Question

Legal Principle: Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, to that extent is void.

Factual Situation: A sells goodwill of his business to B, and agrees with him to refrain from carrying on a similar business within specified local limits.
Issue: Is the agreement valid?

• A. Yes, the agreement is valid.
• B. The agreement is not valid.
• C. The agreement if voidable.
• D. None of these.

Answer 1

Answer: (A)

Yes, the agreement is valid.

• Section 27 of the Indian Contract Act, 1872 states that every agreement by which any person is restrained from carrying out trade or business is to that extent void.
  
• As per Exception to this provision, a person selling goodwill of his business is free to agree with the buyer of the goodwill not to carry on a similar business within a specified local limits, so long as the buyer or any other person deriving the goodwill from the buyer carries out a similar business. The Court has to decide whether the specified local limits in the agreement are reasonable with regard to the nature of business.