Mergers & Acquisitions · Question

What is a non-compete clause and how far can it bind a selling promoter?

Short answer

A non-compete is a clause by which the selling promoter agrees not to run or invest in a competing business for a defined period, area and activity. Indian law is wary of broad restraints on trade, but limits tied to protecting the goodwill of a business just sold are more readily supported if they are reasonable. Whether a clause would hold is a question for your lawyer.

In more detail

Buyers pay for customers, relationships and know-how. If the founder could open a rival next door a month later, much of that value would walk out with them. The non-compete answers that fear, usually alongside a promise not to poach customers or staff.

The three dials

Every non-compete is shaped by three variables, and negotiation happens on each.

Time: how long the restriction lasts after closing or after you leave a continuing role.
Geography: where it applies, ideally matched to where the business actually trades.
Activity: which products or services are covered, ideally those of the business sold and not your entire field.

Related restrictions often sit alongside: non-solicitation of customers, suppliers and employees, confidentiality of the business's information, and limits on using the company's name or brand.

What a reasonable clause looks like

A reasonable restriction protects the specific business the buyer acquired and goes no further. Clauses that cover the whole country for an activity you never carried on, or that last far longer than is needed to protect the goodwill, are open to challenge and are worth resisting in negotiation.

Ask what the buyer is protecting

Ask for the clause to be written around the actual business, customers and territory sold. A narrow, understandable clause is both fairer to you and easier for a court to uphold.

Check also whether you are free to hold small passive investments, work for non-competing companies, or continue unrelated ventures. If the clause is paid for separately in the price, understand how that portion is treated for tax with your adviser.

Key points

A non-compete limits your competing activity for a set time, place and field after the sale.
Indian law is wary of broad restraints, but reasonable limits protecting sold goodwill fare better.
Negotiate the three dials: duration, geography and covered activity.
Related clauses on soliciting customers or staff often sit beside it.
Ask a lawyer whether a specific clause is reasonable.

Who this applies to

Founders about to sell a business who wish to start something new afterwards.
Family-business owners with several lines of activity, only some of which are being sold.
Promoters negotiating a continuing role with the buyer.

Last reviewed 3 October 2026

This answer is general information, not advice on your particular case. Terms, eligibility, and requirements change, so check the current position with the relevant institution or authority. Lalsar Holdings' financial advisory and financing work is advisory and facilitation only. Lalsar Holdings is not a lender. Sanction and disbursement of any credit facility is at the sole discretion of the partner bank, NBFC, or financial institution involved, subject to their own eligibility criteria and credit policy.