NATIONAL

LAW
UNIVERSITY
Submitted to-
Dr. Visalakshi Vegesna
M.L. Ph.D.Associate Professor
(Law)

Submitted By-
Abhisht Hela
Roll No.:- 07 Sec - A
BA.LLB.(Hons.) Sem-II

[ CONTRACTS I ]
TOPIC- RESTRAINT OF TRADE

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 TABLE OF CONTENTS

INTRODUCTION

RESEARCH PLAN
o RESEARCH METHODOLOGY
o RESEARCH SCHEME
o AIM AND OBJECTIVE
o SCOPE AND LIMITATION

RESTRAINT OF TRADE

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Introduction
One of the main requirements for the formation of a valid contract is that the
reason or object of the contracting parties must be lawful. An agreement whose
object is unlawful and opposite to the law of the land is unlawful and void.

One of the most dangerous classes of illegal contracts is that of those in restraint of
trade. The welfare of the community requires free competition in all branches of
industry, and it is also against public policy to allow a person to be prohibited from
engaging in that occupation with which he is most familiar.

Not all contracts in restraint of trade, however, are illegal. An absolute agreement
without any limitations not to carry on a certain occupation is void but contracts in
restraint of trade, where the restraint is limited, both as to time and place, may be
valid if such limitations are reasonable. The test of the validity of the contract is
always the reasonableness of the limitation.

Section 23 of Indian contract act renders certain considerations and object as

unlawful.

Section 23 is as follows:-

Section 23 : What considerations and objects are lawful and what not-

o The consideration or object of an agreement is lawful, unless-

It is forbidden by law; or
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 Is of such a nature that, if permitted, it would defeat the provisions of

any law; or

Is fraudulent; or

Involves or implies injury to the person or property of another or the

court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said

to be unlawful. Every agreement, of which the object or consideration is

lawful, is void.

The section is general in its terms, and declares all agreement in restraint of trade
void, except in the case specified in the exceptions1

RESEARCH PLAN
Research Methodology:
The researcher has done a careful and detailed study of the subject and its various
aspects. The research method is totally concept based with research carried out a
specific subject the branches associated with it. In view of the concept, a large
number of books based on Law of contracts have been referred to from the Dr.
Madhu Limaye Library. Extensive use has been made of internet resources and e-
resources available in the aforementioned library.

The researcher has collected all relevant information from websites which
have verifiable facts. Most importantly, the researcher has relied on her own legal
analysis of the facts to interpret them in the best possible manner by him. The
researcher has framed his opinion and views based on his interaction on the subject
matter with his seniors and subject teacher.
1
The Indian contract Act,1872 , universal law publishing co.

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 Thus the project has been presented in the best possible way so that the
readers of this project can get maximum benefit out of it and get a prima facie
understanding of the core concepts of the project.

Research scheme:
The researcher has first dealt with the concept of restraint of trade and studied it in
the sense that it is most relevant to present day trade condition. The various aspects
types remedies available have been researched and also a study has been made in
the sense of place of reasonableness in deciding that whether the restraint is
according to law or not.

AIM AND OBJECTIVES:

The aim of the project is to find out the place of reasonableness in restraint of trade
in the light of judicial propriety given by Justice Sen in the case of Krishnan
Murgai v. Superintendence company of India.

In order to present the topic in a more effective way, the student has used
headings and sub-headings which make the presentation of the topic in a more
concise way.

SCOPE AND LIMITATIONS:

The project deals with the various aspects of the restraint of trade, its types
remedies available for it and place of test of reasonableness in determination
weather restraint is reasonable or not.

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The research is limited to the resources available at the Dr. Madhu Limaye
Library Books related to the topic were available at the library. Also, the sources
available on the internet helped a considerable deal. Suggestions from the teacher
and fellow students have been incorporated wherever necessary.

RESTRAINT OF TRADE
Question
What is restraint of trade?

Answer
A restraint of trade is any contractual term which seeks to restrict the
freedom of a party to engage in business. Common types of restraints of
trade are as follows:-

(i) Employment agreements often contain restraints, both within and outside
of the employment relationship. That is, the employee might be
restrained from engaging in any other paid work while his employment
continues, or he might be restricted in the type of other work he can do.
There might also be a restraint on what he can do after his employment
ends. Usually this will prevent him from competing with his former
employer, such as by working for a competitor or setting up his own
competing business.

(ii) Sale of business agreements often restrain the vendor of the business
from competing with the business being sold.

(iii) Partnership or joint venture agreements between businesses, shareholder

agreements and other agreements where people or companies are

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 required to co-operate with each other for a common goal often contain
restraints on the parties from competing with the venture.

(iv) Franchise agreements normally contain restraint of trade clauses which

prevent the franchisee from continuing with a competing business after
the franchise agreement has come to an end.

The underlying purpose of restraints of trade is to protect a party's business from

competition, that potential competition coming from a person who is well placed to
compete effectively. This is because the person may have acquired knowledge,
skill, contacts, goodwill and reputation which he will be able to exploit on his own
account or for the benefit of another competitor. 2

Very broadly agreements in restraint of trade are those in which one or both
parties limit their freedom to work or carry on their profession or business in some
way. Such agreements are attacked because they conflict with public interest and
because they are unfair in unduly restricting personal freedom.

An agreement in restraint of trade has been defined as one in which a party (the
covenantor) agrees with any other party (the covenantee) to restrict his liberty in
the future to carry on trade with other persons not parties to the contract in such a
manner as he chooses.

Although such agreements are commonly found in two types of contracts , viz the
sale of goodwill of a business or professional practice and contracts of
employment; the categories of restraint of trade are not closed and the principles
are applied to a wide variety of other similar relationships, viz restraints operating
between competitors, and exclusive dealing and services arrangements.

History and development of the doctrine of

restraint of trade

2
From an article Restraint of Trade Author : Mrs. Naina Krishna Murthy

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Restraint of trade" is a phrase from the Sherman Antitrust Act of 18903, a historic
piece of legislation designed to halt the excessive monopolistic and anticompetitive
activities of the then burgeoning industrial combinations and trusts. Specifically it
was meant to curtail two types of anticompetitive behavior: the growth of giant
monopolies through mergers and various price-fixing schemes and agreements.4

To know about the deep history and purpose of this doctrine in English law we
would first like to examine the principles laid down under English law. It is
interesting because although the framework on restraint of trade under English law
began with stringent dictums as under the present Indian Contract Act, it has
gradually evolved to adapt itself to the myriad trends of the modern economy.

The English Courts started expanding the exceptions to the restraint of trade
principle through the test of "reasonableness". In an English case Mitchel v.
Reynolds, the Court held that the validity of a restraint is dependent on its
reasonableness and fairness. In another case Nordenfelt v. Maxim Nordenfelt Guns
& Ammunition & Co. the Lower Court held that a general restraint was void in
cases of contracts of both employment and of sale of a business but partial restraint
was valid if reasonable. However, on appeal, the House of Lords held that a
general restraint was not necessarily void and that it was valid if in the interests of
the parties and the public. Thus, the distinction between general and partial
restraint was removed and the test of reasonableness was adopted in both situations
depending upon the facts and circumstances of each case.

By degrees, the common law doctrine of restraint of trade has been ever expanding
and the legal principles have applied and developed so as to suit the demand of the
time with the growth of trade and commerce, industrialization and means of
communication.

Under the laws of the Unites States of America, the ubiquitous concept of "trade
secrets" has become synonymous with restraint on trade within the industry and the
judiciary. Therefore, the Courts in the US may have adopted an extreme measure

3
An American legislation
4
From http://www.referenceforbusiness.com/index.html

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to implement such protection based principles like the "Inevitable Disclosure
Doctrine" and "Inducement to Breach".5

The "inevitable disclosure" theory is one of the most controversial issues in

contemporary trade secret laws. Various companies in the US often attempt to use
this theory to prevent a former employee from working for a competitor in his or
her area of expertise, even when the soon-to-be former employee is not bound by a
covenant not to compete.

The inevitable disclosure doctrine is a judicially created doctrine that permits

Courts to issue an injunction prohibiting an employee from working for a
competitor of his or her employer. It is a tool that allows Courts to restrain an
employee from working for a competitor, even in the absence of any evidence for
an actual misconduct.6

What is meant by public policy and what is its

importance?
A doctrine of restraint of trade which refuses to enforce unnecessary restraints, is
justified on the grounds, first that autonomy is a crucial ingredient in individual
well- being and law should not help individuals to give up future autonomy
unnecessarily; and secondly that unnecessary restraints hinder the free flow of
labour and resources crucial to the efficient functioning of a market economy.

Importance of public policy is easily understand by a judicial pronouncement in

the case of Esso petroleum Co Ltd v. Harpers Garage (Stouport) Ltd, Lord Reid
stated that doctrine is based on public policy, its application ought to depend less
on legal niceties or theoretical possibilities than on the practical effect of a restraint
in hampering that freedom which is policy of law to protect7

5
The law of Contract by Treitel, 12th Edition, Thomson (Sweet & Maxwell).

6
Ansons Law of Contract by J.Beatson, 28th Edition, Oxford Publication
7
Mulla [Indian contract and specific relief Acts] 13th edition, publisher- lexis nexis butterworths

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Negative and positive covenants
A provision found in an employment agreement or a contract of sale of a business
that prohibits an employ or seller from competing in the same area or market.

A negative covenant is commonly used by businesses particularly those that

depend upon trade secrets for their success. An employer wants to ensure that a
former employee will not parlay information, skills, customer lists, an personal
relationships with clients acquired on the job to gain a better position with a
competitor or to start his or her own business. An employer wants to protect his or
her business in the competitive marketplace against the use of the unique personal
skills of a former employee. An employer can achieve these objectives by
including a negative covenant in the employment contract such a provision will
specify that the employee will not work for any competitor or start his own
business for a period of time after leaving the employer8.

The covenant must be reasonable in its scope and duration. it cannot bar the
employee from work anywhere , or for an unreasonable or for an unreasonable
length of time.

A positive obligation which limits freedom, imposes an indirect restraint is termed

as positive covenant.

General and partial restraints

The distinction between general and partial restraint, that a general restraint was
void in cases of contracts of both employment and of sale of a business but a
partial restraint is valid and enforceable if reasonable, was removed when the
House of Lords held that a general restraint between a vendor and purchaser was
not necessarily void, and that it was valid if reasonable in the interest of the parties
and in the interest of the public. Later Mason v. Provident clothing and Supply Co
Ltd confirmed and accepted the statement of law given by Lord Macnaghten in

8
Law of contract and specific relief - A.C. Moitra, 5th edition 2006, Universal law publishing company

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Nordenfelts case in these two propositions (a) all covenants in restraint of trade,
partial as well as general, are prima facie void and they cannot be enforced unless
the test of reasonableness propounded by lord Macnaghten is satisfied;(b) a
distinction between contracts of service and contracts of sale of a business.

In Niranjan Shanker golikari v. Century Spining Nd Mfg co Ltd. The Supreme

Court held that a restraint on trade, whether general or partial, may be good if
shown to be reasonably necessary for freedom of trade. A restraint reasonably
necessary for the protection of the covenantee must prevail unless some specific
ground of public policy can be clearly established against it.9

The Indian law of restraint of trade

The Indian law is rigid, In that it invalidates all restraints, whether general or
partial,and neither the test of reasonableness nor the restraint being partial apply to
a case governed by section 27 , unless they fall within the exception of that section.

The English law of restraint of trade

The English law can be summarized thus:

(i) The fundamental principle is that every restraint wheter partial or grnral
,is contrary to public policy is prima facie void.
(ii) This presumption of invalidity is rebutted by a proof of the restraint
being unreasonable.
(iii) The restraint must be reasonable in the interest of both contracting parties
and also in the interest of public policy.
(iv) The onus of proving reasonableness lies upon the covenantee but the
onus of proving that the contract tends to injure the public lies upon the
covenanter.

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 (v) Wheter restraint is reasonable or not is a question for the court to
decide.10

Comparison of Indian and English law

Both in England and in India the general principle is the same, namely that all
restraints of trade whether partial or total are void. The only difference is that in
England a restriction will be valid if it is reasonable in India it will be valid if it
falls within any of the statutory, or judicially created exceptions.

The two laws are identical and not widely dissimilar. the English law may be
more flexible as the word reasonable enables the courts to adapt it to
changing conditions.

Types of agreements
Restraint covenant are often found in agreements between employers and
employees, whereby the latter covenant not to set up business on their own account
on leaving the employer ,or to enter in to a rival firm. Employees also covenant not
to carry on any other trade or business or occupation except that with the
employer11

Restraint during Employment

An agreement of service by which an employee binds himself, during the term of
his agreement, not to compete with his employer, directly or indirectly, is not in
restraint of trade.

10
Law of contract and specific relief - A.C. Moitra, 5th edition 2006, Universal law publishing company

11
Mulla [Indian contract and specific relief Acts] 13th edition, publisher- lexis nexis butterworths

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 Where the contract of employment contains a negative covenant restricting the
employee from taking any other employment, and the employee leaves the service,
the negative covenant can be enforced to the extent that the unexpired part of the
term of service would be essential for the fulfillment of the contract.

Indian Courts have consistently since 1960 held that any restriction operating
during the subsistence of a contract of employment does not attract Section 27,
unless the contract appears to be heavily one sided in favour of the employer.12

In 1967 the Supreme Court for the first time decided in the Niranjan Golikari's case
that negative covenants operating during the period of employment when the
employee is bound to serve his employer exclusively, are not in restraint of trade.
This case may not seem extraordinary as it is the general opinion that the employer
does have the right to obtain the exclusive service of his employee during the term
of his employment. But the decision would appear radical to the collective
consciousness of the employees as the restriction on the employee was enforced by
the Supreme Court even after the employee had terminated his contract with the
employer on the basis that since termination had occurred within the agreed 5 year
term of employment, the restraint on the employee would continue to be in force
till the lapse of 5 years.

The premise of the Court's decision was that the restriction on the employee not to
directly or indirectly engage with a competitor of the employer was not in restraint
of trade due to apprehension of the employer that information regarding the special
processes and the special machinery imparted to and acquired by the employee
during the period of training and thereafter might be divulged. While basing its
judgment, it is safely presumed that the Court had given adequate consideration to
the fact that the employee was in fact a threat to the employer and had mala fide
intentions of disclosing the information gained from his employment, to the
detriment of the employer.13

Though the Court held that it was reasonable to restrain the employee during the
term of the contract, the Court kept it open on the issue whether after the
termination of employment, the covenant could be enforced on such person.

12
From http://www.chestofbooks.com/about.html
13
From http://www.lawlink.nsw.gov.au/lawlink/lrc/ll_lrc.nsf/pages/LRC_index

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However, the rationale of the Court in this case could have been read with the facts
of the case and not in isolation or be applied in absolute terms.

Restraint after Employment

In Indian laws a service covenant extending beyond the term of service is void,
where in similar cases the English law would allow restraint which is reasonable.
The negative covenant in a contract of employment placing a restraint on the
employee that he shall not serve in any other competitors firm for two years at the
place of his last posting after the employee left the company, would be void. But a
term restricts in an employee from disclosing trade secrets and confidential
information after ceasing employment can be enforced.14

In 1966, the Gujarat High Court 15 attempted to consolidate the fundamental

principles relating to the negative stipulation in a contract of service during the
service period and after the service period. It tried to balance the anti-thetical
interests of the employer and employee.

The Court said that it must be seen whether the enforcement of the negative
stipulation is "reasonably necessary for the protection of the legitimate interests of
the employer. If it is not going to benefit the employer in any legitimate manner,
the Court would not injunct the employee from exercising his skill, training and
knowledge merely because the employee has agreed to it".

Further, in the Pepsi Food Limited case the Court held that a negative covenant
clause in the employment agreement restraining the employees from engaging in
employment for a period of 12 months from leaving the employment was void as
being opposed to public policy and the action for temporary injunction was denied.

14
Mulla [Indian contract and specific relief Acts] 13th edition, publisher- lexis nexis butterworths
15
Lalbhai Dalpatbhai and Company v. Chitranjan Chandulal Pandya AIR 1966 Gujarat 189 (DB):
MANU/GJ/0051/1966.

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It is important to note here that the Court expressly stated that what is prohibited
by law cannot be permitted by Court.16

In the above cases, the Courts appear to rely heavily on the employees' contention
that it would be unfair and unreasonable to enforce such restraints after their period
of employment as they have a right to explore new business opportunities and it
goes to their very fundamental right to earn a livelihood. This argument can be
given credence to as long as termination of employment is done in good faith by
the employee and there is no intention by the employee to disseminate or misuse or
disclose confidential information, trade secrets and intellectual property of the
employer.

Validity of restraints and Place of reasonableness

in restraint of trade
The validity of the restraint is assessed in two stages first whether the restraint
protects a legitimate interest of the covenantee, i.e. the person benefiting from
restraint. Secondly, whether the covenant is reasonable. The last stage involves a
twofold test the restraint must be reasonable:

(a) With reference to both the parties

(b) With reference to the interest of the public

In deciding whether a restraint of trade is reasonable , regard must be had to the

interests which the restraint is designed to protect; the principle being that it is
valid if , and only if, it is reasonably necessary to protect the legitimate interests of
the promise. It is for this reason that a restraint on a seller of business not to carry
on the same or similar business in the locality would be reasonable, as it protects
the interest of the buyer of the business; but not a restraint from carrying on anew
business in a place where the old business had no customers.

16
From an article RESTRAINT OF TRADE BANE OR BOON? By - Naina Krishna Murthy

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 The validity of such a restraint therefore depends upon

(a) the propriety interest ;

(b) reasonableness and

(c) public interest.

Legitimate interest of the promisee

A restraint is valid if it protects a legitimate interest of the covenanteee the nature
of interests recognized as legitimate by law will vary according to the subject
matter of the contract. In no case will the law allow a covenant merely to avoid
competition. An employer has an interest in preserving the trade secrets and
business connections; a buyer of goodwill has an interest in protecting the goodwill
of the business purchased by him.

In an employment contract, the employer may protect two interests: trade

secrets and business connections. But even though the employer has trained the
employee, or enabled him to become a skilled craftsman or professional worker, he
cannot demand that these skills should not be used against him. the skills or
experience obtained by the employee do not belong to the employer ,they are
assets of the employee alone and prima facie everyone has the right to earn living
by using his own experiences, skill and knowledge, even if it was acquired in the
employment of another.

A covenant in restraint of trade must be reasonable to the parties

concerned and in reference to the interest of the public, so framed and so guarded
as to afford adequate protection to the party in whose favour it is imposed and at
the same time it is no way injurious to the public.17

Reasonableness for both parties

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For a restraint to be reasonable in the interest of the parties it must afford no more
than adequate protection to the party in whose favour it is imposed. The law does
not allow a restraint wider than the protection the propriety interest requires. The
court would take in to account for the purpose the nature of the interest or activity
being protected on the one hand, and on the other, the geographical areas, the range
of activities restricted and duration of the restraint. A restraint is valid if it is
necessary to have a restraint of that severity (in terms of area, range and duration)
for protecting the nature of interest sought to be protected.

To be reasonable, a restraint must be limited as to time, location and extent. An

open ended restraint will generally be struck down. What is a reasonable time
depends on the circumstances. For example, in a sale of business context, two
years might be reasonable, but five years would almost certainly not. The same
applies to location.

Restraints are often made subject to a geographical limitation, either by specific

reference (eg within a suburb or a state) or by radius (eg 5 kilometres from a
specific location). Again, what is reasonable depends on what is reasonably
necessary. It would certainly be reasonable for a vendor of a successful business to
be restrained from opening up a competing business within the same suburb, but
probably not the same city or state.

The restraint also has to be specific as to its extent. It must allow the party being
restrained to continue to earn a living using their skills. It cannot prevent them
from engaging in unrelated work or business. Usually a restraint of trade clause in
a contract sets out alternatives for the people. Example - It might say that a party
cannot compete within a radius of 2, 5 or 10 kilometers, for 6 months, 1 year or 2
years. The reason clauses are drafted this way is because a court cannot "read
down" a restraint clause. That means, if the restraint is unreasonable it will be
struck out entirely, not replaced with something more reasonable. If however
alternatives are stated, the court can strike out the unreasonable alternatives but
leave the reasonable ones in place. In the above example, the court might decide
that 5 and 10 kilometers and 2 years are unreasonable, but uphold the restraint for
2 kilometers and 1 year.

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Even if the restraint is unlimited in time or in space, it may be upheld if reasonable.
In Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd, the purchaser
had purchased an armament business for a huge amount of GBP 287,000 in 1897,
and the agreement contained a clause under which the seller agreed not to enter in
to competition with the buyer anywhere in the world for a period of 25 years. Such
a wide clause was valid because the seller had business world wide ,its customer
were mainly the governments, and any attempt by the seller to do the armaments
business. Anywhere in the world should have affected the value of the purchasers
business.18

In the interest of public

The basic of the doctrine of restraint is the protection of the public interest. The
courts have to balance the legitimate interest of the covenanted against the
hardship to the covenantor and the injury to the public; and to assess the effects of
a contract on the public interest. the protection of the covenanteee must prevail
unless some specific ground of public policy can be clearly established against it.
the public interest requires in the interests both of the parties and of the individual
that everyone should be free so far as practicable to earn a livelihood and to give
the public the fruits of his particular abilities.

The party seeking to impose the restraint has the onus of proving reasonableness.
For example, say a professional football player's contract says that when his
contract ends he cannot play for any other team in the competition. The football
club will only be able to enforce this restraint if it can prove that it is reasonable in
all the circumstances. A court will consider the effect of the restraint on the player,
as well as the necessity for the club to have the restraint in order to protect its
position. The restraint in the above example would be held invalid as it is not
reasonable. The club has no valid reason for restraining a former player from
playing for another team. If the restraint was upheld, the player would effectively
be prevented from earning a living from his usual occupation.

18
Law of contract and specific relief - A.C. Moitra, 5th edition 2006, Universal law publishing company

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 The Privy Council after pointing out that it was not aware of any case in which a
restraint, though reasonable in the interests of the parties, had been held
unenforceable because it involved some injury to the public said:

. The onus of showing that any contract is calculated to produce a monopoly or

enhance prices to an unreasonable extent will lie on the party alleging it, and that if
once the court is satisfied that the restraint is reasonable as between the parties this
onus will be no light one. If the restraint is reasonable in the interests of the parties,
it will not be unenforceable because it involved some injury to the public.19

Judicial propriety given in the case of

superintendence

Company of India (p.) ltd. v. Krishnan Murgai

Appellant - Superintendence Company Of India (P) Ltd.

Respondant - Sh. Krishan Murgai

Judges - V.D. Tulzapurkar, J., N.L. Untwalia(majority)

A.P. Sen (dissenting opinion)

Facts of the case

Company a having its head office at Calcutta and a branch at New Delhi carried on
business as valuers and surveyors etc. A had established a reputation and goodwill
in its business by developing its own techniques foe quality testing and control and

19
Mulla [Indian contract and specific relief Acts] 13th edition, publisher- lexis nexis butterworths

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possessed trade secrets in the form of these techniques . on March 1971 R was
employed by A as the branch manager of its New Delhi office, clause 10 0f the
terms and agreement of employment placed R under a post service restraint that he
shall never serve any other competitive firm nor carry on business on his own in
similar line as that of A for two years at the place of his last posting. The
restriction contained therein would come into operation on November 27 1978.
Thereafter r started his own business under the new name on lines identical with
that of A.

A suit him for damages and permanent injunction, an ad interim was

granted and confirmed by a single judge. On appeal the divisional bench reversed
the order of the single judge. On appeal to the Supreme Court the enforceability of
the post service covenant was at issue.

Majority opinion
The word leave was intended by the parties to refer only to a case where the
employee had voluntarily left the services of A of his own and since Rs services
were terminated by A, the reatrictive covenant contained in the clause 10 would be
in applicable and therefore, not enforceable against R at the instance of A.

According to the plain grammatical meaning the word leave in relation to an

employee will normally be construed as meaning voluntarily leaving of the service
by him and will not include a case where he is discharged or dismissed or his
services are terminated by his employer. Ordinarily the word leave appears to
cannot voluntary action.

Per A.P. Sen J.

That the restriction contained in clause 10 of the agreement was obviously in
restraint of trade and therefore illegal and unenforceable under section 27 of the
contract Act.

A contract which has for its object a restraint of trade is prima facie, void
section 27 of the contract Act is general in terms and unless a particular contract
can be distinctly brought within exception there is no escape from the prohibition.

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That the agreement in question was not a goodwill of business type of contract anf
therefore did not fall within this exception. If the agreement on the part of R puts a
restraint even though partial, it was void and could not be enforced.

Neither the test of reasonableness nor the principle that the restraint being was
partial was reasonable are applicable to case governed by section 27of the Contract
Act.

Conclusion
Section 27 in its current form does not allow for any deviation from the absolute
rule it cannot allow any type of restraint of trade except for the one instance where
there is a transaction for sale and purchase of goodwill.

Again, it is not proposed that there should be a specific exception on employer-

employee agreements because that has the danger of negating the reasonableness
factor. Also, this would again not serve the long term interests of society as there
could well be other types of transactions, which are not contemplated by us today
where the factor of reasonable of restriction may become fundamental to the
agreement.

The courts will only protect confidential information or trade secrets. An employee
is free to use the skill and knowledge which he acquired in the course of his
employment. There is, of course, difficulty in drawing the line between the
employers' confidential information/trade secrets on one hand and the employee's
skill and knowledge on the other.

The only contention is that the current exception to Section 27 should be removed
and a general proviso should be brought into the Section which states that
restriction (whole or partial) may be valid and legal, even if they are in restraint of
trade, provided there can be reasonableness to the restriction.

There is definitely a fundamental right of an individual to practise any profession,

trade or vocation and this is recognized under our Constitution. Nobody can
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disregard the concept of fundamental rights. It is believed that the factor of
"reasonableness" would be the right catalyst for sparking the proverbial flame of
congruence between employer and employee interests in our neoteric world.

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