In a recent ruling dated 28 July 2025, the Delhi High Court upheld the enforceability of a non-compete clause under a Shareholders' Agreement (SHA) despite objections from former directors and shareholders. The case, ARB. A. (COMM.) 5/2025, involved Paul Deepak Rajaratnam, Mohamed Naushad Basheer, and their firm Accel Transport and Logistics, against Surgeport Logistics Pvt. Ltd. and Skyways Air Services Pvt. Ltd.
Background of the Dispute
The appellants, with over 25 years of industry experience, entered into a joint venture in 2017 with Surgeport. They were promised 12% equity shares initially, with a future hike to 25%. The SHA was executed on 28 April 2018, though the appellants later claimed they neither reviewed the draft nor retained a signed copy. The firm Accel Transport, formed by the appellants in July 2018, was reportedly established with full knowledge and approval of the respondents to support Surgeport’s logistics operations.
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From 2018 to 2023, Accel invoiced Rs. 1.7 crores for services rendered. However, disputes arose in mid-2023 over equity enhancement and alleged siphoning of Rs. 4-5 crores by the respondents. A Termination Notice dated 25 July 2023 was issued, followed by litigation and arbitration proceedings.
The pivotal question before the Court was whether Clause 15 (non-compete and non-solicit) of the SHA could be enforced after the appellants’ termination, and whether the SHA still subsisted.
“The arbitral tribunal is satisfied that an interim order needs to be passed, restraining the respondents from engaging in competing business…as it would infringe the non-compete obligations in Clause 15 of the SHA.”
— Justice Jasmeet Singh quoting the Arbitrator’s interim award
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Appellants' Arguments
Termination Accepted: The appellants argued that the SHA was terminated by notice dated 25 July 2023 and accepted via email on 13 October 2024. Hence, Clause 15 could no longer be enforced.
Violation of Right to Livelihood: Enforcing a non-compete clause post-termination violates Section 27 of the Indian Contract Act, which voids any restraint on trade.
Clause Was Penal in Nature: Clause 15 prescribed a penalty of Rs. 1 crore, which implied damages were the only remedy—not an injunction.
Specific Relief Act Violation: The clause amounted to specific performance of a personal service contract, barred under Section 14(c), (d) and Section 41(e) of the Specific Relief Act.
Procedural Unfairness: The arbitrator refused immediate relief for unpaid salary and commissions but enforced restrictions on livelihood.
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Respondents' Defence
SHA Still Subsisting: The respondents argued that the appellants continued as directors and shareholders, as recorded in court orders dated 16 May 2024.
Termination Letter Invalid: Only Respondent No. 2 could terminate the SHA as per Clause 14. The July 2023 termination letter, issued by Respondent No. 1, lacked authority.
Appellants’ Shifting Stand: Initially, appellants denied the SHA’s existence, but later affirmed it—indicating inconsistency.
Reasonable Restriction: Clause 15 only prohibited competing logistics business, not all trade, and thus was valid during the SHA’s subsistence.
“Disengagement from operations does not mean the end of contractual obligations under the SHA, especially restrictive covenants.”
— Justice Jasmeet Singh
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Court's Analysis and Findings
Limited Scope Under Section 37(2)(b): The Court reiterated that appellate intervention against an arbitral order is allowed only in cases of perversity, arbitrariness, jurisdictional error, or public policy violations.
Termination Not Proved: The appellants continued to be listed as directors per MCA records. Their inconsistent statements and late-stage confirmation of termination weakened their case.
Clause 15 Is Enforceable: Since the SHA was still in effect, the non-compete clause was deemed valid and enforceable. Section 27 of the Indian Contract Act did not apply.
Financial Claims Separate: The appellants were free to claim unpaid salary or profits through counterclaims, but that had no bearing on enforcing Clause 15.
Triple Test Met: The interim award met the standard of:
- Prima facie case
- Irreparable injury
- Balance of convenience
“The Court will not interfere merely because a different view is possible. Judicial restraint must prevail unless the arbitral order is manifestly illegal or perverse.”
— Delhi High Court, quoting NHAI v. HK Toll Road (2025)
The Delhi High Court dismissed the appeal, upholding the arbitrator’s interim award restraining the appellants from engaging in competing business until the dispute is fully adjudicated.
Case Title: Paul Deepak Rajaratnam & Ors. vs. Surgeport Logistics Private Limited & Anr.
Case No.: ARB. A. (COMM.) 5/2025