The learned counsel for the Plaintiff had submitted that the expression 'confidential information' is very wide and thus, it would not be practically impossible for the Defendant to establish that they were not using the confidential information in the context of their business. Consequently, the Defendants could not be permitted to carry on any competing business. In my view, this contention is also bereft of any merit as by expanding the width of the expression 'confidential information' to include information which is in public domain, the Plaintiff is not seeking protection of proprietary or confidential information, but is essentially seeking a restraint on trade. Plainly, if the expression of 'confidential information' is read in the manner as suggested by the Plaintiff, clause 4(b) (ii) of the Confidentiality and Invention Assignment Agreement for the Employee would in effect work as a covenant in restraint of trade and, therefore, would be void by virtue of Section 27 of the Indian Contract Act, 1872.
21. The decision in the case of Diljeet Titus (supra) is wholly inapplicable in the facts of this case. In that case the issue was whether the copyright in the database - which included a client list and was admittedly copied by the defendants - vested with the defendants as they had worked on it or whether the same belonged to the plaintiff. The court held that "The mere fact that defendants would have done work for such clients while being associated with the plaintiff would not give them the right to reproduce the list and take it away" and therefore, restrained the defendants from using the same. Even so, the court clarified that "it is possible that a part of this information is retained in the memory of the defendants and if that is utilized no grievance can be made in this behalf. This would, however, be different from a copy made of the list.". The decision in Vogueserv International Pvt. Ltd. (supra) also turned on the issue of copyright. There is no dispute that the Defendants could be restrained from using the copyright material, but clearly, they cannot be restrained from using the material which is in public domain and from carrying on competing business after their employment with the Plaintiff has ceased.
22. The contention that the restriction to carry on competing business is for a limited time and is therefore, reasonable and consequently, enforceable cannot be accepted. Once it is held that in the guise of a confidentiality clause, the Plaintiff is attempting to enforce a covenant in restraint of trade, the same must be held to be void. As explained by Justice A.P. Sen in his concurring judgement in Superintendence Company of India (P) ltd. vs. Krishan Murgai: MANU/SC/0457/1980 : (1981) 2 SCC 246, a covenant in restraint of trade, whether partial or not is void by virtue of section 27 of the Indian Contract Act, 1872; the question whether a restriction is reasonable or not is relevant only if the case falls within the exception to section 27. The relevant extract of the said judgement are reproduced below:
"26. Now, so far as the present case is concerned, the law is to be found in section 27 of the Contract Act 1872, which reads:
"27. Agreement in restraint of trade void-Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind is to that extent void.
Exception: 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 other person deriving title to the goodwill 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."
The section is general in terms, and declares all agreements in restraint void pro tanto, except in the case specified in the exception.
27. The question whether an agreement is void under section 27 must be decided upon the wording of that section. There is nothing in the wording of section 27 to suggest that the principle stated therein does not apply when the restraint is for a limited period only or is confined to a particular area. Such matters of partial restriction have effect only when the fact fall within the exception to the section.
28. A contract, which has for its object a restraint of trade, is prima facie, void. Section 27 of the Contract Act is general in terms and unless a particular contract can be distinctly brought within Exception 1 there is no escape from the prohibition. We have nothing to do with the policy of such a law. All we have to do is to take the words of the Contract Act and put upon the meaning which they appear plainly to bear. This view of the section was expressed by Sir Richard Couch C.J. in celebrated judgment in Madhub Chunder v. Rajcoomar Doss MANU/WB/0020/1874 : [1874] Beng L. R. 76 at pp. 85-86 laying down that whether the restraint was general or partial, unqualified or qualified, if it was in the nature of a restraint of trade, it was void."
IN THE HIGH COURT OF DELHI
CS (Comm.) 482/2016
Decided On: 29.08.2016
Appellants: Stellar Information Technology Private Ltd.
Vs.
Respondent: Rakesh Kumar and Ors.
Hon'ble Judges/Coram:Vibhu Bakhru, J.
Print Page
