Law Web: Delhi HC: How far can an employer prevent its employees from using the information gained by employees during the course of employment?

26. It is important to examine whether such client lists, even if they are maintained by the Plaintiff, can be deemed proprietary information or trade secrets, deserving legal protection. In this Court‟s view, a client list, by itself, is not automatically protected as confidential information simply by virtue of its existence. To be considered a trade secret or confidential information, the list must have economic or business value that requires safeguarding against competitors.

27. The mere existence of a client list does not confer proprietary rights over it in a way that would prevent former employees from using it, unless there is evidence that the list is compiled through proprietary methods, or that it holds specific commercial value that could harm the business if disclosed. It is also essential to distinguish between information that is generally known or accessible in the public domain and information that is truly confidential, which would merit the protection of an injunction.

28. In this context, while a company may claim that its client list is confidential, the Court must scrutinize whether such information is truly proprietary or whether it simply reflects business relationships that are already in the public domain. If the client details are publicly known or easily ascertainable by competitors, it would be unreasonable to grant an injunction based on a claim of confidentiality.

29. Therefore, the issue at hand is not merely whether the Defendant has knowledge of the Plaintiff‟s clients, but whether that knowledge rises to the level of confidential information or trade secrets that can be protected by legal measures such as an injunction. Without clear evidence that the client list holds economic value and that its use would harm the Plaintiff‟s business interests, the Plaintiff‟s request for an injunction based solely on the existence of a client list cannot be sustained.

30. A competitor, even when aware of which particular entity, individual, or person a business is currently engaged with, has the right to approach such individuals or persons to canvas their own business. It is ultimately the customer's discretion to decide which business or entity they choose to engage with. The mere creation of a database containing client or customer details, followed by a claim of confidentiality over it, does not bestow a monopoly over those customers. Furthermore, even if a person has gained knowledge about the Plaintiff's operational plans, they cannot be restrained from disclosing such plans to a competitor, provided that the information was retained in their mind. The competitor's decision-making cannotbe presumed to have been solely influenced by such disclosure.

31. The Coordinate Bench of this Court in American Express Bank Ltd. v. Priya Puri: 2006 SCC OnLine Del 638, had held that mere knowledge of the plaintiff‟s operational strategies or plans, when carried in an individual‟s mind, does not give rise to an actionable claim for injunctive relief. A competitor may be aware of these plans, but they cannot be automatically considered to have been influenced by them. The plaintiff is not entitled to restrain the competitor from acting based solely on this knowledge.

32. This Court is of the view that the plaintiff has failed to produce any document or evidence demonstrating that Defendant No. 2 was bound by any agreement that prohibited him from carrying on his own business, either during his tenure with the plaintiff company or post resignation from the directorship of the company. Therefore, the alleged use of client information or industry knowledge by the Defendant No. 2 cannot be restrained, as such knowledge does not constitute proprietary information or trade secrets of the plaintiff.

33. It is well-established that non-compete clauses during employment are enforceable; however, post-employment restrictions must be both reasonable and necessary to protect trade secrets or proprietary information. The defendant‟s use of general industry knowledge, gained during their employment with the plaintiff, cannot be prohibited unless it is shown that such knowledge constitutes confidential or proprietary information.

34. The plaintiff‟s contention that the Defendants used confidential

information, including the client details and vendor codes, which were allegedly generated using the Plaintiff‟s client database, is not

supported by any compelling evidence. As held by a Co-ordinate

Bench of this Court, in Manipal Business Solutions Private Limited

v. Aurigain Consultants Private Limited & Ors.: CS(OS) 190/2022, a

director or employee of a company will naturally become familiar

with the company‟s operations and clientele during their employment. This does not, however, grant them exclusive rights to the company‟s customer list or operational details.

35. The Plaintiff‟s claim that certain information is confidential and

proprietary cannot prima facie be termed as such, as much of this

information, including details about clients, business operations, and

event types, is widely available through public sources such as press

releases, social media posts, and public collaborations. As observed by the Co-ordinate Bench of this Court in Manipal Business Solutions Private Limited v. Aurigain Consultants Private Limited & Ors.: (Supra), confidential information must possess distinct commercial value. If information is already in the public domain, it cannot be classified as a trade secret deserving protection. The relevant extract from the judgment is as follows:

“ 37. According to Mr. Mehta, the same include customer

data, agent data, contract data, employee data, market data

and business plans.

38. I may at the outset state here that the plaintiff is not

claiming any copyright in the above information. It is only

claiming that the data is confidential. Even if such an

argument was to be raised, the question would be whether

the above information shall fall within the definition of

Act. This Court in a series of judgments including the

judgment in the case of Navigators Logistics Ltd. (supra),

has in paragraphs 22 to 35, by referring to the judgment of

the Supreme Court in Eastern Book Company v. DB

Modak, (2008) 1 SCC 1, held that to claim copyright, the

author must produce the material created with exercise of

his skill and judgment, which must not be so trivial that it

would be characterised as a purely mechanical exercise.

The Court was of the opinion that the plaintiff therein,

being a juristic person is incapable of being the author of

any literary work in which a copyright may exist, though it

may be the owner of copyright. As the plaintiff had failed to

disclose the identity of the author, it could not claim any

copyright in a list of customers/clients with their contact

numbers.

39. Even the plea of confidentiality taken by Mr. Mehta is

unsustainable, as merely stating that there exists some

confidential and secret information does not convince this

Court that such information is, in fact confidential, more so,

when the plaint and the pleadings do not disclose the nature

of the information / data of which confidentiality is

claimed. I find that no material / document connected with

the aforesaid data / information has been filed by the

plaintiff. In fact this aspect has been accepted by Mr. Mehta

during his submissions.

***

41. It has not been filed nor shown to the satisfaction of this

Court, as to what exactly is the confidential information,

how it is confidential, and how, if at all, the defendant

company has used such information to the detriment of the

plaintiff.

***

44. A reading of the above reproduced paragraphs would

reveal that not every customer/client list would qualify as

confidential information or trade secret unless the

confidentiality about it is of economic/business/commercial

value. It is held that in any employment, every employee

would get to know some information without any special

effort. All such persons cannot be said to be in knowledge

of trade secrets or confidential information and every

knowledge of such facts cannot be labeled as trade secret or

confidential information. If an employee on account of his

employment has gathered some business

knowledge/acumen or ways of dealing with clients, the

same would not be termed as confidential information,

disclosure of which would harm the plaintiff. Unless there

is some material on record to show that the defendant had

come to know of any confidential information / trade secret

concerning the plaintiff and its business, no injunction can

be granted, more so when such trade secret / confidential

information have not even been spelt out. The learned

Single Judge, referring to the decision in American Express

Bank (supra) has observed that a competitor even after

knowing which particular entity/an individual/person is

currently in business with, can approach such

individual/person to canvas about itself, and it is for the

customer to decide which business/entity to choose.

Creating a database of clients/customers and then claiming

confidentiality on it does not create a monopoly over such

customers. That apart, even if a person has amassed

knowledge with regard to the plaintiff‟s plan of operation,

he could not be injuncted from disclosing such plans to the

competitor, if he has carried such plans in his head and even

the competitor could not be said to be driven by such

disclosure alone. I agree with the aforesaid conclusion

arrived at by the Coordinate Bench of this Court.

57. I agree with the conclusion of the Court that a client list cannot be construed as confidential information to claim any right. The judgment relied upon has no applicability. ”

36. It is also established that every employee gains knowledge during the course of their employment, and not all such knowledge can be classified as a trade secret or confidential information. If an employee acquires business knowledge, such as ways of dealing with clients, through ordinary experience, it cannot be considered confidential information. Disclosure of such knowledge would not harm the plaintiff unless it is demonstrated that the defendant had access to specific trade secrets or proprietary information.

37. Therefore, the details of customers, while potentially known to employees of a business, cannot be deemed proprietary or protected trade secrets. Such information can easily be acquired by others through observation, independent canvassing, or minimal effort. It is unreasonable to treat such details as confidential when they are accessible with little effort and at minimal cost.

38. In light of the above, this Court finds that the injunction sought by the Plaintiff would curtail the Defendants' ability to seek future employment or business opportunities. Restricting an individual‟s freedom to seek better prospects, merely on the grounds that they possess information that is readily available or ascertainable, is an impermissible restraint on trade and employment. Such restrictions are contrary to public policy, as enshrined in Section 27 of the Indian Contract Act.

IN THE HIGH COURT OF DELHI AT NEW DELHI

C.S. (OS) 1011/2024

CIGMA EVENTS PRIVATE LIMITED Vs DEEPAK GUPTA & ORS.

CORAM:

HON'BLE MS. JUSTICE SWARANA KANTA SHARMA

Dated: 24.12.2024.

I.A. 48682/2024 (Application under order XXXIX rules 1 & 2 read

with section 151 CPC)

1. The present application under Order XXXIX Rule 1 and 2, read

with Section 151 of the Code of Civil Procedure, 1908 [hereafter

„CPC‟] has been filed on behalf of the applicant/ plaintiff herein,

seeking grant of ad-interim ex-parte injunction in favour of the

plaintiff and against the defendants.

FACTUAL CONTEXT

2. Briefly stated, the facts of the present case as set out in the

plaint and the present application are that the Plaintiff is a company

registered under the Companies Act, 1956, with its registered office at

5, Ground Floor, Gorishanker Market, Pant Nagar, New Delhi110014. The Plaintiff is engaged in the business of event management

services, providing end-to-end corporate event solutions, including air

tickets, transportation, branding, and activation services, among

others. Over the years, the Plaintiff has managed events for prominent

clients such as Intel, Oracle, HP, and the Taj Group, establishing itself

as a reputed name in the event management industry.

3. The Plaintiff alleges that Defendants Nos. 1 to 4, who were its

former employees, acted in collusion with Defendants Nos. 5 and 6,

i.e. the entities incorporated by Defendants Nos. 2 to 4 during their

employment with the Plaintiff, to hijack its business and clientele.

Defendant No. 1 Sh. Deepak Gupta, employed by the Plaintiff from

2017 to September 2020, subsequently started his own event-related

business and became a key vendor for the Plaintiff. Defendant No. 2

Sh. Harshdeep Saini, Defendant No. 3 Mohd. Sazid Khan and

Defendant No. 4 Smt. Giggan Saini senior held positions within the

Plaintiff‟s company, with Defendant No. 2 also serving as an

Additional Director. They abruptly resigned on June 21, 2024, without providing reasons, despite requests from the Plaintiff‟s Managing Director to reconsider the same.

4. The Plaintiff alleges that after their resignations, Defendants

Nos. 2 and 3 engaged in competing business activities and diverted

business opportunities from the Plaintiff. For instance, the Plaintiff

discovered that Defendant No. 3 had organized an event for its client,

I-Ten Media Private Limited, involving revenue of ₹10,00,000/- and

another event previously managed by the Plaintiff worth ₹30,00,000/-.

Moreover, Defendant No. 1 allegedly submitted highly inflated bills

with the collusion of Defendants Nos. 2 to 4. Upon withholding

payment after scrutiny, Defendant No. 1 approached Oracle India Pvt.

Ltd., a major client of the Plaintiff, creating undue pressure on the

Plaintiff to settle the matter.

5. It has also been alleged by the plaintiff herein that Defendants

Nos. 2 to 4 incorporated competing entities, Defendants Nos. 5 and 6,

in 2023 and 2024, with the intent to poach its clientele and business.

These acts, according to the Plaintiff, constituted a breach of

confidentiality and non-compete agreements signed by the

Defendants. The Plaintiff alleges that Defendants Nos. 2 and 3 also

used its intellectual property and goodwill to organize events for its

established clients, thereby causing financial loss and damage to its

reputation. The Plaintiff also claims to have organized significant

events post-COVID, including Oracle's “Dev-Live 2024” event,

generating revenue of ₹2,91,39,828/- which highlights the scale of its business operations and the alleged loss caused by the Defendants‟ actions.

6. Thus, the Plaintiff has moved this Court seeking an order of adinterim ex-parte injunction against the Defendants, restraining them from engaging in activities that infringe upon the Plaintiff's

intellectual property, breach confidentiality and non-compete

agreements, and divert the Plaintiff's business and clientele.

SUBMISSIONS BEFORE THE COURT

Submissions on Behalf of the Plaintiff

7. The learned counsel for the Plaintiff argues that the present

application seeking an interim ex-parte injunction has been moved by the Plaintiff against a grave breach of trust and fiduciary duty by thedefendants. The Plaintiff, a company engaged in the business of event

management, has built a reputable standing over two decades by

organizing significant corporate events for clients like Oracle India

Pvt. Ltd., Seagate Singapore, Intel, and others. Defendant Nos. 1 to 4,

former employees of the plaintiff, along with Defendant Nos. 5 and 6,

incorporated companies during their employment, allegedly to poach

the plaintiff‟s clients and hijack its business operations.

8. The Plaintiff contends that Defendant Nos. 2 and 3, who were

employed for over a decade, conspired with others to manipulate and

siphon funds by raising inflated bills and subsequently resigned on the

same day without reasonable explanation. Shortly thereafter, these

defendants began engaging in direct competition with the Plaintiff,

targeting its major clients. The defendants used the Plaintiff's

proprietary information, intellectual property, and client database,

obtained during their employment, to misrepresent themselves as

affiliates or branches of the Plaintiff's business.

9. The learned counsel for the Plaintiff highlights specific

instances of client poaching and event misappropriation, including

events organized for Oracle India Pvt. Ltd. worth several crores. The

Defendants, while still employed, used the Plaintiff‟s resources,

including email domains, to negotiate and secure these events under

their newly formed entities, Defendant Nos. 5 and 6. Additionally,

Defendant No. 1, a vendor of the plaintiff, in collusion with Defendant

Nos. 2 to 4, generated inflated bills and sought undue payments.

10. The learned counsel further argues that these actions not only

breach employment terms, including non-compete and confidentiality

clauses, but also constitute fraud, misrepresentation, and illegal

diversion of business, resulting in severe financial and reputational

losses for the plaintiff. The plaintiff has initiated an audit and is in the process of filing a criminal complaint to address the large-scale fraud.

11. It is also asserted that immediate judicial intervention is

required to restrain the defendants from continuing their unethical

practices. Failure to do so would lead to irreparable harm, including

the premature collapse of the plaintiff's business, built painstakingly

over decades. Therefore, it is argued that the Plaintiff has a strong

prima facie case and a likelihood of success, necessitating the reliefs

sought in the present suit and instant application.

Submissions on Behalf of the Defendants

12. The learned counsel who appeared on behalf of the defendants

strongly opposed the grant of interim injunction in favour of the

plaintiffs, while submitting that the Plaintiff has failed to demonstrate a prima facie case for an injunction, as the claims are speculative and unsupported by any kind of evidence.

13. It is argued that the decision of the Defendants to leave the

Plaintiff was based on legitimate reasons, including professional

growth and entrepreneurial aspirations, which were fully disclosed to

the Plaintiff. The Defendants deny any collusion or coordinated effort to harm the Plaintiff‟s business, and having left the Plaintiff‟s

company, the Defendants engaged in business activities in an entirely separate and competitive sphere, which is allowed under the law and within the bounce of fair competition. No confidential information, intellectual property or proprietary data of the plaintiff was misappropriated or used unlawfully by the defendants.

14. It is argued that the Defendants were under no obligation to

continue working exclusively with the Plaintiff, and any ongoing

engagements with former clients were entirely legal, ethical, and

based on legitimate business interests.

15. It is contended that the alleged confidential information is either

publicly available or constitutes general industry knowledge, which

does not fall under the protection of law.

16. It has also been argued by the learned counsel for the Defendant

that the Plaintiff has alleged that the Defendants have breached noncompete and confidentiality agreements, however, the non-compete clause appears overly broad and imposes unreasonable restrictions on the Defendants‟ right to earn a livelihood. It has also been stated on behalf of the learned counsel for the Defendants that the Defendants have not used any clientele or contacts of the Plaintiff.

17. It is the Defendants‟ case that the Plaintiff does not have any

evidence to show that the alleged misuse of confidential information

has caused significant harm to the company. The trade secrets (client

lists etc.) are not proprietary, as the Defendants contend that these

claims are a part of the open market. Therefore, no irreparable injury

would be caused to the Plaintiff and granting an injunction at this

stage would be unfair to the Defendants, who are running a legitimate

business.

18. The learned counsel for the Defendants also states that there is

no existence of cause of action in favour of the Plaintiff and against

the Defendant. Therefore, to halt the functioning of the Defendants‟

entities due to contractual stipulations between the Plaintiff and its exemployees is erroneous. According to the learned counsel, it is settled

law that post – employment restraint on employees is impermissible.

Thus, the present application for ad-interim injunction is liable to be

rejected as there is no irreparable harm caused to the plaintiffs.

ANALYSIS & FINDINGS

19. The primary issue for consideration before this Court is whether

the Defendants, who allegedly engaged in competing business

activities, by allegedly diverting the Plaintiff‟s business and clientele, are liable to be restrained by an order of ad interim ex-parte injunction to prevent further loss and damage to the Plaintiff's business and reputation.

20. The Hon‟ble Supreme Court, in Dalpat Kumar and Anr. v.

Prahlad Singh and Ors.: (1992) 1 SCC 719 1993 (1) SCC 325, had

discussed the essentials for granting a temporary injunction under

Order XXXIX of CPC. The relevant extract of the decision is set out

below:

“4…Injunction is a judicial process by which a party is

required to do or to refrain from doing any particular act. It

is in the nature of preventive relief to a litigant to prevent

future possible injury. In other words, the court in exercise

of the power of granting ad interim injunction is to preserve

the subject matter of the suit in the status quo for the time

being. It is settled law that the grant of injunction is a

discretionary relief. The exercise thereof is subject to the

court satisfying that (1) there is a serious disputed

question to be tried in the suit and that an act, on the

facts before the court, there is probability of his being

entitled to the relief asked for by the plaintiff/defendant;

(2) the court's interference is necessary to protect the

party from the species of injury. In other words,

irreparable injury or damage would ensue before the

legal right would be established at trial; and (3) that the

comparative hardship or mischief or inconvenience

which is likely to occur from withholding the injunction

will be greater than that would be likely to arise from

granting it.

5. Therefore, the burden is on the plaintiff by evidence

aliunde by affidavit or otherwise that there is "a prima facie

case" in his favour which needs adjudication at the trial.

The existence of the prima facie right and infraction of the

enjoyment of his property or the right is a condition for the

grant of temporary injunction. Prima facie case is not to be

confused with prima facie title which has to be established,

on evidence at the trial. Only prima facie case is a

substantial question raised, bona fide, which needs

investigation and a decision on merits. Satisfaction that

there is a prima facie case by itself is not sufficient to grant

injunction. The Court further has to satisfy that noninterference by the Court would result in "irreparable

injury" to the party seeking relief and that there is no other

remedy available to the party except one to grant injunction

and he needs protection from the consequences of

apprehended injury or dispossession. Irreparable injury,

however, does not mean that there must be no physical

possibility of repairing the injury, but means only that the

injury must be a material one, namely one that cannot be

adequately compensated by way of damages. The third

condition also is that "the balance of convenience" must be

in favour of granting injunction. The Court while granting

or refusing to grant injunction should exercise sound

judicial discretion to find the amount of substantial mischief

or injury which is likely to be caused to the parties, if the

injunction is refused and compare it with that it is likely to

be caused to the other side if the injunction is granted. If on

weighing competing possibilities or probabilities of

likelihood of injury and if the Court considers that pending

the suit, the subject-matter should be maintained in status

quo, an injunction would be issued. Thus the Court has to

exercise its sound judicial discretion in granting or refusing

the relief of ad interim injunction pending the suit.”

(Emphasis supplied)

21. The Hon‟ble Apex Court had again in Seema Arshad Zaheer v.

Municipal Corporation of Greater Mumbai: (2006) 5 SCC 282

reiterated that the Court may grant a temporary injunction if the

plaintiff establishes a prima facie case, demonstrates that the balance

of convenience favors them, and shows the likelihood of irreparable

injury if the injunction is denied. Additionally, the plaintiff must

approach the court with clean hands, as the relief is equitable. The

relevant portion of the judgment reads as under:

29. The discretion of the court is exercised to grant a

temporary injunction only when the following requirements

are made out by the plaintiff : (i) existence of a prima facie

case as pleaded, necessitating protection of plaintiff's rights

by issue of a temporary injunction; (ii) when the need for

protection of plaintiff's rights is compared with or weighed

against the need for protection of defendant's rights or

likely infringement of defendant's rights, the balance of

convenience tilting in favour of plaintiff; and (iii) clear

possibility of irreparable injury being caused to plaintiff if

the temporary injunction is not granted. In addition,

temporary injunction being an equitable relief, the

discretion to grant such relief will be exercised only when

the plaintiff's conduct is free from blame and he approaches

the court with clean hands.

22. Thus, the essentials of granting an injunction are: (1) existence

of a prima facie case; (2) likelihood of irreparable injury that cannot

be adequately compensated by damages; and (3) balance of

convenience favoring the applicant.

23. An injunction serves as a preventive relief to preserve the

subject matter of the suit in status quo and prevent potential future

injury. It is to be noted that while seeking an order of injunction, the

plaintiff has to demonstrate, through evidence, the existence of a

prima facie case and an infraction of his rights requiring court‟s

intervention. The Court has to then carefully weigh the competing

possibilities of harm to determine whether maintaining status quo or

granting temporary injunction is necessary, pending adjudication.

24. Insofar as the merits of the present case are concerned, this

Court has to determine whether an injunction is warranted to restrain

the Defendants from engaging in competing business activities,

including the organization of events for the Plaintiff‟s clients, which

are allegedly intended to harm the Plaintiff‟s business interests.

25. The present case involves allegations against ex-employees of a

company who are accused of starting a competing business and

attempting to poach the clients of their former employer. The central

issue, which arises on the basis of arguments addressed before this

Court, for consideration in this case is whether the client list of a

business can be protected through an injunction, particularly when it

concerns employees who have acquired knowledge of the company's

clients during their employment.

27. The mere existence of a client list does not confer proprietary

rights over it in a way that would prevent former employees from

using it, unless there is evidence that the list is compiled through

proprietary methods, or that it holds specific commercial value that

could harm the business if disclosed. It is also essential to distinguish

between information that is generally known or accessible in the

public domain and information that is truly confidential, which would merit the protection of an injunction.

28. In this context, while a company may claim that its client list is

confidential, the Court must scrutinize whether such information is

truly proprietary or whether it simply reflects business relationships

that are already in the public domain. If the client details are publicly

known or easily ascertainable by competitors, it would be

unreasonable to grant an injunction based on a claim of

confidentiality.

29. Therefore, the issue at hand is not merely whether the

Defendant has knowledge of the Plaintiff‟s clients, but whether that

knowledge rises to the level of confidential information or trade

secrets that can be protected by legal measures such as an injunction.

Without clear evidence that the client list holds economic value and

that its use would harm the Plaintiff‟s business interests, the Plaintiff‟s request for an injunction based solely on the existence of a client list cannot be sustained.

30. A competitor, even when aware of which particular entity,

individual, or person a business is currently engaged with, has the

right to approach such individuals or persons to canvas their own

business. It is ultimately the customer's discretion to decide which

business or entity they choose to engage with. The mere creation of a

database containing client or customer details, followed by a claim of confidentiality over it, does not bestow a monopoly over those

customers. Furthermore, even if a person has gained knowledge about the Plaintiff's operational plans, they cannot be restrained from

disclosing such plans to a competitor, provided that the information

was retained in their mind. The competitor's decision-making cannot

be presumed to have been solely influenced by such disclosure.

31. The Coordinate Bench of this Court in American Express Bank

Ltd. v. Priya Puri: 2006 SCC OnLine Del 638, had held that mere

knowledge of the plaintiff‟s operational strategies or plans, when

carried in an individual‟s mind, does not give rise to an actionable

claim for injunctive relief. A competitor may be aware of these plans, but they cannot be automatically considered to have been influenced by them. The plaintiff is not entitled to restrain the competitor from acting based solely on this knowledge.

32. This Court is of the view that the plaintiff has failed to produce

any document or evidence demonstrating that Defendant No. 2 was

bound by any agreement that prohibited him from carrying on his own business, either during his tenure with the plaintiff company or post resignation from the directorship of the company. Therefore, the

alleged use of client information or industry knowledge by the

Defendant No. 2 cannot be restrained, as such knowledge does not

constitute proprietary information or trade secrets of the plaintiff.

33. It is well-established that non-compete clauses during

employment are enforceable; however, post-employment restrictions

must be both reasonable and necessary to protect trade secrets or

proprietary information. The defendant‟s use of general industry

knowledge, gained during their employment with the plaintiff, cannot be prohibited unless it is shown that such knowledge constitutes confidential or proprietary information.