Non-solicitation covenant upheld under Section 27, but injunction against employing staff was refused as an indirect restraint.

A post-termination non-solicitation covenant between commercial parties was treated as enforceable and not void under Section 27 of the Indian Contract Act because it restrained only the contracting parties from soliciting, inducing or encouraging each other's employees for a limited period, without directly prohibiting employees from changing jobs. However, the court held that this restraint could not be extended into an injunction barring the respondent from employing those employees, as that would indirectly create an impermissible post-employment restraint. Relief was therefore confined to restraining further solicitation, while any past breach was left to be pursued as damages in arbitration.

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Issues: (i) Whether the non-solicitation covenant restraining the parties from inducing each other's employees after termination of the distributorship agreement was enforceable and hit by Section 27 of the Indian Contract Act, 1872; (ii) Whether an injunction could be granted restraining the respondent from employing the petitioner's employees, or whether relief was confined to restraining further solicitation and leaving the petitioner to a claim for damages.

Issue (i): Whether the non-solicitation covenant restraining the parties from inducing each other's employees after termination of the distributorship agreement was enforceable and hit by Section 27 of the Indian Contract Act, 1872.

Analysis: The covenant was a post-termination negative stipulation between commercial contracting parties, not an employer-employee restraint. It prohibited either party from soliciting, inducing or encouraging the other party's employees for a limited period after termination, while preserving general advertising and unsolicited applications. The restraint operated on the contracting parties and did not directly bar employees from changing employment. On that footing, it was treated as a covenant not amounting to a restraint of trade in the sense proscribed by Section 27.

Conclusion: The non-solicitation covenant was held enforceable and was not void under Section 27 of the Indian Contract Act, 1872.

Issue (ii): Whether an injunction could be granted restraining the respondent from employing the petitioner's employees, or whether relief was confined to restraining further solicitation and leaving the petitioner to a claim for damages.

Analysis: The advertisement was found to constitute solicitation, but the employees who had responded could not themselves be prevented from taking up employment with the respondent, because that would indirectly impose an impermissible post-employment restraint on them. The appropriate relief was therefore to restrain further solicitation during the subsistence of the arbitration proceedings and to leave the petitioner to seek damages for any established breach already committed.

Conclusion: The respondent was restrained from further solicitation, but no injunction was granted against employing the petitioner's employees; the petitioner's remedy for the past breach was limited to damages in arbitration.

Final Conclusion: The petition succeeded only to the extent of securing a limited protective injunction against future solicitation, while declining broader employment restraint, and the matter was disposed of with directions.

Ratio Decidendi: A post-termination covenant restraining a commercial contracting party from soliciting or inducing the other party's employees is not necessarily hit by Section 27 where the restriction operates on the contracting parties and does not directly prohibit employees from changing employment, but such a covenant cannot be stretched into a ban on employment that would indirectly impose an unenforceable restraint on the employees themselves.

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