Restraint of trade - Law
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This document discusses the legal framework surrounding agreements in restraint of trade, highlighting that such agreements are generally void under Indian contract law, specifically Section 27. It outlines exceptions, including goodwill sales, partnership agreements, and trading regulations that may be valid if they impose reasonable limits or are integral to business functions. The document also references notable cases to illustrate the application of these legal principles.
![Trade Combinations
Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd [1919].Two
manufacturers agreed not to employ each others employees for five years
after they left their original employer. The Court of Appeal held that the
contract was void as It covered all employees whether they knew trade
secrets or not and that it was of excessive duration .In fact such
agreements are now almost entirely subject to statutory control under the
Restrictive Trade Practices Act 1976 that is UK legislation which
governs trading agreements which may be seen as restricting free
competition in a way which is contrary to the public interest.](https://image.slidesharecdn.com/restaintsoftrade-141125030009-conversion-gate01/85/Restraint-of-trade-Law-9-320.jpg)
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Restraint of trade - Law
- 1. Legal Aspects Of Business Submitted by: Submitted To: Pulkit Bordia Miss Rekha Choudhary Rahul Sharma Rahul Jagetia
- 3. Introduction In this assignment, we discussed and focus on the agreement in restraint of trade and legal proceeding. These are restraints which create limitations on the rights of one party to impose conditions, yet at the same time, allow some restrictions to be created .These relate to marriage, trade and legal proceedings.
- 4. What is a “Restraint of Trade”? Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. The law decrees that an individual, be he of any religion, cast or sect, should be liberty to work for himself, and any agreement that deprive, a person of the fruit of his labour , skill or talent is void agreement. Section 27 of the Indian Contract Act 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."
- 5. Types Of Contracts 1. Vendor/purchaser covenants 2. Employer/employee covenants
- 6. Contracts in restraint of trade Exception 1: One who sells the goodwill of a business may agree with the buyer to refrain 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. Exception 2: Partners may, upon or in anticipation of a dissolution of the partnership ,agree that some or all of them will not carry on a business similar to that of the partnership within such local limits as are referred to in exception 1.
- 7. CONT..... Exception 3: Partners may agree that some one or all of them will not carry on any business, other than that of the partnership, during the continuance of the partnership. Exception 4 : Agreements between traders in the same line of business to regulate the business or to fix prices are valid agreement. Regulations as to the opening and closing of business in a market, licensing of traders, supervision and control of dealers and the mode of dealing are lawful agreement even though they are in restraint of trade. Eg. Railway (Monopoly)
- 8. CONT..... Exception 5 : When a person agrees to work for another person or a firm for a salary, the employer has the right to use the skill or experience of such person to gain a profit. Sometime the service agreement of the employee prevents him from accepting any other engagement during his employment. The restraint is valid 6.
- 9. Trade Combinations Kores Manufacturing Co Ltd v Kolok Manufacturing Co Ltd [1919].Two manufacturers agreed not to employ each others employees for five years after they left their original employer. The Court of Appeal held that the contract was void as It covered all employees whether they knew trade secrets or not and that it was of excessive duration .In fact such agreements are now almost entirely subject to statutory control under the Restrictive Trade Practices Act 1976 that is UK legislation which governs trading agreements which may be seen as restricting free competition in a way which is contrary to the public interest.
- 10. Exclusive Dealing Agreements “Reasonable restriction valid - negative stipulation nothing but an ordinary incident of or ancillary to the positive covenant.” Mackenzie Vs. Striramiah - contract to sell all the salt manufactured to a firm for five years – Held valid as seller encouraged to exercise his business because he is assured of a certain market for the products of his labour.
- 11. Case Of Exception 2 Madhav Chandra vs Raj Coomar DassIn this case, A and B were carrying on a similar trade in the same locality in Calcutta. Apromised B that he would stop trading in the locality if B gave him a certain amount ofmoney which he had advanced to his workers. 0Subsequent to A‟s closing the business, Brefused to pat what he had promised and A filled a suit for the recovery of the amount.The court hed the agreement void under Section 27 of the Act.