Group-3: Restraint to trade under Indian Contract Act

Introduction:

Under the wider ambit of the Contractual law which gives perseverance to different clauses
in an Agreement, the non-compete clause stands erect neither leaning nor bending with
perpetual sanctity. But enhancing its validity especially in Employment Agreement is a
matter of minute scrutinisation. By virtue of this non-compete clause, the employee
undertakes and gives his acceptance to the condition of the employer that during the course
of the employment or even after the employee leaves the services/job of the employer, and
he will not be the competitor of the employer in the form and nature of the employment of
the employer. The Non-compete clause finds place under the agreements and contracts
throughout the globe.

But the irony that exists with the India legal system that this covenant stands in
contradiction with Section 27 of the Indian Contract Act, 1872 which states that an
agreement which imposes any kind of restriction on exercising a lawful profession or trade
should be declared void.

Here, in this article we will be basically concentrating upon the validity of non-compete
agreement under the Indian Contract Act. An attempt has been made in this article to
visualize how far negative covenants can be stretched and skilfully drafted vis-à-vis
"agreement in restraint of trade" enshrined under the Indian Contract Act. The focus of this
article would be more towards delving upon "non-compete agreement". The negative
clauses always had an unpleasant time with freedom of contract and were prone to be
easily charged as agreement in restraint of trade which is generally considered to be valid
during the time of employment and the Courts have been less willing to enforce agreements
relating to post-employment restraints on the employee.