Karnataka High Court
Nimisha Bansal vs M/S Sorting Hat Technologies Private ... on 25 June, 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 25th DAY OF JUNE, 2024
PRESENT
THE HON'BLE MRS JUSTICE ANU SIVARAMAN
AND
THE HON'BLE MR JUSTICE ANANT RAMANATH HEGDE
COMMERCIAL APPEAL NO.197 OF 2024
BETWEEN:
NIMISHA BANSAL,
AGED MAJOR,
WIFE OF SHRI GAUTAM AGGARWAL
PRESENTLY RESIDING AT FLAT 1402,
TOWER 16, LOTUS PANACHE,
SECTOR 11O, NODIA, U P 201305.
...APPELLANT
(BY SRI C K NANDA KUMAR, SENIOR COUNSEL FOR
SRI ARJUN RAO, ADVOCATE)
AND:
M/S SORTING HAT TECHNOLOGIES PRIVATE LIMITED,
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT 2013,
AND HAVING ITS REGD,
OFFICE AT MARTHI INFOTECH
CENTRE, 3RD FLOOR, A BLOCK, DOMLUR
KORAMANGALA, INNER RING ROAD,
BANGALORE 560 071,
REPRESENTED HEREIN BY ITS
AUTHORIZED SIGNATORY,
MR. HARISH SASIKUMAR.
...RESPONDENT
(BY SRI DHANANJAY JOSHI, SENIOR COUNSEL FOR
SRI KASHYAP N NAIK, ADVOCATE)
THIS COMMERCIAL APPEAL IS FILED UNDER SECTION
13(1A) OF THE COMMERCIAL COURTS ACT, 2015 READ WITH
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SECTION 37 OF THE ARBITRATION AND CONCILIATION ACT,
1996 PRAYING TO:
1. SET ASIDE THE IMPUGNED ORDER DATED 27.03.2024
PASSED BY THE LD. COURT OF LXXXII ADDL. CITY CIVIL AND
SESSIONS JUDGE, AT BENGALURU IN COM A.A.NO.401/2023
TITLED "M/S SORTING HAT TECHNOLOGIES PRIVATE LIMITED
VS NIMISHA BANSAL".
2. AWARD COSTS OF THE PRESENT APPEAL IN FAVOUR OF
THE APPELLANT AND AGAINST THE RESPONDENT AND
3. PASS ANY OTHER ORDER(S) AND/OR DIRECTIONS(S)
THAT THIS HON'BLE COURT MAY SO DEEM FIT IN LIGHT OF THE
FACTS, CIRCUMSTANCES AND GROUNDS URGED ABOVE.
THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 12TH JUNE, 2024 AND COMING ON FOR
PRONOUNCEMENT THIS DAY, ANANT RAMANATH HEGDE J.,
PRONOUNCED THE FOLLOWING:
JUDGMENT
1. The defendant in Com.AA.No.401/2023 is before this Court, invoking Section 13(1A) of the Commercial Courts Act, 2015 and Section 37 of the Arbitration and Conciliation Act, 1996 ('Act of 1996' for short).
2. The defendant/appellant is aggrieved by the Order dated 27th March 2024. The Learned District Judge in the exercise of jurisdiction under Section 9 of the Act of 1996, in terms of the impugned order passed certain restraint order and directed the appellant to furnish security. -3-
3. Other essential facts. (hereinafter the appellant is referred to as the 'Educator' and the respondent is referred to as the 'Unacademy').
4. The Educator and the Unacademy entered into an agreement on 03.05.2023 (signed on 15.05.2023, said to be effective from 01.04.2023). Among others, the agreement provides that the Educator shall provide certain services to the Unacademy on certain conditions, mutually agreed upon in the agreement.
5. Admittedly, the tenure of the agreement is for 2 years with effect from 01-04-2023. However, the Educator claims to have terminated the agreement in September 2023.
6. The agreement provided for clause enabling the termination of the agreement in the event of a breach committed by either of the parties. The Educator is enabled to terminate the agreement in the event of default on the part of the Unacademy in paying the agreed amount to the Educator in terms of the agreement. In case of default in payment, the Educator has to issue a notice demanding, the arrears and in case, the arrears are not paid within 60 days from the demand, the Educator is entitled to terminate the agreement as provided in clause No.17.2.3.
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7. The Unacademy is also entitled to terminate the agreement on happening of any of "the event of defaults"
specified in clause No.15 of the agreement and also breach of exclusivity clause provided in the agreement.
8. The Educator claims that she has terminated the agreement and the Unacademy claims that no grounds existed for the Educator for such termination. The Unacademy claims that it has grounds to terminate the agreement and it claims to have suspended the Educator from accessing the Unacademy platforms.
9. Admittedly, Educator has stopped providing the Educator's Content to the Unacademy by tendering resignation vide email dated 18.09.2023. The Educator claims that the sudden unilateral change in the policy, by the Unacademy and also, the default on the part of the Unacademy in making the payment are the reasons to terminate the agreement.
10. The Unacademy claims that there was no change in the policy, and the policy was very much in place when the agreement was entered into and the same policy was again re- iterated in August 2023. It is also urged that there is no default in making payment.
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11. In the backdrop of above facts and circumstances alleged, the Unacademy has invoked Section 9 of the Act of 1996 seeking an interim order.
12. The Court has allowed the Section 9 application in terms of impugned order dated 27.03.2024. After considering the clauses in the agreement and also the materials placed before it, the Court has concluded that the applicant has made out a case for granting the relief which are granted by the Court. The Court granted the following reliefs.
a. The Respondent hereby restrained by way of a temporary injunction, from utilizing, copying, distributing, publishing, streaming or in any manner delivering to third parties any 'Educational content' (as defined in the agreement) for the 'License period' (as defined in the agreement).
b. The Respondent, her agents, representatives or any person claiming through or under him are restrained by way of an order of temporary injunction from publishing, uploading, displaying or telecasting any videos or educational content on any YouTube channel, including the Respondent's YouTube Channel title, "NIMISHA BANSAL" and website, mobile application, YouTube of the brand, "Yes Officer" or on any mobile application, website or other medium and further from conducting any -6- offline classes or from engaging or working with any of the applicant's competitors till the conclusion of the arbitration proceedings.
c. The Respondent is hereby directed to furnish appropriate security or bank guarantee to an extent of Rs.2,93,50,134/- in HDFC Bank Ltd., New Delhi Krishna Nagar Branch. The above order shall be in force for a period of ninety (90) days or till the commencement of Arbitral proceedings, whichever is earlier.
13. Learned Senior counsel Sri Nandakumar, appearing on behalf of Sri Arjun Rao for the Educator urged that;
- The impugned restraint order is untenable in view of Section 27 of the Indian Contract Act, 1872 and Sections 14 and 41 of the Specific Relief Act, 1963.
- The Unacademy unilaterally could not have changed the terms of the contract and having committed the breach of the contract could not have sought interim restraint order against the Educator.
- The tenure of the agreement was two years initially, and later in terms of the mutual understanding arrived at by the parties, the lock-in period was reduced to three months and same is recorded in the email dated 15.05.2023. Thus, the order restraining the Educator from carrying out her -7- profession beyond three months lock-in period is invalid.
- Since remedy of damages is provided in the agreement in the event of breach, the injunction could not have been passed against the Educator
- The Educator could not have been directed to furnish the security for a specified sum without any materials to ascertain the damages.
14. Learned Senior counsel for the Educator also relied on the following judgments in support of the above submissions.
1. Chem Academy vs. Sumit Metha 1
2. Percept D'mark (India) Pvt. Ltd. Vs. Zaheer Khan and Anr. 2
3. Nike India Pvt. Ltd. Vs. Virat Kohli 3
4. Tahalconsulting Engineers India vs. Promax Power Ltd.4
5. BMW India Pvt. Ltd. Vs. Libra Automotives Pvt. Ltd. And Ors. 5
6. Dr.Vivek Jain vs. Preladder Pvt. Ltd. [acquired by unacademy] 6
7. Indian Oil Corporation Ltd. Vs. Amritsar Gas Service7
8. United India Insurance Co. Ltd. Vs. MKJ Corporation8 1 2021 SCC online del 4985 2 2006 4 SCC 227 3 2013 SCC Online Kar 7776 4 2023 SCC Online Del 2069 5 2019 SCC online Del 9079 6 2023 SCC Online Del 6370 7 (1991) 1 SCC 533 8 (1996) 6 SCC 428 -8-
9. Fateh Chand vs. Balkishan Das 9
10. Greenhills Exports Pvt. Ltd. & Ors. Vs. Coffee Board10
11. Kailash Nath Associates vs. DDA11
12. Raman Tech & Process Engg. Co. & Anr. Vs. Solanki Traders 12
13. Renox Commercials Ltd. Vs. Inventa Technologies Pvt. Ltd. 13
14. Sanghi Industries Lltd. Vs Ravin Cables Ltd. & Anr. 14
15. Learned Senior counsel Sri Dhananjay Joshi appearing on behalf of Sri Kashyap N Naik for the Unacademy urged that;
- The impugned restraint order is justified in view of the specific covenants in the agreements providing exclusivity in favour of the Unacademy. Since the validity of the agreement is not sought to be challenged on the grounds of fraud, coercion, mis representation and undue influence the appellant cannot raise any contention contrary to the contract.
- The lock-in period is not reduced to three months as contended by the Educator. The email correspondence indicating three months lock in period is not reflected in the agreement. 9 1963 SCC Online SC 49 10 ILR 2001 KAR 2950 11 2015 4 SCC 136 12 (2008) 2 SCC 302 13 2000 SCC Online Mad 94 14 2022 SCC Online SC 1329 -9- The agreement entered after email correspondence prevails over the email correspondence. Under the definition of 'email' provided under the agreement, only the emails exchanged after the execution of the agreement are to be considered to ascertain the terms of the contract. Since, the email referred to by the Educator dated 15.05.2023 is prior to the agreement, same cannot be considered to ascertain the lock in period.
- The Unacademy has not changed the terms of the contract. The entire salary/monetary benefits agreed under the agreement are paid in advance to the Educator, as such there cannot be any default in payment. The Educator has committed the breach of the contract by terminating the contract without issuing 60 days notice
- Since damages by way of penalty is provided in the agreement, and exclusivity is also provided in the agreement the interim relief of injunction as well as relief to secure the possible damages is maintainable.
- The Educator having received the entire salary for two years and agreed payment towards exclusivity is bound by the terms of the agreement.
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16. Learned Senior counsel for the Unacademy also relied on the following judgments in support of the above submissions.
1. Robust Hotels Pvt Ltd. vs. EIH limited15
2. Associate Builders vs. Delhi development authority16
3. BLB Institute of Financial Markets Limited vs. Ramakar Jha17
4. Suresh Dhanuka vs. Sunita Mohapatra18
5. Deoraj vs. State of Maharashtra19
6. GVK Airport Holdings Limited vs. BID Services Division20
7. Kamal Kant Jain vs. Surinder Singh21
8. Essar House Private Limited vs. Arcelor Mittal Nippon Steel India Limited22
9. Wipro Limited vs. Beckman Coulter International S.A.23
17. This Court has considered the principles laid down in the judgments cited at the bar. From the said judgments, it 15 (2017) 1 SCC 622 16 (2015) 3 SCC 49 17 2008 SCC online Delhi 1075 18 (2012) 1 SCC 578 19 (2004) 4 SCC 697 20 2019 SCC online Delhi 8978 21 (2019) 11 SCC 432 22 2022 SCC online SC 1219 23 2006 SCC online Delhi 743
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can be safely concluded that the case of this nature has to be decided based on the terms of the contract and the terms of the contract play a pivotal role in deciding as to what kind of relief can be granted. The Hon'ble Apex Court has recognised the principle of reasonable restriction on lawful trade, profession or business under Section 27 of the Indian Contract Act in Gujarat Bottling Co vs Coco Cola 24. Whether the clause restraining lawful trade, profession or business is valid or not has to be decided by taking into consideration the attending facts and circumstances. It is also well settled principle of law that in appropriate cases where agreement provides a negative covenant, even a negative covenant can be enforced if the case falls under Section 42 of the Specific Relief Act, 1963. In addition, it is also settled principle of law that in appropriate cases, the action for specific performance to enforce the covenants of the agreement as well as damages may simultaneously lie.
18. Keeping in mind the above said principles and the contentions raised the following points for consideration are framed:
24
(1995)5 SCC 545
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(a) Whether the two years lock-in period provided in the agreement is reduced to three months in terms of the email exchanged between the parties on 15.05.2023?
(b) Whether the Unacademy has changed the policy resulting in change of the terms of the agreement?
(c) Whether the restraint order passed by the Court is sustainable in view of the bar contained in Section 27 of the Indian Contract Act and Section 14 and 41 of the Specific Relief Act?
(d) Whether the restraint order passed by the Court is sustainable in view of the clause in the agreement providing for damages?
(e) Whether impugned order for furnishing security for damages is sustainable?
(f) Whether the impugned orders are to be interfered with and if so to what extent?
19. The agreement is signed on 15.05.2023 by the Educator at 7.15 a.m. GMT and it is signed on behalf of the Unacademy on 15.05.2023 at 10.15 a.m. GMT. As already noticed, the agreement is dated 03.05.2023 and is said to be effective from 01.04.2023.
20. The Educator contends that the lock-in period of two years specified in the agreement dated 03.05.2023 is reduced to three months in terms of the modification arrived at through email correspondence fated 15.05.2023. It is also urged that
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such modification is provided under the agreement itself. Attention of the Court is invited to the definition of the term 'email' found in clause No.1.1.10. Said clause reads as under:
1.1.10. "Email" shall mean an Email received from any Unacademy representative during the term of this agreement relating to the Educator Content, other aggrieved deliverables or this agreement.
21. On a reading of the aforementioned definition, it is noticed that the parties have agreed to receive communication from the Unacademy during the term of the agreement relating to Educator Content, agreed deliverables, or the agreement itself.
22. The email correspondence relating to reduction in lock-in period is not produced before the learned District Judge. However, same is produced before this Court. Though, no formal application is filed for production of additional documents, the learned Senior counsel appearing for the respondent on a specific query by the Court has not disowned the email dated 15.05.2023. Thus, this Court has looked into the said email and also the consequence of said email on the lock-in period.
23. Under clause No.1.1.10, only the "Emails" exchanged during the tenure of the agreement, can be considered as part of the agreement. The Court has to consider whether the email
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dated 15.05.2023 referred to above is the one sent during the tenure of the agreement. As already noticed, the Educator has signed the agreement on 15.05.2023 at 7.15 a.m. GMT and the Unacademy has signed the agreement on the same day at 10.15 a.m. GMT. The email alleged to be sent reducing the lock-in period to three months is dated 15.05.2023. Said email is sent from the Unacademy at 12.17 (p.m.). The email reads as under:
Hi Nimisha Ma'am, As discussed, if you are leaving the organisation before the lock-in period gets over, You will not take any classes on your personal channel till 3 months from the date of leaving.
Kindly acknowledge,
24. To the above mentioned email on the same day at 12.19 (p.m.), the Educator has replied by sending one word reply, "Acknowledged". Thereafter, the Unacademy at 12.36 (p.m.) on the same day, responded as under:
"Website/app is an issue. Rest is fine".
25. As can be noticed, the agreement is signed at 7.15 a.m. GMT by the Educator i.e., at 12.45 p.m. IST on 15.05.2023 and the Unacademy has signed the same at 10.15 a.m. GMT i.e.,
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at 3.45 p.m. IST on the same day. Prima facie, the emails referred to above are prior to the agreement referred to above. Thus, prima facie, the clause in the agreement fixing the lock-in period prevails over the lock-in period said to have been agreed in the emails referred to above, unless shown otherwise.
26. It is urged on behalf of the Educator that since the agreement is given effect from 01.04.2023, the email sent before signing the agreement should also be construed as an email sent during the term of the agreement under clause No.1.1.10 of the agreement. Since the agreement was not signed when the email was exchanged between the parties, the emails sent earlier to the agreement coming into existence cannot be on prima facie consideration construed as the email sent during the term of the agreement within the meaning of "Email" defined in clause No.1.1.10 merely because the agreement is deemed to have come into effect from 01.04.2023. The agreement providing an 'anterior date', as the date of commencement of the agreement and not the 'date on which the agreement is signed' as the date of commencement appears to be only for the purpose of reckoning the agreement and not to consider all the emails exchanged before signing the agreement and after the deemed date of commencement of the agreement
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as part of the agreement. If the intention to treat the effective date of the agreement as 01.04.2023 was to include Email correspondence between the parties between 01.04.2023 (Effective date) and 15.05.2023( Signing date) same requires to be proved in trial. Prima facie consideration would indicate that the agreement came into existence after the email exchange discussed above. Despite the emails discussed above, the lock-in period under the agreement stipulates two years and not three months as contended. It appears to be so given the fact that the Educator has received the entire consideration amount agreed for two years in advance.
27. The next point for consideration is, "Whether the Unacademy has unilaterally changed the terms of the agreement by introducing a new policy in August, 2023 by restricting the Educator from publishing the Contents in private channel?"
28. The agreement in clause No.11.5 recognises the right of the Educator to continue the Educator's ongoing engagements which are discussed, agreed and mentioned in the email. The agreement in Annexure-C carves out the exception to the exclusivity clause. The said clause would read as under:
11.5. Notwithstanding anything contained herein to the contrary, during the term of this
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Agreement, the Educator agrees and confirms that the Educator shall work exclusively with Unacademy and other than the Educator's ongoing engagements that were discussed and agreed upon and mentioned in email. The Educator shall not enter into any new transaction, whether online or offline, book deal, mobile application, YouTube channel on its own or with any 3rd party without first obtaining consent for the same from Unacademy.
(Emphasis supplied)
29. From Annexure-C, it is evident that the Educator is entitled to continue the YouTube channel NIMISHA BANSAL; YouTube channel link:https//www.youtube.com@ NIMISHABANSAL ("Educator's Channel"). The exceptions provided in the agreement would reveal that the Educator is entitled to publish her Content in the aforementioned platform. However, the further exceptions culled out in clause No.1.2 of Annexure-C would also reveal that the Educator shall not publish any material which is provided on the platform of the Unacademy. In other words, the right to publish materials on aforementioned channel is in respect of the matters not covered under the definition of "Educator's Content" in the agreement.
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30. Now the question is, "Whether the change of policy said to have been introduced in August, 2023 restrains the Educator from publishing the materials which she was permitted under the exception?"
31. The relevant portion of the email in August, 2023 sent by the Unacademy reads as under:
"The key principles of the new policy are as follows:-
1. Except a few genuine permissible exceptions, educators shall not be permitted to run/manage any personal distribution channels (for academic or non-academic-Content).
2. Educators will not be granted exceptions to initiate/start new distribution channels (for any purpose, academic or otherwise). Exceptions already given for personal distribution of academic Content (if any), shall be revoked.
3. Breach of this obligation shall not have any cure period/qualifiers. This means that any non-
compliance will lead to penalties and suspension/termination in line with the revised Policy."
32. The cursory perusal of the Policy itself would indicate that the Policy is revised. Clause No.1 referred to above would indicate that the Educator will not be permitted to run, manage any personal distribution channels (for academic or non- academic-Content) except for few genuine permissible
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exceptions. And the Educator will not be granted permission to start new distribution channels.
33. The Policy document updated on 14th August, 2023 termed as "2.5 Policy on Educator's Personal Distribution Channels" prevents the Educator from posting any Content (academic or non-academic) on any of its personal distribution channels. Thus, it is evident that the change in the Policy alters the covenant in the agreement which enable the Educator to run the ongoing YouTube Channel referred to above. As a result, there appears to be a breach on the part of the Unacademy. The question is, whether the Educator who was permitted to run distribution channel referred to above and now prevented from running the same in terms of new revised Policy can terminate the agreement. Under the agreement, the Educator is enabled to terminate the agreement only in the event of default in paying the salary or agreed monetary benefits. Admittedly, the Educator is paid the entire salary in advance. Even if is not paid, the Educator is required to issue 60 days notice demanding arrears. Only if the demand is not complied within 60 days, the Educator gets the right to terminate the agreement. Change in the policy does not enable the Educator to terminate the agreement in the manner it is done. The agreement and its terms are to be
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analysed and understood in the context and keeping in mind the interest of the students who are the beneficiary of the Educator Content. Sudden discontinuation in streaming the course content will affect the students for no fault on their part.]
34. Under these circumstances, this Court is of the prima facie view that though the act of unilaterally changing the policy by the unacademy appears to have constituted a breach on the part of the unacademy, it may not give rise to a cause of action to the Educator to terminate the agreement. This view is taken also taking into consideration the fact that there might be good number of students enrolled to the course taking into consideration the credentials of the Educator. Abrupt discontinuance by the Educator is likely to have a serious consequence not only on the Unacademy but also on the students who are enrolled to the course. Though, the sudden unilateral change in the policy on private channel is likely to have an impact on the students on the permitted private channel of the Educator same can be taken care of and the Educator can be permitted to continue with her permitted ongoing commitments by suitable order. For the reasons recorded above, on prima facie consideration, it appears that the immediate right
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of termination is not provided under the agreement to the Educator.
35. There is no denial that the agreement was entered into between the Educator and the Unacademy on 03.05.2023. In the said agreement, the Educator has agreed to provide the Contents defined as "Educator Content" in clause No.1.1.9 to the Unacademy. The Unacademy is entitled to use the "Educator Content" exclusively during the lock-in period which is two years from 01.04.2023. The two years' tenure under the agreement has not come to an end as no 60 days notice issued demanding arrears of salary. Admittedly the Educator has received base salary for two years. This being the prima facie position, Educator could not have terminated the agreement in the way alleged to have been done in terms of email dated 18.09.2023 wherein the Educator states that she is resigning with immediate effect.
36. Now the question is whether the restraint order passed by the Court is sustainable in view of the bar contained in Section 27 of the Indian Contract Act and Section 14 and 41 of the Specific Relief Act?
37. It is necessary to look into relevant clauses in the agreement dealing with exclusivity.
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11. Grant of License and Exclusivity 11.1. Subject to the terms and conditions of this Agreement, Educator hereby grants to Unacademy for the term of this Agreement and thereafter, as mentioned in this Agreement, an exclusive, worldwide right and license to use, reproduce, distribute, transmit and publicly display the Educator Content in accordance with this Agreement, in and via any and all media, mode, format, etc., whether now known or subsequently invented, at any time after the date of the Agreement. Further, Educator, grants Unacademy the right to sub-license the Educator Content to the Learners to access, use the Educator Content for personal use, research and study purposes only.
11.2. xxxx.
11.3. xxxx.
11.4. xxxxx.
11.5. Notwithstanding anything contained herein to the contrary, during the term of this Agreement, the Educator agrees and confirms that the Educator shall work exclusively with Unacademy and other than the Educator's ongoing engagements that were discussed and agreed upon and
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mentioned in email. The Educator shall not enter into any new transaction, whether online or offline, book deal, mobile application, YouTube channel on its own or with any 3rd party without first obtaining consent for the same from Unacademy.
(Emphasis supplied)
38. Relevant portion of clause No. 17.3 reads as under:
17.3. xxxx Unacademy shall continue the use of Educator Content for duration of the License Period post termination for any reason whatsoever at the sole discretion of Unacademy. xxx
39. The agreement recognises two types of exclusivity.
(a) As per clause 11, exclusivity is granted to the Unacademy to use the Educator's Content during the term of the agreement which is 3 years in this case. Thus,, during the term of the agreement, only the Unacademy has the right to use the "Educator Content" defined in the agreement. As a corollary, said clause also restrains the Educator from using the Content on any other platforms other than the one provided by the Unacademy.
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(b) Clause No. 11.5 mandates that the Educator is required to work exclusively for the Unacademy during the currency of the agreement. Said clause is the 'exclusivity' clause. However, said clause enables the Educator to carry on the "ongoing engagements" if so agreed between the parties and mentioned in the email shared between them.
(c) Under Clause 17.3 even post termination, the Unacademy has the exclusive right to use the Content during the licence period. Thus, clause No. 11 and 17.3 referred to above lead to two inevitable conclusions.
(i) Unacademy's Right to exclusively
use the "Educator Content" during
the tenure of the agreement and
also post termination till the
completion of the tenure;
(ii) Educator's obligation to work
exclusively for Unacademy during
the tenure of the agreement.
40. Clause 16 deals with the lock-in period and
exclusivity.
16. LOCK-IN AND EXCLUSIVITY
16.1. Lock-in:
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16.1.1. The Educator herein agree that the initial 2 (Two) period shall be Lock-in- period which means that during the Lock-in period neither Party can terminate this Agreement. Provided that Unacademy can terminate the Agreement during the Lock- in period in accordance with clause 17.3 and in case of Event of default on part of the Educator, the Educator can terminate this Agreement only in accordance with clause 17.2.3.
16.1.2. The Educator agrees that if: (a) it breaches the Lock-in Period as mentioned in this clause. 16.1.1; (b). It breaches the exclusivity clause mentioned herein after in clause 16.2 for any reason whatsoever; (c) Unacademy terminates the Agreement in accordance clause 17.3; then the Educator shall be liable to pay the highest of: (i) penalty equal to 100% of the 'total amount' paid under this Agreement or any other agreements, (whether in effect or not) executed between the parties; (ii) penalty equal to the total base- pay due to the educator under this Agreement for duration of the Lock- in Period (whether actually paid or not); and (iii). Any penalty that may be imposed by Unacademy under Clause 6 of this Agreement. xxxxxxxxxxx 16.1.3. xxxx.
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16.2. Exclusivity: The Educator undertakes and acknowledges that during the term of this Agreement, the Educator shall exclusively work, online and offline, with only Unacademy. The educators agree that during the term of the agreement, educator is not allowed to work on or his own or with any 3rd party in the online or offline space enter into book deals, create or be part of any mobile application or website, upload content that is recorded or content further. The Educator shall not, whether directly or indirectly, be employed, engaged, concerned or interested in any manner whatsoever in any trade, business or profession, either as a consultant, part or full time employee, partner, director or otherwise, without first obtaining an express return permission in this regard for an Academy. Educator also understands that breach of this clause shall amount to material breach of the Agreement and the Educator become liable to pay the penalty as mentioned in Clause 16.1.2 to this Agreement.
(Emphasis supplied)
41. Clause 16.1.1. provides for a two-year lock-in period during which neither party can terminate the agreement, subject
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to exceptions found in the same clause wherein the agreement can be terminated within the lock-in period.
Clause 16.1.2. provides for consequences of the breach. Clause 16.2. provides for exclusivity. Said clause though appears in principle similar to Clause No. 11.5, it also specifically mandates the Educator to obtain written permission from the Unacademy to carry out any trade, business, or profession during the tenure of the agreement.
42. It is urged on behalf of the Educator that the negative covenant cannot be enforced as such there cannot be a restraint order on the Educator from carrying out the profession. Reliance is placed on Section 41 of the Specific Relief Act.
43. Section 41 (e) and (h) of the Specific Relief Act reads as under.
41. Injunction when refused.--An injunction cannot be granted-- (a) xxx;
(b) xx;
(c) xxx;
(d) xxx;
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(e) to prevent the breach of a contract the performance of which would not be specifically enforced;
(h) when equally efficacious relief can certainly be obtained by any other usual mode of proceeding except in case of breach of trust;
44. Referring to Section 41(e) and Section 14 of the Specific Relief Act, it is urged that the decree for the specific performance of the services agreed to be provided cannot be granted.
45. As already noticed, the exclusivity clause has two facets. One is to exclusively work for Unacademy which also means that the Educator cannot work for others during the tenure of the agreement. The other clause is the right to exclusive use of the Content.
46. It is to be noticed that the Unacademy is not seeking specific performance of the obligation to act as an Educator during the tenure of the agreement as agreed in the agreement. The relief sought is to enforce the exclusivity clause which obligates the Educator not to carry out activity that will be prejudicial to the trade or business of the Unacademy.
47. At this juncture, it is necessary to refer to Section 42 of the Specific Relief Act.
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42. Injunction to perform negative agreement.--Notwithstanding anything contained in clause (e) of section 41, where a contract comprises an affirmative agreement to do a certain act, coupled with a negative agreement, express or implied, not to do a certain act, the circumstance that the court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement: Provided that the plaintiff has not failed to perform the contract so far as it is binding on him.
48. Bare perusal of Section 42 reveals that in a situation where a contract comprises an affirmative agreement to do a certain act, and also a negative covenant not to do a certain act, and if the specific performance of the affirmative clause is impermissible, the Court can grant an injunction to perform the negative agreement. The only rider is the plaintiff must not have committed the breach. Breach on the part of the Unacademy (Applicant) is not forthcoming from the records before the Court. Thus, the restraint order not to engage in trade or profession which conflicts with the business of Unacademy is permissible provided other criteria are met. One such criterion is whether the covenant restraining the trade or profession of the Educator conflicts with Section 27 of the Indian Contract Act.
49. Referring to Section 27 of the Indian Contract Act, it is urged that the clauses restraining the trade, profession or
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business of the Educator are void and unenforceable. Section 27 of the Indian Contract Act reads as under.
27. Agreement in restraint of trade, void.--Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void.
Exception 1.--Saving of agreement not to carry on the business of which goodwill is sold.--One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the good-will from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business.
50. On a reading of Section 27, it is evident that the agreement in restraint of a lawful trade, profession, or business is void. However there is an exception to the said provision. The Hon'ble Apex Court in the judgment of Gujarat Bottling Company supra, has dealt with the scope of the said provision and recognised the principle that there can be reasonable restrictions on such trade, profession, and business. More important, the restrictions imposed under the agreement are during the tenure of the agreement or lock-in
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period. Still more important is that the restrictions on profession imposed are necessary to protect the right to exclusively use the Educator Content provided in clause No. 11.1. In the absence of restriction on profession found in clauses No. 11.5 and 16.1.3, the exclusivity right granted to use the Educator Content under Clause 11.1 becomes illusory. In addition, clause No. 17.3 which recognises the right of the Unacademy to terminate the agreement also recognises the right to exclusive use of the Educator Content.
51. It is also relevant to add that the learned Senior Counsel appearing for the Unacademy has submitted that the Unacademy is seeking a restraint order only in respect of the use of "Educator Content" agreed upon and not on matters not covered under the Agreement. This being the position, prima facie, this Court is of the view that the covenant under the agreement restricting the right of the Educator to engage herself during the lock-in period in the agreement, in respect of the "Educator Content" is a valid clause and same is enforceable subject to applicant meeting any other criteria prescribed under law.
52. Another aspect that requires consideration is whether the injunction could have been granted as the
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agreement provides for penalty and the right to claim damages in the event of breach.
53. As already noticed, the covenant mandating the Educator to provide service exclusively to the Unacademy is not enforceable by way of specific performance as it involves the personal service of the Educator. The action for its breach is only to seek damages. However, the agreement confers the right to exclusive use of the "Educator Content" by Unacademy. This right in appropriate circumstances can be protected by restraining the other party in the exercise of power under Section 42 of the Specific Relief Act.
54. Admittedly, Unacademy is possessing Educator Content shared since joining in May 2023 till the Educator exited from Unacademy on 19th September, 2023. The Educator has shared the Educator Contents with Unacademy till 18th September, 2023. Under the agreement, the Unacademy has the right to exclusive use of the Educator Content for the tenure of the agreement. Same can be protected by way of an appropriate interim order under Section 42 by restraining the other party from diluting or violating such right of exclusive use. Such being the position, asking the aggrieved party to seek damages certainly takes away the
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sanctity of the agreement especially in a situation where it is not possible to ascertain the actual damages on account of not protecting the exclusive right to use. Thus, in the instant case, the learned District Judge is justified in granting the prayer (A) restraining the Educator from sharing or dealing with the Educator Content defined in the agreement. However, the said order should have been restricted to the date of commencement of the proceeding before the Arbitral Tribunal. After the commencement of the proceeding before the Tribunal, it is for the Tribunal to decide on such application under Section 17 of the Act of 1996.
55. The grievance in so far as prayer (B) to the extent of restraining the Educator from publishing, uploading, telecasting, displaying in any manner the Educational (sic, Educator) Content, till the conclusion of the Arbitral proceeding is concerned, same is to be restricted to the "Educator Content" as defined in the agreement till the commencement of the Arbitral proceeding. The restraint order extending to all or any other activity of the Educator beyond the "Educator Content" is impermissible and to the said extent, order at paragraph (b) in the impugned order is set aside.
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56. It is relevant to note clause No.17.5 of the agreement which reads as under:
"The termination of the Agreement shall be without prejudice to all the rights and remedies under applicable law available to the parties, including the right to seek as an alternative to termination, specific performance of obligation under the Agreement or terminate the Agreement and seek losses for the breach committed from any party during the period prior to such termination or termination of this Agreement without sufficient days' notice required as per terms of this Agreement".
57. The clause No.17.5 provides that in case of breach the Unacademy is entitled to seek damages as well as specific performance. Thus, the remedy is not just confined to damages. Section 42 of the Specific Relief Act provides for enforcement of negative covenant. Thus, the action for specific performance of the covenant to protect exclusivity provided under the agreement does lie.
58. Now the question regarding the direction to furnish the security or bank guarantee to the tune of Rs.2,93,50,134/-.
59. The learned District Judge has held that the Educator has to furnish the security to the tune of Rs. 2,93,50,134/-. Said amount of Rs. 2,93,50,134/- prima-facie appears to be amount
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paid towards salary/monetary benefits in advance deducting the salary component for the period for which service is rendered by the Educator. However, admittedly the "Educator Contents" for the entire period of two years is not delivered. Prima facie, the Unacademy has established that it has a legitimate claim for refund of the amount paid in advance which covers the balance period from 19th September, 2023 till 31st March, 2025.
60. Though, the agreement provides for the penalty at a specified rate, and the Section 9 Court appears to have arrived at above mentioned figure, based on the penalty clause, under Section 74 of the Indian Contract Act, the clause relating to penalty can be enforced subject to proof of actual damages. At this juncture, there are no prima facie materials to reasonably assess the damages. However payment made to the Educator in advance is an admitted position. Thus, the Unacademy has made out a prima-facie case seeking the security or the bank guarantee for the advance amount paid by the Unacademy, to the Educator for the period from 19th September, 2023 to 31st March, 2025.
61. During the course of hearing, learned Senior counsel appearing for the Unacademy submitted that despite the interim prohibitory order granted by the learned District Judge, the
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Educator has violated the interim order and is publishing the prohibited Content. In support of his submission, he has produced certain materials. At this juncture, this Court would not look into as to whether there is violation of the interim order. This Court has passed an interim order confirming the order of the learned District Judge insofar as restraint order restraining the Educator from publishing the "Educator Content". It is also brought to the notice of this Court that the Unacademy has already taken steps to appoint the arbitrator to adjudicate the dispute.
62. Under these circumstances, keeping open the right of the Unacademy to seek appropriate remedy under Section 17 of the Act of 1996, the order directing the Educator to furnish security or bank guarantee on account of alleged damages is set- aside. If, an application is filed under Section 17 of the Act of 1996 before the Arbitral Tribunal for securing the amount of damages, with supporting materials, same shall be considered without being influenced by this Order setting aside the order to furnish the security or the bank guarantee. If, such an application is filed, the Arbitral Tribunal shall also take into account any breach of the order passed by the learned District Judge or this Court is committed by the Educator. If it is found to
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be so, then the Arbitral Tribunal shall pass an appropriate order to furnish guarantee or security for such amount as the Tribunal deems fit.
63. In other aspects, this Court is of the view that the Section 9 Court has taken into consideration the relevant factors for consideration of interim prayer. After going through the reasons in the impugned order, this Court does not find the reasons to interfere with the interim order, except to the extent already indicated.
64. For the aforementioned reasons, the following order:
ORDER
(i) The appeal is allowed-in-part.
(ii) The order dated 27.03.2024 passed in COM.A.A. 401/2023 by LXXXII Additional City Civil Judge, Bangalore is set-aside in part.
(iii) The restraint order in paragraph No.(a) of the impugned order is confirmed in part and same shall be in force for thirty days from the date on which the Arbitrator enters reference.
(iv) The restraint order in paragraph No.(b) of the impugned order is modified and restricted to the Educator Content as defined in the agreement
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and same shall be in force for thirty days from the date on which the Arbitrator enters reference.
(v) The order directing the Educator to furnish security and bank guarantee is confirmed. The Educator shall furnish the bank guarantee or security for the advance payment made to the Educator, by the Unacademy, for the period covering 19th September, 2023 to 31st March, 2025.
(vi) It is made clear that any observations made in this order are only confined to the orders on the interim application and shall not be construed as a finding on the merits of the claim which may be presented before the Arbitrator.
Sd/-
JUDGE Sd/-
JUDGE BRN/CHS