Delhi High Court
Affle Holdings Pte Limited vs Saurabh Singh And Ors. on 22 January, 2015
Author: Rajiv Shakdher
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 05.12.2014
% Judgment delivered on: 22.01.2015
+ OMP 1257/2014
AFFLE HOLDINGS PTE LIMITED ..... Petitioner
VERSUS
SAURABH SINGH AND ORS. ..... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr. N. Ganpathy, Mr. Gautam Varma and Mr. Manpreet
Lamba, Advocates
For the Respondents: Mr. Ajit Warrier, Mr. Sandeep Grover, Mr. Paresh and Mr.
Aditya Nayyar, Advocates for R-1
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
OMP 1257/2014 AND IA No.23684/2014 (u/O. 39 R. 4 CPC by R-1)
1. On 16.10.2014, I had granted an exparte interim order in favour of the
petitioner in terms of prayer clause (a), (d) and (e). In so far as relief sought
in prayer clause (b) was concerned, injunction was restricted to the car
owned by respondent no.1, which is a BMW 5 Series Car, bearing
registration no.UP 16A U5599.
1.1 This interim order was modified on 17.10.2014 on account of an
application filed by the petitioner, being : IA No.20555/2014. The limited
modification / correction sought was that, the reference made in order dated
16.10.2014 to Mobulous Technologies Pvt. Ltd. should stand corrected to
Appstudioz Technologies Pvt. Ltd.
1.2 The modification / correction, as sought, was allowed, as indicated
above, vide order dated 17.10.2014.
OMP 1257/2014 Page 1 of 19
1.3 The captioned application (i.e., IA No.23684/2014) has been filed by
respondent no.1 to seek "partial vacation / modification" of orders dated
16.10.2014 as modified by order dated 17.10.2014.
2. In my view, in order to adjudicate upon the rival stands placed before
me, on behalf of the petitioner and respondent no.1, it may be relevant to
notice the following broad facts :-
2.1 The respondents herein were evidently running and managing a
company by the name of Appstudioz Technologies Pvt. Ltd. (hereafter
referred to as ATPL). The said entity i.e., ATPL evidently was in the
business of mobile applications development, on various platforms, such as,
I.O.S. and Android.
2.2 The petitioner, which is a private limited company, incorporated
under the laws of Singapore, entered into a Share Purchase Agreement dated
04.04.2014 (in short SPA) with the respondents in respect of ATPL.
2.3 The SPA envisaged, broadly, that the petitioner would purchase all,
fully paid ordinary shares of ATPL, numbering 10000, which were legally
and beneficially owned by the respondents, for a cash consideration of
Rs.5,88,80,000/-. In addition, the petitioner was required to transfer
2,19,325 shares in favour of the respondents in the manner stipulated in
clause 5.5 (a) of the SPA. The petitioner had also undertaken an obligation
to employ respondent no.1 as the co-founder and managing director of
"Appstudioz business", at a compensation package adverted to in clause
5.5(d) of the SPA.
2.4 The manner in which the total consideration of Rs.5,88,80,000/- was
to be distributed amongst the respondents is set out in clause 5.3 of the SPA.
Notably, out of the total consideration of Rs.5,88,80,000/-, respondent no.1
received a sum of Rs.4,41,60,000/-, while respondent no.2 (i.e., Ms. Snigdha
OMP 1257/2014 Page 2 of 19
Singh), who is, admittedly, the sister of respondent no.1, received a sum of
Rs.58,88,000/-. The other two respondents, i.e., Sh. Abhinav Singh
(respondent no.3) and Ms. Preeti Singh (respondent no.4) received a sum of
Rs.58,88,000/- and Rs.29,44,000/-. Similarly, the consideration received in
kind, that is, in the form of shares in the petitioner company to which I have
made a reference above was to be allotted in the following manner :-
Respondent no.1 i.e., Saurabh Singh 1,64,494 shares
Respondent no.2 i.e., Snigdha Singh 21,933 shares
Respondent no.3 i.e., Abhinav Singh 21,933 shares
Respondent no.4 i.e., Ms.Preeti Singh 10,965 shares
--------------------
Total number of shares 2, 19,325 shares
---------------------
2.5 This apart, certain other obligations were also undertaken by the
petitioner under clause 5.5 (b), (c) and (e) which were dependent upon the
happening of the eventuality provided therein. The said clauses not being
particularly relevant, are not being dilated upon herein.
2.6 Suffice it to say, the petitioner retained with it, the right to selectively
waive continuous employment requirement qua one or more of the
respondents.
2.7 It may be important to note that while executing the SPA, respondent
no.1, acted on his own behalf, as well as for the remaining respondents.
2.8 The petitioner, as agreed under the SPA, issued on the same day, i.e.,
04.04.2014, a letter of appointment to respondent no.1, calling upon him to
join Affle Appstudioz Pte. Ltd., Singapore (HQ) as its Co-founder and
Managing Director. This position, which was offered to respondent no.1,
was based out of Noida in India, and accordingly, respondent no.1 was to
take up the position of Co-founder and Managing Director, Affle
Appstudioz.
2.9 As compensation, respondent no.1 was offered an annual fixed salary
of Rs.50 Lakhs, with an additional variable component of Rs.15 Lakhs, in
the form of performance bonus. The variable component was to be paid
annually subject to attainment of net increase in cash and cash equivalent
from Affle Appstudioz not being lower than Rs.5,30,76,800/-. The offer
was accompanied by detailed terms and conditions, which were accepted by
respondent no.1 on the same date, by counter-signing the letter of offer. For
the sake of convenience, hereafter the said contract will be referred to as the
employment contract.
3. There were two clauses in the letter of offer, which are relevant for
the purposes of the adjudication in the instant matter. The first such clause
is, clause no.6, which prohibited respondent no.1 from accepting any full
time or part time employment of any nature with any corporation during the
course of the employment. The other relevant clause is, clause no.9, which
required respondent no.1, to execute and observe standard non-compete,
non-disclosure and assignment of inventions agreements with the employer,
i.e., Affle Appstudioz Pte. Ltd., Singapore (HQ).
3.1 Pursuant to the above, the respondents executed two addendums.
These are dated, 01.05.2014 and 01.09.2014. Once again, for our purposes,
what is relevant is, the second addendum dated, 01.09.2014 and, in
particular, clause 5.5 of the said agreement.
3.2 The grievance of the petitioner emanates from the fact that despite the
understanding as amongst the parties herein, it discovered that respondent
no.1 was not, fully committed to the business of ATPL, and was acting
contrary to its interest in the teeth of the obligation undertaken to the effect
that it would not engage in a competing business during the course of his
employment or for a period of 36 months after the consummation of the
transaction, as envisaged in the SPA.
3.3 The petitioner claims that a google search by its representatives
revealed that respondent no.1 had a domain name, i.e., www.mobulous.com,
registered in his name, which he had transferred to an entity by the name of :
Mobulous Technologies Pvt. Ltd. (in short MTPL); a company in which the
majority shareholder was one, Sh. Peeyush Kumar Singh, a close relative of
respondent nos.1 and 2. The petitioner claims that MTPL is in the same
business as that of ATPL.
3.4 These actions of respondent no.1, according to the petitioner, were not
only violative of the SPA and the terms of his appointment but were also in
direct derogation of the declaration furnished by him on 21.08.2014, to the
effect, that he did not have any interest in any company or organization
including that of a Director and / or Shareholder.
3.5 The petitioner also asserts that the google search conducted on
11.11.2014 by its representatives revealed that the website of MTPL was a
complete replication of ATPL, in as much as, it offered "mobile app", as a
service platform.
3.6 It is also the case of the petitioner that the registered office of MTPL,
is situate at the very address at which the registered office of ATPL is
located, i.e., P-44, Ground Floor, Pandav Nagar, Mayur Vihar Phase-1,
Delhi-110091.
3.7 In sum, the grievance of the petitioner is that, despite a huge
consideration paid in cash and in kind, which is valued at, Rs.7.36 Crores, to
obtain exclusive right to customers, employees, all related intellectual
properties and mobile business applications, which formed the core of ATPL
business, respondent nos.1 and 2, with malafide intent set up a competing
company.
3.8 It is thus, averred that the setting up of competitive business has
resulted in dilution of the petitioner's market share and business value.
3.9 It is, precisely in these circumstances, that Affle Appstudioz Pte. Ltd.,
Singapore (HQ), terminated the employment contract, it had with respondent
no.1. This resulted in respondent no.1's services as an employee, Co-
founder and Managing Director being terminated with immediate effect.
As a matter of fact, respondent no.1 was also removed by the shareholders
of Affle Appstudioz Pte. Ltd., Singapore (HQ) and ATPL as a Director from
their respective Boards after a duly convened Extraordinary General
Meeting (EGM) held in this behalf on 31.10.2014 and 04.11.2014,
respectively.
4. It would be relevant to mention at this stage that the petitioner, which
owned the entire share capital of ATPL, had caused a special notice dated
08.10.2014 to be served on ATPL for convening an EGM in order to enable
it to move, inter alia, a resolution for removing respondent no.1 as Director
of ATPL.
4.1 Consequent thereto, the respondent no.1 ceased to be an employee of
Affle Appstudioz Pte. Ltd., Singapore (HQ) and was also removed as the
Director of Affle Appstudioz Pte. Ltd., Singapore (HQ) and ATPL.
4.2 It appears that pursuant to the interim order passed on 16.10.2014 and
17.10.2014, the petitioner caused service of two legal notices dated
17.10.2014 and 20.10.2014, to be served on respondent no.1, primarily with
the view to have respondent no.1 transfer the following domain names in
favour of the petitioner.
(a). Domain names :
* appstudioz.fr
* appstudioz.co.uk
* appstudioz.de
* appstudioz.nl
* appstudioz.co.in
* appstudioz.org
(b). AppStudioz Facebook page
https://www.facebook.com / AppStudioz/info?ref=page_internal
(c). AppStudioz Twitter handle - https://twitter.com/Appstudioz
4.3 It appears that not only the facebook account but also five (5) out of
the six (6) domain names stand transferred in favour of the petitioner. This
position obtained at least till the date of filing of the affidavit dated
13.11.2014, on behalf of the petitioner herein, by one, Sh. Kapil Mohan
Bhutani. This affidavit adverts to the correspondence exchanged between
the petitioner and respondent no.1, on the said issue. Copies of the
communications exchanged between them have been appended including an
interim activity log report dated 04.11.2014 submitted by Price Water House
Coopers Pvt. Ltd. (in short PWC). This report details out the analysis made
by PWC vis-à-vis the user activity carried out on the laptop, which is
described as : Make Macbook, Model : Macbook Air; S/N:-Co2N6EJ8Go86
for the period commencing from 01.10.2014. Apparently, the said laptop
was used by respondent no.1.
4.4 It is the petitioner's case that certain files were copied from the said
laptop on 02.10.2014.
5. It is in this background that respondent no.1 filed the captioned
application, being IA no.23684/2014. The said application was filed on
27.11.2014. The application came up for hearing before the court for the
first time on 28.11.2014 when, notice was issued. Upon pleadings being
completed, arguments were heard on 05.12.2014, upon which judgment in
the matter was reserved.
6. On behalf of the applicant/respondent no.1, arguments were advanced
by Mr. Warrier, while on behalf of the non-applicant/petitioner, submissions
were made by Mr. Ganpathy.
6.1. The submissions of Mr. Warrier can be, broadly, paraphrased as
follows :-
(i). The non-applicant/petitioner has concealed the fact that on the day
when the SPA was executed, another agreement dated 04.04.2014 (marked
as Annexure A-1), was also executed which, inter alia, recognized the fact
that another start-up by the name of Mobulous Softwares Pvt. Ltd. (MSPL),
founded by Mr. Peeyush Kumar Singh and one, Mr. Anil Sharma, was in
existence.
(ii). The said document (Annexure A-1) also reveals that the petitioner had
knowledge of the fact that respondent no.2 having been married and settled
in USA would find it difficult to continue in employment with ATPL and
that her skills would be used as a consultant, if and when, she could spare
time for the said purpose. In other words, it recognized that respondent no.2
would render need based support and guidance to the android team of
ATPL.
(iii). The petitioner, had failed to disclose to this court that on the very date
when it pressed for interim orders, i.e., 16.10.2014, it had unilaterally
terminated the employment of respondent no.1, as its Co-founder and
Managing Director. This fact was not even disclosed to the court when
modification was sought on the next date, i.e., 17.10.2014. The fact that the
petitioner intended to take these coercive measures was evident upon a bare
perusal of the communication dated 08.10.2014 whereby, the petitioner
served a special notice on ATPL to convene an EGM for removal of
respondent no.1 as ATPL's Director.
(iv). The relief granted in terms of prayer clause (a) was liable to be
vacated as the injunction could not operate post the termination of
respondent no.1's employment with ATPL. If such injunction were to
operate, it would render respondent no.1 jobless and force him to remain
unemployed, indefinitely, resulting in violation of his fundamental right to
livelihood.
(v). The non-compete obligation contained in clause 5.5 of the second
addendum could have arisen, it at all, had the petitioner executed the various
agreements referred to in the said clause, such as : the standard non-compete
agreement, non-disclosure agreement and the assignment of inventions
agreement (collectively referred to hereafter as non-compete agreements). It
was asserted that since none of these agreements were executed, no
injunction in terms of clause 5.5 of the second addendum could issue qua
respondent no.1.
(vi). The prohibition on respondent no.1, contained in clause 6 of the
employment contract could operate only, during respondent no.1's
employment with ATPL and not post termination of the employment
contract. That in any event, clause 6 was contrary to Section 27 of the
Indian Contract Act, 1872 (in short the Contract Act).
(vii). Enforcement of a non-compete clause post termination was in
violation of Section 27 of the Contract Act.
(viii). That there was no obligation under the terms of the SPA, on the part
of respondent no.1 to transfer domain names in favour of the petitioner,
which were registered in his personal name.
7. Mr. Ganpathy, on the other hand, while conceding that various non-
compete agreements were not executed between the petitioner and
respondent no.1, emphasized the fact that these were standard form
agreements which were made available to respondent no.1, who had,
consequently, knowledge of the said agreements.
7.1 It was also the contention of Mr. Ganpathy that the petitioner, having
bought the entire shareholding of ATPL had, in effect, acquired the business
and goodwill of the said entity, and was, thus, entitled to impose the
obligations cast upon respondent no.1 in terms of clause 5.5 of the second
addendum. It was the learned counsel's submission that this obligation
continued to operate notwithstanding the fact that Affle Appstudioz Pte.
Ltd., Singapore (HQ) had terminated the employment contract in its capacity
as the employer of respondent no.1.
7.2 In so far as the allegation with regard to concealment of material facts
was concerned, it was Mr. Ganpathy's submission that, the document dated
04.04.2014 (Annexure A-1) was a forged and fabricated document. Mr.
Ganpathy asserted that signatures of one Sh. Anuj Khanna Sohum, which
are found on the said document have been copied and pasted on to the said
document by respondent no.1. The learned counsel submitted that, the fact
that no such document dated 04.04.2014 (Annexure A-1) was executed, is
clearly borne out from the fact that there is not a single communication,
whether digital or otherwise, either before or after the execution of the SPA,
which, would indicate that on the same date, on which, the SPA was
executed, any such document as alleged, or at all, was executed between the
petitioner and respondent no.1.
7.3 To buttress the aforesaid submission, reference was made by the
learned counsel to various communications which have been placed on
record with the reply filed on behalf of the petitioner to the captioned
application. Assertions made in the reply with regard to the circumstances
which would point to the document being forged and fabricated were also
referred in the course of arguments.
7.4 As regards the concealment with regard to the fact of termination of
respondent no.1's employment contract is concerned, it is contended that
first of all the petitioner was not the employer of respondent no.1. The
employer of respondent no.1 was Affle Appstudioz Pte. Ltd., Singapore
(HQ). Upon termination of the employment contract by the said employer
vide communication dated 16.10.2014, the same was e-mailed to the
petitioner on 18.10.2014, much after the dates when hearings were held in
this court.
7.5 It was stated, as a matter of fact, the lawyers of Affle Appstudioz Pte.
Ltd., despatched the termination notice, well after the hearing held in this
court on 17.10.2014. In this behalf, reliance was placed on the tracking
report of the courier company.
7.6 Mr. Ganpathy submitted that after the termination of the employment
contract of respondent no.1, on 16.10.2014, he continued as the Director of
Affle Appstudioz Pte. Ltd. till his removal at the EGM of the said company,
held on 31.10.2014. Similarly, respondent no.1 continued as Director of
ATPL till his removal at the EGM, held on 04.11.2014.
7.7 The learned counsel submitted that since, the petitioner, had served a
special notice dated 08.10.2014, on ATPL, for removal of respondent no.1
as its Director, in fitness of things the said notice was placed on record of
this court.
7.8 It was contended that the documents placed on record would show
that the petitioner had not withheld any material fact or communication
which was within its power and possession on the dates of hearing held
before this court.
REASONS
8. I have heard the learned counsel for the parties and perused the
record. The undisputed facts and events which have emerged and which
have a bearing on the matter are as follows :-
(i). Upon execution of the SPA, the respondents received the requisite
consideration amounting to Rs.5,88,80,000/- from the petitioner, and that, as
agreed, respondent no.1 received out of the total consideration, a sum of
Rs.4,41,60,000/-.
(ii). Respondent no.2, who is admittedly, the sister of respondent no.1 and,
is now settled, in US, post her marriage, received a sum of Rs.58,88,000/-.
(iii). The control and management of ATPL thus, stood transferred to the
petitioner on the acquisition of the entire paid-up share capital of ATPL.
(iv). The manner, in which, the transaction was configured, required the
employment of respondent no.1 as the Co-founder and Managing Director of
Affle Appstudioz Pte. Ltd., Singapore (HQ). For this purpose, petitioner
had agreed to pay respondent no.1, a fixed annual salary of Rs.50 Lakhs,
with a variable performance bonus of Rs.15 Lakhs.
(v). Respondent no.1, was also appointed as a Director of both Affle
Appstudioz Pte. Ltd., Singapore (HQ) and ATPL.
(vi). As per the terms of the employment contract, respondent no.1 was
prohibited from accepting any full time or part time employment with any
corporation while being employed by Affle Appstudioz Pte. Ltd., Singapore
(HQ). (See clause 6 of the employment contract.)
(vii). Furthermore, respondent no.1 had also undertaken an obligation under
clause 9 of the employment contract to execute various non-compete
agreements. These agreements, however, were never executed.
(viii). The petitioner and respondents, however, executed two addendums to
the SPA dated 01.05.2014 and 01.09.2014.
9. In this background what one needs to examine is: whether
circumstances obtain, which should persuade me to continue the interim
order passed on 16.10.2014, as modified on 17.10.2014.
9.1 In this context, let me first deal with Mr. Warrier's contention that
there has been concealment of the following two material facts. First, that
document dated 04.04.2014 has been kept-back. Second, that the factum of
termination of the employment contract vide communication dated
16.10.2014, was not disclosed to the court.
9.2 In so far as the first assertion is concerned, I must note here that when
Mr. Warrier was asked whether he was relying upon the document dated
04.04.2014, he candidly said, for the purposes of pressing the captioned
application for vacation of stay, he did not wish to rely upon the same.
Notwithstanding this answer of Mr. Warrier, I must record my prima facie
view, which is that, the document, does not appear to have been executed
between the petitioner and respondent no.1.
9.3 The reasons for coming to this conclusion at this stage, I must record,
are plainly circumstantial and based on assertions made on affidavits by both
the sides. The balance at this stage, turns in favour of the petitioner, as none
of the communications preceding or following the execution of the SPA
refer to the document dated 04.04.2014 (Annexure A-1). It is quite unlikely
that such a document though in existence, would not be adverted to in any of
the communications exchanged between the parties. What is particularly
revealing in this context is, an email dated 29.11.2014, sent by Mr. Abhinav
Singh, who was apparently a witness to the SPA, to the effect that apart
from the SPA, no other agreement was executed between the petitioner and
respondent no.1.
9.4 Since, this is an aspect which would go to trial, if raised by
respondent no.1, I do not wish to make further observations qua the said
document (Annexure A-1). Suffice it to say, at this juncture, it does,
introduce a certain amount of doubt as to the credibility of the assertions
made by respondent no.1, on affidavit.
9.5 This brings me to the second allegation made on behalf of respondent
no.1, which is that, the factum of the termination of the employment contract
was kept-back by the petitioner. In this context, what has to be noticed is,
that respondent no.1, was not an employee of the petitioner. Undisputedly,
respondent no.1 was an employee of Affle Appstudioz Pte. Ltd., Singapore
(HQ) and, consequently, the employment contract could have been
terminated only by that entity. The petitioner for whatever it is worth, is
seeking to protect its right under the SPA to which it is a party. The rights, if
any, under the employment contract cannot enure in favour of the petitioner,
which is only a shareholder of ATPL. Therefore, in one sense, the
termination of the employment contract was not a fact material to the reliefs
that the petitioner was seeking from this court in terms of its rights under the
SPA.
9.6 However, even if, I were to assume for a moment that, the termination
of employment contract by Affle Appstudioz Pte. Ltd., Singapore (HQ) vide
communication dated 16.10.2014 was material, I am satisfied that the said
communication was not within its power and possession on at least the dates
and the time at which hearings were held in this court, i.e., on 16.10.2014
and 17.10.2014. The material placed on record by the petitioner with its
reply does tend to point in this direction. In this behalf, I may only refer the
e-mail dated 18.10.2014. (See Annexure P-6.)
9.7 Which brings me to the assertion of Mr. Warrier that the employment
contract with respondent no.1 having been terminated, the non-compete
clause could not operate post the termination. This assertion, Mr. Warrier
has made, dehors his submission that various non-compete agreements
referred to in the SPA were never executed between Affle Appstudioz Pte.
Ltd., Singapore (HQ) and respondent no.1. In support of the aforesaid
submission, reliance was placed by Mr. Warrier on the judgment of the
Supreme Court in the case of: Percept D'Mark (India) (P) Ltd. Vs. Zahir
Khan and Anr., (2006) 4 SCC 227.
9.8 In my opinion, the principles with regard to grant of injunction where
a negative covenant obtains are far too well settled for me to reinvent the
wheel. In the present case, what has to be considered is, can an injunction
operate qua respondent no.1 post termination of his employment contract.
Undoubtedly, the answer has to be that, a negative covenant in the
employment contract which prohibits carrying on a competing business
beyond the tenure of the contract is void and not enforceable. This
prohibition operates on account of the provisions of Section 27 of the
Contract Act. However, the prohibition does not operate during the
subsistence of the employment contract. Since, the employment contract,
has been terminated on 16.10.2014, clause 6 of the employment contract
prima facie ceased to operate qua respondent no.1. [See Superintendence
Co. of India Pvt. Ltd. vs Krishan Murgai AIR 1980 SC 1717; Niranjan
Shankar Golikari vs Century Spg and Mfg. Co. Ltd. (1967) 2 SCR 367;
and Gujarat Bottling Co. Ltd. vs Coca Cola Co. AIR 1995 SC 2372]
9.9 However, as noticed above, respondent no.1 is not an employee of the
petitioner. Respondent no.1, is an employee of Affle Appstudioz Pte. Ltd.,
Singapore (HQ). Therefore, any which ways, respondent no.1 could not
have taken recourse to the provisions of clause 6 of the employment
contract. Since, Affle Appstudioz Pte. Ltd., Singapore (HQ) is not before
me, I need not dilate any further on this aspect of the matter.
10. The moot point therefore, is: whether the petitioner can take recourse
to the amended clause 5.5 of the SPA, which finds a mention in the second
addendum. For the sake of convenience, the said clause is extracted
hereinbelow :-
"5.5 Continuous Employment Related Obligations - Post
Completion
The Purchasers have (in addition to other rights) absolute rights to
selective waive the continuous employment requirement from one
or more of the Partners if required.
In consideration of clause 5.3 and continuous employment clauses
5.5(a), 5.5(b), 5.5(c), 5.5(d) and 5.5(e) above, the offer letter dated
April 4, 2014 signed by Saurabh Singh and Abhinav Singh and
Standard Contract of Employment of the company and / or
Purchaser, each of the Partners singularly, commit, agree and
undertake to oblige and observe standard non-compete, non-
disclosure and assignment of inventions agreements with the
Company.
For avoidance of doubts, the duration for Standard contract for non-
compete agreements with the company states that from the date of
the Partner's employment with Purchaser and for a period of thirty
six (36) months after completion date, each of the Partners agree
not to engage directly or indirectly, in any business or commercial
activity(s) that competitively affects the business of the Purchaser
including that of its subsidiary(s) that includes the Company.
All other terms and conditions stated on the Agreement remain
unchanged.."
10.1 It is not in dispute that the petitioner and respondent no.1 have not
executed the various non-compete agreements, to which a reference was
made in clause 9 of the employment contract and amended clause 5.5 of the
SPA, which finds a mention in the second addendum. Thus, what needs to
be considered is, how one is to construe the amended clause 5.5 of the SPA.
10.2 A bare perusal of the aforesaid extract would show that, firstly,
respondents undertook to "oblige" and "observe" the covenants of non-
compete agreements, which gives a sense that parties, in particular, the
respondents, knew what obligations the said agreements contained.
Secondly, it made clear the duration of the non-compete obligation and,
while doing so, made explicit what that obligation was.
10.3 In other words, the said clause 5.5 is suggestive of the fact that
respondents were aware of the fact that they could not engage directly or
indirectly in any business or commercial activity which could, affect the
business of the petitioner and / or its subsidiary(s) including ATPL, and that
this obligation would last not only during the duration of the standard non-
compete agreements but also for a period of 36 months after the "completion
date".
10.4 The completion date is defined in the SPA, to mean as 04.04.2014 or,
such other date, as the parties may mutually agree in writing. Counsels for
parties before me submitted that the completion date was in fact,
04.04.2014. It is common ground that, no other date was agreed to between
the parties to the SPA. Obviously, the intent of those who were parties to
the SPA, was to incorporate various terms of the non-compete agreements
by way of reference. I must confess that the amended clause 5.5 has been
drafted most ineptly, and therefore, the resultant difficulty in discovering the
underlying intent.
10.5 Having said so, what, to my mind, appears to have been the intent,
behind executing the second addendum which, got reflected only partially
though (in as much as the non-compete agreements were never factually
executed) was that, respondents could not engage in a competitive business
for a period of 36 months after the completion date. As indicated above, the
completion date was 04.04.2014, which was when, the SPA was executed.
Quite clearly, the petitioner, had bought the entire controlling interest of
ATPL, with a view to acquire its business along with its goodwill.
10.6 The fact that a substantial consideration stands paid to respondent
no.1 for acquisition of those rights, is not disputed. Given these
circumstances, the petitioner's case in my view would fall in exception 1 to
Section 27. Such a clause, in my view, does not fall foul of Section 27 of
the Contract Act. The prohibition, on respondent no.1, in indulging in
competitive business or commercial activity, in my view, is reasonable both
in time and space and, therefore, cannot be held to be in restraint of trade,
and thus, void and/or illegal as contended by Mr. Warrier. The contrary
submissions made by Mr. Warrier in this behalf, will thus, have to be
rejected.
10.7 As regards, Mr. Warrier's submission that respondent no.1 need not
transfer the domain names, the letters dated 22.10.2014 and 02.11.2014
seem to indicate that respondent no.1 has already transferred five (5) out of
the six (6) domain names, registered in his name, in favour of ATPL. I
must, however, indicate that these transfers were made, it appears, by
respondent no.1, so as to not be seen as violating the interim orders passed
by this court on 16.10.2014, as modified by order dated 17.10.2014.
Whether such an obligation is cast on respondent no.1 or not will, have to be
contested finally before the concerned arbitral tribunal, which would rule,
amongst others, on this aspect of the matter, after evidence is led by the
parties.
11. In view of the above, IA No.23684/2014 is dismissed, and interim
order dated 16.10.2014, as modified by order dated 17.10.2014, is
confirmed.
12. Needless to say, any observations made hereinabove, will not impact
the merits of the case.
OMP 1257/2014
13. List before the Roster Bench on 02.02.2015.
RAJIV SHAKDHER, J
JANUARY 22, 2015
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