Polaris Software Lab. Limited vs Suren Khiwadkar

R. Banumathi, J.—The plaintiff Company - Polaris Software Lab Ltd., is a software Company in India, having its offices all-over the country

and also throughout the world. According to the plaintiff Company, it has taken several steps in its business for rapid growth of Software

Industries. The plaintiff Company engaged the services of the defendants, whose services were terminated in the month of April, 2003. Now

temporary injunction is sought for restraining the defendants from committing any act in breach of the Undertaking dated April 25, 2002;

ii) restraining the defendant from divulging any information and confidential information and maintaining confidentiality;

iii) Also restraining them from giving out any adverse publicity to the media. Earlier by order of this Court, dated April 17, 2003, ex parte interim

order of injunction was granted.

The details of the Original Applications are as noted below:

O. A. 374 of 2003 Interim injunction from disclaiming any confidential information to third

party. Interim injunction granted by common order on April 17, 2003

O. A. 373 of 2003 For interim injunction restraining the respondent from committing any

act in breach of undertaking dated April 25, 2002.

O.A. 375 of 2003 For interim injunction from giving out any adverse publicity to the

media. Interim injunction granted.

O. A. 376 of 2003 For interim injunction from committing any act in breach of the

undertaking. Interim injunction granted.

0.A. 377 of 2003 For interim injunction restraining the respondent, from disclosing any

confidential information to third party.

O.A. 378 of 2003 For interim injunction from giving out any adverse publicity to the

media.

In all these applications, we are concerned with the common points:

Is the covenant embodied in the Appointment and Undertaking can be enforced during the post service period and after the termination of services

of the defendants:

Since this common point for determination arises in all the. applications, all the applications were heard together and disposed of by this Common

Order.

Plaintiff''s Case

Plaintiff Company has appointed Harpal Singh Duga, (Defendant in C. S. No. 310 of 2003) as Director Strategic Initiatives. Likewise, Suren

Khirwadkar (Defendant in C.S.No. 311 of 2003) was appointed as Director, Marketing & Sales), with effect from April 10, 2002 for a period of

three years with annual salary of nearly Rupees Sixty lakhs and other benefits. Like in a case of contract of employment, at the time when the

defendants were appointed, they have given a Letter of Undertaking to sign Confidentiality Agreement, Non-disclosure Agreements. Defendants

have also undertaken that during the period of employment, they would not work directly or indirectly for any other person. They have also

undertaken to bestow their undivided attention to the plaintiff Company.

Owing to differences and alleging that the defendants have not discharged certain obligations and further alleging that their conduct is unethical

and irresponsible, they were terminated from employment with effect from April 9. 2003. Alleging that the defendants had privy to highest

confidentiality of the plaintiff Company and details of business, the plaintiff Company claims that the defendants are under obligation to maintain

confidentiality in respect of the information and negotiations which the defendants have knowledge. According to the applicant/ plaintiff, if any such

information is published or the confidential information is divulged, it would cause serious, irreparable hardship to the plaintiff Company. Claiming

that the pima facie case and the balance of convenience are in their favour, plaintiff Company has filed application for grant of interim reliefs

(i) restraining defendants from committing any act in breach of Undertaking;

(ii) restraining the defendants from disclosing any confidential information;

(iii) restraining them from giving out any adverse publicity to the media.

Defendants'' Case:

Denying the averments in the plaint and in the affidavit, both defendants have filed counter affidavit contending that the reliefs sought for are

imaginary and misconceived. The plaintiff has filed the suit with mala fide and oblique motives in order to defame and cause considerable damage

to the reputation of the defendants and pre-empt them from clarifying misconception caused on account of press statements issued by the

Chairman and Managing Director of the plaintiff Company. Even while the defendants were making arrangements to issue necessary clarification to

the press release, the plaintiff has approached this Court and obtained injunction, thereby preventing defendants from explaining their position. The

interim reliefs sought for in these applications are liable to be rejected, since there is no more relationship between the plaintiff and defendants.

Defendants cannot be perpetually injuncted on, the lines as sought for in the applications.

Reiterating the averments in the affidavit, learned counsel for the plaintiffs submitted, that the defendants having had privy and highly confidential

information of the plaintiff Company and having undertaken to treat all the information as secret and that they would not disclose or divulge them,

they are to be necessarily injuncted. It is further submitted that though the suit is for permanent injunction, for enforcing the negative covenant

impliedly the suit is only for specific performance. Learned counsel has drawn the attention of the Court to Niranjan Shankar Golikari Vs. The

Century Spinning and Mfg. Co. Ltd., and submitted that if, on the principles laid down by the Supreme Court, the defendants are not injuncted and

if the confidential information is divulged, the same cannot be compensated, in terms of money. Drawing the attention of the Court to Section 38(1)

of the Specific Relief Act, learned counsel further submitted that when there is breach of obligation by the defendants, the Court is to extend its arm

protecting the interest of the plaintiff and particularly when it is making every efforts for its growth and impetus in respect of Softwares.

Taking serious exception to the very maintainability of the suits and that the relief sought for, learned counsels appearing for the defendants

submitted that the prayer in the suits and the applications are imaginary and unexecutable. Placing reliance upon Niranjan Golikari v. Century

Spinning and Manufacturing Ltd. (supra), and other decisions, learned counsel submitted that the breach of contract and the maintainability of the

confidential information could have been enforced only during the course of the employment and cannot be enforced and implemented after the

termination of the employment. It is further submitted that while an employee has implied obligation towards the employer during the subsistence of

the Contract, there is no such obligation after termination of service. Further the suits and theapplications are seriously assailed on the ground that

they suffer for want of cause of action.

Countering the arguments of the plaintiff, on behalf of the defendant it is submitted that the E-Mail sought to be relied upon by the plaintiff the

cause of action for the suit, it is submitted that E-Mail was sent by the defendant only after the News Item figuring in the ""Economic Times"" on

April 17, 2003. In any event, it is submitted that a Negative covenant cannot be enforced and as per Section 41(h) of the Specific Relief Act, the

only efficacious remedy available to the plaintiff is to sue for damages in case of any proved breach of obligation.

Clauses 7, 8 and 9 of the Undertaking, which refer to the Undertaking to sign Confidentiality Agreements and Non-disclosure Agreements

which read thus:

I shall treat all information I receive during my services in the company, its subsidiaries, as well as its clients as secret and shall not disclose any

information to any person without the written permission of my head of the department.

I further undertake to abide by all the laws if including the special laws relating to Information Technology, Intellectual Property Rights and such

other Data Processing Laws of the country wherever I am posted. I shall get myself acquainted with the laws of the country wherever I am posted

and I shall never claim that I was never aware of such laws.

I undertake to sign Confidentiality agreements, Non-disclosure agreements or the like when called upon by Polaris at Periodical interval, and/or

when the Polaris client or the representatives of the Polaris''s client so desire"".

It is, the abovesaid covenants which are now sought to be enforced. It is not known whether, as per the Undertaking, in Clause 7 whether the

Confidentiality Agreement and Non-disclosure, Agreements, were actually signed by the defendants or not. Suffice it to point out, the relief sought

for enforcing the above covenants is couched in unclear terms under three reliefs as indicated above.

Upon careful analysis of materials available on record, the following common points arise for determination in -these applications:

(i) Are the respondents ought to be injuncted as sought for in the applications? And

(ii)'' Can the said negative covenants as sought for by the plaintiff be enforced, particularly, after termination of employment? are the short points

that arise for determination.

Before going into the legal submissions, even at the outset, the glaring unfairness in the conduct of the plaintiff Company in approaching this

Court to obtain an ex pane interim order could be pointed out. The defendants are not ordinary persons. They are highly reputed and experts in

their respective fields. Defendants were appointed as higher level Executives in the plaintiff Company as Director - Marketing & Sales and the

Director Strategic Initiatives for a higher salary of Rupees sixty lakhs per annum. Owing to differences and for other reasons, their services were

terminated by the plaintiff Company with effect from April 9, 2003. The issue of termination and thereafter any further dispute arising between the

employer, and the employee are purely personal and ought to have been the private correspondence between them. But from the available

materials, it is seen that the matter was made public by going to the press by publishing the News Item in Economic Times on April 17, 2003 as

Two Top executives of Polaris BPO Unit to go"".

News Item came up under the Head, ""Bottomline: Performance & Efficiency most sacred"". Further the news reads:

The sudden development has followed a ''performance review'' by the Board of Polaris. According to sources, the top management of Polaris

was unhappy with the performance of the team behind the BPO initiatives"".

Whatever be the intention in the above News Item, the news must have obviously done the maximum reputational damage to the defendants, who

were the top level Executives in the plaintiff''s Company.

The News Item being published in the Newspapers, definitely, the defendants had the right to explain the situation. The basic fairness requires

such self explanation for such damaging News Item. The defendants in their E-Mail rightly called upon the plaintiff to issue clarification without

further delay. Further defendants in their E-Mail expressed their desire to give their self explanation. But the plaintiff company has filed the present

suits on the same day i.e. on April 17, 2003 and obtained the order of interim injunction.

(i) restraining defendants from disclosing any confidential information to any third party; and

(ii) restraining defendants from giving out any adverse publicity to Media.

The order of interim injunction of this Court, obviously, prevented the defendants from holding the proposed conference on April 17, 2003: at 5.00

p.m. explaining their position.

No doubt, after the News Item, defendants have sent the E- Mail stating that they have proposed to hold a meeting at 5.00 p.m. on April 17,

2003 explaining the position and sharing the facts however unpalatable they may be to the plaintiff. Further because of the prior E-Mail

correspondence between the parties there might have been an apprehension in the mind of the plaintiff that the defendants might reveal some

confidential information. But, merely such apprehension itself does not entitle the plaintiff to obtain the order of temporary injunction.

Before going into the merits and facts of the case, I am constrained to express my views on the grant of interim injunction. The Courts ought to

be wary and extremely cautious in exercising this delicate jurisdiction in granting the order of injunction. In relation to the grant of interim relief of

the nature of injunction and state that the power given to Court under Order 39, Rules 1 and 2 of the CPC is not to be taken as an unbridled

power to grant injunction in any case. The Court should remember that an injunction is not innocuous. It very often visits the party against whom it

is passed with very evil and serious consequence. Injunctions sometimes put people out of possession of property. They at times unsettle the

normal functioning of things. These orders very often remain in force for rather long period due to congestion in Courts.

Freedom of speech is a natural right of democratic Institution. This is all the more so, in the present competing consumerists/ competing world

of business. When a damaging News Item was published in the Newspaper, the defendants, executives had every right to offer their explanation.

Any attempt to stifle or gag the right of their explanation, would be unfair and unjust. It is unfortunate that the order of the Court was taken on the

same day i. e., April 17, 2003 itself in silencing the defendants. The Courts are only to protect the liberty of an individual. The attempt to stifle that

right by an order of Court, is to be frowned upon. However, this Court, in the initial stage of considering the prima facie case and balance of

convenience, I do not propose to go any further deep on this aspect.

As noted earlier, admittedly, injunction is sought for against defendants:

(i) from committing any act of breach on Undertaking;

(ii) from disclosing any confidential information;

(iii) from giving out any adverse publicity to the media.

The affidavit and the plaint averments are not clear as to the nature of confidentiality of the information which the defendants have gained and that

information which they sought to divulge. The averments in para 6 of the plaint vaguely states that the defendants had ""privy"" to highly confidential

information of the plaintiff Company and also ""privy"" to the future business strategies and the negotiations it had with the target companies. Those

averments are obscure and unclear. Equally, the information which the defendants seek to divulge is not made clear. The Court could grant

temporary injunction restraining defendants only on definite terms. If the covenant is obscure and unclear, granting of temporary injunction would

only further complicate the issue between the parties. If the interim injunction is granted on the lines sought for in the applications, the feasibility of

the parties misinterpreting the same, cannot be ruled out. In my view, the relief sought for by the plaintiff Company is obscure and unclear. What is

the nature of information which the defendants have gained and what part of information that the defendants are attempting to divulge is unclear.

The confidentiality and the information which a person has gained in his mind is purely subjective and cannot be decided by the objective

assessment. Since the injunction sought for is vague, and unfair, in my view, the plaintiff Company is not entitled to temporary injunction sought for.

The Agreement of Undertaking and the confidential Agreement, Non-disclosure Agreement is valid and could survive only during the

subsistence of the contract and course of employment; The distinction between the restraints imposed by a contract operative during the

subsistence of the contract of employment and those operative after the termination of service is of fundamental character. The purpose, incidents

and consequences of the two types of restraints need to be borne in mind before proceeding to consider the submissions made by the counsel for

the plaintiff who seeks for a restraint as claimed in the applications.

Learned counsel appearing for defendants submitted that in view of Section 42 of Specific Relief Act, such negative covenant cannot be

enforced after the termination of services. It is also submitted that when the plaintiff Company has not clearly indicated the area, the time and the

terms, on which the defendants have to be injuncted, any grant of temporary injunction would be unreasonable.

Niranjan Golikari v. Century Spinning and Manufacturing Ltd. (supra) arose out of a contract of employment for five years. Niranjan Golikari

left the services four years before the expiry of his contract, whereupon the Century Spinning & Mfg. Co. Ltd., filed a suit for enforcing the

negative covenant. Clause 6 of the contract obliged the defendant, Niranjan Golikari, to devote whole of his time and energy to the business of the

plaintiff ""during the period of his employment"". Clause 17 restrained him from engaging in or carrying on competing business or serving in any

capacity with an employer engaged in competing business. The Judgment of Supreme Court in Niranjan Golikari Case reveals following facts:

(i) The injunction sought by the plaintiff was confined to the period ending March 15, 1968 which was the last day of the five years'' term of the

contract, (paragraph 5 of the report page 1100)

(ii) The Supreme Court was considering the restraint of trade during the term of the contract, (para 6 page 1100)

(iii) The Supreme Court observed that the restraints, if reasonable, are valid.

These observations of the Supreme Court have been strongly relied upon by counsel for the plaintiff in support of his argument. But a close look at

the facts of the case and the judgment of the Supreme Court will reveal that the Supreme Court was considering a case which was very much

different from the present case. The result of the discussion of the Supreme Court has been summarised in para. 15 of the Report at page 1104:

(i) The considerations against the restrictive covenants are different in cases where the restraint is applied after termination of the contract.

(ii) The restraints during the period of the contract ""are generally not regarded as restraints on trade"" and, therefore, are outside Section 27.

(iii) The restrictions operating during the term of the contract may be void if they are excessively harsh or unconscionable;

(iv) The negative covenant ""in the present case restricted as it is to the period of employment"" was unreasonable"".

Thus the judgment of the Supreme Court is emphatic in its conclusion, that in India, the restraints are operative only during the subsistence of the

contract and the restraints could be valid only during the period of contract. The negative covenant in maintaining the confidentiality of the

information and the negative covenant during the subsistence of the Contract are essential to fulfillment of the contract. In Niranjan Shankar

Golikari Vs. The Century Spinning and Mfg. Co. Ltd., , the Supreme Court was only considering the validity of the negative covenant during the

period of the contract and the negative covenant cannot operate after the termination of the contract, that too, perpetually, as sought for by the

plaintiff in this case.

In Superintendence Company of India (P) Ltd. Vs. Sh. Krishan Murgai, the Supreme Court had an occasion to deal with the post-service

restraint. Clause 10 of the Contract of employment placed the employee Krishna Murgai under post-service restraint that he shall not serve in any

other competing firm for two years at the place of his last; posting. Clause 10 was operative for a period of two years ''after you left the company''.

The services of the employee were terminated by the employer. The single Judge of the Delhi High Court held that the restraint of two years after

the service was reasonable. Mr. Justice A.p.sEN in para 18 of his judgment concluded that the negative covenant against working during the term

of the contract is not in restraint of trade and that the doctrine of restraint on trade never applies during the continuance of the contract. The

substance of the decision of Mr. Justice A. P. sEN on the question of validity of post-service restraint is this.

(a) Section 27 of the Indian Contract Act is a statutory recognition of the English doctrine of restrain on trade.

(b) Once statutorily enacted, the rule must be interpreted on the basis of the language of the statute uninfluenced by ""the manner in which the

analogous provision comes to be construed... in order to bring the construction within the scope and limitations of the rule governing the English

doctrine of restraint of trade"".

(c) Whether an agreement is void u/s 27 of the Contract Act must be decided upon the wording of that section. All agreements in restraint of trade

are void. The only exception is in exception No. 1.

(d) Section 27 of the Contract Act does not admit, of the test of reasonableness unless the case falls within the exception.

(e) Section 27 has wiped out the distinction between partial and total restraint and declares all restraints void unless covered by the exception.

(Vide Taprogge Gesellschaft MBH Vs. IAEC India Ltd., .

Thus in this case, though the Supreme Court has held that the post service restraint was found to be reasonable in the factual circumstances, that

restraint was only for a period of two years after the employee left the company. That decision of the Supreme Court cannot be invoked in the

instant case, to impose total restraint upon the defendants from committing any act in breach of Undertaking.

Contending that the principle of law of fidelity and good faith are common to the employee''s continuing employment and post employment

obligations, learned counsel for the applicant/plaintiff relied upon the following passage from COMMERCIAL SECRECY LAW AND

PRACTICE by JOHN HULL 1998 Edition Page No. 203:

Each employee owes an implied contractual duty of fidelity and good faith to his employer. This implied duty, the origins '' of which were

examined in Chapter 6, survives termination of the Contract of Employment as a duty of confidentiality in order to protect the employer''s rights in

his commercial secrets. The reasoning is clear: whilst the employment may terminate, the secrecy of the information does not terminate. The

employer''s interest, in maintaining and preserving the confidentiality of his secrets against misuse or disclosure will endure whatever happens to the

employee.

The enforcement of such negative covenant in the post employment period may be enforceable in England.

Learned counsel for the defendants rightly placed reliance upon Section 42 of the Specific Relief Act that approach cannot be adopted in

India. More so, in the instant case, where the defendants are top Executives, who are necessarily to be profitably be employed in any other place

sharing their expertise. Plaintiff Company cannot seek to injunct them perpetually from committing any act in breach of Undertaking in the Post

Service Period.

It is not as if the plaintiff Company has sought for temporary injunction on the lines in Krishna Murgai case (supra) seeking to restrain only for a

limited period. The injunction sought for is neither for a specific period nor for a reasonable period. The single Judge of the Bombay High Court

has dealt with the clause of Contract of Employment and restraining the defendant from divulging, information, after resignation of the employees.

In 2003 (1) MR.L.T 398 it was held:

Plaintiff employed defendant for designing development and screening work-Secrecy Clause of contract employment restraining defendant from

divulging information and material pertaining to thick film hybrid micro circuits. Clause in question cannot be enforced once resignation of defendant

employee was accepted and he was not in service of plaintiff AIR1967 SC 1268 and Taprogge Gesellschaft MBH Vs. IAEC India Ltd., relied

upon.

On the principles laid down in Niranjan Golikari v. Century Spinning and Manufacturing Ltd. (supra) and Krishna Murgai v. State of Bombay

(supra). I am of the view that while reasonable restriction could be placed on an employee in the post employment period, only by express

agreement negative covenant could only be restricted to the period of employment while in service. It cannot be extended beyond the period of

employment. Beyond the service period, it could only be restricted for a reasonable period, that too onlyby express agreement/undertaking

incorporated in the Contract of Service. Temporary injunction on the lines sought for in the applications cannot be granted as the relief sought for is

unreasonable, uncertain and unclear.

We may briefly refer to the fact whether the plaintiff had any definite cause of action for filing the suit on April 17, 2003. Para. 8 of the plaint

deals with reference to the cause of action as (i) date of appointment; (ii) date when the defendants had given Undertaking to the plaintiff; (in) April

9, 2003 when the termination notice was issued to the defendants. Para. 8 of the plaint does not refer to any specific instance which compelled the

plaintiff to approach the Court seeking for an order of injunction. E-Mail sent by the defendants is now sought to be relied upon as the main cause

of action for the suit. No doubt, the E-Mail sent by the defendants is in harsh language. The defendants stated thus:

We must ask you to issue clarification without any further delay. If we do not hear from you by 5.00 p.m. today, we will be constrained to share

the facts, however unpalatable they may be to you. We may also have to bring some issues of corporate governance to the attention of Citicorp.

The above E-Mail correspondence refers to ECONOMIC TIMES report as noted below:

Sub: Economic Times Report: Demand for Stoppage of Malicious and Damaging Campaign against Harpal and Suren.

Obviously, the above E-Mail must have been sent by the defendants on seeing the ECONOMIC -TIMES Report. (April 17, 2003) The time of

E-Mail must be either the midday or the end of the day; while the suit must have been filed even on the morning of April 17, 2003 and the interim

injunction was obtained. Therefore, the above E-Mail cannot be said to be forming a part of cause of action for the plaintiff to institute the suit.

The interim order/Temporary injunction is of drastic character which has the great potential for mischief. Mere apprehension of interference

with legal right does not entitle the applicant/plaintiff to an injunction. Mere inconvenience to a party is not enough to entitle the party to an

injunction. Violation/ encroachment of right must be of a substantial character. No such violation of right of substantial character is made out by the

applicant/plaintiff The terms of temporary injunction sought for are unclear. Granting temporary injunction would only be upsetting the normal

professional life of the defendants, preventing them profitably being employed anywhere. Further, the grant of temporary injunction would virtually

amount to decreeing the suit. In conclusion, I am of the considered view that it shall not be proper to extend the discretionary power to grant

interim injunction to the applicant/plaintiff.

In a well considered judgment Division Bench of this High Court held that the interlocutory injunction could be refused on ground of

comparative convenience. Holding that if the Covenant is obscure and the breach doubtful, the Court would not interfere in Multichannel (India)

Limited Vs. Kavitalaya Productions Pvt., Limited, 17-A Karpagambal Nagar, Mylapore, Chennai-4 and two others, held thus:

It is not in every case of breach of contract or covenant that the Court will interfere by way of injunction. In exercising its jurisdiction by way of an

interlocutory injunction, the Court acts upon the principle of preventing irreparable injury. If a covenant is clear and serious injury is likely to arise

from the breach, the Court will interfere before the hearing to restrain the breach, but if the covenant is obscure or the breach doubtful, and no

irreparable damage can arise to the plaintiff/appellant, then the question resolves itself into a question of comparative injury, whether the defendant

will be more damnified by the injunction being granted or the plaintiff by its being withheld. Mere interference with a legal right does not, however,

ipso facto entitle a plaintiff to an injunction and mere inconvenience is not enough to entitle a party to an injunction. There must be violation of an

enforceable right and the violation must be of a substantial character. An injunction will not be granted where the plaintiff has a remedy by way of

damages. The injury must irreparable and it must be continuous. By the term irreparable injury is meant injury which is substantial and could never

be adequately remedied or atoned for by damages, injury which cannot possibly be repaired. If, however, by the conduct of the appellant having

regard to the nature of transaction being commercial and the injury complained of is one which may in some way be compensated by money, the

Court may decline to grant the injunction"".

The above principle squarely applies to the case in hand. Even if the defendants given any act against the interest of the Plaintiff Company,

damages could be quantified at the later stage. Balance of convenience lies only in favour of the defendants.

As discussed earlier, the conduct of the applicant/plaintiff in approaching the Court on April 17, 2003 and obtaining the order of interim

injunction restraining defendants from giving any confidential information to any third party and any adverse publicity to the media, is not

appreciable. Learned counsel for the defendants insisted upon awarding of exemplary damages. I refrain from going into that aspect since the suit is

yet pending and the parties are yet to go on trial. It is too premature to consider the issue of awarding exemplary damages to the defendants.

Before concluding, it is made clear that any opinion expressed in this order is only tentative and only for the purpose of disposal of these

applications. They do not in any way affect the rights of the parties while parties go on trial.