NILS Law Review
November, 2014
Vol. 1
agreement by which a person is restrained from carrying on any trade, business or profession, is invalid. The Supreme Court in Niranjan Shankar Golikari v. Century Spg. & Mfg. Co., Ltd.48 enumerated the tests to determine the validity of agreements in terms of Section 27. A foreign producer collaborated with a company manufacturing type cord yarn on the condition that the company would maintain secrecy of all technical information and that it obtain corresponding secrecy arrangements from its employees. The defendant was appointed for a period of five years on the condition that during this period he shall not serve anywhere else even if he left the service earlier. Shelat, J. held the agreement to be valid. The defendant was accordingly restrained from serving anywhere else for the duration of the agreement. The restriction imposed in the present case was limited 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. The Court held that there is an implied term in a contract of employment that a former employee may not make use of his former employer‘s trade secrets. But subject to this exception, he is entitled to compete. Hence, even if the contract of employment had contained a covenant not to compete in respect of future contracts, such covenants would have been an unreasonable restraint of trade and void49. However, several United States courts have recognised the ―inevitable disclosure‖ rule, which permits a former employer to enjoin an employee from working for a direct competitor where the ―new employment will inevitably lead the employee to rely on the former employer‘s trade secrets‖50. Tort of Malicious Interference in Contractual Relations Where the parties have entered into a non-disclosure agreement and one of them reveals the secret to a third party in breach thereof, the holder of the secret can obtain an injunction restraining the third party from disclosing the information. English courts have developed the tort 48
49
AIR 1967 SC 1098 See Poonuswami: ―Public Interest and Restrictive Trade Practices in India‖, Indian Yearbook Intl. Affairs, 256,
280 (1963). 50
Pepsi Co Inc. v. Redmont, 54 F 3d 1262, 1269 (7th Cir. 1995)