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IN THE HIGH COURT OF BOMBAY

VFS Global Services Private Limited (Plaintiff)


Vs.
Suprit Roy (Defendants)
Notice of Motion No. 4388 of 2007
in
Suit No. 3171 of 2007

Synopsis
Facts of the Case

1) The employment contract of the Defendant entered with the Plaintiff


contained inter alia the following conditions:

a) The Defendant shall not make use of or disclose confidential


information whether during the period of employment or after.

b) The Plaintiff reserves the right to require the Defendant to remain


away from work/employment for a period of 3 (three) months after
cessation of employment and to comply with all conditions that may
be laid down by the Company at the time of such resignation or
termination. (Garden leave clause)

c) The Defendant shall not complete or carry on any business of visa


processing services or similar business for a period of 3(three)
months

d) The Plaintiff shall pay compensation equal to 3 (three) month's


remuneration last drawn at the time of termination or resignation at
its sole discretion.

2) Defendant tendered his resignation from service by giving 30 days notice


period as per the contract

Prayers/Relief Sought by the Plaintiff

Plaintiff sought damages in the amount of Rs. 5 crores and for enforcing the
negative covenant contained in the contract of employment {conditions (b) and
(c)}

The prayers in the Notice of Motion for interim relief sought

a) enforcement of the Garden Leave Clause


b) injunction against from the disclosure of confidential information
c) injunction against the Defendant soliciting customers or employees

1
Decision

 Section 27 of the Indian Contract Act, 1872 provides that every


agreement by which anyone is restrained from exercising a lawful
profession, trade or business of any kind is to that extent void. An
exception is carved out in Section 27 by which a person who sells
the goodwill of a business may agree with the buyer to refrain from
carrying on a similar business within specified local limits so long as the
buyer carries on a like business, provided that such limits appear to the
Court reasonably having regard to the nature of the business. The only
exception which is provided to the doctrine that an agreement in
restraint of the exercise of a lawful profession, trade or business is void
is where the goodwill of a business is being sold.

 While construing the provisions of Section 27 of the Contract


Act, neither the test of reasonableness nor the principle of
restrain being partial is applicable, unless it falls within express
exception engrafted in Section 27 which relates to the sale of
the goodwill of a business. (Supreme Court in Zaheer Khan’s case)

 In the present case, the Garden Leave Clause is intended to operate


after the contract of employment stands terminated, either as a result
of resignation or upon the employee ceasing to remain in service upon
termination.

 The payment of 3 months compensation does not renew the contract of


employment. The Garden Leave Clause is therefore, prima fade in
restraint of trade and is hit by Section 27 of the Contract Act.

 There is nothing in Section 27, to suggest that the principle in


Section 27 will not apply when the restraint is for a limited
period. (Krishan Murgai's case)

 A negative covenant cannot be enforced if it would indirectly compel


the employee either to remain idle or to serve the employer. (Supreme
Court in Gujarat Bottling Co. Ltd)

Thus prayers pertaining to enforcement of the Garden Leave Clause and


injunction against the Defendant soliciting customers or employees were denied
and injunction against use of confidential information was granted in respect of
such confidential information which is not in public domain (upon a confirmation
by the Defendant in this regard)

Decided On: 10.12.2007

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D.Y. Chandrachud, J.