An agreement prohibiting someone from engaging in a trade, practising a legal profession, or engaging in any type of business is expressly void. A person's constitutional rights are violated by such an arrangement.
A valid contract must follow certain requirements and one of the most important requirements is that the contracts must not be void. Let’s start by explaining what a void contract is. Section 10 of the Indian Contract Act defines a void contract as ‘a contact that cannot be enforced by law.’ Any contract that is not legally enforceable is a void contract.
There is, however, a difference between void contracts and void agreements. A void agreement is void ab-initio that means it is void from the start but a void contract is valid at the time of entering into a contract but becomes void or non-enforceable subsequently.
There are several types of void agreements and some of them are expressly declared void agreements. Such agreements are considered void by law. Expressively void agreements are considered harmful to the society as they are deemed to be against the public policy. Such agreements are expressly declared void under section 26-28 of the Indian Contract Act.
Agreements in Restraint of Trade - Section 27
Section 27 of the Act makes agreements that obstruct commerce unenforceable. In other words, any agreement that forbids a person from starting or continuing a business or profession in exchange for monetary compensation is null and void. As a result, a trade constraint agreement is defined as any agreement that forbids a person from conducting business in the manner or location of his choosing, based on an agreement with another party in which the other party benefits from him giving up his trade or profession.
Agreements that Prevent a Person(s) From
Such agreements are deemed expressly void agreements as they are against the constitutional right of an individual to practice a trade of his choice. An agreement where a person agrees to not pursue a trade or profession for consideration is also deemed expressly void. All agreements in restraint of trade are void pro tanto but they are void agreements and not invalid agreements. This means that it is legal to enter into such agreements but they will not be enforceable by law if one or all the parties fail to fulfil the agreement
The plaintiff and defendant in Madhub Chander v. Raj Coomar, (1874) 14 Beng LR 76, had a similar business in the same Calcutta neighbourhood. The plaintiff and the defendant agreed that if the defendant shuts down his business in that area, he will pay him a particular sum. The plaintiff shut down his business in that area, but the defendant refused to pay the debt. He was sued by the plaintiff. Because it is a case of complete restraint of commerce, the court ruled that the agreement between the two parties is void and unenforceable.
Exceptions for this Section
However, there are two exceptions to this law:
Sale of Partnership- A partner exiting a partnership firm can enter into a restraint of trade agreement with the firm. It is an agreement not expressly declared void and will be considered valid. An agreement between the partners of a firm to not carry out a trade of their own, similar to the trade of the firm, is also a valid agreement.
Agreement in Restraint of Legal Proceedings - Section 28
Any agreement between the two parties that forbids one or both of them from bringing the contract to court if the other fails to comply is null and void. Any agreement that precludes or inhibits an aggrieved party from seeking redress in a relevant court or tribunal in the event of a breach of contract is null and unenforceable, as per Section 28 of the Indian Contract Act. Any agreement that extinguishes a party's rights or free either party from liability is null and void, according to the law.
Agreements that prevent a party from enforcing his legal rights under an agreement through the legal process in a court of law or through arbitration are expressly declared void agreements.
In short, all agreements are void, if:
They render it invalid, by agreement, for a party to approach a relevant court or tribunal if the parties’ rights have been violated.
Limit the time within which the aggrieved party can approach such a court or tribunal.
Make a party immune from liability by agreement.
Case Law Free PDF
The Supreme Court held in Food Corporation of India v. New India Assurance Co.Ltd. that it was clear from the agreement that it did not contain any clause that was found to be contrary to Section 28 of the Contract Act because it did not impose any restriction on filing a suit within six months of the date of contract termination as claimed by the insurance company, but what was agreed was that after the contract was terminated, the parties would file a suit with the court.
Saving of a contract to refer to an arbitration dispute that may arise
Saving of a contract to refer to questions that have already arisen
Saving of a bank or financial institution's guarantee agreement
Agreements that are in Restraint of Marriage - Section 26
Under section 26 of the Indian Contract Act, all agreements in restraint of marriage are deemed to be expressly void agreements, unless they involve a minor. Entering into an agreement that prevents party/parties from getting married or restraining marriage is not enforceable by law and hence it is expressly void. The provision aims at protecting the right of every individual to enter into a marital relationship. This provision however does not apply to agreements that involve minors.
If an adult agrees to not enter into marriage in lieu of consideration, it is an agreement expressly declared void.
Example: A agrees with B, stating that B will not marry C. Such an agreement will be deemed void.
A agrees to not marry B if C agrees to pay him a certain amount. Such an agreement is considered expressly void.
Case Law: Shrawan Kumar vs Nirmala
In this case, the plaintiff contended that the defendant had promised to marry him, but married someone else instead. He asked for an injunction of her marriage with the other person. The case was decided against the plaintiff as the agreement was considered void.