Here, the complainant owned a fleet of buses that once ran between Pune and Mahabaleshwar. The defendant also had a similar case in the same area. In order to avoid competition, the applicant purchased the defendant`s business together with the goodwill and contractually committed it not to open a similar store in the region for 3 years. The accused did not do so and resumed his belongings. The Tribunal decided that the agreement was valid since it fell within the exception of S.27. In Petrofina (Uk) Ltd. vs. Martin (5), Diplock L.J., a commercial restriction contract is a contract in which one party (the Covenantor) has agreed with another party (the Covenanter) to restrict its freedom in the future, to trade with other persons who are not contracting parties in the manner it has chosen. There are certain conditions that validate a restriction of trade during the sale of goods: some agreements are not enforceable in court because they are contrary to public order and the public interest. Such agreements are not illegal, they can still be concluded, but they are unenforceable in court.
In other words, if one of the parties to the agreement does not fulfil its obligations in such an agreement, the injured party cannot bring the case before a court of competent jurisdiction to assert its rights. Agreements to restrict trade, marriage and legal proceedings are examples of such agreements. Section 27 of the Indian Contract Act 1872 provides that an agreement which prevents any person from engaging in a legitimate profession, trade or activity is, to that extent, null and void. The main reason for this section is that detention agreements are unfair and unjust, as they unduly restrict a party`s individual freedom. However, where a party sells its goodwill to another, it may exceptionally agree with the buyer that it will not engage in a similar activity within the local limits indicated. Daulat Ram vs. Dharm Chand Company, AIR 1934 Lah 110, where two ice factory owners who merged a partnership agreed that only one plant will be processed at a time and that their profits will be distributed among them. The reluctance was deemed justified. The delegitimization of a trade restriction agreement is explained by the history of the conflict between free markets and freedom of treaties.
Guaranteeing freedom of contract would be tantamount to legitimize trade restriction agreements, which would lead the parties to agree to curb competition. According to the Common Law, the current position stems from the case: in this case, the Supreme Court has decided that the terms of an agreement should not be interpreted in such a way as to prevent the other party from seeking recourse against the remedy. . . .