Case study

Superintendence Company of India Pvt Limited V. Krishnan

Murgai AIR 1980 SC 1717, 1980 (41) FLR 137, (1981)

ILLJ 121 SC

S.R.MYTREYIPATENTS DEPT

In this landmark judgment, the rights of

employees under work contract with

employers after tendering resignation

was elaborated by the Supreme Court.

We shall now discuss the facts and the

decree passed by the Court in this case.

Superintendence Company of India was carrying out the business of inspecting merchandise with a view to assess their quality and develop techniques for quality testing and control, which are protected as trade secrets. Mr. Krishnan was employed as a Manager by the Company.

After the termination of the service with the Company, Mr. Krishnan started carrying on business on lines identical with the business of the Superintendence Company in a different style. Mr. Krishnan collaborated with the competitors of the Company, was soliciting customers and business from the Company’s clientele and was also

Using and employing the secret techniques of the Superintendence Company, which he had learnt during his employment.

Aggrieved by Mr. Krishnan’s action, the Superintendence Company brought a suit for a permanent injunction to restrain him from his activities as per the agreement signed with them during the course of employment. The Superintendence Company also sought a temporary injunction restraining him from continuing with the new business

or employment.

The Court held in this case that Mr. Krishnan can only be restrained from disclosing trade secrets of the Company and he cannot be prevented from carrying out any business or employment in competition with the Company.

Section 27 of Indian Contract Act, 1872 declares in plain terms- “Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, to that extent, is void.” The above does not mean an absolute restriction and are intended to apply to a partial restriction. During the period of employment the employer has the exclusive right to the service of the employee.

But a restraint operating after the termination or retirement is for freedom from competition from a person who no longer works within the contract. And holding the same is declared void by a court of law. The reason for upholding restraint of trade against employee

is to protect the proprietary rights of the employer i.e. the trade secrets or trade connections but it is not available if directed to prevent exercise of extra skill or knowledge acquired by the employer during the course of employment.

Any question as to duration and termination of employment depends upon the intention of the parties. It is open to the employer and the employee at any time to terminate the contract by mutual agreement. An employee is entitled, on the wrongful

dismissal, to the damages for loss of earning and other benefit he would be entitled to, had this employment been terminated according to contract and if no period is fixed for termination he is entitled to reasonable, and for loss of earning for such a period.

In any other case, damages are to be measured by the amount of remuneration which the employee has been prevented from earning by reason of wrongful dismissal including the value of any other benefit he is entitled by virtue of his contract. An employer is also entitled to interest or reasonable

compensation on the event he is not paid due salary. Moreover, if an employee fails to discharge his duties properly, he is obliged to indemnify his employer for loss. And where the employee is guilty of grave misconduct in his capacity as an employee, he may be dismissed without notice.

Thus it can be concluded that employment contract is a contract of service between the employee and the employer to serve the latter fulfilling all terms and conditions provided in the contract.

The popular interpretation of Sec 27 of the Indian Contract Act, 1872, is that, all restraints of trade however reasonable are void. But the truth is, the section only contends to put down that only trade of employees which exposes the former employer’s trade secrets are barred by this section. To conclude, this section is a cover both to the employer and the employee in some way.