📑 On this page
⚡ The short answer
An agreement that stops someone from carrying on a lawful trade, profession or business is void in India to the extent of the restraint, however short, local or reasonable it looks. The one statutory escape is a sale of goodwill with reasonable local limits. Restraints that operate only during a job or contract are generally valid.
🎬 The 30-second story
The chef who opened next door
1
“Sign here: after you leave, no restaurant within 3 km for 2 years.”
🍛
Kabir
Aarav's first day as head chef at Kabir's Dhaba.
2
“Sure, boss. Why would I ever leave?”
✍️
Aarav
Four years and one cult butter chicken later…
3
“Grand opening! Aarav's Tadka, right next door.”
🏪
Aarav
Aarav resigns and opens 50 metres away.
4
“He signed! Two years, three km. That's reasonable!”
⚖️
Kabir
Kabir runs to court for an injunction.
Tara's ruling: Aarav wins. A restraint that bites after the job is void in India, reasonable or not. Kabir's real protections: while Aarav worked there, he could insist Aarav cook for nobody else, and his secret masala blend stays confidential even now.
What is an agreement in restraint of trade?
It is any agreement by which someone gives up part of their future freedom to earn a living: not to open a shop, not to practise, not to work for a rival. The starting point is blunt: such an agreement is void to the extent of the restraint, and no court will enforce it.
Two words matter. Lawful: only lawful work is protected. To that extent: only the restraining part dies, so Aarav's salary and notice terms stay valid.
Every agreement by which any one is restrained from exercising a lawful profession, trade or business is to that extent void, except where the seller of goodwill agrees not to carry on a similar business within reasonable local limits.
🧭 Decision flow
Will this non-compete hold up?
❓ Does the clause stop someone carrying on a lawful trade, profession or business?
No →
Not a restraint of trade at all
e.g. keep our secrets; use this shop only as a café
Yes ↓
❓ Does it bite only while the job, franchise or partnership is running?
Yes →
Generally valid
unless unconscionable, excessively harsh or one-sided
No ↓
❓ Is the person restrained a seller of goodwill (or a departing partner)?
No →
Void, however short, local or reasonable
Yes ↓
❓ Are the local limits reasonable, and is the buyer still running a like business there?
Yes →
Valid under the goodwill exception
No →
Void: outside the exception
Why is even a 'reasonable' non-compete void in India?
Because India and England took different roads. English judges built the rule themselves and came to accept a restraint that is reasonable. India put its rule in an 1872 statute with no reasonableness test: every restraint is void, except the ones it names.
⚔️ Side by side
India vs England on non-competes
🇮🇳India
Void unless a named exception fits
- •Partial or total: both void
- •Reasonableness irrelevant outside the exceptions
- •Escapes: goodwill sale, partnership rules
🇬🇧England
Void unless shown to be reasonable
- •Every restraint starts suspect
- •Upheld if it protects a real interest
- •Judges weigh time, area and work
VS
| Test | India | England |
|---|---|---|
| Kabir's 2-year, 3 km chef clause | Void | Could survive if it protects real customer connection |
| Who draws the line? | The statute's words | Judges, case by case |
Indian courts have read the text literally for 150 years. Parliament never added a reasonableness test.
Note the logic of Madhub Chunder (below). If only total bans were void, the goodwill exception, which is about local limits, would be pointless. So a clause limited to one city or one year is still a restraint.
📌 Apply the passage, not this page
CLAT gives you the rule. If the passage states the English test (‘valid if reasonable’), apply it. If it states the Indian rule, the ‘reasonable’ option is the trap.
When does selling your business let you promise not to compete?
Zoya sells her popular bakery to Rohan. Most of the price is goodwill: loyal customers, the name, the habit of walking in. If Zoya could reopen across the road next week, Rohan would have bought an empty shell. So the seller of goodwill may promise not to compete, within limits.
- 1
A sale of goodwillSelling a few ovens isn't enough; the goodwill itself must pass.
- 2
A similar businessZoya can be barred from baking, not from opening a bookshop.
- 3
Specified local limitsA named area, not ‘anywhere in the world’.
- 4
Only while the buyer carries onIf Rohan (or whoever buys the goodwill from him) stops running a like business there, Zoya is free.
- 5
Limits the court finds reasonableJudged by the business: a bakery draws from a few kilometres, a specialist manufacturer from several states.
Reasonableness enters Indian law only here. Partnership law adds cousins: partners may agree to run no other business while partners, and an outgoing partner, or partners on dissolution, may agree not to compete within reasonable limits.
Can your employer stop you working elsewhere while you're still employed?
Yes. A promise to work exclusively for one employer during the contract isn't a restraint of trade at all; you are still practising your profession. The rule protects your freedom after the bargain, not a right to break it.
🕒 Timeline
Where the restraint stops being valid
-
1
Day 1Contract signedAarav promises to cook only for Kabir during his term. Valid.
-
2
During the jobMoonlighting barredKabir can stop Aarav cooking weekends for a rival, even by injunction.
-
3
Quits earlyTerm still runningQuitting in breach doesn't shorten the term; a limited bar until it ends can be enforced.
-
4
Job overThe lineOnce the contract ends, any ban on competing is void.
-
5
Forever afterSecrets still secretAarav may compete, but not with Kabir's confidential recipe book.
Limits: courts won't enforce an exclusive-service clause that is unconscionable or one-sided, and they won't force anyone to work, only stop work for the rival during the term.
⚠️ ‘But I trained you!’
Training or a bonus doesn't buy a post-exit restraint. The employer protects what it taught you by keeping its secrets secret, not by keeping you out of the trade. CLAT 2018 turned on exactly this.
Which clauses look like restraints but aren't?
🧩 At a glance
Restraint of trade? Not really
🔐Confidentiality
Don't disclose our formula, even after you leave. That protects information.
🥤Exclusive dealing
A bottler won't bottle rival brands while the franchise lasts.
🤝Partner exclusivity
No side business while you're a partner.
🏬Use of premises
Only a sweet shop in this building; trade anywhere else.
🏷️Brand and trade mark
Don't use the old firm's name. Compete under your own.
📇Non-solicitation
Don't poach our clients after you leave. Courts are divided.
💡 The one-question test
Does the clause stop the person earning a living in their trade, or just stop them misusing something? The first is restraint. Blocking misuse of secrets, a name, a building or a running contract usually isn't.
Which cases built the Indian rule?
🏪
Landmark case · 1874 · Calcutta High Court
Madhub Chunder v Rajcoomar Doss
📋
What happened
Two rival traders worked the same Calcutta neighbourhood. For money, one agreed to stop his business in that locality so the other faced no competition there.
❓
The question
The restraint covered only one neighbourhood. Does a partial restraint escape the rule?
🔨
What the court held
Void. The statute catches partial as well as total restraints; otherwise the goodwill exception, which is about local limits, would be pointless.
What CLAT takes from it: Limited in place or time is still a restraint.
🧵
Landmark case · 1967 · Supreme Court
Niranjan Shankar Golikari v Century Spinning
📋
What happened
A shift supervisor on a five-year contract was trained in a secret tyre-cord yarn process and promised not to work in a similar role elsewhere during that period. Soon after training he joined a rival for more pay.
❓
The question
Was this a void restraint of trade?
🔨
What the court held
No. A negative covenant operating during the term isn't a restraint of trade unless unconscionable or one-sided. An injunction limited in time, work and area was upheld.
What CLAT takes from it: During the job: valid. The real fight is always about after.
🔎
Landmark case · 1980 · Supreme Court
Superintendence Co of India v Krishan Murgai
📋
What happened
A branch manager promised not to join a competitor or run a similar business for two years at his last posting ‘after you leave the company’. The firm sacked him, and he set up an identical business.
❓
The question
Could the firm stop him?
🔨
What the court held
No. The majority read ‘leave’ as a voluntary exit, so the clause didn't cover a dismissal. Justice A.P. Sen added that a post-service restraint is void anyway; reasonableness doesn't matter outside the goodwill exception.
What CLAT takes from it: After the job: void. Restraint clauses are read narrowly, against the employer.
How has CLAT asked restraint of trade?
📝 Asked in CLAT 2018
· Q182
Trainee's non-compete
Legal Principle: Agreements in restraint of trade are void and unenforceable.
Fact Situation: Manu has been working as a blacksmith in his village for many decades. Somu has been undergoing training with him for the past three years. After his training is over, Somu enters into an agreement with Manu that he will not start a competing business in the same village while Manu is alive.
Which of the following statements is the most appropriate in relation to the legal principle stated above?
AThis agreement is void and unenforceable since it is a restraint on trade.
BThis agreement is valid and enforceable since Manu is Somu’s teacher.
CThis agreement is valid but not enforceable after Manu’s death.
DThis agreement is valid and enforceable since it is to protect Manu’s interest in consideration for teaching Somu to be a blacksmith.
Reveal answer + reasoning
Answer: A
The principle has no exception at all, so just ask: does the agreement stop Somu carrying on his trade? Yes, in his own village for possibly decades. Limiting it to one village and Manu's lifetime makes it partial, not valid. And the training is over, so this isn't an exclusive-service promise during a running contract.
Why the others fail
- B — a teacher–student bond is not an exception in the principle.
- C — it was never valid; there's nothing to expire on Manu's death.
- D — training can be consideration, but consideration doesn't save a void restraint.
🧪 CLAT-style practice (not a past question)
CLAT-style: during vs after
A negative covenant operating during a contract of employment, when the employee must serve the employer exclusively, is not a restraint of trade unless it is unconscionable. A covenant restraining the employee from competing after the employment ends is void, whether or not it is reasonable.
Aarav signs a three-year contract as a coder with Kabir's firm, promising to work only for Kabir during the term and not to join a rival for one year after leaving. In month six, he starts coding weekends for a rival. Which is correct?
AKabir can restrain the weekend work, and could also enforce the one-year bar after Aarav leaves.
BKabir can restrain the weekend work, but the one-year post-exit bar is void.
CKabir can do neither, because both promises restrain Aarav's trade.
DKabir can enforce only the one-year bar, because it is reasonable.
Reveal answer + reasoning
Answer: B
Split the clause. Weekend work happens during the term, so exclusivity holds. The one-year bar operates after the job and is void ‘whether or not it is reasonable’.
Why the others fail
- A — the post-exit bar is void.
- C — during-term exclusivity isn't a restraint.
- D — reasonableness is irrelevant after the job.
💥 Myth vs fact
Non-compete myths
🙅 Myth
A short, local non-compete is fine.
Tap to bust it →
✅ Fact
Outside the goodwill and partnership exceptions, a partial restraint is as void as a total one.
🙅 Myth
A void non-compete kills the whole job contract.
Tap to bust it →
✅ Fact
Only the restraint is void; salary, notice and the rest survive.
🙅 Myth
If my employer trained me, I owe it a non-compete.
Tap to bust it →
✅ Fact
Training doesn't buy a post-exit restraint. Secrets can be protected; your career can't.
🙅 Myth
No employer can stop you working for a rival.
Tap to bust it →
✅ Fact
While you're under an exclusive contract, it can, by injunction.
🎯 Quick quiz
Restrained or free? 5 quick fact patterns
0 / 5
Rohan, a gym trainer, agrees not to train anyone in the city for six months after leaving his job. He quits and starts training clients next week.
Q1. Under the Indian rule, is the clause enforceable?
It bites after the job, and no exception applies. Short and local doesn't matter.Kabir sells his neighbourhood tea stall, with goodwill, to Zoya and promises never to sell tea anywhere in India for 50 years.
Q2. Will the promise be enforced as written?
The exception needs reasonable local limits. A tea stall's customers don't span India.Rohan and his partner's deed says neither will run any other business while they remain partners.
Q3. Is the clause valid?
Exclusivity while a partner is expressly permitted.Zoya leaves a perfume company. Her contract bars her from ever disclosing its secret formula. She joins a rival and keeps the formula to herself.
Q4. Which is correct?
Confidentiality protects information, not competition. Joining the rival is her right.Aarav's contract says: ‘After you leave the company, you will not join a competitor for one year.’ Kabir fires him, and he joins a competitor.
Q5. Can Kabir stop him?
Krishan Murgai: post-service restraints are void, and ‘leave’ meant a voluntary exit.Ten more contract passages, against the clock
CLAT-pattern Contracts drills with full solutions, in the real exam interface.
🎯 In a nutshell
- A restraint on a lawful trade, profession or business is void to that extent; the rest survives.
- India has no reasonableness test: partial or short restraints are still void.
- Sale of goodwill: similar business, reasonable local limits, only while the buyer carries on.
- During the job, exclusivity is valid; after it, non-competes are void.
- Confidentiality, brand and premises clauses usually aren't restraints at all.
📎 Good to know, not to memorise
- Indian Contract Act, 1872, s.27 (Exception 1: sale of goodwill). Partnership restraints: Indian Partnership Act, 1932, ss.11(2), 36(2), 54, 55(3). Injunction on a negative covenant: Specific Relief Act, 1963, s.42.
- Madhub Chunder v Rajcoomar Doss (1874) 14 Beng LR 76; Golikari, AIR 1967 SC 1098; Krishan Murgai, AIR 1980 SC 1717; Percept D'Mark v Zaheer Khan (2006) 4 SCC 227 (post-term clause void).
- English test: Nordenfelt v Maxim Nordenfelt (1894). The Law Commission's 13th Report suggested allowing reasonable restraints; s.27 was never amended.
Frequently asked questions
Are non-compete clauses legal in India?
A non-compete that operates after your job ends is void, so it can't be enforced against you, however reasonable it looks. Including one isn't a crime; courts just won't apply it. A clause stopping you working for rivals while you're still employed under an exclusive contract is generally valid.
What is the exception to restraint of trade?
The statutory exception is the sale of goodwill: the seller may promise not to carry on a similar business within reasonable local limits, while the buyer carries on a like business there. Partnership law adds similar exceptions for current, outgoing and dissolving partners.
Is a partial restraint of trade valid in India?
No. Since Madhub Chunder in 1874, Indian courts have held that partial restraints, limited to a place, time or product, are as void as total ones. Otherwise the goodwill exception, which is about local limits, would be meaningless. Only a named exception saves a restraint.
Can my employer stop me sharing its secrets after I leave?
Yes. A confidentiality clause protects information, not the market, so it isn't a restraint of trade. You may join a rival or start your own firm, but you can't use or disclose the trade secrets you promised to keep. That is the lawful way to guard know-how.
What is the difference between Indian and English law on restraint of trade?
English law treats restraints as void unless reasonable, weighing time, area and the interest protected. Indian law reads its statute literally: every restraint is void unless a named exception fits. In CLAT, apply whichever rule the passage gives. Don't import outside knowledge.
Does restraint of trade make the whole contract void?
No. The agreement is void ‘to that extent’, so only the restraining clause falls. Salary, notice period or the sale price stay enforceable, as long as they can stand without the void part. A void non-compete never sinks the whole employment contract.
Keep going
← Previous topic
Lawful Object and Public Policy: When the Purpose Kills the Deal
Six ways a deal's purpose kills it, and the open-ended public-policy test
Next topic →
Wagering Agreements: Bets, Lotteries and Insurance
Why a bet is void but not illegal, and how insurance escapes the label
📚
Part of the chapter
Law of Contracts for CLAT: The Complete Chapter Guide
See how this topic fits the whole of Law of Contracts →
Connected topics in other chapters
Lawful Object and Public Policy
Restraint of trade is one of the public-policy heads; see the whole family.
Void vs Voidable vs Illegal
A non-compete is void, not illegal. That label decides what survives.
Article 19: The Six Freedoms
The freedom to practise any profession binds the State; the contract rule protects the same liberty between private parties.
Every topic in Law of Contracts
- 1.Offer and Acceptance for CLAT: How a Deal Is Born
- 2.Invitation to Offer vs Offer: The Shop-Window Trap
- 3.Postal Rule, Revocation and Online Acceptance
- 4.Consideration: Something for Something
- 5.Privity of Contract: Who Can Sue?
- 6.Family Promises vs Business Deals: Intention to Create Legal Relations
- 7.Minor's Agreement for CLAT: Why It's Void (Not Voidable)
- 8.Coercion vs Undue Influence: The Pressure Tests
- 9.Fraud vs Misrepresentation: Lies, Half-Truths and Silence
- 10.Mistake of Fact vs Mistake of Law in Contracts
- 11.Void vs Voidable vs Illegal: Getting the Label Right
- 12.Lawful Object and Public Policy: When the Purpose Kills the Deal
- 13.Restraint of Trade: Non-Compete Clauses Explained (you're here)
- 14.Wagering Agreements: Bets, Lotteries and Insurance
- 15.Contingent Contracts: "If This Happens, Then…"
- 16.Frustration and Discharge: When a Contract Dies
- 17.Breach of Contract and Damages: What Can You Claim?
- 18.Quasi-Contracts: Obligations Without an Agreement
- 19.Indemnity vs Guarantee: Who Pays If It Goes Wrong?
- 20.Agency in Contract Law: Acting for Someone Else