Question

Which of the following agreements is considered agreements in restraint of trade?

• A. A trade combination which create monopoly.
• B. A negative covenant operating during the period of employment when the employee is bound to serve his employer exclusively.
• C. An agreement between the manufacturer or producer and a sole selling agent or distributor whereby the manufacturer agree to sell the goods to the sole selling agent who in turn agree to buy his requirement from any other source.
• D. None

Answer 1

The correct option is A A trade combination which create monopoly.

As per section 27 of the Indian Contract Act, 1872, every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is to that extent void. However, there are certain exceptions to this law based on statutory rule and judicial interpretations which include:

• There are provisions in the Partnership act which validate agreements in restraint of trade like Section 11 enables partners during the continuance of the firm to restrict their mutual liberty by agreeing that none of them shall carry on any business other than that of the firm.
  
• Under trade combinations certain regulations as to the opening and closing of business in the market, licensing of traders, supervision and control of dealers and the mode of dealing are not illegal.
  
• Solus or Exclusive dealing agreements are that a producer or manufacturer likes to market his goods through a sole agent or distributor and the latter agrees in turn not to deal with the goods of any other manufacturer. A producer may, for example, agree to sell all his outputs to one consumer who, in turn, agrees not to buy his requirements from any other source. These agreements are valid in nature.
  
• An agreement of employment does not fall within Section 27. An agreement to serve exclusively for a week, a day, or even for an hour, necessarily prevents the person so agreeing to serve from exercising his calling during that period for anyone else than the person with whom he so agrees.