Are Restrictive Covenants - Non-Compete Clauses Commonly Put In Contracts Enforceable?

These clauses are sought to be kept by the employer in an employment contract with an employee and also in commercial agreements e.g. in a Services Contract, in a Share Purchase Agreement, in an agreement for taking over of a business, in an agreement for building an Offshore Development Centre by an Indian Company for an overseas company etc. The author seeks to analyse the aspects pertaining to the enforceability of such covenants and clauses.

Employment Contracts

In India, such a clause is governed by the provisions of section 27 of the Indian Contract Act, 1872 ("ICA")¹, which provides that every agreement by which anyone is restrained from exercising lawful profession or trade or business of any kind, is to that extent void. There is an exception carved out in case of the Sale of goodwill of a business.