Hospitals Cannot Treat Other Hospitals as ‘Rivals’: Madras High Court Strikes Down Non-Compete Clauses Against Doctors

“Doctors Can Thrive Without Hospitals; Hospitals Cannot Exist Without Doctors” –  In a strongly worded and reportable judgment Madras High Court dismissed a petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking appointment of a sole arbitrator, holding that restrictive covenants imposed on a doctor were void, opposed to public policy, and unenforceable.

Hon’ble Mr. Justice N. Anand Venkatesh not only declined to appoint an arbitrator but also imposed costs of Rs.1,00,000/- on the petitioner hospital, observing that the petition was an attempt to “witch-hunt” a doctor.

MIOT Hospitals had entered into a professional agreement dated 08.09.2022 with Dr. Balaraman Palaniappan, appointing him as a Consultant Cardio Thoracic Surgeon. The agreement contained clauses relating to confidentiality, non-solicitation, non-compete, and termination.

Clause 8.3 restrained the doctor for three years post-termination from joining any “rival hospital” or setting up practice within a 15 km radius of the petitioner hospital. Clause 8.2 prohibited solicitation of staff for three years. Clause 10.2 required the doctor to give three months’ notice or pay three months’ professional fees in lieu thereof.

The hospital alleged that the respondent had breached Clauses 8.3 and 10.2 by joining Apollo Speciality Hospital and claimed liquidated damages of Rs.42 lakhs. After issuing a Section 21 notice invoking arbitration and failing to secure consent, the hospital approached the High Court under Section 11(6) for appointment of an arbitrator.

Can Arbitration Be Invoked to Enforce Void Covenants?

At the heart of the matter was whether the arbitration clause could be invoked to adjudicate disputes arising from restrictive covenants that were allegedly void under Sections 23 and 27 of the Indian Contract Act, 1872.

The respondent contended that the non-compete and non-solicitation clauses were opposed to public policy and constituted restraint of lawful profession, rendering them void and non-arbitrable.

Doctors Are Independent Professionals, Not Employees

The Court began by emphasizing that a doctor cannot be equated with a regular employee.

“By the very nature of service provided by a doctor, at the best, a hospital can only utilize the services and cannot treat a qualified doctor like a regular employee of an organization.”

In one of the most striking observations, the Court remarked:

“Doctors can thrive without hospitals whereas a hospital can never exist without doctors supporting such hospitals by rendering their services.”

The Court criticized the inclusion of restrictive clauses in agreements with doctors, observing that either it was a case of “cut, copy and paste syndrome” from technology-sector contracts or the hospital had forgotten its primary role of serving patients.

Non-Compete Clause: Opposed to Public Policy and Void

Examining Clause 8.3, which restrained the doctor from joining a “rival hospital” within 15 km for three years, the Court held that such a clause was legally impermissible.

“A rivalry between hospitals is a misnomer considering the nature of services rendered and a term that is normally used in commercial business parlance pertaining to trade business, cannot be imported to a hospital.”

The Court held that hospitals cannot treat each other as commercial rivals in the traditional business sense. A doctor, being an independent professional, cannot be prevented from rendering services at another hospital or attending to patients who repose confidence in him.

It further observed:

“A doctor is an independent professional, who cannot be stopped from rendering his services wherever he wants to and also cannot be stopped from attending to patients just because those patients were earlier taking treatment in the petitioner hospital.”

Invoking Sections 23 and 27 of the Indian Contract Act, the Court held that such restrictive covenants were opposed to public policy and constituted restraint of lawful profession, thereby rendering them “unlawful, unenforceable and void ab initio to that extent.”

Arbitration Clause Cannot Survive Void Substantive Covenants

The Court then examined Section 7 of the Arbitration and Conciliation Act, 1996, emphasizing that an arbitration agreement must be part of a valid and lawful contract.

“Where an agreement is hit by Section 23… or Section 27… such an agreement has to be construed as void ab initio and the arbitration clause contained in such an agreement cannot certainly survive in so far as adjudication and enforceability of a clause rendered as void in the eye of law are concerned.”

Relying on Shin Satellite Public Co. Ltd. v. Jain Studios Limited (2006) 2 SCC 628, the Court held that since the hospital was seeking to enforce void restrictive covenants, there was no valid arbitrable dispute.

Notice Clause: No Breach Made Out

The only surviving issue was alleged breach of Clause 10.2 regarding three months’ notice.

On facts, the Court found that the doctor had issued a resignation letter on 29.01.2024, clearly giving three months’ notice till 29.04.2024. The hospital had requested him to continue and undertake overseas assignments, which he did.

The Court observed that the hospital was “conveniently” treating a later email dated 21.04.2025 as the resignation letter while ignoring the earlier notice.

On admitted documents, the Court held that the respondent had complied with Clause 10.2 and that no breach was made out. Therefore, “there is no further dispute to be resolved before the Arbitral Tribunal.”

Strong Words on Abuse of Process

In a rare and candid remark, the Court concluded:

“This Court holds that the above petition is devoid of merits and it has been filed to witch-hunt a doctor, whom the petitioner hospital expected to dance to their tunes for ever.”

Finding the petition to be an abuse of process, the Court dismissed it with costs of Rs.1,00,000/- payable by the hospital to the doctor.

The judgment marks a significant pronouncement on the professional autonomy of doctors and the limits of enforceability of restrictive covenants in the healthcare sector. It reinforces that arbitration cannot be invoked to enforce void contractual restraints and that hospitals cannot impose commercial-style non-compete clauses on independent medical professionals.

The ruling also sends a strong message against misuse of arbitration as a pressure tactic, particularly where contractual compliance is evident and no genuine dispute survives.

Date of Decision: 23/02/2026