Non-Compete Clause: Meaning, Sample & Drafting Tips (India)
A non-compete clause restricts a party from carrying on a competing business or taking up competing work. In India, section 27 of the Indian Contract Act, 1872 makes agreements in restraint of trade void, so post-termination non-competes are generally unenforceable — except on the sale of goodwill — while restraints during the contract term are usually upheld.
How it works under Indian law
Section 27 of the Indian Contract Act, 1872 declares void every agreement by which anyone is restrained from exercising a lawful profession, trade or business, with one statutory exception: a seller of goodwill may agree not to carry on a similar business within specified local limits, so long as the buyer carries on that business and the limits are reasonable.
Indian courts read section 27 strictly. A negative covenant operating during the term of employment or a commercial contract is generally enforceable (Niranjan Shankar Golikari v Century Spinning, 1967), but a restraint that operates after the contract ends is generally void, even if it looks reasonable (Superintendence Company of India v Krishan Murgai, 1980; Percept D'Mark v Zaheer Khan, 2006).
In practice, businesses protect themselves after termination through confidentiality, non-solicitation (with its own risks) and IP clauses, and through garden-leave periods during notice, rather than through post-termination non-competes.
Drafting checklist
- Decide whether the restraint operates only during the term (generally enforceable) or after it (generally void, except on sale of goodwill).
- Define the competing activity narrowly and specifically.
- For a sale of goodwill, tie the restraint to the goodwill sold, state local limits and keep the duration reasonable.
- Protect post-termination interests through confidentiality, IP and non-solicitation instead.
- For employees, consider garden leave during the notice period.
Sample non-compete clause
Two versions: a standard position and an alternative you can offer in negotiation. Replace every [placeholder] before use.
Standard in-term exclusivity / non-compete
Standard positionDuring the term of this Agreement, [Party A] shall not, directly or indirectly, and whether alone or jointly with any other person, provide [describe competing services] to any person that is a competitor of [Party B] in [defined market], without the prior written consent of [Party B]. [Party A] acknowledges that this restriction is reasonable and necessary to protect [Party B]'s legitimate business interests during the term. Nothing in this Clause shall restrict [Party A] after the termination or expiry of this Agreement, save for its continuing obligations under Clause [Confidentiality] and Clause [Intellectual Property].
Sale of goodwill version (the section 27 exception)
Buyer-favourable — for share or business purchase agreementsIn consideration of the purchase of the goodwill of the Business under this Agreement, the Seller shall not, for a period of [three] years from the Completion Date and within [specified local limits, e.g. the State of X], directly or indirectly carry on, be engaged in or be interested in any business similar to the Business, provided that the Buyer (or any person deriving title to the goodwill from it) carries on a like business within those limits. The Seller acknowledges that the restriction is reasonable having regard to the nature of the goodwill sold and the consideration paid.
Who pushes for what
Typical negotiating positions on each side of the table.
Party protected by the restraint
Wants a broad competing-activity definition and, in M&A, a longer restraint period and wider territory.
Restrained party
Wants an in-term restraint only, a narrow definition and carve-outs for passive investments and existing businesses.
Common middle ground
In-term exclusivity for defined competitors; post-term protection through confidentiality and non-solicitation.
Common mistakes
- Using a two-year post-employment non-compete from a foreign template and expecting it to be enforced in India.
- Drafting a restraint so wide (all of India, any business) that even an in-term restraint looks unreasonable.
- Relying on a "reasonableness" acknowledgement — it does not save a restraint that section 27 makes void.
- Forgetting that the goodwill exception requires the buyer to carry on the business.
Frequently asked questions
Are non-compete clauses enforceable in India?
Restraints during the term of a contract or employment are generally enforced. Post-termination non-competes are generally void under section 27 of the Indian Contract Act, except where a seller of goodwill agrees not to compete within reasonable local limits.
Can an employer stop an employee from joining a competitor?
Not after employment ends, as a general rule. The employer can, however, enforce confidentiality obligations and may restrain misuse of its confidential information or trade secrets.
Is a non-compete in a shareholders' agreement valid?
Restraints on a shareholder while it remains a shareholder, and restraints tied to a sale of goodwill, are more likely to be upheld than restraints that continue long after exit. The drafting and facts matter; take advice.
Related tools, formats and guides
Build a clause library with approved fallbacks in CaseDocker
Store your approved clause language and pre-agreed fallback positions in CaseDocker's Contract Management module, and use Playbooks to route any deviation to the right approver before the contract goes out for signature.