Fresh Employment Agreement Doesn't Automatically End Arbitration Clause In Earlier Contract: Bombay High Court

The Bombay High Court has recently held that execution of a fresh employment agreement does not, by itself, extinguish an arbitration agreement contained in an earlier contract.

It observed that whether the earlier contract stood completely substituted depends on the parties' intention, which must be gathered from the overall transaction rather than from the later agreement alone.

Justice Amit Borkar delivered the ruling while partly allowing a petition filed by Sarla Advantech Private Limited against its former Managing Director and Chief Executive Officer, Anil Mehta, and Percivon Technologies Private Limited.

Pending arbitration, the court restrained Mehta and Percivon Technologies from using or disclosing the company's confidential and proprietary information.

Holding that execution of a subsequent agreement is not conclusive by itself, the court observed,

"However, mere execution of a fresh document is not decisive. Law recognizes a distinction between execution of another agreement and complete substitution of the earlier contract. Every subsequent agreement does not wipe out all earlier contractual obligations. Whether complete substitution has taken place depends upon the intention of the parties gathered from the entire transaction."

The dispute arose after Sarla Technologies' business was transferred from Parekh Marketing Limited to ATS Global B.V. and later merged with Sarla Advantech in September 2017. Mehta, who had joined Parekh Marketing Limited in 1998, was appointed Managing Director and Chief Executive Officer of Sarla Advantech under a fresh employment agreement. His services were terminated in November 2023.

According to the company, its Information Technology team later discovered that a former employee had forwarded confidential business documents, including non-disclosure agreements, rate charts, costing sheets, estimation data and project case studies, to his personal email during his notice period.

It alleged that the information was used by Percivon Technologies, where several former employees later became associated, to solicit its clients by offering similar services at lower prices.

Mehta opposed continuation of the interim relief, arguing that the petition was not maintainable because the 2017 employment agreement did not contain an arbitration clause and had superseded the 1998 agreement. The company contended that the employment relationship had continued uninterrupted despite the business transfer, relying on continuity of service under the 2017 agreement and an email sent by Mehta assuring employees that their service conditions would remain unchanged.

Rejecting the preliminary objection at this stage, the court held that the issue could not be decided by reading the 2017 agreement in isolation. It noted that the agreement preserved Mehta's continuity of service from 1998 and did not expressly state that the earlier arbitration agreement stood cancelled, revoked, or replaced.

The court also noted that both employment arrangements contained obligations relating to confidentiality, intellectual property, non-solicitation, and protection of proprietary information. Observing that these reflected continuity of the same business interests, the court held:

"One more aspect also deserves notice. Obligations relating to confidentiality, protection of intellectual property, restriction on soliciting employees and clients, and protection of proprietary information appear in both employment arrangements though the language used is different," the court ruled.

The court held that whether the parties intended to abandon arbitration would require a fuller examination by the arbitral tribunal. Pending that determination, it continued the injunction, directed preservation of the electronic evidence secured by the court receiver, and clarified that its findings were purely prima facie and would not bind the tribunal on jurisdiction or the merits.

For Petitioner: Advocates Aadil Parsurampuria, with Rushil Mathur, Yash Pitroda, Amrita Natarajan and Mayur Setty, instructed by Kochhar & Co.

For Respondent No. 1 (Anil Mehta): Advocates Karl Tamboly, with Ryan D'Souza, Vikrantsingh Negi, Ekta Tyagi, Priyamvada Singhania, Sneha Barange and Aishwarya Pawar, instructed by DSK Legal.