Agreement in restraint of trade, void
Section 27 of the Indian Contract Act, 1872 deals with agreement in restraint of trade, void. Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. The Act came into force on 01 Sep 1872.
Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.
Exception 1.Saving of agreement not to carry on business of which good-will is sold.One who sells the good-will of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the good-will from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business.
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Section 27, The Indian Contract Act, 1872 (Act 9 of 1872).
Related judgements & precedents
These are some judgments that construed this section, and hold precedence value. They hold authority on how to read, interpret and use this section.
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Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan
Court's Decision & Legal Precedent
Judgment of Main Case order-6.pdf 2006-03-22 DATE VERIFIED (not same-date ROP order-7). CA 5573-5574/2004. Contract Act 27: a post-term first-refusal / negative covenant that restrains a cricketer from endorsing others after the contract ends is void as a restraint of trade. s.27 has no 'reasonableness' exception of the English kind. Map contract-act 27.
On this section: s.27 makes every agreement by which anyone is restrained from exercising a lawful profession, trade or business void. A post-term first-refusal / negative covenant is a restraint of trade; there is no English-style reasonableness exception (Percept / Zaheer Khan).
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Suresh Dhanuka vs Sunita Mohapatra
Court's Decision & Legal Precedent
A Deed of Assignment transferring intellectual property rights (specifically, 50% ownership of a trade mark) 'absolutely and forever' cannot be unilaterally revoked by the assignor upon termination of the underlying business agreement. A negative covenant in such a Deed (prohibiting use or registration of the trade mark except through the assignee) is enforceable through injunction under Section 42 of the Specific Relief Act, 1963, and does not violate Section 27 of the Indian Contract Act, 1872, because it restrains use of specific intellectual property, not the carrying on of trade or business. An interim order under Section 9 of the Arbitration and Conciliation Act, 1996, maintaining status quo pending arbitration is justified and within the jurisdiction of the District Court to protect the rights of both parties.
On this section: Declares void any agreement restraining a person from exercising a lawful profession, trade, or business. The Court held that Section 27 does not apply to the negative covenant in the Deed of Assignment because the covenant does not restrain the Respondent from carrying on trade or business, but only from using the specific trade mark in which the Appellant had acquired 50% ownership.
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Suresh Dhanuka vs Sunita Mohapatra
Court's Decision & Legal Precedent
Where a deed of assignment transfers property (including intellectual property such as trademark) absolutely and forever, with clear conditions stipulating that neither party can use or register the mark independently after termination of the joint venture, the assignor cannot unilaterally revoke such assignment. The enforcement of negative covenants contained in such deeds through injunctions is permissible under Section 42 of the Specific Relief Act, 1963, provided the covenant is not merely a restraint on trade under Section 27 of the Indian Contract Act, 1872, but rather a restriction on use of specific property. In such circumstances, an interim order restraining the assignor from using the trademark pending arbitration is justified to maintain status quo and protect both parties' rights, and such order should not be interfered with unless it is clearly arbitrary or unjust. The adequacy of money compensation must be assessed in light of the proprietary nature of the interest acquired; where a party has acquired a substantial proprietary right in valuable intellectual property with associated goodwill through a clear deed, injunctive relief is the appropriate remedy, not monetary compensation alone.
On this section: Section 27 (restraint of trade) was examined by Respondent to argue that the negative covenant in the deed was void; Court distinguished between restraining use of specific property (trademark) versus restraining trade or profession
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Chloro Controls(i) P. LTD vs Severn Trent Water Purification INC
Court's Decision & Legal Precedent
In multi-party and composite commercial transactions involving multiple interconnected agreements (principal/mother agreement and ancillary/subsidiary agreements), where the principal agreement contains a comprehensive arbitration clause covering disputes 'under or in connection with' such agreement, and the ancillary agreements are integral to performing the objectives of the principal agreement and are referred to therein, the Court shall refer all disputes arising from such composite transaction to arbitration under Section 45 of the Arbitration and Conciliation Act, 1996. This referral can include disputes of non-signatory parties who are claiming through or under the signatory parties to the principal agreement, provided: (1) there is a defined legal relationship between such parties arising from the composite transaction; (2) the parties' manifest intention demonstrates unified dispute resolution through arbitration; (3) the disputes are intrinsically interlinked and capable of composite resolution without risk of conflicting awards on overlapping issues; and (4) no serious challenge is made to the validity, operability or enforceability of the arbitration agreement at the threshold. The expression 'any person claiming through or under' in Section 45 is to be liberally construed to achieve the legislative intent of according primacy to arbitration in international commercial disputes, subject to the exceptions of agreements being null and void, inoperative or incapable of performance. Bifurcation of parties or causes of action is generally not permissible under the 1996 Act, but this does not prevent composite reference of all disputes arising from interlinked agreements forming a unified commercial transaction.
On this section: Relied upon by appellant to argue agreement to arbitrate cannot exclude court jurisdiction; but Court rejects this as arbitration is permitted exception not contrary to law
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Minions Ventures Private Limited vs Mr Hardik Shah
Court's Decision & Legal Precedent
When a single cause of action involves multiple respondents, and only some are bound by an arbitration clause, the court cannot split the cause of action and must dismiss the Section 11 petition.
On this section: Agreement in restraint of trade mentioned in objections.
The holding above is the ratio decidendi as extracted from the judgment by eCourts India, reproduced unaltered — it is a rendering of the court's reasoning, not a substitute for its words. Read the order itself before relying on it.
Judgments citing this section
These may be obiter dicta or a precedent, for you to study. These are the judgments where this section is quoted.
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… According to learned senior counsel for the Appellant/ Plaintiff, the learned Single Judge erred in equating "unilateral termination of contract" with "end of contract" and therefore, incorrectly applied Section 27 of the Indian Contract Act, 1872 which applies to restrictions for post contractual period. He submitted that the Supreme Court and various High Courts have rightfully injuncted a party from joining/ performing elsewhere in breach of the agreement with the aggrieved party during the original tenure of the agreement …
Questions about Section 27
What have the courts held on Section 27 of the Indian Contract Act?
Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan (22 Mar 2006) is the leading judgment on this section among those set out below: s.27 makes every agreement by which anyone is restrained from exercising a lawful profession, trade or business void. A post-term first-refusal / negative covenant is a restraint of trade; there is no English-style reasonableness exception (Percept / Zaheer Khan). Another 4 judgments on this section are set out below, 4 of them from the Supreme Court. They run from 2006 to 2022.
How do I find court cases under Section 27 of the Indian Contract Act?
In judgments and charge sheets this section is written several ways, and each form finds a different set of orders. These search the full text of every order eCourtsIndia holds, best matches first: Contract Act 27, section 27 Contract Act, section 27 of the Indian Contract Act. People searching for it also type indian contract act 27. Each opens the full list of orders on eCourtsIndia, where it can be narrowed by court, year and outcome. 5 reported judgments on this section are set out on this page, beginning with Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan (22 Mar 2006).
When did Section 27 of the Indian Contract Act come into force?
Section 27 of the Indian Contract Act, commonly called restraint of trade or non compete clause, and cited as Contract Act 27, came into force on 01 Sep 1872, having been enacted on 25 Apr 1872. It is in force as at the date shown on this page.
Other sections of this Act
- 73. Compensation for loss or damage caused by breach of contract1822 words
- 23. What considerations and objects are lawful, and what not596 words
- 74. Compensation for breach of contract where penalty stipulated for577 words
- 28. Agreements in restraint of legal proceeding void512 words
- 25. Agreement without consideration, void, unless it is in writing and registered, or is a promise to compensate for something done, or is a promise to pay a debt barred by limitation law423 words
- 16. "Undue influence" defined397 words
Source and method. Compiled from the enactments of Parliament and of the State legislatures as published on India Code, and republished together with commentary and other original matter under section 52(1)(q)(ii) of the Copyright Act, 1957. Structured, cross-referenced and maintained by eCourtsIndia. Text as in force on 14 Oct 2026. This page is not a substitute for legal advice.