NDA vs Non-Compete Clause in India: Enforceability, Scope and Drafting Tips
NDA vs non-compete in India: confidentiality clauses are enforceable; post-employment non-competes are generally void under section 27 of the Contract Act.
Short answer
Rely on a well-drafted NDA or confidentiality clause to protect trade secrets, client data and business plans: Indian courts enforce them during and after the relationship. Non-compete clauses are enforceable only while the employment or engagement lasts; post-termination non-competes are generally void under section 27 of the Indian Contract Act, except narrow cases like sale of goodwill.
- NDA enforceability
- Generally enforceable, including after exit
- Non-compete during term
- Generally enforceable
- Non-compete after exit
- Generally void, section 27, Contract Act
- Statutory exception
- Sale of goodwill
- Main remedies
- Injunction and damages
- Better alternative
- Confidentiality, non-solicitation, garden leave
What does each clause do?
A non-disclosure agreement stops a person from using or disclosing confidential information received from you, such as source code, pricing, customer lists, product plans and financial data. It does not stop the person from working in the same industry, only from misusing your information.
A non-compete stops a person from working for a competitor or running a competing business for a period, often within a territory. It restricts the person's trade or profession, which is why Indian law treats it with suspicion.
Side-by-side comparison
The table summarises how Indian courts generally treat the two clauses in employment, consulting and founder contexts. Outcomes always depend on the specific wording, the role of the person and the facts of each case.
| Factor | NDA / confidentiality | Non-compete |
|---|---|---|
| Protects | Confidential information | Market position by restricting competition |
| During employment or engagement | Enforceable | Generally enforceable |
| After termination | Enforceable for genuinely confidential information | Generally void under section 27 |
| Exceptions | Information already public is not protected | Sale of goodwill; partners in limited cases |
| Typical duration | Fixed period or as long as information stays confidential | Often 6 to 24 months, rarely enforced post-exit |
| Remedy | Injunction, damages | Injunction only during term in most cases |
| Proof needed | Information was confidential and was misused | Breach during the restricted period |
| Use with investors and vendors | Standard | Rarely appropriate |
What do Indian courts say?
Section 27 of the Indian Contract Act declares void every agreement restraining anyone from exercising a lawful profession, trade or business, except a seller of goodwill agreeing not to compete within reasonable limits. The Supreme Court in Niranjan Shankar Golikari upheld a restraint operating during employment, while in Superintendence Company of India v. Krishan Murgai it held a post-employment restraint void.
Courts do enforce confidentiality obligations after employment ends, and may restrain a former employee from using specific trade secrets or confidential client data. They are more cautious with non-solicitation clauses, sometimes treating broad ones as disguised non-competes.
How should you draft them?
Define confidential information specifically, exclude information that is public or independently developed, require return or destruction of materials on exit, and keep obligations running for as long as the information stays confidential. Pair this with an IP assignment clause so that work product belongs to the company.
For senior staff, consider garden leave, where the employee remains employed and paid during the notice period but does not work, which keeps a lawful restraint in place for that period.
What remedies are available on breach?
For a breach of confidentiality, the usual remedy is an injunction restraining further use or disclosure, combined with damages for loss suffered. Some agreements include liquidated damages, which courts award only up to a reasonable amount. Evidence matters: keep access logs, device return records and exit acknowledgements so you can show what information the person had.
Which should you use?
Use both, but rely on the right one for the right purpose. These rules reflect how Indian businesses commonly protect themselves without depending on clauses courts are unlikely to enforce.
- Sharing business plans with a vendor, partner or investor: NDA.
- Hiring employees with access to code or clients: confidentiality and IP assignment, plus non-compete during employment.
- Senior employee leaving for a competitor: enforce confidentiality; consider garden leave during notice.
- Selling your business: a reasonable non-compete tied to the sale of goodwill can be enforced.
- Co-founders: non-compete during their association, confidentiality after exit.
Related services
Sources
- Indian Contract Act 1872, including section 27 (India Code)
- Companies Act 2013 and rules made under it (India Code)
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Is a non-compete clause valid in India after resignation?
Generally no. Post-employment non-competes are treated as restraints of trade and are void under section 27 of the Indian Contract Act, subject to narrow exceptions.
Can I sue an ex-employee for breaching an NDA?
Yes. If the employee misuses or discloses genuinely confidential information, you can seek an injunction and damages, provided you can prove the information was confidential and was misused.
Are non-solicitation clauses enforceable?
Courts have taken mixed views. Narrow clauses protecting specific confidential client relationships are more likely to be upheld than broad bans on dealing with any client.
Does an NDA need to be stamped?
Yes, agreements generally attract stamp duty under the relevant state's stamp law. Inadequately stamped documents face difficulties as evidence until duty and penalty are paid.