Delhi High Court
K.D. Campus Pvt. Ltd vs Metis Eduventures Private Limited ... on 21 January, 2018
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 22nd January, 2018
+ CS(COMM) No.485/2017
K.D. CAMPUS PVT. LTD. ..... Petitioner
Through: Ms. Rajeshwari H. and Mr. Kumar
Chitranshu, Advs.
Versus
METIS EDUVENTURES PRIVATE LIMITED INDIA
& ORS ..... Respondents
Through: Mr. Amit Sibal, Sr. Adv. with Mr.
Rajat Kumar, Mr. Mani Gupta and
Mr. Aditya Gupta, Advs. for D-1.
Mr. Harsh Parashar and Mr. Aman
Pandey, Advs. for D-2 to 8.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
I.A.No.8356/2017 (u/O XXXIX R-1&2 CPC).
1. The plaintiff, engaged in the business of imparting coaching for
examinations held by State Services Commission (SSC) and for various
other competitive exams, during the pendency of the suit seeks to restrain,
(a) defendants no.2 to 6, contractually committed with the plaintiff to during
the period of their contract from teaching in defendant no.1, carrying on the
same business/vocation as plaintiff and thus a competitor of the plaintiff; and
(b) defendants no.7 & 8 contractually committed with the plaintiff in
administrative capacity, from joining the employment of defendant no.1.
2. The plaintiff, on 24th August, 2017 was granted ad-interim order
restraining the defendants no. 2 to 6 from imparting private tuitions to any
student of the plaintiff's coaching institute or of any other coaching institute;
CS(COMM) 485/2017 Page 1 of 17
it was however, clarified that the said order would not restrain the defendants
no.2 to 6 from teaching students who are not enrolled with plaintiff's
institute or any other coaching institute.
3. The defendant no.1 preferred FAO(OS)(COMM) 167/2017 and
defendant no.2 to 6 preferred FAO(OS)(COMM) 168/2017 against the
aforesaid interim orders and which were allowed on 7 th September, 2017 and
the parties relegated to addressing on the application for interim relief before
this Bench. Thus, as of today, there is no ad-interim order in favour of the
plaintiff.
4. On 22nd November, 2017, issues were framed in the suit and parties
relegated to leading evidence on the issues framed.
5. The hearing on this application was also undertaken on 22 nd
November, 2017 and after some hearing attention of the counsel for the
plaintiff was drawn to Arvinder Singh Vs. Lal Pathlabs Pvt. Ltd. 2015 SCC
OnLine Del 8337 (DB) and the hearing adjourned to today.
6. Counsel for the plaintiff and the senior counsel for defendant no.1
Metis Eduventures Private Limited India and counsel for defendants no.2 to
8 i.e. Neeraj Kukreja, Harvinder Kumar, Dheeraj Singh, Rahul Bainsla,
Prateek Chaturvedi, Vikas Kumar Mishra and Savitesh Kumar Mishra have
been heard.
7. The contention of the counsel for the plaintiff is:-
(i) that the defendants no.2 to 6, during the term of their contract
with the plaintiff, are liable to be restrained from taking private
tuitions and/or from teaching in the defendant no.1 or in any
CS(COMM) 485/2017 Page 2 of 17
other Institute; attention is invited to the following clause in the
agreements of the plaintiff with each of the defendants no.2 to 6:
"That the Teacher shall not do any private tuition to
any student whether of this Coaching Institute or
other Coaching Institute nor be interested in any
other educational Coaching Institute unless
otherwise expressly permitted by the Coaching
Institute nor be concerned in plots or conspiracies
against the Coaching Institute in any manner till this
agreement exists."
(ii) that though the plaintiff may not be able to enforce the contract
of personal service whereunder the defendants no.2 to 6 have
undertaken to teach at the plaintiff's institute till the period
varying from July, 2018 till the year 2019 but the plaintiff is
entitled to enforce the negative covenant aforesaid;
(iii) that the defendants no.2 to 8 have abandoned the employment
with the plaintiff by unilaterally ceasing to serve the plaintiff
and which the defendants no.2 to 8 are not entitled to; no
resignation even has been submitted and/or accepted;
(iv) that such actions of the defendants no.2 to 8 are interfering in
the business of the plaintiff;
(v) that careers of the students of the plaintiff are at stake and
defendants no.2 to 6 should be directed to at least complete the
coaching of the batches of students which they had commenced;
however on enquiry it is stated that the term of the said batches
has since been completed;
CS(COMM) 485/2017 Page 3 of 17
(vi) reliance is placed on (a) The Brahmaputra Tea Co. Ld. Vs. E.
Scarth MANU/WB/0175/1885 (b) V.N. Deshpande Vs. Arvind
Mills Co. Ltd. MANU/MH/0080/1945 (c) Lalbhai Dalpatbhai
& Co. Vs. Chittranjan Chandulal Pandya AIR 1966 Guj 189
(d) Niranjan Shankar Golikari Vs. The Century Spinning and
Mfg. Co. Ltd. AIR 1967 SC 1098 (e) Superintendence
Company of India (P) Ltd. Vs. Shri Krishna Murgai (1981) 2
SCC 246 (f) Electrosteel Castings Ltd. Vs. Saw Pipes
MANU/WB/0490/2004 (g) Wipro Limited Vs. Beckman
Coulter International S.A. (2006) 131 DLT 681 (h) Hi-Tech
Systems & Services Ltd. Vs. Suprabhat Ray.
MANU/WB/0464/2015 (i) Percepts D'Markr (India) Pvt. Ltd.
Vs. Zaheer Khan (2006) 4 SCC 227 and attention is also drawn
to dicta of Coordinate Benches of this Court dated 21st
September, 2016 in CS(OS)407/2016 titled M/s Paramount
Coaching Centre Pvt. Ltd. Vs. Bhagvati Prasad and dated 24th
August, 2017 in CS(COMM) 465/2017 titled M/s Paramount
Coaching Centre Pvt. Ltd. Vs. Rakesh Ranjan Jha and it is
contended that the said two cases also concerned coaching
institutes and interim injunctions were granted therein and the
said orders have attained finality and were not appealed against;
(vii) that Lal Pathlabs Pvt. Ltd., to which attention was drawn, has
been noticed in Rakesh Ranjan Jha supra and after taking
notice of the same, ad-interim injunction has been granted.
8. Per contra, the senior counsel for defendant no.1 has contended:-
CS(COMM) 485/2017 Page 4 of 17
(a) that there is no public interest involved in the present case, as is
sought to be contended;
(b) that interim injunction is claimed solely to curb competition;
(c) that the interest of any student is not suffering;
(d) that the defendant no.1 did not approach any of the defendants
no.2 to 8; rather they approached the defendant no.1 for
employment stating that the plaintiff had not paid their salaries /
bills; that it has been pleaded so in the written statement and
there is no denial in the replication and though the suit is ripe
for evidence but no document has been filed by the plaintiff;
(e) that the plaintiff has been avoiding filing affidavits by way of
examination-in-chief of its witnesses and have not filed the
same in spite of time granted vide order dated 22nd November,
2017 having lapsed and further time sought and granted having
so lapsed;
(f) that in fact any interim injunction in favour of the plaintiff
would harm the students whom the defendants no. 2 to 6 are
now teaching in the defendant no.1 institute;
(g) that the defendants no.2 & 3 have placed before this Court
documents to show that they both have given one month's
notice to the plaintiff and within the said one month, completed
the course which they had commenced for the batch concerned;
(h) that the plaintiff has not sought any declaration of the
termination effected by the defendants no.2 to 8 as unlawful and
CS(COMM) 485/2017 Page 5 of 17
without seeking such declaration, cannot claim any injunction;
(i) that any interim injunction would result in the defendants no.2
to 8 being rendered idle;
(j) that there can be restraint only in such circumstances where the
employee is in possession of any proprietary information/
interest of the employer and for protection or safeguarding of
which, the employee has undertaken to serve the employer for a
minimum particular duration and not leave prior thereto;
(k) attention in this regard is drawn to Gujarat Bottling Co. Ltd.
Vs. Coca Cola Co. (1995) 5 SCC 545 and Niranjan Shankar
Golikari supra;
(l) that the plaintiff herein has not even pleaded any such
proprietary interest to safeguard which the defendants no.2 to 6
can be so restrained;
(m) that as far as the defendants no.4 to 6 are concerned, it is the
plaintiff itself which had expressed desire for them to leave;
(n) that in the present case, no student of the plaintiff has protested
and no document that any student had claimed refund of fee has
been filed;
(o) that the facts of Rakesh Ranjan Jha supra and Bhagvati Prasad
supra are different and the said facts which prevailed with the
Coordinate Benches of this Court are not to be found in this
case; moreover, neither of the said judgment considers the
aspect of proprietary interest;
CS(COMM) 485/2017 Page 6 of 17
(p) that the plaintiff has not complied with the proviso to Section 42
of Specific Relief Act, 1963;
(q) that the grant of any injunction would be very harsh and work
injustice towards defendants; and,
(r) reliance has also been placed on Jet Airways (I) Ltd. Vs. Mr.
Jan Peter Ravi Karnik 2000 SCC OnLine Bom 241 and DGS
Realtors Pvt. Ltd. Vs. Realogy Corporation 2009 SCC OnLine
Del 2726.
9. The counsel for the defendants no.2 to 8 has reiterated what has been
contended by the senior counsel for the defendant no.1 qua being not paid
and defendants no.2&3 having given notice and the plaintiff having
expressed desire for the defendants no.4 to 6 to leave and has drawn
attention to the documents in this regard. Attention is also invited to the plea
of the said defendants, of the plaintiff having obtained their signatures on
blank paper and having fabricated the agreements thereon and the said plea
is sought to be supported by the agreement with the defendant no.5 which is
stated to be of a date prior to the institution of the suit. It is further
contended that issue has already been framed on the said plea of the
defendants no.2 to 8.
10. The counsel for the plaintiff, in rejoinder has contended that the issue
is, whether the contracts with the plaintiff stood terminated, unless the
contract was mutually terminated, the plaintiff is entitled to injunction during
the subsistence of the contract. It is further contended that paras 18 & 19 of
Niranjan Shankar Golikari supra are also to the said effect. With respect to
the contention of the defendants no.2 to 8 having not been paid, it is vaguely
CS(COMM) 485/2017 Page 7 of 17
argued that the plaintiff had paid them in cash and the said defendants are
taking advantage thereof.
11. I had in Lal Pathlabs Pvt. Ltd. Vs. Dr. Arvinder Singh 2014 SCC
OnLine Del 2033, though in different set of facts, granted an interim
injunction restraining the defendants therein from carrying on their
business/profession/practise as Pathologist or as Radiologist in the city in
which they were earlier carrying on the said vocation and for the period for
which they had agreed with the plaintiff, invoking exception to Section 27 of
the Contract Act, 1872 but the Division Bench, allowing the appeal, held that
injunction restraining the defendants in that case from carrying on their
profession as Pathologist and Radiologist in any manner would render them
incapable of working as a Pathologist or Radiologist in any capacity and
would be contrary to Section 27 of the Contract Act, 1872. The defendants
no.2 to 6 herein are teachers and defendants no.7 & 8 herein are
administrators. The ratio of the dicta of Division Bench squarely applies to
them. The subsequent decisions of Coordinate Benches, taking the same
view, which I sitting singly had taken in Lal Pathlabs Pvt. Ltd. supra are
clearly contrary to the dicta of the Division Bench. Though Rakesh Ranjan
Jha supra, notices the judgment of the Division Bench but does not apply the
same. Merely because three Single Judges have taken a different view from
the Division Bench would still not constitute the said Three Judges a full
Bench for the dicta of the Division Bench to be not followed.
12. The paragraph of Niranjan Shankar Golikari supra relied upon by the
counsel for the plaintiff is as under:-
CS(COMM) 485/2017 Page 8 of 17
"20. 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. Negative covenants operative during the period
of the contract of employment when the employee is
bound to serve his employer exclusively are generally not
regarded as restraint of trade and therefore do not fall
under Section 27 of the Contract Act. A negative
covenant that the employee would not engage himself in a
trade or business or would not get himself employed by
any other master for whom he would perform similar or
substantially similar duties is not therefore a restraint of
trade unless the contract as aforesaid is unconscionable
or excessively harsh or unreasonable or one-sided as in
the case of W.H. Milsted & Son Ltd. Both the trial court
and the High Court have found, and in our view, rightly,
that the negative covenant in the present case restricted
as it is to the period of employment and to work similar
or substantially similar to the one carried on by the
appellant when he was in the employ of the respondent
Company was reasonable and necessary for the
protection of the company's interests and not such as the
court would refuse to enforce. There is therefore no
validity in the contention that the negative covenant
contained in clause 17 amounted to a restraint of trade
and therefore against public policy.
21. The next question is whether the injunction in the
terms in which it is framed should have been granted.
There is no doubt that the courts have a wide discretion
to enforce by injunction a negative covenant. Both the
courts below have concurrently found that the
CS(COMM) 485/2017 Page 9 of 17
apprehension of the respondent Company that
information regarding the special processes and the
special machinery imparted to and acquired by the
appellant during the period of training and thereafter
might be divulged was justified; that the information and
knowledge disclosed to him during this period was
different from the general knowledge and experience that
he might have gained while in the service of the
respondent Company and that it was against his
disclosing the former to the rival company which
required protection. It was argued however that the terms
of clause 17 were too wide and that the court cannot
sever the good from the bad and issue an injunction to
the extent that was good. But the rule against severance
applies to cases where the covenant is bad in law and it is
in such cases that the court is precluded from severing
the good from the bad. But there is nothing to prevent the
court from granting a limited injunction to the extent that
is necessary to protect the employer's interests where the
negative stipulation is not void. There is also nothing to
show that if the negative covenant is enforced the
appellant would be driven to idleness or would be
compelled to go back to the respondent Company. It may
be that if he is not permitted to get himself employed in
another similar employment he might perhaps get a
lesser remuneration than the one agreed to by Rajasthan
Rayon. But that is no consideration against enforcing the
covenant. The evidence is clear that the appellant has
torn the agreement to pieces only because he was offered
a higher remuneration. Obviously he cannot be heard to
say that no injunction should be granted against him to
enforce the negative covenant which is not opposed to
public policy. The injunction issued against him is
CS(COMM) 485/2017 Page 10 of 17
restricted as to time, the nature of employment and as to
area and cannot therefore be said to be too wide or
unreasonable or unnecessary for the protection of the
interests of the respondent Company.
13. The contention of the counsel for the plaintiff is that the plaintiff is
only seeking restraint against the defendants for the period for which they
have contracted with the plaintiff and not for the period beyond that and as
per the aforesaid logic the plaintiff is entitled to injunction for the said
period.
14. In this context the following paragraphs of Shri Krishna Murgai
supra may also be noticed:-
"58. The drafting of a negative covenant in a contract of
employment is often a matter of great difficulty. In the
employment cases so far discussed, 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 restriction 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.
59. It is well settled that employees covenants should
be carefully scrutinised because there is inequality of
bargaining power between the parties; indeed no
bargaining 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 "tempt improvident
CS(COMM) 485/2017 Page 11 of 17
persons, for the sake of present gain, to deprive
themselves of the power to make future acquisitions, and
expose them to imposition and oppression."
60. There 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, 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 purchaser is entitled to protect himself against
competition on the part 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 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.
61. The distinction rests upon a substantial basis,
since, in the former class of contracts we deal with the
sale of commodities, and in the latter class with the
performance of personal service-altogether different in
substance; and the social and economic implications are
vastly different.
62. The Courts, therefore, view with disfavour a
restrictive covenant by an employee not to engage in a
business similar to or competitive with that of the
employer after the termination of his contract of
employment.
63. 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 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 Cha 576
Kay, LJ. observed: If there is any ambiguity in a
CS(COMM) 485/2017 Page 12 of 17
stipulation between employer 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 settled canon
of construction that where a clause is ambiguous a
construction which will make it valid is to be preferred to
one which will make it void.
64. 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 operative on
termination, however, accomplished of the service e.g. by
dismissal without notice, would, having regard to the
provisions of Section 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
restriction being too wide, and violative of Section 27 of
the Contract Act, must be subjected to a narrower
construction."
15. I have also wondered whether the expressions "period of the
contract", "period of employment" used in Niranjan Shankar Golikari
supra would extend to the period when one of the parties to the contract or
employer - employee relationship, has illegally terminated the
contract/employment prior to the contracted period. In other words, whether
an employee who has ceased to serve the employer before the expiry of the
period for which he had contracted to serve the employer can be restrained
by the employer from serving anywhere else for the remaining contracted
period. As per Niranjan Shankar Golikari supra, negative covenants
CS(COMM) 485/2017 Page 13 of 17
operate during the period of the contract of employment when the employee
is bound to serve his employer exclusively are generally not regarded in
restraint of trade and do not fall under Section 27 of the Contract Act.
However it has further been explained that the Courts have a wide discretion
to enforce by injunction a negative covenant and will enforce the same
where it is necessary to protect the employer's interest and where there is
nothing to show that if the negative covenant is enforced, the employee
would be driven to idleness or would be compelled to go back to the earlier
employer. In Shri Krishna Murgai supra it was further explained that
injunction shall be granted where the restriction is reasonable, having regard
to the interest of the employer and does not cause hardship to the employee,
who will receive a wage or salary for the period in question. It was further
held that if the covenant is to operate after the termination of service or is
too widely worded, the Court may refuse to enforce it.
16. In the present case the contract of employment has admittedly been
prematurely terminated. According to the plaintiff, unilaterally and illegally
by the defendants no.2 to 8. It is not the case of the plaintiff that the plaintiff,
notwithstanding such unilateral and illegal termination of the contract of
employment by the defendants no.2 to 8, is continuing to treat the defendants
no.2 to 8 as in the employment of the plaintiff or is continuing to pay the
emoluments which the plaintiff under the contract had agreed to pay to the
defendants no.2 to 8. Rather, it is the plea of the defendants no.2 to 8 that
their past emoluments, for the period for which they served the plaintiff,
were also not paid and which compelled them to look for employment
elsewhere. Once the plaintiff itself is treating the contract of employment
with each of the defendants no.2 to 8 as terminated and has stopped
CS(COMM) 485/2017 Page 14 of 17
performing his obligations under the said contract to the defendants no.2 to
8, in my view the present case would fall in the genre of employer seeking to
enforce the negative covenant after the termination of service and which is
not permissible in law.
17. I may in this regard also notice the following passage in the
concurring opinion of Bhagwati J. in Executive Committee of Vaish Degree
College, Shamli Vs. Lakshmi Narain (1976) 2 SCC 58:-
".....If an employer repudiates the contract of
employment by dismissing his employee, can the
employee refuse to accept the dismissal as terminating
the contract and seek to treat the contract as still
subsisting ? The answer to this question given by general
contract principles would seem to be that the repudiation
is of no effect unless accepted, in other words, the
contracting party faced with a wrongful repudiation may
opt to refuse to accept the repudiation and may hold the
repudiation to a continuance of his contractual
obligation. But does this rule apply to wrongful
repudiation of the contract of employment? The trend of
the decisions seems to be that it does not. It seems to be
generally recognized that wrongful repudiation of the
contract of employment by the employer effectively
terminates the employment: the termination being
wrongful, entitles the employee to claim damages, but the
employee cannot refuse to accept the repudiation and
seek to treat the contract of employment as continuing.
What is the principle behind this departure from the
general rule of law of contract? The reason seems to be
that a contract of employment is not ordinarily one which
is specifically enforced. If it cannot be specifically
enforced, it would be futile to contend that the unaccepted
repudiation is of no effect and the contract continues to
subsist between the parties. The law in such a case,
therefore, adopts a more realistic posture and holds that
CS(COMM) 485/2017 Page 15 of 17
the repudiation effectively terminates the contract and the
employee can only claim damages for wrongful breach of
the contract...."
18. In my opinion, it is only during the period for which the employee
continues to serve the employer and receives emoluments from the employer
can the employer enforce the negative covenant unless it is shown that the
enforcement of negative covenant beyond the period of wrongful repudiation
of the contract is necessary to protect the interest of the employer. However
such restraint can be to protect any proprietary right of the employer and not
to prevent competition.
19. The plaintiff in the present case has indeed not shown any proprietary
right which may be infringed by the defendants no.2 to 8 joining
employment elsewhere or by indulging in the activity of teaching. Moreover,
the defendants no.2 to 6 who are teachers cannot be expected to teach any
subject other than that in which they are qualified to teach and it is also not
the plea that they are capable of getting employment elsewhere in any other
capacity. We are today living in an age where employment avenues are
scarce and if the defendants no.2 to 8 are restrained as sought, they would
necessarily be driven to idleness and a state of penury.
20. Else, enough has been said on the subject in the various judgments
cited by the counsels and need to say anything further and/or to further
burden this order, is not felt.
21. According to me, the plaintiff is not entitled to any interim injunction
against any of the defendants.
22. The application is dismissed.
CS(COMM) 485/2017 Page 16 of 17
CS(COMM) 485/2017.
23. At request of the counsel for the plaintiff, the plaintiff is granted time
till 13th February, 2018 to file affidavits by way of examination-in-chief of
all its three witnesses sought to be examined and all of whom are stated to be
the private witnesses of the plaintiff. However, on non-filing of the
affidavits, as aforesaid, the right of the plaintiff to file the same shall stand
closed.
24. The counsels state that the Commissioner appointed to record
evidence has already scheduled the case on 15th-16th February, 2018.
RAJIV SAHAI ENDLAW, J.
JANUARY 22, 2018 rekha / pp..
(corrected and released on 15th February, 2018).
CS(COMM) 485/2017 Page 17 of 17