Anindya Mukherjee vs 22
2010 Latest Caselaw 122 Bom

    ssm                                      1                          arbp.947.09.sxw


               IN THE  HIGH COURT OF JUDICATURE AT BOMBAY




                                                                               
                   ORDINARY ORIGINAL CIVIL JURISDICTION

                   ARBITRATION PETITION NO. 947  OF 2009




                                                       
    Anindya Mukherjee
    C/o - Mrs. Kaberi Mukherjee,




                                                      
    Flat No. C-2 Block - B,
    Malancha Apartment, 251,
    Pulin avenue, P.O. Rajbari,
    Kolkata 700 081                                     ....   Petitioner




                                        
                                                               (Orig. Respondent)


          Vs
                          
                         
    Clean Coats Private Limited,
    A private limited company incorporated
    under the Companies Act, 1956 and
    having its registered office at -
            


    122, Creative Industrial Premises,
    Sunder Nagar, Kalina,
         



    Mumbai - 400 098.                                      ....    Respondent.
                                                                   (Orig. Claimant)





    Mr. Sugandh Deshmukh for the petitioner.
    Mr. Tushar P. Gujjar i/by  M/s. Ashwin Ankhad & Co. for the Respondent. 


                            CORAM   :  ANOOP V. MOHTA, J.





          JUDGMENT RESERVED ON    :  27/09/2010.
          JUDGMENT DELIVERED ON  :  28/10/ 2010.


    JUDGMENT:

The Petitioner has challenged award dated 14th July, 2009, passed by

ssm 2 arbp.947.09.sxw

the nominated sole Arbitrator, in view of an agreement dated 05/12/2007

(the agreement) between the parties, under Section 34 of the Arbitration

and Conciliation Act, 1996 (for short, the Arbitration Act).

    2     The operative part of the award is as under:-




                                                              
          "36. In the circumstances,

          i)     I direct the Respondent to pay  Rs.9,40,167.50 towards  




                                                

liquidated damages to the Claimant within 30 days from the date of publication of this order.

ii) As this amount has been crystallized only by this Award, I hold that the Claimant is not entitled to any interest on

the said damages up to the date of the Award.

iii) I further direct the Respondent to pay Rs.70,040/- to the Claimant towards salary and other dues inclusive of interest @ 10% p.a. from 12th February, 2009 till the

date of the Award.

iv) I further direct costs of the Arbitration be paid by the Respondent u/s. 31 of the Act to the extent of Rs.

30,000/-.

37. Hence the total claims and costs payable by the Respondent to the Claimant comes to Rs.10,40,207.50. I direct that the said amount be paid within 30 days from the date of publication of this Award.

38. I further direct that in case the Respondent does not pay the aforesaid amount within 30 days as directed, the Respondent is liable to pay interest to the Claimant on the ordered amount @ 18% p.a. from the expiry of 30 days as aforesaid till payment, u/s. 31 of the Act.

39. This Award takes care of all the issues framed on 15th April, 2009. Issuewise answers are hence not necessary."

     ssm                                              3                           arbp.947.09.sxw


    3      The basic events and particulars as per the Petition are as under:-




                                                                                        

On 11/12/1999, the Petitioner being an expert in the field of

marketing of coating, flooring and concrete, joined as "SENIOR SALES

EXECUTIVE" in Thortex Coating. The same company is renamed now as

Clean Coats Pvt. Ltd., the Respondent. On 01/04/2001, the Petitioner was

promoted as Assistant Project Manager of the Respondent and signed an

agreement having confidentiality and related clauses.

4 On 09/08/2006, the Petitioner was posted as Manager Project and

Sales in Marketing Department.

5 On 05/12/2007, both the parties signed an agreement having

confidentiality and related penalty and liquidated damage clauses. On

27/12/2006, the Respondent granted personal loan to the Petitioner of

Rs.1,50,000/- (Rupees one lac and fifty thousand only) with clause of 18%

interest in case the Petitioner leave the service before 5 years.

6 On 15/03/2008, the Petitioner resigned from the claimant Company.

7 On 13/06/2008, the Petitioner received a letter from the Respondent

company dated 13th June, 2008 for settlement of accounts and again a

communication by a fax in respect of full and final settlement for an

ssm 4 arbp.947.09.sxw

amount of Rs.67,238/- on 2nd December 2008.

8 On 03/12/2008, the Petitioner received a letter in respect of charges

of breach of the alleged agreement with a claim of damages of Rs.31.67

lakhs and intimating about the appointment of the Arbitrator.

9 On 16/01/2009, the Petitioner received a communication of the

minutes of the meeting held by the Arbitrator thereby fixed the next date of

hearing on 15th April, 2009 and a direction to deposit Rs. 25,000/- within

28th February, 2009, as 50% of sitting fees of the Arbitrator.

10 On 20/02/2009, the Petitioner challenged the jurisdiction and

validity of the agreement by invoking Section 23 of the Indian Contract Act.

The same was rejected by the Arbitrator on 15/04/2009 and proceeded

with the proceedings.

11 On 18/05/2009, the learned Arbitrator rejected the prayer of the

Petitioner to supply the necessary documents.

12 On 14/07/2009, the learned Arbitrator passed the impugned award

in favour of the Claimants Company and directed the Petitioner to pay an

amount of Rs.10,40,207.50 and 18% interest thereon after the expiry of 30

ssm 5 arbp.947.09.sxw

days from the date of the order.

13 Both the parties have read and relied upon the agreed terms of the

agreement dated 5th December, 2007 which are as under:-

"1. The employee undertakes maintain confidentiality in all matters related to The Company and its business and not to divulge or otherwise part with any technical or

commercial information related to the Company's products and services to any outside party or

organization, except as may be authorized to him/her by the Company specifically to promote the business interests of the Company to approved customers.

2. The Employee undertakes during the currency of employment to work full time exclusively for the company and not to take up any parellel employment or association of profit with any other organization engaged

or interested in similar or other business directly or

indirectly during the period of his employment by The Company and Twenty four months thereafter in the event of his resigning or disassociating from the services of The Company.

3. In the event of the Employee ceasing to be in the employment of The Company either by resignation or termination, he/she undertakes not to join or start a competitive business in similar activities either directly or

indirectly through friends, relatives and associates or with anybody else, or part with any confidential information as specified in the foregoing to any other organization engaged in similar business for a minimum period of Twenty four months from the date of leaving the organization.

4. In the event of breach of any of the terms and conditions set out in this agreement by The Employee, The Company has the legal right to proceed against him/her as per laws

ssm 6 arbp.947.09.sxw

of the land and claim liquidated damages of up to Rs. 10.00 Lakhs (Rupees Ten Lakhs only), the actual

quantum of damages claimed would however be decided at the sole discretion of The Company considering the circumstances of the case. Mumbai courts will have the

final jurisdiction in case of dispute in this case.

5. Any disputes or difference arising under this agreement, if not settled amicably shall be referred to a sole arbitration

nominated by the CEO of the company. The decision of such as arbitrator shall be final and binding on the Employee. The arbitration shall be governed by the provisions of Indian Arbitration & Conciliation act, 1996

and the venue of the arbitration shall be Mumbai."

                                  ig                       (Emphasis Added)
                                
    14      It   is   necessary   to   have   a   clear   and   strict   interpretation   of   above 

negative and mandatory clauses, basically when the parties have agreed

and acted upon the same during the employment. The restriction was even

extended after the termination/expiry of the employment for 24 months.

The object and purpose of such clauses are quite clear from its contents

itself.

15 In this global competitive and commercial world, various technical,

business, commercial, sensitive and financial information including

confidential protected data formulation including dealership network are

very vital for running and developing successful business. The data,

material or information of the company including the policy and market

strategy, if any, need to be protected in all respect. It also means, important

ssm 7 arbp.947.09.sxw

responsibility and the obligations on the employees to protect vital

information and/or data or material as collected and/or formed and/or

obtained by the employer. The importance of such data material needs to

be considered from the point of employer and its business interest and not

only employee's point of view. The national and international laws

recognize importance of such privacy and confidentiality. Such clauses are

regular features of commercial arrangements as it is based upon the trust,

honesty and confidential relationship between the parties. The concepts of

"non-disclosure", "trade secrets" and "confidentiality" therefore, need to be

respected from the commerce as well as outsourcings point of view.

16 Admittedly, the Petitioner re-signed and continued the services based

upon the agreement clauses in question dated 5th December, 2007. He

resigned on even without giving prior 60 days notice and joined the

competitors. The Respondent, therefore in view of Arbitration clauses

raised claims on various heads against the Petitioner, aggregating to sum of

Rs.28.95 lacs with 18% interest thereon. The claims based upon the breach

of confidentiality, dues towards the company and the customers and clients,

non-receipt of "C" forms and miscellaneous damages.

17 As per the agreement clauses the Respondent was entitled to claim

liquidate damages up to Rs.10 lacs. The actual quantum of damages would

ssm 8 arbp.947.09.sxw

however be at the sole discretion of the company. Therefore, it is clear that

it is necessary for the Respondent to claim actual damages to substantiate

the same with material. Therefore, it is obligation of the Respondent to

prove the actual damages. The full and final settlement proposal given but

was not accepted by the Petitioner initially. The parties proceeded before

the Arbitrator by filing respective documents and materials and lead the

evidence also.

The Arbitrator needs to consider the basic laws while assessing and

granting any kind of damages/ compensation. The Apex Court in the

STATE OF RAJASTHAN & ANR. VS. FERRO CONCRETE CONSTRUCTION

PRIVATE LIMITED, (2009) 12 SCC 1, has observed in paragraph No.55 as

under:-

"55. While the quantum of evidence required to accept a claim

may be a matter within the exclusive jurisdiction of the arbitrator to decide, if there was no evidence at all and if the arbitrator makes an award of the amount claimed in the claim statement, merely on the basis of the claim statement without anything more, it has to be held that

the award on that account would be invalid. Suffice it to say that the entire award under this head is wholly illegal and beyond the jurisdiction of the arbitrator, and wholly unsustainable."

It is also necessary for the Arbitrator to decide firstly, whether the

Defendant-Respondent is liable for the damages or compensation and

ssm 9 arbp.947.09.sxw

thereafter to proceed to assess/determine the quantum and/or liability. The

interest on such determined or quantified amount is also another aspect,

depends upon the agreement between the parties, if any, otherwise, it will

be as per the provisions of Section 28/31 of the Act read with Section 34 of

the Code of Civil Procedure (for short, CPC).

19 The Respondent company by letter dated 3rd December, 2008 claimed

damages of Rs.31.67 lacs and appointed an Arbitrator, inspite of their

communication/ fax dated 13th June, 2008/ 2nd December, 2008, towards

full and final settlement restricting to Rs.67,238/-. The Respondent even

denied the full and final settlement as referred in additional affidavit dated

11th April, 2009. The Respondent-Company basically claimed loss of profit

as the Petitioner joined the competitors' Company within 24 months and

disclosed the confidential material to them which resulted into loss of

business and profit to the company. Though there is no dispute that the

Petitioner joined the competitive company within 24 months by resigning

from the Respondent-company, yet it is necessary for the Respondent to

prove the actual loss suffered by them only because of this conduct of the

Petitioner. Initially no details of claims were provided except the affidavit

dated 30th April, 2009 in support of the claim. The statement of claims and

the affidavit so filed were based upon the internal memos and documents.

There were no material evidence and/or specification/ documents placed

ssm 10 arbp.947.09.sxw

on record to show how many orders were managed to divert, by the

Petitioner of the Respondent-company. The loss to a particular

contract/tender and/or loss to the business even if any, depends upon the

various aspects therefore, those factors unless brought on record by leading

independent witness to support the documents/ record/ affidavit, the

liability so fasten upon the Petitioner, in my view, is not correct. The detail

Accounts and the Tax returns with supporting material were not filed on

record to show the said losses, if any. There is further no material on record

to show which and what role played by the Petitioner to divert the clients or

the business of the Respondent-company. Respective claims though raised

referring to various companies and claimed loss of business, yet no

independent witness from the respective companies was examined to

support their case of loss in the year 2008-2009, which was well-known

recession period worldwide.

20 The challenge was raised by the Petitioner even to the agreement

being null and void and therefore, the power and the jurisdiction of the

Arbitrator also. It was rightly rejected. In the affidavit, the Respondent-

Company stated that they came to know at the first time on 5 th November,

2008 based upon the internal communication dated 26th October, 2008,

received from an officer of the Company Mr. A. Vasudevan. The supporting

material to the said communication are also not part of the record. Such

ssm 11 arbp.947.09.sxw

internal communication, even if any, just cannot be the foundation to

award damages/ compensation for business loss as granted, though claims

so raised is permissible. The submissions that initially the Respondent-

claimant agreed for the final settlement and thereby waived/restricted their

claim which they are claiming now, under the clauses of the agreement in

question, in my view, is also unsustainable, so also the grant of award to the

extent of Rs.10,40,207.50, in the present case.

Such clauses of confidentiality and/or non-disclosure or non-

competition need special attention in this world of global competition and

outsourcing. It is very important right and valuable asset of the owner of

such trade secret or formula or information and/or such material. There is

no special and express statute in India, in this regard except such

agreements/ clauses governed by the law of contract in India and

connected laws. I have elaborated the aspect of Section 27 of the Contract

Act referring to such covenants in Y.T. Entertainment Limited Vs. One

More Thought Entertainment Pvt. Ltd. & Ors., reported in 2009(6)

Bom.C.R. 148, as under:-

"9 Section 27 of the Indian Contract Act, 1872 provides as under :

"27. Agreement in restraint of trade, void.-

Every agreement by which any one is restrained from exercising a lawful profession, trade or business of

ssm 12 arbp.947.09.sxw

any kind, is to that extent void.

Exception 1.- Saving of agreement not to carry on 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 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."

11 The submission with regard to the "Doctrine of Negative

Covenant", based upon above Section, in the facts and circumstances of the case, in no way sufficient to overlook the

case of the petitioner. The Doctrine of Negative Covenant cannot be extended blindly in each and every case, where the parties knowing fully the principle behind the Doctrine, incorporate those provisions/clauses and when it comes to

payment, the defaulted party invokes the Doctrine to use as a shelter/umbrella to avoid the obligations. The commercial transaction like this where the parties entered into the contract of production of the film & having once obtained the

benefits arising out of the finances so received, just cannot be allowed to turn around to say that in view of the said

Doctrine, no order should be passed against them.

12 In my view, this Section cannot be interpreted or extended to assist a defaulted person/party and specially in the present

facts and circumstances of the case. There is nothing in this clause or section to direct the parties to comply with agreed clauses and to pay the agreed amount or at least to secure the same. Section 27 of the Contract Act just cannot be extended blindly in each and every case merely because such clause is

mentioned in the Agreement. Any direction and/or order to make the payment of agreed amount against any person, in my view, cannot be said to be granting any order of restrainment of trade or a lawful profession, trade or business. They can do or continue with their business or trade but subject to agreed payment."

Such covenants/agreements revolving around and to protect the concept of

confidentiality trade secret are legally accepted mode even in India.

     ssm                                                 13                           arbp.947.09.sxw




                                                                                            
    22      The submission that such agreement/ contract is null and void and 

    got   signed   coercively,   is   unacceptable.     Knowing   fully   the   effect   of   such 




                                                                    

clauses, the Petitioner signed the same and acted accordingly. It is settled

that such permissible commercial agreements are binding to both the

parties in all respect. In the present case, the full and final settlement

forwarded by the claimant vide letter dated 13th June, 2008, which the

learned counsel appearing for the Petitioner now ready and willing to

accept the same. The learned arbitrator, therefore, right in rejecting the said

submission. The decision so given by the arbitrator is well within his power

and jurisdiction under the Act.

23 I am of the view that if the employee and employer relationship,

considering the business and trade, such agreement/ covenant has always

element of commerce and business. It is not just a simple employment

agreement. Therefore, to say that such agreement is one sided or unfair or

unreasonable is unacceptable. Both the parties are bound of such terms

and conditions in all respect. Any breach of such clauses on the part of

employee, in given case, can also be treated as misconduct. The employer

may take action by taking steps in accordance with law, apart from a claim

of damages or penalty.

     ssm                                             14                          arbp.947.09.sxw


    24     It is relevant to note the English Judges' observation on the concept 




                                                                                       

of confidential information as under. [(1985) 1 All ER 724, Faccenda

Chicken Ltd Vs. Fowler and Ors.] [Saltman Engineering Co. Ltd. Vs.

Compbell Engineering Co. Ltd. (1963) 3 All ER 413

"On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker on materials which may be available

for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his

brain and thus produced a result which can only be produced by somebody who goes through the same process."

25 In the present case, the Petitioner admittedly after resignation,

working for the competitor. The possibility of using the client lists and

confidential information just cannot be ruled out. Though, there is no

direct evidence on record but in view of above admitted breach and facts

and circumstances itself, I am of the view that the Petitioner is liable to pay

lump sum damages/ compensation of Rs.1 lacs instead of Rs.9,40,167.50,

as awarded, specially when the Petitioner at the relevant time admittedly

working with the competitor. It is clear breach of the agreed clauses as

confidential information/ data must had traversed out of the private

domain to the competitor's domain through the Petitioner. The sufferer

needs to be compensated in view of the admitted breach itself.

     ssm                                             15                          arbp.947.09.sxw


    26     The Arbitrator has relied upon the company's brochure to prove that 




                                                                                       

the Petitioner worked with a competitor and various memos dated 26th

October and 10th November, 2008 from Mr. P.K. Chandran and Chartered

Accountant's certificate showing the losses in the year 2008-2009 compared

to the year 2007-2008. The Arbitrator also relied upon the list of clients

with whom the Respondent used to deal with while in the employment with

the claimant. As noted above, though the Petitioner had accessed to

technical and commercial information including clients' list and pricing, yet

unless it is proved and supported by the documents that only because of

this conduct of the Petitioner, the Respondent company had lost orders of

various clients and thereby suffered loss of Rs. 31 lakhs so claimed. So far

as the award of Rs.70,040/- and other dues from February, 2009 till the

date of award @ 10% is maintained, in view of observation made in

paragraph No.31 of the award.

27 The element of breach of confidential information with other

elements of loss of profit and/or loss just cannot be overlooked. The

material to support the loss of profit of the company, though placed on

record, but not fully supported by any substantial material/ evidence, still

the Arbitrator restricted the amount below Rs.10 lacs in view of clause of

the agreement. In my view, out of which at least 10% to 20% such action/

conduct of Petitioner, contributed to loss of profit to the Respondent

ssm 16 arbp.947.09.sxw

company. I am therefore, restricting it to 10% of the amount so awarded

by the Arbitrator i.e. Rs. 9,40,167/-. However, rounding it to Rs.1,00,000/-

(Rupees one lakh only).

28 As there is legal injury, it should be compensated. Therefore, I am

inclined to grant lump sum liquidated damages/ compensation of

Rs.1,00,000/- instead of Rs.9,40,167.50. Therefore, total claims and costs

payable by the Petitioner-Original Respondent, to the Respondent-

Company comes to Rs. 1,00,000/- towards liquidated

damages/compensation Rs. 70,040/- towards the Salary and other dues

with interest; and Rs.30,000/- towards the costs. Therefore, total claims

and costs payable by the Petitioner comes to Rs. 2,00,040/- in place of

Rs. 10,40,207.50. This amount is further subject to 18% p.a. future interest

from 14th August, 2009 i.e. 30 days after impugned award dated 14th July,

2009, till realization.

29 The order of costs as awarded is also maintained.

    30     The award is modified accordingly. 



    31     The Petition is accordingly partly allowed with no order as to costs. 



                                                           (ANOOP V. MOHTA, J.)