Gujarat High Court
Sandhya Organic Chemicals P. Ltd. And ... vs United Phosphorous Ltd. And Anr. on 4 February, 1997
Equivalent citations: AIR1997GUJ177, AIR 1997 GUJARAT 177
JUDGMENT K.R. Vyas, J.
1. Admit.
2. With the consent of the learned Advocates, these appeals were taken up for final hearing.
3. The appellants in both these appeals are original defendants Nos. 1 and 2 and No. 3, respectively, (hereinafter referred to as "the defendants Nos. 1, 2, and 3") and the respondent No. 1 in both these appeals is the original plaintiff (hereinafter referred to as "the plaintiff") in Civil Suit No. 161 of 1996 pending on the file of the Court of the learned Civil Judge (S.D.), Valsad.
4. In the suit, the plaintiffs has claimed that it has invented a new process for manufacturing Aluminium Phosphide ("AIP" for short) and Zinc Phosphide ("ZnP" for short) by substituting while/ yellow phosphorous for red phosphorous by conducting trial, experiment and research for a long period and is, therefore, entitled to a declaration that the plaintiff is exclusively entitled to the right, like to and interest in the new process invented by it and also for a permanent injunction against the defendants restraining them from adopting, using and resorting to, in any manner whatsoever, form a new process as invented by the plaintiff for the manufacture of AIP and ZnP by using any information, knowledge, know-how relating thereto or any drawing or material relating thereto and from selling such products in the open market or secretly and from divulging, passing on any information, documents, drawing descriptions etc. The plaintiff has also claimed damages to the tune of Rs. 10 crore from the defendants alleging that they have committed illegal and wrongful' act. breach of contract and breach of trust and thereby caused wrongful loss and damages to the plaintiff. Alongwith the suit, the plaintiff has also filed application. Ex. 5. and applied for an interim relief claiming similar reliefs as claimed in the suit together with a relief for appointment of a Commissioner to make a local inspection of the premises of the factory, offices and houses of thc defendants and to hold a scientific and technical or expert investigation in the subject matter of the suit i.e. new process invented by the plaintiff. The plaintiff has also prayed for appointment of a Receiver or some other fit and proper person as Receiver in respect of the impugned finished goods, equipments, machines, drawings, documents in possession of the defendants under Order 40, Rule 1 of the Code of Civil Procedure Code with power to take possession thereof and deliver the same to the plaintiff for destruction.
5. The learned trial Judge, on 3rd October, 1996, granted ad-interim injunction in terms of para 17(1-A) and (1-B) of the application up to 1-11-1996 and issued urgent show cause notice to show cause why the ad-interim injunction should not be made absolute, and fixed the hearing on October 16, 1996. One Bharat v. Anjaria. Chemical Engineer and Consultant. Institute of Engineers (India), enlisted with I.D.B.I. State Bank of India. G.I.D.C.. Vapi. was appointed as Court Commissioner with a direction to prepare panchnama etc. in terms of prayer para 17(C) of the application. It appears that against the said ex pane order, the defendants preferred an appeal being Appeal From Order No. 491/96 in this Court. Along with the appeal, an application being Civil Application No. 8650 of 1996 for stay of (he operation and implementation of the ex-partc order was filed. This Court (Coram : D.G. Karia. J.) vide its order dated 10-10-1996 issued notice and made it returnable on 18-10-1996 and also granted slay as prayed for. D.G. Karia. J. after hearing both the parties on October 18, 1996 disposed of the Appeal from Order by directing the learned trial Judge to hear application as expeditiously as possible and not later than November 1, 1996 and continued the stay granted earlier till the disposal of the injunction application. Ex. 5.
6. The learned trial Judge, in compliance with the order of this Court, after hearing the panics, vide his order dated January 1, 1997, partly granted the injunction in terms of para 17(A) and (E) and refused the interim injunction as prayed for in terms of para 17(B), (C) and (F). meaning thereby he has restrained the defendants from adopting, using and resorting to in any manner whatsoever form the new process us invented by the plaintiff for manufacture of AIP and ZnP and from selling such products in the open market or secretly and from divulging, passing on any information, documents, drawings descriptions etc. to any other person, corporation, agenls. servants body corporate etc. The said order is under challenge in both these appeals.
7. Since a common question of law and fact is involved in these appeals, they can conveniently be disposed of by this common order.
In order to appreciate the dispute involved in these appeals, it is necessary to give certain facts.
The plaintiff is a Public Limited Company and is carrying on its business at Mumbai. It is manufacturing various types of industrial chemicals and A1P and ZnP at its factories at Vapi and Ankleshwar in the Stale of Gujarat. The plaintiff also sells finished goods in the open market.
8. Defendant No. I is a Private Limited Company having its factory at GIDC, Vapi, District Bulsar and is carrying on business of manufacturing same industrial chemicals as are manufactured by the plaintiff. Defendant No. 1 is also having its office in Mumbai and defendant No. 2 being its Director, conducts its business activities from Mumbai. Defendant No. 3 was employed in the factory of the plaintiff as a Plant Manager on May 15, 1992. It appears that by the letter of appointment, defendant No. 3 was tied down with certain terms and conditions were mentioned that without the written permission of the management, defendant No. 3 shall not disclose, divulge or publish during the tenure of his employment with the plaintiff orsubsequently any confidential or secret information, including secret process and formulae acquired during the course of the employment with the company and upon termination of the employment or resignation, defendant No. 3 will return all papers and documents of the Company which may at that time be in his possession relating to the business of affairs of the company and he will not retain any copies or extracts therefrom.
9. It is not in dispute that defendant No. 3 signed the letter of appointment in token of acceptance of the appointment and the terms and conditions stipulated therein on June 12, 1992. It is also not disputed that defendant No. 3 has also signed the secrecy agreement (undertaking) on the same day. It is the case of the plaintiff that initially for manufacture of AIP and ZnP, the plaintiff was using Red Phosphorus, which was less reactive and safer to handle form of the same clement. However, it then decided to develop a new process for manufacture of AIP and ZnP by substituting white/yellow Phosphorus, which is an active and reactive form of elemental phosphorus, for red phosphorus. The plaintiff also decided to improve the tabletting machine used for making the AIP tablbets in which the produce is usually marketed. It is the case of the plaintiff that equipments and machineries designed and fabricated for such process are quite different from those of the old machines. It is also the case of the plaintiff that when the project of switching over of the manufacturing process of AIP from the use of Red Phosphorus to the use of White/ Yellow Phosphorus was undertaken, the defendant No. 3 was in the employment with the plaintiff. He was treated as a trustworthy employee and was, therefore, included in the team of technicians working for the said project. It is also the case of the plaintiff that as the plant was to be redesigned, which included modification of the designs of some of the existing equipment, development of new designs of some machineries and experimentation on the pilot plant of the newly developed/modified equipment, the plaintiff often entrusted to defendant No. 3 with the confidential information which was not to be made known or divulged by him to anyone as per the terms and conditions stipulated in the letter of appointment and the secrecy agreement. The plaintiff has alleged that only because of his employment with the plaintiff, the defendant No. 3 was involved in the development of new plant and modification of designs of existing plant. He therefore, assisted the Chief Executive and Senior Engineer, who were in charge of the project, and was made acquainted with the developments that were being carried out by the plaintiff for implementing the project. The plaintiff has stated that the whole project took almost nine months to complete and was accordingly completed in January, 1994. According to the plaintiff, the new process of making AIP and ZnP substituting red phosphorus by white/yellow phosphorus is unique and invented by the plaintiff after lots of trials, experiments and collecting scientific information. It is also not in dispute that the plaintiff terminated the service of the defendant No. 3 on June 20. 1994 for toss of confidence. The plaintiff has alleged that immediately on termination of the services of the defendant No. 3, he joined defendants Nos. 1 and 2 and started working with them for building of a similar plant for AIP as the one built by the plaintiff for manufacturing AIP and ZnP by using while/yellow phosphorus instead of red phosphorus. It is further alleged that the defendants Nos. 2 and 3 then unknown to each other had entered into conspiracy for adopting the new process in vented by the plaintiff for its private use and pursuant to the said conspiracy, defendant No. 2 induced defendant No. 3 to commit the breach of the terms and conditions of the secrecy agreement (undertaking) and defendant No. 3. it is stated, appears to have passed on all the documents, drawings, specifications etc. designs, knowledge and know-how to defendants Nos. 1 and 2, which were entrusted to defendant No. 3 during the course of his employment with the plaintiff.' According to the plaintiff, the defendants arc manufacturing AIP and ZnP and started selling the finished goods in the open market as the plaintiff has obtained a copy of the hill dated 3-7-96 issued by defendant No. 1 for supply of AIP to Pest Control M. Walshe. Churchgate. Mumbai. According to the plaintiff, till this happened, defendants Nos. 1 and 2 had not, at any time before, manufactured the said goods since they had no source other than defendant No. 3. who, in turn, had no source other than the plaintiff. The plaintiff has, therefore, apprehended that the defendants Nos. 1, 2 and 3, in collusion with each olheror separately, may sell or part with or further divulge the trade secret as embodied in the various documents of the said process invented by the plaintiff to other manufacturers or persons etc. so as to wipe out completely the business of the plaintiff from the market. The plaintiff has, therefore, filed the said suit and by way of interim injunction prayed as stated hereinabove.
10. Defendants Nos. 1 and 2, vide their reply. Ex. 20, while denying the averments made in the application. Ex. 5, have come forward with a case that the plaintiff has no proprietary right in the nature of inventions, in the nature of trade secrets, or confidential information, as alleged. It is further averred that the plaintiff does not possess the properly of the nature of an exclusive right, save that of the patent, registered design copy right or trade mark. It is the case of the defendants that there is no invention of any process of the kind alleged by the plaintiff and the specifications do not sufficiently and fairly describe the alleged invention. According to the said defendants, the specifications' are not new and there is no novelty as they are widely and publicly known in India. According to these defendants, the alleged specifications are simple chemical processes widely known to the students of Chemistry and the men of commerce dealing in the manufacture of the products as also to the consumers and the men of science. It is the specific case of the defendants that defendant No. 3 joined defendants Nos. 2 and .1 from August. 1994 and prior to his joining defendants Nos. 1 and 2 were actively participating in process of manufacturing AIP and ZnP by using white/yellow phosphorus. It is averred by these defendants that the defendant No. 2 holds a degree of Graduate in Chemistry and had worked with the plaintiff in 1971-72. He thereafter worked with other indusiries like Atul Products Ltd., Atul and Jaysynlhe Ltd. Mumbai and rejoined the plaintiff and worked with it from 1978 to 1982 and he thereafter started Sandhya Dyes and Chemicals at Saringan, GIDC. Taluka Umbergaon in the year 1984 and was carrying the production of Phosphorus Pontaoxide. Phosphorus Exychloride, Phosphorus Trichloride and Phosphorus Ponts Chloride using While Phosphorus as the main raw material. Thus defendant No. 2 is having experience in the production of Phosphorus based products and has acquired the technical know how. It is also averred that defendant No. 2 also applied for and obtained the licence for the manufacture of AIP and ZnP from the licencing authorities for the use of white/ yellow phosphorus on 20-5-1993 and 4-10-1994. respectively. According to the defendants, they are the manufacturers of while/yellow phosphorus based products in the market and. prior to the plaintiff, other indusiries like Excel Industries of Mumbai, have been producing AIP and ZnP with white/yellow phosphorus. Likewise Agrosynthe Ltd., Bangalore has also been manufacturing AIP and ZnP prior to defendant No. 1.
11. Defendant No. 3, in his separate reply. Ex.
22, while denying the averments made in the application, Ex. 5, has, inter alia, staled that he holds a degree of B.R. (Chem) and is well versed in the science of chemistry and possessed of adequate skill and knowledge of chemical process in the manufacture of the products. According to defendant No. 3 before his appointment with the plaintiff, he served with various chemical industries in the Stale of U.P. State of Maharashtra, etc. and is having 15 years of experience of chemical process and products.
12. Needless to say, the plaintiff has fifed the rejoinder denying the averments made in the replies of the defendants.
13. The learned trial Judge, after considering the pleadings as welt as the documents produced has passed the impugned order, which is challenged in the present appeals.
14. Mr. A.H. Mehta, learned counsel appearing for the plaintiff has raised following broad contentions:
1. The trial Court has tailed to appreciate the ingredients of Order 39, Rules (2) and (3) of the CPC.
2. The trial Court, by granting the interim relief, has virtually decided the suit without trial.
3. The plaintiff has no proprietary interest in the nature of a registered trade mark, which would enable it to sue and obtain injunction in the terms in which it has been, granted by the trial Court.
4. In view of the provisions of the Patents or Designs Act. unless a patent or a design is registered in respect of an invention, there is no proprietary right of which the plaintiff can complain of and ask for relief in the nature of injunction.
5. In absence of any agreement by and between the defendants Nos. 1 and 2 and the plaintiff on the basis of which it could sue for an invention restraining the defendants from currying on any activity, trade or business, no injunction can he granted apart from the fact that the agreement between the plaintiff and the third defendant is also void having regard to the provisions of Section 27 of the Contract Act.
6. In view of the delay, laches and acquiescence on the part of the plaintiff, the plaintiff is not entitled to obtain an order of injunction against the defendants.
15. Mr. Section B. Vakil, learned counsel, on the other hand, while supporting the judgment of the trial Court, has submitted that the suit filed by the plaintiff is under Section 9 of the CPC and is not based upon any infringement of trade mark, passing off or Patent or Designs Act or the Copyright Act. In the submission of Mr. Vakil, the action of the plaintiff is for the enforcement of the rights of confidentiality under the Secrecy Act as per the agreement (undertaking) between the plaintiff and the defendant No. 3 and against all the defendants or any one of them. Mr. Vakil, while developing his arguments, has submitted that this right of confidentiality is not confined to a process which the plaintiff may have invented, the cause of action being breach of confidence. the question being the plaintiff had disclosed to the defendant No. 3 the process of manufacture, whether or not invented by the plaintiff in confidentiality and whether or not the present defendants are making use of the process in breach of confidence, which was reposed in defendant No. 3. according to Mr. Vakil, the cause of action is in breach of the confidentiality with respect to the industrial property and the employee to whom such property or information thereto was entrusted cannot part with as it is not his properly and as he cannot do so. even by setting plea that selling the properly is trade or business and even the third person who acquires the same in breach of confidentiality subsisting between the own of and the employee and the employee cannot claim a right to use it against the owner as nobody has any right to carry on any business in stolen property. Mr. Vakil submitted that the defendant No. 3 cannot claim a righl to use confidential information in his own business by claiming that by agreement he is restrained in trade is void under Section 27 of the Contract Act. If defendant No. 3 could not transfer or sell or use it his own business, then he is not entitled to divulge it in favour of defendants Nos. 1 and 2. In the submission of Mr. Vakil, that the concept of restraint in trade does not come in the matter of confidentiality. To substantiate his submission. Mr. Vakil has placed reliance on the observations of the learned Author P. Narayan in his book "Intellectual Property Law" and "Law of Copyright and Industrial Design" and also the observation of Kopinger and Skonejaones on Copyright.
16. Having heard the arguments of Mr. Vakil, it appears that he has based the case of the plaintiff, for the first time in this Court, regarding cause of action on common law and equity which is not affected by Section 27 of the Contract Act. This being aquestion of law, this Court is required to consider the same. In the instant case, as per the terms and conditions of the appointment between the plaintiff and the defendant No. 3. defendant No. 3 was restrained from disclosing or divulging, publishing during the tenure of employment or subsequently any confidential or secret information, including secret process and formulae acquired in the course of his employment with the plaintiff company. He was further conditioned to return all papers and documents of the company and not to retain any copies or extracts therefrom upon termination of his services. As can be seen from the arguments advanced before me on behalf of the defendants the said agreement itself is void in view of the provisions of Section 27 of the Crintract Act. while, as per the plaintiff in view of the cause of action on common law and equity, the said agreement is not affected by Section 27 of the Contract Act as Section 27 contemplated "lawful trade". In substance, il is contended on behalf of the plaintiff that if a person has no right in common law. he cannot ask for that right since there is a negative covenant in the agreement he would carry out. As stated above, since the entire line of argument of Mr. Vakil is based on the cause of action on common law and equity as against the express provisions of Section 27 of the Contract Act. the question that arises is as to how far the principles laid clown by the English Courts on common law and equity are applicable to the present case. The Supreme Court in Superintendence Co. of India v. Krishun Murgai. AIR 1980 SC 1717 has considered this question and has ruled that while The Contract Act. 1872. docs not profess to be a complete code dealing with the law relating to contracts, to the extent the Act deals with a particular subject, it is exhaustive upon the same and it is not permissible to import the principles of English Law dehors the statutory provision, unless the statute is such that it cannot be understood without the aid of the English Law. When a rule of English Law receives statutory recognition by the Indian Legislature, it is the language of the Act which determines the scope, uninfluenced by the manner in which the analogous provision comes to be construed narrowly, or otherwise modified, in order to bring the construction within the scope and limitations of the rule governing the English doctrine of restraint of the trade. In my view, this ruling of the Supreme Court gives complete answer to the submissions of Mr. Vakil and no further elaboration is necessary. In the said case, the Supreme Court has also ruled that under Section 27 of the Contract Act. a service covenant extended beyond the termination of the service is void. In view of this settled position of law. is it open to the plaintiff to seek injunction against the defendants, especially when defendant, No. 3 was not in the service with the plaintiff? In other words, can defendant No. 3 be restrained for all times to come from using his Knowledge and experience which he gained during the course of his employment either with the plaintiff or for that matter with any other employer? The answer is certainly in the negative. One cannot lose sight of the fact that the defendant No. 3 being a qualified person possessing a degree of B.E. (Chem) and having obtained sufficient experience in the course of his employment either with the plaintiff or other companies. the experience being his assets, it is difficult at this stage to injunct him unless proper evidence is led that he has disclosed or divulged any secrecy or confidentiality reposed in him while he was in the service with the plaintiff company. The circumstances pointed out by the plaintiff that defendant No. 3, during the course of his employment with the plaintiff, had participated in the meetings relating to the invention of the new process of manufacturing AIP and ZnP and, immediately on his terminal ion, joined the defendants Nos. I and 2 and divulged all the information of manufacturing AIP and ZnP. and the defendants Nos. 1 and 2. in turn, in fact, are also manufacturing the same, prima facie, do not appear to be so strong enough to clinch the issue in favour of me plaintiff as defendants Nos. 1 and 2 have conic out wilh a specific case that even prior to the defendant No. 3 joining the defendants Nos. I and 2. they were actually manufacturing AIP and ZnP by using white/yellow phosperous. As can be seen from the various bills of purchase of machinery and the licence dated 20-5-93 issued by the licensing authority for manufacture of AIP and ZnP by using white/yellow phosphorous, prima facie, it appears that the defendants Nos. 1 and 2 have in fact, been manufacturing the product in question even prior to the defendant No. 3 joining them. In that view of the matter, in my opinion, the plaintiff has failed to make out even a prima facie case in its favour and is therefore not entitled to the relief prayed for.
17. Assuming that Mr. Vakil is right in his submission that in view of the agreement between the plaintiff and defendant No. 3, defendant No. 3 i.s restrained from divulging or disclosing the secrecy of the new process, the question arises is as to how far the said agreement is binding lo defendants Nos, I and 2 who have allegedly started similar process of manufacturing AIP and SnP with the help or assistance of defendant No. 3. especially when they were not the parlies to the said agreement and how can a Court pass a decree against them because it is the specific content ion of defendants Nos. I and 2 that the agreement between the plaintiff and defendant No. 3 is not binding to them and no decree can he passed against them. Mr. Vakil. learned Counsel, after placing reliance on the decisions in Importers and Manufacturers Ltd. v. Phiroxe Framroze Taraporewala. (1953) 55 Bom LR 271 : (AIR 1953 SC 73). Umapati Samanta v. Shaikh Musitulla. AIR 1923 Cal 692. Yusuf Sheikh v. Jyolish Chandra Banerjce. AIR 1932 Cal 241 and Narayan Laxman Ayarkar v. Vishnu Waman Dhawale, AIR 1957 Bom 117 has submitted that a decree can be enforced against a third person who is not a party to it and is bound by it. Having gone through the said judgments, in my opinion. the ratio laid down in those cases is not applicable to the facts of the present case as the aforesaid decisions deal with the rights of" sub-tenants and considering the facts of those cases, the Courts have laid down that the sub-tenants are not required to he heard. That is not the case on hand.
18. Since the plaintiff has come out with a case that as it has invented the process in question, and nobody except the plaintiff is using the same, the defendants have no right to carry on the business of manufacturing the products in question. This being a question of fact, which is required to be proved by leading evidence, I am afraid that, in absence of sufficient material on record the plaintiff, at this stage, is entitled to the continuance of the injunction granted by the trial Court. If at alt the case of the plaintiff is believed that the process in question has been invented by it, it could have got it registered with the appropriate authorities. In absence of the same, 1 can only say that one cannot gel the proprietary right without the process being patented.
19. Since alt the major allegations regarding invention of the process in question have been denied and especially when the defendants have come out with a case that they were manufacturing the products in question prior to the appointment of defendant No. 3 with them, it is neither desirable nor proper to record a specific finding in favour of either of the parties at this stage as this would he a mailer of evidence to be decided by the trial Court.
20. Apart from the above there is one more hurdle in the way of the plaintiff which would disentitle it from getting the equitable relief from the Court and: that is delay, laches and acquiescence. It is the specific case of the plaintiff that P.P. Ashar, the Chief Engineer (Works) of the plaintiff-company in his affidavit filed before !he trial Court has staled that, the service of the third defendant were terminated by the plaintiff on June 21. 1994. In paragraph 12 of the said affidavit, he has staled as under:
"I have learnt that from the very next day following the day he was terminated. Mr. Patel started working for building upan exactly simitar planl for AIP as built by the plaintiff company for manufacturing AIP by using white/yellow phosphorus instead of red phosphorus. He approached M/s. J.J. Tony and Co. of Vapi for marketing and supplying to Sandhya Organics Chemicals the equipment and machinery exactly similar to the one that they had supplied to United Phosphorus for their AIP plant. M/s. J.J. Tony and Co.'s letter of June 11, 1996 is annexed to and forms part of this affidavit."
21. Reading the said letter, it is clear that the plaintiff had knowledge that the defendants have started for building up an exactly similar plant for the products in question to that of the plaintiff company since June 22, 1994. Even then, they allowed the defendants to go ahead with the project and also allowed to manufacture the products and to sell the same in the market. It is only when the plaintiff came to know that the defendants have sold the finished goods in the open market by obtaining bill dated 3-7-96 issued to Pest Control M. Walshe, J. Tata Road. Churchgate, Mumbai, that they have filed the suit on 1-10-1996. In my view the delay from 22nd June, 1994 to 3rd July, 1996 has remained unexplained. The reference of the so-called letter dated June 11, 1996 of M/s. J.J. Tony and Co. the genuineness and the reliability of the same is still to be determined by the Court, i feel that no importance can be attached to the said certificate at this stage. The genuineness and the reliability of the same is still to be determined by the Court. However, the unexplained delay and acquiescence of about two and half years is a ground which would deny the relief of in junction prated for by the plaintiff.
22. Assuming for the sake of arguments that the allegations levelled against the defendants. are true, at the most the same can be construed as a prima facie case in favour of the plaintiff. However, lhat,cannot be a ground for the gram of injunction as prayed for as the other ingredients of granting injunction' viz. balance of convenience and irreparable loss are certainly in favour of the defendants. As can be seen from the reply of the defendants, defendant No. 1 is a small scale unit having engaged about 64 employees and has been manufacturing the products in question even prior to the appointment of defendant i.e. since 1994 and have sold the products indifferent consumers including the Food Corporation of India. If the said business activity has been continued till date, I am of the view that the balance of convenience is in favour of the defendants and if the injunction as granted by the trial Court is continued, the defendants would certainly suffer irreparable loss which will not be compensated in terms of money and especially when the plaintiff has already claimed the damages to the tune of Rs. 10 crore. It is now settled principles of law that no final relief can be granted at the interlocutory stage. If the relief as prayed for is granted, it would tatamount to decreeing the suit at the interlocutory stage without trial. Thus even on this ground also the plaintiff is disentitled to claim the relief of injunction as prayed for by it.
23. In the result, these appeals are allowed with no order as to costs. The order dated 7-1-1997 passed below application Ex. 5 in Civil Suit No. 161 of 1996 by the learned Civil Judge (S.D.). Valsad is set aside.
24. It is clarified that the observations/findings recorded in this order will not come in the way of either of the parties in the ultimate decision of the suit.
25. Orders accordingly