I might be violating Non compete agreement. Need advice.
4 years ago
I have been working at a Pvt. Ltd. Organisation for the past 2.5 years and i was recently posted at one of their client organisations. After few months I have resigned and while serving my notice period I applied for a job opening at the same client organisation I was working at. My employer threatens me that they will proceed legally since I have signed a non compete agreement with them which restricts me from seeking a job opportunity at any of their client organisations. This I feel is restricting me the fundamental right to earn livelihood. Also this is a great opportunity for my career. I need to take this job. Please advice me what may happen and what can be done
Shreyash Mohta
Responded 4 years ago
A.If it violates the terms of the contract then you shall be liable to pay the damages.
You have two options
1. Leave the job and abide by the contract.
2. Prioritize your job opportunity and pay damages for breach and continue the job.
You have two options
1. Leave the job and abide by the contract.
2. Prioritize your job opportunity and pay damages for breach and continue the job.
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A.Dear Sir,
Indian Courts do not recognize such violation in view of Section 27 of Indian Contract Act which is as follows:
===========================================================================
The Indian courts have been reluctant to restrain the employee from joining a competitor/other employer
========================================================================================
Non compete clause, it is prohibited under the Law of Contracts.
======================================================================================
Section 27 of the Indian Contract Act-1872 provides that ”Every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is to that extent void”.
Exception : One who sells goodwill of a business with a buyer to refrain from carrying on a similar business within specified local limits so long as the buyer, or any person derivingtitle to the goodwill from him, carries on a like business therein provided that such limits appear to the court reasonable, regard being had to the nature of business.
Indian law is therefore very clear and strict on this point, any such non compete agreement shall not be binding on the parties and the same shall be null and void. By using the term void ab initio, for such type of agreements it has shown that it has kept such non compete clause in the agreements beyond consideration. Indian courts have also consistently refused to enforce post termination non compete clauses in employment contracts as “restraint of trade” is impermissible under section 27 of the Indian Contract Act-1872, and have held them as void and against the public policy because of their potential to deprive an individual of his or her fundamental right to earn a living.
However considering the developed social, legal, and corporate circumstances, and the required confidentiality and the integrity of the employments, the judiciary has inclined its view towards giving some regard to the non compete agreements. In the case of ‘Niranjan Shankar Golikari Vs the Century Spinning and Manufacturing Company Ltd.’ , the Hon’ble Supreme Court observed that-“restraints or negative covenants in the appointment or contracts may be valid if they are reasonable”. Further in one case - V.F.S. global services Pvt. Ltd Vs Mr. Suprit Roy, 2008(2) Bom CR 446, the Bombay High court established the principle that a restraint on the use of trade secrets during or after the cessation of employment does not tantamount to a “restraint on trade” under section 27 of the Act and therefore can be enforceable under certain circumstances. In the case of Mr. Diljeet Titus, Adv Vs Mr. Alfred A Adebare & Ors 2006(32)PTC 609 (Del), Delhi High court held that “The real test was the degree of employment control to determine whether it was a contract of service…” .
Like these there are several other judgements of various High courts which have laid down certain tests or guidelines to check the validity and legality of imposition of restrictions on such non competing agreements. It shows that Indian courts may in certain circumstances enforce confidentiality agreements intended to protect an employer’s proprietary rights.
Like these there are several other judgements of various High courts which have laid down certain tests or guidelines to check the validity and legality of imposition of restrictions on such non competing agreements. It shows that Indian courts may in certain circumstances enforce confidentiality agreements intended to protect an employer’s proprietary rights.
Indian Courts do not recognize such violation in view of Section 27 of Indian Contract Act which is as follows:
===========================================================================
The Indian courts have been reluctant to restrain the employee from joining a competitor/other employer
========================================================================================
Non compete clause, it is prohibited under the Law of Contracts.
======================================================================================
Section 27 of the Indian Contract Act-1872 provides that ”Every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is to that extent void”.
Exception : One who sells goodwill of a business with a buyer to refrain from carrying on a similar business within specified local limits so long as the buyer, or any person derivingtitle to the goodwill from him, carries on a like business therein provided that such limits appear to the court reasonable, regard being had to the nature of business.
Indian law is therefore very clear and strict on this point, any such non compete agreement shall not be binding on the parties and the same shall be null and void. By using the term void ab initio, for such type of agreements it has shown that it has kept such non compete clause in the agreements beyond consideration. Indian courts have also consistently refused to enforce post termination non compete clauses in employment contracts as “restraint of trade” is impermissible under section 27 of the Indian Contract Act-1872, and have held them as void and against the public policy because of their potential to deprive an individual of his or her fundamental right to earn a living.
However considering the developed social, legal, and corporate circumstances, and the required confidentiality and the integrity of the employments, the judiciary has inclined its view towards giving some regard to the non compete agreements. In the case of ‘Niranjan Shankar Golikari Vs the Century Spinning and Manufacturing Company Ltd.’ , the Hon’ble Supreme Court observed that-“restraints or negative covenants in the appointment or contracts may be valid if they are reasonable”. Further in one case - V.F.S. global services Pvt. Ltd Vs Mr. Suprit Roy, 2008(2) Bom CR 446, the Bombay High court established the principle that a restraint on the use of trade secrets during or after the cessation of employment does not tantamount to a “restraint on trade” under section 27 of the Act and therefore can be enforceable under certain circumstances. In the case of Mr. Diljeet Titus, Adv Vs Mr. Alfred A Adebare & Ors 2006(32)PTC 609 (Del), Delhi High court held that “The real test was the degree of employment control to determine whether it was a contract of service…” .
Like these there are several other judgements of various High courts which have laid down certain tests or guidelines to check the validity and legality of imposition of restrictions on such non competing agreements. It shows that Indian courts may in certain circumstances enforce confidentiality agreements intended to protect an employer’s proprietary rights.
Like these there are several other judgements of various High courts which have laid down certain tests or guidelines to check the validity and legality of imposition of restrictions on such non competing agreements. It shows that Indian courts may in certain circumstances enforce confidentiality agreements intended to protect an employer’s proprietary rights.
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