Karnataka High Court
Mu Sigma Business Solutions Pvt Ltd., vs Sagar Balan on 14 June, 2019
Author: B.M.Shyam Prasad
Bench: B.M.Shyam Prasad
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 14TH DAY OF JUNE 2019
BEFORE
THE HON'BLE MR. JUSTICE B.M.SHYAM PRASAD
M.F.A. NO.7740 OF 2018 (CPC)
BETWEEN:
1. MU SIGMA BUSINESS SOLUTIONS PVT. LTD.
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 1956
WHOLLY OWNED SUBSIDIARY OF
MU SIGMA INC (I.E., APPELLANT NO.2)
HAVING ITS REGISTERED OFFICE AT:
AVIATOR BUILDING, LEVEL 14
ASCENDAS - ITPL SEZ ZONE
WHITEFIELD ROAD
BANGALORE - 560 066
AND REPRESENTED HEREIN BY ITS
AUTHORISED SIGNATORY
SRI S. SWAMINATHAN
2. MU SIGMA INC
A COMPANY INCORPORATED UNDER
THE LAW OF UNITED STATES OF AMERICA
HAVING ITS REGISTERED OFFICE AT:
3400 DUNDEE ROAD
SUITE NO.160, NORTHBROOK
ILLINOIS - 60062
UNITED STATES OF AMERICA
AND REPRESENTED HEREIN BY ITS
AUTHORISED SIGNATORY
SRI S. SWAMINATHAN
... APPELLANTS
(BY SRI PRADEEP NAYAK, ADVOCATE)
2
AND:
1. SAGAR BALAN
AGED ABOUT: 35 YEARS
RESIDING AT NO.130, 5TH CROSS
9TH MAIN, NTI LAYOUT, VIDYARANYAPURA
BANGALORE - 560 097
2. MR. SHASHANK DUBEY
AGED ABOUT 29 YEARS
HAVING HIS OFFICES AT: 2ND FLOOR
MFAR SILVERLINE TECH PARK
EPIP ZONE, WHITEFIELD INDUSTRIAL AREA
BANGALORE - 560 066.
3. MR. SHUBHANKAR BHOWMICK
AGED ABOUT 44 YEARS
HAVING HIS OFFICES AT: 2ND FLOOR
MFAR SILVERLINE TECH PARK
EPIP ZONE, WHITEFIELD INDUSTRIAL AREA
BANGALORE - 560 066.
4. TREDENCE ANALYTICS SOLUTIONS PVT. LTD.
A COMPANY REGISTERED UNDER THE
COMPANIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT: NO.180
2ND FLOOR, MFAR SILVERLINE TECH PARK
EPIP ZONE, WHITEFIELD INDUSTRIAL AREA
... RESPONDENTS
(SRI. SHASHI KIRAN SHETTY, SENIOR ADVOCATE FOR
SRI. C. MURALIDHARA, ADVOCATE FOR C/R-1 & C/R-2 TO R-4)
THIS MISCELLANEOUS FIRST APPEAL IS FILED UNDER ORDER
43 RULE 1(r) OF THE CPC, AGAINST THE ORDER DATED 29.06.2018
PASSED ON I.A. NOS.1 TO 3 IN O.S.NO.2312 OF 2017 ON THE FILE OF
THE XVIII ADDITIONAL CITY CIVIL JUDGE, BENGALURU CITY, (CCH
NO.10), DISMISSING I.A. NOS.1 TO 3 FILED UNDER ORDER 39 RULES
1 AND 2 READ WITH SECTION 151 OF CPC.
3
THIS APPEAL HAVING BEEN HEARD AND RESERVED ON
06.12.2018, AND FURTHER HEARD ON 07.06.2019, COMING ON FOR
PRONOUNCEMENT OF JUDGMENT ON THIS DAY, THE COURT
DELIVERED THE FOLLOWING:
JUDGMENT
The plaintiffs in O.S. No.2312/2017 on the file of the 18th Addl. City Civil Judge, Bengaluru (for short 'the Civil Court') are in appeal impugning the Order dated 29.06.2018 passed by the Civil Court rejecting the appellants-plaintiffs' applications under Order XXXIX Rules 1 and 2 of the Code of Civil Procedure (for short, 'CPC').
2. The appellants and the respondents are referred to as arrayed before the Civil Court for convenience.
3. In this suit in O.S. No.2312/2017, the plaintiffs have filed three applications under Order XXXIX Rules 1 and 2 of CPC. The first of the applications viz., I.A. No.1 is filed seeking temporary injunction for restraining the defendants, 4 and persons claiming under them, from utilizing or disclosing the confidential information as described in such application. The second application viz., I.A. No.2 is filed seeking temporary injunction restraining the defendants, and the persons claiming under them, from soliciting or inducing or encouraging the plaintiffs' employees from quitting employment with the plaintiffs and joining the defendant No.4. The third application viz., I.A. No.3 is filed for injunction restraining the defendants, either jointly or severally, and every person claiming under them, from transacting with the plaintiffs' clients and customers or plaintiffs' potential clients or customers. The suit is for similar permanent injunctive relief/s.
4. The plaintiffs' case is that the plaintiff No.1, a private limited company incorporated under the provisions of the Companies Act, 1956, is a wholly owned subsidiary of plaintiff No.2, a company incorporated under the law of the 5 United States of America. The defendants No. 1 to 3 are the plaintiffs' erstwhile employees. The defendant No.1 joined service with plaintiff No.1 on 05.04.2012 as a Manager, but later joined plaintiff No.2 as an Engagement Manager on 26.04.2013 and was stationed in the United States of America. However, while he was working as Senior Engagement Manager, he tendered his resignation with effect from 13.01.2017. The defendant No.2 joined service with plaintiff No.1 as Senior Manager on 09.06.2008, and he continued in employment until he tendered his resignation on 05.03.2013. The defendant No.3 joined service with plaintiff No.2 as a Senior Director - Sales on 01.03.2010, and he continued in service until his resignation on 05.02.2011. The defendant Nos. 2 and 3, after ceasing to work with the plaintiffs, incorporated defendant No.4, a company under the Companies Act, 1956. The defendants, acting in violation of the terms of contract, solicited 6
(i) the plaintiffs' employees to quit employment and joint defendant No.4 as employees between the years 2012- 13 and 2015-16,
(ii) business from the plaintiffs' clientele and customers employing plaintiffs' Proprietary Information viz., highly specialized skills of data mining and data analysis in the areas of retail, marketing, supply chain and risk analysis.
5. The plaintiffs have been able to innovate and develop analytical tools, assets and methods, which are used to provide cutting-edge, unique and specialized services. The plaintiffs are path breakers in the analytics industry because they could evolve a sustainable Global Model integrating disciplines of business, mathematics and technology. The plaintiffs, because they are able to offer cutting-edge, unique and specialized services, have an enviable clientele comprising of more than 50 of 'Fortune 500 Companies'. It would not be possible for a new entrant into the analytics industry to offer similar kind of cutting-edge, unique and 7 specialized services without employing the analytical assets, tools and methods innovated and developed by the plaintiffs. The plaintiffs have expanded large investments of money and resources in creating, innovating and developing the necessary analytical assets, tools and methods. Therefore, these analytical assets, tools and methods constitute not just the plaintiffs' Proprietary Information, but also their confidential properties. Therefore, appropriate proprietary information, non-solicitation and non-competition clauses are included in the contract of employment concluded with every employee, and similar Contract of Employment are concluded with defendant Nos.1 to 3. The plaintiffs' emphasis on Clause 1.2 (Proprietary Information), Clause 4 (Non-solicitation and non-competition) contained in Annexure 'A', which according to the plaintiffs, is annexed to every Contract of Employment. The plaintiffs also rely upon Employee Proprietary Information and Inventions Agreement executed by the defendant No.1 in compliance with the plaintiffs' internal policies. It is also 8 contended that the defendant Nos.2 and 3 have executed similar documents, and therefore, they are also bound by these covenants.
6. The plaintiffs allege that the defendant No.1, while in employment with the plaintiffs, and in complete violation of the terms of the aforesaid Proprietary Information and Information Agreement and the other terms of employment, divulged commercially sensitive confidential information to the defendant No.2 and 3, who incorporated the defendant No.4. The defendant No.1 had access to such information because of his employment with the plaintiffs, and this sensitive and Confidential Information, also being plaintiffs' proprietary information, is not available in the public domain or circulation or publication for release. The plaintiffs have reliably learnt that the other defendants, because defendant No.1 was divulging sensitive and Proprietary Information, were able to contact the plaintiffs' customers and solicit business. 9
7. The plaintiffs assert that this alleged misfeasance is established by the fact that the defendant No.4 represented by defendant No.1, who joined defendant No.4 after quitting employment with plaintiffs, started interacting with M/s. General Motors, a renowned multi-national company and bid for its projects. The plaintiffs assert that because the defendants were acting in cohorts, and in violation of the terms of employment which include Non-Solicitation and Non- Competition Clauses, they enticed senior executives to quit employment with the plaintiffs because they wanted to access the plaintiffs' Proprietary Information. The defendants have been able to entice and hire the plaintiffs' former highly trained employees who were working as Decision Scientists, Senior Business Analysts, Associate Manager and Apprentice Leaders. The defendants have also posted on the website of defendant No.4 that some of the plaintiffs' former employees are now key employees with the defendant No.4. 10
8. The plaintiffs contend that if the defendants continue to use the plaintiffs' Proprietary Information, entice the plaintiffs' former employees and/or solicit business from its exclusive client base, the plaintiffs would be put to severe business loss and the plaintiffs would also suffer loss of reputation and business tactics. The plaintiffs have created, innovated and developed highly sophisticated analytical assets, tools and methods. The plaintiffs have been able to create a niche amongst the very exclusive because of such innovation and development over a period of time. Therefore, the plaintiffs have prima facie case and balance of convenience in their favour, and the plaintiffs would also be put to irreparable loss if the interim applications are not considered favorably.
9. The defendants contest the plaintiffs' suit, but without disputing that the defendant Nos.2 and 3, who are erstwhile employees of the plaintiffs, have incorporated 11 defendant No.4, and the defendant No.1 has joined them later as a Director. The defendants also do not dispute that they are engaged in similar business line as the plaintiffs. However, the defendants specifically contend that they have not in any manner utilized or used the plaintiffs' Proprietary or Confidential Information. The defendants have solicited neither the former employees nor customers of the plaintiffs. The allegations of solicitation of clients and employers, as every other allegation, are unjustified and unsubstantiated. The defendants are carrying on the business on their own strength without affecting the plaintiffs' rights whatsoever. The former employees of the plaintiffs, for their own reasons and on their own accord, have offered to work with the defendant No.4, and accordingly they have been employed with defendant No.4.
10. Insofar as the terms of employment as alleged by the plaintiffs, and holding the defendants to such terms, the 12 defendants contend that the defendant Nos.2 and 3 have not executed any agreement either as Employee Proprietary Information and Inventions Agreement or otherwise. They contend that even otherwise, the terms relied upon by the plaintiffs tantamount to restraining the defendants from exercising lawful profession, trade and business. Therefore, the terms relied upon by the plaintiffs are hit by Section 27 of the Indian Contract Act, 1872. As such, the Non-Solicitation and Non-Competition Clauses in Annexure 'A' that is annexed to the Contract of Employment, and executed by the defendant No.1, cannot be enforced.
11. The Civil Court has dismissed the plaintiffs' applications for manifold reasons. The Civil Court has held that though the plaintiffs have sought for temporary injunction on the premise that the defendants are using the plaintiffs' Proprietary Interests and that the plaintiffs have not described such Proprietary Interests. The Civil Court has also 13 further held that the plaintiffs have not produced any material to indicate how the defendants have used the plaintiffs' Proprietary Interests in soliciting plaintiffs' customers. Next, the Civil Court has concluded that the question whether the employees mentioned in the plaint have joined the defendant No.4 on their own or because they were enticed by the defendants, is a question that could only be decided after the necessary trial. Similarly, the question whether the defendants have solicited any business from the plaintiffs' clientele will also have to be decided after a trial. Further, the Civil Court has held that the plaintiffs have failed to establish, which of the plaintiffs' Proprietary Interests have been violated by the defendants, and at the threshold stage there cannot be any assumption that the defendants could have misused plaintiffs' Proprietary Interests. The plaintiffs, in the least, should have produced some communication between their customers/clientele and the defendants to prima facie establish that the defendants were soliciting 14 business. Furthermore, the Civil Court has held that as regards defendant Nos.2 and 3, there is a serious dispute whether they have indeed signed and accepted the terms as regards Non-solicitation and Confidentiality.
12. The Civil Court, as regards the legal contention that the defendants are bound by the 'Negative Covenants' from using plaintiffs' Proprietary Interests and soliciting business, has concluded that it is settled law that a Negative Covenant insofar as it operates beyond the term of employment would be hit by the provisions of Section 27 of the Indian Contracts Act. The Civil Court has referred to the different decisions relied upon by the learned counsel for the parties,. But importantly, the plaintiffs, at the present stage of the proceedings, have not placed materials to substantiate the cause that the defendant No.4 is either acquiring the plaintiffs' business or soliciting the plaintiffs' employees or using the plaintiffs' Proprietary Interests. There is uncertainty 15 about the plaintiffs' case, and when there is uncertainty or doubt in the court's mind about the veracity or the credibility of the applicants' case, the courts cannot grant the relief of temporary injunction.
13. The learned counsel for the plaintiffs, arguing in support of the appeal, canvassed the following submissions:
(i) The Civil Court has failed to appreciate that the plaintiffs do not seek any injunctive relief against the defendants from carrying on their business or being employed with the person/persons of their choice. But the plaintiffs are seeking injunctive relief to protect their inviolable Intellectual Property/Proprietary Interests and its business as per the terms of the contract concluded with the defendant Nos.1, 2 and 3. The Civil Court has failed to consider that the plaintiffs had invested huge amounts of money, time and manpower in research and development of its analytical assets, tools and methods 16 and these constitute valuable Intellectual Property/ Proprietary Interests.
(ii) The Civil Court has also erred in concluding that the plaintiffs failed to establish that the defendant Nos.2 and 3, like defendant No.1, had executed Contract of Employment which included terms relating to Non-
Solicitation and Confidentiality. The Civil Court has failed to consider that the defendants were taking undue advantage of a bona fide error in filing a wrong copy of the agreement. The plaintiffs have filed an application under Order VII Rule 14 (3) of CPC seeking permission to produce the original contract of employment signed by defendant No.2. The documents relied upon by the plaintiffs not only establish that the defendant Nos.1, 2 and 3 were employed with the plaintiffs, but they are also under an obligation, as per the terms of employment, not to either solicit the 17 plaintiffs' clientele or use the plaintiffs' proprietary interests.
(iii) The Civil Court ought to have examined whether the plaintiffs have made out a prima facie case from the material relied upon by them. But, the Civil Court without undertaking such exercise has concluded that a full trial would be required to determine whether the defendants have either solicited business from the plaintiffs' clientele or enticed the plaintiffs' former employees.
14. The learned counsel for the plaintiffs relied upon the following decisions elaborating on the first submission that the restriction under Section 27 of the Indian Contracts Act cannot be applied in the present case reiterating that the plaintiffs' applications are not to restrict the defendant Nos.1 to 3 from seeking employment elsewhere or with any person 18 of their choice, but to protect the plaintiffs' Confidential Information/Proprietary Rights/Intellectual Property:
(a) V V Sivaram and others vs. Foseco India Limited Pune, reported in (2006) 1 Kan.LJ. Page 386[J1]:
This Court, after referring to the decision of the Delhi High Court in John Richard Brady vs. Chemical Process Equipments Private Limited1 (rendered by the Delhi High Court referring to the decision rendered by the English Courts in Saltman Engineering Co. Ltd. vs. Campbell Engineering Co. Ltd.2) has held that the commentary on Indian Contract and Specific Relief Acts - by Pollock and Mulla subscribe to the view that disclosure of confidential information, after cessation of employment by an employee can be restrained. This Court therefore, in the facts of that particular case, confirmed the temporary injunction order restraining the 1 AIR 1987 Delhi 372 2 (1983) 3 All..E.R 413 19 defendants from manufacturing and selling any products similar or identical to the product of the plaintiff in that case.
(b) Wipro Ltd. vs. Beckman Coulter Interational SA -
Reported in (2006) 131 DLT 681:
The High Court of Delhi has culled out the salient features of the law insofar as Negative Covenants/Restrictive Clauses after an overview of the different decisions as of that day. The high Court of Delhi has granted injunction restraining the defendant from taking out advertisements or doing anything to solicit, induce or encourage the employees of the plaintiff to leave employment with the plaintiff and take up employment with the defendant or its agents/representatives. Thus, the Delhi High Court has recognized, while considering grant of injunction based on a Negative Covenant, a distinction between a covenant that restricts the employees from seeking employment of their choice (and with the person of their choice) and a covenant 20 that restricts soliciting or inducing the employees to leave employment because of a Non-solicitation covenant.
(c) Beckmen Desicant Rotors International Pvt. Ltd. vs. Bappaditya Sarkar and Another - Reported in 2009 (112) DRJ 14:
The High Court of Delhi has referred to its earlier decision in Ambience India Private Limited3 wherein it was held that 'trade secret is some protected and confidential information which the employee has acquired in the course of his employment and which should not reach others in the interest of the employer. However, routine day-to-day affairs of the employer which are in the knowledge of many and are commonly known to others cannot be called trade secrets. A trade secret can be a formulae, technical know-how or a peculiar mode of method of business adopted by an employer which is unknown to others'. The Delhi High Court, after 3 (2005) DLT 421 21 referring to this decision, and other decisions on the question of protection of trade secret, confirmed an injunctive order that restrained the employee from approaching his employer's suppliers and customers or soliciting business in direct competition with the business of the employer because such limited order did not impinge on the employee's freedom to choose his own workplace, but was necessary to protect employees' Confidential Information.
(d) Hi-Tech Systems and Services Limited vs. Suprabhat Ray and others-reported in AIR 2015 Cal 261:
The Calcutta High Court in this case was considering the question of grant of injunction against former employees being in trade which was in direct competition with their former employer and utilising the trade secrets and confidential information acquired during their course of employment with the former employer. The High Court granted injunction expressing the view inter alia that Negative 22 Covenants prohibiting employees from carrying on business that is similar, or same, in nature would be void and hit by section 27 of the Indian Contracts Act. But, possibly time has come to have a re-look at Section 27 of the Indian Contracts Act since time has changed and there is a necessity to impose some restrictions and recognize Negative Covenants in service contracts especially when it involves specialized knowledge. The High Court also expressed the view that the law must live up to the present need, and while the freedom of contract in trade needs to be upheld, at the same time it needs to be balanced. No one should be allowed to take advantage of the trade secrets and confidential information developed by an individual and use it for his own gain and when confronted, take the shelter of this section. The confidential information and trade secrets are to be protected. The cases in which the courts may interfere for the purposes of protection are cases where employees cannot claim a right to reveal details because such details are disclosed to the 23 employees in good faith. But, the courts shall not restrain an employee from using skills, which a person may have acquired during the employment.
15. The learned counsel for the plaintiffs emphasized that the High Court in this case had granted injunctive relief even where it was apprehended that trade secrets could be divulged or put to use to compete with the former employer.
16. The learned senior counsel for the defendants on the other hand argued that the Civil Court had rightly rejected the plaintiffs' application for the different injunctive relief/s. The learned senior counsel contended that the injunctive prayer is very vague and unsubstantiated. Though the cause of action is based on the assertion that the defendants have utilised the plaintiffs' confidential information, specific strategies, trade secrets, these interests have not been sufficiently elucidated to justify an order of 24 injunction. The plaintiffs cannot sustain a cause of action, much less a cause of action for an interim injunctive relief, on vague assertions that the plaintiffs have evolved unique and proprietary analytics, and a new entrant into the analytics industry cannot even have access to such evolved, unique and proprietary analytics. The plaintiffs are in the habit of filing suits against former employees who decide to quit employment with the plaintiffs, and the plaintiffs choose to file these suits because the plaintiffs want to curb competition.
17. The learned senior counsel was vociferous in arguing that though the plaintiffs contend that the defendants have used the plaintiffs' Proprietary Interests, the plaintiffs have not placed any material to substantiate such assertion. The plaintiffs want the court to injunct the defendant No. 4 from conducting its business on the ground that the defendant No.4 is utilising the plaintiffs' Proprietary 25 Information and that this fact is borne out by the defendant No.4 pitching for a project M/s. General Motors, a multi- national company. However, the defendant No.4 neither as of the date of the suit, nor later has had any business association with M/s. General Motors. Similarly, the plaintiffs contend that the defendants are soliciting the employees of the plaintiffs and the same is borne out by the list of employees who have quit employment with the plaintiffs and joined the defendant No.4. But, mere fact that certain employees have chosen, of their own volition, to join the defendant No.4 cannot lead to any presumption that there is any solicitation. The plaintiffs' assertions in these regards are entirely unjustified.
18. The learned senior counsel contended that the plaintiffs cannot seek enforcement of Negative Covenants allegedly executed by the defendant No.1, because of the 26 provisions of Section 27 of the Indian Contracts Act. The learned senior counsel relied upon the following decisions • Navigator's Logistics Limited vs. Kashif Qureshi and others, and Pepsi Foods Ltd. and Others vs. Bharat Coca-Cola Holdings Private Limited and Others by the Delhi High Court, • Polaris Software Lab Limited vs. Suren Khiwadkar, and another by the High Court of Madras in These decisions are relied upon to emphasize that every information that is shared with an employer cannot qualify as either trade secret or confidential information. The information which is known to others in the industry, whether a formulae or a technical know-how or a peculiar method or mode of business, cannot be called confidential information/trade secrets. If an employee, in the course of his employment, has acquired some business acumen, or ways of dealing with clients or customers, the same cannot constitute trade secret or confidential information. An employer cannot, in the garb of protecting Confidential Information or Proprietary Interest, 27 perpetuate the thought that once a customer of the employer always a customer of the employer. Further, creating a database of the clients/customers and then claiming confidentiality would tantamount to creating a monopoly, and injunction orders cannot be granted to perpetuate monopoly.
19. The learned senior counsel was emphatic that even according to the plaintiffs the defendant Nos.2 and 3 quit employment with the plaintiffs many years back. It is settled that while Negative Covenants can be only enforced during the term of the employment and such covenants cannot be enforced beyond the period of service. Even where Negative Covenants are enforced it is only in those cases where breach of the trade secrets is established or the restriction against competition is confined to a period of two years from the date of cessation of employment. However, these factors are not established and the plaintiffs, in seeking the different injunctive relief/s, are trying to create a 28 monopoly asserting confidential information/proprietary interests over analytical tools that are commonly available in the industry, and without explaining the proprietary rights. Further, the Negative Covenant as regards Non-solicitation and Non-compete cannot be enforced as against the defendant Nos.1 or 2 or 3, or against the defendant No.4 with whom there is no contract.
20. The questions that arise for consideration in the present appeal are:
a. Whether the plaintiffs have made out prima facie case as regards the Proprietary Information asserted by them and the infringement thereof by the defendants for soliciting the plaintiffs clients and customers; the balance of convenience is their favour and that they would be put to irreparable loss and injury if the injunctive relief/s are not granted.29
b. Whether the impugned order is either capricious or perverse or unreasonable.
21. Generally, a Negative Covenant is made part of employment contract as a restriction against an employee from either competing against the employer or joining a competitor with the purpose of protecting the employer's trade secrets or other proprietary materials. A conspectus of the aforesaid decisions, material for the purposes of this case, would be that a Negative Covenant limiting the rights of an employee to either compete or solicit, whether the former employer's customers/clients or co-employers, is enforced against the employee for the term of employment vigorously. However, the very Negative Covenant after the employee ceases to be in employment is not enforced because of the provisions of Section 27 of the Indian Contract Act, 1872. 30
22. The Trade Secrets, which could include formulae or technical know-how or method, or mode, of doing business, would constitute that confidential information which is a proprietary material, in sensu stricto a property of an employer. Therefore, a Negative Covenant that restricts the employee from divulging or sharing or using such trade secrets is enforced and an employee injuncted even after the term of employment from either divulging or sharing or misusing the trade secrets. This would be because no person can be permitted to take advantage of the fruits of the efforts of - the property of, another person.
23. The other kinds of Confidential Information viz., client base, client information and other data, which could be a compilation in a particular method and for a particular purpose, distinct from Trade Secrets, would be a different category. This kind of Confidential Information is protected and injunction granted against an employee even after the 31 tenure of employment4, from soliciting clients/ customers. But, the employer must demonstrate/establish that such Confidential Information was shared with the confidence that the employee would use such Confidential Information only for the benefit of the employer and maintain strict fidelity in using such Confidential Information. This employer's confidence and employee's fidelity could be either expressed or implied. Further, provided that such Confidential Information is not already within the knowledge or access of another. Furthermore, impressed with this proposition is the proposition that an employee, in the course of his employment, is bound to acquire certain acumen or competence, but this employee cannot be injuncted from utilising such acumen or competence acquired in the course of his employment with his former employer. Importantly, even in those cases where injunctions could be granted 4 If restricted to a particular area or a reasonable time 32 against an employee from competing with his former employer or seeking employment with a competitor, it should be confined to only those cases where the covenant is to restrict the employee to a particular area or a reasonable period5.
24. The Hon'ble Supreme Court has held in Superintendence Company of India vs. Krishna Murgai6, while discussing the objective behind Section 27 of the Indian Contracts Act, 1872, that the distinction in the enforcement of a Negative Covenant between an employer-employee and a seller-purchaser rests upon a substantial basis. The Negative Covenant between the employer - employee, because it pertains to performance of personal service - altogether different in substance from purchase, will have vastly different social and economic implications. The courts, therefore, would view with disfavour a restrictive covenant by 5 Polaris Software Lab. Limited Case - (2003)57 6 AIR 1980 SC 1717 33 an employee not to engage in a business similar with that of the employer after the termination of his contract of employment. Therefore, a Negative Covenant as regards Trade Secrets (an obvious Proprietary and Confidential Information) is dealt with differently by Courts from a Negative Covenant as regards other Confidential Information. In the latter category there is a higher onus on an employer. Therefore, an employer must establish that the covenant (i) operates for a restricted period and areas, (ii) pertains to information that is exclusive, nuanced and shared with the confidence that the employee shall use such information only for the benefit of the employer and maintain fidelity, and (iii) the restraint will not tantamount to restraining the employee from using his own acumen or skill sets. As such, a Negative Covenant with an employee should be carefully scrutinized.
25. The plaintiffs' case, encapsuled, is that the defendant Nos.2 and 3 were former employees, and after the 34 cessation of their employment with the plaintiffs, they have incorporated the defendant No.4, which is also engaged in the business of analytics. The defendant Nos.2 and 3, who were employed with the plaintiffs, quit employment during the years 2013 and 2011 respectively. The defendant No.1, who was in employment with the plaintiffs between 25th November 2013 and 13th January 2017, acting in cohorts with defendant Nos.2 and 3, has divulged Confidential Information (as well as sensitive client list and customer database) to the defendant Nos.2, 3 and 4. The plaintiffs had disclosed to defendant No.1 Proprietary Information because of his senior leadership position with the plaintiffs. The defendant No.1 was privy to key business decisions that were being taken by the plaintiffs. The plaintiffs offer two circumstances as indicative of the defendant Nos.1, 2 and 3 using the plaintiffs' Confidential Information in breach of the Negative Covenant. The first of such circumstance is the defendant No.4 making a bid for project with M/s. General Motors asserting that 35 without access to the plaintiffs' evolved and unique analytical tools, assets and methods, the defendant No.4 could not have bid for such project. The second of such circumstances is the list of employees who quit employment with plaintiffs between June 2014 and November 2016 and joined employment with the defendant No.4.
26. The plaintiffs have relied upon the contract of employment signed with the defendant No.1, which also includes Annexures which contain description what constitutes 'Proprietary Information' and the covenants as regards Non-solicitation and Non-competition. Proprietary information is described as including:
(a) Inventions - trade secrets, inventions, mask works, ideas, processes formulas, source and object code, data program and the like,
(b) Information -
- regarding plans for research and development, new products, marketing and selling, business 36 plans and budgets and unpublished financial statements and the like, and
- regarding the skills and compensation of other employees of the company.
The Non-solicitation clause reads as:
"NONSOLICITATION. In order to protect the company's legitimate business interests, including (without limitation) its interests in the proprietary information, its substantial and near permanent relationships with customers, and its customer goodwill, I agree that during my employment by the company, and continuing for 2 years after the date of my employment with the company ends for any reason (including but not limited to voluntary termination by me or in voluntary termination by the company), I will not, as an officer, director, employee, consultant, owner, partner, or in any other capacity, either directly or through others solicit, induce, encourage or participate in soliciting, inducing, or encouraging any employee..........
Underlining is by this Court The plaintiffs are relying upon the aforesaid descriptions in support of the prayer for injunction in addition to the list of services offered by them to different clients/customers and the list of such clients/customers. It is obvious that is clause 37 is intended to operate during the period of employment and for a period of 2 years after the date of cessation of employment.
27. It is rather undisputed that defendant Nos.2 and 3 quit employment with the plaintiffs many years prior to the date of the suit, and the period of 2 years would not apply to them. However, the cause of action against these defendants (and the defendant No.1) is based on the assertion that they have induced/encouraged the defendant No.1, while he was in employment with the plaintiffs, to divulge Proprietary Information/sensitive commercial information. It is contended that this alleged inducement and encouragement is borne out by the fact that the defendant No.4 has bid for a project with M/s. General Motors and that many employees have quit employment with the plaintiff and joined the defendant No.4. 38
28. There is nothing on record, as of now, to show that the defendant No.4 has some kind of business traction with M/s. General Motors and that business traction is because the defendant No.4 is using analytical tools exclusive to plaintiffs and divulged by the defendant No.1. In fact, the defendants emphatically assert that the defendant No.4 has no business with M/s. General Motors. Though some employees have quit plaintiffs and defendant No.4 and some material is published on the website about some of those employees being in key position with defendant No.8, there cannot be an inference of solicitation only because of these two circumstances. There is no other material on record from which solicitation from defendants can be discerned.
29. Further, the details of the "Inventions" or the "Information" are not furnished though it is asserted that such "Inventions" and "Information" are developed investing huge amount and manpower. One of the imperatives for 39 grant of injunction is that the subject mater should be unambiguously identified, and described. This would be moreso in a case of this kind. Furthermore, the details of the breach are furnished.
30. Insofar as the defendant No.1, his cessation of employment with the plaintiffs is in January 2017, and the embargo on solicitation extends upto January 2019. As concluded by the Civil Court, there is no material on record, as of now, to readily infer the defendant No.1 is culpable of any solicitation and conclude that the employees mentioned in the plaint quit employment with the plaintiffs and joined the defendant No.4 because of the defendant No.1. The grant of injunction against a person who has quit employment from using acumen is impermissible as held by the Hon'ble Supreme Court. Even otherwise the plaintiff has not placed any material to conclude at this stage that the defendant No.1 was privy to some exclusive and nuanced information and the 40 defendant No.1 has divulged such information in breach of confidence and fidelity.
31. As regards the Non-compete clause, the relevant part reads as follows:
NONCOMPETITION. In order to protect the company's legitimate business interests, including (without limitation) its interests in the Proprietary Information, it's substantial and near permanent relationships with customers, and its customer goodwill, I agree that during my employment by the company, I will not solicit the business of any client or customer of the company (other than on behalf of the company) with whom I had contact during my employment and (ii) will not, nor will I assist another person to, directly or indirectly, as an officer, director, employee, consultant, owner, partner, or in any other capacity engage in, participate in, invest in, provide or attempt to provide conflicting services anywhere in the United States or India7.
A prima facie reading of this clause indicates that it is intended to operate during the tenure of employment. The 7 "Conflicting Services" are defined in this clause 41 defendant Nos.1 to 3 are not in employment with the plaintiffs.
32. In the light of the aforesaid discussion, it cannot be concluded that the plaintiffs have made out prima facie case for grant of injunction against the defendants either as regards plaintiffs' Proprietary Information or solicitation or competition. The balance of convenience would also not lie in favour of the plaintiffs inasmuch as injunction cannot be granted when the applicants-plaintiffs' case is tenuous. If injunction order is granted as against the defendant Nos.1, 2 and 3, there could be serious existential repercussions on the employment opportunities of these defendants. An order refusing injunction could be called either arbitrary or capricious or perverse, if relevant material or law is ignored. The Hon'ble Supreme Court in (2006) 5 SCC page 282 has held that an Appellate Court shall interfere with the discretion exercised by the Trial Court either in granting 42 injunction or in refusing grant of injunction only when the original court has acted arbitrarily or capriciously or perversely8. In the considered opinion of this Court the impugned order is neither arbitrary not capricious nor perverse. The questions formulated are answered accordingly.
For the foregoing, the appeal is dismissed with the observation that the Civil Court shall decide the suit on merits without being influenced by any observation made by this court in the course of this order or the impugned order because such observation is only for adjudication of the interim applications. No costs.
SD/-
JUDGE LG 8 (2006) 5 SCC page 282