Home       Top Rated       Submit Article     Advanced Search     FAQ       Contact Us       Lawyers in India       Law Forum     RSS Feeds     

Register your Copyright Online

We offer copyright registration right from your desktop click here for details.

Latest Articles | Articles 2014 | Articles 2013 | Articles 2012 | Articles 2011 | Articles 2010 | Articles 2009 | Articles 2008 | Articles 2007 | Articles 2006 | Articles 2000-05

Search On:Laws in IndiaLawyers Search

Mutual Consent Divorce in Delhi
We provide fast, cost effective and Hassle free solution.
Contact us at Ph no: 9650499965 (Divorce Law Firm Delhi)

E-mail login                       Password

Free Email Sign Up

Main Categories
 Accident Law
 Aviation Law
 Banking and Finance laws
 Case Laws
 Civil Laws
 Company Law
 Constitutional Law
 Consumer laws
 Contracts laws
 Criminal law
 Drug laws
 Dubai laws
 Educational laws
 Employment / Labour laws
 Environmental Law
 family law
 Gay laws and Third Gender
 Human Rights laws
 Immigration laws
 Insurance / Accident Claim
 Intellectual Property
 International Law
 Juvenile Laws
 Law - lawyers & legal Profession
 Legal Aid and Lok Adalat
 Legal outsourcing
 Media laws
 Medico legal
 Real estate laws
 Right To Information
 Tax Laws
 Torts Law
 Woman Issues
 Workplace Equality & Non-Discrimination
 Yet Another Category

More Options
 Most read articles
 Most rated articles

Subscribe now and receive free articles and updates instantly.


Copyright Registration

To Copyright Your Books, Videos, Songs, Scripts etc
Call us at: 9891244487 / or email at: admin@legalserviceindia.com
Top Law Colleges

Law Updates:

# Income-Tax
# Family law
# Company Law
# Constitutional Law
# Partnership firms
# Immigration Law
# Cyber Law
# Lok Adalat, legal Aid & PIL
# Forms
# Trademarks
# Woman issues
# Medico Legal
# Consumer laws
# Criminal laws
# Supreme Court Judgments

Published : September 15, 2010 | Author : rashmi jajoria
Category : Contracts laws | Total Views : 13244 | Rating :

rashmi jajoria
Hi,I Rashmi Jajoria, Student of New Law College,B.V U. Pune

Post-Termination non-compete clauses in employment contracts

Indian courts have consistently refused to enforce post-termination non-compete clauses in employment contracts, viewing them as “restraint of trade” impermissible under Section 27 of the Indian Contract Act, 1872 (the Act), and as void and against public policy because of their potential to deprive an individual of his or her fundamental right to earn a livelihood.

The principles of Section 27 were aptly summarized by the Supreme Court of India in Percept D’ Mark (India) Pvt. Ltd v Zaheer Khan (AIR 2006 SC 3426), in which the Supreme Court observed that under Section 27 of the Act a restrictive covenant extending beyond the term of the contract is void and not enforceable. The court also noted that the doctrine of “restraint of trade” is not confined to contracts of employment only, but is also applicable to all other contracts with respect to obligations after the contractual relationship is terminated.

This long-standing stance was clearly reaffirmed recently in a 2009 decision by the New Delhi High Court in Desiccant Rotors International Pvt Ltd v Bappaditya Sarkar & Anr (I.A. No.5455/2008, I.A. No.5454/2008 & I.A. No.5453/2008 in CS(OS) No.337/2008), which involved a senior marketing manager at a manufacturer of evaporative cooling components, products and systems. As part of his employment agreement with Desiccant, the manager agreed that for two years following the termination of his employment, he would be bound by a covenant with Desiccant that would require him to keep Desiccant’s matters confidential, and that would prevent him from competing with Desiccant and soliciting Desiccant’s customers, suppliers and employees. Expressly embodied in the employment agreement was an acknowledgment by the manager that he was dealing with confidential material of Desiccant, including: know-how, technology trade secrets, methods and processes, market sales, and lists of customers. After a few years of employment, the manager resigned and-notwithstanding the terms of his old employment agreement-within three months of his resignation joined a direct competitor of Desiccant as country manager in charge of marketing and started contacting customers and suppliers of Desiccant. In injunctive proceedings against the manager by Desiccant, the High Court reiterated the principles embodied in Section 27 of the Act and the individual’s fundamental right to earn a living by practicing any trade or profession of his or her choice. Brushing aside any argument by Desiccant that the restrictive covenants were primarily designed to protect its confidential and proprietary information, the High Court ruled that in the clash between the attempt of employers to protect themselves from competition and the right of employees to seek employment wherever they choose, the right of livelihood of employees must prevail. Similarly, in a 2007 decision in V.F.S. Global Services Ltd. v. Mr. Suprit Roy (2008 (2) BomCR 446 ) the Bombay High Court held that a fully paid three-month “garden leave” agreement with a senior manager did not renew the employment contract and constituted a “restraint of trade” unenforceable by V.F.S.

As a general principle, confidentiality, non-competition and non-solicitation agreements will be enforceable during the term of the employment relationship. After termination of employment, however, many provisions of these agreements will be struck and deemed unenforceable by Indian courts in enforcement proceedings, even if the provisions are reasonable in scope and duration, subject to certain exceptions.

One of the few instances in which non-competition clauses will generally be enforceable is in the context of the sale of a business, where the owners of the business will agree to a non-compete in exchange for consideration for the goodwill associated with the business (for example, in a stock sale where the promoters will sell their stock in the business to a buyer in exchange for consideration). To be enforceable, the non-compete will need to be reasonably limited in time and scope, and consideration will need to be attributed to the goodwill in the transaction, as evidenced in the documentation. Similarly, a non-compete clause in a joint venture in which shareholders mutually agree not to compete with each other on certain terms and conditions, which include time and geographic restrictions, will generally be enforceable in India.

Non-solicitation obligations post-termination of employment may be enforced in limited circumstances, based upon the facts of each individual case. For example, they were upheld in the Desiccant case, in which the High Court did allow an injunction against the manager prohibiting him from soliciting Desiccant’s customers and suppliers to stand in effect. In the V.F.S. case, however, relief for breach of non-solicitation obligations was denied on the basis of vagueness of the relief claimed.

Confidentiality obligations post-termination of employment will similarly be enforced in limited circumstances so long as they remain reasonable and limited in time and scope and the employer can support that the information is confidential and proprietary to it. Indeed, while denying enforcement of the garden leave in the V.F.S. case, the Bombay High Court established the principle that a restraint on the use of trade secrets during or after cessation of employment is not tantamount to a “restraint on trade” under Section 27 of the Act and therefore can be enforceable under certain circumstances. This case and others show that Indian courts will in certain circumstances enforce confidentiality agreements intended to protect an employer’s proprietary rights. But the courts remain sensitive to the possibility that employers may try to use these covenants as a back-door means of restraining employees from exercising their trade and will place an extremely high burden of proof on employers seeking to enforce these provisions. In the Desiccant case for example, the court held that a marketing manager could not be deemed to possess confidential information and that his written declaration to that effect in his employment agreement were meaningless; the court rejected Desiccant’s claim to enforce the confidentiality obligations of the manager.

Authors contact info - articles The  author can be reached at: ras@legalserviceindia.com

1 2 3 4 5
Rate this article!     Poor

Most viewed articles in Contracts laws category
Void & Voidable Agreements
Specific performance of Contracts
Privity of contract & third party beneficiary in a contract
Wagering Agreements
Regulation of Contract Labour
Perspectives on Contract Labour Act
Standard form of Contract
Indemnity in a contract
Pre-incorporation contracts
Contract Ratification
Nemo Dat Quod Non Habet
Fundamental Breach of Contract
Time is the essance of the Contract
Contract- II: Bailment
Joint & Several Liability
Standard Form Contract
Most recent articles in Contracts laws category
Offer in a Contract
Standard Form of Contracts: Effect Of Unequal Bargaining Power
John Lockes Social Contract Theory
Rescission of contract
Nemo Dat Quod Non Habet
Comparative Analysis of a Treaty Governed By Vienna Convention And A Contract Regulated by Indian Contract Act
Fundamental Principles of Contract Drafting
Importance of Consideration in Contract
Anti Competitive Agreements and whether Consumers can be a Party to such Agreements?
Position Finder of Goods under Indian Contract Act
Deemed Sale
A Legal Perspective on Public Private Partnerships in India
Study of Contractual Documents Involved In Yamuna Expressway Project
Perspectives on Contract Labour Act
Fundamental Breach of Contract
an Agent

Article Comments

Posted by Y K Vermani on May 04, 2011
A good writing work done

Posted by anonymous on December 16, 2010
here is an insight on validity of non compete covenants in india:
Agreements that restrain an employee from working with a competitor or carrying out a competing business are called Non-compete agreements. Such agreements, when reasonable are considered to be valid in countries such as USA and UK. However, under the Indian law Non-compete agreements are valid to a very limited extent because agreements in restraint of trade or employment are void under Section 27 of the Indian Contract Act. The section reads as follows:

"27. Agreement in restraint of trade void .

Post Your Comments


Your comments

Note : Your email address is only visible to admin, other members / users cannot see it.

You can use following FXCodes

BOLD : [b]
Italic : [i]

[b] Legal Services India [/b] is a [i]nice website[/i].
[url= http://www.legalservicesindia.com/article/ ]click here to visit.[/url]

Legal Services India is a nice website.
Click here to visit


Note : Currently, user comments are moderated and will be posted only after approval.

Please login or register a new free account.

Random Pick
The concern that comes up for consideration in the Case was whether a minor child born to parents belonging to economically weaker section of the society suffering from a chronic and rare disease, gaucher, is entitled to free medical treatment costing about rupees six lakhs per month especially when the healing is known, diagnosis is good and there is every likelihood of petitioner leading a normal life.

» Total Articles
» Total Authors
» Total Views
» Total categories

Law Forum

Legal Articles

Lawyers in India- Click on a link below for legal Services

lawyers in Chennai
lawyers in Bangalore
lawyers in Hyderabad
lawyers in Cochin
lawyers in Pondicherry
lawyers in Guwahati
lawyers in Nashik

lawyers in Jaipur
lawyers in New Delhi
lawyers in Dimapur
lawyers in Agra
Noida lawyers
lawyers in Siliguri

For Mutual consent Divorce in Delhi

Ph no: 9650499965
For online Copyright Registration

Ph no: 9891244487
Law Articles

lawyers in Delhi
lawyers in Chandigarh
lawyers in Allahabad
lawyers in Lucknow
lawyers in Jodhpur
Faridabad lawyers

lawyers in Mumbai
lawyers in Pune
lawyers in Nagpur
lawyers in Ahmedabad
lawyers in Surat
Ghaziabad lawyers

lawyers in Kolkata
lawyers in Janjgir
lawyers in Rajkot
lawyers in Indore
lawyers in Ludhiana
Gurgaon lawyers


India's Most Trusted Online law library
Legal Services India is Copyrighted under the Registrar of Copyright Act ( Govt of India) 2000-2016
 ISBN No: 978-81-928510-1-3