RESTRAINT OF TRADE

BANE OR BOON?

Contracts which restrain trade generally and restrain employees specifically in any manner
have always been a subject matter of debate and, consequently, have come under immense
scrutiny by the judiciary. In recent times, there have been interesting developments on this
issue. Naina Krishna Murthy discusses the issues of restraint in employment contracts and
suggests that the need of the hour is to find an equilibrium between the two apparently
divergent rights of the employer and the employee.

Naina Krishna Murthy*

Free Will

The universal principle of contracts is based on the concept of "free will". When there is
a contract, the presumption is that it reflects the free consent and actual intention of the parties to
the contract. Tomes have been written on the concepts of "offer" and "acceptance" and the
interpretations taken by both the legislature and judiciary in determining these key elements, which
are seminal to a valid contract.

In fact the contract could be in any form and Indian Contract Act, 1872 recognizes and validates
both verbal as well as written contracts. The definition of an "agreement" itself states that the
mutual promises should form consideration of each other. Thus, consideration is essential for an
agreement. A promise without consideration is not 'agreement' and hence, naturally, it is not a
"contract".

So obviously, when we look at a contract or a contractual understanding, the assumption is that

the parties have reached a reasoned decision in agreeing to the terms of the contract and more
importantly all the parties to the contract are receiving some consideration or benefit from
the contract. It is precisely for this reason that once a contract is entered into between the
parties, it is the sole document which governs or regulates the contracting parties' obligations and
rights.

The law does not generally interfere or question or negate the provisions of the contract as it
recognizes that it is a private agreement between two parties. Towards this, law views that
the contract has come into existence with the objective that the parties to the contract would be
in a better position in some manner, than they were before the contract.

The Contract Act themselves only provide a broad framework to regulate or govern the entering
into and enforceability of contracts and are not concerned with the specific terms of
the contract agreed to between the parties, save in some cases.

We would be presumptuous and state here that contract, is in itself an age old tradition in law. One
of the first verbal contracts dates back as early as the 2300 BC and is interesting as an index of the
legal development of that far-off time. The contract was for the sale of slave. In this transaction the
sellers simply guaranteed to make no further claim upon the slave.
Undue Influence

Earlier, there was an absolute rule that contracts are valid and embody free consent of
the contracting parties. However, over time, there have been various instances, where the sanctity
of the contract was suspect merely because of the situation in which such a contract was
crystallized between the parties.

This is when the exceptions to a valid contract started evolving. Terms like undue influence,
misrepresentation, voidable and void contracts began to emerge providing riders to otherwise
assumed valid contracts.

One of the prominent reasons for the validity of contracts being questioned is due to the existence
of "undue influence" in executing a contract. In law "undue influence" is understood to be held,
"when it overpowers the will without convincing the judgment". In other words, "it is a grip on another's
mind subjugating his will to that of the other. It is an influence which acts to the injury of a person, who
is swayed by it, and is exerted by exercising an ascendancy or power, which results in a person being
impelled or compelled to do what he would not have done, if he had been a free agent" 1. Under the
Indian Contract Act, "a contract is said to be induced by 'undue influence' where the relations
subsisting between the parties are such that one of the parties is in a position to dominate the will of
the other and uses that position to obtain an unfair advantage over the other", and a person who
could exercise undue influence over the other, among others, is where a person "holds a real or
apparent authority over the other".

Restraint of Trade

The nature of contracts which are in restraint of trade generally and which exist merely because of
the undue influence of one party over the other party are considered void contracts under Section
27 of the Indian Contract Act. To elaborate, Section 27 of the Indian Contract Act states that
"every agreement by which anyone is restrained from exercising a lawful profession, trade or
business of any kind, is to that extent void." Therefore, the Section makes void any such contracts
which have the

Employer-Employee Contract

This is not more seen than in the case of, in the historic times, master and slave relationship or in the
current times, an employer-employee relationship. The relationship itself denotes that one party (viz.,
slave or employee) is in a less bargaining position than the other party (viz., master or employer). In
other words, the employer or master is in a position whereby he can exercise undue influence over
the employee or slave in agreeing to the terms of a contract. Therefore, even though on the face of
it, a valid contract is being executed between the parties, the employee may be compelled to agree
to the terms of the contract because of the position he holds in relation to his employer. This may
very well mean that the employee may have agreed to a contract which may be more beneficial to
the employer or more prejudicial to the interest of the employee. Here, obviously, the genesis
of contracts, that is free will, will come into question.

In recent times, contracts which restrain trade and specifically restrain employees in any manner
have come under immense scrutiny by the judiciary. Effect of restraining trade in any manner.
However, there is an exception provided to the general rule under Section 27. This exception applies
when a person sells his business along with goodwill to another person and that person may enter
into an agreement with the seller restraining the seller from engaging in the same business for a
specific period of time or within a specified territory. Further, the Act provides a rider which states that
the conditions on restraint of trade must be reasonable given the nature of the business.

This exception probably draws inspiration from the first US case relating to trade secrets. In this
case2, which was decided in 1837, the Court held that a contract for the sale of rights in a secret
manufacturing process as a part of the sale of a chocolate making business was not void as a
restraint of trade. In this case, the buyer had relied upon the seller's promise to convey exclusive title
to his secrets and had used this promise to secure investor participation. When the seller ultimately
refused to do more than communicate the secrets to the buyers, while reserving the right to
communicate the same secret to others, the buyer brought a cause of action.

Citing one of the early English cases3, the Massachusetts Court rejected the seller's argument that the
obligation of non-disclosure was void as a trade restraint:

"The Public are not prejudiced by the transfer of [the defendant's secret art] to the plaintiff..
[because] it is of no consequence to the public whether the secret art be used by the plaintiff
or by the defendant."

However, the particular exception in Section 27 may have been more directly related to a
decision which was passed some years earlier to the Indian Contract Act.

In this case, there was a covenant by the defendants on the sale of the goodwill of their business of
carriers to plaintiff not to convey passengers to and fro on the road between Ootacamund and
Mettapalayam. The Court held that this restriction was not in restraint of trade. The Court stated that
"So partial a restraint is not really adverse to the interests of the public at large" 4.

Law treats agreements in restraint of trade as invalid contracts; as such contracts would appear
to be unfair, impose unreasonable restrictions on the other party and generally, conflict with public
interest.

As discussed earlier, contracts were generally the domain of a private understanding between the
parties and law for the most part did not interfere in the validity or rights and obligations of the parties
under a contract. When the Indian Contract Act was enacted in 1872, the objective was to
narrow the scope of the common or non-codified or common law which existed at that time. The
rationale of bringing in Section 27 into the Indian Contract Act was to ensure the protection of free
or unencumbered or non-monopolistic trade by making void those contracts which have an effect of
restraining trade in any manner.

However, when the Indian Contract Act came into existence, trade in India was in a nascent stage,
and, therefore, the question arises today, in a highly evolved and myriad market, as to whether there
is any rationale in strictly interpreting and applying Section 27 of the Indian Contract Act? More
importantly, is the exception to Section 27 regarding sale of goodwill the only foreseeable instance
which would be reasonably excluded from the scope of Section 27? The response to the second
question would be an unequivocal NO!
Restraint during Employment

India has gradually opened up its markets through economic reforms and reduced government
controls on foreign trade and investment, and in line with such economic development, it may be
worthwhile for the legal machinery to adopt an attitude which rings true with the sentiment of a free
market. Therefore, restraint of trade in the right dosage, although a bitter medicine to swallow, may be
just what the doctor ordered towards mitigating substantial business losses.

This article focuses on the other emerging exception to Section 27, that of an instance where there is
an employer-employee relationship. Interestingly, apparently "intransigent" Indian Courts have already
recognized this exception as far back as in the 1960s5. After that we see a number of cases, where
the Indian Courts have consistently held that any restriction operating during the subsistence of
a contract of employment does not attract Section 27, unless the contract appears to be heavily
one sided in favour of the employer.

The inception of the present issue transpired from as far back as 1967 when the Supreme Court for
the first time discussed this issue in the Niranjan Golikari's case. 6 In this case, the Court held that
negative covenants operating during the period of employment when the employee is bound to serve
his employer exclusively, are not in restraint of trade. This case may not seem extraordinary as it is
the general opinion that the employer does have the right to obtain the exclusive service of his
employee during the term of his employment. But the decision would appear radical to the collective
consciousness of the employees as the restriction on the employee was enforced by the Supreme
Court even after the employee had terminated his contract with the employer on the basis that
since termination had occurred within the agreed 5 year term of employment, the restraint on the
employee would continue to be in force till the lapse of 5 years.

The premise of the Court's decision was that the restriction on the employee not to directly or
indirectly engage with a competitor of the employer was not in restraint of trade due to apprehension
of the employer that information regarding the special processes and the special machinery imparted
to and acquired by the employee during the period of training and thereafter might be divulged. While
basing its judgment, it is safely presumed that the Court had given adequate consideration to the fact
that the employee was in fact a threat to the employer and had mala fide intentions of disclosing the
information gained from his employment, to the detriment of the employer.

Though the Court held that it was reasonable to restrain the employee during the term of
the contract, the Court kept it open on the issue whether after the termination of employment, the
covenant could be enforced on such person.

However, the rationale of the Court in this case could have been read with the facts of the case and
not in isolation or be applied in absolute terms.

Restraint after Employment

The succeeding paras discuss contemporary and moot issue of the enforceability of negative
covenants beyond the period of employment.
In 1966, the Gujarat High Court7 attempted to consolidate the fundamental principles relating to the
negative stipulation in a contract of service during the service period and after the service period. It
tried to balance the anti-thetical interests of the employer and employee.

The Court said that it must be seen whether the enforcement of the negative stipulation is "reasonably
necessary for the protection of the legitimate interests of the employer. If it is not going to benefit the
employer in any legitimate manner, the Court would not injunct the employee from exercising his skill,
training and knowledge merely because the employee has agreed to it".

Further, in the Pepsi Food Limited case8, the Court held that a negative covenant clause in the
employment agreement restraining the employees from engaging in employment for a period of 12
months from leaving the employment was void as being opposed to public policy and the action for
temporary injunction was denied. It is important to note here that the Court expressly stated that what
is prohibited by law cannot be permitted by Court.

In a recent case, the Bombay High Court9 held that considering that an employer has right to
terminate the contract of employment on the ground of misconduct; it would be unfair to the
employee if he had absolutely no right to resign from the employment on account of better prospects
or other personal reasons.

Further, in Jet Airways case10 the defendant was employed by the plaintiff aircraft company as a pilot.
The plaintiff had organized necessary training for the defendant and other pilots. In consideration, the
defendant agreed and undertook that during a period of seven years from the date of completion of
training in India and abroad and on resuming actual services with the plaintiff as first officer, he would
not accept employment, similar in nature, either in full time or part time with any other employer. The
defendant resigned from the services for which the plaintiff had invoked the negative covenant clause
along with other stipulated remedies under the agreement.

In this case the Bombay High Court held that the plaintiffs can be suitably compensated by award of
damages in the event the suit is finally decreed against the defendants and in favour of the plaintiffs.
Further the Court pointed out the plaintiffs have failed to show prima facie any legal or equitable right
for the grant of injunction against the defendant.

In the above cases, the Courts appear to rely heavily on the employees' contention that it would be
unfair and unreasonable to enforce such restraints after their period of employment as they have a
right to explore new business opportunities and it goes to their very fundamental right to earn a
livelihood. This argument can be given credence to as long as termination of employment is done in
good faith by the employee and there is no intention by the employee to disseminate or misuse or
disclose confidential information, trade secrets and intellectual property of the employer.

An argument can be made about accepting the all encompassing statement of the Court in the Pepsi
Food Limited case, where the Court held that what the law prohibits, the Court cannot permit. The
pivot of this opinion would be the letter of the law rather than the spirit of law. Therefore, although
Section 27 of the Indian Contract Act is an absolute prohibition on restraint of trade (subject to the
one exception), it is important to note that this was a provision that was enacted in the 1900s. The
vagary of the modern transactions was far from the law's contemplation at that time and the
Indian Contract Act in its wisdom attempted to address the existing nature of transactions at that
time.

Also, if one were to strictly go by Section 27 and the statement of the Court in Pepsi Food Limited, the
judiciary may have erred to have passed the type of decisions it did in the Niranjan Golikari case.

Finally, more important than anything, if the Courts start adopting such a myopic view of law, the
beautiful surge of judicial activism would be reduced to a mere ripple. The role of the judiciary is
germane to any developing society. The law may be enacted at a time where certain instances or
circumstances would not be within the contemplation of either the legislature or society itself (who
indeed could have imagined that signatures could be affixed to documents digitally). Therefore, it is
left up to the judiciary to provide a cogent and pragmatic interpretation of the law within the dynamics
of a changing world. If the judiciary was to apply only a strict interpretation of the laws, it would curb
development and render the judiciary a mere observer rather than a custodian of the legal system
itself.

The above decisions of the Court making any restriction after the term of employment void got a
reprieve in the case of Lloyd Electric Engg11.

In this case the High Court considered the applicability of a negative covenant imposed by the
company on the employee wherein the employee was required not to compete with the company for
three years from date of termination of employment, directly or indirectly. It was held that the negative
covenant was not harsh or opposed to public policy so as to make it void.

In another case in point12, the plaintiff obtained an ex parte injunction against an ex employee of the
plaintiff from working with the sub-contractor of the plaintiff. The 1st defendant who was an
employee of the plaintiff left the service of the plaintiff and joined the service of the 2nd defendant.
The plaintiff and the 2nd defendant had been discussing the possibility of teaming and working
together in order to undertake a joint initiative and bid for one particular customer. The plaintiff had
some skill sets and the 2nd defendant had some other skill sets which together would have become a
successful venture. The 1st defendant was the key link between the plaintiff company and 2nd
defendant and it was established that the sole reason for the 1st defendant joining the employment of
the 2nd defendant was to utilize the confidential information and trade secrets of the plaintiff. This
would benefit the 2nd defendant and render the involvement of the plaintiff in the proposed venture
redundant. In an action for permanent injunction, the Trial Court granted a temporary injunction in
favour of the plaintiff restraining the 1st defendant from joining the 2nd defendant and disclosing vital,
confidential and proprietary information of the plaintiff to 2nd defendant or anybody till the disposal of
the suit. Although, on appeal13, the High Court set aside the order of injunction issued by the Trial
Court granted in favour of the plaintiff restraining the 1st defendant/appellant from working with the
2nd defendant was set aside (since there had also been a considerable lapse of time from the
decision of the Trial Court till when the case was heard and decided by the High Court), the remaining
part of the order restraining the 1st defendant from revealing disclosing vital, confidential and
proprietary information of the plaintiff to 2nd defendant was upheld.

This was at that time thought to be a radical judgment of the Trial Court as the 2nd defendant was not
even a competitor of the plaintiff. However, the Trial Court recognized the circumstances of
termination of employment by the employee and accordingly determined that it was reasonable to
restrain the employee from working with the 2nd defendant for some time.

In another recent case14, the plaintiffs were running a law firm where the defendants were working. It
was alleged that one of the defendants came to the office of the plaintiffs after a dispute arose
between the parties after the office hours and downloaded 7.2 GB of database of plaintiff's crucial
data. The plaintiffs' also claimed that the defendants stole even the hard copies comprising of over 10
proprietary drafts of the plaintiffs. The plaintiffs prayed for protection of their exclusive data under the
Indian Copyright Act, 1957.

However, the defendants claimed ownership of the copyright in the work done by them while they
were in the organization of the plaintiff.

This was refuted by the plaintiffs who contended that it had spent a substantial amount of money in
training skills, computer network, specialized and customized software, law library, office
infrastructure, etc., and the work of the defendants in fact belonged to the plaintiffs.

The Delhi High Court after considering rival arguments concluded the plaintiffs had a prima facie case
in respect of the data which was taken by the defendants and restrained the defendants from using
such data.

Therefore, although the Court did not restrain the defendants from carrying on a similar service per
se, it definitely recognized the protection that needed to be afforded to the plaintiffs under law and to
that extent there was a restraint on the use of information by the defendants, after the term of their
employment.

In yet another case in 200615, the central issue in the appeal was whether the right of first refusal
under clause 31(b) of the permission agreement entered into between the appellant employer and the
respondent employee is void under Section 27 of the Indian Contract Act and, therefore, in restraint
of trade.

Clause 31(b) of the agreement merely provided that the employee had an obligation to provide an
opportunity to the employer to match an offer of employment from a third party (prospective employer)
after the original term of the agreement, before the employee could accept the third party offer of
employment.

Here, the Supreme Court left all the issues open on the basis that considerable time had elapsed.

Therefore, the Court refrained from opining in specific terms on this case as no interim relief having
been granted in favour of the appellant during the past two years during which
the contract between respondent Nos. 1 and 2 has been in operation and since the contract was
soon to be completed, "there is no cause for interference at this late stage by this (Supreme) Court".

However, it is interesting to note that the Supreme Court stated that the appellant is not barred from
filing a suit for breach of contract against the respondent. This implied that the Court had not
deemed the contractor the condition under it relating to the first right of refusal void and recognized
that there may be a sustainable claim for breach of contract by the appellant.
Therefore, sometimes restraints, whether general or partial, may be required and considered
reasonable if it protects the bona fide interests of the employer without causing undue detriment or
hardship to the employee. Therefore, a strong argument can be made that a restraint reasonably
necessary for the protection of a covenant must prevail unless some specific ground of public policy
can be clearly established against it.

However, the Indian position seems to be broadly that of permitting an employee to freely exercise
any trade or profession, irrespective of the conditions that he may have agreed to with his past
employer under the terms of his employment.

Foreign Laws

Contrast this with the position in the United States of America and even the United Kingdom from
where we get "inspiration" for most of our laws.

We would first like to examine the principles laid down under English law. It is interesting because
although the framework on restraint of trade under English law began with stringent dictums as under
the present Indian Contract Act, it has gradually evolved to adapt itself to the myriad trends of the
modern economy.

The English Courts started expanding the exceptions to the restraint of trade principle through the test
of "reasonableness". In an English case16, the Court held that the validity of a restraint is dependent
on its reasonableness and fairness. In another case17, the Lower Court held that a general restraint
was void in cases of contracts of both employment and of sale of a business but partial restraint
was valid if reasonable. However, on appeal, the House of Lords held that a general restraint was not
necessarily void and that it was valid if in the interests of the parties and the public. Thus, the
distinction between general and partial restraint was removed and the test of reasonableness was
adopted in both situations depending upon the facts and circumstances of each case. In another
case18, the law stated in Nordenfelt case was accepted.

By degrees, the common law doctrine of restraint of trade has been ever expanding and the legal
principles have applied and developed so as to suit the exigencies of the times with the growth of
trade and commerce, industrialization and means of communication.

Under the laws of the Unites States of America, the ubiquitous concept of "trade secrets" has become
synonymous with restraint on trade within the industry and the judiciary. Therefore, the Courts in the
US may have adopted an extreme measure to implement such protection based principles like the
"Inevitable Disclosure Doctrine" and "Inducement to Breach".

The "inevitable disclosure" theory is one of the most controversial issues in contemporary trade secret
laws. Various companies in the US often attempt to use this theory to prevent a former employee from
working for a competitor in his or her area of expertise, even when the soon-to-be former employee is
not bound by a covenant not to compete. Such companies typically argue that an injunction merely
prohibiting disclosure of trade secrets is insufficient to protect the company's confidential information
because, practically, disclosure of secrets is "inevitable" if the individual works in a specific position
with his new employer. Instead, the Courts are urged to issue an injunction prohibiting specific
employment, if the former employer can prove three elements: (a) that the former employer and the
new employer are competitors; (b) that the employee's new position is so similar to his prior position
that the trade secrets the employee obtained in his prior employment would "have to" or "inevitably"
be used in his new position; and (c) that the new employer has not taken sufficient, demonstrable
steps to prevent any misappropriation from occurring. Courts have provided little guidance regarding
what constitutes "comparable employment" or identifying those situations where an employee will
"have to use"

confidential information in a new position, increasing the guesswork.

The inevitable disclosure doctrine is a judicially created doctrine that permits Courts to issue an
injunction prohibiting an employee from working for a competitor of his or her employer. It is a tool that
allows Courts to restrain an employee from working for a competitor, even in the absence of any
evidence for an actual misconduct.

Although the law restraining employees from working with other companies after the term of
employment may be a bit zealous in protecting employer's interest, it is indisputable that the judiciary
in both the Unites States of America and the United Kingdom is interpreting laws which are more
apposite to the new world.

Reforms

It is recognized that an employer has an indisputable right to protect its trade secrets from
unauthorized use and disclosure. The corollary to this is that employees have an undeniable
obligation to maintain the confidentiality of its employer's business which he may have had access to
during the course of his employment.

Despite this fact and all the developments in law and decisions being passed by judiciaries worldwide,
Section 27 of the Indian Contract Act still continues to have the same text as it did when the Act
was first enacted in 1872. Even the recommendations of the Law Commission that all restraints,
whether general or partial, should not be treated as void per se but should be decided based on the
test of "reasonableness", have not made a chink in the armour of Section 27.

Coming to the role of judiciary in India, barring a few intuitive decisions, for the most part, the attitude
of Courts in enforcing even those reasonable restrictions on an employee appears to be antiquated.

While the judiciary should not be compelled to adopt excessive principles like the "inevitable
disclosure" theory, it is time for the legislature and judiciary to come out of their reverie and wake up to
the whole new world that exists. An epiphany by either the legislature or judiciary is not enough to
address the today's commerce. It has to be a combined and concerted effort by the two pillars of our
legal system to evaluate and determine where the laws have become inept at addressing the
capriciousness of commerce.

While our industry today braves itself against the impediments that archaic laws may put forth, a
pragmatic and discerning judiciary is definitely indigent to the progress of this country.

All restrictions are not bad and like in the United Kingdom, the principle of reasonableness must
become an anthem with our judiciary when it is determining cases under Section 27 of the
Indian Contract Act.
Today, for the most part, our Courts declare that all restraints in an employment agreement are void
after the term of the employment. However, in some cases, such restraints may be necessary and
reasonable. For example, if a company engaged in sensitive research and development stipulates in
its contract that its employees shall not seek employment for a specific period of time after their
employment with the company's direct competitors (these competitors could be identified by the
company), it may be a reasonable restraint by the company. A restraint in this instance may be
considered reasonable because of the sensitive nature of business of the employer, the period of
restrain is specified and the specific competitors are predetermined by the company.

Another fallacy that the Courts seem to endorse is even if the restraint after the term of employment is
reasonable it would not be enforceable against the employee in the event the employer has
terminated the employment. This again cannot be applied in absolute terms. If the entire reason for
terminating the employment by the employer is because of misconduct, fraud or such other reasons
by the employee, it becomes imperative that the employer should have the right to enforce any
restraint which would protect his interests on termination of the erring employee.

The argument for expanding the scope of exceptions to Section 27 can be crystallized in just two
words "confidential information" or " trade secrets".

The existing exception to Section 27 that of purchase of goodwill forms only one part of countless
parts in the world of transactions. Obviously this exception would find no place in an employer-
employee relationship where there is no sale or purchase of goodwill but there is definitely enough
justification to cull out another exception to the principle of restraint of trade.

The proponents for regulating the scope of Section 27 should not be mistaken as a one sided war cry
in favour of trade and commerce. This regulation should be seen as having other enduring results
which are not only beneficial to an employer but to society itself.

One of the fundamental problems today in India is the unethical practice of one company soliciting
employees of its competitors. It does not take a wise man to guess that the primary motivation for
such solicitation is to obtain the confidential information or trade secrets of the company through its
employees (particularly if the employee is senior in the organization). If a restraint on employees in
such high power positions in companies was imposed where they would not work with a direct
competitor for a specific period of time after termination of employment, it maybe incongruous if the
competitor company persisted in soliciting the employee.

Similarly, if a restraint on employees was enforced that they would not start competing businesses
within a specific period of time after their employment, the other burning issue of employees leaving
companies and soliciting the customers of the company would also start getting addressed.

Of course, at all times, the reasonableness of the restrictions needs to be scrutinized before it can be
said that a restriction does not fall within the purview of Section 27. For example, the time period for
the restriction, the nature of business, the seniority of the employee, the geographical limitations, etc.,
would all need to be considered.

Conclusion
Section 27 in its current form does not allow for any deviation from the absolute rule it embodies
except for the one instance where there is a transaction for sale and purchase of goodwill.

Again, it is not proposed that there should be a specific exception on employer-employee agreements
because that has the danger of negating the reasonableness factor. Also, this would again not serve
the long term interests of society as there could well be other types of transactions, which are not
contemplated by us today where the factor of reasonable of restriction may become fundamental to
the agreement.

The only contention is that the current exception to Section 27 should be removed and a general
proviso should be brought into the Section which states that restriction (whole or partial) may be valid
and legal, even if they are in restraint of trade, provided there can be reasonableness to the
restriction.

Some intuitive Courts are anyway attempting to interpret Section 27 on the basis of reasonableness
instead of straitjacketing themselves with strict interpretation. The nature of proviso could be to merely
permit the judiciary to take a more cognitive view of facts rather than get blind sided by the strict letter
of the law.

There is definitely a fundamental right of an individual to practise any profession, trade or vocation
and this is recognized under our Constitution. Nobody would be audacious to disregard the concept of
fundamental rights. However, even the Constitution recognizes that fundamental rights are not
absolute and one's fundamental right ends where the other's liberty begins. Therefore, the need of the
hour is to find equilibrium between the two apparently divergent rights of the employer and the
employee.

It is believed that the factor of "reasonableness" would be the right catalyst for sparking the proverbial
flame of congruence between employer and employee interests in our neoteric world.

___________________________

* Naina Krishna Murthy, 2007. The author is Managing Partner of Krishnamurty and Co Legal Consultants,
Bangalore. She may be reached at naina@krishnamurthyandco.com.

1. Karnal Distillery Co. Ltd. v. Ladli Prasad Jaiswal MANU/PH/0053/1958: A.I.R. (1958) Pun. 190, 203;
Section 16 of Contract Act, 1872

2. Vickery v. Welch

3. Bryson v Whitehead 1 SIM & ST. 73 (1822) (Court ordered the seller of a dyeing business to perform
his contractual duties of non disclosure, non-use and non-competition.)

4. Auchterlonie v. Charles Bill (1868) 4 M.H.C. 77

5. Niranjan Golokari MANU/SC/0364/1967: 1967 (2) SCR 378

6. Ibid

7. Lalbhai Dalpatbhai and Company v. Chitranjan Chandulal Pandya AIR 1966 Gujarat 189 (DB):
MANU/GJ/0051/1966.
8. Pepsi Food Limited and Others v. Bharat Coca Cola Holding Pvt Ltd and Others MANU/DE/0740/1999: 1999
(50-DRJ 656)

9. Star India vs. Laxmiraj Seetharam Nayak MANU/MH/0406/2003 (Suit No. 3452 of 2002, decided on 10-
01-2003)

10. Jet Airways (I) Ltd v. R. Jan Peter Ravi Karnik MANU/MH/0434/2000: 2000 (4) Bom CR. 487

11. Lloyd Electric Engg. v. Dr. Rajeshwar Kr. Malhotra (Civil Revision No. 715/96 dated 24.10.1996) cited in
Pepsi Food Limited and Others v. Bharat Coca Cola Holding Pvt Ltd and Others MANU/DE/0740/1999: 1999
(50-DRJ 656) at pg. 17 of 32

12. Reach Sewn Technologies and Consulting Pvt. Ltd. v. Rajesh Dwivedi O.S. No. 7704 /2004

13. Rajesh Dwivedi v. Reach Sewn Technologies and Consulting Pvt. Ltd. MFA 639/2005

14. Daljit Titus, Advocate & Ors. v. Alfred A Adevare & Ors. MANU/DE/1875/2006 : 2006(32) PTC 609 (Del)

15. Percept D'Markr India Pvt Ltd v. Zaheer Khan and Anr MANU/SC/1412/2006 : AIR 2006 SC 3426

16. Mitchel v. Reynolds (1711) 1 P, Wms. 181

17. Nordenfelt v. Maxim Nordenfelt Guns & Ammunition & Co. (1894) A.C. 535, 565

18. Mason v. Provident Clothing & Supply Co. Ltd (1913) A.C. 724