Case Law Details
Case Name : M/s. Stellar Information Technology Private Ltd Vs. Mr Rakesh Kumar & Ors (Delhi High Court)
Appeal Number : CS(COMM) 482/2016 & IA No.5576/2016
Date of Judgement/Order : 29.08.2016
Related Assessment Year :
CA Saurabh Chokhra
Brief of the case:
- The Hon’ble Delhi HC in the above cited case held that an employee cannot be restrained from competing with its former employer provided he/she is not using the confidential information of employer.
- The information which is otherwise available in public domain cannot be considered as confidential information and no injunction restraining the use of such information can be issued.
Facts of the case:
- The appellant (plaintiff) is a private company engaged in the business of Data Recovery. Defendant Nos. 1 to 3 (Rakesh Kumar & Others) are the former employees of the Plaintiff. The Plaintiff alleges that although Defendant nos. 5 to 7 are shown as the promoters/directors of Techchef, in fact, its business is carried on by Defendant nos. 1 to 3, who are in de facto control and management of Techchef (a company whose Directors are defendant No. 5 to 7).
- It is further alleged that Techchef is also carrying on the same activities/business as is being carried on by the Plaintiff – that is, the business of providing services relating to data recovery, data migration and data erasure – and is directly competing with the Plaintiff.
- It is the Plaintiff’s case that Defendant nos. 1 to 3 – by virtue of their employment with the Plaintiff – had access to Plaintiff’s confidential data, information, trade secrets and knowhow and they are now using the same for securing the business from the Plaintiff’s clients. According to the Plaintiff, the same is breach of the “Confidentiality and Invention Assignment Agreement” and “Employee Confidentiality Agreement” entered into by Defendant nos. 1 to 3 with the Plaintiff.
- The plaintiff contended that the defendants are approaching to its customers which is in violation of “Confidentiality and Invention Assignment Agreement” and “Employee Confidentiality Agreement”. Therefore, it was pleaded by that Techchef should be restrained from approaching its customers of whose contact details defendant no. 1 to 3 have stolen.
Contention of the Appellant/Plaintiff:
- The learned counsel submitted that Defendants have stolen the Plaintiff’s client list, which includes the phone numbers and contact details of the concerned persons, and are using the same for their business.
- It was contended that the client list prepared by the Plaintiff is its proprietary information and, therefore, the Defendants must be restrained from using the said list and/or approaching the Plaintiff’s customers because client’s information is confidential data of whose use by the employees during in course of employment and even after employment is prohibited by the “Confidentiality and Invention Assignment Agreement” and “Employee Confidentiality Agreement”.
- Further , it was contended that the Defendants were only restrained from carrying on the competing business and that too for a limited period and therefore, the subject clause was reasonable and in terms of the Agreements, the Plaintiff was entitled to injunctive relief.
Contention of the Respondent/Defendant:
- The learned counsel for the defendant pleaded that defendants did not have any confidential information pertaining to the Plaintiff. He submitted that names of almost all large customers of the plaintiff are advertised on its website and therefore, are in public domain. He further submitted that business market relating to data recovery and data migration is not very large and the names of almost all customers requiring such services are known in the market and can be found on the internet by using search engines.
- It was also submitted that defendants could not be restrained from carrying on their business or approaching the customers as any such restrictive covenant in the Agreements would be void by virtue of Section 27 of the Indian Contract Act, 1872.
Held by Hon’ble Delhi HC:
- The High Court observed that in the employment agreements entered into with defendants the expression ‘Confidential Information’ and ‘Proprietary Information’ is defined in very wide terms. However, information which is otherwise available in public domain cannot be considered as confidential information and no injunction restraining the use of such information can be issued.
- There has not been placed anything on record by plaintiff to prove that the Defendants have copied the data base of the Plaintiff. The only grievance of the Plaintiff appears to be that the Defendants have approached the Plaintiff’s customers.
- Further, the defendants did not counter the submission of counsel appearing for defendants that the names of customers requiring data recovery services or other services relating to data are in public domain and can also be found from using search engines on the net.
- The Plaintiff claims that the Defendants are obliged not to carry on competing activity for the specified period after termination of their employment (one year in case of Defendant no.1 and two years in case of Defendant nos. 2 & 3) in view of the clauses of the agreements entered between defendants no 1 .to 3 and plaintiff during employee – employer relationship.
- However, a closer examination of the aforesaid clause indicates that there is an inbuilt exception to the restriction to not to carry on any competitive activity; and that exception is where an employee can prove that he has carried on the business activity without using of any confidential information.
- In the present case, it is not disputed that the names of the customers seeking data recovery services are well-known and in public domain. Therefore, the Defendants cannot be restrained from approaching the customers only on the allegation that the Defendants are aware of the names of the Plaintiff’s customers. Therefore, the case of defendant is covered by the exception where it is competing with the plaintiff but without using any confidential information.
- Therefore, the arguments advanced by plaintiff that defendants in view of agreements entered with them should be restrained from approaching its customers is clearly hit by Sec 27 of the Indian Contract Act,1872.
- Accordingly, the appeal of plaintiff is dismissed.
Qualification: CA in Job / Business
Location: Hyderabad, Telangana, IN
: 19 Aug 2018 | Total Posts
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