An agreement in Restraint of Trade is Void. Explain this Statement Stating Exception if Any.
Agreements in Restraint of Trade (Section 27):
Section 27 provides that every agreement by which anyone is restrained from exercising a lawful profession or business of any kind, is to that extent void.
Every person in India is free to carry on any lawful business, trade or engage in any profession. This freedom has been guaranteed to every citizen by the Constitution of India.
The right of trade and profession is as important as the right of the life. Just as a person does not have a right to deprive himself of his life, similarly, he cannot deprive himself of the right of trade and profession. An agreement. which puts restraint upon a party’s freedom of trade and profession shall not be enforceable.
Exceptions: The general rule is that all the agreements in restraint of trade, are void. However, following are the exceptions to the above general rule.
Sale of goodwill: According to Section 27, One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer or any person deriving title to the goodwill from him, carries on a like business therein. Provided that such limits appear to the court reasonable, regard being had to the nature of the business.
Partners agreement: Partners may agree that K
A partner shall not carry on any business, other than that of the firm, while be partner. [Section 11(2) Indian Partnership Act, 1932].
A partner on ceasing to be a partner will not carry on any business. similar to that of the firm within a specified period or within local limits. The agreement shall be valid if the restrictions are reasonable. [Section 32 (2) Indian Partnership Act, 1932]
Partners may in anticipation of dissolution make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits and such, agreement shall be valid if the restrictions imposed are reasonable. [Section 54 Indian Partnership Act, 1932]
A partner may, upon sale of goodwill of a firm, make an agreement that such partner will not carry on any business similar to that of the firm within a specified period or local limits provided the restriction is reasonable. [Section 55, Indian partnership Act, 1932].
Trade combinations: Trade combination which have been formed to regulate the business or to fix prices are not void, but the trade combinations which tend to create monopoly and which are against the public interest are void. Example: An agreement between certain person to carry on business with the members of their caste only is void.
Sole selling agreements: There is a usual practice among manufacturers that they give right to only one agent or distributor to sell their products in a particular local limit so long as the buyer or his representatives carry on the business is valid. But the restriction should be reasonable in the opinion of the court.
Service Agreements: The agreement between an employer and the employee may contain certain term which put restriction upon employee’s freedom. Some of such restrictions may be valid. A promise by an employee that he will not work anywhere else so long as he is working with the present employer would be valid.