Delhi High Court Sets Aside Injunction Order | Restriction On Right Of Employee To Get Employed Post Termination Void Under Section 27 ICA
Sanchayita Lahkar
The High Court of Delhi Single Bench of Justice Tejas Karia has set aside an injunction order that restrained a former employee from joining a new employer, holding 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 Indian Contract Act." The Court allowed the appeal filed against the interim injunction issued by the Trial Court, which had prohibited the appellant from working with Digital India Corporation (DIC) and National E-Governance Division (NeGD).
The Court found that the interim order was based on an erroneous understanding of Section 27 and declared that even a limited restraint preventing employment with DIC and NeGD violated the statutory mandate. It stated that the balance of convenience lay in favor of the employee, who had already commenced employment with DIC. Consequently, the injunction was quashed. The Court concluded that the enforcement of such clauses post-employment was legally unsustainable and contrary to established legal principles.
The appeal arose from an interim injunction issued by the Trial Court in a suit filed by the respondent company, Daffodil Software Private Limited, against its former employee. The injunction, passed on June 3, 2025, restrained the appellant from working with DIC and NeGD, citing concerns over potential disclosure of proprietary information and breach of a non-compete clause.
The appellant, an Information Technology Engineer, joined the respondent's affiliate company on July 29, 2021, and was transferred to Daffodil Software Private Limited on January 1, 2022. An employment agreement executed on the same date included a non-solicitation and non-compete clause (Clause 2.16), which prohibited the appellant from associating with business associates of the respondent for a period of three years post-employment.
The respondent was engaged by DIC for a government initiative titled "POSHAN Tracker" under Letters of Intent dated December 1, 2021, June 15, 2023, and November 27, 2024. The appellant worked as a full stack developer on this project starting January 2023 and was later elevated to a leadership role. After resigning on January 6, 2025, the appellant served a three-month notice period and formally ended his employment with the respondent on April 7, 2025. He accepted an offer from DIC effective April 8, 2025.
On May 23, 2025, the Trial Court issued an ex parte interim injunction restraining the appellant from working with business associates of the respondent. This was challenged in an earlier appeal (FAO 156/2025), where the Delhi High Court directed expedited adjudication of the interim application and temporarily lifted the injunction.
In the subsequent order dated June 3, 2025, the Trial Court granted the injunction, relying on the employment agreement and finding a prima facie case in favor of the respondent. It cited the balance of convenience and risk of irreparable harm to the respondent due to potential disclosure of proprietary information.
The appellant filed the present appeal (FAO 167/2025), contending that the injunction violated Section 27 of the Indian Contract Act, 1872. He argued that the restriction on post-employment activity was void and relied on several precedents, including Superintendence Co. of India v. Krishan Murgai (1981), Niranjan Shankar Golikari v. Century Spg. and Mfg. Co. Ltd. (1967), and Percept D'Mark (India) (P) Ltd. v. Zaheer Khan (2006).
The appellant further submitted that DIC was the rightful owner of all intellectual property under the project, as per the Letters of Intent. He claimed that his role involved mechanical tasks such as updating data and did not entail access to proprietary source code or confidential information. He argued that the respondent had not joined DIC as a party to the suit, thereby undermining its claim to proprietary data.
The respondent opposed the appeal, citing breach of Clause 2.16 and arguing that the appellant had gained extensive proprietary knowledge, including backend and frontend development techniques, during his tenure. They relied on confidentiality clauses (Clauses 2.6 to 2.11) and argued that the injunction was limited in scope and duration.
The respondent submitted that the appellant joined DIC in a senior role and that this employment risked misuse of confidential knowledge. They cited several foreign judgments and precedents such as Leeds Rugby Ltd v Harris (2005), Stenhouse Australia Ltd. v. Phillips (1974), and Indian cases including Desiccant Rotors International (P) Ltd. v. Bappaditya Sarkar (2009).
They stated that the clause was designed to protect legitimate business interests, arguing that a narrowly tailored restriction did not constitute a blanket ban. They also alleged suppression of material facts by the appellant in the appeal and sought denial of equitable relief on that ground.
The Court recorded that the central issue in the appeal was "the validity of the non-solicitation and non-compete clause in the Employment Agreement under Section 27 of the ICA."
"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."
Referring to Clause 2.16 of the employment agreement, the Court stated: "Clause 2.16 of the Employment Agreement restricts the Appellant from undertaking employment or otherwise deal with any Business Associate... Even though the Respondent has restricted the injunction to the employment of the Appellant with DIC and NeGD only, the same shall be in restraint of trade and void."
On the applicability of judicial precedents cited by the parties, the Court observed: "The decision of Hi-Tech Systems... holds that the injunction preventing the employee from disclosing confidential data and soliciting customer is not in restraint of trade."
However, it recorded that none of the precedents supported a restriction on employment per se: "None of the cases relied upon by the Respondent has held that the employee can be restrained from undertaking any employment in order to enforce the negative covenant."
On the question of proprietary data, the Court observed: "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. Therefore, there is no question of any sharing of the confidential information, source code or intellectual property with DIC."
In addressing the balance of convenience, the Court recorded: "The balance of convenience is in favour of the Appellant as the Appellant has already joined DIC... In case, the Respondent is able to prove the breach... it can be compensated by way of damages."
The Court distinguished the decision in Niranjan Shankar Golikari by noting: "The negative covenant in that case was held valid as it was restricted to the period of employment... not post-termination. In the present case, the restraint is post-employment and hence falls within the scope of Section 27."
The Court noted the statutory position: "Section 27 of the ICA provides that every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void."
Rejecting the applicability of the reasonableness test, the Court stated: "The reasonableness and whether the restraint is partial or complete is not required to be considered at all when an issue arises as to whether a particular term of contract is or is not in restraint of trade, business or profession."
On confidential information, the Court further stated: "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."
The Court allowed the appeal and set aside the injunction issued by the Trial Court. It held: "The Impugned Order, which is contrary to the settled position of law, cannot be sustained."
It held that any term in an employment contract imposing a restriction on right of an employee to get employed post-termination shall be void under Section 27 of the Indian Contract Act. The court stated that the balance of convenience lies in favour of the appellant as he has already joined Digital India Corporation and if restrained, it would cause irreparable loss to him. The court further stated that in case the respondent proves breach of the employment agreement, it can be compensated by way of damages.
The Court stated: "In view of the above, the present Appeal is allowed and the Impugned Order is quashed and set aside. Pending application(s), if any, shall stand disposed of. No orders as to costs."
Advocates Representing the Parties:
For the Appellant: Mr. Asav Rajan, Mr. Ajay Sharma, Mr. Mayank Biyani, Mr. Akash Saxena, Mr. Kashish Sharma, Mr. Devang Shrodriya, Advocates
For the Respondent: Mr. Divyakant Lahoti, Ms. Vindhya Mehra, Ms. Tanisha Verma, Mr. Raghav Saluja, Mr. Kartik Lahoti, Advocates
Case Title: Varun Tyagi v. Daffodil Software Private Limited
Neutral Citation: 2025: DHC:5015
Case Number: FAO 167/2025
Bench: Justice Tejas Karia
