Under Section 27 of the Indian Contract Act, 1872, which

Solution

Section 27 declares void "every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, to that extent." However, Exception 1provides a critical saving clause: "One who sells the goodwill 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 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 the business." This exception protects legitimate business sales by allowing reasonable restraints. In Madhub Chander v. Raj Coomar Dass (1874), an absolute restraint was held void, but subsequent cases have recognized that sale of goodwill creates a legitimate basis for restraint within reasonable geographic and temporal limits. The restraint must be: (a) necessary to protect the business sold; (b) limited to specified local boundaries; (c) conditional on the buyer or successor continuing the business.