The Bombay High Court has granted interim reliefs under Section 9 of the Arbitration and Conciliation Act, 1996, while preserving the jurisdiction of the Arbitral Tribunal to finally decide on the existence and scope of the arbitration agreement. The Court held that a prima facie case for the existence of an arbitration agreement was made out, allowing the petitioner to seek interim measures against respondents alleged to be misusing its confidential and proprietary information.
Background & Facts
The Genesis
The petitioner, Sarla Advantech Private Limited, is a wholly owned subsidiary of ATS Global B.V. Respondent No.1, Anil Mehta, was initially employed by Parekh Marketing Limited under an appointment letter dated 20 August 1998. On 6 July 2017, Parekh Marketing Limited entered into a Business Transfer Agreement with ATS Global B.V., transferring the business of Sarla Technologies to the petitioner. Respondent No.1 was thereafter appointed as Managing Director and Chief Executive Officer of the petitioner under a fresh Employment Agreement dated 21 September 2017.
Key Facts
- Employment Terms (20 August 1998): Contained a confidentiality clause and an arbitration clause (Clause 21) referring disputes to arbitration under the Rules of the Indian Merchants' Chamber.
- Business Transfer Agreement (6 July 2017): Transferred Sarla Technologies to the petitioner.
- Employment Agreement (21 September 2017): Recorded respondent No.1's appointment as MD and CEO of the petitioner. Clause 2.2 preserved continuity of service from 1998, including provident fund, gratuity, and other benefits.
- Email dated 24 August 2017: Sent by respondent No.1 to employees stating that business operations would continue as before and there would be no change in roles or employment terms.
- Termination of Respondent No.1: Services terminated by letter dated 22 November 2023. The petitioner later alleged misappropriation of Rs. 27,77,629/- by letter dated 19 December 2023.
- Incorporation of Respondent No.8: Percivon Technologies Pvt. Ltd. was incorporated on 11 February 2024. Respondent Nos.2 to 7 and 9, former employees of the petitioner, joined Percivon Technologies between March 2024 and February 2025.
- Alleged Misuse of Confidential Information: The petitioner alleged that respondents were using its confidential and proprietary information, including rate charts, project details, and trade secrets, to approach its clients and employees. Evidence included an email dated 6 May 2024 from respondent No.9 to his personal email account containing confidential files.
- Filing of the Petition: The petitioner filed the present petition under Section 9 on 3 June 2025, seeking interim reliefs. This Court passed an ex parte ad interim order on 27 June 2025, restraining respondents from using the petitioner's confidential information and appointing a Court Receiver.
Procedural History
- 3 June 2025: Present petition filed under Section 9 of the Arbitration and Conciliation Act, 1996.
- 27 June 2025: This Court passed an ex parte ad interim order restraining respondents from using the petitioner's confidential information and appointing the Court Receiver.
- 16 July 2026: Arguments reserved.
- 21 July 2026: Judgment pronounced.
The Parties' Positions
Petitioner's Case
The petitioner contended that the arbitration clause in the Employment Terms dated 20 August 1998 continued to apply due to the continuity of employment and service benefits. It relied on the email dated 24 August 2017 and the preservation of service benefits in the Employment Agreement dated 21 September 2017 to argue that the earlier employment relationship continued despite the business transfer.
Respondent No.1's Case
Respondent No.1 argued that the Employment Agreement dated 21 September 2017 did not contain an arbitration clause and that the earlier agreement stood replaced. He contended that the petitioner had suppressed material facts, including the existence of a revised termination letter, and had obtained the ex parte order by misrepresentation. He also argued that the petitioner had failed to make out a prima facie case for the existence of an arbitration agreement.
The Legal Issue
The central question was whether a prima facie case existed for the existence of a valid arbitration agreement covering the present dispute, enabling the Court to exercise jurisdiction under Section 9 of the Arbitration and Conciliation Act, 1996.
Arguments Presented
For the Petitioner
The petitioner relied on the decisions of the Supreme Court in SBI General Insurance Co. Ltd. v. Krish Spinning and Vidya Drolia v. Durga Trading Corporation to argue that the Court's jurisdiction under Section 9 is limited to a prima facie examination of the existence of an arbitration agreement. It submitted that the Arbitral Tribunal is the preferred forum to decide issues of jurisdiction and non-arbitrability, and that the Court should not undertake a detailed examination of the merits of the dispute at this stage.
For the Respondent
Respondent No.1 relied on MR Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd., NBCC (India) Ltd. v. Zillion Infraprojects Pvt. Ltd., Elite Engineering & Construction (Hyderabad) Pvt. Ltd. v. Techtrans Construction India Pvt. Ltd., and Young Achievers v. IMS Learning Resources Pvt. Ltd. to argue that an arbitration clause cannot be incorporated into a subsequent agreement merely by reference. He also relied on Rajia Begum v. Barnali Mukherjee and Sundaram Finance Ltd. v. NEPC India Ltd. to argue that interim relief under Section 9 can be refused if the petitioner fails to make out a prima facie case. He further argued that the petitioner had not approached the Court with clean hands and had suppressed material facts.
The Court's Analysis
The Court examined the Employment Terms dated 20 August 1998 and the Employment Agreement dated 21 September 2017. It noted that the Employment Terms contained a valid arbitration clause (Clause 21) and that the Employment Agreement dated 21 September 2017 preserved continuity of service from 1998, including provident fund, gratuity, and other benefits. The Court also considered the email dated 24 August 2017, in which respondent No.1 stated that business operations would continue as before and there would be no change in roles or employment terms.
The Court observed that the controversy before it was whether the earlier employment relationship continued notwithstanding the execution of the later agreement. It noted that the Employment Agreement dated 21 September 2017 did not expressly state that the earlier agreement stood replaced or that the arbitration clause was revoked. The Court also considered the petitioner's explanation regarding the termination letters and found that the allegation of fabrication could not be decided at this stage without fuller evidence.
The Court held that the petitioner had produced sufficient material to show, prima facie, that the arbitration agreement contained in the Employment Terms dated 20 August 1998 continued to operate in relation to the present dispute arising out of the continuing employment relationship. It emphasized that its finding was tentative and confined to the adjudication of the present petition under Section 9, and that the Arbitral Tribunal would be free to decide the issue of jurisdiction under Section 16 without being influenced by these observations.
"This finding is recorded only for deciding the present petition under Section 9. It shall neither bind the Arbitral Tribunal while deciding its jurisdiction under Section 16 nor prejudice the rights and contentions of either party in the arbitral proceedings or in any other proceedings."
The Verdict
The Court rejected the preliminary objection raised by respondent No.1 regarding the maintainability of the petition. It held, prima facie, that the petitioner had established the existence of an arbitration agreement sufficient for invocation of jurisdiction under Section 9 of the Arbitration and Conciliation Act, 1996. The Court granted the following interim reliefs:
- Restrained respondent Nos.1 and 8, their directors, partners, servants, agents, employees, and all persons claiming through or under them from disclosing, copying, using, reproducing, transmitting, exploiting, parting with possession of, or permitting any third party to use the petitioner's confidential and proprietary information.
- Restrained respondent Nos.1 and 8 from carrying on or continuing any business activity by using the petitioner's confidential and proprietary information or trade secrets.
- The Court Receiver, High Court, Bombay, was directed to continue as Receiver with the powers already granted under the ad interim order dated 27 June 2025.
- Respondent Nos.1 and 8 were directed to preserve all electronic devices, servers, cloud storage, email repositories, hard disks, pen drives, mobile phones, and other digital storage media containing information relating to the petitioner's business and not to delete, alter, erase, encrypt, or destroy any data stored therein till further orders.
- Respondent Nos.1 and 8 were directed to file, within four weeks, an affidavit disclosing all electronic devices and storage media presently in their possession containing any data or information belonging to the petitioner and also disclose whether any copy thereof has been transferred to any third party.
- Respondent Nos.1 and 8 were directed to render, within six weeks, a statement disclosing the projects, if any, executed by using the petitioner's confidential or proprietary information.
- The prayer seeking deposit of alleged profits earned by respondent Nos.1 and 8 was kept open to be considered by the learned Arbitral Tribunal upon evidence being led.
- The prayer seeking a blanket restraint against respondent Nos.1 and 8 from dealing with or alienating all their assets was rejected at this stage.
The Court clarified that its observations were only prima facie in nature and confined to the adjudication of the present petition under Section 9. It directed that neither the Arbitral Tribunal nor any Court dealing with subsequent proceedings shall be influenced by these observations while deciding the disputes on merits.
What This Means For Similar Cases
Prima Facie Examination Is the Standard Under Section 9
- Courts must conduct only a prima facie examination of the existence of an arbitration agreement when considering interim reliefs under Section 9.
- Detailed examination of the merits of the dispute or issues of jurisdiction is left to the Arbitral Tribunal under Section 16.
- The principle of competence-competence ensures that the Arbitral Tribunal is the first authority to decide questions relating to its own jurisdiction.
Continuity of Employment Preserves Arbitration Clauses
- Where service conditions and benefits are preserved in a subsequent employment agreement, the arbitration clause in the earlier agreement may continue to apply.
- Courts will examine the intention of the parties gathered from the entire transaction, including continuity of service, preservation of benefits, and contemporaneous communications.
- Mere execution of a fresh agreement does not necessarily extinguish the earlier arbitration clause unless expressly revoked or replaced.
Clean Hands and Full Disclosure Are Critical for Ex Parte Relief
- Parties seeking ex parte interim relief must disclose all material facts fairly before the Court.
- Deliberate suppression of material facts may disentitle a party from equitable relief.
- However, serious allegations such as fabrication require fuller evidence and cannot be decided at the interlocutory stage.
