Agreement in Restraint of Trade Section 27: What You Need to Know
Section 27 of the Indian Contract Act, 1872 prohibits agreements that restrain trade. An agreement that hinders a person from carrying on their lawful profession, trade, or business is considered void in India. This provision is commonly known as the Agreement in Restraint of Trade Section 27.
The section is based on the principle that everyone is entitled to carry on their profession, trade, or business without any unreasonable restrictions. However, there are certain exceptions to this rule that are recognized by the courts.
Exceptions to the Agreement in Restraint of Trade Section 27:
1. Sale of Goodwill: When a person sells their business, they can also agree to refrain from carrying on a similar business in the same locality for a specified period. This is because the buyer purchases not only the physical assets but also the goodwill associated with the business.
2. Partnership Agreement: The partners of a firm can agree to dissolve the firm or limit the partners from carrying on a similar business after the dissolution of the firm.
3. Non-Competition Clause: In a contract of employment, the employer can include a non-competition clause that restricts the employee from joining a competitor for a specified period after leaving the job. However, such a clause should be reasonable and necessary to protect the employer`s interests.
4. Trade Secrets and Confidential Information: The parties can agree to keep trade secrets and confidential information confidential after the termination of the contract.
5. Restraint by Statute: Certain statutes permit restraints on trade, such as the Indian Partnership Act, 1932, and the Copyright Act, 1957.
The courts in India have also recognized that agreements that are in the public interest and do not unreasonably restrain trade are enforceable. For example, non-compete clauses in agreements to prevent key employees from joining a competitor may be enforced if they are reasonable in scope and duration.
In conclusion, the Agreement in Restraint of Trade Section 27 is an essential provision of the Indian Contract Act, 1872 that protects every person`s right to carry on their profession, trade, or business. However, there are exceptions to this rule, and the courts in India have recognized that agreements that are in the public interest and do not unreasonably restrain trade are enforceable. As a business owner or employee, it is essential to understand these exceptions to avoid any legal consequences.