Indian employment contracts routinely contain non-compete clauses promising the employer protection for one, two or even three years after the employee leaves, often drafted with the careful time, territory and activity limits that English or American practice would reward. Under Section 27 of the Indian Contract Act, 1872, almost all of those promises are unenforceable from the day the employment ends. The line Indian courts have held for nearly sixty years is temporal, not qualitative: a restraint operating during employment can be valid if reasonable and tied to a legitimate business interest, while a restraint operating after employment is void regardless of how narrowly it is drawn. The Delhi High Court's decision in Varun Tyagi v. Daffodil Software Pvt. Ltd. (June 2025) has reaffirmed that bar with fresh constitutional emphasis, which makes this a good moment to restate what the law actually permits.
A Statute Without a Reasonableness Test
The starting point is the uncompromising text of Section 27 of the Indian Contract Act, 1872:
"Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void."
The section creates a presumption of voidness: every agreement in restraint of trade is void unless it falls within a recognised exception. The only exception written into the statute concerns the sale of goodwill. A person who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business "within specified local limits", for so long as the buyer carries on a like business there, "provided that such limits appear to the Court reasonable, regard being had to the nature of the business." That exception is confined to genuine transfers of business goodwill for consideration. It does not extend to ordinary employment agreements.
This makes Indian law markedly stricter than English common law. English courts, following Nordenfelt v. Maxim Nordenfelt Guns & Ammunition Co. (1894), apply a general test of reasonableness: a restraint reasonable in scope, geography and duration, protecting a legitimate interest without offending public policy, will be enforced. Indian law recognises no such general test. Even a partially reasonable restraint is void unless it fits within the narrow exceptions. A six-month, geographically limited, carefully tailored post-employment non-compete that would survive in England is void in India.
Section 27 itself says nothing about the difference between restraints operating during employment and those operating afterwards, and it does not define "restraint of trade" with precision. Both gaps have been filled by the courts. The judiciary's central refinement is that not every negative covenant is a restraint of trade at all: an agreement to serve one employer exclusively during the period of employment is not hit by Section 27, because it facilitates the performance of the employment contract rather than restraining the exercise of a profession.
The During-Employment Window: Niranjan Shankar Golikari
The Supreme Court's foundational ruling is Niranjan Shankar Golikari v. The Century Spinning and Manufacturing Co. Ltd., AIR 1967 SC 1098. Golikari, a shift supervisor in Century Spinning's tyre cord yarn division, had signed a five-year agreement containing a non-compete and confidentiality obligations covering the company's manufacturing processes. After ten months he resigned and joined a competitor, Rajasthan Rayon, at a higher salary. The Supreme Court upheld an injunction restraining him from working for the competitor for the remainder of the contract term and perpetually restraining him from disclosing trade secrets. The operative order restrained him from being:
"engaged or connected as a Shift Supervisor in the Manufacture of tyre cord yarn or as an employee under any title discharging substantially the same duties ... in any part of India for the term ending 15th March 1968."
Two principles emerged. First, restraints operating during the term of employment are not hit by Section 27, provided they are reasonable in scope, time and geography and are necessary to protect the employer's legitimate business interests, particularly trade secrets and confidential information. Second, an injunction enforcing a negative stipulation can be granted only for the legitimate purpose of safeguarding those interests, and not merely to restrain competition.
Although Section 27 mentions no test of reasonableness, the Court imported one for during-employment restraints across three dimensions: the duration must be tied to the period needed to protect the identified interest; the geography must correspond to where the employer actually operates; and the restricted activity must correspond to the specific field in which the employee had access to confidential information. The restriction in Golikari was upheld precisely because it was confined to the exact role, and the exact field, in which he had learned the company's secrets. The protected interest must also be actual and identifiable, not speculative; an interest in suppressing competition as such is not legitimate.
After Employment Ends: A Bar Reasonableness Cannot Cure
What Golikari left circumscribed, later decisions made explicit. In Superintendence Company of India (P) Ltd. v. Krishan Murgai, the employee's contract barred him from a similar business during employment and for two years after termination. The Delhi High Court (AIR 1979 Delhi 232) held:
"Section 27 does not distinguish between reasonable or unreasonable restraint of trade. Therefore, any restraint imposed on the employee after the term of employment would prima facie be void and unenforceable."
On appeal, the Supreme Court ((1981) 2 SCC 246) held that a contract which had for its object a restraint of trade was prima facie void. The consequence is structural: because the statute contains no reasonableness test for post-employment restraints, and no statutory exception covers employment, reasonableness simply cannot be imported. A post-employment non-compete that is modest in time, geography and scope is void for the same reason as an oppressive one.
The Supreme Court consolidated the doctrine in Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan, (2006) 4 SCC 227. The dispute arose outside employment: an event management company sought to enforce a clause in a promotion agreement with the cricketer Zaheer Khan, drafted to survive the contract's expiry, restraining him from signing with competing agencies. The Court refused enforcement and stated the rule:
"Under Section 27 of the Contract Act: (a) A restrictive covenant extending beyond the term of the contract is void and not enforceable. (b) The doctrine of restraint of trade does not apply during the continuance of the contract for employment and it is applied only when the contract comes to an end. (c) As held by this Court in Gujarat Bottling v. Coca Cola (supra), this doctrine is not confined only to contracts of employment, but is also applicable to all other contracts."
The Court noted that this reading of Section 27 had been "uniform, consistent and unchanged" since Madhup Chunder v. Rajcoomar Doss, (1874) 14 Beng. L.R. 76, then already 132 years old. Gujarat Bottling Co. Ltd. v. Coca Cola Co., AIR 1995 SC 2372, supplies the complementary principle: restraints operating during the currency of a contract, such as a franchise term barring dealings in competing goods, are not hit by Section 27 because they facilitate performance of the contract; once the contract ends, any continuing restriction becomes a restraint of trade.
The Delhi High Court put the point bluntly in Pepsi Foods Ltd. v. Bharat Coca-cola Holdings Pvt. Ltd., (1999) DLT 122:
"It is well settled that such post-termination restraint, under Indian Law, violates Section 27 of the Contract Act. Such contracts are unenforceable, void, and against public policy. What is prohibited by law cannot be permitted by Court's injunction."
The 2025 Restatement: Varun Tyagi v. Daffodil Software
The most recent authoritative statement is Varun Tyagi v. Daffodil Software Private Limited, FAO 167/2025, decided by the Delhi High Court on 25 June 2025. Tyagi, an IT engineer, was bound by a clause restraining him for three years after leaving from working with or soliciting any "business associate" he had been introduced to through Daffodil's business, including Digital India Corporation (DIC), the government entity to which Daffodil supplied specialised software services. When Tyagi resigned and joined DIC, the trial court at Saket granted Daffodil an interim injunction stopping him.
The High Court set the injunction aside and restated the law in emphatic terms:
"It is clear that any term of the employment contract that imposes a restriction on the right of the employee to get employed post-termination of the contract of employment shall be void being contrary to Section 27 of the ICA."
The Court confirmed that reasonableness is irrelevant to that inquiry: "The reasonableness and whether the restraint is partial or complete is not required to be considered when an issue arises as to whether a particular term of contract is or is not in restraint of trade, business or profession." It recognised only a narrow surviving field, holding that a post-employment restrictive covenant is enforceable only to protect an employer's confidential or proprietary information or to prevent solicitation of its clients, and it placed the burden squarely on the employer to prove that the material at risk is genuinely confidential. On the facts, the contract between Daffodil and DIC vested all intellectual property from the assignment in DIC itself, so there was nothing of Daffodil's for Tyagi to misuse by joining DIC.
Two further strands of the judgment deserve attention. The Court framed employee mobility as a constitutional matter, noting a potential violation of the right to carry on any occupation under Article 19(1)(g) of the Constitution. And it acknowledged the power imbalance inherent in employment contracts, typically drafted unilaterally by employers, reiterating that "employees should not be forced into a situation where they must either continue with a former employer or remain unemployed."
That reasoning sits within a consistent body of High Court authority. In Wipro Limited v. Beckman Coulter International S.A., the Delhi High Court held that post-termination negative covenants restricting an employee's right to seek employment or do business in the employer's field are void, because "no employee can be confronted with the situation where he has to either work for the present employer or be forced to idleness." In Affle Holdings Pte Limited v. Saurabh Singh, the same court held a covenant prohibiting a competing business beyond the contract's tenure void and unenforceable. The Bombay High Court in VFS Global Services Private Limited v. Suprit Roy, 2008 (2) Bom CR 446, held that "to obstruct an employee who has left service from obtaining gainful employment elsewhere is not fair or proper", while accepting that a narrowly limited restraint on the use of genuine trade secrets is not a restraint of trade at all. And the Madras High Court in E-Merge Tech Global Services Private Limited v. M. R. Vindhyasgar upheld a three-year post-termination non-solicitation clause, a useful marker of where the enforceable boundary now runs.
What Counts as a Legitimate Business Interest
The doctrine of legitimate business interest, applied since Golikari, determines whether any restrictive covenant serves a purpose the law will protect. Courts have recognised as legitimate: trade secrets and proprietary manufacturing know-how; confidential information such as client lists, pricing strategies and business plans; proprietary material such as source code and design specifications; established client relationships and goodwill; and substantial employer investment in specialised training.
They have equally rejected certain justifications as insufficient: the bare desire to prevent an employee from working for a competitor; vague or speculative apprehension of harm; the employer's stronger bargaining position; and any restriction that would deprive the employee of the ability to earn a livelihood in their field.
The operative test is necessity and proportionality. Is the restriction necessary to protect the identified interest, and is it proportionate in time, geography and scope to that interest? If an employee's knowledge of a process would give a competitive edge for at most a year, a three-year restraint is disproportionate. During employment the test is applied leniently, since preventing active competition by someone still drawing a salary is itself regarded as legitimate. Post-employment, scrutiny is strict: the employer must identify the specific confidential information at risk, the limited period for which it stays confidential, the specific area of competitive risk, and why the restriction is no wider than necessary.
The controversy over Infosys's non-compete clause in 2022 illustrates the doctrine in practice. The clause barred former employees from joining five named competitors for six months in respect of projects for the same client served at Infosys, and Infosys defended it as protecting confidentiality and customer connection. The clause drew objections from the NITES union and attention from the Ministry of Labour, and courts would likely find it problematic: naming five competitors restrains employment as such rather than protecting identified information, and the restriction operates across the technology sector rather than being confined to the specific client relationship.
The Enforceable Toolkit
Garden leave
Garden leave relieves a departing employee of duties during the notice period while continuing full salary and benefits; the employee stays on the rolls, bound by the contract, and cannot join a competitor in the meantime. Because the employee is still technically employed, the restraint is a during-employment one, outside the harshest application of Section 27; because it is fully paid and short (notice periods typically run from thirty days to six months), it also answers the fairness concerns that doom post-employment covenants. The employee's duties of fidelity and confidentiality continue throughout.
The judicial position carries a caveat. In VFS Global the Bombay High Court described garden leave as prima facie in restraint of trade even while acknowledging the practice as popular and widespread in India. The synthesis from the case law is that garden leave stands its best chance where the stipulated period is reasonable (one to six months), the employee is paid throughout, and the employee remains on the employer's rolls until the period expires. The outer limit courts will tolerate is not definitively settled, so restraint in drafting is itself a protection.
Non-solicitation
Non-solicitation clauses bar a former employee from inducing away the employer's clients or from recruiting former colleagues. Because they protect specific business relationships rather than barring the employee from working in the field, courts treat them more favourably than non-competes; E-Merge Tech upheld one for three years post-termination. The practical difficulty is proof: the employer must show active solicitation, not merely that a client or colleague independently followed the employee. Sound drafting defines the protected clients (for instance, those the employee dealt with directly in the final twelve months), fixes a moderate duration (twelve to eighteen months is typical), and defines solicitation as direct approaches with intent to induce, excluding passive receipt of unsolicited business.
Confidentiality
Confidentiality obligations stand on different footing altogether. They are enforceable during employment and indefinitely afterwards, for as long as the information retains commercial value, provided they are tied to genuinely confidential material. The Bombay High Court held as early as V.N. Deshpande v. Arvind Mills, AIR 1964 Bom 423, that restraints on disclosing secret information are not hit by Section 27, because they prevent only the wrongful use of information, not the exercise of a profession. In Zee Telefilms Limited v. Sundial Communications Private Limited the same court held that "no one should be allowed to profit from the wrongful use of information received in confidence." The duty does not even depend on an express clause: in Diljeet Titus v. Alfred A. Adebare the Delhi High Court restrained a law firm's ex-employees from using confidential client information on the strength of the implied duty of confidence.
Two limits matter. First, Desiccant Rotors International Pvt. Ltd. v. Bappaditya Sarkar (Delhi High Court, CS(OS) 337/2008, 14 July 2009) holds that a confidentiality agreement cannot be used as a backdoor to enforce what is in substance a blanket non-compete. Second, the boundary between protectable trade secrets and an employee's general skill and knowledge has never been precisely defined, and some information will sit in a grey zone.
The layered approach
Current drafting practice has moved away from the single non-compete clause towards a combination of independently enforceable protections:
- A confidentiality clause with a narrow, specific definition of protected information, surviving employment indefinitely;
- Customer non-solicitation limited to defined clients the employee dealt with, for twelve to eighteen months;
- Employee non-solicitation for around twelve months;
- A perpetual IP assignment clause vesting all work product in the company, enforceable independently of Section 27;
- Garden leave confined to the paid notice period for key personnel.
Outside employment, the picture differs. A seller of business goodwill may accept a non-compete if there is a genuine transfer of goodwill for consideration, the restraint is confined to specified local limits, it is reasonable in duration and scope, and it lapses when the buyer stops carrying on the business. Section 36 of the Indian Partnership Act, 1932 similarly permits reasonable restraints on outgoing partners recorded in the partnership deed. But an acquirer who wants to keep a target's key employees from defecting cannot rely on employment non-competes and must use the same toolkit of garden leave, non-solicitation and confidentiality.
Practical Takeaways
- Drop post-employment non-compete clauses from employment contracts. They are void however reasonable, they give employers false comfort, and they mislead employees about obligations that do not exist.
- During-employment exclusivity and non-compete obligations are enforceable if reasonable in time, geography and scope and tied to an identified legitimate interest.
- Before drafting any covenant, name the specific interest being protected. If the honest answer is "preventing competition", the clause is vulnerable; if it is a defined client base or a proprietary process, choose the instrument that fits (non-solicitation or confidentiality respectively).
- Protect information through precise confidentiality clauses surviving termination, backed by IP assignment; remember that confidentiality cannot be stretched into a disguised non-compete.
- Use garden leave for key employees: full pay, employee on the rolls, duration confined to a reasonable notice period.
- Employees are not bound by post-employment non-competes and cannot be kept from joining a competitor, but confidentiality and non-solicitation obligations do bind them, and the right to pursue a livelihood is constitutionally anchored in Article 19(1)(g).
Key Authorities
- Section 27, Indian Contract Act, 1872 — agreements in restraint of trade are void, save the sale-of-goodwill exception. Source
- Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd., AIR 1967 SC 1098 — during-employment restraints fall outside Section 27 if reasonable and necessary to protect trade secrets; injunctions cannot serve merely to restrain competition. Source
- Superintendence Company of India (P) Ltd. v. Krishan Murgai, (1981) 2 SCC 246 — post-service restraints are prima facie void; Section 27 admits no reasonableness test.
- Gujarat Bottling Co. Ltd. v. Coca Cola Co., (1995) 5 SCC 545 — covenants operating during a contract's currency facilitate performance and are not restraints of trade.
- Pepsi Foods Ltd. v. Bharat Coca-cola Holdings Pvt. Ltd., (1999) DLT 122 (Del HC) — post-termination restraints are void, unenforceable and against public policy.
- Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan, (2006) 4 SCC 227 — a restrictive covenant extending beyond the contract term is void; the doctrine applies to all contracts, not just employment. Source
- Wipro Limited v. Beckman Coulter International S.A. (Del HC) — post-termination covenants restricting employment are void; no employee may be forced to idleness.
- Affle Holdings Pte Limited v. Saurabh Singh (Del HC) — a covenant barring competing business beyond the contract's tenure is void.
- VFS Global Services Private Limited v. Suprit Roy, 2008 (2) Bom CR 446 (Bom HC) — obstructing an ex-employee's gainful employment is unfair; garden leave is prima facie a restraint though widely practised.
- E-Merge Tech Global Services Private Limited v. M. R. Vindhyasgar (Mad HC) — three-year post-termination non-solicitation clause upheld.
- V.N. Deshpande v. Arvind Mills, AIR 1964 Bom 423 — confidentiality restraints prevent wrongful use of information, not the exercise of a profession, and are outside Section 27.
- Desiccant Rotors International Pvt. Ltd. v. Bappaditya Sarkar, CS(OS) 337/2008 (Del HC, 14 July 2009) — confidentiality agreements cannot operate as backdoor post-employment non-competes.
- Varun Tyagi v. Daffodil Software Private Limited, FAO 167/2025 (Del HC, 25 June 2025) — post-employment restraints are void; only protection of confidential information and client non-solicitation survive; employee mobility engages Article 19(1)(g). Source
This analysis reflects the law as at June 2026. It is published for general information and does not constitute legal advice.