2008 CLD 1258

EXIDE PAKISTAN LIMITED through Finance Director and Company Secretary VS Malik ABDUL WADOOD

Petitioner: EXIDE PAKISTAN LIMITED through Finance Director and Company Secretary VS Respondent: Malik ABDUL WADOODHonorable Justice Khalid Ali Z. QaziMs. Sana Minhas,Abdul Qayyum Abbasi

Court: Sindh High Court

Full Judgment Text & Judicial Ruling

2008 C L D 1258

[Karachi]

Before Khalid Ali Z. Qazi, J

EXIDE PAKISTAN LIMITED through Finance Director and Company Secretary---Plaintiff

Versus

Malik ABDUL WADOOD---Defendant

Suit No.797 and C.M.As Nos.5097, 7214 of 2008, decided on 19th August, 2008.

(a) Contract Act (IX of 1872)---

----S. 27---Specific Relief Act (I of 1877), S.57---Restrictive covenant---Scope--Any agreement by which any lawful profession, trade or business is restrained is void under S.27 of Contract Act, 1872, as such the same is subject to an exception contained in S.57 of Specific Relief Act, 1877, according to which agreement restraining carrying on a business after sale of goodwill is exempt from operation of S.27 of Contract Act, 1872---Basic principle was that any restraint on trade clause would be, prima facie, void unless the same was justified to be reasonable between the parties and not inimical to public interest.

(b) Contract Act (IX of 1872)---

----S. 27---Specific Relief Act (I of 1877), S.57-Restrictive covenant--Applicability---Principles.

Following are the principles for application of restrictive covenant:--

(a) a restraint of trade clause is void if unreasonable, however, if the same is reasonable the said clause is valid;

(b) a reasonable restraint of trade clause whereby an employee is prevented from entering into competition with his former employer or entering into an employment in same/ similar business with a competitor of former employer, can be enforced by Court. The said enforcement can include a declaration or injunction or both, as the case may be;

(i) the extent of duration;

(ii) the extent of the geographical territory.

(d) the employer will only be able to obtain an injunction for information, know-how and details of customers/orders acquired by employee the through some classified or secret information. However, no injunction would be obtained if the know-how is not acquired by employee through access of classified or secret information but rather during the normal course of employment;

(e) the restraint of trade clause should only be aimed at protecting interest of the employer and not aimed at penalizing the employee or causing him inconvenience;

(f) the restraint of trade clause should not be vague and generalized but should be rather specific. In case general a vague part of the restrictive covenant is separable from the substantive part, the Court while exercising doctrine of severance and by supplying construction will be empowered to uphold the substantive part of the restrictive covenant. However, where the restraint of trade is not separable in the manner stated above, the Court will reject the entire clause without applying the doctrine of severance;

(g) the restraint of trade clause can only be applicable to the particular type of business in which the employer is actually engaged in and not to any business activity in which the employer would possibly engage in the future.

BNS Air Services (Pvt.) Ltd. v. Anwar Ali and others 1987 MLD 3009; Al-Abid Silk Mills Ltd. v. Syed Muhammad Mudassar Rizvi 2003 MLD 1947; Zafar Iqbal Papu v. District Magistrate Karachi East PLD 1988 Kar. 275; Syed Shabih Haider Zaidi v. Shaikh Muhammad Zahoor-ud-Din 2001 CLC 69; Government of Pakistan v. M.I. Cheema Dy. Registrar, Federal Shariat Court 1992 SCMR 1852; Shahab Din v. The State 2004 MLD 1411; Al-Jamiaul Arabia Ahasanul Uloom and Jamia Masjid v. Syed Sibte Hasan 1999 YLR 1634; Section 57 of the Specific Relief Act; Shree Gopal Paper Mills Ltd. v. Surendra K. Ganeshdas Malhotra MR 1962 Cal. 61; Superintendence Company of India (P.) Ltd. v. Krishan Murgal AIR 1980 SC 1717; Sandhya Organic Chemicals P. Ltd. and others v. United Phosphorous Ltd. and another AIR 1997 Gujrat 177; Indo-Burma Oil fields Ltd. v. Burma Oil Company Ltd. AIR 1921 Lower Burma 19; V.N. Desh Pande v. Arvind Mills Company Ltd. AIR 1946 Bombay 423; Niranjan Shanker Goli Kari v. Century Spinning and Manufacture Company Ltd. AIR 1967 SC 1098;. AIR 1979 Delhi 232; Nooruddin Hussain v. Diamond Vacuum Bottle Manufacturing Co. Ltd. PLD 1981 Kar. 720; Pak China Chemicals v. Department of Plant Protection 2006 CLD 210; Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd. (1894) AC 535; British reinforced Concrete engineering Co. Ltd. v. Schelff (1921) 2 Ch. 563; Goldsoll v. Goldman (1915) 1 Ch. 292; Herbert Morris Ltd. v. Saxelby (1916) 1 AC 688; Forster and sons Ltd. v. Suggett (1918) 35 TLR 87; Commercial Plastics Ltd. v. Vincent (1965) 1 QB 623; Little Woods Organization Ltd. v. Harris (1978) 1 All. ER 1026; Fitch v. Dewes (1921) 2 AC 158; M&S Drapers v. Reynolds (1957) 1 WLR 9; Marion White Ltd. v. Francis (1972) 1 WLR 1423; Mason v. Provident Clothing and Supply Co. Ltd. (1913) AG 724; Attwood v. Lamont (1920) 3 KB 571 and Alec Lobb Grages Ltd. v. Total Oil (GB) Ltd. (1985) 1 WLR 173 rel.

----Ss. 54 & 57---Contract Act (IX of 1872), S.27---Civil Procedure Code (V of 1908), O.XXXIX, Rr.1 & 2---Interim injunction, grant of---Restrictive covenant---Applicability---Plaintiff was a manufacturing company and defendant was its ex-employee--Plaintiff sought injunction against defendant on the ground that defendant had executed an agreement undertaking not to work for a period of two years with any competitor of plaintiff, once he would leave the job---Plea raised by plaintiff was that during employment with plaintiff, defendant had acquired confidential information---Validity---Restrictive covenant between the parties was too vague, generalized and hence void---Agreement did not specify as to what particular specialized information had been divulged to defendant, which he would be prevented to use directly or indirectly in employment with another employer---Plaintiff could not particularize as to what particular confidential information was acquired by defendant---As the plaintiff failed to disclose as to what particular trade secret or secret formula or information was specially acquired by defendant other, than in his normal course of employment, therefore, he had failed to make out a prima facie case---Interim injunction was refused in circumstances.

Ms. Sana Minhas for Plaintiff.

Abdul Qayyum Abbasi for Defendant.

Date of hearing: 29th July, 2008.

JUDGMENT

KHALID ALI Z. QAZI J.---As common questions of facts and law are involved, the two listed applications are being disposed of through a common order.

2. The brief facts giving rise to the present case are that the plaintiff claims to be the market leader in the manufacture and supply of lead acid and industrial batteries in Pakistan for various applications. Admittedly the defendant joined the plaintiff-Company on 9-3-1971 as a Sales Representative, whereafter he was promoted and posted on various posts and designations in Sindh and Balochistan. On 1-4-1996 the defendant was promoted as general Manager (Marketing) South.

3. According to the plaintiff in terms of the annual appraisal of the defendant which was made on 12-6-2007, effective from 1-4-2007, it was clearly stipulated that in case the defendant left the plaintiff-company for any reason, he would not work for a period of two years in any other organization which would be in any direct or indirect competition with the plaintiff (see Annex A-5 to the plaint). Since the entire matter hinges upon the alleged clause prohibiting employment for two years it shall be convenient to reproduce the same, which read as follows:--

"If you have to leave this job due to any reason you will not join, for at least a period of two years, any such Company/Organization either in the private or public sector which directly or indirectly competes with EXIDE Pakistan Ltd. in any of its products."

4. It is claimed by the plaintiff that the above restrictive covenant was duly accepted by the defendant, which is evidenced by the endorsement and signatures affixed by the defendant at the bottom of annual appraisal dated 12-6-2007 i.e. Annex. A-5 to the plaint, which reads as follows:--

"I confirm that I fully accept the terms and conditions as set out above.

(Sd.) Signature M.A. Wadood".

5. On 4-12-2007 i.e. after putting in some 36 years of service with the plaintiff, the defendant tendered his resignation, which was accepted by the said plaintiff.

6. It is alleged by the plaintiff that some time in the third, week of May, 2008 it discovered that the defendant has taken employment as Deputy General Manager (Marketing) South with M/s: Pakistan Accumulators (Pvt.) Ltd., which are the manufacturers and suppliers of OSAKA and VOLTA brand automotive batteries. In support of this the plaintiff has attached certain flyer/circulars, which confirm that the defendant has obtained the latter employment. Hence the present suit.

7. The main contention of the plaintiff is that since the restrictive covenant (supra) has clearly prohibited the defendant from accepting or conducting any employment or associating himself with any person or entity in direct or indirect competition with the plaintiff, the employment undertaken by the defendant with Messrs Pakistan Accumulators (Pvt.) Ltd. violates the said clear and express restrictive covenant. On the basis of this the plaintiff has moved an application for injunction i.e. C.M.A. No.5097of 2008 seeking a temporary injunction restraining the defendant from working or associating in the business of any organization engaged in the manufacture and sale of lead acid electric storage batteries/automotive batteries in Pakistan in any capacity whatsoever until 3-12-2009. It is alleged that Messrs Pakistan accumulators (Pvt.) Ltd. is a direct competitor of the plaintiff and hence the defendant is sought to be restrained from carrying his employment in the latter company. It is averted that the Messrs Pakistan Accumulators (Pvt.) Ltd. has attempted to infringe the trade mark of the plaintiff, which can be seen from the order of this court dated 16-1-2006 in Suit No.33 of 2006. On 28-5-2008 a learned single Judge has issued an ex parte ad interim order till the next date of hearing.

8. Ms. Sana Akram Minhas, the learned counsel for the plaintiff, has submitted that the defendant had acquired important and sensitive know-how and trade secrets and had also taken away with him important record such as various manufacturing information with regards plaintiffs customers. It is alleged that a legal notice dated 24-5-2008 was issued to the defendant whereby he was inter alia, required to return back the material/documents. In support of her contention Ms. Sana Minhas has relied upon the following:--

(a) BNS Air Services (Pvt.) Ltd. v. Anwar All and others 1987 MLD 3009;

(b) Al-Abid Silk Mills Ltd. v. Syed Muhammad Mudassar Rizvi 2003 MLD 1947;

(d) Syed Shabih Haider Zaidi v. Shaikh Muhammad Zahoor Uddin 2001 CLC 69;

(e) Government of Pakistan v. M.I. Cheema Dy. Registrar, Federal Shariat Court 1992 SCMR 1852;

(f) Shahab Din v. The State 2004 MLD 1411;

(g) Al-Jamiaul Arabia Ahasanul Uloom and Jamia Masjid v. Syed Sibte Hasan 1999 YLR 1634;

(h) Section] 57 of the Specific Relief Act;

9. On the other hand the defendant has disputed that he never accepted the restrictive covenant. According to the defendant the annual appraisal letter dated 12-6-2007 was delivered to him and without accepting any restrictive trade covenant he kept the original and affixed his signatures on the copy, as a mark of receipt, while returning the same. As per the defendant, later on the plaintiff fraudulently and through another typewrite typed out his acceptance on the said memorandum. Reference is invited by the defendant to Annex D/A to the Counter affidavit which is a copy of the Memorandum/Annual appraisal dated 12-6-2007 without the endorsement or signatures of the defendant accepting the restrictive covenant. It is further stated by the defendant that even upon the tendering of his resignation he had orally formed the plaintiffs management that he would be joining some other company to which no objection was raised by the plaintiff and which according to the defendant goes to show that the restrictive covenant was never agreed by the said defendant. It is further stated by the defendant that upon resignation he returned all the record and documents including the car and cell phone to the plaintiff. As per the defendant this can be proved from the fact that all along no requisition was made in this regard by the plaintiff who had belatedly only issued a legal notice dated 24-5-2008 which was received by the defendant at the time when the suit had already been filed on 28-5-2008. It is alleged by the defendant that even his dues were settled by the plaintiff which again shows that if he had not returned the documents/record his dues would not have been settled and this allegation has only been belatedly made by the plaintiff so as to make out a false case against the defendant.

10. The defendant has filed C.M.A. 7214/2008 under Order XXXIX, rule 4, C.P.C. so as to seek vacation of the ex parte ad interim order dated 28-5-2008. Mr. Abdul Qayyum Abbasi, learned counsel for the defendant has vehemently argued that restrictive covenant is based upon forgery as in all other promotion letters or documents no such insertion so as to match with the restrictive covenant in question is available. Mr. Abbassi has further stated that the defendant is not tampering with any of the customers of the plaintiff and is not using any special know-how which may have been acquired by the defendant during the course of his employment with the plaintiff.

11. In order to further substantiate his case Mr. Abbassi has referred to a letter of the defendant dated 14-12-2007 addressed to the plaintiff wherein it has been stated that the defendant shall be joining another firm. The defendant has also invited our attention to a greeting card dated 1-1-2008 sent by a plaintiffs representative to the defendant congratulating him "on the start of the journey for a better tomorrow". Reference is also invited to letters of the plaintiff, dated 19-2-2008 and 27-3-2008, which are bills for subscription/membership fee forwarded by the plaintiff to the defendant at his address with his new employer i.e. Messrs Pakistan Accumulators (Pvt.) Ltd. On the strength of these documents Mr. Abbassi has argued that there was no restrictive covenant and all along the plaintiff was in the knowledge that the defendant has obtained employment with Messrs Pakistan Accumulators (Pvt.) Ltd. In support of his arguments Mr. Qayyum Abbasi, advocate has relied upon:--

(a) Shree Gopal Paper Mills Ltd. v. Surendra K. Ganeshdas Malhotra AIR 1962 Cal. 61;

(b) Superintendence Company of India (P.) Ltd. v. Krishan Murgai AIR 1980 SC 1717;

(d) Section 27 of the Contract Act.

12. In rebuttal Ms. Sana Minhas, the learned counsel for the plaintiff has vehemently contended that memorandum/annual appraisal letter dated 12-6-2007 was never disputed or denied by the defendant. In fact he continued to draw the revised salary in terms of the said annual appraisal letter dated 12-6-2007. Thus even if the defendant has not signed the disputed endorsement at the bottom of such memorandum, by drawing the revised salary and by not disputing the restrictive covenant, the said defendant accepted the latter and thus he is now not estopped from raising any dispute in relation thereto. It is averred by Ms. Minhas that the defendant cannot pick and choose the terms and conditions mentioned in the annual appraisal letter dated 12-6-2007. With regards the letter dated 12-6-2007, the plaintiff has admitted such letter, however, according to Ms. Sana Minhas the said letter did not give details of the employment, which was to be undertaken by the defendant. Hence just by stating that the defendant was seeking another employment, it could not be deduced that the plaintiff had waived the application of the restrictive covenant in question.

13. I have heard the rival arguments and perused the record and law on the subject.

14. As the matter involves interpretation of the relevant restrictive covenants in the backdrop of section 27 of the Contract Act so also sections 56 and 57 of the Specific Relief Act, it shall be convenient to reproduce the latter provisions of law, which read as follows:--

(a) Section 27 of the Contract Act 1972 which deals with agreements which are in restraint of trade, reads as follows:

"Section 27. Agreement in restraint of trade void.--Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

Exception 1.--Saving of agreement not carrying on business of which goodwill is sold.--One 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, or any person deriving title to the goodwill from him, carries on a like business therein: Provided that such limits appear to the Court reasonable regard being had to the nature of the business."

(b) Section 56 of the Specific Relief Act, 1877, which provides eventualities when an injunction cannot be granted, reads as follows:--

Section 56. Injunction when refused.--An injunction cannot be granted,---

(a) to stay a judicial proceedings pending at the institution of the suit in which the injunction is sought, unless such restraint is necessary to prevent a multiplicity of proceedings;

(b) to stay proceedings in a Court not subordinate to that from which the injunction is sought;

(d) to interfere with the public duties of any department of [the (Federal Government) .. or any Provincial Government], or with the sovereign acts of a Foreign Government;

(e) to stay proceedings in any criminal matter;

(f) to prevent the breach of a contract the performance of which would not be specifically enforced;

(g) to prevent, on the ground of nuisance, an act of which it is not reasonably clear that it will be a nuisance;

(h) to prevent a continuing breach in which the applicant has acquiesced;

(i) when equally efficacious relief can certainly be obtained by any other usual mode of proceeding except in case of breach of trust;

(j) when the conduct of the applicant or his agents has been such as to disentitle him to the assistance of the Court;

(k) where the applicant has no personal interest in the matter;

Illustrations

(a) A seeks an injunction to restrain his partner, B from receiving the partnership-debts and effects.. It appears that A had improperly possessed himself of the books of the firm and refused B access to them. The court will refuse the injunction.

(b) A manufactures and sells crucibles, designating them as "patent plumbago crucibles". Though, in fact, they have never been patent. B pirates the designation. A cannot obtain an injunction to restrain the piracy.

(c) A sells an article called "Mexican Balm", stating that it is compounded of divers rare essences, and has sovereign medicinal qualities. B commences to sell a similar article to which he gives a name and description such as to lead people into the belief that they are buying A's Mexican Balm. A sues B for an injunction to restrain the sale. B shows that A's Mexican Balm consists of nothing but scented hog's lard. A's use of his description is not an honest one and he cannot obtain an injunction."

(c) Section 57 of the Specific Relief Act which pertains to grant or refusal of injunction to perform a negative covenant reads as follows:--

"Section 57. Injunction to perform negative agreement.-Notwithstanding section 56, clause (f), where a contact comprises an affirmative agreement to do a certain act, coupled with a negative agreement, express or implied, not to do a certain act the circumstance that the court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement provided that the applicant has not failed to perform the contract so far as it is binding on him.

Illustrations

(a) A contracts to sell to B for Rs.1,000 the good will of a certain business unconnected with business premises, and further agrees not to carry on that business in (Karachi). B pays A Rs.1,000 but A carries on the business in (Karachi). The Court cannot compel A to send his customers to B, but B may obtain an injunction restraining A from carrying on the business in (Karachi).

(b) A contracts to sell to B the good will of a business. A then sets up a similar business close by B's shop and solicits his old customers to deal with him. This is contrary to his implied contract, and B may obtain an injunction to restrain A from soliciting the customers, and from doing any act whereby their good will may be withdrawn from B.

(c) A contracts with B to sing for twelve months at B's theatre and not to sing in public elsewhere. B cannot obtain specific performance of the contract to sign, but he is entitled to an injunction restraining A from singing at any other place of public entertainment.

(d) B contracts with A that he will serve him faithfully for twelve months as a clerk. A is not entitled to a decree for specific performance of this contact. But he is entitled to an injunction restraining B from serving a rival house as clerk.

(e) A contracts with B that, in consideration of Rs.1,000 to be paid to him by, B on a day fixed, he will not set up a certain business within a specified distance. B fails to pay the money. A cannot be restrained from carrying on the business within the specified distance."

15. A perusal of section 27 of the Contract Act would reveal that it contains the general rule that any agreement by which any lawful profession, trade or business is restrained shall be void. This, however, is subject to an exception contained in section 57 according to which an agreement restraining the carrying out of a business after the sale of goodwill is exempt from the operation of said section 27. According to Mr. Qayyum Abbasi the restrictive covenant in question does not fall within the exceptional category provided in section 21 (i.e. sale of goodwill) and hence the same is void. I am not impressed with this argument for the simple reasons that illustrations (c) and (d) to section 57 of the Specific Relief Act, reproduced supra, create another statutory exception to section 27 of the Contract Act i.e. that an injunction may well be granted restraining an employee from serving with a rival employer. Reliance in this respect is also invited to a decision of a Division Bench of the High Court of Lower Burma in Indo-Burma Oil Fields Ltd. v. Burma Oil Company Ltd. AIR 1921 Lower Burma 19 wherein it was held that an injunction can be granted retraining an employee from serving another employer if there was an express agreement prohibiting the employee from engaging in employment with another employer. Again a Division Bench of the Bombay High Court in V.N. Desh Pande v. Arvind Mills Company Ltd. AIR 1946 Bombay 423 has held that in view of illustrations (c) and (d) to section 57 of the Specific Relief Act, any restrictive covenant, provided it is reasonable, restraining an employee from contracting employment with another employer, will not violate section 27 of the Contract Act, and an injunction could be granted despite existence of a negative covenant. Kania, Acting Chief Justice, while writing for the Court has succinctly stated the law on the subject as follows:--

"It is sufficient to note at this stage that agreements of service, containing a negative covenant preventing the employee from .working elsewhere during the term covered by the agreement, are known to Indian Courts. They, were enforced in 5 Bom.…

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