Introduction
The Delhi High Court's decision in Neosky India Ltd. & Anr. v. Nagendran Kandasamy & Ors. Dated 11 August 2025 addresses two commercially significant questions: the scope of judicial intervention at the pre-arbitral stage under Section 11 of the Arbitration and Conciliation Act, 1996, and the enforceability of contractual non-compete obligations post-termination, particularly in the context of interim relief under Section 9.
On May 25.2022, Neosky India Limited (“Neosky”), invested in Throttle Aerospace Systems Private Limited (“TAS”), acquiring 60% under a Share Subscription & Shareholders Agreement (“SSHA”), alongside a Non-Compete Agreement (“NCA”) and employment contracts with the original promoters who together held 40% shares and were the respondents in the proceedings. Under SSHA and NCA, the respondents were restrained from engaging in any competing business for 3 years. The dispute arose when Respondents 1-3 resigned from TAS and shortly thereafter incorporated Zulu Defence Systems Pvt. Ltd. (“Zulu”), allegedly to carry on a directly competing drone business in breach of the NCA. Neosky secured interim injunctive relief restraining competition and disclosure of confidential information, later invoked arbitration, and approached the Court under Section 11 when the respondents failed to appoint their nominee arbitrator within 30 days.
Court's Findings
A. Section 11 - Prima Facie Test and Kompetenz-Kompetenz
On the Section 11 petition, the Court confirmed that the SSHA and NCA contained valid arbitration clauses and that Respondents 1-5 were signatories to the said documents and had not disputed the arbitration and had participated in earlier Section 9 proceedings. Reiterating the limited scope of interference at this stage, the Court, relying on the judgments in Interplay, SBI General, and Aslam Ismail Khan Deshmukh, held that at the Section 11 stage, the Court's jurisdiction is confined to confirming the prima facie existence of an arbitration agreement leaving all questions on arbitrability, scope, merits, and the joinder of non-signatories to the arbitral tribunal under the doctrine of kompetenz-kompetenz. As the disputes raised involved factual issues that would require evidence, the court, therefore felt that these issues are best left for determination by the Arbitral tribunal.
B. Section 9 – Expiry of Non-Compete and Restraint of Trade
On the Section 9 petition, the Court examined whether the contractual non-compete could be enforced beyond its agreed term or post-termination of employment. The NCA imposed a three-year restriction from 25 May 2022. Respondents 1-3 had resigned on 3 July 2023, with their notice periods ending on October 1, 2023; Zulu was incorporated thereafter. Drawing on the judgments in Golikari, Percept D'Mark, and the recent Vijaya Bank ruling, the Court reiterated the settled position that under Section 27 of the Indian Contract Act, 1872, post-termination restraints are void in the context of employment relationships, and negative covenants are enforceable only during the subsistence of the agreement or employment. The petitioners' argument that the non-compete term should be extended to account for the duration of alleged breach was rejected. The Court reasoned that such an extension would rewrite the bargain, potentially double the restraint period, and risk unjust outcomes if the allegations were later unproven. Non-compete clauses, by their restrictive nature, must be construed strictly, and courts will not imply or create obligations beyond those expressly agreed. Consequently, the interim injunction lapsed upon the contractual expiry of the NCA on 25 May 2025.
The court converted the petition into an application under Section 17 of the Act before the Arbitrator and left the matters to be decided by the Arbitral Tribunal.
Implications of the Judgment:
This judgment reinforces several practical points for commercial actors. First, at the Section 11 stage, referral courts will resist engaging in mini-trials and will confine themselves to verifying the prima facie existence of an arbitration agreement, acceding jurisdictional and merit-based issues to the arbitral tribunal. Second, in Indian law, post-termination non-competes in employment contexts remain highly vulnerable under Section 27 ICA, and courts will not extend restraint periods on equitable grounds if doing so would alter the contractual framework.
For investors and acquirers, the decision underlines the importance of precise drafting in transaction documents, particularly where protection against competition by promoters or key employees is critical. Clauses must clearly specify whether restraints survive termination and for what duration, and parties should consider supplementing non-compete provisions with confidentiality, non-solicit, and equity linked protections that are more likely to be enforceable. For dispute strategy, the case is also a reminder that interim relief under Section 9 is only as strong as the underlying contractual right once that right expires, sustaining injunctions becomes significantly more difficult.
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