A confidentiality clause protects genuine secrets. Stretch it to cover information already in the public domain, and it stops protecting anything — it becomes a restraint of trade, and Section 27 makes it void.
The recurring problem
Employee confidentiality agreements — and confidentiality clauses inside employment contracts — are routine. But under the guise of protecting confidential information, they sometimes end up as restraint clauses, which the law treats as restraint of trade. The Delhi High Court examined exactly where that line falls in M/s Stellar Information Technology Pvt Ltd v. Mr Rakesh Kumar & Ors.
The facts
Stellar is in data recovery, migration and erasure. The defendants — former employees and their spouses — now run Techchef, a directly competing business. Stellar alleged the defendants used its confidential data and trade secrets to win business, and were soliciting its customers.
The arguments
- Stellar: the defendants breached the “Confidentiality and Invention Assignment Agreement” and “Employee Confidentiality Agreement”; and had stolen its client list (phone numbers and contacts), so it claimed copyright infringement in the list.
- Defendants: they held no confidential information — the names of almost all of Stellar’s large customers were advertised on Stellar’s own website, hence public domain. And any restrictive covenant restraining them from carrying on business or approaching customers would be void under Section 27 of the Indian Contract Act, 1872.
The ruling
The court found the definition of “Confidential Information” was drafted in very wide terms — but information available on Stellar’s website (public domain) cannot be confidential, and its use can’t be restrained. Customer names for data services were likewise findable via search engines, so in the public domain; and with no evidence the client list was copied, there was no copyright infringement.
On the non-compete clauses (1½–3 years post-employment), the court noted an in-built exception: the defendants weren’t bound if they could show they carried on business without using confidential information. The key holding:
“by expanding the width of the expression ‘confidential information’ to include information which is in public domain, the Plaintiff is not seeking protection of proprietary or confidential information, but is essentially seeking a restraint on trade.”
And so: “Once it is held that in the guise of a confidentiality clause, the Plaintiff is attempting to enforce a covenant in restraint of trade, the same must be held to be void.” The plea was dismissed.
The takeaways
- Define “confidential information” narrowly — tie it to genuinely proprietary, non-public material.
- Public-domain information isn’t confidential — data on your own website or findable via search engines can’t be locked down.
- Overbroad clauses backfire — an over-wide confidentiality definition can be recharacterised as a void restraint of trade under Section 27.
- Client lists need real secrecy — and evidence of copying — to support a claim.
Frequently asked questions
Is a confidentiality clause enforceable in India? Yes, if it protects genuinely proprietary information. But if drafted so widely that it captures public-domain information, it can be held void as a restraint of trade under Section 27.
Can an employer stop an ex-employee contacting former customers? Not where the customer information is in the public domain (e.g. on the employer’s website or findable online) — restraining that is treated as restraint of trade.
Is a client list protected by copyright? Only if it’s genuinely confidential and there’s evidence of copying; in Stellar, the court found neither.
What makes a confidentiality clause a restraint of trade? Defining “confidential information” so broadly that it protects non-secret, public-domain material — effectively restraining lawful competition rather than protecting secrets.
Legislation referred to
- The Indian Contract Act, 1872