Following are the principles that have been upheld by the Supreme Court

in Gujarat Bottling Co. Ltd.v. Coca Cola Co., (1995) 5 SCC

545; Superintendence Co. of India Ltd. v. Krishan Murgai, AIR 1980
SC 1717 and by various High Courts in Lalbhai
Dalpatbhai v. Chittaranjan Chandulal, AIR 1966 Guj 189; Star India
Pvt. Ltd. v. Laxmiraj Seetharam Nayak, (2003) 3 Bom CR 563; Jet
Airways v. Jan Peter Ravi Karnik, (2000) 4 Bom CR 487 and BLB
Institute of Financial Markets Ltd. v. Ramakar Jha, 154 (2008) DLT
121.
Principle on Non-Competing Clause:

(i) Negative Covenants tied up with positive covenants during the subsistence of a contract
be it of employment, partnership, commerce, agency or the like, would not normally be
regarded as being in restraint of trade, business of profession unless the same are
unconscionable or wholly one-sided

(ii) Negative covenants between employer and employee contracts pertaining to the period
post termination and restricting an employee’s right to seek employment or to business in the
same field as the employer would be in restraint of trade, and, therefore, a stipulation to this
effect in the contract would be void. In other words, no employee can be confronted with the
situation where he has to either work for the present employer or be forced to idleness.

(iii) While construing a restrictive or negative covenant and for determining whether such
covenant is in restraint of trade, business or profession or not, the courts take a stricter view
in employer-employee contracts than in other contracts, such as partnership contracts,
collaboration contracts, franchise contracts, agency/distributorship contracts, commercial
contracts. This is based on the rationale that in the latter the parties are expected to have
dealt with each other on an equal footing, whereas in employer-employee contracts, the norm
is that the employer has an advantage over the employee.

(iv) a non-compete clause maybe enforceable for the remaining unserved period of service
under a fixed term contract if the restriction is not unconscionable or excessively harsh

Supporting our case:

The Supreme Court in Niranjan Shankar Golikari v. The Century Spinning and Mfg. Co. Ltd.,
thereby giving a liberal interpretation to section 27 of the Contract Act further clarified that
not all non-compete clause effective after the termination of the employment agreement
are prima facie prohibited and held,
"a negative covenant that the employee would not engage himself in a trade or business or
would not get himself employed by any other master for whom he would perform similar or
substantially similar duties is not therefore a restraint of trade unless the contract as
aforesaid is unconscionable or excessively harsh or unreasonable or one-sided".
Therefore, in order to qualify for being enforceable by law, it is important to ensure that
restriction imposed by the employer is reasonable and not harsh on the employees. It may not
be out of place to specify that the restrictions to the extent of "non-solicitation" and/or "non-
disclosure" may be viewed as an exception to this rule. Though the non-solicitation clause
may be prima facie viewed as negative in nature, they are valid and enforceable by law. The
Delhi High Court in Wipro Limited v. Beckman Coulter International S.A1. held that a non-
solicitation clause does not amount to a restraint of trade, business or profession and would
not be hit by Section 27 of the Contract Act as being void.

Controversial views:
Desiccant Rotors International Pvt Ltd v Bappaditya Sarkar & Anr (I.A. No.5455/2008, I.A.
No.5454/2008 & I.A. No.5453/2008 in CS(OS) No.337/2008), which involved a senior
marketing manager at a manufacturer of evaporative cooling components, products and
systems. As part of his employment agreement with Desiccant, the manager agreed that for
two years following the termination of his employment, he would be bound by a covenant
with Desiccant that would require him to keep Desiccant’s matters confidential, and that
would prevent him from competing with Desiccant and soliciting Desiccant’s customers,
suppliers and employees. Expressly embodied in the employment agreement was an
acknowledgment by the manager that he was dealing with confidential material of Desiccant,
including: know-how, technology trade secrets, methods and processes, market sales, and
lists of customers. After a few years of employment, the manager resigned and-
notwithstanding the terms of his old employment agreement-within three months of his
resignation joined a direct competitor of Desiccant as country manager in charge of
marketing and started contacting customers and suppliers of Desiccant. In injunctive
proceedings against the manager by Desiccant, the High Court reiterated the principles
embodied in Section 27 of the Act and the individual’s fundamental right to earn a living by
practicing any trade or profession of his or her choice. Brushing aside any argument by
Desiccant that the restrictive covenants were primarily designed to protect its confidential and
proprietary information, the High Court ruled that in the clash between the attempt of
employers to protect themselves from competition and the right of employees to seek
employment wherever they choose, the right of livelihood of employees must prevail.
1 2006 (2) CTLJ 57 Del
Similarly, in a 2007 decision in V.F.S. Global Services Ltd. v. Mr. Suprit Roy (2008 (2)
BomCR 446 ) the Bombay High Court held that a fully paid three-month “garden leave”
agreement with a senior manager did not renew the employment contract and constituted a
“restraint of trade” unenforceable by V.F.S.

In the case of R.Babu and Another v. TTK LIG Limited, Formerly London Rubber Company
(I) Limited, the Division Bench of Madras High Court has refused to grant injunction against
an employee restraining him from carrying on a competitive trade after the termination of his
employment. It is held that An Agreement whereby an employee agrees not to join another
competitive concern for a specific period after cessation of employment will be violative of
public policy as stipulated by Indian Contract Act. The court stated that an agreement
whereby an employee agrees not to join another competitive company for a specific period
after cessation of his employment will be violative of public policy as stipulated in Section 27
of the Indian Contract Act, 1872. The referred Section says, “Every agreement by which any
one is restrained from exercising a lawful profession, trade or business of any kind, is to that
extent void”. While giving its judgment, the Madras High Court has referred to the cases of
N.S.Golikari v. Century Spinning & Manufacturing Co. Limited (AIR 1967 sc 1098); Rajan
G.R.V. v. Tube Investment of India Limited (1995 (1) LW 274) and Superintendence Company
of India (P) Limited v. Krishna Murgai (AIR 1980 SC 1717). Such clause is legally
impracticable and unrealisticIn the case of Pepsi Foods Limited & Others v. Bharat Coca-
Cola Holdings Pvt. Limited & Others (LLR, 1999, 1027) wherein the Delhi High Court has
said, “injunction cannot be granted to create a situation such as “Once a Pepsi employee,
always a Pepsi employee”. It would almost be a situation of economic terrorism or a situation
creating conditions of bonded labour”. It has also said that inter-changeability of service is an
accepted norm of Service
Affle Holdings Pte Limited Vs. Saurabh Singh, 2014
Court held that a negative covenant in the employment contract, which prohibits carrying on
a competing business beyond the tenure of the contract is void and not enforceable. This
prohibition operates on account of the provisions of Section 27 of the Contract Act.
Petrofina (Great Britain) v. Martin, (1966) Ch. 146.
An agreement in restraint of trade is one in which a party agrees with any other party to
restrict his liberty in the future to carry on trade with other persons who are not parties to the
contract in such a manner as he chooses.
LE Passage to India Tours & Travels Pvt. Ltd v. Deepak Bhatnagar
A contract of employment, which debars an employee, restraining him to carry on an
employment after the term of employment, is not protected under Section 27 of the Contract
Act.
Percept D’Mark (India) Pvt. Ltd. v. Zaheer Khan & Anr, AIR 2006 SC 3426.
Under Section 27 of the Contract Act
(a) a restrictive covenant extending beyond the term of the contract is void and not
enforceable.
(b) The doctrine of restraint of trade does not apply during the continuance of the contract for
employment and it applied only when the contract comes to an end.
Somewhere there must be a line between those contracts which are in restraint of trade and
whose reasonableness can, therefore, be considered by the courts, and those contracts which
merely regulate the normal commercial relations between the parties and are, therefore, free
from doctrine.
VFS Global Services Private Limited v. Mr. Suprit Roy, 2008 (2) Bom. CR 446, 2008 (3)
MhLj 266.
To obstruct on employee who has left service from obtaining gainful employment elsewhere
is not fair or proper.-[holding Garden Leave clauses in restraint of trade under Section 27 of
The Contract Act, 1872]