Post-Termination Non-Compete Clauses in India: Enforceability, Section 27 and Interim Relief

1. Is a non-compete clause enforceable in India after the contract has ended?

Section 27 is drafted as a rule, not as a standard. It does not ask how far the restraint goes, how long it lasts or how fairly it was negotiated. It says that an agreement restraining a person from exercising a lawful profession, trade or business of any kind is to that extent void. Exception 1 preserves a single case, an agreement by the seller of the goodwill of a business not to carry on a similar business within specified local limits, so long as the buyer carries on a like business there and the limits appear to the court reasonable.

The Supreme Court stated the consequence in Percept D’Mark (India) Pvt Ltd v Zaheer Khan, (2006) 4 SCC 227. The Court described the legal position on post-contractual covenants as consistent, unchanging and completely settled, and held that a restrictive covenant extending beyond the term of the contract is void and not enforceable. The Court also recorded, following Gujarat Bottling Co Ltd v Coca Cola Co, (1995) 5 SCC 545, that the doctrine is not confined to contracts of employment and reaches commercial contracts generally.

The Bombay High Court applied that position in Indus Powertech Inc v Echjay Industries Pvt Ltd, Commercial Appeal (Lodging) No. 26031 of 2023. At paragraph 14 the Division Bench held that a non-compete clause which can operate validly during the term of the agreement would not be valid after termination, because it would result in restraint of trade prohibited by section 27. At paragraph 13 the Court added that a plea of estoppel cannot be raised to defeat the provisions of a statute, so conduct after termination does not revive the restraint.

2. Does it help that the restriction is narrow, short, or limited to named parties?

This is the point at which drafting instincts formed in a common law jurisdiction mislead. A covenant is commonly narrowed in the belief that a narrower restraint is a more enforceable one. Under section 27 narrowing does not improve the position, because the section contains no proportionality enquiry to improve it with. In Percept D’Mark the Supreme Court said that while construing section 27, neither the test of reasonableness nor the principle of the restraint being partial is applicable, unless the case falls within the express exception engrafted in the section.

Varun Tyagi v Daffodil Software Private Limited, FAO 167 of 2025 with CM APPL. 36613 of 2025, decided by the Delhi High Court, shows what that means in practice. The covenant barred the employee from working with the employer’s business associates for three years after termination. At paragraph 67 the Court held that reasonableness, and whether the restraint is partial or complete, is not required to be considered at all. At paragraph 69 it held the clause void even though the restraint reached only two named entities. At paragraph 70 it recorded the limit of what survives: a post-termination covenant can be enforced only to protect confidential and proprietary information or to restrain solicitation of clients, and no cited decision had permitted an employee to be restrained from taking employment at all.

3. Why does almost every reported decision on this come out of an interim application?

This is the feature of the Indian case law that most commentary passes over, and it cuts both ways. Percept D’Mark, which is cited as the settled statement of the rule, arose from an application for interim measures under section 9 of the Arbitration and Conciliation Act, 1996. The Supreme Court expressly recorded that its observations were made on a prima facie basis, would not bind the parties at trial, and left the merits open. Indus Powertech was an appeal under section 37 from an order of injunction, and at paragraph 15 the Division Bench set aside that order while leaving all contentions open for the arbitration.

So the proposition that a post-termination restraint is void is, formally, a proposition repeatedly stated by courts declining to decide finally. Two practical consequences follow. First, a party relying on a line of prima facie observations should not assume the same answer is guaranteed after evidence, because no appellate court has yet had to give one. Second, and more importantly commercially, it rarely matters. A restraint of this kind is worth having only if it can be enforced quickly, by injunction, while the restrained party is deciding where to work or whom to trade with. If the injunction is refused, the clause has already failed to do the only job it was drafted to do, and a later finding at trial arrives long after the commercial moment has passed.

4. How does the Indian position compare with England and Wales?

In England and Wales the doctrine of restraint of trade starts from a rebuttable presumption. In Tillman v Egon Zehnder Ltd [2019] UKSC 32, decided on 3 July 2019, the Supreme Court restated at paragraph 25 that restraints are presumed bad but that the presumption may be rebutted, and at paragraph 26 that a restraint is enforceable if it is reasonable judged by the interests of both parties and of the public. At paragraph 27 the Court identified the interests the employer may legitimately protect, such as trade secrets and customer connection, as distinct from the employee’s own skill. The Court then recast the law on severance at paragraphs 85 to 87, adopting a blue pencil requirement, a consideration requirement, and a requirement that removal must not work a major change in the overall effect of the post-employment restraints, while cautioning at paragraph 82 that courts should remain cautious about severing such covenants.

None of that machinery exists under section 27. There is no proportionality enquiry to engage, no legitimate interest to weigh, and no severance doctrine to rescue an over-wide clause, because the section itself already severs by declaring the agreement void to that extent. A clause drafted to satisfy Tillman will not be read down into validity in India. It will simply be void so far as it restrains trade after the contract ends.

5. If the covenant is void, what can a party actually ask a court or tribunal for?

Three provisions set the outer limit of the remedy. Section 42 of the Specific Relief Act, 1963 permits an injunction to perform a negative agreement even where the affirmative agreement cannot be specifically enforced, provided the plaintiff has not itself failed to perform. That is the gateway through which negative covenants are enforced at all, and it is closed where the covenant is void under section 27, because there is no enforceable negative agreement to perform.

Section 14 of the Specific Relief Act, 1963 was recast by the Specific Relief (Amendment) Act, 2018 and now reads as a flat list. Clause (b) provides that a contract the performance of which involves the performance of a continuous duty which the court cannot supervise cannot be specifically enforced. Note the renumbering: the same bar sat at section 14(1)(d) before the 2018 amendment, and material written earlier cites it that way. The practical effect is that a direction requiring a party to refrain, indefinitely and across a class of counterparties, from dealing with persons it is otherwise free to deal with is not a direction a court will supervise.

What is left is the narrow band identified in Varun Tyagi at paragraph 70: confidential and proprietary information, and solicitation of clients. A party whose real concern is the protection of information should plead and prove that concern on its own terms rather than rely on the restraint clause, because the restraint clause will not carry it. Where the claim is reframed as one for damages, it is worth remembering that the damages claim must be pleaded and proved like any other, and that a sum named in the contract does not by itself establish either breach or loss.

How R & D Law Chambers Works on These Matters

R & D Law Chambers LLP is an Ahmedabad law firm. It advises on restrictive covenants in commercial and employment agreements, on applications for interim measures under section 9 of the Arbitration and Conciliation Act, 1996, and on appeals from such orders under section 37.

A restraint question is usually approached in three steps: the words of the covenant, the point in the contractual timeline at which it is said to operate, and the remedy actually available at that point. The third step often decides whether the question is worth litigating at all, because a restraint that cannot be enforced by injunction while it matters is seldom worth enforcing afterwards.

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