Restraint, Rights and Remedy: Restrictive and IP Covenants in Service Contracts at the Crossroads of the Contract Act, the Competition Act and the Specific Relief Act

An analysis of which post-employment restrictions in Indian service contracts, such as non-compete, non-solicitation, confidentiality and IP clauses, the law will actually enforce. The author argues that a covenant can fail in three distinct ways: it may be void as a restraint of trade under Section 27 of the Contract Act, valid between the parties but anti-competitive under the Competition Act, or lawful yet unenforceable because the court cannot grant the injunction sought under the Specific Relief Act.

Drawing on Niranjan Shankar Golikari, Gujarat Bottling, Superintendence Co. v. Krishan Murgai, Percept D’Mark v. Zaheer Khan and Diljeet Titus, the article explains that covenants operating during employment are generally valid, while restraints after it ends are void however reasonable their scope. Clauses tied to identifiable assets, such as trade secrets, confidential information or copyright vesting in the employer under Section 17(c) of the Copyright Act, stand on firmer ground. It also examines the limited IP exemption in Section 3(5) of the Competition Act, the unsettled position after Ericsson v. CCI, and why Sections 14, 41(e) and 42 of the Specific Relief Act confine injunctions to negative covenants during the contract’s term.

It closes with a four-step review for drafting and testing such clauses: validity, legitimate interest, market effect and remedy. The author’s conclusion is that a well-drawn confidentiality and IP covenant, limited in time and seeking only relief a court can grant, is worth more than several broad non-competes.