DAMODARAM SANJIVAYYA NATIONAL LAW
UNIVERSITY
CONTRACT
“EXCLUSIVE AGREEMENT”
ANKIT TRIPATHI
201214
SECOND SEMESTER
CONTENTS
INTRODUCTION
AGREEMENT IN RESTRAINT OF TRADE IS VOID
TYPICAL RESTICTIVE CLAUSE
KINDS OF RESTRAINT
IS RESTRAINT GOOD OR BAD?
DEFINITION OF EXCLUSIVE AGREEMENT
TYPES OF EXCLUSIVE AGREEMENT
CRUX OF EXCLUSIVE AGREEMENT
Introduction
Before the enactment of INDIAN CONTRACT ACT in India, the Hindu law was applied in settling down
disputes relating between the Hindu parties and the Muslim personal law was applied in settling down
disputes relating between Muslims parties in cases of contract cases. After Britishers came to India the
English law was introduced in India slowly and gradually.
HINDU SYSTEM
In Hindu social system, the doctrine of “KARMA” had immense importance. The man has to get fruits
according to karma. The result of good deeds is good and of bad deeds is bad. It was firmly believed that not
to perform the promise given to anybody would be a bad deed. If anybody had taken the loan, it was his
pious duty to repay the same. The function of the king was to enforce the promises which included contracts
also. If anybody does not act according to his promise, he has to go to the hell.
”DHARMA” (religion) being the king of the kings, it was the duty of the king to
comply with dharma and to act acc. to dharma. Performance of promise was “DHARMA” and to act
according to dharma. Performance of promise was dharma. Non-performance of promise was
“ADHARMA”(against religion). The king was not above ‘DHARMA’. The king was ruled by ‘DHARMA’.
According to Hindu Dharmashastras, the binding of contract depend on truth.
According to Brihaspati, if anybody does not repay the money borrowed by him, he takes the birth in the
houses of creditor as a slave, servant, woman or quadruped. Therefore, the repayment of loan was the pious
work.
In course of time, this religious obligation became the legal obligation.
The minor, women and incompetent persons were protected under the contract 1.Agency was also
recognized. Karta of the family had the right to contract. Agency was also recognized. Karta of the family
had the right to contract. Sometimes slaves or incompetent persons could act as an agent of Karta due to
necessity in the absence of KARTA2.
1
Manu, 8, 219-220,K.R.R. Shastri ,Hindu Administrative Institution’ pp. 228-229
2
IBID 8-153; Narad 1-103
MUSLIM SYSTEM
During the Muslim rule the country was under the influence of Islamic law and Islamic thoughts. Even prior
to the English rule in India, the Hindus were being influenced by the Islamic laws. The criminal law
applicable to Hindus and Muslims both was Islamic law but Islamic civil law was applicable to Hindus in
the field where it was not contrary to Hindu law. Hindu law remained unaffected in marriage, guardianship,
adoption inheritance, women’s estate and reversioners etc. The matters relating to trade, exchange, sale and
contracts were affected by Islamic law. It was provided in Fatwa-I-Alamgiri that to Jimmins (who were not
Muslims subjects) Islamic law was not totally applicable.
There must be two parties to the contract, one should make the proposal and the other should
accept it. They should agree in their mind i.e. their declarations should be about the same thing and the
agreements must be made for creating legal consequences and no formality was required for it. The parties
to the contract could consent either orally or in writing. The parties must be legally competent and the
parties should have sufficient understanding and maturity.
The contract could not be made during infancy, slavery of the person and insanity (JUMAN) because it
rendered the lack of understanding a person. If a person entered into the contract due to IKRAH or
compulsion the contract being under compulsion stood vitiated.
BRITISH PERIOD
By the charter of 1600, the company was authorized to make laws and orders which were necessary for the
good government but the laws and orders which were necessary for the good government but the laws and
orders were required to be reasonable not contrary to the laws of England. The charter of 1726 enabled the
introduction of common law statutory law of England in Presidencies, Regulating act,1773 authorized the
Governor-General for the good order and civil Government, to make and issue such rules, ordinances and
regulations which were just and reasonable and not contrary to the government. In 1797 and 1807, the same
kinds of statutes were enacted for Maras and Bombay.
According to section 9 of Bengal Regulation, in any civil suit when the parties to the suit were of
different persuasions in which one party was a Hindu and the other Muslim persuasion or when in such suit
one or the more parties of them were not of Hindu or Muslim persuasion or when one or the more parties of
them were of Hindu or Muslim persuasion then the law of that persuasion would not deprive such party or
parties of property for which they would have been entitled if this law would not have been operative. In
such cases, the principle of justice, equity and good conscience were applicable. It was also clarified that it
did not mean introduction of English law or foreign law.
It was provided by the Madras regulating Act III, that the Hindu law would apply to Hindus and
Islamic law to Muslims in the matters of succession, inheritance, marriage, caste, the religious customs and
institutions. Under the Bombay Regulation Act IV 1799 in cases off succession and inheritance, land and
other properties, mortgage, debt, bond, rent, pay, marriage, castes, individual and real property the defendant
being a Hindu or Muslim would be entitled to the benefit of his own laws. The persons in India who were
not Hindus or Muslims e.g. Parsis, the customary law was applicable to them. The English law was
applicable to Armenians and Jews. Due to this legal position, sometimes confusion of law arose and the
legal position was not very clear.
LAW COMMISSION
Charter Act of 1833 introduced many reforms in the then existing legislative machinery in India. It played
important role in the consolidation and codification of the Indian laws. Section 53 of the charter act of 1833
made provisions for the codification of the Indian Law. It made provision for the appointment of the law
commission in India. The governor-general- in council was empowered to appoint a law commission. The
commission was to provide code of laws common, as far as possible, to the whole India. In accordance with
with the provisions of Section 53 of the charter Act of 1833, the first law commission was appointed in
1835. Thereafter the second law commission was appointed in 1853 and the third law commission was
appointed in 1861.
Lord Romilly was appointed as the chairman of the Third law Commission. The other members were- Sir
W. Erle, Sir E. Ryan, Mr. R . Lowe etc.
The Commissions was directed to prepare a body of substantive law for India. In the preparation of the body
of substantive law for India on the basis of the principles laid down by the second law commission that a
body of the substantive law should be enacted for India on the basis of the law of England and after
enactment it should itself be the law of India on the subject it embraced.
The third law commission submitted several reports. The second report submitted in 1866 contained a
draft of the contract bill. The second report submitted in 1866 contained a draft of the contract bill. The
draft provided a contract applicable to all persons. The draft of the contract bill submitted by the commission
was revised and passed in 1872 as the Indian contract Act.The Act as enacted originally had 266 Sections, it
had wide scope and included.
General Principles of Law of Contract- 1 to 75
Contract relating to Sale of Goods-76 to 129
Special kinds of Contracts-125 to 238
(includes indemnity, guarantee, bailment & pledge)
Contracts relating to Partnership-239 to 266
It is to be noted that before 1930 the law relating to the contracts for sale of good and partnerships was also
included in this act, but in 1930 the portion of the act relating to the sale of goods (i.e. sections 76 to 123)
was repealed and a new act, called the sale of goods act was enacted. The sale of goods act deals with
contracts relating to the sale shall goods. Section 3 of the sale of goods makes it clear that the provisions of
the Indian Contract Act continue to apply to contracts relating to the sale of goods Act deals with contracts
relating to the sale.
Section 3 of the sale of goods makes it clear that the provisions of the Indian contract act continue
to apply to contracts relating to the sale of goods unless they are inconsistence with the express provisions of
the sale of goods act. Consequently, the rules of the Indian Contract Act relating to the capacity of the
parties to the contract, the measure of damages in the case of breach of contract , effect of fraud,
misrepresentation, coercion, mistake etc. apply also to the contract of the sale of goods.
Section 1 of the Indian Contract Act provides that the act extends to the whole India except the state of
Jammu and Kashmir and it shall come into force on the first day of September, 1872.
SECTION 27
AGREEMENT IN RESTRAINT OF TRADE- An agreement by which anyone is restraint from
exercising a lawful profession, trade or business of any kind, is to that extent void. If A promises to pay B a
certain sum sum of money in case B closes his business in a certain locality, the agreement is void, and B
cannot enforce the agreement.( Madhub v.Rajcoomar Dass)
AGREEMENT IN RESTRAINT OF TRADE
Agreement in restraint of trade is defined as the one in which a party agrees with any other party to restrict
his liberty in the present or the future to carry on a specified trade or profession with other persons not
parties to the contract without the express permission of the latter party in such a manner as he chooses.
Providing for restraint on employment in the employment contracts of the employees in the form of
confidentiality requirement or in the form of restraint on employment with competitors has become a part of
the corporate culture. In other words “one in which a party agrees with any other party to restrict his liberty
in the future to carry on trade with other persons who are not parties to the contract in such a manner as he
chooses”. Contracts in restraint of trade are one of the most important categories of unenforceable
agreements at common law. In today’s world agreement in restraint of trade has a much wider scope and it is
called ‘restrictive practice’, but the legal and economic problem are same.in this type of agreement one or
both the parties come under a contract in which they limit their freedom to carry on their business or
profession in a particular way, by agreeing not to compete with each other in a particular area or place, by
agreeing not to disclose each other’s trade secret, by agreeing not to come under contract with any other
parties until the expiry of the current contract. Regulation on personal liberty are regulated because it is
thought that they may unduly restrict the freedom of the concerned individuals. Fore.g.- if a person A joins a
company ABC,then the company in a contract can restrict his freedom in order to protect the trade secret
and safeguards of the company. Agreement in restraint of trade are also widely thought to be problematic
because of their possible effect on the broader public interest. More specifically, restrictive agreement are
often attacked on the basis that they unduly restrict the free flow of labour and goods on which a market
economy depends.Essentialy the question is the extent to which the law should interfere with the freedom of
contracting parties to do business in such a way as to limit or restrict competition, in earlier times, the
traditional approach of the courts was to leave the parties to use their own method of conducting business,
even if this was likely to lead to the creation of monopolies, unfair competition, or the enforcement of
restrictive practices of various kinds. According to section 27 “every agreement by which anyone is
restrained from exercising a lawful profession, trade or business of any kind, is to that extent is void”.an
agreement which unnecessarily curtails the freedom of a person to trade is against public policy, restraining
a person from carrying on a trade generally aims at avoiding competition and has monopolistic tendency and
this is both against an individual’s interest as well as the interest of the society and on that ground such
restraint are discouraged by law.in today’s world everyone has right to do free trade practice anywhere in a
country of which he is resident and to restrain someone in doing so is illegal and also voidable by law.
TYPICAL RESTRICTIVE CLAUSE
1. Non-disclosure clauses
2. Non-compete clauses during employment
3. Non-compete post-employment clauses
4. Non- use post-employment clauses
1. Non-disclosure clauses- It includes covering confidentially during employment as well as after
employment ceases such clauses typically prevent an employee from sharing confidential
information with outsiders.
2. Non-compete clauses during employment-these clauses prevents the employee from engaging
in activities that clash with his employment responsibilities.
3. Non-competepost–employmentclauses-some employers do not want their employees to join
competitors even after the employee has quit the job. Restriction in this category may also
prevent an ex-employee from starting a competing business or even advising a relative who is in
a similar type of business.
4. Non-use post-employment clauses– such clauses are stricter than the previous one. They not
only prevent from using information gained during employment for competition use. They go a
step further and even stop an ex-employee from making a non-competitive use of the
information.
APPLICABLE LAWS
1. Indian contract act 1872 –section 27
2. Constitution of India article 19(1)g
3. Competition act 2002 section 3(1),(2),(4) and section 4
1. Indian contract act 1872- it makes void all contract that impose ‘restraint of trade’. The
provisions are as follows
A. every agreement by which anyone is restrained from exercising a lawful profession,
trade or business of any kind is to that extent is void.
B. the only exception that is permitted to the above is when goodwill of a business is sold.
The exception is not relevant to the discussion in this article
2. Constitution of India- article 19 (1) g of the Indian constitution guarantees that all the
citizens shall have the right to practice any profession, or to carry on any occupation,
trade or business
However the right to carry on a profession trade or business is not unqualified.it can be
restricted and regulated by the authority of law. The restrictions have to be reasonable and
public interest.
Moreover, it is important to understand that fundamental right are available only against
the state or in other words government or government undertaking. Fundamental rights
have almost no scope when the relationship is between a private employer and individual
employee.
3. Competition act 2002
a. According to section 3(1) of the competition act 2002, “no enterprise or association of
enterprises shall enter into any agreement in respect of
productivity,supply,distribution,storage,acquisition or contract of goods or provision of
services, which causes or is likely to cause an appreciable adverse effect on competition
within India
b. According to section 3(2) of the competition act, 2002 any agreement entered into in
contravention of the provision.
c. Agreement which cause or are likely to cause appreciable adverse effect on competition in
market in India are anti-competitive and are voided.
d. According to the section 4 of the competition act,2002
e. No enterprise or group shall abuse its dominant position.
f. There shall be an abuse of dominant position under sub-section(1)
KINDS OF RESTRAINT
The law of restraint of trade was traditionally thought to be applicable solely to contractual clauses that
prohibit a person from working in a certain trade or profession, usually subject to limitation of time and
space.
1. They are found in contracts for the sale of the goodwill of a business or professional practice or a
sale of goodwill necessarily involves some degree of limitation on the seller’s freedom to compete.
Example- the seller of a shop would like to be assured that the buyer will not immediately set up a
competing business next door and draw back most of his old customers. Hence the seller will want the
buyer to agree that he will not enter into competition with him.
2. this kind of clauses are often found in written contracts of employment, the employer put a condition
or agreement in front of his employer that he/she will not work for a competing employer or set up a
competing business of her own after he/she leaves her present work. These kind of clauses are often
found in analogous non-employment relationship
Example- a relationship between a singer and his music publisher, a professional sports person.
EXCEPTION
One who sells goodwill of a business with a 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 goodwill from him, carries
on a like business therein provided that such limits appear to the Court reasonable, regard being had to
the nature of business.
Although the section states that all agreements in restraint of any profession, trade or business are void,
the current trend as per various judicial pronouncements leads to the conclusion that reasonable restraint
is permitted and does not render the contract void ab initio. Reasonableness of restraint depends upon
various factors, and the restraint in order to prevent divulgence of trade secrets or business connections
has to be reasonable in the interest of the parties to ensure adequate protection to the covenanted. The
above section implies that to be valid an agreement in restraint of trade must be reasonable as between
the parties and consistent with the interest of the public.
IS RESTRAINT GOOD OR BAD FOR HEALTHY BUSINESS?
Somewhere restraint is good and somewhere it is bad. For egg- if a person works in a shop A which is
famous for its biryani, this is because of a secret recipe which the shop owner has been using for over 150
years, then they have the right to restrict their employer to set up a competitive business in any other places
or o work with any other employer.in order to protect their trade secret from the other competitors. If they
have the patent right for the recipe.so in this case it can be consider as a healthy practice of restraint of
trade.in other example if a medicine company discovered a new formulae for the cure of cancer and applied
for the patient right, then they have right to restrict their employees to work with any other firm in order to
protect their secret or in order to protect the thing to get misused.
In other case if an employer restrain his employee to work in any other place after leaving the job just for
harassing the person then this can be said to have wrong practice of restraint of trade, because this is the
violation of article 21each and every person has right to choose his profession and place of his workplace.
For egg- if A works with a company B and he is in a contract that he will not join any other company after
he quits to his job and during his contract he is being unduly harassed, he is not being paid his wages on
time, he is being tortured at his workplace by superior authorities, then he is free to leave his job and join
any other company, if he proves this in the court of law.
A agreement in restraint of trade lies between two different principles of public policy. A person entering
into a contract of his own free shall be bound by the same. At the same time it is necessary that he should
have liberty to exercise his powers and capacities for his own and the community’s benefit. Public policy
requires that every man, even though at liberty to work for himself, is not at liberty to deprive himself or his
labour, skill or talent by any contract that he enters into.
The court held that a person may be restrained from carrying on his trade by reason of an agreement
voluntarily entered into by him with that object. In such a case the general principle of freedom of trade
must be applied with due regard to the principle that public policy requires the utmost freedom to the
competent parties to enter into a contract and that it is public policy to allow a trader to dispose of his
business and to afford to an employer an unrestricted choice of able assistance and the opportunity to
instruct them in his trade and its secrets without fear of their becoming his competitors. Where an agreement
is challenged on the ground of its being in restraint of trade, the onus is upon the party supporting the
contract to show that the restraint is reasonably necessary to protect his interests. Once, this onus is
discharged by him, the onus of showing that the restrain is nevertheless injurious to the public is upon the
party attacking the contract.
A covenant in restraint of trade lies between two different principles of public policy. A person entering into
a contract of his own free shall be bound by the same. At the same time it is necessary that he should have
liberty to exercise his powers and capacities for his own and the community’s benefit. Public policy requires
that every man, even though at liberty to work for himself, is not at liberty to deprive himself or his labour,
skill or talent by any contract that he enters into.
A negative covenant that the employee would not engage himself in a trade or business or would not get
himself employed by any other manner with whom he would perform similar or substantially similar duties,
is not therefore, a restraint of trade unless the contract as aforesaid is unconscionable or excessively harsh or
unreasonable or one sided. A contract which is in restraint of trade cannot be enforced unless (a) it is
reasonable as between parties and (b) it is consistent with the interest of the public.
The non-compete covenants used in agreements can be categorized into in term and post term covenants. In
an employment contract, the basic interests of the employer which are required to be protected include trade
secrets and business connections and other such confidential information. In case of restraints in contracts of
employment the nature of business and employment is relevant in assessing the reasonableness of the
abovementioned restraints. An employee owes a duty to the employer to not disclose to others or use to his
own advantage the trade secrets or confidential information which he had access to during the course of
employment and he could be restrained from or sued for divulging or utilizing any such information in his
new employment. But once again, he cannot be prevented from taking up the employment. Also, the
employer cannot prevent the use of employee’s knowledge, skill or experience even if the same is acquired
during the course of employment. Restrictive covenants are different in cases where the restriction is to
apply during the period after termination of the contract than in those cases where it is to operate during the
period of the contract.
Negative covenants operative during the period of contract of employment when the employee is bound to
serve the employer exclusively are generally not regarded as restraint of trade and do not fall under Section
27 of the said Act. A negative covenant, one that the employee would not engage himself in a trade or
business or would not get employment under any other employer for whom he/she would perform similar or
substantially similar duties, is not a restraint of trade unless the contract is unconscionable or excessively
harsh or unreasonable or one sided.
Negative covenants tied up with positive covenants during the subsistence of the contract, be it of
employment, partnership, commerce, agency or like, are not normally regarded as being in restraint of trade,
business or profession unless the same are unconscionable or wholly one sided and thus do not fall under
Section 27 of the said Act. During the period of employment, the employer has the exclusive right to the
services of the employee. A restraint operating during the term of the contract fulfils one purpose, that of
furthering the contract, such a restraint is designed to fulfill the contract. Where the contract of employment
contains such a covenant and the employee leaves the service the negative covenant can be enforced to the
extent that the unexpired part of the term or service would be essential for the fulfillment of the contract.
However, even the restraints, which operate only during currency of employment, may be subject to the
doctrine of restraint of trade, if the restraints are such that one of the parties is so unilaterally fettered that the
contract loses its character of a contract for the regulation and promotion of trade and acquires the
predominant character of restraint of trade.
The Supreme Court in the Golikari Case mentioned above considered the question of negative covenants. In
this case an employee was given special training by his employer, on condition that he would serve the
company for 5 years, and that if he left his employment before such period, he would not directly or
indirectly engage in the same business and also pay liquidated damages. The Supreme Court held that that
the negative covenants, which operate during the period of service, are generally not regarded as restraint of
trade and therefore not fall within Section 27 of the Act, unless the contract is unconscionable or
unreasonable. It was therefore held that this was a valid contract.
Post term restrictive covenants have been held invalid through various judicial pronouncements. An
employer is not entitled to protect himself against competition on the part of an employee after the
employment has ceased. However, a purchaser of a business is entitled to protect himself against
competition per se on the part of the vendor and it has been upheld that a employer has no legitimate interest
in preventing an employee after he/she leaves his service from entering the service of a competitor merely
on the grounds that the employee has started working with a competitor, unless the same leads to misuse or
an unauthorised disclosure of confidential information, which has been provided to the employee during his
course of employment.
Thus, the post-service restraint is only legally enforceable in cases where the employer has placed some
reasonable restraints on the employee of the company to ensure that the latter shall not disclose any
confidential information of the former to any business competitor even after the termination of the service.
Such post service restraint has been held to be enforceable and falls outside the purview of Section 27 of the
said Act.
Apart from the non-compete covenants in the employment agreements; another clause refers to the non-
solicitation or non-poaching. Non-solicitation agreements are those agreements by which the employee
promises not to solicit the employer’s clients or one party agrees to refrain from employing the employees of
the other party for a given period after the termination of the employment. Generally, negative covenant
during the period of the agreement is considered not to be hit by law but there are certain non- solicitation
agreements which are prima facie negative in nature but still stand as an exception and are enforceable even
after the conclusion of the employment and are held by the Courts to be valid in law.
General injunctions against non-poaching by the competitor may not be granted as such clauses may be
viewed against public interest. However, where the individuals are the beneficiaries of specific ideas or
skills or training that they have acquired by working with the employer, the employer may get a specific
restraining order, pertaining to these employees.
The Supreme Court in the Golikari case, referred to earlier, considered the refusal of the employer to accept
the resignation of the employee and who wanted to work with a competitor in the same line of business, for
which he was specifically trained and in respect of which he had signed a non-compete clause. The
injunction sought by the employers for preventing the employee from divulging secrets was not held to fall
foul of Section 27 of the said Act. The courts held that the confidentiality clause was not too wide or
unreasonable for protection of interests of the respondent company.
Franchise agreements contain covenants relating to confidentiality in relation to know- how and other forms
of intellectual property and the franchisor has legal recourse in cases where: an employee comes into
possession of a trade secret, know-how and confidential information in the normal course of business and
passes off such information, an unauthorized person incites such an employee to provide him with such
information, or under a license for the use of know-how, a licensee is in breach of condition, either
expressed in an agreement or implied from the conduct, to maintain secrecy.
Non-competition clauses are those, which oblige the franchisor or master franchisee not to operate a
competing franchise within a certain radius or for a period after the termination of the franchise agreement.
The enforceability of such clause varies widely and depends on its reasonableness.
In the case of Gujarat Bottling Co. Ltd. and others v. Coca Cola Co. and others An agreement for grant
of franchise by Coca Cola to Gujarat Bottling Company to manufacture, bottle, sell and distribute beverages
under trademarks held by the franchisor contained the negative stipulation restraining the franchisee to “
manufacture, bottle, sell, deal or otherwise be concerned with the products, beverages of any other brands,
or trademarks/ trade names during subsistence of this agreement including the period of one years notice”. It
was held that the negative stipulation was intended to promote the trade. Moreover, operation of the
stipulation was confined only to subsistence of the agreement and not after termination thereof. Hence,
stipulation could not be regarded as in restraint of trade. It was observed by the Supreme Court ‘There is a
growing trend to regulate distribution of goods and services through franchise agreements providing for
grant of franchise by the franchisor on certain terms and conditions to the franchisee. Such agreements often
incorporate a condition that the franchisee shall not deal with competing goods. Such a condition restricting
the right of the franchisee to deal with competing goods is for facilitating the distribution of the goods of the
franchisor and it cannot be regarded as in restraint of trade.’
In the case of V.V. Sivaram and others v. FOSECO India Limited, an employee was restrained from
using secrets and confidential information, which he gained during job, even after moving out of the job.
The employee had access to confidential information pertaining to several products including the patent
‘Turbostop’. He left under voluntary retirement scheme. Injunction restraining him from manufacturing and
marketing a product similar to ‘Turbostop’ was held to be not violating Section 27.
It can be understood from the above judgments that although non-compete clauses in franchise agreements
are not seen as being in restraint of trade, they should not be excessively harsh or unreasonable in case of
which the court may refuse to enforce it in its entirety.
Thus, it can be concluded that the non- compete covenants are usually opposed to freedom of contract and
are likely to be easily charged as agreement in restraint of trade. The non-compete covenants are generally
considered to be valid during the time of employment though the Courts have been less willing to enforce
agreements relating to post-employment restraints on the employee. The fundamental principle is that an
agreement in restraint of trade is void to the extent of the restraint. It is for the courts to determine whether
the contract is reasonable, and the test is whether it is prejudicial or not to the public interest, since these
contracts are considered on grounds of public policy. This implies that the restraint must be reasonable in the
interests of both contracting parties and also in the interests of the public.
One of the few instances in which non-competition clauses will generally be enforceable is in the context of
the sale of a business, where the owners of the business will agree to a non-compete in exchange for
consideration for the goodwill associated with the business (for example, in a stock sale where the promoters
will sell their stock in the business to a buyer in exchange for consideration). To be enforceable, the non-
compete will need to be reasonably limited in time and scope, and consideration will need to be attributed to
the goodwill in the transaction, as evidenced in the documentation. Similarly, a non-compete clause in a
joint venture in which shareholders mutually agree not to compete with each other on certain terms and
conditions, which include time and geographic restrictions, will generally be enforceable in India.
DEFINITION OF EXCLUSIVE
AGREEMENT
“An agreement by which a firm undertakes to buy all that requires of a certain commodity from a single
seller and from no other source, or to sell its whole output of a certain commodity from a single buyer and to
no other generally falls within both the restraint of trade doctrine and the prohibition in article 81 ( ex article
85) of the European community treaty and section 2 of the competition act 1998.”
- ANSON
An exclusive agreement is a contract between two or more companies to maintain dealings only with each
other, only in their particular area of business. Or in other words we can say that sole right to sell product by
which a person or company is made sole agent for selling a product in a market.
Another business practice in vogue is that a producer or manufacturer likes to
market his goods through a sole agent or distributor and the latter agrees in turn not to deal with the goods of
any other manufacturer.
“ A producer agree to sell all his output to one consumer who, in turn, agrees not
to buy his requirements from any other source.”
As long as the negatine promise is nothing but an ordinary incident of or ancilliary to the positive
convenat. Ther
ILLUSRATIVES
i. If AB agrees to sell goods to CD, he stops himself from selling them to anybody else.
ii. An agreement by manufacture of dhotis to supply 1,36,000 pairs of certain description to the
defendant and not to sell goods of that kind to any other person for a fixed period.
TYPES OF EXCLUSIVE
AGREEMENT
A) Exclusive supply agreement
B) Exclusive distribution agreement
- Exclusive supply agreement:
This includes any agreement restricting in any manner the purchaser in the
course of his trade from acquiring or otherwise dealing in any 1goods other than those of the seller or any
person.
-Exclusive distribution agreement:
This includes any agreement to limit, restrict or withhold the output or
supply of any goods, or allocate any area or market for the disposal or sale of the goods.
Crux of An Exclusive Agreement
The most important feature in this kind of an agreement is that it stipulates that the companies involved do
not engage in business activities with other companies for a period of time as stipulated by the agreement.
Also, this stipulation is usually binding only on one of the parties. Vertical businesses are the commonest
examples of such situations, where the buyer agrees to purchase goods only from one particular seller. A
bilateral exclusivity agreement that puts equal restrictions on both parties involved, though possible, is a
rather rare occurrence.
