Ex-Employee Poaching Clients? Delhi High Court clarifies the scope of Confidentiality

Imagine this: You’ve spent years building your company and cultivating a valuable client base. A key employee, who had access to your entire client database, suddenly resigns. Weeks later, you learn they’ve launched a competing firm—and are now servicing some of your most important clients. You feel betrayed and are convinced they’ve misused your confidential information.

This scenario, familiar to many businesses, recently played out in a legal battle that raised a crucial question: Can a former employee who starts a competing business be held liable for misusing a “confidential” client list?

A recent Delhi High Court judgment provides a resounding answer: not necessarily. The Court emphasised that a client list is not automatically a protected trade secret—unless the company proves it holds distinct economic value derived from proprietary compilation efforts.

Cigma Events Private Limited vs Mr. Deepak Gupta & Ors.

The case involved Cigma Events Private Limited, an event management company, which sued four of its former senior employees. Cigma alleged that these employees conspired to hijack its business by resigning abruptly and starting their own competing firms. They accused the former employees of using Cigma’s client database, intellectual property, and goodwill to poach major clients like Oracle India, causing significant financial and reputational damage. Cigma argued this was a grave breach of trust and confidentiality agreements, seeking an immediate injunction to stop the defendants' business activities.

The former employees countered that their departure was for legitimate career growth. They argued that the client information Cigma claimed as confidential was, in fact, publicly available or constituted general industry knowledge. Crucially, they contended that a post-employment non-compete clause was an unreasonable and illegal restraint on their right to earn a livelihood.

The Court's Analysis

In the judgment, Hon'ble Ms. Justice Swarana Kanta Sharma of the Delhi High Court dismissed Cigma's application for an ad-interim ex-parte injunction. The court's decision hinged on a meticulous examination of the three pillars required for an injunction: a prima facie case, the likelihood of irreparable harm, and the balance of convenience favouring the applicant. Cigma failed to satisfy these conditions.

No Prima Facie Case was Established

A prima facie case requires a plaintiff to show that there is a serious, arguable issue that needs to be tried. Cigma failed here for two primary reasons.

First, it could not produce any binding agreement that prohibited its former employees from competing after their employment ended. Second, and more critically, Cigma failed to prove that its client list and operational plans qualified as protected "confidential information" or "trade secrets." The Court stressed that a client list is not automatically confidential simply by existing; the company must demonstrate that the list holds specific "economic or business value that requires safeguarding" and is not information that is "generally known or accessible in the public domain." The Court noted that general knowledge and skills acquired through experience, which an employee carries in their mind, cannot be grounds for an injunction. Cigma did not provide concrete evidence of what was truly confidential and how the defendants had illicitly used that specific information.

Failure to Prove Irreparable Harm

The second test requires showing that the plaintiff would suffer an injury so significant that it could not be adequately compensated with money.

While Cigma alleged it faced "severe financial and reputational losses" and even the "premature collapse" of its business, the Court found these claims to be speculative. The plaintiff did not present sufficient material or evidence to demonstrate that such irreparable harm would actually occur if the injunction was denied. The court concluded there was no justifiable basis to believe the alleged damage was imminent and non-compensable.

The Balance of Convenience Was Not in Cigma’s Favour

This final pillar requires the court to weigh the hardship. It must ask: who would suffer more—the plaintiff if the injunction is denied, or the defendant if it is granted?

The Court found that granting the injunction would cause greater harm to the defendants by curtailing their ability to seek employment and run a legitimate business. It held that restricting an individual's freedom to use their skills and publicly available information to earn a livelihood is an "impermissible restraint on trade." This is contrary to public policy, as enshrined in Section 27 of the Indian Contract Act. Therefore, the balance of convenience tilted decisively in favour of the defendants.

Key Takeaways from the Court’s Findings:

• A Client List is Not Automatically Confidential: The court stated that a client list, by itself, is not a trade secret. To gain legal protection, the company must prove that the list has unique economic or business value that necessitates safeguarding. The burden was on Cigma to show what made its list more than just a collection of names.

  
  

• Publicly Available Information Cannot Be Confidential: The Court observed that details of Cigma's prominent clients (like Intel, Oracle, HP) and the events they managed were widely available through press releases, social media, and public collaborations. Information already in the public domain cannot be classified as a trade secret.

  
  

• The Right to Compete is Fundamental: A competitor has every right to approach clients, even those engaged with another business. The ultimate choice lies with the customer. As the court noted, creating a database does not grant a business a monopoly over its customers.

  
  

• Knowledge in an Employee's Mind is Not Actionable: Citing precedent, the judgment reiterated that general knowledge, skills, and operational strategies retained in an employee's mind after they leave are not grounds for an injunction. An employee is free to use their accumulated experience.

  
  

• Post-Employment Restraint on Trade is Impermissible: Granting the injunction would have prevented the defendants from earning a livelihood. The Court held that restricting an individual’s freedom to seek better prospects based on publicly available information is an impermissible restraint on trade under Section 27 of the Indian Contract Act.

  
  

• Lack of Concrete Evidence: Cigma failed to produce compelling evidence that the defendants had actually used specific, confidential data from its database. Mere allegations of client poaching were not enough to establish a prima facie case.

Conclusion

The Cigma ruling is a cautionary tale for businesses seeking to protect confidential information. A company cannot merely label something as confidential and expect legal protection. Instead, as the Court’s reasoning shows, effective protection requires:

• Demonstrating Specific Value: Prove that the client list was built through substantial effort, investment, or proprietary methods, and that it offers unique strategic value beyond mere contact names.

  
  

• Proving Actual Confidentiality: Draw a clear line between public and private data. If client identities are public, protect other non-public attributes like purchase history, pricing terms, or preferences.

  
  

• Providing Evidence of Misuse: Show that the employee actually accessed and used protected data—mere suspicion is insufficient.

  
  

• Using Reasonable Agreements: Draft targeted confidentiality clauses instead of broad non-compete provisions. Define what qualifies as a trade secret and how it’s to be protected—this is more likely to hold up in court.

  
  

Ultimately, the Court dismissed Cigma’s injunction request, ruling that the company had not established a prima facie case or irreparable harm. While the case may proceed to full trial, this interim judgment sends a clear signal: Indian courts will protect genuine trade secrets, but not at the cost of fair competition or individual professional freedom.