Right to Adjudication Overrides Arbitration Clause… TDSAT judgement on Mohit Rajpal Vs MyTaxiindia.com

[P.S: This discussion has some important issues related to Information Technology Act 2000, (ITA 2000), Arbitration and Conciliation Act (ACI) (as amended upto date) and the data protection regulations.]

It is always sad when a Company and its co-founder fight out a legal battle particularly when the dispute does not relate to any financial misappropriation but relate to alleged data theft.

In such cases, it is difficult to segregate how much of the dispute arises out of real wrongful loss caused to the company and how much arises out of personal acrimony between a senior executive who has fallen out with the current management.

One such incident came to public recently when Mr Mohit Rajpal, the ex-Co founder of mytaxiindia.com and the current Director of goibibo.com approached TDSAT, Delhi following an earlier Adjudication.

This appeal to TDSAT was disposed off on 15th May 2019 on one issue of law related to the challenge on the jurisdiction of the Adjudicating Officer (AO) under ITA 2000. The matter has not been discussed on the merits of the disputes.

[P.S: This discussion is for academic purpose and is based on the copy of the judgement of TDSAT. At this point of time, I donot have access to more details including the details of the pleadings. As and when more information becomes available, if necessary, the analysis presented here may be updated…. Naavi]

(Copy of the judgement can be found here)

Mr Mohit Rajpal was the Co-Founder & Director of Mytaxiindia.com for a period of around 2 years from July 2015 to July 2017. During that time, he appears to have executed an employment agreement cum NDA (dated 10/7/2015) containing the usual data security clauses that he shall not use the data acquired during the service for purposes other than the requirements of the job etc.. The agreement seems to have also had the usual clause that disputes arising out of the contract will be subject to arbitration and such arbitration recourse will survive even after the employment contract is terminated.

These are clauses which we usually find in every employment contract.

It appears that after the employment agreement  was terminated (Perhaps with the resignation of the employee), a dispute has arisen where the company alleges that certain information was transferred from the “Official E Mail ID” of Mr Mohit Rajpal to his personal E Mail ID.

We reiterate that in the absence of full information as to what was the information that was transferred and what was the alleged “Wrongful Loss” sustained by the Company on account of such transfer etc., this discussion is only on the issue of whether the arbitration clause is binding against an adjudication process initiated by one of the parties.

The AO has ordered that the matter cannot be mandatorily referred to Arbitration and he can exercise jurisdiction on the complaint as received. Mr Mohit Rajpal has appealed against this decision to the TDSAT pressing for arbitration. In the process he has also cited a second agreement namely the share holder’s agreement between Mr Mohit Rajpal and the investors of the Company which appears to also have an arbitration clause.

The purpose of the share holder’s agreement is different from the NDA cum Employment agreement and there was a different arbitration clause in this agreement.  This was an arbitration where the seat of arbitration was Singapore. (Applicable law is not clear to us at this point of time).Hence there were two arbitration agreements with different objectives, applicable laws and jurisdictions that the AO and TDSAT had to consider before arriving at the current ruling.

In its judgement, TDSAT has upheld the jurisdiction of the AO and come to the conclusion that the Arbitration clause is not to be considered binding in this case.

The arbitration clause in the share holder’s agreement (which was not invoked during AO proceedings and brought in only in TDSAT proceedings) was found not applicable since the agreement did not have any data security related obligations. Hence only the NDA cum Employment agreement was considered by TDSAT for this decision.

Though TDSAT had two earlier decisions under TRAI Act in which the arbitration requirement had been over ruled, the appellant appears to have contested it on the grounds that in civil disputes, the tribunal should be bound by the arbitration act.

One of the arguments pressed was that the Adjudication powers have a financial limit of Rs 5 crores and there after the dispute has to go to a civil court and in that event the civil court would be bound by the requirement for arbitration and hence even at this stage AO should consider the provisions of the arbitration act as binding on this dispute.

TDSAT refused to go into the decision based on the evaluation of the nature of the dispute, whether it is of civil nature only or involves criminal nature etc. It has categorically stated

“..The larger issue as to effect of provisions of Arbitration Act upon enquiry into complaints under the IT Act and grant f compensation on that basis is left open”.

TDSAT also rightly observed

“..This issue may also depend upon the peculiar facts of a case because sometimes the complaint of breach of security and theft of data may affect large number of persons and may not be arbitrable for the simple reason that all affected persons may not be bound by a common arbitration clause.”

In view of the above, the appeal was dismissed and the AO was permitted to proceed to decide the complaint in accordance with the law.

A Solution Missed?

One of the options that the AO/TDSAT could have exercised was to retain the AO’s powers to adjudicate after the Arbitration and let the complainant also feel satisfied that he had received justice.

In deciding this case, the AO will be required to take a view on complicated issues of data protection which would be better handled through “Mediation/Conciliation” more than even “Arbitration”, where data security experts are involved.

It is therefore possible that the AO may find it difficult to resolve the dispute to the satisfaction of both the parties and the matter will be back with TDSAT in due course.

Being an Employer-Employee dispute, the matter has to be handled with an understanding of the nuances involved in management of business where the top executives work 24X7 from anywhere including the home and often end up with a seamless integration of personal and official work.

Top entreprenerus/directors of startups often have no distinction between personal life and official life and their psyche is built on such total dedication and integration of personal life with official life.

Many times, as long as the employee attends to business matters even while he is at home, the companies (bosses) are happy. But the moment a dispute arises with a boss,  (which could simply be an ego clash), companies start finding distinction between personal and official duties and blame the employee.

Understanding such issues and bringing the disputes to an amicable settlement is best done through mediation even more than Arbitration.

The legal issues themselves may not be black and white and therefore insisting on legal remedy alone through either Arbitration or Adjudication may not the best solution to resolve this dispute.

However, it appears that the option of “Mediation” and “Conciliation” does not seem to have been explored in the current case.

I hope that the AO should atleast now suggest the parties to first try out Mediation before continuing with his enquiry as per Section 46 of ITA 2000/8. Whether Arbitration act is binding or not binding is not necessarily the issue.

Amicable resolution of the dispute between a Co-Founder who must have contributed to the setting up of the business and the current business beneficiaries is the real issue.

The purpose of alternate dispute resolution mechanisms, including the Adjudication and Tribunals should be to ensure that law is applied as a last resort after all efforts on amicable settlement are considered, explored and given an opportunity to succeed.

If it fails, the legal system can always take over.

Such an approach will be most suitable in cases such as these where there is no financial loss like in the case of a banking fraud and the dispute is about a notional loss arising out of alleged wrongful  data sharing.


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