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2020 Supreme(Mad) 760
IN THE HIGH COURT OF JUDICATURE AT MADRAS
M. GOVINDARAJ, J.
M/s. Life Cell International Private Limited, Represented by its Company Secretary D. Mahesh, Chennai - Petitioner
Versus
Vinay Katrela - Respondent
O.A. Nos. 599 & 600 of 2018
Decided On : 20-08-2020
For the Petitioner:Ravikumar, Senior Counsel for M/s. Paul & Paul, Advocates.
For the Respondent:Rajadithya Sadasivan, Advocate.
Reasonableness of non-compete and non-disclosure clauses, protection of trade secrets, prevention of irreparable harm, and enforcement of arbitration for dispute resolution.
Headnote:
Arbitration and Conciliation Act - Injunction - Section 9(ii)(c)(d)(e)
Fact of the Case:
The applicant sought an interim injunction against the respondent, a former franchisee, for competing with the applicant's business and divulging confidential information after termination of the Franchise Agreement. The respondent denied the allegations and contended that the non-compete and non-disclosure clauses were void and unenforceable. The respondent also alleged that the applicant's business decline was due to a change in policy.
Finding of the Court:
The court found that the applicant was entitled to protection of its trade secrets and business interests. It granted an interim injunction to prevent irreparable damage to the applicant and directed the parties to resolve the dispute through arbitration.
Issues: Enforceability of non-compete and non-disclosure clauses, alleged breach of Franchise Agreement, decline in applicant's business, and violation of the Transplantation of Human Organs and Tissues Act, 1994.
Ratio Decidendi: The court relied on legal principles from various judgments to determine the reasonableness of the non-compete and non-disclosure clauses, emphasizing the protection of trade secrets and the prevention of irreparable harm to the applicant's business.
Final Decision: The court allowed the original applications and granted an interim injunction in favor of the applicant, directing the parties to resolve the dispute through arbitration.
ORDER :
(Prayer: Original Application filed under Order XIV Rule 8 of Original Side Rules read with Section 9(ii)(c)(d)(e) of the Arbitration and Conciliation Act, 1996 with a prayer to grant (i) an order of interim injunction restraining the respondent, its Directors, it associates, partners or employees or relatives of such Directors or employees and professional consultants from in any manner competing with the business of the applicant by any business of similar to that of the applicant's business pending final adjudication of the disputes between the applicant and the respondent through arbitration; (ii) an order of an injunction not to divulge any information in relation to the applicant's affairs or business, method of carrying on business and any other trade secrets for a period of two years from the effective date of termination of the said Franchise Agreement dated 01.10.2016 pending final adjudication of the disputes between the applicant and the respondent through arbitration.)
1. The applicant has approached this Court for the relief of injunction as per Section 9 (ii) (c) (d)(e) of the Arbitration and Conciliation Act, 1996.
2. The applicant is in the business of testing, processing, preserving and storage of Umbilical Cord Stem Cells collected at the time of birth of the child. The applicant had centres / branches all over the Country and run on its own and through its own centres and also through independent franchisees. The respondent is one of the franchisees to run the centre at Bengaluru on a non-exclusive basis for a period of three years from 01.10.2016. The parties have entered into a Franchise Agreement dated 01.10.2016 at Chennai. The relevant clauses in the said Agreement pertaining to the present applications are as under:
“Restraints:
Clause 11.3: The Franchisee shall not directly or indirectly contract with the various vendors of the company during the term of this agreement and for a period of two years thereafter. Breach of this clause will be treated as a material breach and the company reserves the right to terminate the agreement and also claim such compensation as it may deem fit from the franchisee in the event of a breach thereof.
Clause 11.5: The Franchisee hereby agrees and undertakes that they will not at any time whether during the continuance of this agreement or at any time after the termination thereof, divulge any information in relation to the company's affairs or business, method of carrying on business and any other trade secrets that the Franchisee may have come to know while dealing with the company and keep the same confidential. The Parties hereby agree that the obligations under this clause shall survive this agreement.
Non-compete:
Clause 12.1: During the term of this agreement and for a period two (2) years following the expiration, non-renewal or other termination of this Agreement, the Franchisee, any of its associates or partners or relatives, any of its Directors or employees or relatives of such Directors or employees and professional consultants shall not compete with the Company by conducting or involving in any manner in any business of similar nature as that of the company's business. To the extent that this covenant “not to compete” is determined by any court of competent jurisdiction to be unduly broad in scope or application, it is the intention of the parties in the said event that this covenant “not to compete” be interpreted to the broadest extent legally permissible and that this covenant “not to compete” shall not be deemed unenforceable in its entirety. The Franchisee shall also not employ or cause to be employed any personnel of the company either during the term of the agreement or within two years after termination of this agreement, or that of any other Franchisee in the business or any of the Company's vendors or Clients, without the prior written approval of the Company. In case of any breach, with respect to this clause, the Company reserves the right to c
