LALBHAI DALPATBHAI AND CO Vs. CHITTARANJAN CHANDULAL PANDYA

JUDGEMENT

(1.) This appeal raises an important question as to how far a negative stipulation in a contract of personal service can be enforced by the Court by grant of injunction. The facts giving rise to the appeal are few and may be briefly stated as follows. The plaintiffs are a partnership firm having their registered office in Ahmedabad and they carry on business inter alia as Managing Agents of diverse textile mills situate in Ahmedabad. One of those textile mills is Ashok Mills Limited Ahmedabad. The defendant is a Bachelor of Engineering of the Gujarat University and it is common ground that he was at the date of his appointment by the plaintiffs a fresh graduate from the University. By a letter of appoint ment dated 16th May 1962 the plaintiffs appointed the defendant as an Assistant Engineer on probation for a period of three months in Ashok Mills Limited Ahmedabad. On the expiration of the period of three months specified in the letter of appointment the probation was extended for a further period of three months and on the expiration of the said period the defendants appointment as an Assistant Engineer was confirmed and a contract dated 25th June 1963 was executed by and between the plaintiffs and the defendant. The contract provided that the defendant will diligently faithfully and to the best of his ability and capacity serve as an Assistant in the Engineering Department for a period of three years from 1st May 1963. During the period of the contract the defendant was to receive monthly basic salary of Rs. 230.00 per month for the first year Rs. 270.00 per month for the second year and Rs. 310.00 per month for the third year. After the expiration of the period of the contract each party was at liberty to terminate the service by giving one months notice to the other. Clauses 7 and 9 of the contract contained what may be termed negative stipulations and since the entire controversy between the parties has centred round these stipulations it would be desirable to set them out in extenso. Clauses 7 and 9 of the contract ran as follows:

(2.) The main question which arises in this appeal is whether the negative stipulation contained in Clauses 7 and 9 of the contract is valid and enforceable and the Court should issue an injunction restraining the defendant from committing a breach of the negative stipulation. On this question various contentions have been advanced before us on behalf of the parties and we shall presently refer to those contentions but before we do so it would be desirable to clear the ground by observing that negative stipulations such as this in contracts of personal service cannot be regarded as stipulations in restraint of trade so as to be liable to be invalidated under sec. 27 of the Contract Act. It is now well-settled that restrictions that are to operate only while the employee is contractually bound to serve his employer are never regarded as in restraint of trade either at common law (See Gaumont British Corporation v. Alexander (1936) 2 All E.R. 1686 and Warner Bros. v. Mrs. Nelson (1937) 1 K B. 209 and Marco Productions Ltd. v. Pagola (1945) 1 All E.R. 155) or in India (Charlesworth v. MacDonald 23 Bom. 103 and Deshpande v. Arvind Mills Ltd. 48 Bom. L.R.90). In Charlesworth v. MacDonald the negative stipulation was contained in a contract under which the defendant agreed to practise as an Assistant of the plaintiff a medical practitioner in Zanzibar for a period of three years and the contract contained a negative stipulation which was construed by the Court to be that the defendant shall not practise on his own account in Zanzibar during the period of the contract. The question arose whether this negative stipulation was void under the Contract Act as being an agreement in restraint of trade. Farran C. J. answered the question in the negative observing in words which have since then been oft quoted in-various subsequent decisions ..is it an agreement which restrains the defendant from exercising his law ful profession ? Is it an agreement in restraint of trade ? I think not. I do not think that an agreement of this class falls within the section. If it did all agreements for personal service for a fixed period would be void. An agreement to serve exclusively for a week. a day or even for an hour necessarily prevents the person so agreeing to serve from exercising his calling during that period for any one else than the person with whom he so agrees. It can hardly be contended that such an agreement is void. In truth a man who agrees to exercise his calling for a particular wage and for a certain period agrees to exercise his calling and such an agreement does not restrain him from doing so. To hold otherwise would I think be a contradiction in terms.... There is also the dictum of Candy J. in Cailianji v. Narsi Tricum and illustration (d) to sec. 57 of the Specific Relief Act is what I may call a legislative decision to the same effect. This decision is binding upon us but we may point out that even if it were not so we should still have been inclined to reach the same decision and we wish to express our respectful concurrence with these observations. The negative stipulation in the contract in the present case cannot therefore be said to be void as being in restraint of trade. There was no other ground suggested on behalf of the defendant which would invalidate the negative stipulation and we must therefore proceed to decide this case on the basis that the negative stipulation was a valid stipulation.

(3.) Mr. C. T. Daru on behalf of the defendant agreed that the negative stipulation in the present contract being a valid stipulation if any injury resulted to the plaintiffs as a result of the breach of the negative stipulation the plaintiffs would be entitled to recover damages for such injury from the defendant His only dispute was that the plaintiffs were not entitled to obtain an injunction against the defendant to restrain the breach of the negative stipulation. He urged various arguments in support of this plea and we shall presently examine these arguments but before we do so we must refer to an objection raised by him which sought to give an answer in limine to the claim for an injunction. That objection was based on the provisions of the Specific Relief Act 1963 which was admittedly the statute governing the determination of the present question and the argument was that the negative stipulation in the contract imposed a continuous duty on the defendant not to serve anyone other than the plaintiffs and the Court could not supervise the performance of this continuous duty and therefore having regard to the rule enacted in sec. 14(1)(d) which was applicable to a case of an injunction by reason of sec. 38(2) the Court was precluded from granting an injunction to the plaintiffs. Now Mr. C. T. Daru is certainly right in his contention that by reason of sec. 38(2) the rule enacted in sec. 14(1)(d) must apply even where an injunction is sought to prevent the breach of an obligation arising from a contract-but obviously the rule can apply in any given case only when it is applicable on the facts of the case. The rule says that a contract the performance of which involves the performance of a continuous duty which the Court cannot supervise cannot be specifically enforced and it is clear from the language and the intendment of the rule that the duty which is referred to there is a positive duty to do something and not a negative duty to abstain from doing something. Where under contract the defendant is under a continuous duty to do something the performance of which the Court cannot supervise the rule says that such a contract shall not be specifically enforced since it would not be possible for the Court in such a case to ensure performance of the continuous duty. But where the duty under the contract is merely to abstain from doing something there would be no question of the Court being called upon to supervise the performance of the duty. The enforcement of a negative stipulation such as the one we have in the present case can therefore never be within the inhibition of this rule and we cannot refuse to grant injunction in limine on such ground.