Madras High Court
Sanmar Speciality Chemicals Ltd. vs Dr. Biswajit Roy on 27 April, 2007
Equivalent citations: AIR2007MAD237
Author: S. Rajeswaran
Bench: S. Rajeswaran
ORDER S. Rajeswaran, J.
1. 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.
2. The brief facts as culled out from the affidavit are as under:
3. The applicant Company is engaged in a very specialized 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 ManagerResearch and 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 corporate 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.
4. 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 under Section 9 of the Arbitration and Conciliation Act, 1996, hereinafter called 'the Act', for an order of interim injunction.
5. 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.
6. 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.
7. Heard Mr. P.S. Raman, learned Senior Counsel appearing for the applicant and the learned Counsel for the respondent. I have also perused the documents filed and the judgments referred to by them in support of their submissions.
8. The learned Senior counsel for the applicant submitted that having signed an agreement willingly 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 that 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.
9. The learned Senior Counsel relied on the decision reported in 2006 (133) Comp Cas 160 (Kar) : AIR 2006 Kar 143 V.V. Sivaram and Ors. v. Foseco India Limited in support of his submissions.
10. 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 confidential information referred to by the applicant are easily available in the internet and therefore there is no confidentially at all in the information sought to be portrayed as confidential information.
11. 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 v. Percept D'Mark (India) Pvt. Ltd.; 2006 Ind Law Del 362 American Express Bank Limited v. Priya Puri; Percept D'Mark (India) (P) Ltd. v. Zaheer Khan; and 2004 (I) LLJ 323 Polaris Software Lab. Ltd. v. Suren Khiwadkar.
12. I have considered the rival submissions carefully with regard to facts and citations.
13. 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.
14. The following clauses in the abovesaid agreement dated 20-6-2005 are relevant for the purpose of deciding the issue:
3. 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.
6. 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, lessor, 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.
15. 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 hereinabove 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 ones 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.
15. 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 15-3-2007 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.
16. 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 arc 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, lause IJ 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.
17. 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 6-12-2006,1 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) LW 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 Cas 109 R. Babu and Anr. v. K LIG Ltd.
18. 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.
19. In the result, I find no merits in the injunction application and the same is therefore dismissed. No costs.
20. 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.