NIRANJAN SHANKAR GOLIKARI

TIIE CENTURY SPINNING AND MFG. CO. LTD.

January 17, 1967

[R. S. 8ACHAWAT ANDJ. M. SHELAT, JJ.) Indian Contract Act (9 of 1872), s. 21-Public po/icy-Rt$traint on ultematlvt emp/oymtnt during contracted period of service when justified.

1be appellant joined the service of the respondent company as Shift Supervisor and was given training in the manufacture of tyre cord yarn.

The contract was for live years aod it was stipulated that during the said period the appellant would oot work in similar capacity in any other con. cem and would maintain secrecy as to the technical aspects of bis work.

HOwt\W, shortly after completing his training tho appellant joined a rival concern a~ hiFer emoluments. The respondent company therenpoo llled

a suit for an mjunction against the appellant ratraining him from worki!sg elsewhere as a Shift Supervisor in the manufacture of tyre cord yam <[7 in similar capacity aod from divulging the trade secrets of the respondent

company. The injunction was granted.

His appeal before the High Court having failed, tbe appellant came to this Court under Art. 136 of the Constitution.

It was contended on his behalf that the covenant was agaimt public policy within the meaning of s. 27 of the Indian Contract Act, lhat it was unrea.""1able, and that it was unnecessary for safeguarding

the trade interest of the eompnny.

HELD: The appeal must fail.

(i) Negative covenants operative during the period of cmpl.:>yment when the employee is bound to serve his employer exclusively are not to be regarded is restraint of trade and therefore do not fall under s. 27 of the Contract Act.

A negative covenant that the employee would not engage himself in trade or business or would not get himself employed by any other master for whom he would perform similar or substallliaDy similar duties is not a restraint Qf trade unless the contract as aforesaid is unconscionable or excessively harsh or unrcasona.ble or one.sided

[389 FJ

Caselaw considered.

In the present case tbe injunction issued against the appellant was res tricted as to time, the nature of the employment and as to area and could not therefore be said to be too wide or unreasonable or unnecessary for the protection of the interests of the respondent company. [389 G-H]

(ii) There is nothing to prevent a court from granting a limited injunction to the extent that is necessary to protect the employers"s interests where the negative stipulation is not void. The rule against severance

applim only to cases where the covenant is bad in law, and it i• only ID such cases that the couri is precluded from severing the good from the bad [390 DI

CIVIL APPELLAn: JURISDICTION : Civil Appeal No. 2103 of 1966.

Appeal by special leave from the judgment and order dated April 28, 1966 of the Bombay High Court in First Appeal No. 526 of 1965.

.. •

A. K. Sen, Ramesl11rnr Dial and A. D. Mathur, for the appel-

' c

lant.

S. V. Gupte, Solicitor-General, R.P. Bhatt, R. A. Gagrat, G. L Sanglri and B. R. Agarwa/a, for the respondent.

The Judgment of the Court was delivered by

Sbelat, J. This appeal by special leave is against the judgment and order of the High Court of Maharashtra confirming an order of injunction against the appellant.

The respondent company manufactures amongst other things tyre cord yarn at its plant at Kalyan known as the Century Rayon. . Under an agreement dated January 19, 1961 Algemene Kunstzijde

Unie of Holland (hereinafter referred to as AKU) and Vereinigte

Ciaozstoff Fabrikan AG of West Germany (hereinafter referred to as ".\'CF) agreed to transfer their technical know-how to the respondent company to be used exclusively for the respondent company's tyre cord yarn plant at Kalyan in consideration of 1,40,000 Deutsche Marks payable to them by the respondent company. Clause 4 of that agreement provided that the Century Rayon should keep secret until the termination of the agreement and during three years thereafter all technical information, knowledge know-how, experience, data and documents passed on by the said AKU and VCF and the Century Rayon should undertake to enter into corresponding secrecy arrangements with its employees.

The respondent company thereafter invited applications for appointments in its said plant including appointments as Shift Supervisors. On December 3, 1962 the appellant sent his application stating therein his qualifications.

By its letter dated March I, 1963 the respondent company offered the appellant the post of a Shift Supervisor in the said tyre cord division stating that if the appellant were to accept the said offer he would be required to sign a contract in standard form for a term of five years. On March 5, 1963 the appellant accepted the said offer agreeing to execute the said standard contract. On March 16, 1963 he joined tae respondent company and executed on that day the said contract Ex. 28.

Clause 6 of the agreement pr'>vided

"The employee shall '1•1dng the period of his employment and any renewal. ihereof, honestly, faithfully. diligently and efficiently to the utmost of his power and skill

(a)

380 SUP.RBMB COUllT IUIPOATS

(1967] 2 S.C.R.

(b) devote the whole of his time and energy ellclusively to the business and affairs of the company and shall not engage directly or indirectly in any business or serve whether as principal, agent, partner or employee or in any other capacity either full time or part time in any business whatsoever other than that of the company."

Clause 9 provided that during the continuance of his employment as well as thereafter the employee shall keep confidential and prevent divulgence of any and all informatior., instruments, documents, etc., of the company that might come to his knowledge.

Clause 14 provided that ifthe company were to close its business or curtail its activities due to circumstances beyond its control and if it found that it was no longer possible to employ the employee any further it should have option to terminate his services by giving him three months' notice or three months' salary in lieu thereof. Clause 17 provided as follows : . ·

"Jn the event of the employee leaving, abandonin~ or resigning the service of the company in breach of the terms of the agreement before the expiry of the said period of five years he shall not directly or indirectly engage in or carry on of his own accord or in partnership with others tht" business at present being carried on by the company and he shall not serve in any capacity, whatsoever or be associated with any person, firm or company carrying on such business for the remainder of the said period and in addition pay to the company as liquidated damages an amount equal to the salaries the employee would have received during the period of sill months thereafter and shall further reimburse to the company any amount that the company may have spent on the employee's training."

The appellant received training from March to December 1963 and acquired during that training, knowledge of the technique, processes and the machinery evolved by the said collaborators as also of certain documents supplied by them to the respondent company which as aforesaid were to be kept secret and in respect of which the respondent company had undertaken to obtain secrecy undertakings from its employees. According to the evidence, the appellant as a Shift Supervisor was responsible for the running of Shift work, control of labour and in ;>articular with the specifications given by the said AKU.

No difficulty arose between the appellant and the respondent -company until about September 1964. The appellant thereafter remained absent from the 6th to the 9th October 1964 without obtaining leave therefor. On the 10th October, he took casual leave. On

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A October 12, he applied for 28 days' privilege leave form Oct0ber14,

1964. Before that was granted he absented himself from the 14th to the 31st October, 1964. On October 31, he was offered s1lary for 9 days that he had worked during that month. On November 7, 1964, he informed the respondent company that he had resigned from October 3 I, 1964. The respondent company by its letter of November 23, I 964 asked him to resume work stating that his said resignation had not been accepted. On November 28, 1964 the appellant replied that he had already obtained another employment.

' It is clear from the evidence that in October he was negotiating with Rajasthan Rayon Company at Kotah which was also -manufacturing tyre cord yarn and got himself employed there at a liigher salary of Rs. 560/- per month than what he was getting from the respondent company. The respondent company thereupon filed a suit in the court at Kalyan claiming inter a/ia an injunction restraining the appellant from serving in any capacity whatsoever or being associated with any person, firm or company including the said Rajasthan Rayon till March 15, 1968. The Company also claimed Rs. 2410/- as damages being the salary for six month under Clause 17 of the said agreement ahd a perpetual injunction restraining him from divulging any or all information, instruments, documents, reports, trade secrets, manufacturing process, knowhow, etc. which may have come to his knowledge. The appellant, while admitting that he was employed as a Shift Supervisor, denied that he was a specialist or a technical personnel asserting that his only duty was to supervise and control labour and to report deviations of temperature etc. He also alleged that the said agreement was unconscionable, oppressive and executed under coercion and challenged its validity on the ground that it was opposed to public policy. He challenged in particular clauses 9 and I 7 of the said agreement on the ground that whereas clause 9 was too wide as it was operative not for a fixed period but for life time and included not only trade secrets but each and every aspect of information, clause 17 precluded him from serving elsewhere in any capacity whatsoever which !'1eant a restraint on his right to trade or to carry on business, profession or vocation and that such a term was unnecessary for the protection of the respondent company's interests as an employer.

The Trial Court on a consideration of the evidence led by the parties held : (!) that the respondent company had established that the appellant had availed himself of the training imparted by the said AKU in relation to the manufacture of tyre cord yarn, the operation of the spinning machines and that he was made familiar with their know-how, secrets, techniques and information; (2) that his duties were not merely to supervise labour or to report

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deviatiorn; of temperature as alleged by him; (3) that the said agree- A ment was not void or unenforceable; ( 4) that he committed breach of the said agreement; (5) that as a result of the said breach the respondent company suffered loss and inconvenience and was .entitled to damages under clause 17 and lastly that the company was entitled to an injunction.

On these findings the Trial Court passed the following order :

"(I) The injunction is granted against the defendant and he is restrained from getting in the employ of or being engaged or connected as a Shift Supervisor in the Manufacture of tyre cord yam or as an employee under any title discharging substantially the same duties as a Shift Supervisor in Rajasthan Rayon, Kotah or any other company or firm or individual in any part of India for the tern!' ending 15th March 1968.

(2) The defendant is further restrained during the said period and, thereafter, from divulging any of the secrets, processes or information relating to the manufacture of tyre cord yarn by continuous spinning process obtained by him in the course of and as a result of his employment with the plaintiffs."

It is clear that the injunction restrained the aripcllant only from serving as a Shift Supervisor and in a concern manufacturing tyre cord yarn by continuous spinning process or as an employee under any designation substantially discharging duties of a Shift Supervisor. lt was also confined to the period of the agreement and in any concern in India manufacturing tyre cord yarn.

In lhe appeal filed by him in the High Court, the plea taken by him as to undue influence and coercion was given up.

The High Court, agreeing with the Trial Court, found that the evidence of Dr. Chalishhazar, Mehta and John Jacob established that the appellant had been imparted training for about nine months during the course of which information regarding the special processes and details of the machinery evol\'ed by the said collaborators had been divulged to him. It also found that as a result of his getting himself employed in the said rival company, not only the benefit of training given to hjm at the cost of the respondent company would be lost to it but that the knowledge acquired by him in regard to the said continuous spinning process intended for the exclusive use of the respondent company was likely to be r.iade available to the rival company which also was interested in the continuous spinning process of tyre cord. The High Court further found that though the machinery employed by the said Rajasthan Rayon might not be the same as that in the respondent company's

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plant the know-how which the appellant acquired could be used for ensuring continuous spinning yarn. The High Court further found that Rajasthan Rayon started productfon of tyre cord yarn from January 1965, that is, two or three months after the appellant joined them along with two other employees of the respondent company, that the cumulative effect of the evidence was that the appellant had gained enough knowledge and experience in the specialised continuous spinning process in the tyre cord yarn division of the respondent company and that it was evident that he left the respondent company's employment only because the said Rajasthan Rayon promised him a more lucrative employment. The High Court concluded that it was not difficult to imagine why the appellant's services were considered useful by his new employers and that the apprehension of the respondent company that his employment with the rival'company was fraught with considerable damage to their interest was well-founded and justified its prayer for an injunction restraining him from undertaking an employment with the said rival manufacturers.

As regards the challenge to the validity of clauses 9 and 17, the High Court held that though the said agreement was with the respondent company and the company carried on other businesses as well, the employment was in the business of Century Rayon. The appellant was employed as a Shift Supervisor in that business only. the training given to him was exclusively for the spinning department of the tyre cord division and his Jetter of acceptance was also in relation to the post of a Shift Supervisor in that department. The High Court therefore concluded that Clauses 9 and 17 related only to the business in the tyre coFd division and therefore restraints contained in those clauses meant prohibition against divulging information received by the appellant while working in that Division and that clause 17 also meant a restraint in relation to the work carried on in the said spinning department. Therefore the inhibitions wntained in those. clauses were not blanket restrictions as alleged by the appellant, and that the prohibition in clause 17 operated only in the event of the appellant leaving, abandoning or resigning his service during the term of and in breach of the said agreement. On this reasoning it held that clause 17, besides not being general, was a reasonable restriction to protect the interests of the respondent company particularly as the company had spent considerable amount in training, secrets of know-how of specialised processes were divulged to him avd the foreign collaborators had agreed to disclose their specialised processes only on the respondent company's undertaking to obtain corresponding secrecy clauses from its employees and on the guarantee that those processes would be exclusively used for the business of the respondent company.

Furthermore, Clause 17 did not prohibit the appellant even from seelcing similar employment from any other manufacturer after

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the contractual period was over. The High Court lastly found that there \\i\S no indication at all that if the appellant was prevented from being employed in a similar capacity elsewhere he would be forced to idleness or that such a restraint would compel the appellant to go back to the company which would indirectly result in sr, ecific performance of the contract of personal service.

Counsel for the appellant raised the following three contentions : (1) that the said agreement constituted a restraint on trade and was therefore opposed to public policy, (2) that in order to be valid and enforceable the covenant in question should be reasonable in space and time and to the extent necessary to protect the employer's right of property and (3) that the injunction to enforce a negative stipulation can only be granted for the legitimate purpose of safeguarding the trade secrets of the employer.

He argued that these conditions were lacking in the present case and therefore the respondent company was not entitled to the enforcement of the said stipulation.

As to what conslilutes restraint of trade is summarised in Halsbury's Laws of England (3rd ed.) Vol. 38, at page 15 and onwards. It is a general principle of the Common Law that a person is entitled to exercise his lawful trade or calling as and when he wills and the law has always regarded jealously any interference with trade. even at the risk of interference with freedom of contract as it is public policy to oppose all restraints upon liberty of individual action which arc injurious to the interests of the State. This principle is not confined to restraint of trade in the ordinary meaning of the word "trnde" and includes restraints on the right of being employed.

The court takes a far stricter view of covenants between master and servant than it docs of similar covenants between vendo1 and purchaser or in partnership agreements. An employer, for instance, is not entitled to protect himself against competition on the part of an employee after the employment has ceased but a purchaser of a business is entitled to protect himself against competition per se on the part of the vendor. This principle is based on the footing that an employer has no legitimate interest in preventing an employee after he leaves his service from entering the service of a competitor merely on the ground that he is a competitor. (Kores Manufacturing Co. Ltd. v. Ko/ak Manufacturing Ca. Ltd.(1 ).

The attitude of the courts as regards public policy however has not been inflexible.

Decisions on public policy have been subject to ch; mgc and development with the change in trade and in economic thought and the general principle once applicable to 1grcemcnts in re, traints of trade have been considerably modified by 1-lter decisions. The rule now is that restraints whether general

:1) (19591 Cl:. 108, 126.

N. s. GOLJKARI v. CENTURY SPINNING co. (She/at, J.) 385

or partial may be good if they are reasonable. A restraint upon freedom of contract must be shown to be reasonably necessary for the purpo5e of freedom of trade. A restraint reasonably necessary for the protection of the covenantee must prevail unless some specific ground of public policy can be clearly established against it. (E. Underwood and Son Ltd. v. Barker (1). A person may be restrained from carrying on his trade by reason of an agreement voluntarily entered into by him with that object. In such a case the general principle of freedom of trade must be applied with due regard to the principle that public policy requires for men or full age and understanding the utmost freedom of contract and that it is public policy to allow a trader to dispose of his business to a successor by whom it may be efficiently carried on and to afford to an employer an unrestricted choice of able assistants and the opportunity to instruct them in his trade and its secrets wihout fear of their becoming his competitors. (Fitch, v. Dewcs)(Z). Where an agreement is challenged on the ground of its being a restraint on trade the onus is upon the party supporting the contract to show that the restraint is reasonably necessary to protect his interests.

Once, this onus is discharged, the onus of showing that the restraint is nevertheless injurious to the public is upon the party attacking the contract. (See Cheshire's Law of contract, (6th ed.) 328, Mason v. Provident Clothing and Supply Co. Ltd.(3). and A. G. of Commonwealth of Australia v. Adelaide Steamship Co.

Ltd.().

The courts however have drawn a distinction between restraints applicable during the term of the contract of employment and those that apply after its cessation. (Halsbury's Laws of England (3rd ed.) Vol. 38, p. 31). But in W. H. Mi/sted and Son Ltd. v. Hamp(') where the contract of service was terminable only by notice by the employer, Eve J. held it to be bad as being wholly one-sided. But where the contract is not assailable on any such ground, a stipulation therein that the employee shall devote his whole time to the employer, and shall not during the term of the contract serve any other employer would generally be enforceable.

In Gaumont Corporation v. Alexander(6) clause 8 of the agreement provided that :

"the engagement is an exclusive engagement by the corporation of the entire service of the artiste for the period mentioned in clause 2 and accordingly the artiste agrees with the corporation that from the date hereof until the expiration of her said engagement the artiste

(1) [1899] 1 Ch. 300 C.A.

(2) [1921] 2 A.C. 158, 162-167.

(3) [1913] A.C. 724

(4) [1913] A.C. 781 796.

(5) [1927] W.N. 233.

(6) [1936] 2 All.E.R. 1686.

Ml Sup Court/67-11

386 surREME COURT REPORTS

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shall not without receiving the previous consent of the cor poration do any work or perform or render any services whatsoever to any person firm or company other than the corporauon and its sub-lessees".

On a contention that this clause was a restraint of trade, Porter J. held that restrictions placed upon an employee under a contract of service could take effect during the period of contract and are not in general against public policy.

But the learned Judge at p. 1692 observed that a contract would be thought to be contrary to public policy if there were a restraint, such as a restraint of trade, which would be unjustifiable for the business of the claimants in the case. He however added that he did not know of any case, although it was possible, there might be one, where circumstances might arise in which it would be held that a restraint during the progress of the contract itself was an undue restraint. He also observe that though for the most part, those who contract with persons and enter into contracts which one might for this purpose described as contracts of service, have generally imposed upon them the position that they should occupy themselves solely in the business of those whom they serve but that it would be a question largely of evidence how far the protection of clauses of that kind would extend, at any rate during the existence of the contract of service. Therefore, though as a general rule restraints placed upon an employee are not against public policy, there might, according to the learned Judge, he cases where a covenant might exceed the requirement of protection of the employer and the court might in such cases refuse to enforce such a covenant by injunction.

In William Robinson and Co. ltd. v. Heuer( I) the contract provided that Heuer would not during this engagement without the previous consent in writing of William Robinson & Co., "carry on or be engaged directly or indirectly, as principal, agent, servant or otherwise, in any trade, business or calling, either relating to goods of any description sold or manufactured by the said W. Robinson & Co.

Ltd., .... or in any other business whatsoever." Lindley M.R. there observed that there was no authority whatsoever to show that the said agreement was illegal, that is to say, that it was unreasonable or went further than was reasonably necessary for the protection of the plaintiffs. It was confined to the period of the engagement, and meant simply that "so long as you are in our employ you shall not work for anybody else or engage in any other

business". There was, therefore, according to him, nothing unreasonable in such an agreement. Applying these observations 8ranson J. in Warner Brothers Pictures v. Nelson(Z) held a covenant of a similar nature not to be void. The defendant, a film artist, entered into a contract with the plaintiffs, film producers, for lifty-two weeks. renewable for a further period of fifty-two weeks

(I) (1898) 2 Ch. 451.

(2) (1937] I K.B. 209.

at the option of the plaintiffs, whereby she agreed to render her exclusive service as such artist to the plaintiffs, and by way of negative stipulation not to render, during the period of the contract, such services to any other person. In breach of the agreement she entered into a contract to perform as a film artist for a third person.

It was held that in such a case an injunction would issue though it might be limited to a period and in terms which the court in its discretion thought reasonable.

A similar distinction has also been drawn by courts in India and a restraint by which a person binds himself during the term of his agreement directly or indirectly not to take service with any other employer or be engaged by a third party has been held not to be void and not against section 27 of the Contract Act. In Brahmaputra Tea Co. Ltd. v. Scarth(!) the condition under which the covenantee was partially restrained from competing after the term of his engagement was over with his former empkyer was held to be bad but the condition by which he bound himself during the term of his agreement, not, directly or indirectly, to compete with his employer was held good. At page 550 of the report the court observed that an agreement of service by which a person hinds himself during the term of the agreement not to take service with any one else, or directly or indirectly take part in, promote or aid any business in direct competition with that of his employer was not hit by section 27. The Court observed;

"An agreement to serve a 'person exclusively for a definite term is a lawful agreement, and it is difficult to see how that can be unlawful which is essential to its fulfilment, and to the due protection of the interests of the employer, while the agreement is in force."

(See also Pragji v. Pranjiwan(2) and La/bhai Dalpathbhai and Co v.

Chittaranjan Chandulal Pandva(3). In Deshpande v. Arbind Mills Co.(4) an agreement of service contained both a positive covenant, viz., that the employee shall devote his whole-time attention to the service of the employers and also a negative covenant preventing the employee from working elsewhere during the term of the agreement.

Relying on Pragji v. Pranjiwan(2), Charlesworth v. MacDonald(s), Madras Railway Company v. Rust,(•) Subba Naidu

v. Haji Badsha Sahib(?) and Burn & Co: v. MacDonald(•) as instances where such a negative covenant was enforced, the learned Judges observed that Illustrations (c) and (d) to section 57 of the Specific Relief Act in terms recognised such contracts and the existence of negative covenants therein and that therefore the

(I) l.L.R. (XI) Cal. 545.

(3) A.l.R. 1966 Guj 189. !5) l.L.R. 23. Born. 103. \7) l.L.R. 26 Mad .. 168.

(2) 5 Born. L.R. 872.

(4) 48 Born. L.R. 90.

(6) l.L.R. 14 Mad. 18

(8) l.L.R. 36 Cal. 354.

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uintcntion that the existence of such a nega1i1c co\'enanl in a service agreement made the agreement \'Oid on the ground that it was in restraint oftradc and contrary 10 section 27 of the Conlracl Acl had no validity.

Counsel for lhe appcllanl. however. relied on Ehrman v. Bar //10/onrrH(I) as an illustration where the negative stipulation in the contract was held to be unreasonable and therefore unenforceable.

Cleuse 3 of the agreement there provided that the employee shall devote the whole of his time during the usual business hours in the transaction of the business of the firm and shall not in any manner directly or indirectly engage or employ himself in any other business, or transact any business with or for 11ny person or persons other than the firm during the continuance of this agreement. Clause 13 of the agreement further provided that after the termination of the employment by any means, the employee shonld not, either on his sole account or jointly with any other person, directly or indirectly supply any of the then or past customers of the firm with wines etc. or solicit for orders any such customers and should not be employed in any capacity whatsoever or be concerned, engaged or employed in any business of a wine or spirit merchant in which any former partner of the firm was engaged.

Romer J. held these clauses to be unreasonable on the ground that clause 3 was to operate for a period of 10 years or for so much of that period as the employer chose and that the word "business" therein mentioned could not be held limited by the context to a wine merchant's business or in any similar way.

So that the court, while unable to order !he defendant to work for the plaintiffs, is asked indirectly to make him do so by otherwise compelling him to abstain wholly from business, at any rate during all usual busin~.s hours. The other decision relied on by him was Mason v. Provident Clothini:: and Supply Co. Ltd.(2). This was a case of a negative covenant not to serve elsewhere for three years after the termination of the contract. In this case the court applied the test of what was reasonable for the protection of the plaintiffs' interest. It was also not a case of the employee possessing any special talen:. but that of a mere canvasser. This decision, however, cannot assist us as the negative covenant therein was to operate after the tc•- mination of the contract. Herbert Morris v. Saxrlby(') and Allwood v. Lamonr(4 ) arc also cases where the restrictive covenants were to apply after the termination of the employment.

In Commercial Plasrics Ltd. v. Vincent(') also the negatil'c covenant was to operate for a year after the employee left the employment and the court held that the restriction was void inasmuch as it went beyond what was reasonably necessary for the protection of the employer's legitimate int:rcsts ...

(!) [1898} I Cb. 571.

(3) Jl9t6] A.C. 688.

(5) 3 Alt.J:.R. 546.

(2) (19131 A.C. 724.

(4) Jl92oi 3 K.B. 571.

N, S, GOLIKARJ v. CENTURY SPINNING co. (She/ar. J.) 389

These decisions do not fall within the class of cases where the negative covenant operated during and for the period of employment as in Gaumont Corporation's Case(') and Warner Brothers v. Nelson(2) where the covenant ws held not to be a restraint of trade or against public policy unless the agreement was whoJly one-sided and therefore unconscionable as in IV.H. Milstcd and Son Ltd. v. Hamp(>) or where the negative covenant was such ' that an injunction to enforce it would indirectly compel the employee either to idleness or to serve the employer, a thing which the court would not order, as in Ehrman v. Bartlwlomew(4). There is, however. the decision of a Single Judge of the Calcutta High Court in Gopal Paper Mill.f v .. Malhotra(5), a case of breach of a negative covenam during the period of employment. This decision, in our view, was rightly distinguished by the High Court as the period of contract there was as much as 20 years and the contract gave the employer an arbitrary power to terminate the service without notice if the emloyer decided not to retain the employee during the three years of apprenticeship or thereafter if the employee failed to perform his duties to the satisfaction of the employer who had absolute .discretion to decide whether the employee did so and the employer's certificate that he did not, was to be conciusive as between the parties. Such a contract would clearly fall in the class of contracts held void as being one sided as in W.H. Milsted and Son Ltd. v.

Hamp('). The decision in Gopal Paper Mills v. Malhorra(5) therefore ca, mot further the appellant's case.

The result of the above discussion is that considerations against restrictive covenants arc different in cases where the restriction is to apply during the pciod after the termination of the contract than those in cases where it is to operate during the period of the contract. Negative covenants operative during the period of the contract of employment when the employee is bound to serve his employer er.elusively are generally not regarded as restraint of trade and therefore do not fall under section 27 of the Contract Act.

A negative covenant that the employee would not engage himself in a trade or business or would not get himself employed by any other master for whom he would perform similar or substantially similar duties is not therefore a restraint of trade unless the contract as aforesaid is unconscionable or excessively harsh or unreasonable or one sided as in the case of W.11. Milsted and Son Ltd.(3). Both the Trial Court and the High Court have found, and in our view, rightly, that the negative covenant in the present case restricted as it is to the period of employment and to work similar or substantiaJly similar to the one carried on by the appellant when he was in the employ of the respondent company was reasonable and necessary for the protection of the company's interests and not such

(I) \193612 All E.R. 1686.

(2) (1937) I K.B. 209.

(3) 19271 W. N. 233.

(4) (1898) I Ch. 671.

(5) A. I. R. 1262 Cal. 61.

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as the court would refuse lo enforce. There is therefore no validity in the contention that the negative covenant contained in clause 17 amounted to a restraint of trade and was therefore against public policy.

The next question is whether the injunction in the terms in which it is framed should have been granted. There is no doubt that the courts have a wide discretion to enforce by injunction a negative covenant.

Both the courts below have concurrently found that the apprehension of the respondent company that information regarding the specia! processes and the special machinery imparted to and acquired by the appellant during the period of training and thereafter might be divulged was justified; that the information and knowledge disclosed to him during this period was different from the general knowledge and experience that he might have gained while in the service of the respondent company and that it was against his disclosing the former to the rival company which required protection. It was argued however that the terms of clause were too wide and that the court cannot sever the good from the bad and issue an injunction to the extent that was good.

But the rule against severance applies to cases where the covenant is bad in law and it is in such cases that the court is precluded from severing the good from the bad.

But there is nothing to prevent the court from granting a limited injunction to the extent that is nea:ssary to protect the employer's interests where the negative stipulation is not void. There is also nothing to show that if the the negative covenant is enforced the appellant would be driven to idleness or would be compelled to go back to the respondent company.

It may be that if he is not permitted to get himself employed in another similar employment he might perhaps get a lesser remuneration than the one agreed to by Rajasthan Rayon. But that is no considc; ation against enforcing the covenant. The evidence is clear that the appellant has torn the agreement to pieces only because he was offered a higher remuneration. Obviously he cannot be heard to say that no injunction should be granted against him to enforce the negative covenant which is not opposed to public policy.

The injunction issued against him is restricted as to time. the nature of employment and as to area and cannot therefore be said to be too wide or unreasonable or unnecessary for the protection of the interests of the respondent company.

As regards Clause 9 the injunction is to restrain him from divulging any and all information. instruments, documents, reports etc. which may have come to his knowledge while he was serving the respondent company. No serious objection was taken by Mr. Sen against this injunction and therefore we need say no more about it.

The appeal fails and is dismissed with costs.

G.C.

Appeal dismissed

NIRANJAN SHANKAR GOLIKARI

TIIE CENTURY SPINNING AND MFG. CO. LTD

January 17, 1967

S. 8A

Indian Contract Act

s. 21

Art. 136

s. 27

Indian Contract Act

s. 27

Caselaw

A. K. Sen

Ramesl11rnr Dial

A. D. Mathur

S. V. Gupte

R.P. Bhatt

R. A. Gagrat

G. L Sanglri

B. R. Agarwa

Sbelat

High Court of Maharashtra

Algemene Kunstzijde

Unie of Holland

Ciaozstoff Fabrikan AG

Kalyan

Clause 4

Rayon

December 3, 1962

March 5, 1963

March 16, 1963

Clause 6

Clause 9

Clause 14

Clause 17

November 7, 1964

November 28, 1964

Rajasthan Rayon Company

Kotah

court at Kalyan

Rajasthan Rayon

March 15, 1968

Clause 17

clause 9

clause 17

clause 17

Kotah

India

15th March 1968

Chalishhazar

Mehta

John Jacob

clause 17

clause 17

clause 17

Clause 17

Eve

clause 8

clause 2

Porter

Heuer

William Robinson & Co.

W. Robinson & Co.

Ltd.

Lindley M.R.

section 27

section 27

section 57

Specific Relief Act

section 27

Clause 13

Romer

clause 3

Calcutta High Court

section 27

W.11. Milsted and Son Ltd.(3)

clause 17

Clause 9

Sen


NATIONAL IRON AND STEEL CO. LTD. & ORS.

THE STATE OF WEST BENGAL & ANR.

January 17, 1967 (M. HIDAYATULLAH, V. BHARGAVA AND G. K. JviITTER, JJ.J

Industrial dispUtes--One reference-when can be made in respect to,. several concerns--Gratuity, comprehensive order, if can be made--Contract labour, abolitiol!, if Tribunal can order-/nd!l$1rial Disputes Act, (14 of 1947) S. 25F-Notice-Requirements.

The appellants are four public limited companies, all separately registered under the Indian Companies Act, and all producing iron and sleel goods though of different type. They had a common Gen.era! Manager, wlw later became their Works Manager; they had a common time office,

a common canteen and a common Labour Officer.

By one order of reference, certain industrial disputes between the appellants (described

in the reference as first appellant and "their allied conerns") and their workmen, were referred for adjudication.

All the companies were not interested in all the disputes.

The Indu.strial Tribunal gave an award against the appellants. In appeal to this Court, the appellants contended that ( i) as all companies were not concerned in all items of dispute, one order of reference embracing all of them, should not have been made; (ii) the comprehensive order of gratuity binding on all the companies was bad as the Tribunal considered only balance sheets, and profit and Joss accounts and other documents of the first ap~Jlant and did not have before it those of the other companies; (iii) Tnbunal was wrong in holding that the retrenchment of a workman was illegal as s. 25F of the Act had not been complied with; and (iv) the award abolishing contract labour employed by one of the companies was wrong as it would place the said concern in a very disadvantageous position compared to other concern which did similar kind of work.

HELD: (i) In order to find out whether there was sufficient functional integrality between the employers and whether it was proper to have one reference in respect of the four concerns which were separate entities in the eye of law, it was necessary to take an overall picture of their activities and the interest, if any,. which they had in common. [395 GJ

The things the appellants had in common were sufficient to show a community of interest so far as industrial disputes were concerned. If then wages, the dearness allowance or bnefit of gratuity or leave rules were altered in one without affecting the others, the industrial peace and harmony in the other establishments were bound to be disturbed. All tho four concerns filed written statements which appear to haYe been drafted by the same draftsman, and same set of lawyers represented them. At no point of time was it ever shown to the Tribunal that there was any possibility of conflict of interest between them.

Making separate orders of reference in the cases of the four establishments would only have multi-, plied costs enormously without any corresponding benefit to anybody.

It was also patent from the course of the proceedings that it was only the first appellant which played a major part in the adjudication before the Tribunal. The other three concerns were content to abide by what was done by the first appellant. [395 H; 396 A-B, H; 397 Bl

W•nger & Co. v. Their Workman, [1963] II L.L.J. 403 at 308 followed.

SUPREME

COUU

REPORTS

(1967] 2 S.C.R.

Worli.111a11 oj J)iniakuchi ft'a l::srate v. The A1a11age111r111 of Di1na- A •uchi T•a Ertat<' [1958] S.C.R. 1156, referred to.

(ii) The scheme of gratuity as frilmcd \\'as quite a reasonable one on the facts and figure• presented by the first appellant. The three conems v.-crc content to make the first appellant their mouthpiece in this respect, or they must have felt that the facts and figures, if disclosed, would have been such as would go against them and they delibcoately refrained

from producing them. [399 A] B

Burhanpur Tapti Mills I.id. '. 11. 'J'. ,\(ii/' .\fndoor Snng/i, (1965 I L.L.J. 453. followed.

(iii) When a workman is asked to leave forthwith he has to be paid at tbe tin1c '"bcn he is askc<l to go and cannot be a.ked to collect his due:; afterwards.

The nolice, in this case, bore the date November 15, 1958, terminating C 'iCrviCCS of the workman from November 17, and a; king him to colle<:t one month's wages in lieu of notice on November 20, 1958 or thereafter.

So >. 25P bad not been complied with 1399 E]

Bombay Ut1io11 of Ja11rntJlfat.t v. Thr Slate of IJ01nhay 11964] 6 S.C.R. 22, followed.

(iv) There was no material before this Coun to cooclurle th•I the direction for partial abolition of the employment of contract labour in one of the companies was wrong.

The abolition of contract system of labour can be ordcre-d by :tn Industrial rrihunal if the facts jutify ir.

1400 D-E]

StandaTd Vacuum R•finin~ Co. of India v. Its Workmen, 11960], 3 S.C.R. 466, followed.

Ctvu APPEi.i.AH JURISDICTIOS : Civil Appeal No. 497 c>f E 1965.

Appeal hy special leave frnm the award dated September 14 1963 of the Third Industrial Tribunal, West Bengal in Case No VIll-151 of 1959.

Nireir De. Additional Solicitor-General. Aru11 Bafradur and Sardar Bahadur, for the appellants

Janardan Sharma and P. K. Ghosh, for; respondent No. 2(1).

The Judgment of the Court was delivered by

Mitter, J. This is an appeal by special leave from an award of the Third lt:Justrial Tribunal, West Bengal dated September 14,

1963. The appellants are four public limited companies all separately registered under the Indian Companies Act and all carrying on husiness in the same premises at Bclur in the districr of Howrah . . :ie resporidents being two unions, >'i:., NISCO Karmachari Sangha, 3elor and Howrah and Belur Iron and Steel Workers' Union, Howrah.

National Iron and Steel Co. Ltd was engaged in the business of steel rolling and steel casting.

Britannia Building & Iron Co. Ltd. was engaged in steel fabrication work while National Screw and Wire Product~ was engaged in the manufacture of wires

and nails. Tatanagar Foundry Co. Ltd. carried on the business of manufacti.ring cast-iron sleepers for railways.

By an order dated August 25, 1959, the Government of West Bengal made a reference under s. IO of the Industrial Disputes Act, 1947 of what was described as an industrial dispute between "Messrs National Iron & Steel Co. Ltd., and their allied concerns, 1-i=., Tatanagar Foundry Co. Ltd., Britannia Building & Iron Co. Ltd., and National Screw and Wire Products Ltd., all of P.O. Belur, District Howrah", on the one part and their workmen represented by the two unions on. the other regarding the matters specified in the schedule for adjudication. Nine issues were set forth in the schedule. Issue No. 9 was abandoned at the hearing before the Tribunal and need not be considered at all. The other issues were as follows :

"I. Gratuity.

2. Sickness benefit.

3. Leave Rules.

4. Abolition of contract labour.

5. Whether termination of service of Shri Bhadreswar Ghose is justified ?

6. Whether the durwans and other members of the Watch & Ward staff are entitled to weekly rest ?

7. Whether retirement of Shri Gopal Das and Shri Ramjatin Pandit at the age 55 years is justified ? To what relief, if any, are they entitled ?

8. Whether the action of the Company in retrenching the following masons is justified ? To what relief. if any, are they entitled ? (i) Shri Sushi!, (ii) Shri Sarojit, (iii) Shri Sukdeo, (il') Shri Khalil.

" Issue No. 8 referred to the retrenchment of four workmen.

Of the four, the case of the first workman, viz., Sushi!, alone was pressed at the hearing before the Tribunal. There is no dispute that all the four companies were not concerned with all the issues.

Messrs National Iron and Steel Co., Ltd. was primarily concerned with almost all of them. Britannia Building & Iron Co., Ltd. was not concerned with issues 7 and 8 while National Screw & Wire Products Ltd., was not interested in issues 4, 5, 7 and 8. Tatangar Foundry Co. Ltd. was not interested in issues 5, 7 and 8. All the the companies were interested in the first three issues.

The award went against the companies and they have come up in appeal. Appearing on behalf of the appellants, the learned Additional Solicitor-General raised four points. First, he challenged the validity of the order of reference and contended that as all the companies were not concerned in all the items of dispute, one order of reference embracing all of them in some of which some

SUPREME

COURT

REPORTS

[1967] 2 S.C.R.

of the appallants were interested while in others they were not. should not have been made. His next contention was that the award a:; regards gratuity was bad inasmuch as the Tribunal considered only the balance sheets and profit and loss account~ and other documents of National Iron and Steel Co. Ltd.

The Tribunal did not have before ; t similar accounts of the other companies and therefore a comprehensive order of gratuity purporting to be binding on all the companies was bad. The third point raised by the learned counsel was that the award on the question of retrenchment of the workman Sushi! was not justified for grounds which will be discussed hereafter. His last contention was that the abolition of contract labour employed by Tatanagar Foundry Co. Ltd. ordered by the Tribunal was wrong inasmuch as it would place the said concern in a very disadvantageous position compared to other concerns which did similar kind of work, namely, producing iron sleepers for use in railways.

Before considering the points separately, it will be necessary to refer to certain general aspects and the positionofthefour appellants

vis-a-is their workmen. The finding of the Tribunal is to the effect that there was sufficient functional integrality between the four concerns which would justify one order of refereno:e.

According to the Tribunal, there was sufficient evidence to show that the last three named concerns were allied concerns of the first (National Iron & Steel Co. Ltd.) having conunon administrative heads and being located in the same premises at Bel ur. They had one General Manager, one conunon Labour Officer and common Time Office.

They also had a common cash office, a common shipping department and a common canteen for all the workmen. The workmen of all the concerns were guided by common Standing Orders. The Tribunal relied on Ex. 14 being an office order dated March 19, 1957 issued under the si,; naturc of the Works Manager of the National Iron and Steel Co. Ltd. which shows that the workmen of all the four concerns had consecutive check numbers.

By this office order, check numbers of different departments were revised in the table contained therein. Reference was also made to Ex. F. which contains a list of masons on roll on November 16, 1958. According to the evidence of the Companies' witness. Milan Kumar Dey, Ex. F. contained a list of masons on the rolls of the four con cerns.

We may here refer, in brief, to the evidence .of two witnes who were examined by the employers. The evidence of Tanru Prosad Jha, the Labour Officer of the National Iron ~.nd Steel Co. Ltd. at the time of adjudication before the Tribunal went to show that there was one common General Manager for all the four concerns which had one common canteen, that one Mr. E. C. Waton was the General Manager of all the concerns and that the witness

himself was the common Labour Welfare Officer of all the four concerns. According to Bireshwar Banerjee, the head time keeper in the National Iron and Steel Co. Ltd., in 1962, E. C. Watson was at first the General Mahager of all the four concerns and he later became the Works Manager of all of them. The witness had been in charge of the common time office of all the four concerns. The learned Additional Solicitor General did not seek to show that the Tribunal had gone wrong in appreciating the evidence placed before it. But according to him, the evidence did not justify coming to the conclusion that there was sufficient functional integrality between the different concerns to make their disputes with their werkmen the subject matter of one reference but that there should have been four separate references. According to him, although the four concerns were located in the same premises nevertheless they were separate and independent entities and could not be described as one establishment. All the four concerns could not give relief in respect of all the issues. If, for instance, a dispute arose in one-of the concerns as to retrencent of a particular worker in which the other concerns were not interested, the dispute could not be made the subject matter of a reference -to which all the four concerns were parties. He referred us to several sections of the Industrial Disputes Act including ss. 18 (1), 18(3) and 33.

According to him, s. 18(1) went to show that it was possible for the workmen of one concern to arrive at a settlement between themselves and their employer and if such a settlement was arrived it, would not necessarily bind the other establishments. Further, s. 33 went to show that if there was a dispute in one concern, it would not have any application to the case of workmen in another establishment. He also relied on the case of Workmen of Dimakuchi Tea Estate v. The Management of Dimak11chi Tea Estate(') and to certain observations therein in support of his contention that the dispute must be one in respect of which the employer was in a position to give relief.

In order to find out whether there was sufficient functional integrality between the employers and whether it would be proper to have one reference in respect of the four concerns which are separate entities in the eye of law, it is necessary to take an overall picture of their activities and the interest, if any, which they had in common. In this case, we find that all the four establishments were engineering concerns producing iron and steel goods though of different types. They had a common General Manager who later on became their Works Manager; they had a common time office, a common canteen and a common Labour Officer. That their Standing Orders were the same may be due to the fact that they were all members of the Engineering Association. But the things they had in common are sufficient to show a community

(IJ (1958} S.C.R. 1156.

SUPIEMI!

COUl.T

IBPOITS

(1967] 2 S.C.R.

Of interest so far as industrial disputes arc concerned. If the wages, the dearness allowance or benefit of gratuity or leave rules were altered in one without affecting the others, the industrial peace and harmony in the other establishments were bound to be disturbed. The workmen of ail the four concerns were so closely associated that it would be asking for trouble if the conditions of employment in one concern were varied to the benefit of the workmen of that particular establishment, leaving the conditions of service in the other three conc:rns undisturbed. In our opinion. the observations of this Court in Wenger and Co. v. Their Workmen apply with equal force to the facts of the case before us.

In that case, there were two orders of reference of industrial dispute in regard to service conditions of the employees in a number of hotels and restaura:its in the city of New Delhi. The Tribunal heard both the references together and did not make any classification between restaurants and hotels for the purpose of fixing the service conditions.

Negativing the contention of the employers, it wa., observed by this Court :

"'Thus, the situation of the restaurants and the hotels which have been included in the present reference shows that they are carrying on the same business in about the same locality and it is desirable that the terms and conditions of service of the employees working in them should, as far as possible, be uniform. Such uniformity is not only conducive to peace and harmony amongst the employees and their employers, but would be helpful to the managements themselves because it would tend to avoid migration of labour from one establishment t<' another."

1 n that case, some of the hotels and restaurants were situated in Connaught Place while one restaurant was situated in Karolbagh and another hotel was situated in Aurangzeb Road at some distance from Connaught Place.

In the case before us, all the concerns are housed in the same premises and the workmen of the different establishments have ample opportunity of getting together during the day and discussing things which arc to their common interest.

The contention that all the employers were not interested in all the reliefs claimed is not a matter of any moment in the circumstances of the case. All the four concerns filed written statements which appear to have been drafted by the same draftsman. They were represented by the same set of lawyers. At no point of time was it ever shown to the Tribunal that there was any possibility

(I) (1963) JI L.i..J. 403 al 418.

of conflict of interest between them. It is admitted that some of the issues were common to all the 'eStablishments. The fact that some of the establishments were not interested in some of the other issues did not cause any prejudice to any body. After all,. when all the facts were placed before the Tribunal by the. same set of lawyers, the Tribunal had no difficulty in appreciating the different points of view and granting appropriate reliefs. In our opinion, making separate orders of reference in the cases of the four establishments would only have multiplied costs enormously without any corresponding benefit to anybody. It is also patent from the course of the proceedings that it was only National Iron and Steel Co. Ltd. which played a major part in the adjudication before the Tribunal. The other three concerns were content to abide by what was done by the first named concern.

In our opinion, there is no substance in the first point..

With regard to the second point, it was urged before us that the Tribunal went wrong in laying down a scheme for gratuity which would bind all the four concerns without considering th~· financial position and other factors which have to be considered before a scheme for gratuity could be formulated.

Reference was made by counsel for the appellants to the case of Burhanpur Tapti Mills Ltd. v. B.T. Mills Mazdoor Sangh(!) and to the principles. therein laid down for fixing the terms of gratuity scheme. It. was. there said (at p. 456) :

" ...... there are two general methods of fixing the terms of a gratuity scheme. It may be fixed on the basis of industry-cum-region or on the basis of units.

Both systems are admissible but regard must be had to the surrounding circumstances to select the right basis.

Emphasis must always be laid upon the financial position. of the employer and his profit-making capacity whichever method is selected."

The Court went on to add :

" ...... We have next to see whether the industrial court was right in appraising the financial condition and the profit-making capacity of the company. A scheme for gratuity no doubt imposes a burden on the finances of the concern but the pressure is ex facie distributed over the years for it is limited to the number of retirements each year. The employer is not required to provide the whole amount at once. He maycre ate a fund, if he likes and pay from the interest which accrues on a capitalised SW!l determined actuarially. This is one way of providing the money. Ordinarily the payment is made

(I) (1965] I L. L. J. 453.

398 SUPltl!ME

COURT REPOltTS

(196 7] 2 S.C.R.

each year to those who retire. To judge whether the

financial position would bear the strain the average number of retirements per year must be found out. This is one part of the inquiry. The next part of the inquiry is to see whether the employer can be expected to bear the burden from year to year. The present condition of his linances, the past history and the future prospects all enter into the appraisal of his ability."

In the light of the above observations and on the materials placed before the Tribunal, it is not possible to hold that a wrong conclusion had been arrived at. The Tribunal scrutinised the balance sheets of the National. Iron and Steel Co. Ltd., for the years

1953 to 1960 and found that excepting in the solitary case of the year 1960, the company had been making substantial amounts of profit every year. The company's balance sheets further show that it had substantial reserves. The Tribunal found that the number of workmen who retired .during the 11 years under consideration was only 77, that is to say, 7 workmen per year. According to the scheme framed, the company's liability would be only Rs. 7,500 per year and this amount could easily be provided out of the funds of the company. The learned Additional Solictor General referred to a statement of the number of wrokmen who would be due to retire during the years to come and according to this statement, the financial burden would be much heavier tha::i that found by the Tribunal.

Unfortunately, we cannot take this statement into account which was not before the Tribunal. Again, we are not impressed by the argument of the learned counsel that if a scheme for gratuity could, on the materials before the Tribun~!.

be introduced in National Iron and Steel Co. Ltd., the Tribunal had no material whereby it could introduce the same scheme with regard to the other three companies. It was further argued that the Tribunal should have compelled the other three companies to produce the relevant documents in this connection. We are nut impressed by this argument. No doubt it was open to the Tri'iunal to call upon a particular employer to produce any <iocument which was within its possession or power.

Balance sheets and profit and Joss accounts have to be maintained by all the companies and it goes without saying that the other three concerns could, if they were so minded, have produced these documents before the Tribunal.

They could also have prepared statements to show the number of workmen who had retired during several years past and who were due 'to retire in the years to come. It seems to us that the the three concerns were content to make the National Iron and Steel Co. Ltd. their mouth-piece in this respect, or they must have felt that the facts and figures, if disclosed, would have been such .as would go against them and they deliberately refrained from producing them.

On the materials placed bclbre us, we hold

I D ,,.

' / A

l'IATIONAL lllON & STEEL co.v .. w. BENGAL (Mitter, /.) 399

that the scheme of gratuity as framed is quite a reasonable one on the facts and figures presented by the National Iron and Steel Co., Ltd. We have no material to hold that the scheme would work hardship on the other companies and the findings of the Tribunal cannot therefore be disturbed.

The third point raised by the Additional Solicitor General is also not one of substance. According to him, retrenchment could only be struck down if it was mala fide or if it was shown that there was vicdmisation of the workman etc. Learned counsel further argued that the Tribunal had gone wrong in holding that the retrenchment was illegal ass. 25 F of the Industrial Disputes Act had not been complied with.

Under that section, a workman employed in any industry should not be retrenched until he had been given one month's notice in writing indicating the reasons for retrenchment and the period of notice had expired, or the workman had been paid in lieu of such notice, wages for the period of the notice. The notice in this c1se bears the date November 15, 1958. It is to the effect that the addressee's services were terminated with effect from the 17th November and that he would get one month's wages in lieu of notice of termination of his service.

The workman was further asked to collect his dues from the cash office on November 20, 1958 or thereafter during the working hours. Manifestly, s. 25F had not been complied with under which it was incumbent on the employer to pay the workman, the wages for the period of the notice in lieu of the notice. That, is to say, if he was asked to go forthwith he had to be paid at the time when he was asked to go and could not be asked to collect his dues afterwards. As there was no compliance with s. 25F we need not consider the other points raised by the learned counsel.

This conclusion receives support from the observations of this Court in Bombay Union of Journalists v. The State of Bombay(').

Incidentally it may also be pointed out that the retrenchment of Sushi! does not seem to be otherwise justified in that following the principle of 'last come first to go', Sushi! could not be called upon to leave the company's service. Another employee by name Joy Kishen, junior to Sushi!, was retained in service. No doubt, the Labour Officer, Jha, tried to make out a case in his oral evidence that Joy Kishen was retained in service because he was doing a special job at the time while Sushi! was not The Tribunal rejected this contention on the ground that this plea had not been put forward in the written statements of the company and we do not see any reason why we should take a different view.

The last point urged was that the Tribunal had gone wrong in ordering the abolition of contract labour employed by Tatanagar Foundry Co. Ltd. There is no doubt that the other three con-

(1) [19641 6S.C.R. 22 atJJ-32.

400 SUPllllll COIJl.T lllPOlTS

(1967) 2 S.C.l.

cems did not employ such labour. It was argued that railways gave contracts for supply of sleepers to a number of concerns including Tatanagar Foundry Co. Ltd. The employment of contract labour served to keep down the costs as there would not be sufficient work for all the workmen if permanent labour were employed. It was on this ground that Tatanagar Foundry Co.

Ltd. had made an application at the early stages of the enquiry and pressed for a number of engineering concerns to be made parties to the dispute but the Tribunal had not acceded to this prayer. After dealing with the point in some detail, the Tribunal directed Tatanagar Foundry Co. Ltd. to abolish the system of contract labour excepting for the purpose of loading, unloading and for removing slags, ashes burnt sand etc. and waste products. It was not argued before us that the Tribunal's appraisal 'of the evidence and the direction to abolish contract labour were fundamentally wrong.

What was urged before us was that such a direction would be discriminatory as between concerns engaged in the manufacture of railway sleepers and the abolition of contract labour in Tatanagar Foundry Co. Ltd. would mean an increase in its working expenses while the other concerns similarly engaged would be free to employ contract labour and thus oust Tatanagar Foundry Co. Ltd. from competition. As we have not the material before us to come to such a conclusion, we do not feel competent to express any opinion on this point and can only add that abolition of contract system of labour can be ordered by an Industrial Tribunal if the facts justify it. Industrial adjudication should not encourage the employment of contract labour is a principle which was laid down by this Court as far back as 1960 in Standard Vacuum Refining Co. of India Ltd.

v. Its Workmen(I).

In the result, the points urged by the learned Additional Solicitor General all fail and the appeal is dismissed with costs.

Y.P.

Appeal dismissed.

°(I) (1960] 3 S.C.R. 466 at 473.

NATIONAL IRON AND STEEL CO. LTD. & ORS

THE STATE OF WEST BENGAL & ANR

1967 (M. HIDAYATULLAH

V. BHARGAVA

S. 25F

Companies Act

Tnbunal

s. 25F

1964] 6 S.C.R. 22

Nireir De

Sardar Bahadur

Janardan Sharma

P. K. Ghosh

Mitter

Companies Act

NISCO Karmachari Sangha

Howrah

National Iron and Steel Co. Ltd

Britannia Building & Iron Co. Ltd.

National Screw and Wire Product~

Tatanagar Foundry Co. Ltd.

August 25, 1959

Government of West Bengal

IO of the Industrial Disputes Act, 1947

National Iron & Steel Co. Ltd.

National Screw and Wire Products Ltd.

Bhadreswar Ghose

Gopal Das

Ramjatin Pandit

Sushi

Sarojit

Sukdeo

Khalil

Sushi

National Iron and Steel Co., Ltd.

Britannia Building & Iron Co., Ltd.

National Screw & Wire Products Ltd.

Tatangar Foundry Co. Ltd.

National Iron and Steel Co. Ltd.

Bel

March 19, 1957

November 16, 1958

Milan Kumar Dey

Tanru Prosad Jha

E. C. Waton

Bireshwar Banerjee

E. C. Watson

ss. 18

s. 18(1)

s. 33

New Delhi

Connaught Place

Karolbagh

National. Iron and Steel Co. Ltd.

Industrial Disputes Act

November 15, 1958

November 20, 1958

s. 25F

s. 25F

Joy Kishen

Jha

Tatanagar Foundry Co.

Ltd.

(1960] 3 S.C.R. 466


SYED KHAWAJA MOINUDDIN

GOVERNMENT OF INDIA AND 3 ORS.

December 14, 1966 and January 18, 1967

[M.

HIDAYATULLAH, V.

BHARGAVA

AND

G. K. MITTER, JJ.]

('itizenship Rules, 1956, Schedule 111, para 3-When detailed enquiry 011 the acquisi;/011 of foreign citizenship necessary.

The appellant who was born in India left for Pakistan in 1951 at the age of 13. He stayed there till 1955, when he came to India as a Pakistani citizen with a Pakistani passport.

In 1963, he was deported to Pakistan.

Jn 1964, he again came to India with a Pakistani passport.

In order to determine his nationality for the purpose of deporting him, the Govcrnrnent of India issued notice to him to n1ake representations, if .any. 'fhc appellant mac!> two representations, and though in both of them he ucged that he had not voluntarily acquired the citizenship of Pakistan, he did not raise any plea, at any stage, that he had not voluntarily obtained the passport on the two occasions he came to India, or, that he was compelled to apply for Pakistani passports. There was no plea that he tried to obtain a permit for ten1porary stay when going to Pakistan. nor was there any suggestion that he tried to obtain a repatriation certificate which he couh.J. have obtained if he had retained his Indian citizenship. The Governn1ent of India considered the representations and passed an ardor that he had ,-oluntariJy acquired Pakitani citizenship, under s. 9(2) of the Citizenhip Act, 1955.

HELD: The o'der did not suffer from any infirmity.

On the representations made by the appellant the Government was not called upon to make any detailed enquiry, when the provisions of para 3 of Schedule lil of the Citizenship Rules, namely, that the authority must regard obtaining of a foreign. passport on a particular date as conclusive proof that the Indian citizen had voluntarily acquired the citizenship of another country hefore that date, were clearly applicable. It was only \Vhen a plea was raised that a citizen had not voluntarily obtained the passnort that he should he afforded an opportunity to prove that fact. [404

F-H]

f.., folid. Ayub Khan V. C'on11nissiofl£'( of Police, Madras, rt965] 2. S.C.R. 884, referred to.

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No 237 of 1966.

Appeal by special leave from the judgment and order dated October 7, 1966 of the Andhra Pradesh High Court in Criminal Misc. Petition No. 1621 of 1966.

Yerramilli Satyanarayana and K. R. Sharma, for the appel- H !ant.

B. Sen and R. N. Sachthe)', for respondent No. I.

T. V. R. Tatachari, for respondents Nos. 2--4.

MI Su:,, CI/67 ---12

SUPREME

COURT

REPO&TS

[ 1967] 2 S.C.R.

The Judgment of the Court was delivered by

Bharga"a, .I.

In this appeal, by special lea, e, we have already passed lhe order on 14th December, 1966, and we now indicate our reasons for that order.

The appellant was born on April 6, 1938, at Suryapet in Nalgonda District, Andhra Pradesh, and was educated and brought up there until the year 1951.

His father died in 1947.

After the partition of India and the enforcement of the Constitution, the appellant, in August 1951, left for Pakistan where he stayed until

1955.

In 1955, he returned to India on a passport obtained from the Pakistan Government as a Pakistani citizen with a visa from the Indian Government.

Even after the expiry of the visa, he continued to stay in India, but in August, 1963, he was deported to Pakistan.

He came again to India with a passport dated 4th December, 1963 issued by the Pakistan Government with a visa from the Indian High Commission dated 20th January, 1964.

He arrived in India on 5th February, 1964.

Subsequently, the question of deportation of the appellant by the. Indian Government arose. and thereupon, the appellant filed a petition under Art. 226 of the Constitution challenging the order of deportation made hy the Government of India. The petition was allowed hy the High Court of Andhra Pradesh and the order of deportation was quashed on the ground that there had been nc determination that the appellant had acquired Pakistani citizenship under s. 9 of the Citizenship Act by the Indian Government. Thereafter, the Government took up the question of determinin_; the nationality of the appellant, and a notice was issued to the appellant on 19th March, 1965 through the Government of Andhra Pradesh asking the appellant, within one month from the date of the service of the notice on him, to submit to the Government of Andhra Pradesh for onward transmission to consideration of the Central Government any representation that the appellant might wish to make.

The appellant made two representations. The later of the two representations \vas sent by him in the month of May, 1965.

The Government of India, on 18th August, 1965, issued an order holding that the appellant had voluntarily acquired the citizenship of Pakistan. The appellant challenged this order by another petition under Art. 226 of the Constitution before the l-!igh Court of Andhra Pradesh, and that petition was dismissed by lhe order now under appeal before us.

It was not disputed, as it could not he disputed in this case, that the Government of India was competent under s. 9(2) of the Citizenship Act, 1955 to determine whether the appellant had acquired the citizenship of Pakistan.

Admittedly, the appellant had gone tc Pakistan in August 1951 after the enforcement of the Constitution. The question whether he had migrated with the

S, K. MOlNUDDIN \'. GOVT. OF INDIA (Bhargava, ]. ) 403

intention of voluntarily acquiring the citizenship of Pakistan and had actually acquired such citizenship could, therefore, be determined by the Government of India alone under s. 9(2) of the Citizenship Act. The order dated 18th August, 1965 passed by the Government of India, shows that, before giving its decision, the Government considered the cause shown by the appellant and gave due regard to the principles of evidence contained in Schedule Ill of the Citizenship Rules, 1956 in accordance with Rule 30 thereof.

This order has been challenged on behalf of the appellant on the ground that the appellant was not given an adequate opportunity of putting forward his case before the Government of India gave its decision on 18th August, 1965 holding that the appellant had voluntarily acquired the citizenship of Pakistan. It was urged that the Government of India should have held an enquiry before arriving at this decision, and for this proposition reliance is placed on the decision of this Court in Mohd.

Ayub Khan v. Commissioner of Police, Madi"as and Another('). It was held in that case that :

"The question as to whether when and how foreign citizenship has been acquired has to be determined having regard to the rules of evidence prescribed, and termination of Indian citizenship being the consequence of voluntary acquisition of foreign citizenship, the authority has also to determine that such latter citizenship has been voluntarily acquired.

Determination of the question postulates an approach as in a quasi-judicial enquiry; the citizen concerned must be given due notice of the nature of the action which in the view of the authority involves termination of Indian citizenship, and reasonable opportunity must be afforded to the citizen to convince the authority that what is alleged against him is not true.

What the scope and extent of the enquiry to be made by the authority on a plea raised by the citizen concerned should be, depends upon the circumstances of each case."

Proceeding further, the Court considered the circumstances which have to be taken into account in applying the provisions of paragraph 3 of Schedule III of the Citizenship Rules which raises a conclusive presumption that a citizen of India, who has. obtained a passport from a foreign country on any date, has before that date voluntarily acquired citizenship of that country. 1t was held that "by the application of the rule in paragraph 3, the authority must regard obtaining of a foreign passport on a

(1) [1965] 2 S.C.R. 884.

404 St; PREME COURT REPORTS

[1967[ 3 S.C.R.

parlicular date as conclusive proof that the Indian citizen ha' voluntarily acquired citizenship of another wuntry before th:it date.

But obtaining of a passport of a foreign country cannot in ail cases merely mean receiving the passport. If a pica is raised hy the citizen that he had not voluntarily obtained the pa,, porl, the citizen must be afforded an opportunity to prove that fact." Relying on these views of this Court, it was urged on behalf of the appclian: that, in this case, the appellant should have ben given 'Ill opportunity by the Government of India to p1 ovc that he had not voluntarily obtained th.~ passport from the Pakistan Govrnment which was the basis of the decision of the Government of India dated 18th August, 1965 against the appellant.

We. however. find that. on the facts of the present case. there was no occasion for the Governmen: of India to enter into any s'uch

nquiry. ·

As we have mentioned carl"-:r, the appellant made two

rresentations to the Government of India.

Though, in both

tho$~ representations, he urged that he had not voluntari!y acquired the citizenship of Pakistan, he did not at any stage raise any plea that he had not voluntarily acquir.~ the passpor<s on the basis of which he came to India on the two occasions in 1955 and 1964.

In fact. though the appellant did put forward a p:ca that when he went to Pakistan,· he was a minor, it was never urged on his 13ehalf that he had not gone to Pakistan voluntarily, or that he had left because he was compelled by the disturbed conditions in India. or that he was taken there by abduction or against his will.

In fact, he did not indicate in his representation at all the reason why he had gon.~ to Pakistan.

The facts put by him

indicaed that he had gone volunt:Jrily even though he was a minor. and there was no explanation forthcoming for exercising this volition of going to that country.

Even after arrival in l'aistan, he stayed on for a period of four years, and in the rcprc~nla tion to the Government he did not explain this long stay there.

Then, there was no pica that he was compelled to apply ior the passport as a Pakistani citiLen and did not, in fact, obtain it voluntarily.

There is no mention that, when going to Pakistan, he tried to obtain any permit for a temporary visit nor was there any sugges•ion that before return. he tried to obtain a repatriation certificate which he could have obtained if he had retained his Indian d'izenship.

No such facts having been alleged, it is not possible for this Court to hold that the Government of India was called upon to make any detailed enquiry when the provisions of paragraph J of Schedule Jll of the CitiLenship Rules were dearly applicable. becau'e the appellant had obtained passports in Pakis!an

representing hirmelf to be a P:ikistani citizen. It cannot, therefore. be said that, in this case, the Government of India failed to hold any enquiry which it was required to do, and consequently.

s. K. MOINUDDIN v. GOVT. OF INDIA (Bhargava, /.) 405

A the order dated 18th August, 1965 passed by the Government of India does not suffer from any infinnity. :These were the reasons which led us to the view th; it the appeal had no merit and had to be dismissed.

V.P.S.

Appeal dismissed.

SYED KHAWAJA MOINUDDIN

GOVERNMENT OF INDIA AND 3 ORS

December 14, 1966 and January 18, 1967

HIDAYATULLAH

BHARGAVA

G. K. MITTER, JJ.

Schedule 111

India

Pakistan

s. 9(2)

Citizenhip Act, 1955

Schedule lil of the Citizenship Rules

Yerramilli Satyanarayana

K. R. Sharma

B. Sen

R. N. Sachthe

V. R. Tatachari

April 6, 1938

Suryapet

Andhra Pradesh

Pakistan Government

Indian Government

4th December, 1963

Indian High Commission

5th February, 1964

Art. 226

Government of India

High Court of Andhra Pradesh

s. 9

Citizenship Act

19th March, 1965

Government of Andhra Pradesh

Central Government

18th August, 1965

Art. 226

s. 9(2)

Citizenship Act, 1955

K. MOlNUDDIN

s. 9(2)

Citizenship Act

Schedule I

Schedule III of the Citizenship Rules

[1965] 2 S.C.R. 884

Pakistan Govrnment