Enforceability of non-compete clauses and confidentiality agreements

S. Rajeswaran, J.

1. This Original Application has been filed for an order of interim injunction restraining the respondent from in any manner disclosing or using the confidential information of the applicant by carrying on directly, or indirectly any business which is of competing nature, contacting the applicant's customers or employees and thereby interfering with the applicant's business, pending arbitration of the disputes between the parties.

2. The brief facts as culled out from the affidavit are as under:

3. The applicant Company is engaged in a very specialized field of business involving unique know-how and technical data and these are peculiar to them. The respondent joined the company as a Scientific Officer in January 2001. Over the years he became an integral part of the senior management team and he was given access to information which are vital for the operations of the applicant's Bangalore Genie Division namely, product and process know-how, R&D processes, procedures, raw materials sources, quality control etc. On 20-6-2005, respondent entered into a Confidentiality and Non-Compete Agreement with the applicant. At the time of entering into an agreement the respondent was working as Assistant General ManagerResearch and Development. Under the Confidentiality and Non-Compete Agreement, the respondent shall not disclose the confidential information to any person after cessation of employment with the applicant. Similarly the respondent shall not take up any employment or involve himself with any other person or body corporate in the similar field of activity which is competitive in nature with the business of the applicant for a period of 3 years after cessation of employment with the applicant.

4. The respondent submitted his resignation on 17-7-2006. Even though the respondent indicated that his resignation is personal and with a drive to change area of activity, to the shock of the applicant, the respondent is carrying on business which is similar to the business of the applicant by using the confidential information furnished to him by the applicant. The respondent is also soliciting the applicant's employees and is contacting the applicant's customers by using the information obtained from the applicant. The applicant sought reference of the dispute to the arbitration and by letter dated 12-3-2007 sought for appointment of arbitrator in terms of the agreement dated 20-6-2005. Pending initiation of arbitral proceedings the above application has been filed under Section 9 of the Arbitration and Conciliation Act, 1996, hereinafter called 'the Act', for an order of interim injunction.

5. This Court by order dated 15-3-2007 granted an order of interim injunction restraining the respondent from making use of any confidential information that he acquired from the applicant's company and from using the customer's base of the applicant's company.

6. The respondent entered appearance after notice and filed a counter affidavit. The respondent denied all the allegations and it is his specific case that the agreement dated 20-6-2005 is in violation of Section 27 of the Contract Act and the same is unenforceable.

7. Heard Mr. P.S. Raman, learned Senior Counsel appearing for the applicant and the learned Counsel for the respondent. I have also perused the documents filed and the judgments referred to by them in support of their submissions.

8. The learned Senior counsel for the applicant submitted that having signed an agreement willingly containing a non-compete clause, it is not open for the respondent to violate the same and contend that the same is unenforceable. Further, he submitted that the restrictive covenant contained in the agreement is only for a limited period of 3 years and therefore the same is not hit by Section 27 of the Contract Act. The learned Senior Counsel further submitted that having agreed to desist from divulging or disclosing the confidential information, he is dishonestly using the same for the p