The case highlights that apart from claims of ‘trade secrets’ and ‘confidential information’ the attorneys working with a law firm are bound by attorney client communication being privileged and cannot be divulged to a third party under any circumstances. Sharing such information and communication would not only be unethical but also a breach of the confidentiality clause, potentially causing serious prejudice and harm to the clients of the Plaintiff’s firm.

Facts And Background

1. Dr Sudipta Banerjee, Dr Indira Banerjee, and Arpita Ghosh (Appellants/Defendants) were former employees of L.S. Davar & Company, a reputed intellectual property firm.
2. Dr Sudipta Banerjee and Dr Indira Banerjee were well-qualified patent professionals who had been working with the firm since 1994, while Arpita Ghosh had been working as an office assistant since 2010.
3. The Appellants resigned from their positions in 2020 and joined another firm, P.S. Davar and Company.
4. L.S. Davar & Company (Plaintiff/Respondent) filed a suit alleging that the appellants were divulging confidential information and trade secrets acquired during their employment, in breach of the confidentiality agreement.
5. The Plaintiff sought a declaration that the Defendants were in breach of their contractual obligations and sought an injunction to prevent them from using or disclosing confidential information.
6. The trial court granted an ad interim order of injunction, restraining the defendants from disclosing or utilizing confidential information until 10th August 2021. The order was extended from time to time. The trial court considered that the defendants were bound by the confidentiality policies of the plaintiff firm during their employment.

The Defendants appealed against the Order

1. The Defendants argued that the impugned order overlooked Section 27 of the Indian Contract Act, which states that a restrictive covenant extending beyond the term of the contract is void.
2. They contended that the confidentiality clause did not restrain them from using their skills and knowledge gained during their employment. They also argued that the ad interim order was obtained disregarding the caveat lodged by them.

The Plaintiff’s contention

1. The respondent/plaintiff argued that the defendants were privy to confidential information and trade secrets, and the trial court’s order was a reasoned one based on the materials on record.
2. The plaintiff firm had implemented a revised organization policy in 2019, which included a confidentiality and non-competition clause. The defendants had signed and accepted these policies. The plaintiff alleged that the defendants, due to their senior positions, had access to confidential information and trade secrets, which they were now using for their benefit.

Court’s observation

1. The court noted that there is no specific legislation in India to protect trade secrets and confidential information, but Indian courts have upheld trade secret protection based on principles of equity and breach of confidence.
2. That the confidentiality clause and non-compete clause are only for a period of two years from the date of cessation of the employment relationship.
3. The court also noted that the law on restraint of trade in India is strict and invalidates many agreements that would be allowed under English Common Law.
4. The court emphasized the need to balance freedom of trade with the protection of trade secrets and confidential information.
5. The court noted that non-compete clause in the instant case may be prejudicial to the appellants but no order has been passed restraining them from carrying on their profession.
6. The court observed that communication between an attorney and their clients is considered privileged and cannot be divulged to a third party under any circumstances.
7. The information and trade secrets related to intellectual property rights belong to the clients of the plaintiff, who had come into contact with the appellants during their employment. This privileged communication cannot be shared with any third party.
8. The court noted that while the plaintiff firm may not have trade secrets per se, the employees of the firm would certainly be privy to privileged information. Sharing such information and communication would not only be unethical but also a breach of the confidentiality clause, potentially causing serious prejudice and harm to the clients of the plaintiff firm. This could expose the plaintiff firm to civil and criminal consequences.
9. The court modified the ad interim order, restraining the appellants from disclosing or sharing confidential information gathered during their employment until the disposal of the injunction application on merits.

Our comment

The case highlights the need for sui generis law to protect trade secrets. The court noted that there is no specific legislation in India to protect trade secrets and confidential information. The trade secrets have been granted protection on basis of principles of equity, and at times, upon a common law action of breach of confidence which in effects amounts to a breach of contractual obligation.