Competition or Unlawful Contractual Interference: The Line Continues to Remain Blurred

The formalization and maturation of the nation’s business ecosystem have led to a competitive environment ripe for conflict. With growing competition between multinational companies, the tendency of organizations to indulge in anti-competitive practices amounting to Tortious Interference has increased manifold. Thus, the judiciary is swamped with causes of action for interference with contract or business relations. In light of an adversarial legal system and predatory business environment, the promulgation of a robust and comprehensive law relating to economic torts becomes essential especially one that recognizes that contractual obligations are sacrosanct and cannot be skewed to a party’s advantage.

The premise of capitalism of free, fair competition without interference from excessive government regulations vis-à-vis courts power to enforce contracts and protect against wrongful predatory conduct maybe considered as crossing the line into Tortious Interference with another’s contract. Moreover, the courts inability to establish to a coherent, uniform body of law concerning interference claims indicate that the issue may continue persist and haunt businesses for long.

In recent years much commercial litigation has involved claims for Tortious Interference with contractual or other business relations. In a recent decision of Inox Leisure Limited vs. PVR Limited, the Delhi High Court further blurred the demarcation between freedom to trade and unlawful contractual interference, as the judgment placed a restraint on the freedom to trade if the person causes a breach or interferes with contractual performance. Unfortunately, the law in India pertaining to tort of interference with contractual relations has not particularly evolved with few cases to demonstrate the Indian courts’ view on this aspect. Moreover, this question has not been placed before the Supreme Court as on date. With orders passed on the aspect of Tortious Interference, the issues are very fact-based and do not provide an adequate overview of jurisprudence on Tortious Interference, as did the ruling in Inox Leisure Limited vs. PVR Limited.

In theory, all contracts qualify for protection from unreasonable interference. In recent times, non-competition contracts are a recurrent source of litigation in this area of law. The employer in these contracts requires an employee to sign an agreement prohibiting the employee from working for a competitor in the same geographic market. The judiciary has encouraged free trade and absence of impediment in performing any business activity throughout the country under Section 27 of the Contract Act. 

Taking a similar viewpoint, the court in Modicare Limited Vs. Gautam Bali held that Section 27 of the Contract Act makes every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind – unenforceable. Thus, even if the defendants or any of them, under their agreement with the plaintiff, had  undertaken not to carry on or be involved in any capacity in any business competing with the business of the plaintiff, even after leaving employment with/association of the plaintiff, the said agreement, owing to Section 27 would be void and unenforceable and the plaintiff on the basis thereof could not have restrained any of the defendants from carrying on any business or vocation, even if the one which the defendant had agreed not to carry on.

Therefore, as observed from past rulings, it’s no surprise that courts are reluctant to provide an injunction that places a cap on doing a business activity or to approach the client of a competitor company as in many cases it deprives an employee to meaningfully pursue a livelihood. This decision clears the way for businesses to enter into such agreements so long as the restraints promote competition and do not violate the rule of reason. Given the vague and ambiguous standards, it remains to be seen how courts will apply the interplay of Section 27 of the Contract Act and Article 19(1)(g) of the Constitution to address the multitude of possible business-to-business agreements and their effects on free-market competition. Ultimately, the door is seemingly wide open for varied commercial collaborations with accompanying restraints on trade, which no doubt will require greater scrutiny on their economic justification to balance against worker mobility and competitiveness.

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