What did the court say about restraint of trade in this case?

The court held the non-compete clause in Clause 10 was void under Section 27 because it restrained the employee from taking work with others.

Was an injunction granted against the employee?

No. The agreement had already expired, so the court refused to issue an injunction.

How did Section 74 apply here?

Section 74 removes the strict divide between liquidated damages and penalty. The court enhanced compensation to ₹2,000.

What is the quick takeaway for exams?

Non-compete during employment can be valid, but post-term restraint is void under Section 27. Damages can be awarded under Section 74 without proving exact loss.

Which law areas does this case connect to?

Contract law—restraint of trade (Section 27), damages (Section 74), and service agreements.

Brahmaputra Tea Co. Ltd. v. E. Scarth

Brahmaputra Tea Co. Ltd. v. E. Scarth (1885)

Restraint of Trade (S.27) • Damages under S.74 • Employment Agreement

Calcutta High Court 1885 ILR 11 Cal 545 Bench: Noted judges Contract Law ~6 min

Author: Gulzar Hashmi Location: India Slug: brahmaputra-tea-co-ltd-v-e-scarth Published: 2025-10-25

```

Quick Summary

Case Title: BRAHMAPUTRA TEA CO. LTD. V. E. SCARTH
Citation: ILR 11 Cal 545 (1885) • Court: Calcutta High Court

This case deals with two exam-friendly points: (1) a clause that blocks a worker from joining a rival—tested under Section 27 (restraint of trade), and (2) money compensation under Section 74 (damages). The non-compete clause was held void. The court still granted compensation, raising it to ₹2,000, applying Section 74.

PRIMARY_KEYWORDS: restraint of trade, Section 27, Section 74 SECONDARY_KEYWORDS: non-compete, liquidated damages, penalty, employment contract

Issues

Is the agreement between the company and the employee void under the doctrine of restraint of trade (Section 27)?
Should damages be awarded under Section 74 of the Indian Contract Act?

Rules

A service agreement may require an employee, during the term, not to work for others or promote a rival business. However, any restraint that effectively stops a person from taking lawful work—especially after the term—faces Section 27 and is usually void.

Section 27 (Restraint of Trade): Agreements in restraint of trade are void, save narrow exceptions.
Section 74 (Damages): Distinction between liquidated damages and penalty is toned down; reasonable compensation may be awarded.

Facts (Timeline)

3 Oct 1880: Mr. E. Scarth signs with Brahmaputra Tea Co. as assistant tea-planter for three years, to start after his earlier four-year term ends.

5 Nov 1881: New agreement takes effect. Salary: ₹300 (5th year), ₹350 (6th), ₹400 (7th).

17 May 1882: He gives notice to leave.

27 Nov 1882: He leaves without consent and joins Moabund Tea Estate, two miles from one of the company’s gardens.

30 Jun 1883: Company sues: claims ₹3,109-6 for breach of Clause 8 and seeks injunction; alternatively ₹12,437 for breach of Clause 10.

Trial Court: Clause 10 treated as restraint of trade and void under Section 27; ₹900 awarded for Clause 8 breach.

Case timeline image for Brahmaputra Tea Co. Ltd. v. Scarth

Arguments

Appellant (Company)

Clause 10 is valid and protects business interests.
Damages awarded (₹900) are too low; needs enhancement.

Respondent (Employee)

Clause 10 is a restraint of trade and void under Section 27.
No injunction should issue; term is over.

Judgment

Clause 10 void: It restrains the employee from taking service or engaging in rival business; falls under Section 27.
No injunction: The agreement had expired; injunction refused.
Section 74 applied: Court enhanced compensation to ₹2,000 as reasonable.
Costs: Parties to bear their own costs.

Ratio Decidendi

A post-term or broad restraint that prevents lawful employment is void under Section 27. Even if a restraint fails, reasonable compensation can still be granted under Section 74 without strict proof of exact loss.

Why It Matters

Clarifies that non-compete clauses are narrowly viewed in India.
Shows courts can award fair compensation under Section 74.
Important for employment contracts and drafting risk.

Key Takeaways

Post-term non-compete = likely void under Section 27.
Injunction will not lie after the contract has ended.
Section 74 allows reasonable compensation even if exact loss is hard to prove.
Keep restraints limited to the term and legitimate interests.

Mnemonic + 3-Step Hook

Mnemonic: “TEA: Term, Expiry, Amount”

T — Term: Restraint valid only within term; beyond term is void.
E — Expiry: After expiry, no injunction.
A — Amount: Section 74 = reasonable compensation (₹2,000 here).

IRAC Outline

Issue: Validity of restraint (S.27) and award of damages (S.74).

Rule: Restraints on trade are void (S.27); reasonable compensation may be awarded (S.74).

Application: Clause 10 broadly prevented the employee from rival work → void. Yet loss occurred from breach of service terms → compensation justified under S.74.

Conclusion: Clause 10 void; injunction refused; compensation enhanced to ₹2,000.

Glossary

Restraint of Trade: A clause that limits a person’s freedom to work or do business. Generally void in India.
Injunction: A court order to stop or require an action. Not granted after contract expiry here.
Section 74: Provision on reasonable compensation when a contract is broken.