Court rules non-solicitation and non-compete clauses in hospital-doctor agreements as opposed to public policy, dismissing arbitration petition by MIOT Hospitals.
In a significant ruling, the Madras High Court dismissed an arbitration petition filed by MIOT Hospitals Private Limited against Dr. Balaraman Palaniappan. The court, presided by Justice N. Anand Venkatesh, held that the restrictive covenants in the professional agreement between the hospital and Dr. Palaniappan were void, as they were contrary to public policy and unenforceable under Indian Contract Act, 1872.
MIOT Hospitals had sought the appointment of an arbitrator to resolve disputes arising from a professional agreement with Dr. Palaniappan, who was employed as a Consultant Cardio Thoracic Surgeon. The agreement, dated September 8, 2022, included non-solicitation and non-compete clauses, which restricted Dr. Palaniappan from practicing within 15 km of the hospital and joining any rival hospital for three years post-termination.
The court found such clauses contrary to Section 23 and Section 27 of the Indian Contract Act, 1872, which render agreements void if they restrain lawful professions or are against public policy. Justice Venkatesh observed that a doctor could not be treated as a regular employee and that hospitals should not impose business-like restrictions on medical professionals. He emphasized that doctors have the right to practice independently and cannot be bound by terms that restrict their professional autonomy even after the contract has ended.
The court also addressed the issue of Dr. Palaniappan's resignation notice. It was found that he had given a three-month notice as per the contractual requirement, which the hospital failed to acknowledge correctly. The hospital's attempt to initiate arbitration proceedings was seen as a misuse of power against the doctor, whom they expected to comply indefinitely with their terms.
In his order, Justice Venkatesh remarked on the importance of respecting the independence of medical professionals and criticized the hospital's attempt to enforce business-like restrictions. The petition was dismissed with costs of Rs. 1,00,000 imposed on MIOT Hospitals, payable to Dr. Palaniappan.
This judgment underscores the judiciary's stance on maintaining the autonomy of professionals and ensuring that employment contracts do not contravene public policy or legal provisions.
Bottom Line:
An agreement between a hospital and a doctor containing non-solicitation and non-compete clauses, which restrains the doctor from practising his profession, is opposed to public policy and is unenforceable under Sections 23 and 27 of the Indian Contract Act, 1872.
Statutory provision(s):
Indian Contract Act, 1872 Sections 23, 27; Arbitration and Conciliation Act, 1996 Section 11(6)
MIOT Hospitals Private Limited v. Dr. Balaraman Palaniappan, (Madras) : Law Finder Doc id # 2857225
