2006 (7) TMI 702 - HC - Companies Law

Court upholds non-solicitation clause in employment dispute

The court held that it had territorial jurisdiction to entertain the petition as part of the cause of action arose in Delhi. The advertisement was deemed ... - Issues Involved:1. Territorial Jurisdiction2. Solicitation of Employees3. Enforceability of Non-Solicitation Clause4. Concealment or Suppression of Material FactsDetailed Analysis:1. Territorial Jurisdiction:The respondent argued that the court lacked territorial jurisdiction as their office and operations were based in Mumbai, and the advertisement was issued from Mumbai. The petitioner countered that the cause of action arose in Delhi as their employees in the Northern Region, based in Delhi, were affected by the advertisement.Judgment:The court held that a part of the cause of action arose in Delhi because the petitioner's employees in Delhi were affected by the respondent's advertisement. Therefore, the court had territorial jurisdiction to entertain the petition.2. Solicitation of Employees:The petitioner contended that the respondent's advertisement, which mentioned that experience with the respondent's products would be advantageous, amounted to solicitation of the petitioner's employees, violating the non-solicitation clause in their agreement.Judgment:The court found that the advertisement was indeed a solicitation directed towards the petitioner's employees, as it specifically referenced experience with the respondent's products, which only the petitioner's employees would possess.3. Enforceability of Non-Solicitation Clause:The core issue was whether the non-solicitation clause, which prevents either party from soliciting the other's employees for two years post-termination, was enforceable under Section 27 of the Indian Contract Act, 1872, which voids agreements in restraint of trade.Judgment:The court concluded that the non-solicitation clause did not amount to a restraint of trade, business, or profession and was not hit by Section 27. The clause was a restriction on the parties, not the employees, and was intended to prevent the parties from enticing each other's employees. However, the court held that while the respondent could be restrained from future solicitation, an injunction preventing the respondent from employing the petitioner's employees who responded to the solicitation could not be granted, as it would indirectly impose a restriction on the employees' freedom to seek employment.4. Concealment or Suppression of Material Facts:The respondent alleged that the petitioner had concealed material facts, including certain letters and the termination notice, which would have influenced the court's decision on the interim injunction.Judgment:The court found no concealment or suppression of material facts by the petitioner. The petitioner had mentioned the termination notice and the transition talks in their pleadings and had annexed relevant documents, albeit with varying degrees of emphasis.Conclusion:The court disposed of the application under Section 9 of the Arbitration and Conciliation Act, 1996, with the following directions:1. The respondent was restrained from soliciting, inducing, or encouraging the petitioner's employees to leave their employment and join the respondent during the pendency of the arbitration proceedings.2. The petitioner's employees were free to take up employment with the respondent even in response to the solicitation advertisement, but the respondent would be liable to compensate the petitioner for any breach of the non-solicitation clause, if established in arbitration.