• What is the legal validity of a Non-Compete Agreement in India

Hi,

I was working with a India based startup from Jan 2008 - June 2013 (about 5 years). 
During my tenure there, the startup had a MNC as a significant client. 

In July 2013, I chose to leave the startup and join another company. In Aug 2014, I planned to quit my job at the current company. 

I have an offer from the MNC that is still a client for the startup I was working at. This is about 14 months after I quit the startup.

The problem is that the startup claims that I was made to sign a 3 year Non-Compete agreement, that I am personally unaware of. However, now the startup is threatening to take legal action against me.

The startup claims that the Non Compete agreement is valid for 3 years and if I join the MNC, I will face legal action.

My question is, will this non compete agreement be valid, since the MNC is not hiring me directly form the startup, (so this is not poaching) and that too 14 months after I quit the startup. 

If I indeed face legal action, under which act will the case be drafted?
Asked 2 years ago in Business Law from Bangalore, Karnataka
1) non compete agreements cannot be legally enforced . 

2) it would be restraint of trade and void under section 27 of indian contract act . 

3)the Bombay High Court held that a restraint 
operating after termination of the contract to secure freedom from competition from a person who no longer worked within the contract, was void. The court refused to enforce the negative covenant and held that, even if such a covenant 
was valid under German law, it could not be enforced in India. (Taprogge 
Gesellschaft MBH v. IAEC India Ltd., AIR 1988 Bom 157)
Ajay Sethi
Advocate, Mumbai
23386 Answers
1229 Consultations
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The law has, as a matter of public policy, always opposed any interference with 
the freedom to contract and restraints on the liberty of an individual, unless 
injurious to the interests of the state. This principle is not confined to restraints of 
trade in the ordinary sense of the word “trade,” but includes restraints on the right 
of being employed. (Niranjan Shankar Golikari v. Century Spg. and Mfg. Co. 
Ltd., AIR 1967 SC 1098) An agreement in restraint of trade has been defined as 
“one in which a party agrees with any other party to restrict his liberty in the future 
to carry on trade with other persons who are not parties to the contract in such a 
manner as he chooses.” (Petrofina (Great Britain) Ltd. v. Martin, (1966) Ch. 146 
as cited in I, Pollock & Mulla, Indian Contract and Specific Relief Acts (12th ed.) 
at p. 794) 
Section 27 of the Indian Contract Act, 1872 (“IC Act”) stipulates that an 
agreement, which restrains anyone from carrying on a lawful profession, trade or 
business, is void to that extent. The reasoning behind this section is that 
agreements of restraint are unfair, as they impose an undue restriction on the 
personal freedom of a contracting party. However, as an exception, if a party sells 
his goodwill to another he can agree with the buyer that he will not carry on a 
similar business within the specified local limits. 
As can be seen from the foregoing provision, Indian law is rigid and invalidates all 
restraints, whether general or partial. Neither the test of reasonableness, nor that 
of partial restraints applies to a case governed by section 27 of the IC Act, unless 
the restraint falls within the exception of that section. Upon a literal construction, 
section 27 of the IC Act invalidates all agreements that impose a total bar on the 
exercise of a lawful business. 
The Supreme Court of India has held that to the extent the IC Act deals with a 
particular subject, importing principles of English law dehors the statutory 
provisions cannot be permitted, unless the statute is such that it cannot be 
understood without the aid of the English law. The question whether an 
agreement is void under section 27 of the IC Act must be decided upon the 
wording of that section alone. (Superintendence Co. of India Pvt. Ltd. v. Krishan 
Murgai, AIR 1980 SC 1717) 
In Superintendence Co. (Id.), the contract of employment placed the employee 
under a post-service restraint preventing him from serving in any other competing 
firm for two years within the local limits of his last posting. As such, the restraint 
was operative for a period of two years after he left the company.

no, this non compete agreement will not be valid.

ur co. cannot take any legal action as per section 27 of indian contract act.
R.K. Nanda
Advocate, New Delhi
457 Answers
0 Consultations
3.8 on 5.0
1. Indian law specifically disallows non compete agreement as this hinders trade and commerce which are the wheels of a nation's economy. So if the agreement places an embargo on your right to secure employment under the MNC, it is a nullity. It cannot be enforced through the court. 

2. Has the start up issued a lawyer's notice to you? If yes, reply to it through your lawyer. The maximum which the start up can do is to initiate proceedings for breach of contract against you in a court of law. If that happens, contest the case fittingly as you are on the right side of the law.
Ashish Davessar
Advocate, Jaipur
18259 Answers
450 Consultations
5.0 on 5.0
1. The Non-Compete Agreement is not enforceable in India,

2. The start up will of course file a suit against you claiming damage but the decision will be in your favour at last.
Krishna Kishore Ganguly
Advocate, Kolkata
12143 Answers
233 Consultations
5.0 on 5.0
This agreement is not legal and void ab-initio, so no need to worry, if the company will take any action then it will be civil and their case will be dismissed.
Nadeem Qureshi
Advocate, New Delhi
3537 Answers
130 Consultations
4.9 on 5.0
The  non competent agreement has not validity in the eyes of law and is void and against the conditions mentioned in section  27 of the contract act if they take any action the same will be dismissed.
Jeshma Mohandas KP
Advocate, Kozhikode
567 Answers
1 Consultations
3.5 on 5.0
While agreeing with the common view of my Ld friends that such restrictions shall not  be available to the employer once the contract of employment as per terms stipulated therein comes to an end, I suggest reading of a judgment of Delhi High Court in Desiccant Rotors International .vs Bappaditya Sarkar & Anr decided on 14 July, 2009, which has considered earlier judgment as well to know the impact of  non-compete/confidentiality clause in the employment agreements. ,
H. S. Thukral
Advocate, New Delhi
520 Answers
125 Consultations
5.0 on 5.0
Non Compete clause cannot be evoked against you as you are not directly competing with the Statup company/Previous Employer by getting employed by MNC. Again i don't think, MNC and Start up are in competing business as MNC is being Client of Start up Company as narrated by you.   

You are being hired by the MNC. If Start up Compnay have non solicitation clause with MNC let it sue the MNC for poaching you.

MNC is hiring you as employee based on your skill and you are getting hired. where is the COMPETITION? 

So you need not worry.
Sandeep Hegde
Advocate, Bangalore
361 Answers
97 Consultations
4.8 on 5.0

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