Non-compete and non-solicit clauses in a Shareholders Agreement are enforceable and not in restraint of trade.

S. MURALIDHAR, J.

1. This appeal is directed against an order dated 22nd November 2014 passed by the sole Arbitrator in an application filed by the Respondent under Section 17 of the Arbitration and Conciliation Act, 1996 (Act).

2. The backgrounds facts are that the Appellant was employed with the Respondent, a leading digital media company offering communication, social interaction and content to its clients. It is stated that the Respondent provides a platform to enable its clients to interact on SMS, voice, GPRS/3G email etc. An agreement titled “Employee Intellectual Property Protection Agreement was entered into between the Petitioner and the Respondent on 15th October 2008. Clause 13 of the said agreement dealt with 'non-competition' and Clause 14 with 'non-solicitation'. Under Clause 13.1, during the term of the Appellant’s employment with the Respondent and for a period of two years thereafter, the Appellant was directly or indirectly not to engage in, as an employee, associate, consultant, proprietor, partner, director, or otherwise, or have any ownership interest in or participate in any business where such work involved the development or use of similar or identical intellectual property or know-how/trade secrets as that of the company. Under Clause 14 during the term of employment and for a period of two years thereafter, the Appellant was not to directly or indirectly, without prior written consent of the Respondent, solicit, recruit, hire, encourage or induce any employee, director, solicitor etc. to leave the employment of the Respondent or negatively alter their relationship with the Respondent.

3. The Appellant was appointed as an Additional Director of the Respondent with effect from 25th May 2010 and subsequently, as Chief Executive Officer (CEO) of the Respondent on 25th August 2011. On 25th January 2011, a Shareholders Agreement (SHA) was executed between the Respondent (described as the Company); it defined Promoters as a collective term which described three parties i.e. (i) Mr. Gagan Chadha, (ii) the Appellant and (iii) Mr. Vishwadeep Bajaj; and the 'Investors' NEA FVCI Ltd. ('NEA Ltd.) and HAV3 Holdings (Mauritius) Ltd. ('HAV3'). Both NEA Ltd. and HAV3 are companies incorporated in Mauritius. It is not in dispute that in terms of the said SHA, the Appellant subscribed to 2.6% of the equity shareholding of the company. It is stated that as of today his share holding has increased to 4.07%.

4. Under Clause 6.6 of the SHA, except as 'permitted' under Clause 6.3 (dealing with permitted transfers) the Promoters were not to transfer or pledge any equity securities until the earlier of the QIP and the other liquidity event, without the prior written consent of the investors. Clause 7 of the SHA dealt with the “Investor right of first offer. Clause 7.1 stated that subject to Clause 6.6, if the Promoters and/or their affiliates proposed to transfer any equity securities, then the Investors, which included NEA, HAV3 and another Investor company Emergic Venture Capital Private Ltd., would have a right of first offer (but no obligation) with respect to such shares (called the Right Of First Offer securities or ROFO securities). Clause 7.2 laid out the detailed procedure for implementation of the ROFO. Inter alia, it envisaged the Promoters sending a notice to the ROFO transferees informing them of the number of shares (ROFO securities) they wished to sell. Within 30 business days from the date of receipt of the notice, the ROFO transferees had to inform such Promoter of the price and the number of securities they were willing to pay.

5. The SHA also contained a non-compete and non-solicit clause. Clause 14.1 stated that for a period beginning from the date of the SHA and ending two years after, (a) the Promoters and/or their affiliates ceasing to hold any equity securities or (b) the Promoters ceasing to be employed by the company, whichever is later, the Promoters and their affiliates would not engage in, inv