restraint of trade

Section 27 of the Indian Contract Act, 1872 declares void every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, to that extent. The only statutory exception in the section is the sale of goodwill: the seller may agree not to carry on a similar business within specified local limits, so long as the buyer carries on that business and the limits are reasonable. The Partnership Act, 1932 (ss.11, 36, 54 and 55) allows similar restraints on partners.

Indian law is stricter than English law, which upholds reasonable restraints. Post-employment non-compete clauses are void in India, but a restraint operating during employment (not to work for others while employed) is valid, as held in Niranjan Shankar Golikari. Confidentiality and non-solicitation clauses are judged separately.

Example

The clause barring the employee from joining any rival for two years after leaving was void under s.27 as a restraint of trade.

In Indian law

• Section 27, Indian Contract Act, 1872
• Sections 11, 36, 54 and 55, Indian Partnership Act, 1932
• Niranjan Shankar Golikari v. Century Spinning and Mfg. Co., 1967 INSC 10: restraint during employment valid

See also

void agreement · contract · partnership · non-disclosure agreement

Read more in the study notes

• Separation of powers and its bearing on administrative law (Administrative Law)
• Government contracts and state liability: the administrative-law angle (Administrative Law)
• Arrest: concept, procedure, safeguards, proclamation and handcuffing (Bharatiya Nagarik Suraksha Sanhita)
• Compounding of offences and plea bargaining (Bharatiya Nagarik Suraksha Sanhita)
• The right of private defence (Bharatiya Nyaya Sanhita)
• Wrongful restraint, wrongful confinement, criminal force and assault (Bharatiya Nyaya Sanhita)