Non-compete clause in India that actually holds up

Non-compete clause in India protects your business better when you draft around Section 27

A non-compete clause in India can bind an employee while they work for you, but it generally can’t stop them joining a competitor after they leave. Section 27 of the Indian Contract Act voids agreements that restrain a lawful profession, trade or business, and courts apply that rule to post-employment covenants. So the useful question isn’t whether to write one. It’s what to draft instead.

This matters more than it looks. We regularly see India contracts built from US or UK templates, with a twelve-month non-compete sitting on page four. It reads like protection. In practice, it’s a clause you can’t enforce, and it can make the rest of the contract look careless.

The good news is that you still have real tools. Confidentiality terms, IP assignment, notice periods, minimum-service commitments and narrow non-solicits, used together, cover most of what a non-compete was meant to protect. Below, I’ll walk through what courts have said, what still works, and how to draft it. This is practitioner guidance, not legal advice, so have Indian counsel review anything you sign.

What Section 27 means for a non-compete clause in India

Section 27 says that every agreement restraining anyone from a lawful profession, trade or business is void to that extent. The only statutory exception is the sale of goodwill, which is why business acquisitions can carry enforceable restrictions and employment contracts mostly can’t.

The Supreme Court settled the employment side decades ago. In Superintendence Company of India v. Krishan Murgai, it held that a restriction operating after employment ends is void, and that the reasonableness of its duration or geography doesn’t rescue it. The Court reached a similar result in Percept D’Mark v. Zaheer Khan (2006), where even a right of first refusal that outlasted the contract fell foul of the rule.

Recent decisions confirm that this hasn’t softened. In Varun Tyagi v. Daffodil Software (Delhi High Court, 25 June 2025), Justice Tejas Karia held that a post-termination restriction on taking other work was void under Section 27. He also rejected the idea that confidentiality concerns can justify a blanket ban on employment.

The practical reading

Here’s my position. Treat the post-employment non-compete as dead for ordinary employees, and stop spending negotiating capital on it. Put that effort into the clauses courts will actually enforce.

Where a non-compete clause in India still holds and where it doesn’t

The dividing line is the last day of employment. Before it, courts treat exclusivity as part of the bargain; after it, they treat the same restriction as a restraint on someone’s livelihood.

In Niranjan Shankar Golikari v. Century Spinning (Supreme Court, 1967), the Court upheld restrictions that apply during the term of employment. The Vijaya Bank v. Prashant B. Narnaware ruling (Supreme Court, 14 May 2025) relied on the same logic, noting that the restraint-of-trade doctrine applies when a contract ends, not while it continues.

Clause type	During employment	After employment	Our take
Exclusivity and no competing work	Generally enforceable	Void under Section 27	Keep it, and define it clearly
Confidentiality and trade secrets	Enforceable	Enforceable for the information itself	Your strongest tool
IP assignment	Enforceable	Enforceable for work created in the role	Make it explicit and dated
Minimum-service bond with liquidated damages	Upheld in Vijaya Bank (₹2,00,000), if not excessive	Not applicable	Use with a reasonable, documented cost
Non-solicitation of clients or staff	Enforceable	Uncertain, narrow drafting helps	Draft tightly and take local advice
Blanket post-exit non-compete	Not needed	Void	Drop it

One caution on the bond row. The Supreme Court upheld a fixed sum in a public sector bank, and it still tested the clause for being unconscionable, excessive or one-sided. A private employer shouldn’t assume the same outcome for an inflated figure.

What to draft instead of a non-compete clause in India

You protect the business by protecting the assets, not by restricting the person. That means four layers, and each one does a specific job.

Confidentiality and IP assignment that name the assets

Define confidential information concretely: source code, pricing models, customer lists, roadmaps. Then assign IP created in the role to the employer in plain words. Courts are far more comfortable enforcing a promise not to misuse information than a promise not to work.

If you hire through an employer of record, check that the employment contract carries these terms and that the IP flows to your company. Our piece on how EOR platforms enforce NDAs and IP assignment in India covers that chain in detail.

Notice periods that give you time

Indian hiring culture already leans toward long notice, often 60 to 90 days for experienced hires. That window is lawful protection, because the person is still your employee and the during-employment rules apply. Use it to transfer knowledge and recover access. We’ve written about why the 90-day notice period culture can work in your favour.

Garden leave, where you pay someone to stay home during notice, is a different matter. Reported decisions are mixed, so treat it as unsettled and get advice before relying on it.

Minimum-service commitments tied to real cost

If you spend serious money on relocation, certification or onboarding, a minimum-service clause with modest liquidated damages is defensible after Vijaya Bank. Document what the sum represents. A number that reflects actual outlay looks reasonable; a punitive one doesn’t.

Narrow non-solicitation terms

A non-solicit aimed at named clients or your own staff is easier to defend than a ban on working for a competitor. It still isn’t guaranteed post-exit, so pair it with confidentiality rather than counting on it alone.

A quick illustration of the difference

Consider a US SaaS company that hires a senior engineer in Bengaluru under a contract copied from its California template. It includes a twelve-month non-compete and a thin confidentiality paragraph. When the engineer resigns to join a rival, the company can’t stop the move, and its weak confidentiality wording gives it little to fall back on.

Now imagine the same company used a 90-day notice period, precise IP assignment, a defined list of confidential assets and a client non-solicit. It still can’t block the job change. However, it controls the handover, owns the code and has a clear claim if data leaves with the employee. That’s the realistic ceiling in India, and it’s a decent one.

Drafting checklist

Before you send an India offer or contract, confirm these points:

The non-compete applies only during employment, and says so.
Confidential information is defined by category, not by vague reference.
IP assignment covers work created in the role, including inventions made outside hours if related to your business.
Notice periods match the seniority and the handover you’ll need.
Any bond reflects documented cost and is proportionate.
Governing law and jurisdiction are Indian. Foreign law rarely rescues a clause Indian courts see as against public policy.

Your next step

Pull the India contracts you already use and search for the words “non-compete,” “restrictive covenant” and “post-termination.” Wherever you find a clause that runs past the last day of employment, replace it with the four layers above and send the draft to Indian counsel. If you’d rather not build this alone, an employer of record in India can supply contracts already structured this way, and our 50 questions guide covers the surrounding compliance questions. For the wider contract picture, see how to legally onboard remote software engineers in India.

Sources

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