Submitted by: Submitted To:Pulkit Bordia Miss Rekha ChoudharyRahul SharmaRahul Jagetia

Legal Aspects Of Business

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.

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."

Types Of Contracts

1. Vendor/purchaser covenants

2. Employer/employee covenants

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.

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)

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.

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.

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.

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.

Case Of Exception 2