RESTITUTIONARY DAMAGES' VS COMPENSATORY DAMAGES - MADRAS HC

The Madras High Court ventured into under what circumstances the Court can grant compensatory damages and restitutionary damages.

Background

The plaintiff company filed a case against its former employee for breach of non-solicit, non-confidentiality, and non-compete agreements entered into between them. According to the plaintiff, the First Defendant (former employee) provided the second defendant Company with the same business model, having one of the plaintiff's primary clients as a subscriber to the latter's MoA. 

The matter proceeded ex-parte as the defendants failed to appear before the Court of law. 

Observations

While the Court agreed with the plaintiff's contention that the confidentiality and non-solicitation of the customer bind the first Defendant, however, there were certain reservations made about the applicability of the non-compete clause, as far as the non-compete clause is concerned, it cannot be made applicable to Defendant 1 after he has left his employment.  

The Court said, "first, Defendant had an obligation under the non-solicit and non-confidentiality clauses, and if the same it is violated, Defendant should face the consequences. In this instant case, the first Defendant has an obligation for a period of 3 years even after leaving the employment."

The Court further observed that the first Defendant caused a loss of Rs 96 lakhs to the plaintiff by soliciting one of its clients. The Court then determined the measure of damages and held that damage must be measured concerning the loss caused to the claimant rather than concerning the gain made by the other party in the normal course of things. And in restitution by way of profit followed by Disgorgement of those profits. It is into about the loss suffered by the claimant but the profit gained by Defendant.

The Court relied on the case of Attorney General v. Blake (2000), where the SC of the UK refused to resort to ordering an account of profits where the damages were identifiable.

In the present case, the plaintiff losses of approx. Rs 96,51,264/- during the financial year 2019-2020.

Since the plaintiff sought both compensatory damages as well as restitutory, the Court clarified that restitution by way of an account of profits and compensatory damages are incompatible with each other and are alternatives to each other. The plaintiff can opt for an account of profits, .i.e. restitutory. In view of the same, the Court imposed a cost of Rs 2,50,000 on Defendants taking into account the conduct of the defendants. 

Author: Papiha Ghoshal