Indian Contract Act Section 27 — Agreement in restraint of trade, void

CHAPTER II OF CONTRACTS, VOIDABLE CONTRACTS AND VOID AGREEMENTS — Void agreements

Commercial / Corporate

Summary

Any agreement that stops a person from doing a lawful profession, trade, or business of any kind is void to the extent that it restricts them.

Exception 1 covers the sale of a business's goodwill. A person who sells the goodwill of a business may agree with the buyer not to carry on a similar business within specific local limits, as long as the buyer or anyone who gets the goodwill from the buyer continues to run a similar business in that area. This is allowed only if those local limits appear reasonable to the Court, considering the nature of the business.

Official Text

Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Exception 1.—Saving of agreement not to carry on business of which good-will is sold.—One who sells the good-will of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the good-will from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business. 1* * * * *.