Post-Employment Non-Compete Clause Prima Facie Void under Section 27: Calcutta High Court Refuses to Restrain Resigned Employee from Joining Rival Firm

"Restraining a Man from His Livelihood is No Small Thing: Restriction on Trade Must Pass Statutory Muster", Calcutta High Court addressing the validity and enforceability of restrictive covenants in employment contracts post-termination. In a partial relief to the appellant-employer, the Court granted an injunction restraining the former employee from soliciting staff and disclosing confidential information, but categorically refused to restrain him from joining a competing firm, holding the non-compete clause prima facie void under Section 27 of the Indian Contract Act, 1872.

The Division Bench comprising Justice Sabyasachi Bhattacharyya and Justice Supratim Bhattacharya held, “Clause 11 of the employment contract, insofar as it restrains a former employee from joining a rival company after resignation, is hit by Section 27 of the Contract Act and is prima facie void,” reiterating long-standing constitutional and statutory protections against restraint of trade.

Employment Ends, Dispute Begins

Parraj Automobiles Pvt. Ltd., the appellant, had employed the respondent, Mr. Samiran Sinha, under a contract incorporating typical restrictive covenants: confidentiality (Clause 10), non-competition (Clause 11), and non-solicitation (Clause 12), along with a liquidated damages clause (Clause 15.3) for failing to serve a 30-day notice post-confirmation.

The dispute began when Mr. Sinha tendered his resignation on October 8, 2025, allegedly joined a direct competitor "next door", and was further accused of “poaching” employees and misusing trade secrets.

In the suit filed by the appellant before the Paschim Medinipur court (Other Suit No. 39 of 2025), a temporary injunction was sought under Order XXXIX Rules 1 and 2 CPC. The Trial Court declined to grant ad interim relief. This led to the present appeal before the Calcutta High Court.

Non-Compete Clause Post-Resignation is Void: High Court Reaffirms Section 27

The Bench gave a detailed treatment to Section 27 of the Indian Contract Act, observing that “any agreement restraining a person from exercising a lawful profession, trade or business is void to that extent, except in very narrow circumstances such as sale of goodwill.”

Quoting Superintendence Company of India v. Krishan Murgai [(1981) 2 SCC 246], the Court reaffirmed that both absolute and partial post-employment restrictions fall foul of Section 27, unless expressly exempted.

“Clause 11…would have to be deemed as void,” the Court concluded, noting that once Mr. Sinha resigned, any attempt to enforce the non-competition clause was legally untenable.

Continuation in Service Proven by Conduct, But Resignation Still Valid

A key issue raised was whether Mr. Sinha’s employment had been confirmed, thereby triggering the penalty clause for resignation without notice (Clause 15.3). The appellant relied on a confirmation letter dated March 1, 2024, but the Court found this document dubious.

Instead, applying the doctrine of implied contract by conduct, the Bench relied on Haji Mohammed Ishaq v. Mohamad Iqbal [(1978) 2 SCC 493] and Paramjeet Singh v. State of M.P., observing that “the respondent continued in service and drew salary till resignation, which prima facie establishes his continuation in service, though not as a confirmed employee.”

As Clause 15 (for probationers) did not impose a penalty for not giving 30 days’ notice, the Court held the resignation was valid and did not attract liquidated damages.

Non-Solicitation Clause Survives Section 27 Scrutiny

While the non-compete clause was struck down, the Court took a distinct view on the non-solicitation clause (Clause 12), which prohibits luring employees of the company.

“By luring other employees of the employer-company to join other competitive businesses, the concerned employee does not exercise his own right to join a lawful profession,” the Court clarified, holding that such clauses do not fall under Section 27.

Relying on letters from Mandira Mahapatra and emails from employee Sandip Manna indicating efforts by the respondent to induce resignations, the Court found a prima facie case of “poaching” and granted an ad interim injunction restraining the respondent from soliciting or inducing employees of the appellant.

Confidentiality and Trade Secrets: Protectable and Enforceable

The confidentiality clauses in the employment contract and a standalone Non-Disclosure Agreement (NDA) signed on the same day were held enforceable under Section 42 of the Specific Relief Act.

“A company is entitled to retain its trade secrets and confidential information… which form the bulwark of its competitive edge in the market,” observed the Bench, emphasising the legitimate business interest in enforcing such clauses.

The Court found sufficient material suggesting imminent risk of misuse and granted injunction restraining the respondent from disclosing or using any confidential information of the appellant.

Damages and Injunction Are Distinct Reliefs: Trial Court Erred

Significantly, the Division Bench criticised the Trial Court for conflating claims for monetary damages with the equitable relief of injunction. “The learned Trial Judge failed to distinguish between the two distinct categories of relief… and mixed up the two to observe in a blanket fashion that the injury can be compensated by money.”

The Court held that losses from employee poaching and misuse of trade secrets are not readily quantifiable, and therefore, damages are not an adequate remedy.

Appeal Partly Allowed, Order Modified

In conclusion, the High Court partly allowed the appeal, modifying the impugned order as follows:

“The respondent shall remain restrained by an order of injunction from (i) soliciting or inducing any employee of the appellant-company to leave its service, and (ii) using or disclosing any confidential information or trade secrets belonging to the appellant-company, till disposal of the temporary injunction application.”

However, the refusal to restrain the respondent from joining or continuing employment with a rival company was affirmed, with the Court stressing that such restraint would violate Section 27 of the Contract Act.

All observations were deemed tentative, made solely for the purposes of adjudicating the ad interim injunction stage.

Date of Decision: 10 February 2026