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sweta singh (n/a)     16 November 2007

contract act

a company terminates and restrains its general manager for 1 yr from joining any competitive company and gives him his 1 yr salary as well. during this period g.m gets an offer to join as a  CEO from another company...is the former companys contract valid??

i know that the answer is basicaly void but i want to know that how can we show this contract as valid??


 7 Replies

SanjayVarun (n/a)     16 November 2007

I know it is hit by Section 27 but we can try. Is the non-compete clause a part of service condition or was entered after the termination of service? If post termination of service and 1 year salary was given as consideration, provided other conditions of valid contract are satisfied, then a try can be given. Is the non-compete clause an agreement/contract in itself? What is the language/tenor of the contract? 

sweta singh (n/a)     16 November 2007

the co. merged with another co. and then this new contract came when the g.m was still employed in the former co.

SanjayVarun (n/a)     16 November 2007

Other terms of the contract? Was the person  holding the position of G.M. when the contract was entered? Or the contract was entered when he ceased to be a G.M.? We can attempt distinguish between the two situations and try to wriggle out of Sec 27. Try to locate the object/genesis of Sec 27. What does the Zaheer Khan judgment say?

sweta singh (n/a)     16 November 2007

yes he was g.m when he entered the contract.......

Prakash Yedhula (Lawyer)     16 November 2007

2006 (3) SCJ 338

Prohibition to Enter in to Contract with Third Party ├óΓé¼ΓÇ£ Validity - Injunction - Clause 31(b) of the [color=#000066]AGREEMENT[/color] merely provides for an obligation of respondent No.1 to give an opportunity to the appellant to match the offer, if any, received by respondent No.1 from the third party. This clause does not per se restrict or prohibit respondent No.1 to enter into any contract with a third party but at best it provides the appellant with an opportunity to gain from the advertisements the appellant has made in the process of marketing and creation of the image of respondent No.1 which was gradually built up by the appellant. This clause does not restrict the right of respondent No.1 to accept any offer for endorsement, promotion, advertising or other affiliation either on his own or through any party in the event of failure of the appellant to match the offer of the third party from whom respondent No.1 would receive any offer, respondent No.1 would be free to contract with such third party. Further, the said clause does not restrict the right of respondent No.1 to appoint an agent of his choice or restrict his liberty to carry on his affairs in the manner he likes, with the persons he chooses, in the manner he thinks best. The restriction, if any, is on account of voluntary obligations undertaken by respondent No.1 and assurances made by him to the appellant wherefor, respondent No.1 cannot be permitted to renege his promises under the garb of an alleged restriction violative of [color=#000066]SECTION 27[/color] of the [color=#000066]CONTRACT ACT[/color]. Clause 31(b) of the [color=#000066]AGREEMENT[/color] is an independent clause which survives the expiry of the [color=#000066]AGREEMENT[/color] and any dispute between the parties regarding the enforceability of the said clause would come under the provision of Clause 32(g) of the [color=#000066]AGREEMENT[/color] which provides for resolution of any claim or controversy pertaining to the [color=#000066]AGREEMENT[/color] through the process of arbitration - No case is made out by the appellant for compelling respondent No.1 to appoint the appellant as his agent in perpetuity when the first respondent has no faith or trust in the appellant. The grant of injunction restraining respondent No.1 from acting upon the [color=#000066]AGREEMENT[/color] entered into with the second respondent would have the effect of compelling the first respondent to be managed by the appellant, in substance and effect a decree of specific performance of an [color=#000066]AGREEMENT[/color] of personal service, which is dependant on mutual trust, faith and confidence which, in the present case, are eroded and non-existent - Appellant can be adequately compensated in terms of money if injunction is refused - Clause 31(b) contains a restrictive covenant in restraint of trade as it clearly restricts respondent  No.1 from his future liberty to  deal with the persons he chooses for his endorsements, promotions, advertising or other affiliation and such a type of restriction extending beyond the tenure of the contract is clearly hit by [color=#000066]SECTION 27[/color] of the [color=#000066]CONTRACT ACT[/color] and is void - As already noticed, no interim relief having been granted in favour of the appellant during the past 2 years during which the contract between respondent Nos.1 and 2 has been in operation and indeed is soon to be completed, there is no cause for interference at this late stage by this Court. In the light of the intervening events, it would be sufficient protection for the appellant if this Court directs:- (i) that all observations and findings of the High Court were for the limited purpose of deciding an interlocutory application, and hence will not bind parties at trial; (ii) that all contentions raised by all parties are expressly kept open; (iii) that the interim protection in paragraph 17 of the High Court's order will continue till the conclusion of the contract dated 20.11.2003. (iv) that this Court is not expressing any opinion on merits of the rival claims and that the observation made in this judgment is only for the purpose of finding out the prima facie case. (vi) that the appellant is at liberty to proceed against the respondent for breach of the contractual terms before the appropriate forum in accordance with law; and (vii) that liberty is reserved to the appellant to invoke Clause 32(g) of the [color=#000066]AGREEMENT[/color] - Appeal stands dismissed on the above terms. No costs

scotzshweta@gmail.com (n/a)     24 January 2008

If you have paid one year salary then , he cannot join anywhere else for one year, since you have paid consideration 4 d same.

So chances r less 2 show it valid.


Gagan Gupta (Advocate)     26 September 2011

If u have agrrement with him not to engage during employement with you, and during  1 year salary period he is your employee you can restrain him.

bcause you can restain him during the course of employement if there is agrement to this effect.

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