Delhi District Court
M/S Robotech Pvt Ltd vs Biju Kumar Deori on 31 August, 2023
IN THE COURT OF SH. REETESH SINGH, DISTRICT JUDGE
COMMERCIAL COURT-04, SHAHDARA,
KARKARDOOMA COURTS, DELHI
CNR No. DLSH01-001045-2021
CS (Comm) No. 62/21
In the matter of :-
M/S. Robotech Pvt. Ltd.
C-483, Yojna Vihar,
Delhi-110092
Through Its Director
Sh. Nishant Jain
S/o Sh. Nishith Jain
......plaintiffs
(Through Ld. Counsel Sh. M.S. Sharma)
Versus
Sh. Biju Kumar Deori
S/o Sh. Jatin Chandra Deori
R/o H. No. 10, Mandakini Path,
Jatia, Assam-781006.
......defendant
(Through Ld. Counsel Sh. Avinsash Bhati)
Date of institution of the case : 01.02.2021
Date of final arguments : 18.08.2023
Date of judgment : 31.08.2023
CS (Comm) No. 62/21 1 /10
ORDER
31.08.2023
1. By this order I shall decide an application of the defendant under Order VII Rule 11 CPC dated 21.07.2022 for rejection of the plaint. Reply to the said application has been filed by the plaintiff. Submissions have been addressed by the Ld. Counsels for the parties.
2. Before proceeding to deal with the said application, brief facts of the case may be noticed. Plaintiff M/s Robotech Private Ltd. has filed this suit praying for recovery of Rs. 5,00,000/- from the defendant Sh. Biju Kumar Deori. Plaintiff has averred that it is in the business of providing training courses pertaining to innovative learning opportunities and to promote competitive spirit among students. The plaintiff has set up ATL Lab, Stem Lab and Robotics Lab for regular classes for students in schools for topics in the curriculum as per CBSE, ICSE, State Boards, Etc. The plaintiff set up Lego Education based Robotics Lab based on concept of "Learning by Doing" to develop problems solving skills. The plaintiff provides Trainers/Area Sales Managers for imparting training, to collect business and to provide consultancy to their clients i.e. the schools. Plaintiff engaged the defendant as Business Manager for Guwahati vide offer letter dated 25.02.2018 on a salary of Rs. 25,000/- per month. The defendant joined his duties w.e.f. 05.03.2018. The defendant at the time of appointment signed a Non-Disclosure and Non-Compete Agreement in favour of the plaintiff. The said agreement contains clauses for Non-Disclosure of confidential information to which the defendant would gain access to and for not competing with the plaintiff company.
CS (Comm) No. 62/21 2 /103. Plaintiff has averred that as per the agreement, the defendant would have access the confidential information of the plaintiff and that the plaintiff's relationships with their customers and potential customers constituted part of their goodwill and the defendant vide the said agreement had agreed that for a period of one year from and after the termination of the said agreement, the defendant would not, directly or indirectly solicit or accept business or provide consultancy services of the nature offered by the plaintiff company from or to any of the plaintiff's customers or prospective customers. As per the said agreement the defendant had agreed to be subjected to a penalty of Rs. 5,00,000/- if he violated the terms of the agreement within the period of one year from the date of termination of the agreement.
4. Plaintiff has averred that the defendant was aware that the plaintiff had an agreement/MOU with Moridhal High School to whom the plaintiff was providing consultancy services. The defendant submitted his resignation w.e.f. 01.10.2018 without any information or permission of the plaintiff. The defendant thereafter joined a competitor of the plaintiff M/s Edulife at Bengaluru and had taken the business of the said school on behalf of M/s Edulife. Plaintiff has averred that the defendant go a letter issued from Moridhal High School regarding termination of MOU/Agreement with the plaintiff company. Plaintiff has averred that the said letter was fake due to which the plaintiff company faced defamation in the market. The defendant in collusion with M/s Edulife is providing consultancy to the said school in violation of the terms of his agreement with the plaintiff company and was therefore liable to pay penalty of Rs. 5,00,000/- to the plaintiff.
CS (Comm) No. 62/21 3 /105. In his written statement, the defendant raised several legal objections regarding maintainability of the suit. He has denied executing the Non-Disclosure and Non-Compete Agreement at the time of his appointment on 05.03.2018. Defendant has stated them that he had left the services of the plaintiff company on 30.09.2018. The stamp paper attached to the copy of the Non-Disclosure and Non-Compete Agreement is dated 03.10.2019 which reflects that the said document which bears the date of 05.03.2018 is fabricated. Defendant has not denied joining the services of the plaintiff company on 05.03.2018. Defendant has stated that the plaintiff as per the offer letter had stated that it would issue detailed letter of appointment after joining duty but no such letter was ever issued. Defendant had resigned from his employment due to personal reasons which was intimated to the plaintiff on 24.09.2018 and after resignation the defendant did not join any other company for about one year due to personal reasons. Defendant had received a complaint from Moridhal High School regarding service of the plaintiff provided to the school but the defendant informed the said school that he had left the services of the plaintiff. Subsequently, the defendant received an e-mail from the said school intimating that the school had sent a termination letter to the plaintiff company.
6. The application of the defendant under Order VII Rule 11 CPC is premised on the ground that the provisions of Non-Disclosure and Non- Compete Agreement dated 05.03.2018 which restricts the defendant from soliciting, accepting business or providing consultancy services of the nature offered by the plaintiff company to any of the plaintiff's customers or prospective customers for a period of one year after CS (Comm) No. 62/21 4 /10 cessation of employment is violative of Sections 23 and 27 of the Contract Act 1872 as well as Articles 19 (1) (g) and 300 of the Constitution of India.
7. Sh. Avinash Bhati, Ld. Counsel for the defendant has argued Non- Disclosure and Non-Compete Agreement clause contained in the Agreement dated 05.03.2018 operates as a restraint on the right of the defendant of exercising any lawful business or trade even after termination of employment. He submitted that no negative covenant or obligation can be enforced beyond the term of a contract as the same operates as an unlawful restriction on the right of the defendant to enter into fiduciary relationships with persons of his choice. He relied on the observations of the Hon'ble Supreme Court in the case of Percept D' Mark (India) Pvt. Ltd. Vs. Zaheer Khan and Ors. reported in Manu/SC/1412/2006.
8. On the other hand Sh. M.S. Sharma, Ld. Counsel for the plaintiff has submitted that the terms of the Non-Disclosure and Non-Compete Agreement clause are valid and legal. The defendant had agreed not to take away the business of the plaintiff company or to provide services to the customers of the plaintiff company with whom he would gain exposure to while working for the plaintiff company. He submitted that such a stipulation can extend for a period beyond the termination of the employment agreement. He relied on the observations of the Hon'ble Supreme Court in the case of Niranjan Shankar Golikart Vs. The Century Spinning And Mfg. Co. Ltd reported in AIR 1967 SC 1098.
CS (Comm) No. 62/21 5 /109. I have heard the Ld. Counsels for the parties and have perused the record. The contentious clause of the Non-Disclosure and Non-Compete Agreement dated 05.03.2018 reads as under:-
"3. Agreement Not to Compete With the Company. As long as the Robotech Employee/Independent freelancer is working for the Company, Training and or Independent freelancer shall not participate directly or indirectly, in any capacity, in any business or activity that is in direct competition with the company. To name a few companies but not limited to them, Robogenious, India Stem Foundation, Techtronics Education, STEMRobo, Technoplanet, Orange Education Pvt. Ltd, Orange Assessments Pvt. Ltd. etc. The list mentioned is a guideline list and not an exhaustive list. Furthermore, in recognition of the fact that Robotech Employee/contractor will have access to the confidential information of the company and that the Company's relationships with their customers and potential customers constitute a substantial part of their good will, the Independent contractor agrees that for one (1) year from and after termination of this Agreement, for any reason, unless acting withe the Company's express prior written consent, the Robotech Employee/Independent freelancer shall not, directly or indirectly, in any capacity, solicit or accept business from, provide consulting services of any kind to, or perform any of the services offered by the Company for, any of the Company's customers or prospects with whom the Independent freelancer had business dealings in the year next preceding termination. Furthermore, Recipient shall not either for its benefit, or for the benefit of any third party.
make, use, sell, distribute, promote or in any other way commercially compete with Company's proprietary Technology/Products/Services any product or technology that is the same, substantially the same or could be reasonably deemed to be confusingly similar to the Proprietary Termination may be achieved by either party by providing a written notice of termination, which date of receipt shall make the commencement of the 1 year non-compete term."
(emphasis supplied)
10. Clause 3 of the agreement dated 05.03.2018 seeks to place a restriction on the defendant for a period of one year from the date of termination of the contract to the effect that he shall not solicit or accept CS (Comm) No. 62/21 6 /10 business or provide consultancy services directly or indirectly with any of the customers of the plaintiff company.
11. Section 27 of the Contract Act provides that an agreement which restricts any person from exercising a lawful profession, trade or business of any kind is void to that extent.
12. The Ld. Counsel for the plaintiff has relied upon the judgment of the Hon'ble Supreme Court in the case of Niranjan Shankar Golikart Vs. The Century Spinning And Mfg. Co. Ltd (supra). The said case pertained to a suit for injunction to restrain the employee, who had agreed to serve the employer for a fixed period, from during the said period, even after ceasing to be the employee of the plaintiff, joining employment of a competitor of the plaintiff. It was held that considerations against restrictive covenants are different in cases where the restriction is to apply during the period after the termination of the contract, than those in cases where it is to operate during the period of contract of employment. In the facts of that case that it was found that the employee was privy to the special process invented/adopted by the plaintiff and of which the employee was trained and had acquired knowledge. The employee who had left the employment prior to the contracted period was thus restrained from joining employment of a competitor for the remaining period for which he had contracted with the plaintiff in that case.
13. In the present case, plaintiff has placed on record its Offer Letter dated 25.02.2018 issued to the defendant. As per the same the defendant would be under probation for a period of six months after which he may be confirmed after review of performance and that salary revision would CS (Comm) No. 62/21 7 /10 be effected after one year based on performance. As per the plaintiff the defendant joined the plaintiff company on 05.03.2018 and also executed Non-Disclosure and Non-Compete Agreement dated 05.03.2018. Neither the Offer Letter nor the Non-Disclosure and Non-Compete Agreement provides for any fixed term for which the defendant had agreed to serve the plaintiff.
14. In the case of Percept D' Mark (India) Pvt. Ltd. Vs. Zaheer Khan and Ors (supra). The Hon'ble Supreme Court was pleased to hold that restrictive covenants extending beyond the term of a contract are void, not enforceable and void under Section 27 of the Contract Act.
15. In the case of Navigators Logistics Ltd. Vs. Kashif Qureshi and Ors. reported in 2018 SCC OnLine Del 11321, the Hon'ble High Court in similar facts was pleased to reject the plaint of the plaintiff under Order VII Rule 11 of the CPC. In the said case, the plaintiff had filed a suit, inter-alia, pleading that it was engaged in the field of logistics and freight forwarding services and had developed a distinctive database including confidential data and customer database. The defendants were employed by it on various positions and they had agreed to clauses in their appointment letters which include restriction during and after termination of employment from divulging information which came to their knowledge; that they will not engage in direct competition with their employer; that they will not for a period of one year from termination of services set up a company which is in direct competition with the services offered by their employer. The defendants before the Hon'ble High Court contended, inter-alia, that the suit was barred under Section 27 of the Contract Act and the reliefs claimed were violative of the fundamental rights of the defendants under Articles 19 (1) (g) and 21 CS (Comm) No. 62/21 8 /10 of the Constitution of India. The Hon'ble High Court was pleased to hold that the plaintiff could not have any right in the list maintained by it of its customers/clients unless it can be found that a copyright vests in such a list under the Copyright Act. The Hon'ble High Court considered the provisions of the Copyright Act and held that there cannot be any copyright in the plaintiff of such a list. It was held that there cannot be any confidentiality about such a list. In respect of the contention of the plaintiff regarding the attempts of a former employee using knowledge about customer database of his former employer and marketing the services of a competitor to the customers of the former employer, the Hon'ble High Court referred to its previous decision in the case of American Express Bank Limited Vs. Priya Puri reported in 2006 SCC OnLine Del 638 and held that creation of a database of customers and claiming confidentiality about it will not permit creation of a monopoly about such customers. It was held that details of customers are not trade secrets or property. On the aspect of the clause in which the employees agreed not to compete with the plaintiff for a period of one year from ceasing to be an employee of the plaintiff, the Hon'ble High Court after considering the judgment of the Hon'ble Supreme Court in the case of Niranjan Shankar Golikart Vs. The Century Spinning And Mfg. Co. Ltd (supra) was pleased to hold as under:-
"56. Applying the aforesaid law to the facts of the present case, it is found that as per the plaintiff also, there was no fixed term for which either of the defendants no. 1 to 8 had agreed to serve the plaintiff. The clause in the Employment Contract claimed by the plaintiff also is to the effect that defendants no. 1 to 8, for a period of one year after ceasing to be the employee of the plaintiff, to not compete with the plaintiff. Such a clause in the Employment Contract, as per the judgments aforesaid of the Supreme Court, is void under Section 27 of the Contract Act. Once the clause is void, there can be no injunction or damages in lieu of injunction on the basis thereof."
(emphasis supplied) CS (Comm) No. 62/21 9 /10
16. In the present case the plaintiff seeks to enforce the negative covenant in clause 3 of the agreement dated 05.03.2018 which prohibits the defendant from working with any competitor or customer of the plaintiff for a period of one year from the date of termination of the contract and making the defendant liable to a penalty of Rs. 5,00,000/- in violation thereof. In view of the ratio laid down in the cases of Percept D' Mark (India) Pvt. Ltd. Vs. Zaheer Khan and Ors (supra) and Navigators Logistics Ltd. Vs. Kashif Qureshi and Ors, the said negative covenant is void under Section 27 of the Contract Act and thus there cannot be any claim for damages on the basis of the same. The relief claimed in the plaint is barred under Section 27 of the Contract Act.
17. For the reasons recorded above, all the application of the plaintiff under Order VII Rule 11 of the CPC is allowed. The plaint of the plaintiff is rejected. No order as to costs.
18. File be consigned to the record room.
Announced in the open (REETESH SINGH)
court on 31st day DISTRICT JUDGE
of August 2023 (COMMERCIAL COURT)-04
SHAHDARA, KKD COURTS, DELHI
CS (Comm) No. 62/21 10 /10