Introduction:
Businesses often struggle to protect their valuable secrets, especially when former employees with access to sensitive information join competitors. This creates a real risk of confidential data and trade secrets falling into the wrong hands.
The Delhi High Court (“Hon’ble HC”) recently issued a significant judgment in Cigma Events Private Limited vs. Deepak Gupta and Ors.[1], offering crucial clarity on the protection of confidential information from ex-employees. The Hon’ble HC’s decision outlines the criteria for what constitutes confidential and privileged data and specifies the circumstances under which a company can obtain an injunction (court’s order) to prevent former employees from misusing such information. This ruling is essential for businesses seeking to safeguard their sensitive data.
Facts of the Case:
Cigma Events Pvt. Ltd. (“Company”), a prominent event management company, filed a lawsuit against former senior employees. The company alleged that these employees, who had access to sensitive information, formed a competing business and used Company’s confidential data to gain an unfair advantage. Specifically, the Company claimed the employees used client lists of the Company to divert significant business opportunities. The Company also alleged breaches of non-compete agreements and a violation of trust. To protect its business, the Company sought an injunction to stop the former employees from further using its confidential information and trade secret.
Issues before the Hon’ble HC:
i. Whether the client list of a business can be treated as confidential information or a trade secret.
ii. When could an injunction be granted against an ex-employee for breach of confidentiality.
Hon’ble High Court’s Observation:
Answering the first issue, the Hon’ble HC observed that a client list, by itself, cannot automatically be treated as confidential information or trade secret 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.
It further observed that the mere existence of a client list does not confer any 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. Furthermore, if the client details are publicly available or easily ascertainable, it would be unreasonable to treat such client lists as confidential information or trade secrets.
The Hon’ble HC also discussed the case of American Express Bank Ltd. v. Priya Puri[2] Wherein it was observed “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.”
With respect to the second question regarding injunction, the Hon’ble HC relied on multiple landmark rulings including Dalpat Kumar and Anr. vs. Prahlad Singh and Ors[3], and Seema Arshad Zaheer vs. Municipal Corporation of Greater Mumbai.[4] On the basis of these rulings, the Hon’ble HC observed that the essentials of granting an injunction are: (1) the existence of a prima facie case, (2) the likelihood of irreparable injury that cannot be adequately compensated by damages, and (3) balance of convenience favouring the applicant.
Applying the above reasonings and judicial precedents the Hon’ble HC held that since the Company has failed to present any evidence that the client list holds economic value and that its use would harm the Company’s business interests, or how an irreparable harm would be caused to the Company in such case, the request for an injunction based solely on the existence of a client list cannot be sustained. Accordingly, the application for an injunction by the Company was dismissed.
Key Considerations for Employers:
· A company cannot claim every piece of information under the sun to be confidential information unless it can prove that such information holds economic value or any proprietary process was involved in creating such database.
· Mere creation of a client list, without any attached economic or business value would not give a company a monopoly to do business with those clients.
· For grant of an injunction against an ex-employee for suspected breach of confidentiality, it has to be proved that the information is confidential and, if disclosed, would cause irreparable harm to the business of the company.
[1] 2024 SCC OnLine Del 9140
[2] 2006 SCC OnLine Del 638
[3] (1993) 1 SCC 325
[4] (2006) 5 SCC 282
Authors:
Gyanendra Mishra, Partner
Maruti Nandan, Associate
Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.