The Delhi High Court allowed a petition under Sections 11(4) and 11(6) of the Arbitration and Conciliation Act, 1996, referring the disputes between the parties to arbitration and appointing a Sole Arbitrator, while vacating an interim injunction that restrained certain respondents from engaging in competing business after expiry of their contractual non-compete term.
The proceedings arose from allegations by Neosky India Limited and its subsidiary Throttle Aerospace Systems Pvt. Ltd. (TAS) that the first three respondents (former promoter-directors and senior executives of TAS) had breached non-compete obligations contained in a Share Subscription and Shareholders’ Agreement (SSHA), a Non-Compete Agreement (NCA), and Employment Agreements executed on 25 May 2022. The petitioners claimed that, after resigning in July 2023, the respondents incorporated Zulu Defence Systems Pvt. Ltd. to run a competing drone venture, in violation of these agreements.
Earlier, on 31 May 2024, the Court had granted interim restraint orders under Section 9 of the Act, prohibiting certain respondents from engaging in competing business. The present petitions sought appointment of an arbitrator, continuation of interim relief, and impleadment of certain non-signatories (respondents 6–8, including Zulu and its directors) in the arbitral reference.
The petitioners argued that the breaches fell squarely within the scope of the arbitration clauses in the SSHA and NCA. The respondents, while not disputing the existence of these clauses, opposed continuation of the injunction on the ground that the NCA’s fixed three-year term had expired on 25 May 2025 and that any post-employment restraint was void under Section 27 of the Indian Contract Act, 1872. They further contended that Zulu’s business operated in a distinct domain.
The Bench comprising Justice Jasmeet Singh held that under Section 11, judicial scrutiny is confined to the prima facie existence of an arbitration agreement, with disputed issues on scope, validity, breaches, and involvement of non-signatories left to the arbitral tribunal pursuant to the kompetenz-kompetenz and severability doctrines. The Court found the arbitration clauses valid and binding on respondents 1-5 and referred all disputes, including questions on impleadment of respondents 6-8, to arbitration.
On the interim relief, the Court ruled that non-compete covenants are enforceable only during the subsistence of employment or the contractual term, relying on Niranjan Shankar Golikari vs Century Spinning and Manufacturing Co.[1], Percept D’Mark (India) (P) Ltd. vs Zaheer Khan[2] and the recent decision in Vijaya Bank vs Prashant B Narnaware[3]. Post-employment restraints, it reiterated, are void under Section 27 ICA. Since the respondents had resigned effective 1 October 2023 and the NCA’s term expired by efflux of time on 25 May 2025, the injunction could not be continued. Attempts to extend the term by excluding “breach periods” would, the Court noted, amount to rewriting the contract.
Accordingly, the Court appointed Justice S.K. Kaul (Retd.) as Sole Arbitrator, vacated the interim injunction on competing business, and directed that other interim relief claims be pursued before the arbitrator under Section 17 of the Act. Contempt petitions arising from alleged breach of earlier interim orders were left open for revival after the arbitrator’s findings.
Appearances:
For Petitioners: Mr. Tanmaya Mehta, Ms. Nupur Kumar, Ms. Rashmi Gogoi, Mr. Ambuj Tiwari, Mr. Arjun Nagrath, Advs.
For Respondents 1-3: Mr. J. Sai Deepak, Sr. Adv. with Mr. Utkarsh Joshi, Mr. Anirudh Suresh, Ms. Anjali Menon, Ms. Kanishka Sharma, Advs.
For Respondents 4-5: Mr. Venkatesh Kumar, Adv.
[1] AIR 1967 SC 1098
[2] (2006) 4 SCC 227
[3] 2025 SCC OnLine SC 1107
