Authored By : William Fraser McDonell, Macpherson

William Fraser McDonell and Macpherson, JJ.

1. This appeal raises questions under Sections 27 and 74 ofthe Contract Act. On the 3rd of October 1880, the defendant, the respondent inthis appeal, entered into an agreement with the Brahmaputra Tea Company, bywhich he undertook to serve the Company as assistant tea-planter for a term ofthree years, to be computed from the date of the termination of his fourthyears service under a prior agreement. The Company agreed to pay him a salaryof Rs. 300 a month for the fifth year, Rs. 350 for the sixth year, and Rs. 400for the seventh year. It is admitted that this agreement took effect from the5th of November 1881. On the 17th of May 1882, the defendant gave notice of hisintention to leave, and on the 27th of November following, he actually didleave the Companys service without their consent, and became manager of theMoabund Tea Estate, which is about two miles distant from one of the Companysgardens. It is alleged that he has, by so doing, infringed the 8th, 10th and11th clauses of the agreement.

[Here followed the 8th, 10th, 11th clauses which are set outabove.]

3. The Company on the 30th of June 1883 brought this suit torecover Rs. 3,109-6, the equivalent of 250, for the infringement of the 8thclause; and for an injunction to restrain the defendant from serving on theMoabund Tea Estate; or, in the alternative, to recover Rs. 12,437, theequivalent of 1,000 as damages for the infringement of the 10th clause. Thelower Court held that the agreement in Clause 10, being in restraint of trade, wasvoid under Section 27 of the Contract Act. For the infringement of theagreement in the 8th Clause it awarded a sum of Rs. 900 as compensation.

4. The plaintiff-Company appealed against that decision onthe grounds that the contract contained in the 10th Clause is not void, andthat the compensation awarded is unreasonably small.

5. We entertain no doubt that the contract in the 10thClause is void, so far as it restrains the defendant from taking service, orfrom engaging in, or promoting directly or indirectly, the cultivation of teafor a period of five years from the date of the termination of his agreement,although the restriction only extended to a distance of forty miles from any ofthe Companys gardens. Couch, C.J., and Pontifex, J., held in the case ofMadhub Chunder Poramanick v. Rajcoomar Das 14 B.L.R. 76 that the words"restrained from exercising a lawful profession, trade or business"do not mean an absolute restriction, and are intended to apply to a partialrestriction. It is quite clear that such a contract would not come within anyof the exceptions to Section 27, and it is impossible to suppose that theLegislature, while making certain exceptions to the general rule, would omit toprovide for a contract of this kind, if it was intended to be an exception.Contracts by which persons are restrained from competing, after the term oftheir engagement is over, with their former employers within reasonable limits,are well known in English law, and the omission to make any such contract an exceptionto the general prohibition contained in Section 27 clearly indicates that itwas not intended to give them legal effect in this country. Kindersley, J. inOakes v. Jackson I.L.R. Mad. 134 refused to give effect to such a contract ascontrary to the law in India; but there the restriction was also consideredunreasonable under the English law. It is unnecessary to refer to the Englishcases which have been cited as the case must be governed by the Contract Act.An agreement of service by which a person binds himself during the term of theagreement not to take service with any one else, or directly or indirectly takepart in, promote or aid any business in direct competition with that of hisemployer, is, we think, different. An agreement to serve a person exclusivelyfor a definite term is a lawful agreement, and it is difficult to see how thatcan be unlawful which is essential to its fulfilment, and to the due protectionof the interests of the employer, while the agreement is in force. It is unnecessaryto consider all the conditions in the 10th clause. It is sufficient to say thatwe are not disposed to agree with the Judge that it is wholly void. As,however, the agreement has long since expired, no injunction can now issue. Weneed not consider the question of damages, as we should not, under anycircumstances, have awarded any without giving the respondent an opportunity ofcomplying with an injunction.

6. The remaining contention is that the sum awarded ascompensation for the breach of the condition in the 8th Clause is unreasonablysmall. The case clearly falls within Section 74 of the Contract Act, the effectof which was to do away with the distinction between liquidated damages and apenalty, and to leave it t& the Court in all cases in which a sum is namedin the contract as the amount to be paid, to award against the party who hasbroken the contract reasonable compensation not exceeding the sum named. It isclear that the Court might have awarded the full sum stipulated without any proofof damages or loss. The plaintiff gave no proof of actual damage or loss, andthe Court assessed the damages with reference wholly to the increasedemoluments which the defendant had drawn subsequent to the time when theagreement came into operation. Though averse to interfere with the decision ofthe Judge on this point, we think he has not exercised his powers rightly ordiscreetly in this matter. The agreement was deliberately entered into and asdeliberately broken. The Company refused to assent to the defendants leavingbefore his time. He not only went, but took service as manager of aneighbouring factory, The sum of 250 was entered in the agreement by thedefendant himself, so he knew full well what he was doing and what risk he wasincurring, and, so far as we can see, there was no reasonable or sufficientground for his act. No doubt the Court has a discretion to fix what itconsiders reasonable compensation; but when the parties have already agreedamong themselves as to what the penalty should be, we think the Court shouldnot, in fixing the compensation, wholly ignore the amount agreed on, unlessthis is, on its face, wholly unreasonable with reference to the position of theparties and the breach provided against. In this instance the sum, thoughlarge, cannot be considered wholly unreasonable; and it was, we must take it,fixed after due consideration with reference, not only to any actual expense towhich the plaintiff might be put in supplying the defendants place, but to allthe circumstances attending the loss of his services, which the agreement wasintended to secure. These circumstances the Judge has not at all taken intoconsideration. He has merely made the defendant pay as compensation the amountof the increased salary which he obtained under the agreement. We have hadgreat doubt whether we ought not, under the circumstances, and in the absenceof any proof to the contrary, to consider as reasonable the sum which theparties themselves agreed on. We are clearly of opinion that the amount awardedby the Judge was unreasonably small; and having a discretion in the matter,which we exercise in favour of the defendant, we think a sum of Rs. 2,000 wouldbe a proper sum to allow. The appeal is decreed to that extent, but as it onlypartially succeeds, we think each party should bear his own costs in thisCourt. The order of the Court below as to costs will stand.

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The Brahmaputra Tea Co. Ltd.vs. E. Scarth (11.05.1885 -CALHC)+