Hospitals Cannot Treat Another Hospital as ‘Rival’; Non-Compete Clause Against Doctor Void: Madras High Court

Drawing an analogy with law firms, the Court said that just as an advocate leaving one firm cannot be restrained from joining another, a doctor cannot be contractually barred from practising in another hospital. “Ultimately, whether it is a patient or a client, he will engage a firm/ hospital or an advocate/doctor, with whom, he has confidence. This is in view of the very nature of duty that is performed by a professional like a doctor or an advocate”, it noted.

The Court held that such restrictive covenants are opposed to public policy under Section 23 of the Indian Contract Act, 1872, and amount to restraint of profession under Section 27 of the Act. Holding that no arbitrable dispute survived, the Court dismissed the petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 by MIOT Hospitals Private Limited, which sought appointment of an arbitrator against a senior cardiac surgeon for allegedly violating restrictive covenants in his professional agreement.

Justice N. Anand Venkatesh observed, “A rivalry between hospitals is a misnomer considering the nature of services rendered and a term that is normally used in commercial business parlance pertaining to trade business, cannot be imported to a hospital, which, by the very nature of service rendered, should not project itself as a business venture even though the reality is otherwise. It will not be out of context to state that doctors do visit various hospitals, which engage their services and their independence can never be curtailed by binding them with the terms of a contract like the case in hand”.

“Hypothetically, let us take a case of a law firm, which engages the services of a qualified advocate. The advocate, who is engaged by the law firm, may be paid a fixed remuneration and the advocate might deal with the work of that law firm and also engage in consultation with clients. This does not mean that the advocate, who later comes out of the law firm, cannot take up any independent practice or join some other law firm. This is in view of the fact that one law firm cannot treat another law firm as a rival. The same hypothesis will apply to a hospital. By no stretch, one hospital can treat another hospital as a rival and consequently, the non-compete clause can never form part of an agreement between a hospital and a doctor”, the bench observed.

Advocate P. S. Suman appeared for the petitioner and Advocate S. Balamurugan appeared for the respondent.

In the matter, the hospital had entered into a professional agreement with the doctor in 08-09-2022. The agreement contained, a non-solicitation clause restraining him for three years post-termination; a non-compete clause prohibiting him from joining any “rival hospital” or setting up practice within a 15 km radius for three years; and a clause mandating three months’ notice or payment of three months’ professional fees in lieu thereof.

After serving for over two years, the doctor resigned and subsequently joined another hospital in Chennai. The petitioner hospital claimed this amounted to breach of the non-compete clause and sought ₹42 lakhs as liquidated damages, triggering arbitration.

Rejecting the hospital’s stand, the Court made strong observations about the nature of medical profession.

It held that a doctor is an independent professional and cannot be treated like a regular employee in a factory or a corporate technology setup. Hospitals merely utilize the services of qualified doctors; they do not “own” their professional skill.

The Court categorically that concepts borrowed from commercial trade and business cannot be mechanically applied to institutions providing medical services. By no stretch can one hospital treat another as a “rival” so as to restrict a doctor’s right to practise.

The Court then noted that to that extent, the agreement was void ab initio, since the very claim was founded on an unenforceable clause, the arbitration clause could not be invoked to adjudicate such a dispute.

On the factual matrix, the Court found that the doctor had already given three months’ notice in compliance with the agreement. The hospital’s attempt to rely on a subsequent email while ignoring the earlier resignation letter was rejected.

Cause Title: MIOT Hospitals Private Limited v. Dr.Balaraman Palaniappan [Neutral Citation: 2026:MHC:733]

Appearances:

Petitioner: P. S. Suman, Advocate.

Respondent: S. Balamurugan, Advocate.

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