Question 1 OR (b)
Agreements in restraint of trade are void: the rule and its exceptions
6 marks
- Time to write
- About 12 minutes
From an older CBCS paper
Question
Question 1 OR (b) · 6 marks“Agreements in restraint of trade are void”. Giving suitable examples, Critically examine this statement.
Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- CriticallyA statement to judge: take a stand on it in your first line, and come back to it at the end.
- suitable examplesExamples are asked for: one short example with each point.
What the paper leaves open
The only copy of this paper found is cut off at the right edge of the page; the few words lost there are read from the sense and from the Hindi version of the question. The mark for this part is not legible on the copy; it is reckoned here at 6 marks, the paper's own split for its other questions.
Write it in this order
- Read; underline the asks; jot your points 1 min
- 1 Section 27 2 marks 2 min
- 2 Exceptions with examples 4 marks 8 min
- Check: every ask answered, key terms underlined 1 min
Easy marks
- Section 27 (step 1, 2 marks): state the rule and its section exactly. It earns its marks before you apply it to the facts.
Short on time? Cut step 2 short rather than leave anything out.
Try it first. About 12 minutes for 6 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Discussion. Section 27 of the Indian Contract Act, 1872 lays down that “every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind is, to that extent, void”.
1Gopal offers Ravi a pouch of money never to sell sweets again—Ravi waves it away; that paper is already waste.
Section 27Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind is, to that extent, void.
2Selling the shop and its goodwill is different: with the keys, a no-competition promise can stand.
Sale of goodwillMay agree with the buyer to refrain from carrying on a similar business within specified local limits.
3The promise stops at the dotted line—past those limits, Ravi sets up his stall freely.
Local limitsThe local limits must be reasonable.
- Sale of goodwill (Exception 1 to s. 27): one who sells the goodwill of a business may agree with the buyer not to carry 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 there; the local limits must be reasonable.
- Outgoing partner (s. 36, Partnership Act): an outgoing partner may agree not to carry on a similar business within a reasonable period or local limits.
- Partners during the partnership (s. 11, Partnership Act): an agreement not to carry on a competing business while the partnership lasts is valid.
- Service agreements: an employee's undertaking not to compete during the term of the service is not a restraint of trade; a physician's assistant who agreed not to practise during a three-year engagement could be restrained by injunction.
- Trade arrangements: an agreement by a manufacturer to sell his whole production for a period to one wholesaler is not a restraint of trade.
Conclusion. The statement is true as the general rule of section 27, subject to the statutory exception for sale of goodwill and the recognised cases above.
Where the 6 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Section 27 | 2 |
| 2 | Exceptions with examples | 4 |
| Total | 6 |
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