan
could· be justified as being necessary and essential to protect th
c
employer's interests, his trade secrets and his trade connections and,
therefore, valid. As regards the argument based on codified excep-
tion, counsel pointed out, that even the case of a restrictive covenant
operative during the period of employment between master and servant
had not been provided for as an exceptiOl!I below s. 27 but even sa 1 o
such restrictive covenant was never regarded as amounting to restraint
of trade under s. 27 mainly because it was always; regarded as reason-·
able and necessary tOI protect the employer's interests, which shows that
the statutory exceptions were not exhaustive. . Lastly,· counsel urged
that the Law Commission's recommendation on which reliance wa•
· placed by respondent's coousel would be inconsequential because it E
proceeds on the acceptance of the interpretation placed on s. 27 by
various High•Courts and he is seeking tol get that interpretation eimmin-
ed and considered bY-:this Court.
However, as we have said above, we do not propose to discuss or
decide the aforesaid question inasmuch as this appeal can be disposed F
of by deciding the second question that has been raised before us and
··, for that purpose we shall proceed on tbe assumption tbat the negative
l c~venant contained in cl. (10) of tbe service agreement is valid and
not hit by s. 27 of tbe Contract Act. The question is whether tbe said
restrictive covenant is on its terms enforceable against the respondent
\ at tbe instance of tbe appellant company.
1
G
We have already quoted the restrictive covenant contained in
cl. ( 10). In terms tbe clause provides that the restriction contained
!herein will come into operation "after you (respondent) leave the
company". Admittedly in tbe instant case the respondent had not on
his own left the .company but his services were terminated by the appel- B
!ant COOlpany by a. notice dated November 24, 1978 with effect from
December 27, 1978. The question is whether the phrase "after you
1286 SUPREME COURT REPORTS [1980] 3 s.c.R.

leave the company" ml!llllS the leaving of service by the responde!llt
voluntarily or would include even ~e case of termination of his services
by the appellant company. The Division Bench of the High Court
has ,taken the view that the word "leave" does not include termination
Of service by the employer. Counsel for the appellant company con~
tended that the word "leave" occurring in the phrase "after you leave i
B the company" would be wide enough to include all cases of cessation
of service whether brought about by voluntary quitting on the part of
the employee or termination of his services by the employer and in
that behalf reliance was placed upon an English decision in Murray v.
Giese(•) where it was held that an agreement restricting competition
with an employer "after leaving his ser'1ice" would be operative on the
c termination, however accomplished, of the service, e.g. by a disnrissal
without notice. ( vide : Stroud's Judicial Dictionery, 4th Edn., Vol. 3,
page 1508, Item 13, under the word 'leaving').
In our view, the word "leave" has various shades of meaning
depending upon the context or intent with which it is used. According
D to the plain grammatical meaning that word in relation to an employee
would normally be construed as meaning voluntary leaving of the ser-
vice by him and would not include a case where he is discharged or
dismissed or his services are terminated by his employer. Ordinarily
the word "leave" appears to connote voluntary action. In Words &
Phrases Permanent Edition Vol. 24 at page 499 the following statement
E of law based on an American decision occurs:
"An application for the employment of a street car con-
ductor provided that in the event of his leaving the services
for any reasons whatever within six months, the money paid
to him for work under instruction while on trial shol1ld be
F deducted from such moneys as should be due from the com-
pany on the date of his_ "leaving". Held, that the word
"leaving'; meant to quit or depart, implying, volition on the (
part of the person leaving, and limited the forfeiture of the
instruction wages to a case where plaintiff left defendant's
employ of his own volition, nor was such instruction effected
G by the words, "for any reason whatsoever." Muesling v. I
International Ry. Co., 147 N.Y.S. 177, 178, 85 Misc. 309_
In our view having regard to the context in which the expression
"leave" occurs in cl. (10) o~ the service agreement and reading it
alongwith all the other terms of employment it seems to us clear that
H in the instant case the word "leave" was intended by the parties to
refer only to a case where the employee has voluntarily left the services
(I) 32 Law Times Old Series 89.
SUP!!RINTBNDENCB COMPANY v. KRISHAN MURGA! 1287
(Sen, 1.)
of the appellant company of bis own, and since hem the respondent's A
services were terminated by the appellant company the restrictive
covenant contained in cl. (10) would be inapplicable and, therefore,
not enforceable against the respondent at the instance of the appellant
company. Counsel for the appellant company urged that our constru~-
tion would lead to puttin8. a premium upon an dishonest employee who
B
by his own misdemeanour and misbehaviour may invite termination
... of his services . .All that we can say is that the appellant company
sholl1d have taken care ·td use appropriate language while incorporat~
ing such restrictive covenant so as to include every case of cessation
of employment arising from any reason whats0ever and not used the
expression "leave," which normally is synonymous to the expression · C
"quit" and indicates voluntary act on the part of the employee.

In the reswt the appeal is dismissed with no order as to costs.

SEN, J. I regret that my learned brethren propose to express nd
opinion on the question on which, in my view, the appeal turns. The
question is whether a negative covenant which restricts the right of D
the employee, after the cdnclusion of the term of service, or the
termination of the employment for other reasons, to engage in any
business similar to or competitive with that of the employer, is in
restraint of1 trade and, therefore, void under section 27 of the Con-
tract Act,' 1972. i have no doubt in my mind that the appeal
E
· can'not be decided without deciding this question.

This appeal on certifiCate from a judgment of the Delhi High '
court, relates to a covenant in restraint of trade contained in an
agreement between the appellant company and the respondent in
circumstances which we will explain. The appellant company carr-
F
\.. ies on the business of valuer, surveyor, inspection of quality, weigh-
_,;;.' ~ ment, analysis, sampli'ng of merchandise and commodities, cargoes, \
industrial products, machinery, textiles, etc. It has its head office at
Calcutta with a branch at New Delhi. On or about March 27, 1971,
the respondent who is a surveyor and· valuer was employed
by the appellant as the B~anch Manager of its New Delhi office. One G
of the terms and conditions of the employment was that the
respondent would 'not serve elsewhere or enter into any business for a
period of 2 years after leaving the service. The term is contained in
cl~use 10 of the agreement which reads :

10. That you will not be permitted to join any firm of our e
competitors or run a business of your own in similarity as
directly and/or indirectly, for a period of two years at the

. <!i·--.
128f3 SUPREME COURT REPORTS [1980] 3 :;.C.R.
I
A place of your last posting after you leave the
! Company.

The appellant terminated the services of the cespandent by its ·
Jetter dated December 27, 1978. Thereafter the respondent star-
ted a business of his own under the name and styic of "Superinten- t
. B dence aild Surveillance Inspectorate of India" at E-22, South Bx-
tensian, New Delhi on Jines identical° with and substantially simi-
lar to that of th_e appellant. On April 19, 1979, the appellant •
commenced a suit in the Delhi High Court in its original side
claiming Rs. 55,000/- as damages on account of breach of the
covenant and for permanent injunction to restrain the respondent
c by himself, his servants or agents or otherwise from carrying on the
said busi'ness or any other business on Jines similar to thg.t of the
appellant or associating or representing any Competitors of the app-
ellant before the expiry q_f two years from December 27, 1978.
'' A Single Judge of the Delhi High Court/adopting the test cf
/D reasonableness, held that under sectian 27 of the Cantract
Act to determine whether the agreement is void, one has to see
whether the restraint is reaSO'nable; and if so the nega-
tive covenent can be enforced as enjoined by illustratians ( c)
and (d) to section 57 of the specific Relief Act, 1963. He
E held that Clause 10 of the agreement is not unreasonab:e, because "'-
the area of restraint is re&tricted to New Delhi, the place
of last posting of the responde'nt and is not unlimited, being
limited to a period of two years from the date he left the
service. He went on to say that negative covenant in a contract of

I
I
F
employment has always been enforced, if it is in the protection of
the employer, and referred to Niranjan Shankar GoUkari v. Century
Spinning and Mfg. Co. Ltd. [1967] 2 S.C.R. p. 378. He further ../
held that the negative covenant was operative as the word "leave" '
in clause 10 was wide enough to include terminatio)J of service. He, i
accordingly, by his order dated May 25, 1979. made the earlier
ex parte ad interim injunction granted by him on April· 24, 1979 I
G ab~lute but restricted its operation to New· Delhi and for the period
ending 27th December, 1980 or till the decision of suit, whichever
is earlier. ~

On appeal by the respondent, a Division Bench of the High
Court reversed the order of the learned Single Judge hold-
H ing that negative covenant operating beyond the period of employ-
ment was in restraint of trade and, therefore, void under sectioll
27 of the Contract Aot.

. I'
SUPERINTENDENCE COMPANY V. KRISIIAB: MURGA! 1289
(Sen, !.)
Four questions arise in this appeal : 1. Whether Clause 1O of
the agreement was in restraint of trade; and if so, being partial was
}. valid and enforceable being reasonable?; 2. Whether according to
the test of reasonableness laid down by Lor!! Macnaghten irt
Norden/ell v. Hakim Nordenfelt Guns & Ammunition Co. Ltd.,(')
an injunction to enforce the negative covenent can be granted under
illustrations ( c) and ( d) to section 57 of the Specific Relief Act, B
1963, despite section 27 of the Contract Act, 1872? 3. Whether,
and to what extent, the provisions of Section 27 of the Contract Act
are subject to the common law doctrine of restraint of trade ? 4.
Whether the word "leave" in Clause 10 of the agreement between
y the parties makes the negative covenant operative only when a ser-
~
vant voluntarily leaves his employment, or, applies even in a case of
termination of his services by an order of dismissal or termina-
tion of his services?

Agreements of service, contajl;ting a negative covenant preven-
ting the employee fmm working elsewhere during the term
\
covered by the agreement, are not void under section 27 of the D
Contract Act, on the ground that !hey are in restraint of trade.
Such agreements are enforceable. 1be reason is obvious. The
doctrine of restraint of trade never applies during the conti-
nuance of a contract of employment; it applies only when the
¥ contract comes to an end. While during the period of employment,
E
the Courts undoubtedly would not grant any specific per-
formance of a contract of personal service, nevertheless; Section 57
of the Specific Relief A_ct clearly provides for the grant of an in-
junction to restrain the breach of such a covenant as it is not in
restrafut of, but ill furtherance of trade.
F
\_ In Niranjan Shankar GoUkari's case, supra, this Court drew a
, distinction between a restriction in a contract of employment
which is operative du.ring the period of employment and one which
is to operate after thP, rermi'nation of employment. After
\ referring to certain Englisn cases where such distinction had been
drawn, the Court observed: G
"A similar distinction has also been drawn by the Courts
in India and a restraint by which a person binds himself
during the term of his agreement directly or indirectly not to
take service with any other employer or be engaged by a
third party has been held not to be void and not against sec-
tion 27 of the Contract Act."
n
(1) L. R. [1894] A. C. 535
\
23-610SCI/80
1290 SUPREME COURT REPORTS [1980] 3 s.c.R.

A It referred to with approval the decision in The Brahmaputra
·rea Cv. Ltd. v. Scarth, LL.R. (1885) 11 Cal, 545, where the con-
dition under which the covenantee was partially restrained from com-
peting after the term of his engagement with his former employer,
was held to be bad but the condition by which he bound i
himself during the term of his agreement, not, directly or indirectly,
B to compete with his employer was held good, and obser-
ved:
•
"At page 550 of the report the Court observed tha1
an agreement of service by which a person binds
himself during the term of the agreement 'not to
c take service with any one else, or directly, or in-
directly take part in, promote or did any business
in direct competition with that of his employer was not hit
by section 27."

The Court further observed:
D "An agreement to serve a person exclusively for
a definite term is a lawful agreement, a'nd it is
difficult to see how that . can be · unlawful which is
essential to its fulfilment, and to the due protection
of the interests of the employer, while the agreement is in
force."
E
The Court also approved of the several Indian decisions where an
agreement of service contained both a positive covenant viz. that
the employee shall devote his whole-time attention to the service of
the employers and also a negative covenant preventing the employee
from working elsewhere during the term of the agreement, and flte
F High Courts have enforced such a negative covena'nt during the t~
of employment having regard to illustrations ( c) and (d) to section :{
57 of the Specific Relief Act which, in terms, recognised such con-
traets and the existence of negative covenants therein, a:nd stated
that the contention that the existence of such a negative covenant
in .a service agreement made the agreement void on the ground
G that it was in restraint of trade and contrary to section 2 7 of the
Contract Act had no validity.
In conclusion, the Court observed:
"The result of the above discussion is that con-
siderations against restrictive covenants are different in
H cases whete the restriction is to apply during the period after
the te.J'mination of the qmtract than those in cases where
it is to operate during !he period of the contract. Negative
SUPERINTENDENCE COMPANY V. KRISHAN MURGA! 1291
(Sen, /.)
·covenants operative during the period of the contract of A
. employment when the employee is bound to serve his emplo-
yer exclusively are generally not regarded as restraint of
trade and therefwe do not fall under section 27 of the Con-
.tract Act. A negative covenant that the employee would not
engage himself in a trade or business or would not get himself 1 ·
employed by any other master for whom he would perform 8
similar or substantially similar duties is not therefore a restraint
of trade unless the c9ntract as aforesaid is unconscionable or
excessively harsh or unreasonable or one sided."
(Emphasis supplied)

The decision in Niranjan Shankar Golikari's case supra is therefore C \
of little assistance to the appellant. It is not seeking to enforce the
.ll!egative covenant during the term of employment of the respondent
but after the termination of his services. The restriction contained in
Clause 10 of the agreement is obviously in restraint of trade and, there-
fore, illegal and unenforceable under section 27 of the Contract Act. D

In support of the appeal, learned counsel for the appellant has, in
·substance, advanced 11. two-fol.d contention. It is submitted, firstly,
upon the common law doctrine of restraint of trade that though the
y -covenant is in restraint of trade, it satisfies the 'test of reasonableness',
.as laid down by Lord Macnaghten in Nordenfelt v. Maxim Nordenfelt E
·Guns & Ammunition Co. Ltd., supra, and is, therefore, enforceable
despite section 27 of the Contract Act, 1872, and, secondly, that the
word "leave" in Clause 10 of the agreement is wide enough to make
the covenant operative even on the termination of employment i.e. it
1includes the case of dismissal. I am afraid, the contentions are wholly
·'devoid of substance. F

While the Contract Act, 1872, does not profess to be a complete
code dealing with the law' relating to contracts, we emphasise that to
'\. · the extent the Act deals with a particular subject, it is exhaustive upon
the same and it is not permissible to import the principles of English
Law de hors the statutory provision, unless the statute is such that it G
• . cannot be understood without the aid of the English Law. The provi-
•-"° sions of Section 27 of the Act were lifted from Hom. David D. Field's
Draft Code for New York based upon the old English doctrine of
restraint of . trade, as prevailing in ancient tiiles. When a rule of
English law receives statutory recognition by the Indian Legislature,
it is the language of the Act which determines the scope, uninfluenced H
·by the manner in which the anologous provision comes to be construed
0
narrowly, or, otherwise modified, in order to bring the construction
1292 SUPREME COURT REPORTS [1980] 3 s.c.R;

A within the scope and limitations of the rule governing the English'
doctrine of restraint of trade.
-+.
It has often been pointed out by the Privy Council and this Court
that where there is positive enactment of Indian Legislature the proper
course is to examine the language of the statute and to ascertain its· i
proper meaning uninfluenced by any consideration derived from the
B previous state of the law or the English law upon which it may be
founded. Ir; Satyavrata Ghosh v. Kurmee Ram Bangor, [1954] S.C.R.
310, Mukherjee J. while dealing with the doctrine of frustration of
contract observed that the Courts in India are to be strictly governed
by the provisions of Section 5 q of the Contract Act and not to be·"'v
influenced by the prevailing concepts of the English Law, as it has· 1'.
passed through various stages of development since the enactment of
the Contract Act and the principles enunciated in the various decided
cases are not easy Jo reconcile. What be says of the doctrine of frus-c
tration under s. 5 6 of the Contract Act is equally true of the doctrine
of restraint of trade under section 2 7 of the Act.
D Now, so far as the present case is concerned, the law is to be found'
in section 27 of the Contract Act 1872, which reads:
"27. Agreem,,ent in restraint of trade void-Every agree-
ment by which any one. is restrained from exercising a lawful
profession, trade or business of. any kind is to that extent·
E void.
Exception : One who sells the goodwill of a business
may agree with the buyer to refrain from carrying on a similar
business, within specified local linllts, so long as the buyer or
any other person deriving title to the goodwill from him,
carries on a like business therein, provided that .such limits
F
appear to the Court reasonable, regard being had to the
nature of the busi!ness." I
The section is general in terms, and declares all agreements in restraint·
void pro tanto, except in the case specified in the exception. ~

G The question whether an agreement is void under section 27 must·
be decided upon the wording of that section. There is nothing in the
wording of section 27 to suggest that the principle stated therein does
not apply when the restraint is for a limited period only or is confin•
ed to a particular area. Such matters of partial restriction. have effect
only when the fact fall within the exception to the section.
·.u
A contract, which has for its object a restraint of trade, is prirri(.l
fpcie, void. Section 27 of the Contra_ct Act is general in terms and'
SUPERINTENDENCE COMPANY V, KRIS~ MURGA! 1293
(Sen,!.)
•UJl!ess a particular contract can be distinctly brought within Exception A
1 there is no escape from the prohibition. We have nothing to do
·with the policy of such a law. All we have to do is to take the words
of the Contract Act and put upon the meaning which they appear
,.._ .plainly to bear. This view of the section was expre8sed by Sir
Richard Couch C.J. in celebrated judgment in Madhub Chunder v.
t Rajcoomar Doss [1874] Beng L. R. 76 at pp. 85-86 laying down B
that whether the restraint was general or partial, unqualified or quaTh-
fied, if it was in the nature of a restraint of trade, it was void.

The observations of Sir Richard Couch, C.J., in Madhub Chunder
v. Rajcoomar Doss, supra, which have become the locus classicus were
...._,..these:
c
"J "The words 'restraint from exercising a lawful profession,
trade or business' do not mean an absolute restriction, and
are intended to apply to a partial restriction, a restriction
limited to some particular place, otherwise the first exception
would have been unnecessary." Moreover, "in the follow- D
ing section (s. 28) the legislative authority when it intends
to speak of an absolute restraint and not a partiall one, has
introduced the word 'absolutely'. . . The use of this word in
s. 28 supports the view that in s. 27 it was intended to! pre-
vent not merely a total restraint from carrying on trade or
E
;business but a partial one. We have nothing to do with the
Y policy of such a law. All we have to do is to take thel words
of the Contract Act, and put upon them the meanin!J which
they appear plainly to bear."

The test laid down by Sir Richard Couch, C.J. in Madhub Chunder
v. Rajcoomar Doss, supra, has stood the test of time and has invaria- F
bly been followed by all the High Courts in India.
' The agreement in question is not a 'goodwill of business' type of
contract and, therefore, does not fall within the exception. If the
agreement on the part of the respondent puts & restraint even though
·partial, it was void, and, therefore, the contract must be treated as one G
·which cannot be enforced.

It is, however, argued that the test of the validit}j of a restraint,
whether general or partial, is dependent on its reasonableness. It is
-pointed out that the distinction drawn by Lord Macclesfield in Mitchel
v. Reynolds (1711) 1 PMas_161 between general and partial restraint, H
was removed 5y the House of Lords in Nordenfelt v. Maxim Nortlen-
Je/t Guns and Ammunition Co. (supra). According to the judgment of
)

1294 SUPREME COURT REPORTS U980] 3 s.c.11. •.

A Lord Macnaghten in N ordenfelfs case, the validity in either case was.
reasonableness with reference to particular circumst~ces. It is urged
that all covenants in restraint of trade partial as well as general a.re
prima facie void and they cannot be enforced, according to the test
laid down by Lord Macnaghten in Nordenfelt's case and accepted by
the House of Lords in Mason v. Provident C/.othing arui Supply Co.
B Ltd., L.R. [1930] A.C. 724, unless the test of reasonableness is testi- t
fied. It is also urged that while an employer is not entitled to protect
himself against competition per se on, the part of an employee after the
employment has ceased, he is entitled to protection of his proprietary
interest viz. his trade secrets, if any, and a blisiness connection.
1
c The test of reasonableness which now governs the commoni law
doctrine. of restraint of trade has been stated in Chitty on Contracts,, .
23rd Edn., Vol. I. p. 867 : I(
"While all restraint of trade to which1 the doctrine applied
are prima facie unenforceable, all, whether partial or total,
are enforceable, if reasonable."
D
A contract in restraint of trade is one by which a party restricts
his future liberty to carry on his trade, bnsiness or profession in such
manner and with such persons as he chooses. A contract of thi~ class.
is prima fade void, but is becomes binding upon proof that th<i res-
triction is justifiable in the circumstances as being reasonable from the
E. point of view of the parties themselves and also of the community.
In Elizabethan days, all agreements in restraint of trade, whether '<!:
general or restrictive to a particular area, were held to be bad; but a
distinction came to be taken between covenant in general restraint of
trade, and those where the restraints were only partial.
F According to !lie test laid down by Parker, C.J. (later Earl of
Macclesfield) in Mitchel v. Reynolds, supra, the general restraint was
one which covered an indefinite area, and was, as a rule held bad,.
while a partial restraint was valid if reasonable, the onus being upon f
the covenanter to show it to be unreasonable. ,
There is no higher authority upon this subject than Tindal, C.J .,.
G who had to do much with moulding of the law on this subject and
bringing it into harmony with the needs of the changing times. Iw
Mornen v. Graves [1831] 7 Bing. 735, Tindal, C.J. said :
'
"The law upon this subject (i.e. restraint of trade) has
been laid down with so much authority and precision; by
H Parker, C.J., in giving the judgment of the Court of B.R.
(King's Bench) in the case of Mitchel v. ,Reynolds which
has been the leading case on the subject from that time: to
SUPERINTENDENCE COMPANY V. KRISHAN MURGA!. 1 95
(Sen, J.)
the present, that little more remains than to apply the prin- A
ciple of that case to the present. Now the rule laid down
by the court in that case is .'that voluntary reitraints, 'by
agreement between the parties, if they amount to a general
restraint of trading by either party, are void, whether. with
or without consideration, but particular restraints of trading,
,
• a
if made upon good and adequate consideration, so aS' to B
be a proper and useful contract, that is, so as it is a reason-
able restraint only, are good:'
Later on he goes on to observe :
\
"Parker, C.J., says, : a restraint to carry on a: trade I

throughout the kingdom must be void; a res_traint to carry it.
q
\
on within a particular place is good, which are rather in-', '
stances and examples than limits of the application of the·.
rule, which can only be at least what is a reasonable restraint
with reference to the particular cases."
By decrees, the common law doctrine of restraint of trade, bas been D
progressively expanded and the legal principles applied and developed
so as to suit the exigencies of the times, with the growth of ~ade and
co=erce, rapid industrialisation and improved means of communi-
cation. '
In Nurdenfelt v. Maxim Nordenfelt Guns & Ammunition Co. Ltd., E
(supra), Lord. Macnaghton held that the only true test in all cases,
whether of. partial .or general restraint, was the test proposed by Tindal,
C.J. : What.is ·a ·reasonable restraint with reference to ·a particular
case?: Thereby he denied that general and partial restraints. fall into
distinct categories. A partial restraint in his opinion was not prima
fade' valid. It was on the same footing as a general restraint i.e. F
prima facie void, but valid, if reasonable. /

."" In Mason v. Provident Clothing and Supply Co. Ltd., supra, the,

r HmJSe of Lords held that ·Lord Macnaghton's proposition was a cor-
rect statement of the modem law. · The House of Lords in this case
developed the law in two respects : First, it held that all covenants in
G
restrnlnt of trade, partial as: well as &eneral, prima fade void and that
they cannot be enforced unless the test of reasonableness as propound-
ed by Lord Macnaghton is satisfied. Secondly, it made a sharp dis-
tinction, stressed as long ago as 1869 by James, L.J., in Leather Cloth
Co. v. Lorsont [1869] L.R. 9 Eq. 345, between contracts of service
and contracts for the sale of a business. '
H
In Herbert Morris Ltd. v. Saxelby, supra, the House of Lords held
that a master cannot protect himself from competition by an ex-servant
. 12 36 SUPREME COURT REPORTS 11980] 3 s.c.R .

A 01 his new employer. He cannot stipulate freedom from competition.
P. ut he can protect his trade secrets or his confidential information.
The 'test of reasonableness' evolved in co=on law after the deci-
ion of Lord Macnaghton, in Nordenfelt's case, supra, and re-affinned
by the two decisions in Mason v. Provident Clothing & Supply Co.
B Ltd.:and Herbert Morris Ltd. v. Sexelby, supra, is that such covenants i
are prima facie, void and the onus. rests upon the covenante to prove
that the restraint is reasonable. In Nordenfelfs case, Lord Macnaghton
also adverte.d to the distinction between covenant entered by the seller
of the business on the one hand and the covenant by the employee on
I the other.
c! Framers of section 833 of Field's Draft Code for New York
designed some hundred and twenty-five years ago, expressed the iiiten•
tion to replace the co=on law stating that "contracts in restraint of
trade have been allowed by modern decisions td a very dangerous
extent", and they proceeded to draft the provision with the d~liberate
intention of narrowmg the law. The provision was never applied to
0
New York, but found its way into the Contracti Act, 1872 as section
27. Several sections of the Field's Code were enacted in the! Act.
The Cede was anathema to Sir Frederick Pollock who in his preface to
Pollock and Mulla's Indian Conlf<lct Act, p. 5, described the Code as
the evil genius of the Act, the worst principles of codification iever
E produced, and advocated that 'whenever the Act wasi revised every-
thing taken from the Code should be strnclc out'.
It must be remembered that the test of reasonableness comes from
th~ judgment of Lord Macnaghten in Nordenfelfs case in the House
of Lords in 1894. In 1862, however, when the Field provision'. was
drafted, it was not easy to foresee that the co=on law would shortly
F discard the distinction drawn by Lord Macclesfield in Mitchel v.
Reynolds in 1711, between general and partial restraints. A general
restraint was one which covered an indefinite area, and was, as a rule,
held bad, while a partial restraint was valid, if reasonable, the onu$
being upon the covenanter to show it to be unreasonable. This was a
(
G
mere rule of thumb, but was stubbornly adhered to by as great a com-
mon lawyer as Bowen, L.J., as late as 1893, when the Nordenfelf:l I
case was in the Court of Appeals : L.R. [1893] 1 Ch. D. 630.
Be that as it may, in Field's draft, as early as 1862, ar<? clearly
expressed two principles th'lt govern the modem ~o=on law today, -
but were unknown to it at that stage, and were not unequivocally
I H stated until 1916, first that restrictive covenants are prima facie, invaJid,
and secondly between master and servant covenants on the one hand
and vendor and purchaser covenants on the other; there is a great gulf

l
SUPERINTENDENCE COMPANY v. KRISHAN MURGA! 1297
(Sen, /.)
fixed. The onus of proving. reasonableness under Exception 1, was A
placed on the covenantee, while the common law at the\ time placed
·1t upon the covenanter to show unreasonableness.
Sir Frederick Pollock's criticism(') of the substantive part of ~ection
27 was that it laid down too rigid' a rule of invalidity, not merely for
r general bnt also for partial restraints, and of the exceptions that they
were too narrow, being based upon an idea of the common law, now
outmoded, that a restraint must be confined within loca~ limits. · His
views on the main body of the section may be illustrated by , twd
quotations :
"The law of India .... is tied down by. the language of
the section to the principle, now exploded in England, of a
c
hard and fast rule qualified by strictly limited exceptions •.• "
"To escape the prohibition, it is not enough to show that
the restraint created by an agreement is partial, and general."
Two passages. from his comments on Exception 1 may also be D
-cited ;
"The extension of modem commerce and means of com-
munication has displaced the old doctrine that the operation
<>f agreements of this kind must be confined within a definite
neighbourhood. But the Anglo Indian law has stereotyped
that doctrine ill a narrower form than even the old authodties E
would justify."
"Meanwhile the common law has, .on the contrary; been
widening the old fixed rules as to limits of space have been
broken down, and the court has only to consider in every
case of a restrictive agreement whether the restriction is F
'reasonable in reference to the interests of the parties con-
.,. cemed reasonable in reference to the interests of the public."
f Reverting to th~ judgment . of Sir Richard Couch in Madlmb
·Chunder v. Rajcoomar Doss, supra, we find that that eminent Judge
held that section 27 of the Contract Act does away with the distinction
observed in English cases following upon Mitchel v. Reynolds, supra, G
:between partial and total restraints of trade, and makes all contracts
falling within the terms of section void, unless they fall within the
exceptions. As already stated, that decision has always been followed.
In Shaikh Kalu v. Ram Saran Bhagat, [1908] 13 C.W.N. 388
:Mllkherjee and Camduff, JJ, referred to the history of the legislation H
(l Pollock & Milla's India Contrzct and Specific Relief Act, 9th Ed., at pp,
271, 274 and 292.
1298 SUPREME COURT REPORTS !1980] 3 S.C.R.

A on the subject and observed that the framers of the Act deliberately
reproduced Section, 833 of Field's Code with the. full knowledge that
the effect would be to lay down a rule much narrower than what was.
recognised at the time by the co=on law, while the rules of the
, co=on law, on the other hand, had since been considerably widened
and developed, on entirely new lines. They held that the wider cons-
truction put upon section 27 by Sir Richard Couch.in Madhub Chundur 1
v. Raj Coomar Doss, supra, is plainly justified by the language used,
and that the selection had abolished the distinction between partial and'
total restraints of trade and said :
"The result is that the rule as embodied in sec. 27 of the
c Indian Contract Act presents an almost startling dissimilarity
to the most modern phase of the English rifle on the .subject.
They went on to observe:
"As observed, however, by Sir Richard Couch in the case
to which we have referred, we have nothing to do with the
D policy of the law, specially as the Legislature has deliberately
left the provision in sec. 21; in its original form, though
other provisions of the Contract Act have from time to time
been amended. The interference would be almost irresistible
under these circumstances, that the Courts have rightly
ascertained the intention of the legislature. The silence of the
E Legislature in a case of this description is almost as emphatic
as an express recognition of the construction which .has been
judicially put upon the statute during many years past. In
this view of the matter, if we adopt the construction of sec. 27
of the Indian Contract Act as first suggested by Sir Richard
Couch and subsequently affirmed in the cases to which we
F
have referred, a construction which is consistent with the
plain language of the section, the agreement in this case must
be pronounced to be void."
(Emphasis supplied)

G
The Law Commission, in its Thirteenth Report, has recommended
that Section 27 of the Act should be suitably. amended to allow such f
restrictions and all contracts in restraint of trade, general or partial, as
were reasonable, in the interest of the parties as well as of the public.
That, however involves a question of policy and that is a matter for
Parliament to decide. The duty of the Court is to interpret the section
H according to its plain linguage.
The question for consideration is whether, assuming that the \vider
construction placed by Sir Richard Couch in Madlu1b Clmndur v.
SUPERL'HENDENCE COMPANY V. KRISHAN MURGA!
(Sen, J.) . -
129~
Raj Coomar Doss, supra, to have been the law, at the time of enact- .
ment, it has since become obsolete. A law does not cease to be opera-
tive becaus~ it is an anachronism or because it is antiquated or because
the reason why it originally became the law, would be no reason for
the introduction of such a law at the present time.
Neither the test of reasonableness nor the principle of that the res-
traint being partial was reasonable are applicable to a case governed _
by Section 2 7 of the Contract Act, unless it falls within Exception 1.
We, therefore, feel that no useful purpose will be served in discussing
the several English Decisions cited at the Bar.

Under Section 27 of the Contract Act, a service covenant extended
beyond the termination of the service is void. Not a single Indian
Decision tas been brought to our notice where an injunction has been
granted against an employee after the termination of his employment.
There remains the question whether the w01:_d 'leav()' in clause 10 of
the agreement is wide enough to make the negative covenant operative D
on I.he termination of employment. We may for convenience of refe-
rence, reproduce that covenant below : -
"10. that you shall not be permitted to join any firm of
our competitors or run business of your own in similarity as
directly and/or indirectly for a period of 2 years at the place E
;r-
of your last posting af!er you leave the Company."
On a true construction of clause 10 of the agreement, the negative
covenant not to serve elsewhere or enter into a competitive business
does not, in my view, arise when the employee does not l~ave the ser-
vices but is dismissed from service. Wrongful dismissal is a repudiation
of contract of service which relieved the employee of the restrictive
covenant General Bil/posting v. Atkinson L.R. [1909] AC. 116.
•
It is, however, urged that the word 'leave' must, in the context in

' which it appears, be construed to mean as operative on the termination
of employment. Our attention is drawn to Stroud's Judicial Dictio-
nary, 4th Edn., Vol. If, Pr. 13 p. 1503. There is reference to Mars G
v. Close, 32 L.T.0.S. 89. Ari agreement restricting competition with
an employer "after leaving his service" was held to be operative on the
termination, however, accomplished, of th-e service, e.g. by ~ dismissal
without notice.
The word 'leave' has various shades of meaning depending upon H
the context or intent with which it is used. According to the plain
, meaning, the word 'leave' in relation to an emplgyee, should be
. 1300 SUPREME COURT REPORTS [1980] 3 S.C.R •

construed to mean where he "voluntarily" leav~s i.e. of his own volition
and does not include a case of dismissal. . The word 'leave' appears
to connect voluntary action, and is synonymous with the word 'quit'.
It does not refer to the expulsion of an employee by the act of his
employer without his. consent and against his remonstrance. That is a
~eaning in consonance with justice and fair play. It is also the ordinary
plain meaning of the word 'leave'. ln shorter Oxford English Dictio-
nary, 3rd Ed. Vo1. X, page 1192, th,e following meaning is given-
"to depart from; quit; relinquish, to quit the service of a
person."
The drafting of a negative covenant in a contract of employment is
·C
often a matter of great difficulty.. In the employment cases so far dis-
cussed, the issue has been as to the validity of the covenant operating
after the end of the period of_service. Restrictions on competition
during that period are normally valid, and indeed may be implied by
law by virtue of the servant's duty of fidelity. In such cases the res-
triction is generally reasonable, having regard to the interest of the
employer, and does not cause any undue hardship to the employee,
who will receive a wage or salary for the period in question. But if
the, covenant is to operate after the termination of services, or is· too
widely worded, the Court may, refuse to enforce it.
, )<; It is well settled that employees covenants should be carefully
scrutinised because there is inequality of bargaining power between the
parties; indeed no bargafuing power may occur because the employee
is presented with a standard form of contract to accept or reject. At
the time of the agreement, the employee may have given little thought
to the restriction because of his eagerness for a job; such contracts
:F "tempt improvident persons, for the sake of present gain, to deprive
themselves of the power to make future acquisitions, and expose them
to iinpositiOn and oppression."

TI1ere exists a difference in the nature of the interest sought to be
protected in the case of an employee and of a purchaser and, therefore,
(
G . as a positive rule of law, the extent of restraint permissible in the two
types of case is different. The essential line of distinction is that the •"
p11rchaser is entitled to protect himself against competition on the patt
of his vendor, while the employer is not entitled to protection against
mere competition on the part of his servant. In addition thereto, a
restrictive covenant ancillary to a contract of employment is likely to
.H affect the employee's means or procuring a livelihood for himself and
his family to a greater degree than that' of a seller, who usually receive
ample. consideration for the sale of the goodwill of his- business.
f,
SUPERINTENDENCE COMPANY V, KRISHAN MURGA! 1301
(Sen, !.)
The distinction rests upon a substantial basis, since, in the f0rmer
class of contracts we deal with the sale of commodities, and in the
latter class with the performance of personal service-altogether diffe-
rent in substance; and the social and economic implications !Ire va~tly
different.
The Courts, therefore, vi~ with disfavour a restrictive covenant by
an employee not to engage in a business similar to or competitive with
that of Jhe employer after the termination of his contract of employ-
ment.
The true rule of construction is that when a covenant or agreement
is impeached on the ground that it is in restraint of trade, the duty of c·
the Court is, first to interpret the covenant or agreement itself, and to
ascertain according to the ordinary rules of construction what is the
fair meaning of the parties. If there is an ambiguity it must receive a
narrower construction than the wider. In Mills v. Dunham, L.R.
(1891] 1 Ch. 576, Kay, Ll. observed:
"If there is any ambiguity in a stipulation between em- It
ployer and employee imposing a restriction on the latter, it
ought to receive the narrower construction rather than the
wider-the employed ought to have the benefit of the doubt.
It would not be following out that principle correctly to give
the stipulation a wide construction so as to make it illegal
and thus set the employed free from all restraint. It is also a E'
settled canon of construction that where a clause is ambigu-
ous a construction which will make it valid is to be preferred
to one which will make it void."
The restraint may not be greater than necessary to protect the
employer, nor unduly harsh and oppressive to the employee. I would,
therefore, .for my part, even if the word 'leave' contained in clause 10
of the agreement is susceptible of another construction as being opera-
tive on termination, however, accomplished of the service e.g. by dis-
missal without notice, would, having regard to the provisions of Sec-
tion 27 of the Contract Act, 1872, try to preserve the covenant in
clause 10 by giving to it a restrictive meaning, as implying volition i.e.
where the employee resigns or voluntarily leaves the services. The res-
triction being too wide, and violative of section 27 of the Contract Act,
must be subjected to a narrower construction.
In the result, the appeal must fail and is dismissed but there·shall
be no order as to costs. B
S.R. Appeal dismissed.
I

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