Karnataka High Court
Kenrise Media Pvt. Ltd., vs Mr. Ashish K Mishra on 3 June, 2021
Author: Chief Justice Magadum
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 3rd DAY OF JUNE, 2021
PRESENT
THE HON'BLE MR.ABHAY S. OKA, CHIEF JUSTICE
AND
THE HON'BLE MR.JUSTICE SACHIN SHANKAR MAGADUM
COMAP NO.37 OF 2020
BETWEEN:
1. Kenrise Media Pvt. Ltd.,
A Company incorporated under
the Companies Act, 2013,
Having its registered offices
at: #849, 11th Main, 2nd Cross,
HAL 2nd Stage, Indiranagar,
Bengaluru - 560008,
Represented herein by its authorized
signatory Mr. Rohin Dharmakumar.
2. Mr. Rohin Dharmakumar,
Son of Mr. Valal Sekharan Dharmakumar,
Aged:43 years,
Chief Executive Officer of Kenrise Media Pvt Ltd.,
Having his offices at: #849, 11th Main,
2nd Cross, HAL 2nd Stage,
Indiranagar, Bengaluru - 560 008.
3. Ms. Seema Singh,
Daughter of Mr. Kabindra P Singh,
Aged:49 years,
Having her offices at:#849, 11th Main,
2nd Cross, HAL 2nd Stage,
Indiranagar, Bengaluru - 560 008.
2
4. Mr. Sumanth Raghavendra,
Son of Mr. H.N. Raghavendra,
Aged:46 years,
Having his offices at:#849,
11th Main, 2nd Cross, HAL 2nd Stage,
Indiranagar, Bengaluru - 560 008.
. . . Appellants
( By Shri Pradeep Nayak, Advocate)
AND:
1. Mr. Ashish K. Mishra,
Son of Mr. Ashok Kumar Mishra
Aged:35 years,
Residing at 3B, Shakti Unicus,
Plot F1, Deonar Pada Road,
Inside Duttaguru Society,
Gate No.5, Mumbai - 400 088.
2. Ms. Harveen Ahluwalia
Daughter of Mr. Baljit Singh Walia,
Aged:26 years,
Residing at:210A, 2nd Floor,
Leela Ram Market,
South Extension - II,
New Delhi - 110 049.
3. Mr. Padip Kumar Saha
Son of: Not known
Aged:35 years,
R/at:187-D, Siddhartha Extension,
Pocket - C, South Delhi - 110 014.
4. Mr. Pranav Srinivasan,
Son of Mr. Srivilasan Madhavan,
Aged:27 years,
Residing at:72B, Third Floor,
Nil Block, Malviya Nagar,
New Delhi - 110 017.
3
5. Slowform Media PTE Limited,
A Company incorporated under
the laws of Singapore, Having
its registered office at:68 Circular Road,
#02-01, Singapore 049422,
Represented by its authorized signatory.
6. Slowform Media Private Limited,
A Company incorporated under the Companies Act, 2013,
Having its registered office at:E-210, 2nd Floor,
H-16, MHADA Building, SION Transit Camp Road,
Pratiksha Nagar,
Mumbai - 400 022,
Represented by its authorized signatory.
7. Ms. Priya Bubna,
Wife of Mr. Ashish K Mishra
Aged:35 years,
Residing at:3B, Shakti Unicus, Plot F1,
Deonar Pada Road,
Inside Duttaguru Society,
Gate No.5, Mumbai - 400 088.
. . . Respondents
(By Shri M. Dhyan Chinnappa, Senior Advocate
for Shri Gerald Manoharan, Advocate for R1,
Shri Ameet Dutta, Advocate for
Shri Vikarm Unni, Advocate for R2 to R7)
This Commercial Appeal (COMAP) is filed under Section
13 (1A) of the Commercial Courts, Commercial Division and
Commercial Appellate Division of the High Courts Act, 2015 read
with Order XLIII Rule 1 (r) of the CPC, 1908, praying to (1) Set
aside the common order dated 22nd October 2020, dismissing
I.A.Nos.2/2019, 3/2019 and 4/2019, in Com.O.S.No.362/2019,
passed by the learned LXXXIII Additional City Civil and Sessions
Judge (Commercial Court) (CCH-84), Bengaluru, produced
4
herewith at Annexure-A, and consequently allow I.A.No.2/2019,
I.A.No.3/2019 and I.A.No.4/2019 in Com.O.S.No.362/2019; (2)
Grant costs of these proceedings to the Appellant and (iii) Grant
such other and further reliefs.
This appeal having been heard and reserved for Judgment,
coming on for pronouncement of Judgment, this day, Chief
Justice delivered the following:
JUDGMENT
By this appeal under sub-section (1A) of Section 13 of the
Commercial Courts Act, 2015 read with Rule 1(r) of Order XLIII of
the Code of Civil Procedure, 1908 (for short 'the CPC'), the
appellants who are the original plaintiffs have taken an exception
to the Judgment and order dated 22nd October, 2020 passed by
the learned LXXXIII Additional City Civil and Sessions Judge
(CCH-84) at Bengaluru in the commercial original suit
No.362/2019. By the said Judgment and order, Interlocutory
Applications (IA) II, III, and IV filed by the appellants under Rules
1 and 2 of Order XXXIX of CPC, for grant of temporary injunction
have been rejected.
2. There are mainly four agreements, which are subject
matter of Commercial Original Suit No.362 of 2019. The first one
is an Exit Agreement dated 31st July, 2019, the second
agreement is the Executive Employment Agreement dated 1st
April 2018, the third agreement is the Shareholders Agreement
executed on 12th January, 2018 and the fourth agreement is the
Share Subscription Agreement executed on 12th January, 2018.
These agreements have been executed by and between the first
appellant company and the first respondent. There are separate
agreements of employment executed between the first appellant
and second to fourth respondents.
3. The first appellant Kenrise Media Pvt Ltd., is a private
limited company incorporated under the provisions of the
Companies Act, 2013. The second appellant is a founder and
the Chief Executive Officer of the first appellant and the third
appellant is also a founder and the Editor-in-Chief of the Online
News Platform of the first appellant. It is stated that the fourth
appellant is also a founder of the first appellant company.
4. The first appellant runs and operates an online news
platform known as "The Ken" which is accessible and available to
the public at www.the-ken.com. It is also available by way of
mobile application on android and IOS operating systems. It is
claimed that "The Ken" is an online publication which publishes
news stories pertaining to the technology, start-ups,
developments in the healthcare sector and on other topics. The
"The Ken" publishes only one story every weekday. It is claimed
that as a result of limited number of stories published by the first
appellant, a lot of time, energy and editorial supervision is
required on publication of each story. It is claimed that the news
stories published by the first appellant are well researched,
product of independent skill and labour as well as entirely unique.
It is contended that "The Ken" which was launched in the year
2016 has generated a significant and unquestionable values
amongst its readers. It is claimed that "The Ken" is well
respected by various business leaders, policy makers,
professionals, organizations etc.
5. It is stated in the plaint that the first respondent (original
first defendant) was a co-founder of the first appellant along with
the second to fourth appellants. According to the case of the
appellants, the second respondent (second defendant) was
employed as a staff writer with the first appellant from 19th March,
2018 to 12th July, 2019. It is further alleged that the third
respondent (3rd defendant) was employed by the first appellant as
a staff writer between 7th February, 2019 and 6th August, 2019.
Similarly, the fourth respondent (4th defendant) was employed as
a staff writer by the first appellant from 13th August, 2018 to 24th
July, 2019.
6. It is claimed in the plaint that the news platform of "The
Ken" is a radical departure from the business model adopted by
the traditional news media. The first appellant does not carry or
publish any advertisements on its website and it makes available
its news stories to the public on a subscription based model.
The readers who are interested in reading and having access to
the news articles published by the first appellant have to
subscribe to the first appellants' portal. The first appellant has
various plans such as free plan where a reader who does not pay
only receives four news articles per month without subscription.
Another plan is a quarterly paid subscription plan and there is an
annual subscription plan as well. Upon payment of subscription
fees, the readers have guaranteed to access to the news stories
published, archives of the portal of the first appellant consisting of
more than 846 articles.
7. It is claimed that the first appellant was able to compile the
information pertaining to its customers, subscribers and business
vendors. It is claimed that the first appellant was able to analyze
its financial revenue and forecast its projected growth on such
basis. This is how, the internal functioning of the first appellant
resulted in generation of compilation of various categories of
confidential information that was proprietary to it. It is alleged that
such information was confidential and exclusive product of the
first appellant which had a strict protocol for internal sharing of
such information and for protection against unwarranted
disclosure of the same. It is claimed that on 12th January, 2018,
a Share Subscription Agreement (for short 'SSA') and
Shareholder's Agreement (for short 'SA') were executed to which
the appellants and the first respondent are the parties. The said
agreements record the investment made by the first respondent
in the first appellant company. In the said agreements, various
representations and warranties offered to the investors were set
out and the first appellant and its promoters including the second
to fourth appellants and the first respondent were required to
indemnify the investors for any damages or loss occasioned to
them. Under the SA, the mutual rights and obligations of the
shareholders vis-à-vis each other as well as the first appellant
were set out. One of the important clauses therein was that the
second to fourth appellants as well as the first respondent
agreed and acknowledged not to compete with the first appellant
or solicit its employees, customers or vendors from leaving the
first appellant for a period of thirty six months from the date of
ceasing to be either an employee of the first appellant or
shareholders of the first appellant. This is provided in clause 16
of the SA. Clause No.23 of the said agreement provides for
protection of the confidential information belonging to the first
appellant. Clause 24 of Schedule-IV of the said agreement
defines confidential information.
8. An Executive Employment Agreement (for short 'EEA') was
executed between first respondent and the first appellant on 1st
April, 2018. Similar separate EEAs were executed between the
first appellant and second to fourth appellants. As far as the EEA
entered into between the first appellant and first respondent is
concerned, it was provided therein that the first respondent will
continue to be employed with the first appellant for a minimum
period of four years from the date of the agreement. Clause (6)
thereof required that all the works carried out by the first
respondent are the exclusive works of the first appellant during
his employment. It was provided that the first respondent shall
not associate himself with any competing business. The first
respondent had agreed and acknowledged that he would not
divulge or commercially exploit in any manner the confidential
information of the first appellant. Under clause (11), it was
specifically provided that the first respondent had agreed that any
breach of terms of the employment agreement by him would
result into irreparable loss and injury to the first appellant and
would entitle the first appellant to seek liquidated damages to the
extent of rupees fifty lakhs.
9. As the second to fourth respondents were regular
employees of the first appellant as 'staff writers', the Employment
Agreements were executed by the first respondent with each of
them on 27th February, 2018, 7th February, 2019 and 12th July,
2018 respectively. It is provided in the said employment
agreements that the second to fourth respondents would protect
the confidential information belonging to the first appellant.
There is also a clause in the said agreements under which,
second to fourth respondents were prevented from soliciting the
services, business, know-how and the association customers,
employees, business associates and vendors of the first
appellant. The agreements provide that all the works done by
the second to fourth respondents will be exclusive works
belonging to the first appellant.
10. It is alleged in the plaint that the first respondent created an
unprofessional work environment. Instead of terminating the
services of the first respondent, for facilitating cordial relationship
and with a view to ensure a productive work environment, the
appellants were committed to facilitate a clean exit for the first
respondent. It is alleged that there were negotiations between
the appellant and the first respondent regarding the terms and
conditions of the exit of the first respondent. It is alleged that the
first respondent delayed the same beyond 12th July, 2019, as he
wanted to ensure that he is entitled to the benefits under SA and
SSA. Eventually, the exit agreement was arrived at between the
appellant and the first respondent on 31st July, 2019. The terms
and condition of the said exit agreement which came into force
with effect from 31st July, 2019 have been set out in the plaint.
11. It is pointed out that the second, third and fourth
respondents resigned from their employment with the first
appellant. The manner in which they tendered resignations is
also set out in the plaint. There are other factual assertions
made in the plaint setting out the sequence of events and the
alleged breaches committed by the second to fourth respondents.
It is alleged that the time of the resignations tendered by the
second to fourth respondents is very significant, as, during the
said period, negotiations for exit of the first respondent were in
progress. It is pointed out that it was the first respondent who
announced the resignations of the second to fourth respondents
on the Twitter platform even before the same were submitted.
The specific allegation in the plaint is that the first to fourth
respondents have actively colluded with each other and while
exiting the first appellant, they took with them the confidential
information and business know-how of the first appellant. It is
alleged that the said respondents made an unauthorized use of
such information for setting up of a new venture by name "The
Morning Context" which is similar to the first appellant's news
platform "The Ken". It is alleged that the respondents, in their
pre-planned exit from the first appellant have committed
premeditated conspiracy to defraud the first appellant by
expropriating its confidential information. It is pointed out that
the new news portal by the name "The Morning Context" was
launched on 23rd September, 2019 and on the website of the said
portal, it was disclosed that the second to fourth respondents are
its founders. It is pointed out in the plaint that the said website
and domain names were registered as early as on 12th June,
2019. It is pointed out that on 25th September, 2019, the first
respondent made an announcement that he would be joining
"The Morning Context" as its Chief Editor which would indicate
that steps for setting up of "The Morning Context" were taken as
early as on March 2019 itself, that is five months prior to the exit
of the first respondent from the first appellants "The Ken". It is
alleged that said "The Morning Context" portal was operating on
the same business model as that of the first appellant. It is
pointed out that out of nine writers associated with new venture
i.e., "The Morning Context" as published on the website of the
new venture of the first to fourth respondents, five writers were
already associated with the first appellant.
12. At this stage, we must note here that the sixth respondent
(Slowform Media Pvt. Ltd) is a private limited company which is
running the portal "The Morning Context" and the seventh
respondent is the wife of the first respondent. It is pointed out
that the fifth respondent (Slowform Media PTE Ltd) is a company
constituted in Singapore under the laws of Singapore on 24th July,
2019 of which, the seventh respondent who is the wife of the first
respondent is shown as its Director. It is alleged that in fact,
there were only two shareholders of that company at a time
namely, the second and seventh respondents. It is alleged that
initial directors of the sixth respondent company were the second
and fourth respondents.
13. In paragraph 46 of the plaint it is alleged that the first
respondent had illegally disseminated confidential information
belonging to the first appellant with a view to commercially exploit
the said information. Reliance is placed on the email dated 27th
March, 2019 addressed by the first respondent from his
professional company email account ([email protected]) to
his personal email id ([email protected]) a copy of
which was forwarded to his wife's email id
([email protected]). The said email bears the subject
"important" and also contains an attachment titled "Daily Total".
The said attachment is an excel spreadsheet which contains
details of every news story published by the first appellant, the
amount of revenue generated by each story, the sources of
subscribers, the choice of subscription plans and the payment
methods used. It is alleged that the "Daily Total" contained
details of all the corporate customers of the first appellant with
revenue figures as well as the details of the patrons who were
supporting the first appellant. It is alleged that the contents of the
said attachment are at the very heart of the first appellant's
operation and management and that disclosure of such
information would provide a blueprint for any other organization
which is attempting to set up a similar subscription-lead business.
It is stated that the first respondent had shared the said document
with his wife with an intention of further dissemination. Another
email was sent by the first respondent to his wife, the seventh
respondent, offering advice to her (seventh respondent) on
setting up of a subscription based news platform and the said
advice is based on his experience and learnings with the first
appellant. It is alleged that first and seventh respondents were
conspiring from April, 2019 to set up "The Morning Context".
Various other alleged incidents of disclosure of the confidential
information by the first respondent have been set out in the plaint.
14. It is stated that a screenshot of an archived post dated 30th
August, 2019 lists the first respondent as an author of 'The
Morning Context'. On 30th September, 2019, the first respondent
made an announcement on his twitter account regarding his first
article published on "The Morning Context" portal in which he has
stated that the said story took months to complete, which means
that the said article was written by the first respondent before his
exit from the first appellant. It is stated that the first respondent
had committed breaches of various clauses of the aforesaid
agreements and revealed the confidential information exclusively
belonging to the first appellant which has been wholly
expropriated by him by diverting it into the competitive entities of
the first appellant, in violation of the terms of the agreement. The
details of the breaches made by the first to fourth respondents
are set out in the plaint. It is alleged that the fifth and sixth
respondents have illegally received and continued to make use
and exploit such confidential and proprietary information of the
first appellant. It is also alleged that rapid resignation of second
to fourth respondents within a short period coincided with the exit
of the first respondent. It is alleged that the second to fourth
respondents did not honour the contractual obligations in their
respective employment agreements and they colluded with the
first respondent.
15. At this stage, it is necessary to refer to the prayers made by
the first appellant in the plaint which read thus:
"(A) Of Declaration, declaring the defendant No.1 to be in
breach of his contractual obligations owed to Plaintiff
No.1 in terms of Exit Agreement (executed on
31.07.2019), Executive Employment Agreement
(executed on 01.04.2018), Share Holders Agreement
(executed on 12.01.2018) and the Share
Subscription Agreement (executed on 12.01.2018;
(B) Of Declaration, declaring the Defendant No. 2, 3 and
4 to be in breach of their respective Employment
Agreements with Plaintiff No.1;
(C) Of Mandatory Injunction, restraining the Defendant
No.1 from competing (whether directly or indirectly)
with Plaintiff No.1 by engaging in and/or conducting
any business that is similar to that of the Plaintiff
No.1, in terms of clause 2.4 of Exit Agreement and
clause 16 of SHA;
(D) Of Mandatory injunction, restraining the Defendants
(including their members, employees, affiliates,
representatives, agents and any other persons acting
under or through them) from utilizing, disclosing or
commercially exploiting the confidential information
of the Plaintiff - including its unique analytical
methods, client and customer lists and contact
information, pricing and other client data, trade
secrets, inventions, processes, formulas, source and
object codes, know-how, designs and techniques
and other data and literary work generated by the
Plaintiff;
(E) Of Mandatory Injunction, restraining the Defendants
(including their members, office bearers, affiliates,
representatives, followers, agents and any other
persons acting under their instructions) from soliciting
the services and/or business of employees,
customers, vendors and business associates of
Plaintiff No.1;
(F) Directing the Defendant No.1 to return a sum of
Rs.30,00,000/- to Plaintiff No.2, 3 and 4 (along with
permissible interest under Interest Act, 1979) from 31
July 2019 until the eventual repayment;
(G) Of Damages, directing the Defendant No.1 to pay a
sum of Rs.50,00,000/- towards liquidated damages
owed to the Plaintiff;
(H) Of Damages, directing the Defendant No. 5 and 6 to
pay a sum of Rs.50,00,000/-, jointly and severally as
damages owned to Plaintiff No.1;
(I) Directing the Defendant No. 5 and 6 to pay a sum of
Rs.1,00,00,000/- joint and severally to Plaintiff No.1,
for the unauthorized use of Plaintiff No.1's
confidential information".
16. IA-II was filed by the appellants seeking temporary
injunction restraining the first to seventh respondents from
utilizing, disclosing or commercially exploiting the confidential
information of the first appellant. IA-III was filed by the
appellants praying for temporary injunction restraining the
respondents from soliciting the services and/or business of
employees, customers, vendors and business associates of the
first appellant. IA-IV has been filed by the appellants seeking
temporary injunction restraining the first respondent from
engaging or conducting any business that is similar to that of the
first appellant, in violation of the terms of the Share Holders
Agreement dated 12th January, 2018 and Exit Agreement dated
31st July, 2019.
17. Separate statement of objections were filed to the said IA's
by the first, second, third, fourth, fifth and sixth respondents.
Various allegations made in the plaint have been denied and
several preliminary objections have been raised in the statement
of objections.
GIST OF SUBMISSIONS OF THE APPELLANTS:
18. The learned counsel appearing for the appellants has taken
us through the pleadings and various contentions raised in the
plaint. He submitted that the first appellant had successfully
created first and the only subscription based business of a news
platform in India. For that purpose, it had to develop a range of
unique and proprietary business plans and strategies to ensure
success. The management and internal functioning of the first
appellant resulted in the generation and compilation of various
categories of confidential information that was proprietary to it
which is a direct and exclusive product of its independent labour,
skill and hard work. Reliance was placed on the confidentiality
obligations on the part of the first respondent in the matter of
SHA, employment agreement and exit agreement. The
confidentiality obligations have been set out in clause-9 of the
employment agreements of the second to fourth respondents.
The learned counsel urged that the first to fourth respondents
continued to be bound by their confidentiality obligations even
after their association with the first appellant came to an end. He
pointed out that the fifth to seventh respondents, though not
parties to the agreements, also owe an obligation under common
law to the first appellant not to disclose and commercially exploit
the confidential information of the first appellant. He relied upon
a decision of this Court in the case of V.V. Sivaram and others -
vs- Foseco India Limited, Pune1.
19. The learned counsel appearing for the appellants
addressed on the issue of the nature of confidential information.
He pointed out that the first appellant had compiled information
pertaining to its customers, subscribers and business vendors.
The said information was collected to enable the first appellant to
analyze its financial revenue generated out of its stories and
forecast its projected growth. The said compilation of the
2005 SCC OnLine Kar 595
information was stored on excel sheet (Daily Total). We may
note here that the print out of said excel sheet is produced before
the Court in a sealed cover and a redacted version is produced
along with the plaint. He pointed out that the nature of the
confidential details incorporated in the excel sheet which contains
sensitive information about the revenue generated by each story,
the sources of its subscribers, payment methods used and the
details of all the corporate customers with the revenue figures
and details of all the patrons who are supporting the first
appellant's news platform. The excel sheet contains all the
information relating to the business of the first appellant right from
the year 2016. It is submitted by the learned counsel appearing
for the appellants that the information is not only sensitive but it
will also provide a blueprint for any other organization that is
attempting to carry on the same business. The information stored
can be used to discern the type of stories that generate high
revenue, the category and names of the companies and potential
customers who are interested about it etc. Reliance was placed
on a decision of the Apex Court in the case of Eastern Book
Company and others -vs- D.B. Modak and another2. The
(2008) 1 SCC 1
learned counsel appearing for the appellants also pressed into
service the decision of this Court in the case of M/S. Pearson
India Education Service Private Limited -vs- M/S. New Rubric
Solutions LLP3.
20. The learned counsel for the appellants submitted that the
said document was made available only to the founders of the
first appellant and an access was given on clear understanding
that the confidential information contained therein would be
protected and the founders would guard the same against any
unwarranted or unauthorized disclosure. He submitted that
even the first respondent in his pleadings has categorically
admitted that the information about the said document was
important for him to use it in the negotiations for his exit. He
pointed out that even the seventh respondent admitted of having
received the said excel sheet (Daily Total). He urged that the
transfer of the said document by the first respondent outside
organization of the first appellant clearly amounts to breach of
contractual obligations to maintain confidentiality. He urged that
the document was transferred to the seventh respondent to use
the same as a springboard in setting up of a similar portal
ILR 2016 KAR 2766
namely, 'The Morning Context' which is run by the fifth and sixth
respondents. Reliance was placed by the counsel for the
appellants on a decision of this Court in the case of Imphase
Power Technologies Private Limited -vs- ABB India Limited4.
21. He pointed out that the first respondent, in his capacity as a
founder of the first appellant, obtained the confidential information
and data about female founders of startup business who have
raised funding from external investors from an external consultant
and thereafter, instead of sharing the said information with
second to fourth appellants, the first respondent shared the same
solely with the second respondent alone on the ground that the
second respondent did not have access to such information. It is
pointed out that on 23rd May, 2019, one Ms. Roshni Nair, an
employee of the first appellant, circulated a proposal for a news
article in the form of email and the same was received by the first
respondent and by second to fourth appellants. The proposal
was approved by the appellants. Thereafter, on 31st July 2019,
said Ms. Roshni Nair resigned from her position with the first
appellant. Thereafter, she joined 'The Morning Context' in
which, a similar article under the title "How WikiMedia India went
2016 SCC OnLine Kar 6931.
Bust" was published on 'The Morning Context' platform on 4th
November, 2019. The learned counsel submitted that the
second to fourth respondents have admitted of having
downloaded confidential information belonging to the first
appellant into their official work laptops and thereafter, forwarded
the same to their personal email id's and thereafter they make
use of the said information for their personal use.
22. The learned counsel appearing for the appellants invited
our attention to clause-16 of SHA under which, the first
respondent agreed that he would not solicit or influence or
attempt to influence any clients or customers to direct their
purchase of products or services to himself or to any competitor
of the first appellant. His submission is that under said clause,
he agreed not to damage the business relationship of the first
appellant with its customers or clients. He had also agreed not to
solicit or influence any persons engaged in employment with the
first appellant to terminate his or her employment with the first
appellant. Further, the first respondent was under an obligation
not to make any attempt to employ or assist anyone else to
employ any persons engaged in the employment with the first
appellant. By inviting our attention to the clause 2.5 of the exit
agreement, he submitted that the aforesaid clauses continue to
operate even after the exit of the first respondent. He submitted
that from 31st July, 2019 (from the date on which the first
respondent exited the first appellant), he had agreed not to solicit
and influence the customers and employees of the first appellant
for a period of thirty six months. He submitted that in the
respective employment agreements of second to fourth
appellants, they were under an obligation not to solicit or
influence any persons engaged in employment with the first
appellant to terminate his/her employment.
23. The learned counsel urged that the first to fourth
respondents have decided to surreptitiously set up the fifth and
sixth respondents and indulged in inter se solicitation for leaving
the employment of the first appellant. His submission is that the
resignation of second to fourth respondents was announced by
the first respondent on his twitter account even prior to their
official resignations. He submitted that admittedly, the first
respondent diverted the job applications sent by Ms. Anahita
Mukherji to his personal email id and he did not share the same
with the second to fourth appellants. His submission is that
now, the same person is working in 'The Morning Context'. He
would submit that non-solicitation clauses are not hit by Section
27 of the Contract Act.
24. He submitted that though the first respondent officially
joined 'The Morning Context' on 26th September, 2019, in his
tweet dated 23rd September, 2019, he has confirmed that one Ms.
Priya Nagvekar had assisted in design and formatting the website
of 'The Morning Context'. He pointed out that very fact that on
30th September 2019, the first respondent made announcement
regarding his first article to be published in 'The Morning Context'
would indicate that he was working on the said article during the
course of his employment with the first appellant.
25. The learned counsel appearing for the appellants further
submitted that on 21st July, 2019, the seventh respondent, who is
the wife of the first respondent, incorporated in the fifth
respondent. However, after the second respondent left the first
appellant and took over as the Director of the fifth respondent,
she stepped down as the director and shareholder of the said
company. However, the seventh respondent again rejoined the
fifth respondent as a Director and she was appointed to the Board
of Directors of the sixth respondent, after institution of the present
suit. Thus, it is clear that the fifth respondent has been
incorporated by the seventh respondent at the behest of the first
respondent and the seventh respondent walked out of the sixth
respondent immediately after second to fourth respondents
resigned from the first appellant. Hence, the learned counsel
appearing for the appellants urged that this was a fit case where
all the three interlocutory applications (IA-II, III, and IV) ought to
have been allowed by the Commercial Court.
GIST OF THE SUBMISSIONS OF THE RESPONDENTS:
26. The learned Senior Counsel appearing for the first
respondent also made detailed submissions. He invited our
attention to the various findings recorded by the learned trial
Judge. He submitted that it is false to say that the first appellant
was successful in creating the first subscription based business
news platform in India. He submitted that there is no material to
substantiate the said contention and he gave example of several
such existing news platforms in the world and submitted that they
are the similar models as that of the first appellant and that the
model of the first appellant is not at all unique. He submitted that
it is not pointed out by the appellants as to what confidential
aspects of the first appellant's alleged unique business model
were revealed by the first respondent to the detriment of the
appellants. The documents on which the appellants are relying
upon are either available on the public domain or are within the
first respondent's personal knowledge from his years of
professional experience.
27. He submitted that as held by the Delhi High Court, in the
case of M/S. Stellar Information Technology Private Limited -
vs- Mr. Rakesh Kumar and others5, the information which is
already available in the public domain cannot be considered as a
confidential information and no injunction for use of such
information can be issued. Inviting our attention to the document
No.41(Daily Total), he pointed out how the information contained
therein is available on the first appellant's website especially, the
names of reflected in sheet numbers 1 and 2. In fact, the first
appellant's web portal, as it was previously, was reflecting the
names of the first appellant's company's patrons. He pointed out
that sheet number 3 of the excel sheet was only an accounting
document which does not contains any creative or unique
(2016) 234 DLT 114 = 2016 SCC OnLine Del 4812
arrangement of data. He submitted that in any case, the first
respondent being the managing editor and co-founder of the first
appellant had an access to the said data. He submitted that the
details of the shares held by the sponsors of the first appellant
can be easily procured from the public domain. He pointed out
that the sixth respondent has not approached a single corporate
client listed in "The Daily Total". He submitted that the seventh
respondent who is the wife of the first respondent is a Chartered
Accountant. He stated that the first respondent shared the
revenue patterns of growth of the first appellant with the seventh
respondent, as she was guiding the first appellant for negotiating
the value of shares of the first respondent in the first appellant.
28. He submitted that the particulars reflected in the excel
sheets (the Daily Total) are empty figures not beneficial to any
individual media industry. He submitted that the document
No.42 is an email communication dated 10th April, 2019
addressed to the seventh respondent by the first respondent
which does not contain any confidential information of the first
appellant. The said email merely advises the seventh
respondent how to go about with setting up and operating a
network. He submitted that the seventh respondent had
intended to start a blog on pregnancy where to be parents and
the parents would be educated on parenthood. His submission
is that the contents of the email have been misinterpreted by the
appellants as the said email does not even mention the word
'subscription based news platform'.
29. Referring to the document No.43, the learned counsel
appearing for the first respondent urged that the said email dated
30th July, 2019 only contains the details received by the first
respondent on behalf of 2nd respondent from an external agency
called 'Venture Intelligence'. He submitted that the first
respondent, in his personal capacity, has shared and provided
the said information to the second respondent to enable her to
write an article. He submitted that the information or data
provided by the Venture Intelligence was readily available to
anyone.
30. As regards the document No.45, he submitted that Ms.
Anahita Mukherji was never an employee of the first appellant.
As regards the document No.49, he contended that the said
document is only a pitch for an article of Ms. Roshni Nair's which
was sent to the appellants. He submitted that eventually, the
article was published by Ms. Roshni Nair on 'The Morning
Context'. Though the appellants have tried to allege an
infringement of their copyright, they have not impleaded the
author of the said article as a party to the suit. He urged that
none of the documents relied upon by the appellants contain any
confidential information exclusively belonging to the first
appellant. Moreover, the appellants have failed to prove that they
have suffered an injury and are adversely affected by the alleged
use of the said information by any of the respondents.
31. While addressing the Court on the prayers made for
injunction against soliciting the first appellant's employees and
customers, the learned counsel appearing for the first respondent
relied upon the provisions of Section 27 of the Indian Contract
Act, 1872 (for short, 'the Contract Act'). He submitted that no
service covenant can be extended after the termination of service
by the appellant. Relying upon a decision of the Apex Court in
the case of Superintendence Company of India (P) Ltd -vs-
Krishan Murgai6, he submitted that unlike an agreement which
is of a goodwill of business type of contract, post service terminal
(1981) 2 SCC 246
restrictive covenants are void as per Section 27 of the Contract
Act. He pointed out that by email, the second respondent
forwarded his resignation on 28th June, 2019 to the first appellant
which indicates that the resignation was on account of conduct of
the appellants. In fact, it is based on the decision taken by the
appellants themselves. He pointed out that the third respondent
was asked to go out by the first appellant's company when the
second appellant made a phone call to the first appellant on 11th
June, 2019. There was a heated exchange of emails between
fourth respondent and the appellants prior to his quitting. He
submitted that the first respondent made an announcement on his
twitter account on 27th June, 2019 endorsing the abilities and
talent of the third and fourth respondents, with a view to create an
alternative opportunity to both the respondents. He submitted
that 'The Morning Context' was launched on 23rd September,
2019 and the resignations were tendered by second to fourth
respondents during June and July, 2019 respectively.
32. As regards Ms. Roshni Nair and Ms. Anahita Mukherjee,
the learned Senior Counsel submitted that both of them were not
at all employees of the first appellant.
33. As regards injunction sought against the first respondent
from competing against the first appellant, he submitted that
clause 2.4 of the Exit Agreement not only aims at binding the 1st
respondent from pursuing his career for an arbitrarily long
duration of three years, but it also seeks to restrict him from doing
business in any part of the world. He submitted that the said
clause is illegal. He would also submit that the first respondent
has not participated in the establishment of competing business
and he is merely an employee of the sixth respondent and he is
working in the capacity of a content writer. He submitted that the
appellants are relying on the contents of a twitter posting dated 5th
December, 2019 by the first respondent to attribute conspiracy.
He submitted that the decision of the Delhi High Court in the case
of Affle Holdings Pte Ltd., -vs- Saurabh Singh and others7 will
not help the appellants. He submitted that an amount of
Rs.30,00,000/- paid to the first respondent was solely as a
consideration towards the purchase of his 907 shares in the first
appellant and this amount does not include the consideration for
the first respondent's obligation not to compete. Lastly, he
submitted that a prima facie case is not established by the
2015 SCC OnLine Del 6765
appellants. In any case, the very fact that the monitory relief of a
decree in the sum of Rs.80,00,000/- is claimed by the appellants
towards damages shows that the loss allegedly caused to the
appellants can be always compensated in terms of money.
34. The learned counsel appearing for the second to seventh
respondents submitted that the materials on record show that
second respondent was forced to resign. As regards the third
respondent, it was submitted that he did not resign but he was
effectively terminated. He submitted that in fact, a situation was
created under which, the fourth respondent was pushed against
the wall to leave the first appellant. In fact, as regards fourth
respondent, the second appellant himself informed him that the
notice period of thirty days has been waived. It was submitted
that there is nothing placed on record to show that there was any
solicitation of the second to fourth respondents by the first
respondent. He submitted that there is no privity of contract
between the appellants and fifth to seventh respondents. It was
submitted that the post employment negative covenants are
unenforceable under law and, therefore, clause 11 of non-
compete and non-solicitation in the employment agreements of
the second to fourth respondents will not survive after their
employment with the first appellant came to an end. He placed
reliance on a decision of the Apex Court in the case of Percept
D'Mark (India) Pvt. Ltd -vs- Zaheer Khan and another8.
35. It was submitted that the term 'profession' is absent in the
proviso to Section 27 of the Contract Act and, therefore,
notwithstanding sale of good-will, a professional can continue his
profession anywhere as per his choice. It was submitted that the
first respondent is a professional journalist employed by the fifth
respondent and he does not have any equity holding in fifth and
sixth respondents. Reliance was placed on a decision of the
Delhi High Court in the case of Arvinder Singh and Another -
vs- Lal Pathlabs Pvt Ltd and others9. Reliance was also placed
on the decision of the Delhi High Court in the case of
Independent News Service Pvt. Ltd -vs- Sucherita Kukreti10.
36. Reliance was placed upon various illustrations such as
'Business Standard', 'Wall Street Journal' etc to show that the
(2006) 4 SCC 227
2015 SCC OnLine Del 8337= (2015) 149 DRJ 88
2019 SCC OnLine Del 6756
business model of the first appellant is not a unique model as
claimed by the appellants.
37. It was submitted that there are no allegations made against
the third and fourth respondents with regard to receipt,
dissemination, transmission, disclosure, breach or misuse of the
alleged confidential information of the first appellant. He
submitted that the allegation that the first respondent, in a
clandestine manner forwarded the Netflix invitation to the second
respondent is meaningless, as the second respondent himself
directly received the said invitation from the Netflix. As regards
article of the second respondent dated 23rd October, 2019 titled
'Watershed Year for Women Let Startup in India', it was
submitted that the data used or shared with the second
respondent does not belong to the appellant but it was shared by
Venture Intelligence which is a third party and it was not a
confidential data received by the first respondent from the first
appellant. He submitted that the first appellant cannot claim
copyright in respect of Ms. Roshni Nair's article. He submitted
that no copyright is attributable or claimed on a proposal, idea,
topic or context. It was submitted that the information which
claimed to be a confidential by the appellants is not at all
confidential information. It was submitted that there is no
conspiracy or collusion about the exit of the second to fourth
respondents from the appellants, as their exit was based on
totally different circumstances. Lastly, it was submitted that in
view of the fact that the damages have been claimed against all
the respondents, any loss which may have been caused to the
appellants can be compensated in terms of money.
38. The learned counsel appearing for the appellants submitted
that there is sufficient material on record to show that the first
respondent was the brain behind incorporation of the fifth and
sixth respondents. He submitted that considering the nature of
the business, an inference can be drawn that the sale of the
shares of the founder (first respondent) would amount to the sale
of founder's good-will in the business of the first appellant.
Therefore, it was submitted that the proviso to Section 27 of the
Contract Act is not applicable.
CONSIDERATION OF SUBMISSIONS:
39. We have given careful consideration to the submissions.
We have carefully perused the pleadings and the documents on
record. We have also considered several decisions relied upon
by rival parties. The first question which will have to be
considered is about the breach of confidentiality. For the
purposes of deciding the said question, we will have to consider
the issue what constitutes a confidential information. A leading
decision of the British Court on this aspect is in the case of Coco
-vs- A.N. Clark (Engineers) Limited11 which is relevant for our
consideration. The High Court of Justice - Chancery Division
was dealing a case where interlocutory injunction was sought
against the defendants from misusing information communicated
to them in confidence for the purposes of the joint venture. In the
said decision, his Lordship Justice Megarry dealt with what are
the elements of confidential information. The relevant portion of
the said decision reads thus:
"In my Judgment, three elements are normally
required if, apart from contract, a case of breach of
confidence is to succeed. First, the information
itself, in the words of Lord Greene, M.R. in the
Saltman case on page 215, must "have the
necessary quality of confidence about it".
Secondly, that information must have been
(1968) F.S.R. 415
imparted in circumstances importing an
obligation of confidence. Thirdly, there must be
an unauthorized use of that information to the
detriment of the party communicating it. I must
briefly examine each of these requirements in turn.
First, the information must be of a confidential
nature. As Lord Greene said in the Saltman case at
page 215 "something which is public property
and public knowledge" cannot per se provide
any foundation for proceedings for breach of
confidence. However, confidential the
circumstances of communication, there can be
no breach of confidence in revealing to others
something which is already common knowledge.
But this must not be taken too far. Something
that has been constructed solely from materials
in the public domain may possess the necessary
quality of confidentiality: for something new and
confidential may have been brought into being
by the application of the skill and ingenuity of the
human brain. Novelty depends on the thing itself,
and not upon the quality of its constituent parts.
Indeed, often the more striking the novelty, the more
commonplace its components, Mr. Mowbray demurs
to the concept that some degree of originality is
requisite. But whether it is described as
originality or novelty or ingenuity or otherwise, I
think there must be some product of the human
brain which suffices to confer a confidential
nature upon the information: and, expressed in
those terms, I think that Mr. Mowbray accepts the
concept.
The difficulty comes, as Lord Denning, M.R.
pointed out in the Seager case on page 931, when
the information used is partly public and partly
private; for then the recipient must somehow
segregate the two and, although free to use the
former, must take no advantage of the
communication of the latter. To this subject I must
in due course return. I must also return to a further
point, namely, that where confidential information is
communicated in circumstances of confidence the
obligation thus created endures, perhaps in a
modified form, even after all the information has
been published or is ascertainable by the public; for
the recipient must not use the communication as a
spring-board (see the Seager case, page 931 and
933). I should add that, as shown by Cranleigh
Precision Engineering Ltd. V. Bryant (1965) 1 W.L.R.
1293, (1966) R.P.C. 81; the mere simplicity of an
idea does not prevent it being confidential (see
pages 1309 and 1310). Indeed, the simpler an idea,
the more likely it is to need protection.
The second requirement is that the information
must have been communicated in circumstances
importing an obligation of confidence. However
secret and confidential the information, there can be
no binding obligation of confidence if that information
is blurted out in public or is communicated in other
circumstances which negative any duty of holding it
confidential. From the authorities cited to me, I have
not been able to derive any very precise idea of what
test is to be applied in determining whether the
circumstances import an obligation of confidence.
In the Argyll case at page 330, Ungoed-Thomas, J.
concluded his discussion of the circumstances in
which the publication of marital communications
should be restrained as being confidential by saying
"If this was a well-developed jurisdiction doubtless
there would be guides and tests to aid in exercising
it". In the absence of such guides or tests he then in
effect concluded that part of the communications
there in question would on any reasonable test
emerge as confidential. It may be that that hard-
worked creature, the reasonable man, may be
pressed into service once more; for I do not see why
he should not labour in equity as well as at law. It
seems to me that if the circumstances are such that
any reasonable man standing in the shoes of the
recipient of the information would have realized that
upon reasonable grounds the information was being
given to him in confidence, then this should suffice to
impose upon him the equitable obligation of
confidence. In particular, where information of
commercial or industrial value is given on a
business-like basis and with some avowed common
object in mind, such as a joint venture or the
manufacture of articles by one party for the other, I
would regard the recipient as carrying a heavy
burden if he seeks to repel a contention that he was
bound by an obligation of confidence: see the
Saltman case at page 216. On that footing, for
reasons that will appear, I do not think I need explore
this head further. I merely add that I doubt
whether equity would intervene unless the
circumstances are of sufficient gravity; equity
ought not to be invoked merely to protect trivial
tittle-tattle, however confidential.
Thirdly, there must be an unauthorized use
of the information to the detriment of the person
communicating it. Some of the statements of
principle in the cases omit any mention of
detriment; others include it. At first sight, it
seems that detriment ought to be present if
equity is to be induced to intervene; but I can
conceive of cases where a plaintiff might have
substantial motives for seeking the aid of equity
and yet suffer nothing which could fairly be
called detriment to him, as when the confidential
information shows him in a favourable light but
gravely injures some relation or friend of his
whom he wishes to protect. The point does not
arise for decision in this case, for detriment to the
plaintiff plainly exists. I need therefore say no more
than that although for the purposes of this case I
have stated the proposition in the stricter form, I wish
to keep open the possibility of the true proposition
being that in the wider form".
(emphasis added)
40. The learned Single Judge of Delhi High Court, in the case
of Diljeet Titus, Advocate -vs- Alfred A. Adebare and others12
quoted the observations made in the aforesaid decision of the
British Court in the case of Coco (supra) with approval in
paragraph-30 in his Judgment. Thus, information cannot be
termed as a confidential information merely because it is claimed
by a party. As observed in the case of Coco (supra), the
information must "have the necessary quality of confidence about
it". If the information is a public property and is in public
knowledge and such information is shared, it cannot be said it will
lead to a breach of confidence. Secondly, that information must
2006 SCC OnLine Del 551 = (2006) 130 DLT 330
have been imparted in circumstances importing an obligation of
confidence. In a given case, the obligation of confidence need not
be express but it can be implied. Thirdly, there must be an
unauthorized use of that information to the detriment of the
aggrieved party or to the detriment of a third party whom the
aggrieved party wishes to protect. It is in this context, we have to
appreciate the factual aspects of the case on hand.
41. The main contention of the appellants is that the
information contained in the document (Excel sheets) styled as
"Daily Total" contains confidential information. The print out of
the said document has been placed on record in a sealed
envelope. It is, therefore, necessary for this Court to firstly
consider whether the said document styled as "Daily Total"
contains any confidential information. We have perused the
said document styled as "Daily Total" (document No.41). Firstly,
it contains the names of patrons of the first appellant. Another
sheet contain the names of the corporate subscribers.
Thereafter, the remaining sheets contain the names of the articles
published on the first appellant's news platform, the names of its
authors, the number of subscriptions generated (renewal and
new) by the said articles and whether subscriptions were annual
or quarterly. The details of the revenue have been also
incorporated in it. Our attention is invited to a printout of web
portal of the first appellant a copy of which is on page 678 in
Volume-II of paper book. It shows the names of some of the
patrons of the first appellant. Our attention is also invited to a
copy of Restated Shareholder's Agreement dated 23rd January,
2018 which is on page 234 of volume-II of the paper book. The
names of existing and new investors along with their PAN
numbers and addresses have been mentioned in Schedule-II to
the said agreement. In parts-C and D of Schedule-III to the said
agreement, the share holding details of the first appellant on the
execution date and effective date have been incorporated. Parts
C and D give the names of all the shareholders, the details of
number of equity or preference shares held by them and
percentage of their share holding. Therefore, prima facie, the
names of the promoters and the names of the patrons were
readily available and the same were never intended to be kept
confidential. We must note here that the details such as the
names of the existing and the new investors as well as the names
of the shareholders and shareholding pattern are available in the
Restated Share Holder's Agreement. Therefore, these details
cannot be said to be confidential at all. Now the question is
whether the other contents of the excel sheet i.e sheet No.3
contains confidential document/information.
42. As narrated earlier, excel sheet No.3 contains the details
regarding the articles published on 'The Ken', the names of the
authors, the number of subscriptions generated etc. As argued
by the learned counsel appearing for the first respondent, the
sheet No.3 is not a creative or unique arrangement of data so as
to qualify for being called as works of the appellant under the
Copyright Act, 1957. There is nothing novel or creative about it.
In any case, the first respondent being the Managing Editor of the
Ken and as a co-founder, he was aware of all the details
mentioned in sheet No.3. Moreover, the names of the articles
and the authors thereof are readily available on the website of the
first appellant itself. Under such circumstances, it is very difficult
to arrive at a prima facie conclusion that the said excel sheets
(Document No.41) contain any confidential information.
Moreover, the appellants have not even prima facie demonstrated
that any loss was caused to them due to the alleged act of the
first respondent of revealing alleged confidential information in the
excel sheets (Daily Total). It is not pleaded that any detriment
was caused to any third party whose interest the first appellant
was interested in protecting. In any case, it is not pleaded and
proved as to how the information was useful to any other media
house or media industry.
43. Moreover, there is no material placed on record by the
appellants to prima facie establish that the model of online
platform of the first appellant is unique. The respondents have
given instances of several news platforms based on subscription
such as The Wall Street Journal, Business Standard, The
Economic Times Prime, Bloomberg Quint etc. The appellants
have not shown how their model is unique.
44. The document No.42 is an email sent by the first
respondent to seventh respondent. As stated earlier, seventh
respondent is the wife of the first respondent. The said email
contains advice to her on how to go about and setup and operate
a blog on pregnancy where to be parents and the parents were to
be educated on parenthood. It is apparent from the said
document that it does not refer to setting up of a 'subscription
based news platform'. Apart from that, the appellants have not
pointed out which confidential information was supplied by the
said email sent by the first respondent to seventh respondent
over which, the first appellant had a control.
45. We have perused the document No.43. It contains email
from Venture Intelligence addressed to the first respondent
forwarding a copy of research previously done of women founded
start ups. This was forwarded by the first respondent to the
second respondent by email. It is not spelt out what right the first
appellant can claim over the said information received from
Venture Intelligence. It is not the case of the appellant that the
first respondent had received the said information from 'Venture
Intelligence' which was a confidential information.
46. The document No.45 is an email sent by Ms. Anahita
Mukherji to the first respondent. The subject of email is "A
framework for what I could cover for "The Ken". She has set out
contours of what she could cover. At no point of time, said Ms.
Anahita Mukherji was working with the first appellant. Even she
is not an employee of the 'The Morning Context'. It is not
established that the first respondent has committed any breach of
any agreement. The document No.49 is an email of one Ms.
Roshni Nair which is a pitch of a story proposed to be written by
her. It is in a particular format. It cannot be termed as a
confidential information of the first appellant. Added to that, said
Ms. Roshni Nair who was the author of an article is not a party to
the suit at all.
47. The breach of confidentiality is also alleged against the
other respondents. The appellants are relying upon the
allegation that the first respondent, in a clandestine manner,
forwarded the Netflix invitation to the second respondent. The
second respondent has relied upon a separate invitation directly
received by him on 15th July, 2019 for the Netflix event dated 24th
July, 2019. Hence, there cannot be any breach of confidentiality
by sending invitation to the second respondent. As pointed out
earlier, the first respondent shared with the second respondent
the data received from Venture Intelligence. The second
respondent's article dated 23rd October, 2019 titled as 'Watershed
Year for Women Let Startup in India' appears to be based on the
data supplied by the Venture Intelligence and not the data
available with the first appellant.
48. An article of Ms. Roshni Nair was published by the fifth
respondent on 4th November, 2019. When the said article was
published, the contract of service between the first appellant and
said Ms. Roshni Nair was not in existence, as the said contract
came to an end on 31st July, 2019 by virtue of her resignation.
Ms. Roshni Nair is the owner of the said work in the form of an
article. But she has not been made as party to the suit.
49. Before going into the next contention, it is necessary for us
to make a reference to Section 27 of the Contract Act, which
reads thus:
"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 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 hard to the nature of the business".
50. The issue of interpretation of Section 27 of the Contract Act
came up for consideration before the Apex Court in the case of
Superintendence Company of India (supra). A Bench of three
Hon'ble Judges decided the said case. The main Judgment was
delivered by Justice V.D. Tulzapurkar for himself and for Justice
N.L. Untwalia. A concurring judgment was delivered by Justice
A.P. Sen. In paragraphs 32 to 35 of the said decision, the Apex
Court held thus:
"32. The agreement in question is not a "good
will of business" type of contract and, therefore,
does not fall within the exception. If the
agreement on the part of the respondent puts a
restraint even though partial, it was void, and,
therefore, the contract must be treated as one
which cannot be enforced.
33. It is, however, argued that the test of the validity
of a restraint, whether general or partial, is
dependent on its reasonableness. It is pointed out
that the distinction drawn by Lord Maclesfield
in Mitchel v. Reynolds (1711) 1 PWms 181 : 24 ER
347 between general and partial restraint, was
removed by the House of Lords
in Nordenfelt v. Maxim Nordenfelt Guns &
Ammunition Co. LR 1894 AC 535 : (1891-94) All ER
Rep 1 According to the judgment of Lord
Macnaghten in Nordenfelt case [LR 1894 AC 535 :
(1891-94) All ER Rep 1] , the validity in either case
was reasonableness with reference to particular
circumstances. It is urged that all covenants in
restraint of trade partial as well as general are prima
facie void and they cannot be enforced, according to
the test laid down by Lord Macnaghten in Nordenfelt
case [LR 1894 AC 535 : (1891-94) All ER Rep 1] and
accepted by the House of Lords
in Mason v. Provident Clothing and Supply Co.
Ltd. [LR 1913 AC 724 : 1911-13 All ER Rep 400 :
109 LT 449] unless the test of reasonableness is
testified. It is also urged that while an employer is not
entitled to protect himself against competition per se
on the part of an employee after the employment has
ceased, he is entitled to protection of his proprietary
interest viz. his trade secrets, if any, and a business
connection.
34. The test of reasonableness which now governs
the common law doctrine of restraint of trade has
been stated in CHITTY ON CONTRACTS, 23rd Edn.,
Vol. I, p. 867:
"While all restraints of trade to which the
doctrine applied are prima facie unenforceable,
all, whether partial or total, are enforceable, if
reasonable."
35. A contract in restraint of trade is one by which a
party restricts his future liberty to carry on his trade,
business or profession in such manner and with such
persons as he chooses. A contract of this class is
prima facie void, but it becomes binding upon proof
that the restriction is justifiable in the circumstances
as being reasonable from the point of view of the
parties themselves and also of the community".
(emphasis added)
51. In the case of Percept D'Mark (supra), the Apex Court
again dealt with the issue of interpretation of Section 27 of the
Contract Act. In paragraph-56 of the said Judgment, the Apex
Court held thus:
"56. The legal position with regard to post-
contractual covenants or restrictions has been
consistent, unchanging and completely settled in our
country. The legal position clearly crystallised in
our country is that while construing the
provisions of Section 27 of the Contract Act,
neither the test of reasonableness nor the
principle of restraint being partial is applicable,
unless it falls within express exception engrafted
in Section 27".
(Emphasis added)
52. Under section 27 of the Contract Act, an agreement which
contains a restraint clause, restraining a person from exercising a
lawful profession, trade or business of any kind is void. There is
one exception to the said rule. The exception is in a case where
a good-will of a business is sold. Only in such a case, an
agreement to restrain such person from carrying on a similar
business can be enforced.
53. In the instant case, as can be seen from the documents
produced, a sum of rupees thirty lakhs received by the first
respondent from the appellant is the value of 907 shares held by
the first respondent in the first appellant's company. We have
carefully perused the agreement of Record and Release dated
26th July, 2019 (Exit Agreement) executed by and between the
first appellant and the first respondent. It is very clear from
clause 2.1 (a) (i) of the said agreement that a sum of
Rs.30,00,000/- (rupees thirty lakhs only) was paid to the first
respondent as the value of 907 his existing share holding. The
first respondent has been described as existing promoter in the
said agreement. The entire clause 2.1 is reproduced hereunder
for a ready reference which reads thus:
"2.1 Treatment of Exiting Promoter Shares
(a) As on the effective date, the exiting promoter
shall have transferred the exiting promoter
shares to the following persons for an aggregate
purchase consideration of Rs.30,00,000/- (Rupees
thirty lakhs only) as follows:
(i) 907 (Nine Hundred and Seven) Exiting Promoter
Shares to the following promoters for the amount
(in aggregate for the Exiting Promoter Shares
being transferred) as set out below:
Promoter Exiting Amount to be
Promoter paid to Exiting
Shares to Promoter for
be transfer (in Rs)
transferred
Mr. Rohin Dharmakumar 303 10,02,205.00
Ms. Seema Singh 302 998,897.50
Mr.Sumanth 302 998,897.50
Reghavendra
Total 907 Rs.30,00,000
(b) The Exiting Promoter agrees and undertakes to
cooperate with the Promoters, undertake all
procedures as may be required and execute any
documentation that may be required to complete the
aforesaid transfer of the Exiting Promoter Shares as
per the terms of this Agreement.
(c) The Exiting Promoter represents and warrants that:
(i) He is the sole and exclusive owner of the Exiting
Promoter Shares and has not divested or transferred
his title or interest therein or granted beneficial
ownership rights in or to the Exiting Promoter Shares
to any person;
(ii) He is entitled to transfer all rights, title and interest in
the Exiting Promoter Shares as per provisions of this
Agreement and
(iii) The Exiting Promoter Shares shall be transferred
free from all claims, charges, liens, encumbrances,
options, rights of pre-emption or equities and rights
attached thereto.
(d) Upon the completion of the transfer of Exiting
Promoter Shares in accordance with the provisions
hereof, the Exiting Promoter shall cease to be a party
to the SHA, and shall cease to be considered to be a
'Promoter' or 'Shareholder' under the SHA or SSA,
and shall not after the completion of the Exit be
considered a 'Promoter' of the Company for any
purpose".
(emphasis added)
54. Thus, the shares of the first appellant were transferred to
the second to fourth appellants for a specific price. Under the
same agreement and in particular, under clause 3.1, it is
specifically mentioned that a sum of Rs.2,62,500 (Two Lakhs
Sixty Two Thousand and Five Hundred) was paid to the first
respondent by the first appellant, in full and final settlement of all
salary and other compensation in lieu of the existing employment
of the first respondent with the first appellant and the services
rendered by him to the first appellant. Hence, the said Agreement
deed not provide for payment of any amount towards goodwill. It
is very difficult to draw an inference that any amount was paid
towards goodwill to the first respondent. Therefore, any clause
in any of the agreements executed by the first respondent which
restrains him from exercising a lawful profession as an author or
editor, trade or business, will be void in view of Section 27 of the
Contract Act. Such clauses were not enforceable. Therefore,
by acting as an employee/editor of "The Morning Context", it
cannot be said that the first respondent has committed any
breach of contractual obligations.
55. Clause 2.4 of the said agreement provides for a non-
compete covenants. Sub-clause (a) and (b) of clause 2.4 which
are relevant read thus:
"2.4 Exiting Promoter Non-Compete Covenants:
(a) The Exiting Promoter covenants and agrees that that
with effect from the Effective Date till the expiry of
thirty-six (36) months therefrom the Exiting Promoter
shall not, directly or indirectly (i) promote or
commence any business or enterprise which is
engaged in business or activity that is the same or is
substantially similar to the Business or (ii) invest in
the share capital or contribution of, or hold any
shareholding, partnership, directorship, or any similar
or equivalent interest in, any Person or business or
enterprise which is engaged in a business or activity
that is the same or is substantially similar to the
Business, in each case, in any part of the world.
(b) The Exiting Promoter agrees and acknowledges that
the restrictions contained in this Clause 2.4 are
considered reasonable for the legitimate protection of
the business and goodwill of the Company and the
investment of the Investors and are to be construed
in keeping with the role he has played as a promoter
of the Company and the access to business and
proprietary information that this role has given him
access to. However, in the event that such
restrictions shall be found to be void, but would be
valid if some part thereof was deleted or the scope,
period or area of application were reduced, the
above restrictions shall apply with the deletion of
such words or such reduction of scope, period or
area of application as may be required to make the
restrictions contained in this Clause 2.4 valid and
effective."
56. Though the first respondent's wife who is a chartered
accountant may have been involved in establishing fifth and sixth
respondents companies, there is no prima facie material placed
on record that the first respondent was involved in any manner
with the promotion and commencement of the business of "The
Morning Context". It is not the case made out that the first
respondent was holding shares in the fifth and sixth respondents.
57. Clause 2.5 of the same agreement contains Non-
Solicitation Covenants. Sub-clauses (a) to (d) of clause 2.5
which are relevant read thus:
"2.5 Exiting Promoter Non-Solicitation Covenants
(a) The Exiting Promoter covenants and agrees that with
effect from the Effective Date till the expiry of thirty-
six (36) months therefrom the Exiting Promoter shall
not, directly or indirectly, in any capacity, whether
through partnership or as a shareholder, joint venture
partner, collaborator, consultant or agent or in any
other manner whatsoever, whether for profit or
others;
(i) Attempt or persuade any Person, which is a
client/customer/business associate of the Company
to cease doing business or to reduce the amount of
business which any such client/customer has
customarily done or might propose doing with the
Company and/or its subsidiary(ies) or damage in any
way the business relationship that the Company has
with any customer/client/business associate;
(ii) Solicit or attempt to influence any Person, employed
or engaged by the Company to terminate or
otherwise cease such employment with the Company
or any other person including a competitor; and/or
(iii) Employ or attempt to employ or assist anyone else to
employ or otherwise associate any person who is in
the employment of the Company or associated with
the Company, or was in the employment of the
Company or otherwise associated with the Company
at any time during the preceding 12 (twelve) months."
(b) The exiting Promoter agrees and acknowledges that
the restrictions contained in this Clause 2.5 are
considered reasonable for the legitimate protection of
the business and goodwill of the Company and the
investment of the Investors and are to be construed
in keeping with the role he has played as a promoter
of the Company and the access to business and
proprietary information that this role has given him
access to. However, in the event that such
restrictions shall be found to be void, but would be
valid if some part thereof was deleted or the scope,
period or area of application were reduced, the
above restrictions shall apply with the deletion of
such words or such reduction of scope, period or
area of application as may be required to make the
restrictions contained in this Clause 2.6 valid and
effective.
(c) For the purpose of this Clause 2.5 (Exiting Promoter
Non-Solicitation Covenant), the term 'Company'
shall include its subsidiary(ies), if any.
(d) The Exiting Promoter acknowledges and agrees that
any breach of the provisions of this Clause 2.5 may
not be capable of being compensated in monetary
damages and that the Company/Investors would be
entitled to pursue any and all legal remedies
available to it, including without limitation, specific
performance or injunctive relief, to ensure protection
of the interests of the Investors and the Company."
There is not even a prima facie material on record to show that
there is any breach committed by the first respondent of non-
solicitation covenants contained in clause 2.5 of the exit
agreement.
58. There is an allegation in the plaint that the first to fourth
respondents have colluded with each other and after departing
with the first appellant, they joined 5th respondent. As noted
earlier, the exit agreement is on 26th July, 2019. The second
respondent resigned by sending email dated 28th June, 2019.
The information about the resignation of the second respondent
was published by the first respondent on his twitter platform on
30th June, 2019. The resignation of the second respondent
became effective on 12th July, 2019. The third respondent
resigned by email dated 8th July, 2019 effective from 6th August,
2019. The information about the resignation of the third
respondent was published by the first respondent on twitter
platform on 26th June, 2019. The fourth respondent resigned with
effect from 24th July, 2019 by sending email dated 25th June,
2019. The information of his resignation was published by the
first respondent on twitter platform on 26th June, 2019. When
the second to fourth respondents joined the fifth respondent ('The
Morning Context'), the first respondent had no connection with
the first appellant. At the time when the second to fourth
respondents had tendered their resignations, the first respondent
was not concerned with the 'The Morning Context'. The seventh
respondent who is the wife of the first respondent is a Chartered
Accountant and she was a founder director of the fifth
respondent. She was a founder Director of fifth respondent in
her own right. Therefore, even assuming that the first respondent
had prior knowledge about the decision of the second to fourth
respondents of resigning from their employment with the first
appellant, it is very difficult to understand which clause of the
agreement executed by the first respondent has been breached.
59. Now coming to the employment agreements of the second
to fourth respondents with the first appellant, we find that the
same are more or less identical. Clause-8 is regarding
intellectual property, clause-9 is about confidential information,
clause-10 is about the company assets and clause-11 is about
non-competence and non-solicitation. Clause-19 provides that
termination of the employment agreement shall not affect those
provisions of the agreement that by their nature or intended to
survive such termination including without the limitation of the
provisions of clause-8, 9, 10, 12, 13, 15, 16, 18, 20 and 21.
Clause-11 thereof also provides that the second to fourth
respondents shall not seek employment with a company whose
business competes with the first appellant's business. Apart
from the fact that clause-19 does not specifically record that
clause-11 will survive after termination of the employment
agreement and the fact that Section-27 will be applicable, it is
very difficult to come to a prima facie conclusion that 'The
Morning Context' is a competitor of the news platform of the first
appellant. There is not even a prima facie material placed on
record for holding that "The Morning Context" was a competitor of
the first appellant's news platform. Moreover, it is not established
that any information which is a confidential information of the first
appellant was received by the first to fourth respondents and that
the same was used by them which caused detriment or prejudice
to the first appellant or any other persons to whom the first
appellant intended to protect.
60. On careful evaluation of the pleadings, submissions made
across the Bar and the materials placed on record, it is not
possible for this Court to conclude that a prima facie case is
made out by the appellants for grant of an order of temporary
injunction.
61. As regards balance of convenience and irreparable loss
caused to the appellants, it is necessary for this Court to make a
reference to the prayer clauses (F), (G), (H) and (I) of the plaint.
The said prayer clauses contains the following prayers:
"(i) A decree, directing the first respondent (defendant
No.1) to refund a sum of Rs.30,00,000/- to the
appellants Nos.2, 3 and 4 (along with permissible
interest under Interest Act, 1979) from 31st July 2019
until the eventual repayment;
(ii) A decree against the first respondent, directing him
to pay a sum of Rs.50,00,000/- towards liquidated
damages owed to the appellant/Plaintiff;
(iii) A decree, directing the fifth and sixth respondents to
pay a sum of Rs.50,00,000/- jointly and severally to
the first appellant as damages owed to the appellant
No.1;
(iv) A decree, directing the fifth and sixth respondents to
pay a sum of Rs.1,00,00,000/- joint and severally to
the first appellant/Plaintiff No.1, for the unauthorized
use of first appellant's confidential information."
The prayers made as above clearly indicate that the alleged loss
which may be caused to the appellants due to the alleged
breaches of restrictive covenants of various agreements by the
respondents can be always compensated in terms of money.
Hence, prima facie, the appellants have failed to substantiate that
the balance of convenience lies in their favour and irreparable
loss will be caused to them if temporary injunction as prayed is
not granted.
62. After having gone through the impugned Judgment and
order, there may be some substance in the contention urged by
the learned counsel appearing for the appellants that the
documents and the submissions have not been fully considered
by the trial Court. However, we have re-examined the entire
case pleaded by the appellants and have recorded the findings as
above. The impugned Judgment and order is a discretionary
order. The ultimate conclusion drawn in the same cannot be
faulted with.
63. In view of the above discussion and for the foregoing
reasons, we find that the impugned Judgment and order dated
22nd October, 2020, passed by the learned LXXXIII additional City
Civil and Sessions Judge (CCH-84) at Bengaluru in the
commercial original suit No.362/2019, rejecting the interlocutory
applications (IAs) II, III, and IV filed by the appellants under Rules
1 and 2 of Order XXXIX of CPC, for grant of temporary injunction
does not warrant interference at the hands of this Court.
64. Accordingly, we pass the following:
ORDER
(i) The appeal is accordingly dismissed with no order as to the
costs;
(ii) We make it clear that the findings recorded in this
Judgment are only tentative and prima facie findings for
limited purposes of dealing with the issue of grant of
interim relief and the learned Judge of the Commercial
Court shall decide the suit on merits, uninfluenced by
any of the observations made in this judgment as well
as in the impugned judgment and order.
Sd/-
CHIEF JUSTICE
Sd/-
JUDGE
VR
