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Judgment
S. Rajeswaran, J.—This Original Application has been filed for an order of interim injunction restraining the respondent from in any manner
disclosing or using the confidential information of the applicant by carrying on directly or indirectly any business which is of competing nature,
contacting the applicant''s customers or employees and thereby interfering with the applicant''s business, pending arbitration of the disputes
between the parties.
The brief facts as culled out from the affidavit are as under:
The applicant Company is engaged in a very specialised field of business involving unique know-how and technical data and these are peculiar
to them. The respondent joined the company as a Scientific Officer in January 2001. Over the years he became an integral part of the senior
management team and he was given access to information which are vital for the operations of the applicant''s Bangalore Genie Division namely,
product and process know how, R & D processes, procedures, raw materials sources, quality control etc. On 20.6.2005, respondent entered into
a Confidentiality and Non-Compete Agreement with the applicant. At the time of entering into an agreement the respondent was working as
Assistant General Manager-Research & Development. Under the Confidentiality and Non-Compete Agreement, the respondent shall not disclose
the confidential information to any person after cessation of employment with the applicant. Similarly the respondent shall not take up any
employment or involve himself with any other person or body co-operate in the similar field of activity which is competitive in nature with the
business of the applicant for a period of 3 years after cessation of employment with the applicant.
The respondent submitted his resignation on 17.7.2006. Even though the respondent indicated that his resignation is personal and with a drive to
change area of activity, to the shock of the applicant, the respondent is carrying on business which is similar to the business of the applicant by
using the confidential information furnished to him by the applicant. The respondent is also soliciting the applicant''s employees and is contacting the
applicant''s customers by using the information obtained from the applicant. The applicant sought reference of the dispute to the arbitration and by
letter dated 12.3.2007 sought for appointment of arbitrator in terms of the agreement dated 20.6.2005. Pending initiation of arbitral proceedings
the above application has been filed u/s 9 of the Arbitration and Conciliation Act, 1996, hereinafter called ''the Act'', for an order of interim
injunction.
This court by order dated 15.3.2007 granted an order of interim injunction restraining the respondent from making use of any confidential
information that he acquired from the applicant''s company and from using the customer''s base of the applicant''s company.
The respondent entered appearance after notice and filed a counter affidavit. The respondent denied all the allegations and it is his specific case
that the agreement dated 20.6.2005 is in violation of Section 27 of the Contract Act and the same is unenforceable.
Heard Mr. P.S. Raman, learned Senior Counsel appearing for the applicant and the leaned counsel for the respondent. I have also perused the
documents filed and the judgments referred to by them in support of their submissions.
The learned Senior counsel for the applicant submitted that having signed an agreement will imply containing a non-compete clause, it is not
open for the respondent to violate the same and contend that the same is unenforceable. Further, he submitted, the restrictive covenant contained in
the agreement is only for a limited period of 3 years and therefore the same is not hit by Section 27 of the Contract Act. The learned Senior
Counsel further submitted that having agreed to desist from divulging or disclosing the confidential information, he is dishonestly using the same for
the purpose of his business which is in the same field of business of the applicant.
The learned Senior Counsel relied on the decision reported in V.V. Sivaram and Others Vs. Foseco India Limited, in support of his
submissions.
Per contra, the learned Counsel for the respondent submitted that the agreement dated 20.6.2005 is unenforceable as it is blatantly in violation
of Section 27 of the Contract Act. He further urged that the respondent is not using any of the confidential information acquired from the applicant
as alleged by the applicant. He further pointed out that even otherwise the conciliation information referred to by the applicant are easily available in
the internet and therefore there is no confidentiality at all in the information sought to be portrayed as confidential information.
The learned Counsel for the respondent relied on the following decisions to contend that the agreement dated 20.6.2005 is unenforceable as
the same is in direct violation of Section 27 of the Contract Act. Zaheer Khan Vs. Percept D'' Mark (India) Private Limited and Another, ; 2006
Ind Law DEL 362 (American Express Bank Limited v. Priya Puri); Percept D''Mark (India) Pvt. Ltd. Vs. Zaheer Khan and Another, ; and Polaris
Software Lab. Limited Vs. Suren Khiwadkar, .
I have considered the rival submissions carefully with regard to facts and citations.
The only point that arises for consideration is whether the applicant is entitled to an order of injunction on the basis of confidentiality and non-
compete agreement dated 20.6.2005.
The following clauses in the above said agreement dated 29.6.2005 are relevant for the purpose of deciding the issue:
The Employee agrees that he/she shall, during his/her employment with the Company, maintain the secrecy of the Confidential Information and
shall not disclose or divulge the Confidential Information to any person or persons except in the proper course of his/her duties. The Employee
further undertakes that after cessation, for any reason whatsoever, of his/her employment with the Company, he/she shall not disclose or divulge
the Confidential Information to any person or persons.
In consideration of his/her employment with the Company, the receipt of salary and other employment benefits from the Company and other
good and valuable consideration and for the reasons set out in Clause 5 hereinabove, the Employee, during his/her employment with the Company
and for a period of three years after he/she ceases to be an employee of the Company for any reason whatsoever, shall not
(i) take up employment with any other person firm, company, body corporate or organization of any other kind whatsoever, engaged in or
proposed to be engaged in any activity.
(ii)involve himself/herself directly or indirectly, alone or in association with others, whether as principal officer, sole proprietor, director, agent,
partner, joint venturer investor, lender, lesser, consultant, advisor or otherwise or have an interest, in any business,
(iii) carry on either by himself/herself or in association with any other person any business or be associated in any manner with any business, which
in the opinion of the Company, is similar to or competitive with that carried by the Company Such opinion of the Company shall be final,
conclusive and binding on the Employee.
In the event a dispute arises between the parties hereto during the subsistence of this Agreement or thereafter in connection with the validity,
interpretation, implementation or alleged breach of any provision of this Agreement, the parties shall attempt in the first instance to resolve such
dispute through friendly consultations. If the dispute is not resolved through friendly consultations, then either party may refer the dispute for
resolution by binding arbitration to a Director in charge of the affairs of the Company. The Arbitration referred to herein above shall be by a Sole
Arbitrator.
15.1. On receipt of a request to refer the disputes to arbitration from the Company or the Employee, the said Director shall within 7 days propose
three names for acting as Arbitrator and from and out of the said 3 persons the Employee shall nominate one person to be the Sole Arbitrator. In
the event of the Employee not choosing one among the three persons within a period of 7 days of their nomination, then the said Director shall
nominate one among the three persons to act as Sole Arbitrator to adjudicate the disputes. The Arbitration shall be held in Chennai and the Courts
in the City of Chennai alone shall have jurisdiction over the subject matter of this Agreement.
15.2. The award of the Arbitrator so appointed will be final, conclusive and binding on the parties to this Agreement and the provisions of the
Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof and the Rules made thereunder and for the time being
in force shall apply to the arbitration proceedings under this clause.
15.3. The award shall be made in writing and published by the Arbitrator within six months after entering upon the reference or within such
extended time not exceeding four months as the sole arbitrator shall by a writing under his own hands fix. The arbitrator shall have power to order
and direct either of the parties to abide by, observe and perform all such directions as the arbitrator may think fit having regard to the matter in
difference i.e., dispute before him.
The case of the applicant is that the respondent is violating Clause 3 and Clause 6 of the agreement and therefore an order of interim injunction
is to be granted against the respondent. Even though it is prayed by the applicant that the respondent shall be restrained from disclosing the
confidential information by carrying on any business which is of competing nature, contacting the applicant''s customers or employees and thereby
interfering with the applicant''s business, this Court on 15.3.2097 made it very clear that the respondent is not injuncted in making use of any other
such information which was simultaneously obtained by him from some other means.
It is the respondent''s specific contention that he is not using any of the confidential information that he acquired from the applicant''s company
and all the information he is making use of are easily available in the public domain. In such circumstances, a duty is cast upon the applicant to
prima facie prove that the information being used by the respondent are exclusive and are not available in the public domain. But the applicant has
failed to establish the same by producing valid and legally acceptable evidence. Therefore as the applicant has failed to establish a prima facie case,
they are not entitled to an order of injunction insofar as using the information by the respondent obtained by him from the applicant''s company.
Further, it is for the applicant to establish and substantiate this allegation before the arbitrator by letting in evidence. Further, Clause 11 of the
agreement deals with so many remedies available to the applicant which includes payment of compensation and indemnification by the respondent
and in such circumstances it cannot be said that the applicant would be put to irreparable damage if the order of injunction is not granted.
Insofar as the non-compete clause contained in Clause 6 of the agreement is concerned, I am of the opinion that the negative covenant
contained thereon is unenforceable in law and the same is contrary to the provisions of Section 27 of the Indian Contract Act. Even assuming the
same is enforceable, it is inappropriate to grant an order of injunction to enforce it at the interim stage itself when a similar clause arises for
consideration. In O.A. No. 493/2006 and Application No. 3847/2006, by order dated 6.12.2006 I have held that such a negative clause is
unenforceable and is contrary to Section 27 of the Indian Contract Act. I have come to such conclusion after following the decision of the Division
Bench reported in 1995 (1) L.W. 274 (G.R.V. Rajan v. Tube Investments of India Ltd.) and Anr. decision of a Division Bench of this Court
reported in (2005) 124 Comp.Cases 109 (R. Babu and Anr. v. TTK LIG Ltd.)
It is now represented by the learned Senior Counsel that an Advocate of this Court has already been appointed as an Arbitrator who has
seized of the entire matter and award is likely to be passed in a matter of three to four months. That being so, the balance of convenience is also
not in favour of the applicant as the entire matter could be very well agitated before the arbitrator.
In the result, I find no merits in the injunction application and the same is therefore dismissed. No costs.
It is needless to mention that the views expressed by me for the purpose of disposing of the above application are tentative and prima facie
conclusion which will not affect the applicant''s case before the arbitrator. The arbitrator can very well decide the issue on his own uninfluenced by
any of the observations/findings made by me in this order.