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Notes Sec 27

The document discusses the legal principles surrounding restraint of trade in India, highlighting that all agreements restraining individuals from exercising their profession or trade are void under Section 27 of the Indian Contract Act. It contrasts Indian law with English law, noting that while both jurisdictions generally void such agreements, English law allows for reasonable partial restraints, whereas Indian law does not consider reasonableness. The document also references key legal cases that have shaped the interpretation of these principles in both jurisdictions.

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5 views23 pages

Notes Sec 27

The document discusses the legal principles surrounding restraint of trade in India, highlighting that all agreements restraining individuals from exercising their profession or trade are void under Section 27 of the Indian Contract Act. It contrasts Indian law with English law, noting that while both jurisdictions generally void such agreements, English law allows for reasonable partial restraints, whereas Indian law does not consider reasonableness. The document also references key legal cases that have shaped the interpretation of these principles in both jurisdictions.

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pragya.pragya25
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF or read online on Scribd
Restraint of trade 289 ne buyer to retain fom carving ona similar busines, thin specie lca the et yng as the buyer oF any person deriving ttle to the goodwill from limits res on alike business therein: vim ded that such limits appear to the Court reasonable, regard being had spthenature ofthe business. provection of freedom of trace and commerce Freedom of trade and commerce i aright protected by the Constitution stadia, Jost as the Legislature cannot take avray individual freedom of ot ie so also the individual cannot barter it away by agreement, “The prin- wade ais this: Public policy tequires that every man shal be at liberty to coe huell and shall not be at liberty to deprive himself or the State of potppour, skill or talent, by any contract that he enters into.” “Every man ard have unfettered liberty to exercise his powers and capacities for his should the community’s benefit." Section 27, therefore, declares in plain ne that: Every agreement by which any one is restrained from exercising ‘"Tpeful profession, trade or business of any kind, is, to that extent, void.** ‘The strict stance of the Indian law When the Indian law on restraint of trade was formulated, the English law had already acknowledged the distinction between partial restraint and general restraint, nevertheless the Indian law adopted the old position of the English law according to which every agreement restraining any one from exercising his freedom to work, is void whether the restraint is partial or general. Madbub Chander v Raj Coomar is the first case in which the scope of the section came up for consideration before the Caleutta High Court. The plaintiff and the defendant were rival shopkeepers in a locality in Calcutta. The defendant agreed to pay a sum: ‘of money to the plaintiff if he would close his business in that locality. The plaintiff accordingly did so, but the defendant refused to pay. The plaintiff sued him for the money contending that the restraint in question was only partial as he was restrained from exercising his profession only in one locality and that such restraints had been upheld in English law. Couch J, however, held the agreement to be void and laid down: The words “restrained from exercising a lawful profession, trade or business”, do not 312 Fer ats Vin Leather Cloth Cov Lorsont 860) LR Ba as ae ut 86 . Vanconver Malt & Soke Brewing Co i *v Vancouver Breweries AIR 1934 = : 1, APIA ECION saw rips Ltd (2005) CHIN 642 te words outs sion” in §. 27 ieltde both an independent professional and @ saline) OTe overed. ‘employment and all modes of economic survival or farming one's (1874) 14 Beng LR 7% B~ (Ch hap. > 290 Legality of Obiect J to apply €0 partial res. n absol bie mean ym the use of the word “absol ohutelys Is w it of legal proceedings AS this wey de therefore, he orncluded that it Was intended 27, th artial restraint, This interpy. at but also a P ally accepted: “The section has abot ‘and total restraints of trade. Whether 4 tation of the section ; dis between partial 0 the distinction "rial, unqualified of qualified, if the agreements void,” Thus, aN agreement £0 close a restraint is general oF P: sv r scraint of trades iti the nature of re rade, An agreement that One Party would mill for 3 months in a yeaty Mat for 14 days in a month and Mie other for the rest of the month,” hye been held void. ‘a restriction lin Mh judge drew SUPPOT frc tion, The | in Section 2! is absent from S prevent not merel 8, which ection Jy a total restr has been Be" Developments in English Law Tn England during the times of Queed felirahertiyiany objects and methods were unlawful as it aimed ar thease Bund that its ty fy hurting out all competition and was a defiance ye ee and 27. ree Rejecting this contention, SEN J quoted Ba, rckersley?” as saying: “prima facie it is the fountry in all matters not contrary to law, to wring it on according to his own discretion Ton ALDERSON in Privilege of a trader in a fy regulate his own mode of car. and choice.”270 Hilton y 2, Solus or exclusive dealing agreements Another business practice in vogue is that a producer or manufacturer likes to market his goods through a sole agent or distributor and the hace agrees in turn not to deal with the goods of any other manufacturer, A pra, ducer may, for example, agree to sell all his output to one consumer whe, sn turn ageees not to buy his requirements from any other source. As long as the negative stipalation is nothing but an ordinary incident of or ancillary to the positive covenant, there is hardly anything obnoxious to Section 27 Indeed “in one sense, every agreement for sale of goods whether in esse or in posse is a contract in restraint of trade for, if AB agrees to sell goods to CD, he precludes himself from selling them to anybody else”! Thus, an agreement by a manufacturer of dhotis to supply 1,36,000 pairs of certain description to the defendant and not to sell goods of that kind to any other person for a fixed period; an agreement by a person to sell all the salt manufactured by him to a firm for five years;2” an agreement by a person ‘0 send all the mica produced by him to the plaintiffs, and not to send them ‘oany other firm, nor to keep any in stock? and an agreement by a buyer of goods for Calcutta market, not to sell them in Madras, have all been lild to be outside the scope of Section 27 and therefore valid. Such negative “tpulations do not have the effect of restraining the manufacturer. “On the

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