Section 27 of the Indian Contract Act: Restraint of Trade and Employee's Right to Livelihood Upheld

Section 27 of the Indian Contract Act: Restraint of Trade and Employee's Right to Livelihood Upheld

Appellant challenged a Trial Court order Dated June 3, 2025, which had granted an interim injunction restraining him from working with Digital India Corporation (DIC) and National E-Governance Division (NeGD). Respondent Company who was appellant’s former employer, sought this injunction based on a Non-Solicitation and Non-Compete Clause (2.16) in his employment agreement, which prohibited him from engaging with business associates for three years post-employment. Appellant was a (Daffodil) Full Stack developer on the POSHAN Tracker Project of the DIC and left Daffodil to become the General Manager of the same organization.

Hon’ble Delhi High Court dealt the legality of non-compete clause in light of Section 27 of Indian Contract Act, 1872. It declared that Indian law would make any post-termination restriction on employment unenforceable, so as to reject the difference between partial and absolute restraints, as well as the concept of "reasonableness" existing in other jurisdictions. More importantly, the Hon’ble Court was of the view that the intellectual property rights in the POSHAN Tracker Project was registered expressly to DIC and therefore, the fear by the Respondent on the disclosure thereof was misconceived.

The balance of convenience was also held by the Court in favor of Appellant while ordering the Appellant would not be deprive of his earnings whereas any violation proven would come at a cost of damages to the Respondent. The High Court therefore, justified the appeal, set aside and quashed the interim injunction.
 

Varun Tyagi Vs. Daffodil Software Private Limited