Case Behind the Clause

Why Your Non-Compete Clause Probably Won't Hold Up

Published 25 August 2026 · 5 min read

A 2025 Delhi High Court judgment confirms something most Indian founders don't realise until it's tested in court: the standard post-termination non-compete clause sitting in your employment or founder agreements is very likely void — regardless of how carefully it was worded.

The clause everyone copies

Almost every Indian employment contract, and most co-founder agreements, include some version of this: "the employee/founder shall not, for a period of [X] months after leaving, engage in any competing business within [territory]."

It reads like solid legal protection. It usually isn't.

The case that confirms it

In Varun Tyagi v. Daffodil Software Pvt. Ltd., 2025 SCC OnLine Del 4589, the Delhi High Court reaffirmed a long-settled line of authority, including Superintendence Co. v. Krishan Murgai and Percept D'Mark v. Zaheer Khan: post-termination restraints on trade are void under Section 27 of the Indian Contract Act, 1872 — full stop, "whether partial or complete."

The only statutory exception under Section 27 concerns the sale of business goodwill. It has nothing to do with a departing employee or founder.

The misconception this corrects

A common belief — repeated across many templates and even some legal blogs — is that a non-compete becomes enforceable if it protects a "genuine proprietary or confidential interest." This isn't accurate. In the Varun Tyagi case, the employer specifically argued this, claiming the departing employee had access to proprietary technology. The court's discussion of "proprietary interest" was to reject that factual claim — not to create a legal exception that would apply more broadly.

The takeaway: narrow drafting, reasonable duration, limited territory — none of it saves a post-termination non-compete clause on its own. If it restrains someone from working after they've left, it's very likely void, no matter how carefully worded.

So what actually works?

Two things carry real, meaningfully higher enforceability, and they're the ones worth actually relying on:

1. Confidentiality clauses. Protecting genuinely confidential information isn't a "restraint of trade" under Section 27 — it's a separate, well-established obligation that survives departure.

2. Narrow non-solicitation clauses. Preventing a departing employee from actively poaching specific clients or colleagues they had direct contact with is a meaningfully narrower restriction than a blanket non-compete, and Indian courts have shown more willingness to enforce it — though even here, breadth matters (a restriction on "any client" rather than clients with direct contact has been struck down as overbroad in recent cases).

If your current agreement leans entirely on a non-compete clause for post-departure protection, it's worth checking whether your confidentiality and non-solicitation clauses are doing enough of the real work — since the non-compete likely isn't.

Check your own agreement

Our free Contract Health Checklist covers this exact gap, along with 9 other common red flags.

Try the Contract Health Checklist →

Sources: Varun Tyagi v. Daffodil Software Pvt. Ltd., 2025 SCC OnLine Del 4589 (Delhi HC, 25 June 2025); Superintendence Co. of India v. Krishan Murgai, (1981) 2 SCC 246; Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan, (2006) 4 SCC 227; Section 27, Indian Contract Act, 1872. This is general legal information, not legal advice — consult an enrolled advocate for your specific situation.