Employment LawFreedom of Employment Cannot be Restricted Even if the Project is Not Owned by the Employer

The Hon’ble Delhi High Court, in the case of Varun Tyagi vs Daffodil Software Private Limited, Civil Appeal Numbers 36613 of 2025, decided on 25.06.2025, held and overruled the decision of the District Court, saying that post-employment restraints are unenforceable.

FACTS

Varun Tyagi (hereinafter referred to as “the Appellant”) was employed as an Associate by the Daffodil Software Private Limited (hereinafter referred to as “the Respondent”) starting the employment from 29^th July, 2021.

In the year 2021, the Appellant was first employed by an affiliate of the Respondent in an IT company which are engaged in providing software services to their clients on a contractual basis. On January 1^st, the Appellant was transferred to the Respondent’s original company as a software engineer. An Employment Agreement was executed, which included a Non-Solicitation and Non-Compete Clause.

This clause restricted the Appellant from soliciting or associating with any business associates of the Respondent for three years of his employment. The Respondent was engaged by Digital India Corporation (hereinafter referred to as “DIC”) through letters of Intent dated December 1^st , 2021, June 2023, and November 27^th 2024 which was related to the POSHAN Tracker Project, a high priority government initiative. To this, the Appellant was assigned as full stack developer for this particular project.

However, the Appellant resigned from the Respondent’s company dated January 6^th 2025 with serving the notice period of 3 months and remained employed until April 7^th, 2025. To this, the Appellant received a position of Deputy General Manager in full stack developer by DIC dated April 8^th 2025 and he decided to accept it after completing the notice period.

To this, the Respondent filed a suit before the Delhi District Court saying that there should be a permanent injunction and damages against the Appellant and also alleged the breach of the Non-Solicitation and Non-Compete Clause by joining the business associate.

The Delhi District Court allowed the suit and granted an ex parte order and an interim injunction against the Appellant dated June 3^rd, 2025, saying that the Appellant is not allowed to work with the business associated with DIC and is not allowed to share any confidential information.

Thus, being aggrieved by the decision of the Delhi District Court, the Appellant filed an appeal before the Hon’ble Delhi High Court.

ISSUES BEFORE THE HIGH COURT

1. Whether the Non-Solicitation and Non-Compete Clause of the Employment Agreement restrict the Appellant from associating with the Respondent’s business association for three years after the termination?
2. Whether the restraint imposed prevents the Appellant from working with the former business associate?
3. Whether the Appellant’s right to seek employment with a former client/business associate is protected and cannot be curtailed by the restrictive covenant after the termination of employment?

CONTENTIONS OF THE PARTIES

The Appellant submitted that the trial court misused Section 27 of the Indian Contract Act, 1872 which was also seen in the case of Superinterpendence Co. of India v. Krishan Murgai (1980) SCR 3.

The Appellant further stated that the Non-Solicitation and Non-Compete Clause of the Employment Agreement is prohibition which prevents him for working with any business associate for three years after employment.

The Appellant contented that all the intellectual property and confidential information related to POSHAN tracker project was of DIC and not of the Respondent as per the Letters of Intent and contractual documents that were drafted.

The Appellant also claimed that the injunction deprived his right to livelihood and it will cause harm to his career and finances. He argued that the balance of convenience was in his favor, as any alleged breach could be compensated by damages, whereas the injunction would cause him direct and ongoing harm.

The Appellant maintained that the onus to prove that the restrictive covenant is not a restraint on lawful employment lies with the employer. None of the judgments cited by the Respondent supported the grant or upholding of an injunction after termination of the employment agreement.

On the contrary, the Respondent argued that the restriction implied was reasonable as it applied only to DIC, and it was necessary to protect the legitimate business interests, and it also cited English and Indian laws to support the enforceability of reasonable post-employment restraints where the confidential information and client relationships are at stake.

The Respondent also contended that the Appellant had access to proprietary information, insider knowledge, and confidential information during the time of his employment, which justified the restraint, and the Appellant was trained in a way that gave specialized training with a leadership role, thereby gaining access to sensitive information.

The Respondent claimed that allowing the Appellant to work with Digital India Corporation would cause irreparable harm, including loss of reputation, business, and client relationships. The Respondent also argued that the balance of convenience favored the grant of an injunction to protect its business interests and prevent disclosure or misuse of its confidential information.

DECISION AND FINDINGS

The Hon’ble Delhi High Court found that the Respondent had no grounds to prevent the Appellant from joining DIC, especially since he hadn’t created any proprietary software or confidential intellectual property. All rights to the POSHAN Tracker project, the court noted, belonged to the government, not the private contractor, thus, this regulation includes a provision which states that the employee is considered to be terminated from the service in the cases and the proper notice is sent to the known address of the employee by issuing multiple notices or fixed in the notice board of the office is considered to be a valid communication.

The Delhi High Court explained that Indian law is clear that any agreement that blocks someone from doing their job, unless it is about selling the goodwill of a business, is not enforceable. It underscored that Indian jurisprudence differs fundamentally from English law, where limited post-employment restraints may be upheld based on reasonableness. Under Indian law, such restrictions are permissible only in the rare case of a sale of business goodwill, explicitly carved out as an exception in Section 27 of the Indian Contract Act, 1872

As a result, the Delhi High Court set aside the Delhi District Court’s order upholding the Appellants’ order and ruled that the Respondent cannot stop someone from working; instead, they can file for monetary breaches if there has been a breach.

AMLEGALS REMARKS

The Hon’ble Delhi High Court’s decision in this case is a progressive affirmation of the fundamental right to livelihood and professional mobility in India’s fast-moving technology sector. By deciding that post-employment non-compete clauses are void under Section 27 of the Indian Contract Act, the High Court has reiterated that employees should not be limited from pursuing new opportunities, even more so because intellectual property and confidential information are already protected by law and the contractual clauses while employed. Not only did this judgment protect individual career growth, it provided further than that by fostering competition and innovation in an industry.

In the future, employers should emphasize strong confidentiality and non-disclosure agreements, rather than nonspecific non-compete clauses, to protect the legitimate business interests. Even simple contractual provisions that specify ownership and use of intellectual property (compared to no contractual provisions), as well as providing training for employees regarding their ethical obligations to employers over time, can effectively protect employers’ interests without violating employees’’ rights. A balanced approach will create trust, attract better talent and inspire innovation, which will only produce a more productive and equitable workplace, for both employers and employees.

–  Team AMLEGALS assisted by Mr. Jeet Soni (Intern)

For any queries or feedback, feel free to reach out to mridusha.guha@amlegals.com or laksha.bhavnani@amlegals.com