Why Non-Compete Clauses Are Unenforceable | Doing Business in India | Episode 30

Is the carefully negotiated non-compete clause in your VC term sheet or employment contract actually enforceable?

In this episode of the Veyrah Law series, Ajay Joseph (Partner at Veyrah Law) breaks down why most non-compete clauses in India are completely unenforceable and what founders, investors, and businesses should use instead to actually protect their interests.

Under Section 27 of the Indian Contract Act, 1872, any agreement that restrains a person from carrying on a lawful profession, trade, or business is void. The only narrow exception applies to the sale of a business and its goodwill. It does not extend to employment contracts, founders' agreements, or VC backed exits. Indian courts have consistently refused to enforce non-competes outside that exception, no matter how carefully drafted or heavily negotiated.

The episode explains what businesses can still rely on: non-solicitation clauses preventing the poaching of employees and clients, and confidentiality obligations protecting trade secrets, both of which remain enforceable in India.

The episode sets out a four-part strategy for structuring real protection instead of relying on a void non-compete: accept the unenforceability and structure around it, use paid garden leave to buy time during the notice period, include a prohibitive walkaway fee tied to documented costs as a genuine damages clause, and invest in robust confidentiality and IP assignment provisions as the real shield against departing founders or employees.

For any foreign investor relying on a standard non-compete to protect their India investment, this episode is essential viewing on what actually works under Indian law.