Section 26 The Indian Contract Act, 1872
Section 27 – The Indian Contract Act, 1872
Title: Agreement in restraint of trade is void
Text of Section 27:
“Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.”
✅ Key Points:
Any agreement that restricts a person’s freedom to carry on a lawful profession, trade, or business is void and unenforceable.
The law protects the right to trade or profession freely.
This means that contracts attempting to restrict competition or personal freedom to work are generally not valid.
⚠️ Exceptions:
This rule does not apply if the restraint is:
Reasonable in terms of time, area, and nature.
Ancillary to a valid contract, such as:
Sale of goodwill of a business with a reasonable restraint clause.
Partnership agreements with reasonable restrictions.
Courts often decide on a case-by-case basis whether a restraint is reasonable.
📌 Example:
A contract says a person will never work in the same industry anywhere in the country for life.
👉 This is void.
But a contract that restricts a person from working in a certain city for 1 year after selling a business might be valid, if the restriction is reasonable.
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