Delhi High Court: An appeal was filed by the appellant under Section 104 read with Order XLIII Rule 1(R) of Civil Procedure Code, being aggrieved by the order dated 03-06-2025 (impugned order), passed by the District Judge-06 (South), Saket Courts, South Delhi in a suit. Tejas Karia, J., quashed the injunction restraining the appellant from working with the client entity and allowed the appeal, ruling that post-employment restrictions such as non-compete clauses cannot be enforced to curb an employee’s fundamental right to livelihood.
The case concerns a dispute stemming from the employment of the appellant with the respondent company, Daffodil Software Pvt. Ltd. Tyagi, an Information Technology Engineer, was initially employed with an affiliate of Daffodil Software on 29-07-2021 and was later transferred to Daffodil Software itself on 01-01-2022 under an Employment Agreement. This agreement included a Non-Solicitation and Non-Compete Clause which stipulated that for a period of three years post-employment, the appellant was restricted from directly or indirectly associating with any business associates of the respondent, soliciting their clients or employees, or undertaking employment with such associates.
The respondent company was under contract with Digital India Corporation (DIC) through various Letters of Intent to supply software professionals for a government project titled “POSHAN Tracker,” aimed at improving national nutrition outcomes. The appellant was assigned to this project in January 2023 as a full stack developer and, over time, was promoted to a leadership role owing to the significant investment made in his training.
On 06-01-2025, the appellant resigned from the company and, after serving a three-month notice period, formally left on 07-04-2025. On the very next day, 08-04-2025, he joined DIC as a Deputy General Manager in Full Stack Development for the same project. Aggrieved by what it considered a violation of the non-compete clause, the respondent filed a suit before the District Judge (South), Saket Courts, seeking permanent injunction and damages.
Initially, an ex parte ad interim injunction was granted on 23-05-2025 restraining the appellant from working with any business associates of the respondent, including DIC. The appellant challenged this order where the High Court stayed the interim injunction and directed the Trial Court to dispose of the application for interim relief within one week. Subsequently, on 3-06-2025, the Trial Court passed the impugned order, granting an injunction against the appellant from working with DIC and NeGD until the final disposal of the suit. The appellant, hence, filed the present appeal.
The Court focused on the central issue, ie., whether the non-compete and non-solicitation clause in the Employment Agreement was enforceable on post-termination under Section 27 of the ICA. After reviewing the rival submissions and jurisprudence, the Court held that Indian law does not permit any agreement, partial or complete, that restrains trade after the termination of employment, unless it falls under the sole exception concerning the sale of goodwill.
The Court remarked that “an employee cannot be confronted with the situation where he has to either work for the previous employer or remain idle. An employer employee contracts, restrictive or negative covenant are viewed strictly as the employer has an advantage over the employee, and it is quite often the case that the employee must sign a standard form contract or not be employed at all. Further, the reasonableness and whether the restraint is partial or complete is not required to be considered at all when an issue arises as to whether a particular term of contract is or is not in restraint of trade, business or profession. In view of the above, it is clear that any terms of the employment contract that imposes a restriction on the right of the employee to get employed post-termination of the contract of employment shall be void, contrary to Section 27 of the ICA.”
The Court reiterated that clauses like Clause 2.16, which attempted to prevent an employee from working with any business associate of the employer post-employment, were violative of Section 27 and therefore void. The fact that the restraint was limited to DIC and NeGD did not cure the illegality. The Court emphasized that the Employment Agreement had ceased to exist on 07-04-2025 and, thereafter, no restraint could be legally enforced.
It further held that any apprehension of the appellant misusing proprietary information was misplaced because the respondent had no ownership over the intellectual property related to the POSHAN Tracker project, which belonged entirely to DIC. Therefore, there was no possibility of confidential information being leaked by Tyagi to DIC. Moreover, the balance of convenience clearly lay in favour of the appellant, who had already commenced his employment at DIC and would suffer irreparable harm if restrained.
Importantly, the Court clarified that even though the Supreme Court in Niranjan Shankar Golikari v. Century Spg. and Mfg. Co. Ltd., 1967 SCC OnLine SC 72 permitted enforcement of negative covenants during the tenure of employment, it did not endorse such restrictions post-employment unless to protect proprietary interests—which were absent in the present case. Similarly, Desiccant Rotors International (P) Ltd. V. Bappaditya Sarkar, 2009 SCC OnLine Del 1926, and Embee Software Private Limited v. Samir Kumar Shaw, 2012 SCC OnLine Cal 3094, were distinguished as they dealt with protection of intellectual property or client lists, not outright employment bans.
The Court allowed the appeal and quashed the impugned order dated 03-06-2025 and held that the injunction restraining the petitioner from working with DIC and NeGD could not be sustained, as it violated Section 27 of the ICA. The Court declared the restrictive covenant to be unenforceable post-termination and found that there was no proprietary information belonging to the respondent that needed protection.
Accordingly, all interim applications stood disposed of, with no order as to costs.
[Varun Tyagi v. Daffodil Software Pvt Ltd, FAO 167/2025, decided on 25-06-2025]
Advocates who appeared in this case :
For the Appellant: Mr. Asav Rajan, Mr. Ajay Sharma, Mr. Mayank Biyani, Mr. Akash Saxena, Mr. Kashish Sharma, and Mr. Devang Shrodriya, Advocates
For the Respondent: Mr. Divyakant Lahoti, Ms. Vindhya Mehra, Ms. Tanisha Verma, Mr. Raghav Saluja & Mr. Kartik Lahoti, Advocates
