Non-Solicitation Clauses in India: Enforceability under Section 27 of the Indian Contract Act, 1872, Customer and Employee Solicitation, and the Line Between Trade Secrets and General Skill

A non-solicitation clause does not stop a person from trading. It stops him from approaching particular people: the former employer's customers, or its employees. That difference is the whole argument for enforceability, because Section 27 voids agreements restraining a person from exercising a lawful profession, trade or business, and a covenant that leaves him free to trade with everyone except a defined group arguably does no such thing. Indian courts have accepted that reasoning in commercial settings and have been markedly less willing to accept it in employment, where the same words operate against a party who has no bargaining power and whose livelihood is at stake.

1. What the Clause Does

Non-solicitation covenants come in two forms, and they raise different questions.

Customer non-solicitation. The covenantor agrees not to approach, canvass or accept business from customers of the other party, usually those he dealt with during a defined period before termination. The interest sought to be protected is the customer connection.
Employee non-solicitation, or non-poaching. The covenantor agrees not to solicit or employ the other party's employees. The interest sought to be protected is the stability of the workforce and the investment in training.

Both must be distinguished from a non-compete clause, which prevents the covenantor from carrying on a competing business at all, and from a confidentiality clause, which prevents him from using or disclosing information. The three are often found in the same document and are treated very differently by the courts, so they should be pleaded and considered separately.

2. The Argument on Section 27

	The case for enforceability	The case against
Text of Section 27	The covenantor is not restrained from exercising his trade; he may carry on the same business with everyone outside the defined group	A covenant that removes the only customers he knows is in substance a restraint on his trade, and the section looks at effect
Interest protected	A legitimate proprietary interest in customer connection and in the workforce	General skill, experience and contacts belong to the employee and are not the employer's property
Comparison with a non-compete	Narrower, and therefore less objectionable	Section 27 admits no test of degree; a partial restraint is as void as a total one
Bargaining position	Between commercial parties the covenant is usually reciprocal and negotiated	In employment the covenant is imposed on the weaker party and is rarely negotiated

3. Commercial Agreements: The Permissive Line

📖 Wipro Ltd. v. Beckman Coulter International, 2006 (131) DLT 681 (Delhi)

Facts: The parties had a long-standing relationship, the plaintiff having acted as the sole and exclusive distributor of the defendant's products in India for some seventeen years. Their agreement contained a mutual non-solicitation clause operative for two years after termination, restraining each from soliciting the other's employees. As the defendant prepared to begin direct operations in India, it advertised for staff, specifying experience in handling the relevant products. The plaintiff treated the advertisement as a breach and sought an injunction.

Held: The Delhi High Court held that the non-solicitation clause was not hit by Section 27. The clause did not restrain either party from carrying on its trade, business or profession; it regulated the manner in which they might approach each other's employees. Restrictions between two commercial parties of comparable standing are to be viewed more liberally than a restriction in an employer-employee contract. On the facts, however, no injunction was granted in respect of employees who had applied and joined of their own accord in response to a general advertisement, since that did not amount to solicitation.

Ratio: A mutual non-solicitation clause between commercial parties is valid and outside Section 27. A general advertisement inviting applications is not solicitation; there must be a targeted approach to identified individuals.

3.1 What amounts to solicitation

A targeted approach to identified persons is solicitation, whether made directly or through an intermediary.
A general advertisement open to the public is not solicitation, even if it specifies experience of a kind that only the other party's employees are likely to possess.
An unsolicited approach by the employee or customer to the covenantor is not solicitation by the covenantor, and a clause that purported to prevent him from accepting such approaches would come much closer to a restraint on trade.
The burden of proving solicitation lies on the party alleging it, and the courts have required specific evidence of the approach rather than an inference drawn from the mere fact that employees or customers moved.

The same restraint on paper, very different results in law

4. Employment Contracts: The Restrictive Line

Where the covenant binds a former employee, the courts have been considerably less receptive, particularly to customer non-solicitation. The recurring reason is that the relationships an employee forms in the course of his work are not the employer's property, and that a covenant which prevents him from dealing with the only people he knows in the trade operates as a restraint in substance.

📖 American Express Bank Ltd. v. Priya Puri, (2006) 3 LLJ 540 (Delhi)

Facts: A senior employee in the bank's wealth management business resigned and joined a competitor. The bank sought an injunction restraining her from using or disclosing information relating to its business and operations, and from soliciting or inducing any of its customers, relying on confidentiality and restrictive covenants in her contract. An ex parte injunction was obtained and was afterwards set aside.

Held: The Delhi High Court refused the injunction. The client information relied on was not a trade secret: it consisted of names and details that were available from other sources and of the general knowledge the employee had acquired in the course of her work, which belonged to her. The Court observed that granting the relief sought would create a situation in which a person who had once been a customer of the bank must always remain its customer, which the law does not permit. A post-employment restriction of that kind is void under Section 27 and cannot be enforced by injunction.

Ratio: Customer lists and the general knowledge an employee acquires are not trade secrets, and a post-employment covenant preventing a former employee from dealing with customers is void under Section 27.

5. Where the Employer Does Succeed

An employer is not without remedy, but the relief rests on grounds other than the restrictive covenant itself.

Misuse of genuinely confidential information. Where the former employee has taken and used the employer's confidential material, the court will restrain him. In Desiccant Rotors International Pvt. Ltd. v. Bappaditya Sarkar, 2009 (112) DRJ 14, the Delhi High Court protected the employer where confidential information had been misused to solicit customers, treating the conduct as an independent wrong rather than as enforcement of a restraint.
Breach of confidence as a distinct cause of action, which exists independently of contract and is not affected by Section 27.
Copyright and database rights in compilations, where the employee has copied a protected work rather than merely remembered its contents.
Breach of fiduciary duty by a senior employee or director who diverted an opportunity or prepared to compete in breach of his duties during the currency of the employment.
Covenants operating during the employment, which are enforceable on the reasoning in Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd., AIR 1967 SC 1098.

⚠ The trade secret line is drawn by the character of the information

The courts distinguish between the employer's trade secrets and confidential information, which may be protected after employment ends, and the employee's general skill, experience and knowledge, which belongs to him. A trade secret is protected information acquired in the course of employment which should not reach others in the employer's interest; the routine day-to-day affairs of the business, known to many and commonly available, are not trade secrets. Customer names that could be assembled from directories or public sources fall on the employee's side of the line, however commercially valuable the employer considers them.

6. Drafting Points

Separate the covenants. Draft non-compete, non-solicitation and confidentiality as distinct clauses so that the invalidity of one does not carry the others with it, and so that the words 'to that extent' in Section 27 can operate.
Define solicitation precisely, and expressly exclude general advertisements and unsolicited approaches, since a clause extending to those is more likely to be treated as a restraint.
Limit customer non-solicitation to customers the covenantor actually dealt with during a defined period, since a covenant extending to the whole client base is harder to defend.
Identify the confidential information with particularity rather than by a general formula, because the employer must be able to show at trial what was protected and that it was not merely general knowledge.
Expect employee non-solicitation to fare better than customer non-solicitation, and both to fare better in a commercial agreement than in an employment contract.

7. The Position Stated Shortly

A non-solicitation clause restrains approaches to defined persons rather than the carrying on of a trade, which is the basis for holding it outside Section 27.
The two forms are customer non-solicitation and employee non-solicitation, and they must be distinguished from non-compete and confidentiality clauses.
Wipro v. Beckman Coulter: a mutual non-solicitation clause between commercial parties is valid, and restrictions between such parties are viewed more liberally than in employment.
A general advertisement is not solicitation; there must be a targeted approach to identified persons.
American Express Bank v. Priya Puri: customer lists and general knowledge are not trade secrets, and a post-employment covenant against dealing with customers is void under Section 27.
An employer's real remedies after employment lie in breach of confidence, copyright, fiduciary duty and the misuse of genuinely confidential material.
Covenants operating during the employment remain enforceable on the reasoning in Golikari.
The protected category is trade secrets and confidential information; general skill and experience belong to the employee.

8. Related Topics and Provisions

Topic or provision	Connection
Agreement in Restraint of Trade under Section 27	The governing provision and the general rule
Post-Employment Non-Compete Clauses in India	The stricter covenant, and why it is treated differently
Void Agreements under Sections 24 to 30	Section 27 among the classes declared void
Contract Law and Freedom of Contract	Inequality of bargaining power in standard employment documents
Section 27, Indian Contract Act	The rule and the words 'to that extent'
Section 42, Specific Relief Act, 1963	Injunction to enforce a negative covenant
Section 41, Specific Relief Act, 1963	When an injunction cannot be granted
Article 19(1)(g), Constitution of India	Freedom to practise a profession