Agreement restraining professional from joining rivals is prima facie void : Delhi HC

PROFESSIONALS CANNOT BE RESTRAINED FROM EXERCISING PROFESSION WITH RIVAL FIRMS : NEGATIVE CONTRACTS ARE PRIMA FACIE VOID

An analysis of recent judgment in of Delhi High Court in IndiaTV v. Anchor Matter

By : Sodhanis Editorial Team

Introduction

1. Section 27 of Indian Contract Act declares as void, agreements by which anyone is restrained from exercising a lawful profession. An issue on this topic came up before Delhi High Court in the case of Independent News Service Pvt. Limited v. Sucherita Kukreti (Delhi High Court) [CS(OS) 43/2019 & IA No. 1191/2019 decided on 25th January, 2019]. In that case, India TV (the plaintiff) sought to restrain one of her news anchor (defendant) from joining the rival groups.

This article seeks to analyse the judgment in that case.

Facts of the Case

2. The facts are as follows :

  • Plaintiff is a reknowed TV News Channel “India TV”
  • Defendant was her anchor Sucherita Kukreti
  • Defendant joined India TV in 2004
  • Defendant was entering into contracts for 3-year period since then
  • The latest contract was to expire on 30th November, 2019
  • Under that contract, Defendant was restrained from joining rival firms within the three-year period viz. upto 30th November, 2019.
  • However, the Defendant-anchor left India-TV around mid-December, 2018 before 30th November, 2019 and was seeking to join rival firm as lead-anchor in January-2019.
  • In these facts, India TV approached Delhi High Court seeking an injunction to restrain Defendant-anchor from joining the rival firm and be a lead-anchor of rival firm.

Contract condition involved

3. As per the plaintiff, the contract contained a negative covenant —

  • whereunder the defendant has agreed to during the term of agreement not associate with any other competing channel ; and
  • the defendant has also agreed with the plaintiff that while the plaintiff can terminate the employment of the defendant, the defendant cannot, save for medical reasons.

Law Involved

4. The following provisions were considered as relevant in disposal of the stay application :

Article 21 of Constitution

21. Protection of life and personal liberty.

No person shall be deprived of his life or personal liberty except according to procedure established by law

Section 27 in The Indian Contract Act, 1872

 

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 to carry 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.

Section 42 of Specific Relief Act, 1963

42. Injunction to perform negative agreement

Notwithstanding anything contained in clause (e) of section 41, where a contract comprises an affirmative agreement to do a certain act, coupled with a negative agreement, express or implied, not to do a certain act, the circumstances 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 plaintiff has not failed to perform the contract so far as it is binding on him.

Article 51A(j) in The Constitution Of India 51A. Fundamental duties. It shall be the duty of every citizen of India …. (j) to strive towards excellence in all spheres of individual and collective activity so that the nation constantly rises to higher levels of endeavour and achievement.

Arguments of the plaintiff

5. The plaintiff raised the following key arguments—

  • India TV has spent large sums of money and resources in grooming the defendant and in building the image of the defendant for last fourteen years, as one of the prominent faces of the plaintiff’s news channel.
  • Defendant, since about mid-December, 2018, has been feigning excuses for leaving the employment of the plaintiff and the plaintiff has now learnt that the defendant intends to be the face and broadcaster of a competing news channel.
  • Owing to the negative covenant in the contract between the parties, the defendant is liable to be restrained till 30th November, 2019e. till the last date of the term of the agreement with the plaintiff, from joining / serving any other news channel.
  • The plaintiff viz. IndiaTV is not willing to take a chance of allowing the defendant to present the news on the channel of the plaintiff, owing to the controversy, but is willing to continue to pay the emoluments agreed to be paid under the Agreement, to the defendant, subject to the defendant agreeing not to and/or being restrained from so associating with a competing news channel. Offer is also made, that the defendant can be engaged in back stage activities other than of being the news presenter/face of the channel, either in the plaintiff or even in the competing news channel.

Relief Claimed

6. The plaintiff, a Television News Channel, instituted this suit for :

  • permanent injunction restraining the defendant from taking up similar work with any other television channel during the term till 30th November, 2019 and / or from allowing her name, image or voice to be associated with any other news channel; and
  • for recovery of Rs. 2,00,10,000/- as damages.

Arguments of defendant

7. The defendant-anchor argued as under :

  • The defendant resigned from the employment of plaintiff on 13th December, 2018 and this suit has been filed after a delay of about 1½ months. The defendant, on 14th January, 2019 has joined the other news channel and the Court now cannot now order status quo ante.
  • Section 27 of the Indian Contract Act, 1872 is a compete bar to an agreement in restraint of exercising lawful profession, as the defendant has been exercising, earlier with the plaintiff and now with the rival-firm. It is contended that once Section 27 declares so, the question of reasonableness of the agreement does not arise.

Judgment

8. The Court held as under :

Section 42 of Specific Relief Act, 1963 Though Section 42 of the Specific Relief Act, 1963 empowers the Court to grant an injunction, but, grant of injunction remains discretionary and which discretion is to be exercised on the well established anvils of prima facie case, irreparable injury, balance of convenience and public interest.
Section 27 of Indian Contract Act, 1872 Prima facie Section 27 of the Contract Act declaring as void, agreements by which anyone is restrained from exercising a lawful profession, is in absolute terms. The vocation of the defendant as a Newscaster / News Presenter would qualify as “lawful profession” within the meaning of Section 27 of the Contract Act.
Article 21 of Constitution Personal Liberty would include liberty to practice a vocation or profession and being not deprived thereof, notwithstanding any agreement to the contrary and which agreement Section 27 of the Contract Act declares as void. Grant of any ad-interim injunction would also be in violation of Article 21 of the Constitution of India. Liberty aims at freedom not only from arbitrary restraint but also to secure such conditions which are essential for the full development of human personality.
Article 51A of the Constitution Article 51A of the Constitution of India constitutes a duty of every citizen to strive towards excellence in all spheres of individual and collective activity. The defendant, as a citizen of India, cannot be restrained from striving towards individual excellence in the profession/vocation of her choice.
On facts

1. Granting any interim injunction would amount to restraining the defendant from doing what she has been doing for the last 14 years and what she is best known to do and has skill to do. Ad-interim injunction if granted for the period till 30th November, 2019, would amount to killing the goodwill acquired by the defendant in the last 14 years and which loss cannot be monetarily compensated to the defendant in the event of it being ultimately found in the suit that the plaintiff was not entitled to such injunction. Thus, neither the element of irreparable injury nor the element of balance of convenience, on the anvil of which grant of interim relief is to be tested, is in favour of the plaintiff.

2. The defendant cannot be asked to engage herself in other, behind the scene activities as is suggested, even if besides being in front of the camera for the last 14 years has also been incidentally involved in behind the scene activities. The averments in the plaint itself are guided by the acumen, training and skill of the defendant in front of rather than behind the camera.

3. Benching a professional for as long as 10 to 11 months can be devastating, capable of inflicting permanent damage affecting mental and physical health and future prospects of a professional. This is more so in the case of Newscasters / News Presenter to whom the adage “out of sight out of mind” would also apply. The patrons of the defendant in the said 10 months are likely to turn over to other Newscasters / News Presenter to whom they would get habituated and not only is it doubtful that the defendant, after 10-11 months, will retain the same advantage owing whereto the plaintiff wants to restrain the defendant but it is also highly unlikely that the defendant will be able to win back the patrons so lost by her.

4. The defendant has terminated her employment / agreement with the plaintiff and it is yet to be determined, whether the defendant could have done so or could not have done so. The defendant cannot be compelled to continue to render services to the plaintiff. The case at best is thus of breach of agreement and which can ordinarily be compensated with money.

5. It was/is always open to the defendant to not renew the said agreement and to walk across to any other TV Channel including that competing with the plaintiff. The plaintiff, even then would not benefit from the resources claimed to have been expended in building the image, reputation and goodwill of the defendant. What the defendant is doing now is, instead of walking away after 30th November, 2019, walking away immediately, when there are still 11 months to the expiry of her agreement. Such loss can definitely be measured in monetary terms.

6. The defendant, out of the term of three years of the last agreement with the plaintiff, has already performed under the agreement for two years or more. The agreement, to the extent of providing the same consequence for the breach, whether be immediately after the date of the agreement or after performance of 2/3rd thereof, is prima facie unreasonable.

7. Prima facie skill and excellence acquired by the defendant is the personal acquisition of the defendant and the plaintiff cannot have proprietary rights or interest in such acquisition of excellence by the defendant, even if with the contribution from the plaintiff. Excellence is a skill which is personal to the defendant.

Decision The application for injunction was dismissed.

Conclusion

9. Though the judgment in question contains strong arguments in favour of liberty, one more argument that may have missed is section 14 of the Specific Relief Act, 1963. Section 14 of the Specific Relief Act, 1963 reads as under :

14. Contracts not specifically enforceable

(1) The following contracts cannot be specifically enforced, namely,-

(a)    a contract for the non-performance of which compensation is an adequate relief;

(b)    a contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms;

(c)    a contract which is in its nature determinable;

(d)   a contract the performance of which involves the performance of a continuous duty which the court cannot supervise.

As per section 14(1)(d), since the news-anchor contract involves performance of continuous duty, specific performance thereof cannot be claimed.

This judgment is a welcome judgment and comes as a huge relief for persons similarly situated as the defendant in this case. This judgment would apply to similarly placed professionals/workers viz. author-publisher relationship, employer-employee relations and the like.

READ JUDGMENT

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