A Non-Compete Hidden in an NDA Is Still a Non-Compete

Where it hides

Restraints inside NDAs are rarely headed non-compete. They appear as an undertaking not to engage in any business competing with the disclosing party for a period after disclosure, or as an acknowledgement that you will not use the information to compete, drafted broadly enough that any competing activity is caught.

A second common form appears in NDAs signed before an investment conversation or an acquisition discussion, restricting the recipient from pursuing similar opportunities. That reaches considerably further than protecting information.

Section 27 does not care about the heading

Section 27 of the Indian Contract Act, 1872 provides that every agreement by which anyone is restrained from exercising a lawful profession, trade or business is void to that extent, subject to the goodwill exception. The provision addresses the substance of the restraint rather than the title of the document it sits in.

So a post-engagement restraint inside a confidentiality agreement raises the same question it would raise inside an employment contract. That is worth knowing, because a counterparty presenting a document as just an NDA is describing the wrapper rather than the contents.

What is genuinely different

It would be wrong to conclude that everything restrictive in an NDA falls away. Confidentiality obligations are not restraints of trade; they restrict use and disclosure of information rather than the exercise of a profession. They stand on their own footing.

Non-solicitation sits between the two. An undertaking not to approach specific named clients or employees for a defined period is a narrower restriction than a bar on competing, and it is assessed separately. Where a counterparty has a genuine concern, offering a targeted non-solicit in place of a broad non-compete is often the deal that gets done.

How to handle it

• Read the whole document, not just the clauses with confidentiality in the heading.
• Separate what restricts information from what restricts activity.
• Ask for any restraint on future work or business to be removed, on the basis that the agreement is about information.
• Where the counterparty has a real concern, offer a defined non-solicit instead.
• Where the restraint matters commercially and the counterparty will not move, take advice before signing rather than after.

Why raising it works

The person sending you an NDA usually wants the conversation that follows it, and the restraint clause is frequently in the template rather than deliberately chosen for this deal. Asking for it to come out is often a two-minute exchange rather than a negotiation.

Once signed, the position is harder. Not because the analysis changes, but because you are then arguing about a document you accepted, with the counterparty invested in it, at a point when the relationship may already have deteriorated.