Skip to main content

Agreements in restraint of Trade

                                    Agreements in restraint of trade

Section 27 of the Indian contract act, 1872 states that any agreement that debars a person from starting or continuing his trade or profession in return for some consideration is considered to be void. Agreement in restraint of trade is defined as the one in which a party agrees with any other party to restrict his/her liberty in the present or the future to carry on a specified trade or profession with other persons not parties to the contract without the express permission of the latter party in such a manner as he/she chooses. 

                          The sale of goodwill and Partnership Act are an exception to the agreements in restraint of Trade. 

The test of reasonability for restraining is done by the following three steps: - 

An agreement in restraint of trade is valid, if – 

  • There is a valid interest that the party imposing the restrain is trying to protect.

  • If the specific rules are not followed. Suppose, if there is a branch of 7UP in India. Now if you start selling it in an orange coloured bottle, then you can be restrained because it is against the rules of the company. 

  • If you enter into a firm and you are told to not go there for three years as you have been detained because of your conduct.

In India, section 27 of the Indian contract Act, 1872 declares all agreements in restraint of trade, void pro tanto that is to that extent with the only exception being sale of good. This means that it is valid till that extent where it started restraining. All other parts of the contract are valid except the part where it shows restrainment. Yet, it is important to understand that these agreements are void not illegal. These agreements are not unlawful to make, they are just not enforceable in a court of law. Unlike common law, partial agreements in restraint of trade or reasonable restrain are not valid under contract act. 

Exceptions to the section 27 of Indian contract at 1872

Sale of goodwill

If a seller sells goodwill of a business to a buyer then the buyer of the goodwill can legally restrain the original owner to carry on a similar business, within specified local limits. Like other assets goodwill can also be sold. Once bought the buyer gains some rights: -

  • He/She can use the name of the Firm or Company whose goodwill has been bought.

  • He/She can represent the firm

  • He/She can restrain the seller of the goodwill from being in contact with the previous customers of the firm

Conditions that make restraint of trade valid in terms of selling goodwill: -

  • Seller can be restrained only from carrying out a similar business

  • The restrain can be applied only to certain local limits.

  • The limits or restraints must be reasonable.

Partnership Act 

There are four provisions in the Partnership Act which validate agreements in restraint of trade. Section 11 enables partners during the continuance of the firm to restrict their mutual liberty by agreeing that none of them shall carry on any business other than that of the firm. Section 396 of this Act enables them to restrain an outgoing partner from carrying on a similar business within a specified period or within specified local limits. Such agreements shall be valid if the restrictions imposed are reasonable. A similar agreement may be made by partners upon or in anticipation of dissolution by which they may restrain each other from carrying on business similar to that of the firm. 
Labels:

Comments

Post a Comment

Popular posts from this blog

Section 58B of The Advocates Act - Special provision relating to certain disciplinary proceedings

 Section 58B The Advocates Act Description (1) As from the 1st day of September, 1963, every proceeding in respect of any disciplinary matter in relation to an existing advocate of a High Court shall, save as provided in the first proviso to sub-section (2), be disposed of by the State Bar Council in relation to that High Court, as if the existing advocate had been enrolled as an advocate on its roll. (2) If immediately before the said date, there is any proceeding in respect of any disciplinary matter in relation to an existing advocate pending before any High Court under the Indian Bar Councils Act, 1926 (38 of 1926), such proceeding shall stand transferred to the State Bar Council in relation to that High Court, as if it were a proceeding pending before the corresponding Bar Council under clause (c) of sub-section (1) of section 56: Provided that where in respect of any such proceeding the High Court has received the finding of a Tribunal constituted under section 11 of the Indian B
Post a Comment
Read more

Case Laws related to Defamation in favour of ClaimantCase Laws related to Defamation in favour of Claimant. TOLLEY Vs, J.S FRY & SONS LTD – (1931) Facts The defendants were owners of chocolate manufacturing company. They advertised their products with a caricature of the claimant, who was a prominent amateur golfer, showing him with the defendants’ chocolate in his pocket while playing golf. The advertisement compared the excellence of the chocolate to the excellence of the claimant’s drive. The claimant did not consent to or knew about the advertisement. Issue The claimant alleged that the advertisement suggested that he agreed to his portrait being used for commercial purposes and for financial gain. He further claimed that the use of his image made him look like someone who prostituted his reputation for advertising purposes and was thus unworthy of his status. At trial, several golfers gave evidence to the effect that if an amateur sold himself for advertisement, he no longer maintained his amateur status and might be asked to resign from his respective club. Furthermore, there was evidence that the possible adverse effects of the caricature on the claimant’s reputation were brought to the defendants’ attention. The trial judge found that the caricature could have a defamatory meaning. The jury then found in favor of the claimant. Held The House of Lords held that in the circumstances of this case – as explained by the facts – the caricature was capable of constituting defamation. In other words, the publication could have the meaning alleged by the claimant. The Lords also ordered a new trial limited to the assessment of damages. NEWSTEAD V LANDON EXPRESS NEWSPAPER LTD, (1939) Facts: A newspaper published a defamatory article about Harold Newstead. However, another person with this name brought an action in libel. He claimed that the article had been misunderstood as leading to him. The defendant newspaper recognised that they published the article. Also, they denied that they had the intention of being defamatory of him. Consequently, the claimant argued that the newspaper was under a duty. The duty was to give a clear and complete description of the correct person. Moreover, the claimant argued that the defendants were in breach of the duty. Issues: The issue in Newstead v London Express Newspaper, was if the reasonable persons would have understood the words complained of to refer to the plaintiff. Held: The Court of Appeal stated that in accordance with the current law on libel, liability for libel does not depend on the intention of the defamer; but on the fact of the defamation. Accordingly, a reasonable man, in this case a newspaper publisher, must be aware of the possibility of individuals with the same name and must assume that the words published will be read by a reasonable man with reasonable care.

  Case Laws related to Defamation in favour of Claimant.  TOLLEY  Vs,  J.S FRY & SONS LTD – (1931) Facts The defendants were owners of chocolate manufacturing company. They advertised their products with a caricature of the claimant, who was a prominent amateur golfer, showing him with the defendants’ chocolate in his pocket while playing golf. The advertisement compared the excellence of the chocolate to the excellence of the claimant’s drive. The claimant did not consent to or knew about the advertisement.   Issue The claimant alleged that the advertisement suggested that he agreed to his portrait being used for commercial purposes and for financial gain. He further claimed that the use of his image made him look like someone who prostituted his reputation for advertising purposes and was thus unworthy of his status. At trial, several golfers gave evidence to the effect that if an amateur sold himself for advertisement, he no longer maintained his amateur status and might be aske
1 comment
Read more

Rules as to delivery of goods

                             Rules as to delivery of goods Section 2(2) of Sale of Goods Act defines ‘delivery’ as a ‘voluntary transfer of possession from one person to another.’ Thus, if the transfer of goods is not voluntary and is taken by theft, by fraud, or by force, then there is no ‘delivery. Moreover, the ‘delivery’ should have the effect of putting the goods in possession of the buyer. The essence of the delivery is a voluntary transfer of possession of goods from one person to another. There is no delivery of goods where they are obtained at pistol point or theft. 1. Mode of Delivery: According to Section 33, delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorized to hold them on his behalf. Delivery of goods may be actual, symbolic or constructive. 2. Expenses of Delivery: According to Section 36(5), unless otherwise agree
Post a Comment
Read more