Law & Legal Studies

The Chimera of Restraint of Trade in India

This paper argues that the theory of termination in the Indian Contract Act is still rooted in English common law principles.


Manasi Kumar, Professor, Jindal Global Law School, O.P. Jindal Global University, Sonipat, Haryana, India.


The Indian Contract Act 1872 (‘ICA’) is both an encapsulation of English common law and, in some significant respects, a study in divergence. One such difference is apparent in the realm of restraint of trade, where s 27 of the ICA declared all restraints of trade void.

The Indian Supreme Court has limited the proscription of s 27 largely to negative covenants applicable after the termination of the agreement and in doing so, implicitly adopted the elective theory of termination for employment agreements. However, this is in direct conflict with a parallel line of cases which approve of the automatic theory.

This paper argues that, unlike s 27, the theory of termination in the ICA is still rooted in English common law principles and therefore, the conflict should be resolved in favour of the elective theory. Failure to do so threatens the ingenuity of the restraint of trade jurisprudence in India, with its hard-won, albeit meagre, flexibility.

Published in: Journal of Contract Law

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