1.

Internal Selection Rounds at the National Law School of India University,

Bangalore (2005)

Drafted by: Umakanth Varottil

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

JJ Diagnostics Private Limited - Appellant

v.

Dr. Manjari - Respondent

1. Technology has broken distance as a barrier to providing healthcare services

across continents. Recent developments like telemedicine have encouraged not
only transportation of high-quality medical services to areas that need them the
most, but have also facilitated the outsourcing of some of the healthcare-related
activities to destinations like India which possess a rich medical talent pool that
can provide high-quality services at a relatively lower cost.

2. Anticipating a boom in the healthcare outsourcing activity, Dr. Jomon Jacob

decided to quit his position as Head of Radiology with a leading Pune hospital to
set up a company in the teleradiology space. In September 2002, he formed JJ
Diagnostics Private Limited along with his wife Stella, and set up a new facility
that he took on lease in Pune. Since Dr. Jacob’s business model was fairly novel
and untested, he first decided to implement a pilot project with one customer,
before scaling up his operations. Towards this end, he commenced discussions
with the Terry Fox Foundation Cancer Centre in Moonvale, California offering to
provide them teleradiology services. Dr. Jacob’s model involved a process
whereby the Terry Fox Foundation would conduct diagnostic examinations on
patients at their hospital in Moonvale by using an imaging camera designed to
facilitate imaging of specific parts of the anatomy and organ functioning. The
image so captured by the camera would be processed by a computer at the
hospital and then transferred via satellite to JJ Diagnostics’ computers in Pune.
Dr. Jomon Jacob would review the images and prepare diagnostic reports based
on the images and send the reports back to the Terry Fox Foundation using a
customized software designed by him for this purpose.

3. The pilot project was a success. The Terry Fox Foundation discovered that
outsourcing part of its radiology activities significantly cut its costs as the salaries
for employing radiologists in California were skyrocketing. Apart from that, it

6
 also quickened the process for preparation of reports by taking advantage of the
time difference as all images transferred by the Terry Fox Foundation by the end
of the day (U.S. time) would be processed by Dr. Jacob overnight (i.e. during the
day in India) so that all the reports were ready by the next morning in the U.S.
The management of the Terry Fox Foundation decided to award a 5-year contract
to JJ Diagnostics for teleradiology which would accrue an average revenue of
US$ 10 million per annum to JJ Diagnostics. Realising the potential for
teleradiology in the Indian healthcare sector, and based on the success of the pilot
project, JJ Diagnostics also received a contract from the Discovery Hospital in
New Delhi for a teleradiology project which would accrue an average revenue of
Rs. 5 crores to JJ Diagnostics.

4. Now that he had bagged huge contracts, Dr. Jacob had to scale up JJ Diagnostics’
human resources. He immediately placed advertisements in several national
newspapers and on job-related websites seeking applications for qualified
radiologists to take up employment with JJ Diagnostics. The candidates required a
minimum qualification of a masters’ degree in radiology from any reputed Indian
medical college. The advertisement stated that although not a must, a master’s
degree from a reputed U.S. or U.K. medical college was preferable.

5. Dr. Manjari is the only daughter of the owner of a prominent resort and
entertainment park worth about Rs. 30 crores in the hill station of Lonavla.
Although her father was keen that she takes up the responsibility of running the
family properties and businesses, which he had by then transferred in her name,
Dr. Manjari was a qualified radiologist and was keen to pursue the medical
profession. With an avid interest in the emerging field of teleradiology, she seized
the opportunity that she saw with JJ Diagnostics and applied for the post of
teleradiologist. In her application, she stated that she had a masters’ degree in
radiology from the University of Goa and also a further masters’ degree from the
University of Marlborough in the U.S. Since she had all the necessary
qualifications, in February 2003 she was recruited by Dr. Jacob for JJ Diagnostics
at an annual salary of Rs. 20 lacs after two rounds of interviews. Several other
radiologists were also recruited thereby increasing JJ Diagnostics’ strength of
teleradiologists to 30. Each team within JJ Diagnostics consisted of 5
teleradiologists headed by one experienced teleradiologist. Dr. Manjari headed a
team of 5 teleradiologists, whose work she had to supervise as part of her
responsibilities.

6. Since teleradiology was a specialized field, JJ Diagnostics had entered into a tie-
up with the American College of Teleradiologists in New Jersey, whereby certain
key teleradiologists of JJ Diagnostics will be sent for a 6 weeks’ training
programme to the American College of Teleradiologists to receive specialized
training in outsourced teleradiology. From each of its teams, 2 members were sent
for this training. From her team, Dr. Manjari and Dr. Johnny were chosen to
attend the programme, which they successfully completed in March-April 2003.

7
7. Upon taking up employment with JJ Diagnostics, each teleradiologist was
required to execute an employment contract with JJ Diagnostics. Apart from
remuneration and other terms of employment, the employment contract contained
the following terms:

(a) The employee shall work with JJ Diagnostics for a period of at least 5 years,
and in case the employee left his/her services within the 5-year period, then all
expenses incurred by JJ Diagnostics in training the employee had to be
reimbursed by the employee to the company;

(b) The employee shall maintain strict confidentiality in respect of all information
pertaining to customers received during the course of employment with JJ
Diagnostics;

(c) The employee shall comply with the provisions of (i) the Health Insurance
Portability and Accountability Act of 1996 (HIPAA) and the privacy rules and
regulations issued thereunder, and (ii) other data protection and privacy laws
as are applicable in India;

(d) The employment contract can be terminated by either party by giving 3

months’ prior written notice; and

(e) In case of termination, the employee cannot be employed with another entity
carrying on a competing business, for a period of 2 years from the date of
ceasing to be employed with JJ Diagnostics.

8. As regards confidentiality and privacy, JJ Diagnostics’ lawyers specifically

drafted the aforesaid provisions in the employment contract since the customers
of JJ Diagnostics had imposed similar obligations on it in the services contract
between the customers and JJ Diagnostics for provision of teleradiology services.
For instance, the Terry Fox Foundation has imposed strict confidentiality
obligations on JJ Diagnostics which also required it to comply with the provisions
of HIPAA while dealing with health information of its patients. The contract with
the Terry Fox Foundation was governed by the laws of California, with the
appropriate courts in California being conferred to decide disputes among parties.
Further, the Discovery Hospital, in its contract with JJ Diagnostics, required the
latter to maintain confidentiality of patient information and also mandated
compliance with data protection and privacy laws as are applicable in India. In
view of this, the obligation of JJ Diagnostics to comply with data protection and
privacy laws were passed on to the employees under the employment contracts.

9. Over the next few months, JJ Diagnostics received orders from several other
hospitals, both in India and overseas. JJ Diagnostics also consistently grew its
employee strength from 30 to 85 teleradiologists. Its annual revenue for the
financial year 2003-2004 was approximately Rs. 75 crores. In June 2004, Dr.

8
 Jacob also received an award from the Indian Medical Council recognizing his
pioneering role in the promotion of outsourced healthcare services for India.

10. Much to his shock and disbelief, in August 2004, Dr. Jacob received notice from a
court in Moonvale, California of a suit filed by the Terry Fox Foundation against
JJ Diagnostics seeking damages of US$ 15 million for breach of its confidentiality
obligations by JJ Diagnostics under its contract with the Terry Fox Foundation.
The notice claimed that several patients of the Terry Fox Foundation had initiated
a suit against its hospital in Moonvale on the ground that their records pertaining
to diagnostic information was divulged by the hospital or its agents thereby
causing severe harm and damage to the patients, including the death of two
patients. The claim of US$ 15 million included an amount of US$ 10 million
towards the death of the two patients. Upon conducting an internal enquiry, the
Terry Fox Foundation found that all its systems and controls were fully
operational and that the data that was leaked related only to patients whose
radiology reports were outsourced to JJ Diagnostics and not to those patients
whose reports were prepared internally by the hospital. The Terry Fox Foundation
therefore had strong reason to believe that the leak occurred at JJ Diagnostics’ end
and hence brought about a suit against the later for recovery of damages. A
similar action was filed by the Discovery Hospital against JJ Diagnostics in the
High Court of Judicature at New Delhi, alleging that JJ Diagnostics had leaked
information due to which its patients have sued the hospital, although no deaths
were reported among patients of the Discovery Hospital.

11. Dr. Jacob was a shattered man. In order to salvage the reputation of his company,
his lawyers recommended that he conduct an internal probe to determine the
cause of such leakage, if any. A retired judge of the Patna High Court, who
conducted the probe, submitted his report to JJ Diagnostics. Dr. Jacob was even
more shocked to know the results of the probe. It directly linked the leakage of
information to Dr. Manjari, who was until then considered to be a bright and
sincere radiologist with an unblemished track record in the company.

12. It was found that during her visit for training to the U.S., Dr. Manjari had met one
Dr. Ross. Even after her return to India, she maintained contact with Dr. Ross
over email and telephone. Dr. Ross had a pharmaceutical company which
manufactured a specialized drug by the name of Arnoxica to treat and completely
cure lung cancers at an early stage. Over time, Dr. Ross succeeded in luring Dr.
Manjari into providing him with information regarding patients of the Terry Fox
Foundation Cancer Centre in Moonvale, California whose radiology reports
indicated early signs of lung cancer. It was not clear whether Dr. Manjari had
received any monetary reward or other benefit for providing this information.
With this, Dr. Ross’s sales representatives began targeting patients whose
diagnostic reports suggested early signs of lung cancers to buy Arnoxica. On this
basis, over 500 patients began using Arnoxica. However, it was found that
Arnoxica had certain properties due to which, when administered to persons with
high blood pressure, it would cause a cardiac arrest. This fact was unknown to Dr.

9
 Ross, and this resulted in the death of two patients of Terry Fox Foundation
Cancer Centre. Dr. Ross and his team also targeted patients of the Discovery
Hospital, some of whom were using Arnoxica.

13. Further, Dr. Ross’ father (Mr. Ross Sr.) was the General Manager of Lifeline
Assurance Inc., a leading life insurance company in California. They also had an
arrangement with the Terry Fox Foundation to insure all patients at their
hospitals. In order to assist his father in managing his risk, Dr. Ross decided to
provide information regarding patients of Terry Fox Foundation received from
Dr. Manjari to his father. Based on this information, Lifeline Assurance Inc.
rejected the insurance applications of about 150 patients of Terry Fox Foundation
Cancer Centre in Moonvale, California. Although no reason was provided for the
rejection by Lifeline Assurance Inc., this was done to prevent patients whose
radiology reports suggested signs of lung cancer from obtaining insurance
policies. The claims against the Terry Fox Foundation also consisted of those
from patients who did not receive insurance policies on this count.

14. On September 15, 2004, Dr. Jacob confronted Dr. Manjari with this matter. Dr.
Manjari broke down and confessed to having passed on vital patient information
to Dr. Ross. Dr. Jacob, being a passive and generally accommodating gentleman,
decided not to dismiss Dr. Manjari from employment with the company. Instead,
he offered to Dr. Manjari that she could terminate her employment by giving 3
months’ notice as required under her employment contract. Therefore, on the very
same day, Dr. Manjari submitted her resignation letter terminating her
employment effective 3 months from the date of the letter.

15. On October 16, 2004, Dr. Manjari addressed a detailed email to Dr. Jacob. In that,
she alleged that she has been put to considerable mental strain and agony during
her tenure at JJ Diagnostics which has adversely affected her professional and
personal life. She alleged that she was forced by Dr. Jacob to resign from the
company, much against her own wishes. Further, she also alleged several
instances of harassment by other employees of the company. As an example, she
mentioned that her team member Dr. Johnny had the habit of rubbing shoulders
with her each time they were passing through the office corridors in opposite
directions. This, she says, is a deliberate act on the part of Mr. Johnny as it has
occurred on various occasions over a long period of time. Further she states in her
email that during a few overseas trips, in spite of repeatedly requesting him not to
do so, Dr. Johnny would ensure that his seat on the airplane was next to that of
Dr. Manjari, and that he would constantly attempt to engage in a conversation
with her, without enabling her to take any rest during a long and tiresome journey.
Further, his conversations were often very rude and impolite. In fact, on one
occasion, he told Dr. Manjari with reference to a lady sitting across the aisle, that
“the female over there is very cute”. Dr. Manjari strongly protested against this
and told Dr. Johnny that this was denigrating and humiliating of women. In her
letter, Dr. Manjari wrote to Dr. Jacob that this amounted to sexual harassment
suffered by her and that she needs to be appropriately redressed.

10
16. To this Dr. Jacob replied. He stated that Dr. Manjari’s resignation from the
company was purely voluntary and no compulsion whatsoever was applied on
her. He further set up a committee consisting of himself (as chairman) and Stella
(who was by then the Head of Administration of JJ Diagnostics) to look into
allegations of sexual harassment. Dr. Jacob further wrote in his email that upon
conducting a background check, it was found that Dr. Manjari had not received a
degree from the University of Marlborough as she had claimed in her application
for employment. Therefore, apart from divulging confidential information
regarding patients, she had also committed fraud on JJ Diagnostics by lying about
her educational qualifications. As regards the sexual harassment allegations, the
committee headed by Dr. Jacob heard Dr. Manjari in detail and thereafter
convened a meeting on December 10, 2004 to hear Dr. Johnny.

17. However, from December 1, 2004, Dr. Manjari stopped reporting for work with JJ
Diagnostics. She had accepted a lucrative offer from Onco Teleradiology Private
Limited, a Mumbai-based company offering teleradiology services. She was
offered a salary which was significantly higher than what she was being paid with
JJ Diagnostics.

18. On January 10, 2005, JJ Diagnostics initiated a suit against Dr. Manjari in the
Court of the District Judge at Pune claiming the following reliefs:

(a) recovery of damages from Dr. Manjari to the extent of all amounts that JJ
Diagnostics was required to pay the Terry Fox Foundation and Discovery
Hospital under its contract with them and under the suits that have been filed
against JJ Diagnostics and which are pending before the courts in the U.S. and
in New Delhi;

(b) recovery of all amounts expended by JJ Diagnostics towards training Dr.

Manjari;

(c) recovery of additional amounts by way of damages for defrauding JJ

Diagnostics by wrongly stating that she had received her degree from the
University of Marlborough;

(d) ordering attachment of the property owned by Dr. Manjari’s in Lonavla

towards payments of the aforesaid damages; and

(e) injunction restraining Dr. Manjari from being employed with Onco
Teleradiology Private Limited or any other company carrying on business that
competes with JJ Diagnostics, for a period of 2 years from the date of her
termination of employment.

19. Dr. Manjari refuted all these claims stating that she had no legal obligation to
make payment of the damages as sought for by JJ Diagnostics and hence there

11
 was no question of attachment of her property. She further made a counter-claim
before the court that JJ Diagnostics was required to pay her damages and also
tender an unconditional apology for the various acts of oppression committed
against her, including forcing her to resign from the services of the company and
being subjected to constant acts of sexual harassment.

20. After examining the merits of the case, the Court of the District Judge at Pune
dismissed the suit of JJ Diagnostics and also the counterclaims made by Dr.
Manjari. As against this order of dismissal, JJ Diagnostics has preferred an appeal
to the High Court of Judicature at Bombay. Before this Court, the Respondent,
Dr. Manjari, has not taken up any argument of jurisdiction, but only those of
sexual harassment, and hence the Court has decided to directly take up the matter
on merits.

--------------- x ----------------

12