X sells the goodwill of his firm to Y and covenants that for five years he will not carry on a similar business within the same city. Under Section 27 of the Indian Contract Act, 1872 this restraint is:

The sale-of-goodwill exception under Section 27 of the Indian Contract Act saves an agreement by the seller of goodwill not to carry on a similar business, provided the restraint is reasonable having regard to the nature of the business. A five-year, city-limited restraint attaching to a genuine transfer of goodwill is treated as reasonable and enforceable. The buyer's protection and the seller's remuneration both rest on such a reasonable non-compete. A restraint going beyond reasonable limits, however wide in space or time, would fail.