India: Enforcement Of Negative Covenants In Employment Contracts

Last Updated: 19 February 2019
Article by AMLEGALS  

"Personal Liberty would include liberty to practice a vocation or profession and being not deprived thereof, notwithstanding any agreement to the contrary."

IN THE HIGH COURT OF DELHI
Independent News Service Pvt. Ltd. V. Sucherita Kukreti
[CS(OS) 43 of 2019 & I.A. No 1191/2019]        dated: 25.01.2019

FACTS

The Plaintiff is a Television News Channel and the Defendant is a news broadcaster with the Plaintiff since the year 2004. The Plaintiff has been entering into successive Employment Agreements with the Defendant.

The said Employment Agreements contained a negative covenant where-under the Defendant had agreed to not associate herself with any other competing news channels during the course of the Agreement.

Further, as per the said Agreements, the Plaintiff could terminate the employment of the Defendant however the Defendant could not do so. The only exception to the termination clause was if the same was done by the Defendant on account of medical reasons.

The Plaintiff claims to have spent large sums of money and resources in grooming the Defendant for the purposes of her profession for the last 14 years.

It is the contention of the Plaintiff that the Defendant had been making up excuses for leaving the Plaintiff's employment, in violation of the Employment Agreement, since December, 2018.

The Plaintiff found out that the Defendant intended to be the News Broadcaster of a competing News Channel to be launched with effect from 25.01.2019.Further, the Defendant resigned from the employment of the Plaintiff on 13.12.2018 and joined the competing news channel on 14.01.2019.

Hence, the Plaintiff instituted this present suit for permanent injunction restraining the Defendant from taking up similar work with any other News Channel during the term of her Employment Agreement with the Plaintiff, ending on 30.11.2019.

The Plaintiff also wanted to restrain the Defendant from allowing her name, image or voice to be associated with any other News Channel.

Additionally, the Plaintiff was also seeking a recovery of damages amounting to Rs. 2,00,10,000/-. In addition to all of the above, an application for interim relief was also filed by the Plaintiffs.

The present applications were heard and decided by the Hon'ble Justice Rajiv Sahai Endlaw of the High Court of Delhi.

ISSUE BEFORE THE HC

The sole issue for consideration before the Court was:

Whether a negative covenant amounting to restraining an employee in a contract of personal service, performance of which depends on personal qualification of the parties, is enforceable in law.

OBSERVATION

In order to examine the aforementioned issue, the Hon'ble Court examined the contentions of both the Plaintiff and the Defendant.

The contentions of the Plaintiff are as follows:

  • The Defendant is liable to be restrained till 30.11.2019 being the last date of the term of the Employment Agreement.
  • The Plaintiff could no longer allow the Defendant to be a news broadcaster however, would be willing to continue to pay the Defendant the agreed emoluments as per the Employment Agreement, subject to her being restrained from associating herself with a competing news channel.
  • The Plaintiff also offered to allow the Defendant to be engaged in backstage activities other than being the news presenter, with the Plaintiff or even in the competing news channel.

The contentions of the Defendant are as follows:

  • The Plaintiff had filed the suit after a delay of 1.5 months and that the Defendant had joined the other news channel on 14.01.2019. Thus a status quo ante could not be passed by the court.
  • Section 27 of the Indian Contract Act acts as a complete bar to any agreement in restraint of exercising lawful profession. Thus the Plaintiff is barred from restraining the Defendant from exercising her profession with the competing news channel.
  • Once Section 27 declares the Employment Agreement as barred in law, the reasonableness of the said agreement shall not arise.
  • All commercial contracts are terminable by their nature, irrespective of their term.

Based on the aforementioned contentions of the parties, the Hon'ble Court decided that in light of the facts and controversy of the current case, no case for the grant of an interim injunction has been made out by the Plaintiff.

The Hon'ble Court, in light of the aforementioned contentions of both the parties, observed that granting an interim injunction would amount to restraining the Defendant from doing what she had been skilfully doing for the last 14 years and was also well known for it.

CONCLUDING VIEW

This Hon'ble Court placed reliance upon several judgments to conclude that:

  • An interim injunction, if granted would amount to restraining the Defendant from practicing her lawful profession and a loss of her goodwill acquired in the last 14 years of her career. Such a loss could not be monetarily compensated to the Defendant if it were ultimately determined by an Appellate Court that the Plaintiff was not entitled to an injunction.

    Further, the courts have always been in favor of resurrecting rather than killing what a person is best at. Nevertheless, the Plaintiff could be compensated monetarily in the event of any loss suffered by them.
  • The grant of interim injunction is to be tested on the elements of irreparable injury and of the balance of convenience, neither of which is in favor of the Plaintiff. Additionally, the grant of an injunction is discretionary and is supposed to be based on the establishment of a prima facie case in public interest. Since, neither of these conditions had been fulfilled in the present case, an injunction could not be granted.
  • The vocation of the Defendant as a 'News Presenter' qualified as a 'lawful profession' in terms of Section 27 of the Indian Contract Act. Hence, in consonance of Section 27, the said Employment Agreement was thus barred in law and could not be enforced in prejudice of the Defendant's career.
  • The entire claim of the Plaintiff was based on the said Employment Agreement which had been terminated by the Defendant by resigning. Whether or not the Defendant could have terminated the said agreement was undetermined. Thus, the best remedy available to the Plaintiff was monetary compensation against a breach of agreement by the Defendant.
  • The loss, in terms of the resources that were invested in building the image, reputation and goodwill of the Defendant, being claimed by the Plaintiff could easily be measured in monetary terms and did not require a remedy in the form of an interim injunction.
  • The right to life with human dignity of a person is a Fundamental Right under Article 21 of the Constitution of India which aims at freedom from arbitrary restraint. The freedom of an individual is only subject to the limitations of social control envisaged in the Directive Principles of State Policy in Part IV of the Constitution. Hence, granting of an injunction would be in violation of a harmonious interpretation of Article 21 of the Constitution of India and Section 27 of the Indian Contract Act
  • The Defendant could not be restrained from striving towards excellence in the sphere of profession/vocation of her choice. The individual interest of each person serves the collective interest which in turn enhances individual excellence. Article 51A of the Constitution constitutes a Fundamental Duty on every citizen to strive towards excellence. These fundamental duties though not enforceable, act as a guide for the court in interpreting as well as resolving the constitutional as well as legal issues. Hence, the Plaintiff could not be allowed to have a proprietary right over the personal excellence of the Defendant by restraining her scope of professional excellence.
  • Finally, this Hon'ble Court held that everybody had a right to strive for progress in a career and any restraint, as sought by the Plaintiff would impinge on the dignity of the Defendant and would be unconstitutional in nature.

Hence, this Hon'ble Court dismissed the application for interim injunction against the Defendant.

REASON OF JURISPRUDENCE

The following judgments were relied upon by the Hon'ble Court to come to the aforementioned conclusion:

  • S. Tamilselvan Vs. The Government of Tamil Nadu [2016 SCC OnLine Mad 5960 (DB)]
  • Lal Pathlabs Pvt. Ltd. Vs. Arvinder Singh 2014 SCC OnLine Del 2033
  • Arvinder Singh Vs. Lal Pathlabs Pvt. Ltd. [2015 SCC OnLine Del 8337]
  • Kartar Singh Vs. State of Punjab [(1994) 3 SCC 569]
  • A.I.I.M.S. Students Union Vs. A.I.I.M.S. [(2002) 1 SCC 428]
  • K.S. Puttuswamy Vs. Union of India [(2017) 10 SCC 1]
  • Ambiance India Pvt. Ltd. Vs. Naveen Jain [122 (2005) DLT 421]

AMLEGALS REMARKS

The Hon'ble Supreme Court's ruling in the instant case sheds light on the preceding judgments relating to the same issue as exists in the present case and harmoniously interprets the provisions of Section 27 of the Indian Contract Act, 1872 and the Fundamental Rights imbibed under Article 21 of the Constitution of India.

This decision has diversely interpreted and determined the long-lasting question of the enforcement of negative covenant of a non-compete clause in a contract of personal service. It has reiterated the persistent stand of the judiciary, in the last century, on this controversial yet essential issue.

The decisions that have been relied upon by this Hon'ble Court are a standing precedent in matters related to the validity and enforceability of Employment Contracts that restrict the professional progress and liberty of individuals.

The jurisprudence appropriated by this Hon'ble Court showcases the shared intent of the legislators as well as the drafting committee of the Constitution of Indiathat no person should be deprived of his/her right to work as long as he/she is not acting in contravention to the law.

Further, this judgment has accommodated the constantly developing interpretation of the term "profession" under Section 27 of the Contract Act to inclusively define the same while keeping in mind the varied and contemporary vocations of the new world. 

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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