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