#WorkplaceIntelligence
June 30, 2025
We write to inform you of a significant judgment delivered by the Delhi High Court on June 25, 2025, which has important implications for employment law
and the enforceability of post-employment restrictive covenants. This ruling strengthens employee rights and provides crucial guidance for both employers and employees regarding non-compete clauses.
In Varun Tyagi v. Daffodil Software Private Limited (FAO 167/2025), Justice Tejas Karia of the Delhi High Court addressed the validity of restrictive employment covenants under Section 27 of the Indian Contract Act, 1872.
The appellant, Varun Tyagi, was employed as an Information Technology Engineer by Daffodil Software Private Limited from January 1, 2022, until April 7, 2025. During his employment, he was assigned to work on the POSHAN Tracker project for Digital India Corporation (DIC) from January 2023. After serving a three-month notice period following his resignation on January 6, 2025, Tyagi joined DIC as Deputy General Manager on April 8, 2025.
The employment agreement contained a non-solicitation and non-compete clause (Clause 2.16) that restricted the employee from working with “Business Associates” for three years post-employment. DIC and National E-Governance Division (NeGD) fell within the definition of Business Associates under this
agreement.
The primary legal question concerned the enforceability of post-employment restrictive covenants under Section 27 of the Indian Contract Act, 1872, which states, inter alia:
“Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.”
Daffodil Software argued that the restriction was reasonable and limited, designed to protect legitimate business interests, confidential information, and proprietary knowledge gained by the employee during his tenure. The company sought to enforce the covenant to prevent alleged breach of trust and misuse of specialized knowledge.
Daffodil Software argued that the restriction was reasonable and limited, designed to protect legitimate business interests, confidential information, and proprietary knowledge gained by the employee during his tenure. The company sought to enforce the covenant to prevent alleged breach of trust and misuse of specialized knowledge.
The litigation proceeded through multiple stages:
The Court emphasized that Indian law differs significantly from English precedents, noting:
“Under Indian Law, all contracts falling within the terms of Section 27 of the ICA are void unless they fall within the specific exception under Section 27 of the ICA.” (para 64)
The Court categorically held:
“In view of the above, it is clear that any terms of the employment contract that imposes a restriction on right of the employee to get employed post-termination of the contract of employment shall be void being contrary to Section 27 of the ICA.” (para 68)
The judgment strongly affirmed:
“Freedom of changing employment for improving service conditions is a vital and important right of an employee, which cannot be restricted or curtailed on the ground that the employee has employer’s data and confidential information. Such a restriction will be hit by Section 27 of the ICA.” (para 71)
The Court noted that the contractual arrangement between DIC and Daffodil Software specifically provided that:
“The contractual term between DIC and the Respondent provided that the intellectual property right at the developed software code and related documentation shall belong to DIC.” (para 72)
Consequently, the Court observed:
“Hence, the apprehension of the Respondent that confidential information or intellectual property shall be shared with DIC is misconceived as the same already belongs to DIC.” (para 72)
The Court reiterated:
“In the garb of confidentiality, the employer cannot be allowed to perpetuate forced employment.” (para 71)
The High Court allowed the appeal and quashed the interim injunction order. The Court concluded:
“In view of the same, the Impugned Order, which is contrary to the settled position of law, cannot be sustained.” (para 72)
The final operative part of the judgment stated: “In view of the above, the present Appeal is allowed and the Impugned Order is quashed and set aside.” (para 73)
For Employers:
This judgment clarifies that post-employment non-compete clauses are generally unenforceable under Indian law. Employers should focus on protecting legitimate business interests through:
Although garden leave is a well-recognised concept in jurisdictions like the
United Kingdom, it remains relatively uncommon in India. Under a garden leave arrangement, the employee serves his/her notice period while being paid but is instructed not to report to work or engage in active duties. Importantly, the employee remains bound by the terms of employment—including restrictions on competing engagement.
From a legal standpoint, garden leave clauses may be enforceable in India because:
For senior, managerial, or sensitive positions, garden leave—if fairly applied and contractually specified—offers a pragmatic and potentially enforceable alternative to post-termination non-compete clauses.
The ruling reinforces strong legal protection for employee mobility and the fundamental right to pursue livelihood. Employees remain bound by confidentiality obligations during employment but are generally free to join competitors or former clients after employment termination.
This decision has significant implications for:
Despite the legal position that post-employment non-compete clauses are void under Section 27, many Indian employers continue to incorporate them in employment contracts. This reflects a nuanced ground reality where employers, while aware of the unenforceability, use such clauses strategically for the following reasons:
Even unenforceable, non-compete clauses may discourage employees from joining competitors, as most do not challenge them legally.
They communicate employer concerns about loyalty, information security, and potential conflict of interest, thereby shaping employee conduct during employment.
Employers may use these clauses to negotiate longer transition periods or manage exit risk, even if no enforcement is ultimately pursued.
Many MNCs use global templates that contain non-compete language as standard. Removing them selectively for India may create policy inconsistency.
Employers may hope for limited judicial sympathy where misuse of confidential information or solicitation is apparent, even if the non-compete itself is void.
Employers may continue to include non-compete clauses—but should rely more heavily on robust and enforceable provisions such as:
DISCLAIMER: This advisory is for informational purposes only and does not constitute legal advice. Each situation is unique and requires individual legal assessment. This communication is not intended as solicitation of legal services.
Alok Bhasin, Advocate
Bhasin & Bhasin Associates
B – 58 B, Sector 60, Noida, 201301
This communication is confidential and may be legally privileged.
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