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Missed Opportunities and Confusing Precedents: Airef Engineers (P) Ltd. v. Vinod Shetty, Delhi High Court


Earlier this month, the Delhi High Court ruled on Trade Secrets and other confidential information in Airef Engineers (P) Ltd. v. Vinod Shetty.  In an ex parte ruling the Court granted an injunction against an ex-employee of the petitioner-company without really identifying a prima facie case that the defendant had such information or that he had in any way misappropriated it. In this relatively short decision by Justice Najmi Wazri, the Court seems to have passed on an opportunity to add to the thin jurisprudence on trade secrets.

Image Source: http://news.bbc.co.uk/2/hi/programmes/newsnight/7828184.stm

Image Source: http://news.bbc.co.uk/2/hi/programmes/newsnight/7828184.stm

Here, the plaintiff company was engaged in providing solutions for multi-disciplinary engineering services. Over time and with experience, the plaintiff came to have sufficient technical expertise to handle government projects, competent to be entrusted with essential information and confidential trade secrets. Therefore, and quite obviously, non-disclosure of confidentiality was an essential aspect for the services rendered by it. Consequently, each of its employees is bound by non-disclosure and confidentiality contracts. The defendant- ex-employee was posted at the site of a project of the plaintiffs which was undertaken on behalf of the Ministry of Defence and was claimed to be privy to confidential information pertaining to both the plaintiff as well as the Indian Army. When on leave, the defendant made clear his resignation and demanded that his notice be construed as being intimated prior to his sanctioned leave. This was followed by several communications from the plaintiff calling the defendant to settle the issue concerning confidential and sensitive information went without response.

The Plaintiff argued that the defendant had willfully misappropriated confidential and sensitive information and data for his own use, and consequently filed for damages for breach of contract. It was the defendant’s submission in his Written Statement that he had given all requisite information, that his employer had accepted the resignation and, that he had been issued site clearance and a No-Dues Certificate. His further submission was that he had not been privy to any confidential information. It was after this that the defendant proceeded exparte.

Since the Plaintiff’s case went without rebuttal substantiate with evidence, the Court found that the circumstances did not allow it to believe the defendant’s case. This, the Court said made out a case for grant of injunction in favour of the Plantiff. Interestingly though, the Plaintiff then did not press for relief of damages except for costs to the suit, basically defeating the entire purpose of this litigation.

Nevertheless, the Court permanently injuncted the defendant from misusing plaintiff’s confidential information, know-how, misappropriation of plaintiff’s trade secrets and performing any other acts that would amount to unfair competition.

There isn’t much law the Court has really laid down in the case; in all probability, this judgment is not going to make it to the memory of most practitioners. The Court also appears to have heard through the matter hastily, without duly considering the questions that go behind making the decision to grant injunctions. It is clear that the law on injunction requires the plaintiff to show three things: (1) a prima facie case in its favour; (2) a balance of convenience in its favour; and (3) irreparable injury if its prayer for injunction is not accepted. When imported to this situation of trade secrets, the test seems to emphasize that there be a prima facie case made out indicating some sort of misuse or unauthorized transfer of confidential information on part of the employee. If this is not the import of the test, then any Court must be satisfied with the mere possibility or “prima facie” proposition that there has been a possession of trade secrets and other confidential information capable of being misappropriated. There are several problems with such a proposition. In the first place, it is not even in tandem with principles of contract law. Contracts hardly ever stipulate a prohibition against the possession of information; they are almost always concerned with misuse. When the Court rules merely on the possibility of possession, it far oversteps its power. When the contract itself prohibits only the misuse and not the possession, it is only rational to expect the threshold to be one of prima facie reason to believe such misuse. In essence, the import of this ruling of the Court flies in the face of jurisprudence on injunctions and contract law.   The problem becomes worse when the Court notes that while the defendant’s Written Statement made claims that he was not in possession of any trade secrets and confidential information, they were never substantiated or backed by evidence.  The Court’s language seems to push for the proposition that the defendant must show that the plaintiff has no prima facie case. Notwithstanding that the defendant was proceeded against ex parte, one must realize that the absence of possession is impossible to establish. Even more importantly, the law doesn’t call for affirmative defences. Therefore, there has been an unnecessary shift in the burden which has not been justified. Anyone familiar trade secrets in India knows that there is no law, only decisions finding their basis in principles of equity (here and here)[The Court has previously invoked a high equitable jurisdiction awarding injunction even in the absence of a contract in John Richard Brady And Ors v. Chemical Process Equipments P. Ltd. and Anr . However, even in that case the burden was established to be a possible misuse and not a mere possibility of possession.] I don’t argue that the Court must have used this instance to conjure law.  What the Court really could have done is laid down standards and principles that can be imported into subsequent cases. Instead, the Court has created precedent (which is amenable to misuse) that lacks reasoning, analysis and logic.

We’ve blogged more on trade secrets here, here, here and here.

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