Introduction
Contracts are an essential part of commercial and personal dealings, but the law ensures that such agreements do not interfere with fundamental freedoms or public welfare. The Indian Contract Act, 1872, under Sections 26 and 27, specifically declares certain agreements as void when they restrain a person’s liberty to marry or carry on trade or business. These provisions protect the individual’s freedom of choice and economic independence, reflecting India’s commitment to constitutional values such as equality and liberty.
The underlying principle is that while contracts promote private interests, they cannot go against public policy, personal autonomy, or social welfare. Hence, the law invalidates agreements restraining marriage or trade.
Agreement in Restraint of Marriage (Section 26)
Text of Section 26
“Every agreement in restraint of the marriage of any person, other than a minor, is void.”
This section upholds the freedom of marriage, recognizing it as an essential personal right and a social necessity. The law declares that any restraint, whether total or partial, upon a person’s right to marry is void ab initio (invalid from the beginning).
Key Principles
- Absolute and Partial Restraints:
Both total and partial restraints on marriage are void. Even if the restriction applies only to marrying a specific person or within a particular period, the agreement remains unenforceable. - Exception — Minors:
The restraint is valid only if it applies to minors, as marriages involving minors are prohibited by law. - Public Policy Consideration:
Since marriage is a fundamental social institution, any agreement restraining it is contrary to public policy and human rights.
Illustrations
- A agrees not to marry during B’s lifetime in exchange for ₹1,00,000. This agreement is void.
- A promises to pay B a sum of money if B refrains from marrying a particular person. This is also void.
Leading Case Laws
1. Lowe v. Peers (1768) 4 Burr 2225
The defendant promised not to marry anyone other than the plaintiff and agreed to pay £1,000 if he did. The court held the agreement void as it imposed a restraint on marriage and violated public policy.
Read Case Summary
2. Pearce v. Brooks (1866) LR 1 Ex 213
Though not directly about marriage, this case reinforced the principle that agreements against public morality or policy are void.
3. Indian Judicial Perspective
Indian courts have consistently emphasized that any restraint—direct or indirect—on marriage is void as it infringes upon personal liberty and social justice.
Agreement in Restraint of Trade (Section 27)
Text of Section 27
“Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.”
This section guarantees every citizen the right to earn a livelihood and prevents monopolistic or oppressive practices that hinder economic freedom. It embodies the philosophy of free trade and competition.
Nature and Scope
Section 27 is broad in its language and invalidates both total and partial restraints, unlike English law, which allows partial restraints if they are reasonable. The Indian approach is stricter, prioritizing individual freedom over contractual restrictions.
Exceptions to Section 27
1. Sale of Goodwill
If a person sells the goodwill of a business, they may agree with the buyer to not carry on a similar business within specific local limits, provided such restraint is reasonable.
Example:
A sells the goodwill of his bakery to B and agrees not to open another bakery within 10 km. This restraint is valid under the proviso to Section 27.
Also read: Contracts Involving Impossibility of Performance
2. Partnership Act Exceptions
Certain restraints are recognized under the Indian Partnership Act, 1932, such as:
- Section 11(2): Partners may agree not to carry on business other than that of the firm.
- Section 36(2): A retiring partner may agree not to compete with the firm within reasonable limits.
- Sections 54 & 55: Partners can agree to reasonable restraints upon dissolution or sale of goodwill.
Important Judicial Decisions
1. Madhub Chander v. Raj Coomar (1874) 14 Beng LR 76
A promised not to carry on business in Calcutta in competition with B, in exchange for money. The court held this agreement void, stating that even partial restraints on trade are invalid under Section 27.
2. Niranjan Shankar Golikari v. Century Spinning & Manufacturing Co. Ltd. (AIR 1967 SC 1098)
The Supreme Court upheld a clause that restricted an employee from working with competitors during employment, stating that such restraints were valid to protect the employer’s interests. However, post-employment restraints are void.
Read Full Case on Indian Kanoon
3. Superintendence Co. of India v. Krishan Murgai (AIR 1980 SC 1717)
The Court held that post-service restrictions preventing an employee from joining competitors are void under Section 27, even if reasonable.
4. Gujarat Bottling Co. Ltd. v. Coca Cola Co. (AIR 1995 SC 2372)
The Court ruled that a negative stipulation in a franchise agreement (not to deal with competitors during the contract) is valid, as it is necessary to protect legitimate business interests.
Principle of Public Policy
The foundation of Section 27 lies in public policy, which promotes economic liberty and fair competition. Agreements restraining trade are void because they:
- Encourage monopolies and exploitation
- Reduce employment opportunities
- Stifle innovation and fair market practice
Indian courts have maintained a strict interpretation of Section 27 to uphold free enterprise and personal freedom.
Comparative Perspective: English and Indian Law
In English law, partial restraints are valid if they are reasonable and protect legitimate business interests.
In Indian law, all restraints (absolute or partial) are void, except those expressly allowed by statute (e.g., sale of goodwill).
The Indian position is therefore more rigid but socially progressive, emphasizing equality and opportunity for all.
Conclusion
Sections 26 and 27 of the Indian Contract Act, 1872 reflect the principles of freedom, equality, and fairness. While Section 26 protects the individual’s right to marry, Section 27 ensures the freedom to engage in trade or profession. Both embody the spirit of public policy, ensuring that private contracts do not encroach upon essential human liberties. Indian courts, through consistent interpretation, have balanced personal freedom with legitimate business interests, ensuring that the law evolves with fairness and justice.