High court deals blow to restrictive covenants

In Desiccant Rotors International Pvt Ltd v Bappaditya Sarkar & Anr Delhi High Court analysed and interpreted the issue of enforcing restrictive covenants in an employment contract. Desiccant and its competitor, defendant number two company, sold and marketed similar products including evaporative cooling components, products and systems under the brand name Humi Cool.

Desiccant submitted that Sarkar, its former area sales manager, had on his transfer to the company in 2000 entered into a confidentiality agreement, acknowledging that he was dealing with secret information at Desiccant (including technical knowledge, trade secrets, methods and processes, markets, sales, list of customers, accounting methods, competitive data and financial plans) and agreeing that he would not divulge this information to a third party.

In 2007 Sarkar resigned from Desiccant and signed an obligation agreement which provided that (i) for two years after the termination of his employment, he would not compete with Desiccant’s business and would not advise, consult, serve or assist any party whose business competes with that of Desiccant and its group companies; (ii) he would not interfere with Desiccant’s customers, suppliers and employees for two years, and he would not disclose the confidential information to which he was privy as an employee of Desiccant to any third party; (iii) he would return all properties of Desiccant (such as tapes, notes, discs, manuals and advertising material) which were in his possession, and; (iv) he would not retain copies of Desiccant’s property. In addition to the obligation agreement, Sarkar signed two declarations on the same day, stating that failure to abide by their terms would amount to a breach of trust for which he would accept full liability.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in, lbhasin@vsnl.com or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.