Zaheer Khan vs Percept D`mark India (P) Ltd, AIR 2004 Bom 362, a contract that limits the party`s future freedom to manage its affairs in a way it likes and with people of its choice, has maintained an inappropriate trade restriction. one. The agreement should set the local boundaries or limitation period, and the U.S. Supreme Court should be in the prominent decision in Standard Oil Company vs. The United States (6) states that the term “trade restriction” means “basic rule” that it meant, in accordance with customary law and in United States law, when the Sherman Act was enacted, that it covered only such laws, contracts or agreements, or combinations that affect the public interest by unreasing competition or unreasing trade; or which harm trade, either because of their intrinsic effect or because of their obvious purpose. The 1911 Supreme Court decision in Standard Oil Company of New Jersey v. The United States  relies on Taft`s analysis of the rule of reason. In this case, the court found that a treaty violated the Sherman Act only if the treaty “inappropriately” restricts trade, that is, if the treaty has monopoly consequences. According to the Court of Justice, a wider importance would prohibit normal and customary treaties, thus violating freedom of contract. The Court therefore upheld the rule of reason in Addyston Pipe, which in turn stems from Mitchel/Reynolds and the Common Law of Restraints of Trade.
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. Exception 1: Subject to the agreement not to manage transactions whose goodwill is sold – A person who sells the good-business or good-business of a company may agree with the buyer not to carry out a similar activity within certain local borders as long as the buyer or a person who owns it, carries out a similar activity there, provided that such restrictions are considered appropriate for the court, taking into account the nature of the transaction. Even if, for example, a restriction within the meaning of Mitchel and Addyston Pipe is necessary and complementary, it may constitute an inappropriate restriction on trade if their anti-competitive effects and the resulting harm to the public interest outweigh their advantages. Thus, Ginsburg J. stated in Polygram: In this case, the Supreme Court decided that the terms of an agreement should not be interpreted in such a way as to prevent the other party from remedying it. Article 27 has been drafted in a way that provides absolute protection against all kinds of trade restrictions, whether appropriate or not. The rigidity of the language in this section does not leave much room for a broader interpretation and, as such, is the heart of the debate on the validity of this provision. The above section has been regularly debated by different jurisdictions in petitions to impose similar restriction clauses. In order to understand how the courts have handled the application of such clauses, we have taken into account the following court decisions.