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2012 Supreme(Mad) 2878

High Court of Judicature at Madras
R. SUBBIAH
Petitioner
Versus
Respondent
Original Application Nos.356 & 357 of 2012 & Application No.2352 of 2012 in Civil Suit No.292 of 2012
Decided On : 10-07-2012

Headnote:

Non-Disclosure Agreement - Trade Secrets - Contracts Act - Sections 36(1)(c) and 55 of the Partnership Act - Non-solicitation Clause

Fact of the Case:

The plaintiff, a leading global OEM, entered into a Non-Disclosure Agreement with the defendant, a vendor for manufacturing heat resistant castings for the cement industry. The defendant violated the agreement by directly approaching the plaintiff's customers and entering into contracts with them, resulting in a loss of sales for the plaintiff.

Finding of the Court:

The court found that the non-solicitation clause in the agreement could only be enforced during the period of the contract and not after its expiry. As the contract had expired, the court held that the plaintiff's reliefs were not maintainable and dismissed the applications.

Issues: Enforceability of non-solicitation clause after the expiry of the contract period.

Ratio Decidendi: The court held that negative covenants, including non-solicitation clauses, can only be enforced during the period of the contract and not after its expiry.

Final Decision: The applications were dismissed as the court found that the non-solicitation clause in the agreement could not be enforced after the expiry of the contract period.

Judgment :-

R.SUBBIAH, J.,

1. These two applications are filed by the applicant/plaintiff to pass an order of interim injunction restraining the respondent/defendant from directly or in its capacity as subcontractor to any of the competitors of the applicant, taking orders from any of the customers of the applicant and also from disclosing any confidential information, including know how, trade secrets, business and commercial information, which has been furnished to the respondent by the applicant, to any third parties.

2. The case of the applicant, in brief, is as follows:

The applicant/plaintiff is a leading global OEM (Original Equipment Manufacturer) and has been supplying cement plant machinery, spare parts and services to various customers in India and globally for the past 128 years. The applicant and its sister concerns supply the cement and mineral industries globally with everything ranging from engineering, single machines and complete processing plants, to maintenance, support services and operation of processing facilities and they have developed a vast global pool of specialised engineering resources that is unique to the cement industry. Continuous research is the cornerstone of the applicant's growth, with special emphasis on use of alternative fuels, reducing emissions and waste, improving heat recovery, decreasing power consumption, minimising water consumption, increasing plant capacity, availability and operating efficiently and minimising safety risks. The applicant, being a part of an international conglomerate, its Research and Developmental activities take place globally in various centres of excellence. The conglomerate's Dania test centre in Denmark is the cement industry's largest with laboratories and pilot testing facilities for global projects, including a broad range of emissions and environmental solutions for new and existing plants. The customer base of the applicant is wide ranging and includes reputed players in the cement industry, such as Madras Cements Ltd., Chettinad Cements, Binani Cements Ltd., JK Lakshmi Cements, ACC Limited, Ambuja Cements, Rain Cements, Dalmia Cements, Ultratech Cements Ltd., etc.

3. It is the further case of the applicant that in the course of its above detailed business activities, the applicant had developed the respondent as a vendor for manufacturing heat resistant castings, such as dip tubes/casted central tubes, kiln outlet sector, Inlet sectors etc., for the cement industry and supplying the same to the customers of the applicant. These castings were to be manufactured by the respondent strictly in accordance with the specifications and requirements of the applicant. Apart from this, the respondent were also manufacturing various connected ancillaries such as grizzly bars, parts of cast central tube, namely, hanger elements, top elements, etc. Several proprietary information and material belonging to the applicant, such as technical and manufacturing drawings, material specifications and documents containing knowhow, created specifically by the applicant were furnished to the respondent. The respondent's mandate was to use these drawings/prototypes to manufacture the final product, after approval of the model by the applicant, and to supply the same to the applicant for final supply to the end-user.

4. It is the further case of the applicant that to protect the confidentiality and secrecy associated with the applicant's trade secrets due to their innovativeness and high commercial significance, the applicant had entered into a Non-Disclosure Agreement dated 22.05.2006 with the respondent. Subsequent to the execution of non-disclosure agreement, the applicant passed on several vital proprietary information including technical drawings, trade secrets, quality requirements and means/ways to achieve the required quality for the part/product and information pertaining to its customers, to the respondent. The respondent started manufacturing different parts fo




























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