Raghu (Software Engineer) 09 June 2012

Breach of non-solicitation and non compete clause

Hi,

I need advice for my situation. Currently i am in India and working for an Inidan Based software company A. (Its an MNC).

I am a software engineer joined 2 years back in a software comapny A with prior experience.

During my tenure Software company A, didn't provide me any training as such.

I sumitted resignation and am serving notice period as per the agreement and will be relieved from my duties in next couple of days.

For these 2 years i am working for an US client from India through this company A. Now the US client offered me a full time job.
At the time of joining company A, I signed on offer letter which is on company A letter head.

In offer letter there are couple of clauses that are bothering me.

Non Solicitation : During your employment with the company and for a
period of 12 months thereafter, you shall not provide services to any
of Company’s clients(except as accepted by the company), directly or
indirectly or solicit any business from its clients."

Non Compete : Your position with the company calls for full time employment and you will devote yourself exclusively to the business of the company. You will not take up any other work for remuneration (part time or otherwise) or work on advisory capacity or be interested directly or indirectly (except as sharholder or debenture holder) in any other trade or business, during your employment with the company, without written permission from the company. On leaving the service of the company, you shall not take up a full-time/part-time employment with any of our customers and associates for a period of 1 year. You understand and agree that such restriction is reasonable and in the interest of the company's businesses.

After doing some research, i understand that above two clauses are not valid as per Section 27 of the Indian Contract Act, 1872.

It says -

27. Agreement in restraint of trade void.- Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Saving of agreement not to carry on business of which good- will is sold.- Exception 1.- One who sells the good- will of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the good- will from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business.

My questions:

1. Can the company A sue on me when i am not in India?

2. If they sue, how do i need to respond to summons from US without coming back to India?

3. Is there any way by which they can stop me from doing my legal job in US till the case is solved?

My understanding is law is in favour of me, but how to handle it from outside India is the question. Correct me if i am wrong.
Thanks in Advance.

Regards,

Raghu

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5 Replies

Kumar Doab (FIN) 09 June 2012

You may find the attachment useful.

Kindly consult an experienced and competent lawyer with all records, documents, and give inputs in person and take a qualified decision.

Section 27

Although the section states that all agreements in restraint of any profession, trade or business are void, the current trend as per various judicial pronouncements leads to the conclusion that reasonable restraint is permitted and does not render the contract void ab initio. Reasonableness of restraint depends upon various factors, and the restraint in order to prevent divulgence of trade secrets or business connections has to be reasonable in the interest of the parties to ensure adequate protection to the covenantee. The above section implies that to be valid an agreement in restraint of trade must be reasonable as between the parties and consistent with the interest of the public.

Reasonable restrictions can be placed in the following ways:

2. Time limit: if there is a reasonable time provided in the clause then it will fall under reasonable restrictions.

NON COMPETE CLAUSES UNENFORCEABLE IN INDIA

Indian courts have consistently refused to enforce post-termination non-compete clauses in employment contracts, viewing them as "restraint of trade" impermissible under Section 27 of the Indian Contract Act, 1872, and as void and against public policy because of their potential to deprive an individual of his or her fundamental right to earn a livelihood.

The attachment can also be accessed at:

https://www.lawyersclubindia.com/articles/Non-Compete-Clauses-and-The-Indian-Contract-Act-1972-4621.asp

Attached File : 225407582 non compete clause not enforceable in india.doc downloaded: 323 times

SURESH GODBOLE (ADVOCATE) 09 June 2012

First ,

What you signed before appointment is " NOT AGREEMENT " BUT AN "UNDERTAKING "

Thus its employers lawful right to restrict you from taking advantage of your position in Co for your personal benefit

Employer is correct

You have no case

Anjuru Chandra Sekhar (Advocate ) 10 June 2012

It depends under which law, which provision the company had sued you and also in which court. Generally speaking someone in US can be represented by a counsel on that counsel being given a power of attorney by you to represent you in court. It is very difficult for anyone to get back someone to India if he is in foreign country, it is a big process. They can get you back to India if court issues a warrant of arrest. But this is a simple civil case I do not think it will go up to issuing an arrest warrant.

aaryan (Manager) 24 April 2014

Hi All, Need advice and understanding on below clause of Non solicitation :

Currently i am working as procurement manager with US MNC in India and in my appointment letter which was on the companies letter head which I had signed during joing the company , One of the clause is bothering me as I am planning to join a company as employee which is the customer of existing company , Wanted to understand does this clause stops me from joining the customer to the existing company.

Below is mention in clause :

Non Solicitation:

You will not for a period of of either (i) two years after superannuation or (ii)two years after the employment is terminated for any reason by either party , whichever is later ,Solicit or attempt to solicit any employee , consultant ,customer,individual or entity having a business relationship with the company , whether as an employee , consultant customer or otherwise to terminate or cease such relationship . You further agree that the prohibitions contained in this clause are reasonable as to time , scope of activity and otherwise , and do not impost a restriction greater than is necessary to protect the business interests of the company.

Please advice does above clause stops me from joining the company customer company ? Can I accept the employement of customer company ? If I do so can my existing company take any legal actions against me ?

Will be grateful to get your expert advices on above topic .

Thanks for the replies....

Kumar Doab (FIN) 27 April 2014

@aaryan,

Your query is addressed at:

https://www.lawyersclubindia.com/forum/Non-solicitation-clause-101324.asp#.U1z0IUeBmXU

It is reiterated that you should show all docs on record and proceed under expert advice of your lawyer. The lawyer that has seen all docs can advise you the best.