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Ramesh's job contract with M/s XYZ bars him from joining any rival software firm in India for three years post-resignation. But after resigning within three years, he joins a competitor. XYZ company filed a suit to enforce the restrictive clause.

Under the Indian Contract Act, 1872, what is the legal position ?

  • A.Valid - three years is a reasonable period.
  • B.Void - restrains lawful profession after employment ends.
  • C.Valid - Ramesh agreed voluntarily.
  • D.Valid - protects the employer's business interest.

Answer: B

The clause is void, because it restrains a lawful profession after employment ends.

Section 27 of the Indian Contract Act, 1872 makes every agreement by which anyone is restrained from exercising a lawful profession, trade or business void, with only one statutory exception, the sale of goodwill. The Supreme Court in Superintendence Company of India v. Krishan Murgai held that a covenant restraining an employee from competing after the employment ends is void, however reasonable its period or area.

Indian law does not apply the English test of reasonableness, so 'three years is reasonable' fails. Voluntary agreement does not save a void clause, and protecting the employer's interest justifies restraints only during the employment, not after it.

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