India: Ciba Fails To Get Relief For Breach Of Its Confidentiality Agreement

Last Updated: 26 October 2009

Ciba Inc. in a move against Sequent [Ciba Inc. & Anr. v. Sequent Scientific Ltd & Ors. Notice of Motion No.3472 OF 2009 in Suit No.2501 of 2009] alleged them for breach of confidentiality before the High Court of Bombay. A confidentiality agreement had been entered into between Ciba's co-party and Sequent. Ciba engaged in manufacture and sale of specialty chemicals, exists under the laws of Switzerland. Sequent is a Company incorporated under the Companies Act, 1956 and carries on business of manufacturing chemicals as commissioned by and under licence from Ciba. Ciba stated that in or about 1998 they developed through extensive in-house research and development, a process to manufacture a compound having its chemical name as Tetrakis, commonly known as PEPQ. A Division Bench order in respect of a company petition had also been passed, in pursuance of the expiration of which an urgent request for ad interim reliefs had been made vide the present Notice of Motion in the suit.

Ciba submitted that the process of manufacturing PEPQ was not and has never been available in the public domain except to a limited extent as explained in the plaint. The entire process was claimed to be developed by them after extensive research and development by incurring huge expenditure in monetary terms as well as time. The entire confidential information was stated to be set out in the plaint and that they were willing to hand over a complete set of this confidential information in sealed condition to the Court. They stated that PEPQ was sold under their trade name Irgafos and that the process for manufacture followed was certified to be unique by an expert. Only two manufacturers of PEPQ were said to be existent worldwide- Ciba and the Clariant group.

Ciba further stated that a secrecy agreement had been entered into with one Plama Laboratories Ltd, the predecessor entity of Sequent. It was submitted that Ciba had already helped and imparted the confidential information to Plama Laboratories Ltd. who wanted to convert / modify their existing plant at Mangalore. It was noted that the defendants were unable to manufacture PEPQ as per the specifications at their plant at Panoli, Bharuch in the state Gujarat, pursuant to which Ciba aided them to set up a new plant suitable for the manufacture of PEPQ in July, 2007. It was asserted that the information transmitted was meant to be treated confidential and that it could not have been used otherwise. Further, Sequent proceeded to file a Company Petition seeking the transfer of its entire undertaking including contracts and benefits of all agreements to its co-defendant. In this respect, a breach was said to take place and Ciba and its co-plaintiffs were not willing to agree to such a transfer.

Examining the various documents pertaining to the petition and the transfer, Ciba stated that Sequent was bound and liable to comply with the terms and conditions of the agreement and in particular not to divulge the confidential information, data or know-how to 3rd party nor manufacture or sell the said PEPQ for the benefit of any third party. They were to manufacture or sell the same only for Ciba exclusively. Having substantiated their stands in the arguments advanced as well as documents adduced, they prayed for the grant of the ad-interim reliefs to be granted.

Sequent claimed that the entire plaint was vague and ambiguous. It was stated that what is confidential information and what the implied agreement was and between whom and to what extent had not been specified at all. The plaint was said to not set out the confidential information. With respect to Ciba offering to hand over Confidential information in a sealed envelope and the disclosure made in the plaint, it was contended that the Court cannot presume that the confidential information is disclosed and that the plaint averments constitute a true and complete disclosure of the same. It was submitted that if there are two manufacturers and two customers, then, on what basis did Ciba place reliance upon the Annexes to the plaint and more particularly the invoices was unclear. Further, it was stated that the submitted invoices enlisted Quent 19 and that Ciba had not revealed if their product and Quent 19 were the same or connected or related. It was stated that in the absence of a prima facie case having been established, no as interim reliefs be granted.

Ciba relied upon the decision of (1986) 2 SCC 656 M/s. General Radio and Appliances Co. Ltd. and Ors. Vs. M.A. Khader (Dead) by LRs. and (2004) 7 SCC 1 Singer India Ltd. Vs. Chander Mohan Chadha & Ors., however the same were said to be inapplicable to the case in hand. Further, the contents of the plaint were looked at paragraph wise as also the confidentiality clause. It was deciphered from these that Ciba had entered into several secrecy and confidentiality agreements with the predecessor entities of Sequent under strict conditions of confidentiality since the year 1998.

The Court in this regard took the view that on the basis of vague averments and wild allegations as also stating that confidential information be disclosed to the Court if it so desires, Ciba cannot seek any discretionary and equitable reliefs. The Court said that it was necessary to plead particulars regarding the confidential information be disclosed, to whom and the period during which the same was disclosed. By relying upon prior Agreements and alleging that the obligation there under continues to bind the successors such as Sequent, the Court opined that Ciba cannot seek drastic and far reaching Ad interim orders. Thus, the Court stated that it would be in the interest of justice if further materials are allowed to be produced. The Court reiterated that if citizens have been guaranteed a Fundamental Rights under Article 19(1)(g) of the constitution of India to carry on business, occupation, trade and profession of their choice and such freedom is only subjected to reasonable restrictions, then, in all cases of the present nature, the plaintiffs must point out that the restrictions are reasonable for their protection and do not violate this fundamental freedom.

Further opining upon the invoices produced forth the Court, it was stated that even at this prima facie stage, it was essential to establish the connection and nexus between the products and the technology so as to constitute a breach and violation of the alleged confidential agreement. In this view the grant of any ad interim relief was rejected and Notice of Motion returned.

© Lex Orbis 2009

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