Exceptions
An agreement in restraint of trade is valid in the following cases
(i) Sale of goodwill. The seller of the ‘goodwill’ of a business can be restrained 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 the restraint is reasonable in point of time and space (Exception to Sec. 27).
Illustrations
(a) A after selling the goodwill of his business to B promises not to carry on similar business “anywhere in the world.” As the restraint is unreasonable the agreement is void.
(b) C a seller of imitation jewellery in London sells his business to D and promises that for a period of two years he would not deal: (a) in imitation jewellery in England, (b) in real jewellery in England, and (c) in real or imitation jewellery in certain foreign countries. The first promise alone was held lawful. The other two promises, namely (b) and (c), were held void as the restraint was unreasonable in point of space and the nature of business (Goldsoll vs Goldma).
(ii) Partners’ agreements. An agreement in restraint of trade among the partners or between any partner and the buyer of firm’s goodwill is valid if the restraint comes within any of the following cases:
(a) An agreement among the partners that a partner shall not carry on any business other than that of the firm while he is a partner .
(b) An agreement by a partner with his other partners that. on retiring from the partnership he will not carry on any business similar to that of the firm within a specified period or within specified local limits, provided the restrictions imposed are reasonable [Section 36(2) of the Partnership Act}.
(c) An agreement among the partners, upon or in anticipation of the dissolution of the term, 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, provided the restrictions imposed are reasonable (Section 54 of the Partnership Act).
(d) An agreement between any partner and the buyer of the firms that such partner will not carry on any business similar to that of the firm within a specified period or within specified local limits, provided the restrictions imposed are reasonable [Section 55(3) of the Partnership , Act.]
(iii) Trade combinations. As pointed out earlier, an agreement, the Ii primary object of which is to regulate business and not to restrain it, is valid. Thus, an agreement in the nature of a business combination between traders or
manufacturers e.g., not to sell their goods below a certain price, to pool profits or output and to divide the same in an agreed proportion, does not amount to a restart of trade and IS perfectly valid (Fraser & Co. v Bombay Ice Company5). Similarly, an agreement amongst the traders of a, particular locality with the object of keeping the trade in their own hands is not void merely because it hurts a rival in trade (Bhola Nath vs Lachmi Narain). But if an agreement attempts to create a monopoly, it would be void (Kameshwar Singh vs Yasin Khan). Agreements tending to create monopolies are now also governed by the provisions of the Monopolies and Restrictive Trade Practices Act, 1969, which forbids certain types of trade agreements.
(iv) Negative stipulations in service agreements. An agreement of service by which a person binds himself during the term of the agreement, not to take service with anyone else, is not in restraint of lawful profession and is valid. Thus a chartered accountant employed in a company may be debarred from private practice or from serving elsewhere during the con-tinuance of service (Maganlal vs Ambica Mills Ltd. 8) But an agreement of service which seeks to restrict the freedom of occupation for some period, after the termination of service, is void. Thus, where S, who was an employ-ee of Brahmputra Tea Co. Assam, agreed not to employ himself or to” change himself in any similar business within 40 miles from Assam, for a period of five years from the date of the termination of his service, it was held that the agreement is in restraint of lawful profession and hence void (Brahamputra Tea Co. vs Scarth)What is Quasi Contract? What are the different types of Quasi Contracts.
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Exceptions to Void Agreements
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