Delhi High Court - Orders
Neosky India Limited & Anr vs Mr Nagendran Kandasamy & Ors on 31 May, 2024
Author: Prateek Jalan
Bench: Prateek Jalan
$~22
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P.(I) (COMM.) 183/2024 & I.A. 31151/2024
NEOSKY INDIA LIMITED & ANR. ..... Petitioners
Through: Mr. Tanmaya Mehta, Mr. Karan
Nagrath, Ms. Nupur Kumar,
Ms. Rashmi and Ms. Niharika
Nagrath, Advocates.
versus
MR NAGENDRAN KANDASAMY & ORS. ..... Respondents
Through: Mr. Anirudh Suresh, Mr. Utkarsh
Joshi and Ms. Anjali Menon,
Advocates for R-1,2,3, & 5.
CORAM:
HON'BLE MR. JUSTICE PRATEEK JALAN
ORDER
% 31.05.2024
1. Issue notice.
2. Mr. Anirudh Suresh, learned counsel, accepts notice on behalf of respondent Nos.1, 2, 3 and 5.
3. The petitioners have approached this Court under Section 9 of the Arbitration and Conciliation Act, 1996 ["the Act"], in anticipation of arbitration proceedings under a Share Subscription and Share Holder Agreement ["SSA/SSH"], to which the petitioners and respondent Nos.1 to 4 are parties. The petitioners also rely upon certain ancillary agreements, including Employment Agreements between the petitioner No.2 and respondent Nos.1 to 4, and a Non-Compete Agreement between the petitioners and respondent nos.1 to 4.
O.M.P.(I) (COMM.) 183/2024 Page 1 of 10This is a digitally signed order.
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4. Petitioner No.2 was originally promoted by respondent Nos.1 to 3. Respondent No.4 was subsequently appointed as its Chief Financial Officer. In May 2022, petitioner no.1 was inducted as an investor in the petitioner No. 2--company under the aforesaid SSA/SHA. Petitioner no.1 invested a sum of Rs.20 crores and was allotted 60% of the shares in petitioner No.2--company.
5. The SSA/SHA was accompanied by several ancillary documents, including the aforesaid Employment Agreements and Non-Compete Agreement. It is the contention of the petitioners that, as a part of the transaction, respondent Nos.1 to 4 were required to render services as the Chief Executive Officer, Chief Technical Officer, Chief Operating Officer and Chief Financial Officer of petitioner No.2--company for a further period of five years. Respondent No.1 was also a director of the petitioner No.2--company.
6. The SSA/SHA contains an arbitration agreement in Clause 16, which provides for resolution of disputes by a tribunal of three arbitrators, and designates New Delhi as the seat of arbitration. Exclusive jurisdiction has been vested in the Courts of New Delhi by virtue of Clause 16.1 of the said agreement. An arbitration agreement is also found in Clause 9 of the Non-Compete Agreement, which is broadly in similar terms.
7. It is the contention of the petitioners that respondent Nos.1 to 3 resigned from the services of petitioner No.2--company on 03.07.2023. The communication of the said respondents has been annexed to the petition as part of Document no.18. The services of respondent No.4, who was the Chief Financial Officer, were terminated by petitioner No. 2 on 04.07.2023 on account of alleged financial irregularities.
O.M.P.(I) (COMM.) 183/2024 Page 2 of 10This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/06/2024 at 02:30:05
8. Mr. Tanmaya Mehta, learned counsel for the petitioners, submits that respondent Nos.1 to 3 have thereafter set up a competing business by the name of Zulu Defence Systems Private Limited, which has been arrayed as respondent No.5 in this petition.
9. Mr. Mehta draws my attention to the following clauses of the SSA/SHA and the ancillary agreements:
"Share holder and share subscription agreement1 2.3. Promoters undertaking related to Company Intellectual Property The Promoters and the Promoter Director hereby forfeit in favour of the Company any right, title, claim or interest that they may have over any Intellectual Property associated with any unmanned aerial system that is developed, in development, sold, marketed or manufactured by the Company (the "Company Intellectual Property"). Any and all right, title, claim or interest of the Promoters and the Promoter Director in the Company Intellectual Property shall be deemed to vest irrevocably, solely and exclusively with the Company upon the execution of this Agreement. The Promoters and the Promoter Director unconditionally agree to do all deeds, execute all documents and undertake all compliances as may be required to give effect to this Clause 2.3.
xxxx xxxx xxxx
Non-Compete Agreement:
1.1 For a period of three years from the Effective Date of this Agreement (the "Non Compete Term") , the Promoters shall not, directly or indirectly a) be employed or provide any services to a Competing Entity; or b) act as an agent, representative, contractor or consultant with any Competing Entity; or c) acquire or retain any beneficial or ownership interest in a Competing Entity, including any shares, capital, goodwill, partnership contribution, etc.; or d) be engaged in a business that directly or indirectly competes with the business of the Company or the Investor (collectively, the "Non- Compete Obligation"). For the purposes of this Agreement, the term "Competing Entity" to any business entity that directly or indirectly competes with the business of the Company or the Investor."1
Respondents no. 1 to 3 are described in the SSA/SHA as "Promoters"/ "Promoter Director". Petitioner no. 2 is described as the "Company".
O.M.P.(I) (COMM.) 183/2024 Page 3 of 10This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/06/2024 at 02:30:05 3.2.1 For the purposes of this Agreement, "Confidential Information" shall mean all information (whether written, or in any other form) relating to the Disclosing Party and its business (including without limitation, financial and technical information, data, reports, records, correspondence, notes, compilations, studies, development concepts and plans, trade secrets, information relating to business affairs, business opportunities, operations, processes and methodologies and any other proprietary information), made available by the Disclosing Party or through its agents, affiliates or advisers to the Receiving Party (or its Representatives), whether before or after the date of this Agreement However, Confidential Information does not include any publicly available information or any information that, after disclosure, becomes publicly available, otherwise than through an unauthorized disclosure or other act or omission by a Party.
xxxx xxxx xxxx
Employment Agreements:
3.5 The Employee shall not, during the term of this Agreement, (except with the prior sanction in writing of the Company), be directly or indirectly engaged in or be concerned or interested in any business , affairs or activities of any person, firm, concern, body corporate whether incorporated or not, undertaking or company which is in any way directly or indirectly in competition with or in opposition to any business for the time being carried on by the Company or any activity related to drone manufacturing. Any direct or indirect participation by the Employee as employee, director, manager, shareholder, proprietor, secretary, advisor, consultant, officer, agent, executive or self-employed person or any direct or indirect participation or financial interest in such person or body corporate is hereby prohibited. Any participation in any body corporate or running of his own business shall require the prior written approval of the Company. The Employee shall not except with the prior written permission of the Company, be directly or indirectly be concerned or interested in any contract or arrangement relating to the supply of goods or services to or by any customer or supplier of the Company.
3.6 The Employee shall not either during or after the termination of the appointment hereunder divulge, communicate or pass on any information in any form to any person (except to the officials concerned of the Company), or use for his own purposes or for any purposes other than those of the Company directly or indirectly or cause any unauthorized disclosure to any person of any secret or confidential information relating to the business or the affairs of the Company or in respect of which the Company is bound by an O.M.P.(I) (COMM.) 183/2024 Page 4 of 10 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/06/2024 at 02:30:05 obligation of confidence to any third party .
3.7 The Employee shall, both during and after termination of his appointment under this Agreement, maintain strict confidentiality with respect to third parties as to all confidential or secret information or business matters of the Company coming to his attention, within or outside the scope of his employment for the Company irrespective of how he has obtained such knowledge. The Employee shall require the prior written approval of the Company for assuming any position on the Board of Directors, supervisory or advisory boards or on any similar bodies of non-affiliated companies or professional organisations. All notes, memoranda, records and writings made by or made available by the Company to the Employee relating to the business of the Company shall be and remain the property of the Company and shall be handed over by him to the Company from time to time on demand and in any event immediately upon the expiry or termination of this Agreement.
3.8 The Employee recognises and acknowledges that the Company's trade secrets, knowhow and proprietary processes as they may exist from time to time (including, without limitation, the following types of information and other information of a similar nature (whether or not reduced to writing): discoveries , ideas, concepts, software in various stages of development, design , drawings , specifications, techniques, models, data, mark-up languages (HTML, XML), source code, object code, documentation, diagrams , flowcharts , research , development, processes, procedure s, ''know-how", marketing techniques and materials, marketing and development plans, customer names and other information related to customers (including , addresses, phone numbers , e-mail addresses, and all other information relating to the employees), price list, brokerage / commission structure, pricing policies and financial information. Confidential Information also includes any information described above which the Company treats as proprietary or designates as Confidential Information, whether or not owned or developed by the Company) as well as the information relating to released or unreleased Company' s services or products, the marketing or promotion of any Company Product, Company's business pol icy or practices, and information received from others that Company is obligated to treat as confidential (together , "Confidential Information ") are valuable, special and unique assets of the Company's business . Without the Company ' s express prior written consent, the Employee will not, at any time during or after his employment by the Company, use any Confidential Information for himself or others, or disclose or communicate any Confidential information to any third party for any purpose whatsoever. 3.9 The Employee understands that it shall be entrusted with O.M.P.(I) (COMM.) 183/2024 Page 5 of 10 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/06/2024 at 02:30:05 Confidential Information in his dominion during the course of his employment with the Company. If the Employee discloses the Confidential information to any third party (either during or after the operation of this Agreement) in order for any selfish material gain, then the Employee understands that he shall have committed criminal breach of trust and the Company shall be at full liberty to proceed with any appropriate criminal proceedings against the Employee.
xxxx xxxx xxxx 4.1 All written work or innovation or invention made or produced by the Employee in connection with his activities during the period of this Agreement, shall inure exclusively to the Company. In so far as such work or invention relating to all types is protected by copyright or trademark or patent or design or other intellectual property rights, the Employee hereby grants the Company the exclusive and unrestricted right of use for all purposes. Such right of use sha ll remain valid even after the termination of the service relationship. There shall be no entitlement to any remuneration or compensation for granting such right of use. Such work or invention shall be fully compensated by the contractual remuneration specified in this Agreement.
xxxx xxxx xxxx 7.2 The Employee acknowledges and agrees that if any of the clauses of this Agreement are not performed in accordance with their specific terms or are otherwise breached, the Company will be irreparably injured and damaged thereby and that monetary damages will be inadequate to compensate for the harm, injury and damage. Accordingly, in addition to any other remedies that may be available at law or in equity, the Company will be entitled to seek injunctive relief (prohibitory or otherwise) restraining any violation or breach of this Agreement by the Employee or any other appropriate decree or order of specific performance of this Agreement.
10. On the basis of these clauses, at this stage, Mr. Mehta seeks an interim injunction restraining the respondents from entering into or continuing any business competing with that of the petitioner No.2, and from using intellectual property or disclosing confidential information of petitioner No.2--company, as stated in the aforesaid agreements.
11. Mr. Anirudh Suresh, learned counsel for respondent Nos.1 to 3 and 5, has appeared on advance notice. Although it was put to Mr. Suresh that O.M.P.(I) (COMM.) 183/2024 Page 6 of 10 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/06/2024 at 02:30:05 the disputes between the parties may effectively be referred to arbitration in these proceedings itself, however, he is unable to give consent to such a reference, particularly because he states that he does not represent respondent No.4 . He states that he has been unable to get in touch with him to enable his appearance in these proceedings, despite an opportunity granted yesterday.
12. On merits of the matter, Mr. Suresh submits that the business of petitioner No.2--company was compromised by petitioner No.1 after entering into the SSA/SHA and taking control of 60% of the shareholding of petitioner No.2--company. He submits that petitioner No.1, in fact, through its sister concern, is engaged in a business competing with petitioner No.2--company and was not interested in the growth of the business of petitioner No.2-company. It is in these circumstances that respondent Nos.1 to 3 have parted ways with the petitioners and sought to establish their own business, which according to him, does not come within the purview of the Non-Compete Agreement and also does not use any intellectual property of petitioner No.2--company.
13. Mr. Suresh also submits that the consideration payable to the respondents, in terms of Clause 2.1 of the Non-Compete Agreement, was never paid to respondent Nos.1 to 3.
14. I am prima facie of the view that the submission of Mr. Suresh, learned counsel for the respondent Nos. 1, 2, 3 and 5, with regard to non- payment of consideration under the non-compete clause is unmerited, as the clause provided for the consideration to be paid within 18 months after the effective date of SSA/SHA. Respondent Nos.1 to 3, however, resigned from the services of petitioner No.2--company on 03.07.2023, O.M.P.(I) (COMM.) 183/2024 Page 7 of 10 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/06/2024 at 02:30:05 prior to expiry of the aforesaid period.
15. Similarly, Mr. Suresh raises the contention that the Non-Compete Agreement itself is void, but I am not inclined to accept this submission at this stage, as these matters are to be adjudicated in arbitration. I find prima facie that the Non-Compete Agreement was for a reasonable period of three years, which fell within the period during which the respondents were bound to provide services to petitioner No.2.
16. These issues will ultimately have to be adjudicated between the parties in arbitration proceedings. However, having regard to the specific clauses of the SSA/SHA, Employment Agreements and Non-Compete Agreement, which form part of the transaction documents to which respondent Nos.1 to 4 were all parties, I am of the view that the petitioners have made out a prima facie case for grant of an ad interim order. The balance of convenience is also in favour of such an order being passed. I am satisfied that the petitioners would suffer irreparable loss if ad interim orders are not granted in their favour.
17. For the aforesaid reasons, respondent Nos.1 to 4 are restrained until the next date of hearing, from engaging directly or indirectly in any business competing with the business of petitioner No.2--company. For the sake of clarity, it may be noted that, in this connection, respondent Nos.1 to 3 have filed a petition before the National Company Law Tribunal, Bengaluru, in which they have described the business of petitioner No.2--company in the following terms:
"1. It is submitted that Mr. Nagendran Kandasamy ("Petitioner No. 1"), Mr. Shashi Kumar R. ("Petitioner No. 2", Mrs. Nischitha Madhu ("Petitioner No. 3") are graduates of one of the premier colleges for Aeronautics and are experienced professionals with great experience in the aerospace engineering and drone manufacturing (together O.M.P.(I) (COMM.) 183/2024 Page 8 of 10 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/06/2024 at 02:30:06 referred herein as "Petitioners"). The Petitioners having knowledge of the field was substantial to the point that Petitioner NO. 1 was appointed as members to the taskforce member of Director General of Civil Aviation (DGCA) for the drone's domain. Due to their in-depth experience, the Petitioners decided to start a company to be the leaders in India and globally in the field of drone and UAV production for civilian and military purposes. Therefore, the Petitioners founded Throttle Aerospace Systems Pvt. Ltd. ("Respondent No. 1" or "Company"). The Company was incorporated on 08.01.2016 with Petitioner No. 1 being a 50% shareholder and managing director of the Company along with Petitioner No. 3 holding 25% shareholding and one Mr. Raja Venkatesh Kumar holding the remaining 25% shareholding. The copy of certificate of incorporation, master date, memorandum of association and articles of association are annexed herein as Annexure A (cooly) in page --- to page -----.
2. It is submitted that due to the experience, knowledge and acumen of the Petitioners, the Respondent No. 1 soon became India's fastest growing drone manufacturer and was India's first DGCA-approved Company for civil drones and possesses the license from the government of India to produce military drones. Further, the Company contributes as a key enabler for drone delivery in India, and recently kick started remarkable medical done delivery sandbox project in Bangalore to study delivery of vaccines by drones. The Company also contributes as a key enabler on drone policy refinement, NPNT, provisional certificate in NPNT, certification, drone delivery, BVLOS etc and is well positioned in policy and framework recommendations and taskforce members of DGCA CII & SAB on droned/UAM/e-VTOL and has scored 200+PR organically since 2016. The Company has constructed and operates a 10000 sq.ft. state of the art manufacturing facility in Bangalore and is on a mission to develop highly scalable drone hardware & software platform and to transform mobility globally. The copy of licenses and achievements of the Company are annexed herein as Annexure B (colly) from page ---- to page ----."
18. As far as confidential information of petitioner No.2 is concerned, it is defined in clause 3.2 of Employment Agreements extracted above. For the present, respondent Nos.1 to 4 are also restrained from disclosing confidential information as defined in clause 3.8 of the Employment Agreements to any third party.
19. The respondents may file replies to the petition within four weeks.
O.M.P.(I) (COMM.) 183/2024 Page 9 of 10This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/06/2024 at 02:30:06 Rejoinders may be filed within two weeks thereafter.
20. List on 08.08.2024.
21. It is made clear that pendency of this petition will not come in the way of the petitioners invoking arbitration and from parties taking steps to constitute the arbitral tribunal.
PRATEEK JALAN, J MAY 31, 2024 mk O.M.P.(I) (COMM.) 183/2024 Page 10 of 10 This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/06/2024 at 02:30:06