Hospitals cannot treat doctors like workmen in a factory: Madras High Court

In a significant verdict, the Madras High Court has held private hospitals cannot treat doctors like workmen in a factory and include non-compete and non-solicit clauses in the agreements reached with them. It has also said rivalry between hospitals is a misnomer since they are expected to be service-oriented and not business-oriented institutions.

Justice N. Anand Venkatesh passed the judgement while dismissing a petition filed by MIOT Hospitals Private Limited for appointing an arbitrator to resolve a dispute between it and cardiothoracic surgeon Balaraman Palaniappan. The judge also imposed costs of ₹1 lakh on the petitioner hospital and directed the hospital to the pay the money to the surgeon.

The judge found the petitioner-hospital and the surgeon had entered into a professional agreement on September 8, 2022 for a period of three years. Clause 8.3 of the agreement stated the surgeon shall not join any rival hospital or set up practice, in the vicinity of 15 km from the petitioner-hospital, for a further period of three years after the termination of the contract.

Since the surgeon had terminated the contract midway in 2025 and joined Apollo Hospitals, the petitioner hospital demanded liquidated damages of ₹42 lakh, which was the sum equivalent to his three months’ professional fees, along with interest and approached the court for appointment of an arbitrator under the Arbitration and Conciliation Act, 1996.

Shocked by the act of the hospital, Justice Venkatesh wrote: “It must be kept in mind that the respondent, who is a doctor by profession, cannot be construed as an employee of the petitioner hospital since, by the very nature of service provided by a doctor, at the best, a hospital can only utilize the services and cannot treat a qualified doctor like a regular employee of an organisation.”

On clause 8 of the agreement, he said: “It is quite unfortunate that a hospital has incorporated such a clause in an agreement entered into with a doctor. Either the above clause is as a result of cut, copy and paste syndrome from an agreement, which is regularly entered into between technology companies with their employees or the petitioner hospital has forgotten the fact that they are running a hospital to serve the patients and that they are indirectly admitting that the organisation is nothing short of a profit making entity.”

The judge also wrote: “Doctors can thrive without hospitals whereas a hospital can never exist without doctors supporting such hospitals by rendering their services. Therefore, by no stretch, a hospital can treat a doctor like a workman in a factory or a technical person or a regular employee employed by an organisation in the field of technology and other service sectors.”

Sating clause 8 of the agreement demeans the stature of a doctor, Justice Venkatesh observed: “A doctor is an independent professional, who cannot be stopped from rendering his services wherever he wants to and also cannot be stopped from attending to patients just because those patients were earlier taking treatment in the petitioner hospital. When it comes to running a hospital, there is no question of a rival hospital and each hospital is an independent entity, which is being run to serve the patients and the society at large.”

The judge held a professional agreement entered into by a doctor with a hospital would certainly be opposed to public policy if it contained a non-solicitation and/or non-compete clause and such an agreement would be squarely hit by Section 23 of the Indian Contract Act, 1872. “Consequently, it must be held to be unlawful, unenforceable and void ab initio to that extent.”

Justice Venkatesh also found clause 10 of the agreement stated that the petitioner-hospital could terminate it with prior written notice of at least one month or by paying one month’s professional fees in lieu of the notice period whereas the surgeon could terminate the agreement with prior notice of at least three months or by paying three months professional fees in lieu of the notice period.

Though the hospital claimed the surgeon did not issue three months notice, the judge on going through the records found the doctor had submitted his resignation letter on January 29, 2025 and requested the hospital to relieve him from April 29, 2025. On April 21, 2025 he had sent a mail thanking the hospital for the opportunities given to him but the hospital had treated that as the resignation letter.

Justice Venkatesh, even before going into the merits of the case, had persuaded the hospital as well as the surgeon to settle the dispute amicably. The surgeon immediately came forward to pay his one month’s professional fee to the petitioner hospital but the latter, being a big institution, wanted to show its “might” against a doctor by making him undergo arbitration proceedings, the judge lamented.

“For all the above reasons, this court holds that the above petition is devoid of merits and it has been filed to witch-hunt a doctor, whom the petitioner hospital expected to dance to their tunes forever,” the judge concluded.