Superintendence Company of India (P) Ltd. v. Krishan Murgai

Supreme Court of India · 9 May 1980 · 3 judges · 1980 AIR 1717; 1980 SCR (3) 1278; 1981 SCC (2) 246

A covenant barring the employee from competing for two years 'after you leave the company' did not apply where the employer terminated his services, so no injunction could issue; the appeal was dismissed.

Facts

The appellant company, valuers and surveyors, employed the respondent as Branch Manager of its New Delhi office in 1971. Clause 10 of his terms barred him from joining a competitor or running a similar business for two years at the place of his last posting 'after you leave the company'. The company terminated his services with effect from December 27, 1978, and he started a similar business in New Delhi. The company sued in the Delhi High Court for damages and a permanent injunction, and obtained an interim injunction from a Single Judge, who held the restraint reasonable and the word 'leave' wide enough to cover termination. A Division Bench reversed on both points, and the company appealed. The Supreme Court dismissed the appeal on March 21, 1980 and gave reasons later.

Questions before the Court

Is a post-service restrictive covenant in a contract of employment void under Section 27 of the Indian Contract Act, 1872?
Assuming it is valid, is the covenant in clause 10, operating 'after you leave the company', enforceable when the employer has terminated the employee's services?

What the Court held

The majority did not decide whether the covenant was void under Section 27; it assumed the covenant valid and disposed of the appeal on its terms.
The word 'leave' has various shades of meaning, but in relation to an employee it ordinarily connotes voluntary action and does not include discharge, dismissal or termination by the employer.
Read with the other terms, 'leave' in clause 10 referred only to the employee voluntarily leaving. As the company had terminated the respondent's services, the covenant did not apply and could not be enforced against him.
An employer who wants such a covenant to cover every cessation of employment must use appropriate language and not the word 'leave', which is synonymous with 'quit'. The appeal was dismissed without costs.

Why it matters

The majority confines a negative covenant drafted as operating after the employee 'leaves' to voluntary departure, and places the burden of clear drafting on the employer. Sen, J.'s concurring opinion, not joined by the other judges, holds that Section 27 makes partial as well as general restraints void unless within its exception, that the English reasonableness test does not apply, and that a service covenant extending beyond termination is void.

In the Court's words

Copied from the official judgment; each passage links to its page.

“In our view, the word "leave" has various shades of meaning depending upon the context or intent with which it is used. According to the plain grammatical meaning that word in relation to an employee would normally be construed as meaning voluntary leaving of the service 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.”

Tulzapurkar, J. (for himself and Untwalia, J.)Page 8 of the judgment

“In our view having regard to the context in which the expression "leave" occurs in cl. (10) of the service agreement and reading it alongwith all the other terms of employment it seems to us clear that 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 of the appellant company of his own, and since here the respondent's 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.”

Tulzapurkar, J. (for himself and Untwalia, J.)Page 8 of the judgment

“Neither the test of reasonableness nor the principle of that the restraint being partial was reasonable are applicable to a case governed by Section 27 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.”

Sen, J. (concurring)Page 17 of the judgment

Provisions interpreted

Section 27, Indian Contract Act, 1872

Related judgments

Distinguishes Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd. (1967)“The decision in Niranjan Shankar Golikari's case supra is therefore of little assistance to the appellant. It is not seeking to enforce the negative covenant during the term of employment of the respondent but after the termination of his services.” (page 11)

Case and bench

Parties: Superintendence Company of India (P) Ltd. v. Krishan Murgai
Case: Civil Appeal No. 1933 of 1979
Decided: 9 May 1980
Bench: V.D. Tulzapurkar, N.L. Untwalia, A.P. Sen
Opinions: Unanimous in result. Tulzapurkar, J. wrote for himself and Untwalia, J., deciding the appeal only on the meaning of 'leave' and leaving the Section 27 question open. Sen, J. concurred, also holding the post-service covenant void under Section 27 of the Contract Act.