Non-Compete Clause Void Under Section 27 Contract Act: Calcutta High Court Bars Ex-Employee From Poaching Staff Or Disclosing Trade Secrets, But Allows Him To Join Rival Firm
Restraining ex-employee from soliciting other employees does not amount to restraining him from exercising lawful profession and thus does not fall foul of Section 27 of the Indian Contracts Act, 1872
Calcutta High Court
The Calcutta High Court has held that while a post-employment non-compete clause is prima facie void under Section 27 of the Indian Contract Act, 1872, confidentiality and non-solicitation covenants remain enforceable. While partly allowing an appeal against refusal of ad interim injunction, the division bench restrained a former employee from soliciting staff and disclosing trade secrets, but allowed him to work with a rival company.
It noted that restraining an ex-employee from soliciting other employees does not amount to restraining him from exercising a lawful profession and thus does not fall foul of Section 27. Similarly, protection of trade secrets and confidential information is legally enforceable, and negative covenants in that regard can be protected under Section 42 of the Specific Relief Act, 1963.
Accordingly, Justice Sabyasachi Bhattacharyya and Justice Supratim Bhattacharya observed, “…the ad interim prayer of injunction restraining the respondent from joining or continuing in service in a different company was rightly refused…”.
However, the court also observed that “The argument of the appellant that the joining of the respondent in a competitive business per se is inter-linked with disclosure of the confidential information of the appellant-Company to such rival cannot be accepted. The respondent, being a marketing executive and having acquired job experience with the appellant in such field for some years, has an obvious expertise in that field alone, which is a specialised sphere of business. Thus, it is obvious that the respondent would seek a similar employment in a different company after leaving the service of the appellant. If a restraint order is passed in that regard, only on the apprehension that such joining of service would automatically imply disclosure of the trade secrets of the appellant, the same would be too high a pedestal for the plaint case to be placed on”.
Advocate Avishek Guha appeared for the appellant and Advocate Rabindranath Mahato appeared for the respondent.
In the present matter, the appeal was result of a suit filed by Parraj Automobiles Pvt. Ltd., seeking specific performance of an employment agreement, liquidated damages, and permanent injunctions against its former employee who allegedly joined a competing business immediately after resigning.
The employer argued that the employee had violated non-compete (Clause 11), non-solicitation (Clause 12), and confidentiality clauses (Clause 10) of the appointment letter. It also alleged attempts to “poach” employees and apprehended disclosure of sensitive business data.
The Court examined Section 27 of the Contract Act and the settled principles, reiterating that even partial restraints on trade are void, except in the limited statutory exception concerning sale of goodwill. Since the case did not fall within that exception, the post-employment non-compete covenant was held to be prima facie unenforceable.
The Bench rejected the employer’s argument that recent jurisprudence diluted Section 27 in such cases, clarifying that while confidentiality obligations may survive, a blanket restriction on joining a competing business after cessation of employment cannot ordinarily stand.
On the factual dispute regarding confirmation of service, the Court found the alleged confirmation letter doubtful. However, it held that by conduct, drawing salary and tendering a resignation email, the employee was in continuous service till 8-10-2025. But since he was treated as a probationer and no penalty clause applied to probationary resignation, his resignation could not be invalidated for lack of notice.
Accordingly, the court was of the opinion that after resignation, he became an ex-employee, attracting the rigours of Section 27.
Importantly, the Court distinguished non-compete from non-solicitation and confidentiality obligations. Finding a prima facie case of attempted employee poaching and risk of disclosure of proprietary data, the Court modified the Trial Court’s order.
Cause Title: Parraj Automobiles Private Limited v. Mr. Samiran Sinha [Neutral Citation: 2026:CHC-AS:223-DB]
Appearances:
Appellant: Avishek Guha, Sonal Agarwal, Arunika Dutta, Advocates.
Respondent: Rabindranath Mahato, Aritra Shankar Ray, Advocates.