Post-Termination Non-Compete in Professional Contracts: A Clear Line from the Madras High Court
In MIOT Hospitals Pvt. Ltd. v. Dr. Balaraman Palaniappan (2026:MHC:733), the Madras High Court declined to appoint an arbitrator where enforcement was sought of a three-year, 15 km post-termination non-compete imposed on a consultant surgeon.
The agreement restrained the doctor from joining a “rival hospital” or practising within a defined radius after termination, with liquidated damages attached. Upon resignation and subsequent engagement elsewhere, arbitration was invoked. The Court refused referral.
What is non-compete clause?
A non-compete clause restricts a contracting party from engaging in competing activity after termination. It typically contains a defined duration, territorial limit, description of restricted activity, and an enforcement mechanism (damages or injunction, often backed by arbitration).
While common in corporate transactions to protect goodwill and commercial interests, such clauses operate within strict statutory limits in India.
The Statutory Constraint
Section 27 of the Indian Contract Act, 1872 renders void agreements restraining a person from exercising a lawful profession, trade or business. Courts have upheld restraints during subsistence of engagement but generally struck down post-termination non-competes.
The High Court held that restraining a doctor from practising post termination was hit by Sections 23 and 27 opposed to public policy and void ab initio.
The Court observed:
“Doctors can thrive without hospitals whereas a hospital can never exist without doctors. Therefore, by no stretch, a hospital can treat a doctor like a workman in a factory or a technical person or a regular employee employed by an organization in the field of technology and other service sectors.”
The Structural Holding
The more consequential aspect lies in the Section 11 analysis. The Court refused referral under Section 11, holding that arbitration cannot be used to adjudicate or indirectly enforce a covenant that is void in law. This reflects a substantive validity check at the referral stage where statutory illegality is evident.
A Broader Signal
Although arising in healthcare, the reasoning is not sector-specific. Where engagement involves licensed, independent professionals whose right to practise flows from statutory recognition rather than institutional grant, post-termination territorial restraints remain vulnerable under Section 27.
The Court’s remark that the clause appeared to be a “cut, copy and paste” insertion from technology-sector employment contracts reinforces this point; contractual templates designed for commercial employment relationships cannot be mechanically transplanted into professional engagements.
For institutions built around professional capital; healthcare, advisory, consulting or regulated financial services, the boundary is clear: confidentiality may be protected, suppression of professional mobility generally will not.
Section 27 remains a real constraint on freedom of contract, not a drafting inconvenience.
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