A negative covenant, also known as a restrictive covenant, is a contractual provision that restricts one party from carrying out certain specified actions. These covenants may involve some form of compensation to the party that consents to the restriction. Negative covenants are commonly found in employment contracts, mergers and acquisitions, bond documents, and land use agreements.
Section 27 of Indian Contract Act, 1872
It is important to examine whether such client lists, even if they are maintained by the Plaintiff, can be deemed proprietary information or trade secrets, deserving legal protection. In this Court‟s view, a client list, by itself, is not automatically protected as confidential information simply by virtue of its existence. To be considered a trade secret or confidential information, the list must have economic or business value that requires safeguarding against competitors. {Para 26}
27. The mere existence of a client list does not confer proprietary rights over it in a way that would prevent former employees from using it, unless there is evidence that the list is compiled through proprietary methods, or that it holds specific commercial value that could harm the business if disclosed. It is also essential to distinguish between information that is generally known or accessible in the public domain and information that is truly confidential, which would merit the protection of an injunction.
28. In this context, while a company may claim that its client list is confidential, the Court must scrutinize whether such information is truly proprietary or whether it simply reflects business relationships that are already in the public domain. If the client details are publicly known or easily ascertainable by competitors, it would be unreasonable to grant an injunction based on a claim of confidentiality.
29. Therefore, the issue at hand is not merely whether the Defendant has knowledge of the Plaintiff‟s clients, but whether that knowledge rises to the level of confidential information or trade secrets that can be protected by legal measures such as an injunction. Without clear evidence that the client list holds economic value and that its use would harm the Plaintiff‟s business interests, the Plaintiff‟s request for an injunction based solely on the existence of a client list cannot be sustained.
IN THE HIGH COURT OF DELHI AT NEW DELHI
C.S. (OS) 1011/2024
CIGMA EVENTS PRIVATE LIMITED Vs DEEPAK GUPTA & ORS.
CORAM:
HON'BLE MS. JUSTICE SWARANA KANTA SHARMA
Dated: 24.12.2024.
Read full Judgment here: Click here.
Print Page26. It is important to examine whether such client lists, even if they are maintained by the Plaintiff, can be deemed proprietary information or trade secrets, deserving legal protection. In this Court‟s view, a client list, by itself, is not automatically protected as confidential information simply by virtue of its existence. To be considered a trade secret or confidential information, the list must have economic or business value that requires safeguarding against competitors.
27. The mere existence of a client list does not confer proprietary rights over it in a way that would prevent former employees from using it, unless there is evidence that the list is compiled through proprietary methods, or that it holds specific commercial value that could harm the business if disclosed. It is also essential to distinguish between information that is generally known or accessible in the public domain and information that is truly confidential, which would merit the protection of an injunction.
28. In this context, while a company may claim that its client list is confidential, the Court must scrutinize whether such information is truly proprietary or whether it simply reflects business relationships that are already in the public domain. If the client details are publicly known or easily ascertainable by competitors, it would be unreasonable to grant an injunction based on a claim of confidentiality.
29. Therefore, the issue at hand is not merely whether the Defendant has knowledge of the Plaintiff‟s clients, but whether that knowledge rises to the level of confidential information or trade secrets that can be protected by legal measures such as an injunction. Without clear evidence that the client list holds economic value and that its use would harm the Plaintiff‟s business interests, the Plaintiff‟s request for an injunction based solely on the existence of a client list cannot be sustained.
30. A competitor, even when aware of which particular entity, individual, or person a business is currently engaged with, has the right to approach such individuals or persons to canvas their own business. It is ultimately the customer's discretion to decide which business or entity they choose to engage with. The mere creation of a database containing client or customer details, followed by a claim of confidentiality over it, does not bestow a monopoly over those customers. Furthermore, even if a person has gained knowledge about the Plaintiff's operational plans, they cannot be restrained from disclosing such plans to a competitor, provided that the information was retained in their mind. The competitor's decision-making cannotbe presumed to have been solely influenced by such disclosure.
31. The Coordinate Bench of this Court in American Express Bank Ltd. v. Priya Puri: 2006 SCC OnLine Del 638, had held that mere knowledge of the plaintiff‟s operational strategies or plans, when carried in an individual‟s mind, does not give rise to an actionable claim for injunctive relief. A competitor may be aware of these plans, but they cannot be automatically considered to have been influenced by them. The plaintiff is not entitled to restrain the competitor from acting based solely on this knowledge.
32. This Court is of the view that the plaintiff has failed to produce any document or evidence demonstrating that Defendant No. 2 was bound by any agreement that prohibited him from carrying on his own business, either during his tenure with the plaintiff company or post resignation from the directorship of the company. Therefore, the alleged use of client information or industry knowledge by the Defendant No. 2 cannot be restrained, as such knowledge does not constitute proprietary information or trade secrets of the plaintiff.
33. It is well-established that non-compete clauses during employment are enforceable; however, post-employment restrictions must be both reasonable and necessary to protect trade secrets or proprietary information. The defendant‟s use of general industry knowledge, gained during their employment with the plaintiff, cannot be prohibited unless it is shown that such knowledge constitutes confidential or proprietary information.
34. The plaintiff‟s contention that the Defendants used confidential
information, including the client details and vendor codes, which were allegedly generated using the Plaintiff‟s client database, is not
supported by any compelling evidence. As held by a Co-ordinate
Bench of this Court, in Manipal Business Solutions Private Limited
v. Aurigain Consultants Private Limited & Ors.: CS(OS) 190/2022, a
director or employee of a company will naturally become familiar
with the company‟s operations and clientele during their employment. This does not, however, grant them exclusive rights to the company‟s customer list or operational details.
35. The Plaintiff‟s claim that certain information is confidential and
proprietary cannot prima facie be termed as such, as much of this
information, including details about clients, business operations, and
event types, is widely available through public sources such as press
releases, social media posts, and public collaborations. As observed by the Co-ordinate Bench of this Court in Manipal Business Solutions Private Limited v. Aurigain Consultants Private Limited & Ors.: (Supra), confidential information must possess distinct commercial value. If information is already in the public domain, it cannot be classified as a trade secret deserving protection. The relevant extract from the judgment is as follows:
“ 37. According to Mr. Mehta, the same include customer
data, agent data, contract data, employee data, market data
and business plans.
38. I may at the outset state here that the plaintiff is not
claiming any copyright in the above information. It is only
claiming that the data is confidential. Even if such an
argument was to be raised, the question would be whether
the above information shall fall within the definition of
copyright as defined under Section 13(1) of the Copyright
Act. This Court in a series of judgments including the
judgment in the case of Navigators Logistics Ltd. (supra),
has in paragraphs 22 to 35, by referring to the judgment of
the Supreme Court in Eastern Book Company v. DB
Modak, (2008) 1 SCC 1, held that to claim copyright, the
author must produce the material created with exercise of
his skill and judgment, which must not be so trivial that it
would be characterised as a purely mechanical exercise.
The Court was of the opinion that the plaintiff therein,
being a juristic person is incapable of being the author of
any literary work in which a copyright may exist, though it
may be the owner of copyright. As the plaintiff had failed to
disclose the identity of the author, it could not claim any
copyright in a list of customers/clients with their contact
numbers.
39. Even the plea of confidentiality taken by Mr. Mehta is
unsustainable, as merely stating that there exists some
confidential and secret information does not convince this
Court that such information is, in fact confidential, more so,
when the plaint and the pleadings do not disclose the nature
of the information / data of which confidentiality is
claimed. I find that no material / document connected with
the aforesaid data / information has been filed by the
plaintiff. In fact this aspect has been accepted by Mr. Mehta
during his submissions.
***
41. It has not been filed nor shown to the satisfaction of this
Court, as to what exactly is the confidential information,
how it is confidential, and how, if at all, the defendant
company has used such information to the detriment of the
plaintiff.
***
44. A reading of the above reproduced paragraphs would
reveal that not every customer/client list would qualify as
confidential information or trade secret unless the
confidentiality about it is of economic/business/commercial
value. It is held that in any employment, every employee
would get to know some information without any special
effort. All such persons cannot be said to be in knowledge
of trade secrets or confidential information and every
knowledge of such facts cannot be labeled as trade secret or
confidential information. If an employee on account of his
employment has gathered some business
knowledge/acumen or ways of dealing with clients, the
same would not be termed as confidential information,
disclosure of which would harm the plaintiff. Unless there
is some material on record to show that the defendant had
come to know of any confidential information / trade secret
concerning the plaintiff and its business, no injunction can
be granted, more so when such trade secret / confidential
information have not even been spelt out. The learned
Single Judge, referring to the decision in American Express
Bank (supra) has observed that a competitor even after
knowing which particular entity/an individual/person is
currently in business with, can approach such
individual/person to canvas about itself, and it is for the
customer to decide which business/entity to choose.
Creating a database of clients/customers and then claiming
confidentiality on it does not create a monopoly over such
customers. That apart, even if a person has amassed
knowledge with regard to the plaintiff‟s plan of operation,
he could not be injuncted from disclosing such plans to the
competitor, if he has carried such plans in his head and even
the competitor could not be said to be driven by such
disclosure alone. I agree with the aforesaid conclusion
arrived at by the Coordinate Bench of this Court.
57. I agree with the conclusion of the Court that a client list cannot be construed as confidential information to claim any right. The judgment relied upon has no applicability. ”
36. It is also established that every employee gains knowledge during the course of their employment, and not all such knowledge can be classified as a trade secret or confidential information. If an employee acquires business knowledge, such as ways of dealing with clients, through ordinary experience, it cannot be considered confidential information. Disclosure of such knowledge would not harm the plaintiff unless it is demonstrated that the defendant had access to specific trade secrets or proprietary information.
37. Therefore, the details of customers, while potentially known to employees of a business, cannot be deemed proprietary or protected trade secrets. Such information can easily be acquired by others through observation, independent canvassing, or minimal effort. It is unreasonable to treat such details as confidential when they are accessible with little effort and at minimal cost.
38. In light of the above, this Court finds that the injunction sought by the Plaintiff would curtail the Defendants' ability to seek future employment or business opportunities. Restricting an individual‟s freedom to seek better prospects, merely on the grounds that they possess information that is readily available or ascertainable, is an impermissible restraint on trade and employment. Such restrictions are contrary to public policy, as enshrined in Section 27 of the Indian Contract Act.
IN THE HIGH COURT OF DELHI AT NEW DELHI
C.S. (OS) 1011/2024
CIGMA EVENTS PRIVATE LIMITED Vs DEEPAK GUPTA & ORS.
CORAM:
HON'BLE MS. JUSTICE SWARANA KANTA SHARMA
Dated: 24.12.2024.
Print PageIntellectual Property Rights (IPR) in India refer to the legal rights granted to individuals or entities over their creations or inventions. These rights allow the creators or owners to control the use of their intellectual property for a certain period, encouraging innovation and creativity by providing legal protection and economic incentives. The main types of IPR in India include:
Definition: Copyright protects the original works of authorship, such as literary, dramatic, musical, and artistic works, as well as cinematograph films and sound recordings.
Governing Law: The Copyright Act, 1957.
Examples:
