Agreement in restraint of trade | In a case, the landlord is the owner of the shop running a Sophisticated Cosmetic Hair Dressing Saloon in Delhi. He gives on rent and said shop with the said business…. Is this agreement of lease hit by Section 27 of the Indian Contract Act? Decide.

Question: Agreement in restraint of trade | Section 27 of the Indian Contract Act provides that an agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is void to that extent.

In a given case, the landlord is the owner of the shop running a Sophisticated Cosmetic Hair Dressing Saloon in Delhi. He gives on rent and said shop with the said business along with all tools, machinery, plants, fans, air-conditioners, telephone, furniture, and other equipment, to a tenant with the stipulation that the tenant shall do the said business only under said particular name and style.

Is this agreement of lease hit by Section 27 of the Indian Contract Act? Decide. [DJS 2000]

Find the answer to the mains question only on Legal Bites. Agreement in restraint of trade | [In a case, the landlord is the owner of the shop running a Sophisticated Cosmetic Hair Dressing Saloon in Delhi. He gives on rent and said shop with the said business…. Is this agreement of lease hit by Section 27 of the Indian Contract Act? Decide.]

Answer

Section 27 of The Indian Contract Act,1872 lays down the provision as to agreement in restraint of trade, void. It states that, “Every agreement by which anyone 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 the business of which goodwill is sold: One who sells the goodwill 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 goodwill 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.”

Whether the restraint is general or partial, unqualified or qualified, if the agreement is in the nature of a restraint of trade, it is void. As a general rule, all interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy and, therefore, void.

But there are exceptions. Restraint of trade may be justified by the special circumstances of a particular case. The only justification is that the restriction should be reasonable; reasonable in reference to the interest of the parties and reasonable in reference to the public interest. The restriction should be so framed and guarded as to afford adequate protection to the party in whose favour it is imposed while at the same time it is in no way injurious to the public.

In the case of Vidya Wati v. Hans Raj, [AIR 1993 Delhi 187], the court has held that restrictions contained in a lease agreement as to the uses to which the premises can be put and what business would be done, and in what name and style have been held to be not violative of Section 27.

The facts of the present case at hand are similar to Vidya Wati case in which, the landlord, owner of the shop running a Sophisticated Cosmetic Hair Dressing Saloon in Delhi gives on rent and said shop with the said business along with all tools, machinery, plants, fans, air-conditioners, telephone, furniture, and other equipment, to a tenant with the stipulation that the tenant shall do the said business only under said particular name and style.

It is to be thus held that whilst Section 27 of The Contract Act,1872 vitiates the contract between the parties in as much as there has been put a restraint on the tenant from doing any business, this provision has no application in the present case at hand. The contract between the parties only restricts the tenant to do a particular type of business under a particular name and style. Such a contract is not hit by provisions of Section 27 of The Contract Act,1872.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X