Section 27 of the Act mentions only one exception that attests to the restriction of trade, i.e. the sale of good s or goodie. Another exception is in the Partnership Act. Section 27 of the Indian Contract Act declares all agreements in trade restrictions, not entered into by tanto, with the sole exception is the sale of goodwill. Nevertheless, it is important to understand that these agreements are non-abundant and not illegal. In other words, these agreements are not illegal, they are simply not enforceable in court if one of the parties does not fulfill its part of the agreement. Unlike the common law, partial agreements to restrict trade or to appropriately limit contract law are also not valid. Indian law is therefore very clear and strict on this point, such a non-competition agreement is not binding on the parties and this is not the case. Using the concept of void ab initio, it demonstrated, in the context of such agreements, that it had not taken this non-competition clause into account in the agreements. Indian courts have also consistently refused to impose non-competition prohibitions after termination of employment contracts, because of the inadmissibility of “trade restrictions” under Section 27 of the Indian Contract Act-1872, and have found them unhinged and contrary to public policy because they may deprive a person of his or her fundamental right to live.
Section 27 of the Indian Contract Act states that an agreement excluding anyone from the exercise of a legitimate profession, trade or undertaking is in this respect non-acute. The doctrine of trade restriction was reconsidered by the House of Lords in Esso Petroleum Co. vs. Harper`s Garage Ltd. In this case, their masters cracked down on an exclusive trade agreement because it spanned a 21-year period, which was inappropriate. A five-year period would have been deemed appropriate. They said that the doctrine applied only if a man agreed to renounce an existing freedom he had. In this case, two similar contractors have agreed in partnership that only one of their plants will operate at the same time and that the profits be distributed among them. This deduction has been validated.
In the foreign judicial system, which is subject to certain reasonable restrictions and limitations, non-competition agreements are deemed applicable to an appropriate extent. For example, in HRX Holdings Pty Ltd Vs Pearson (2012) FCA 161, the Federal Court of Australia upheld a post-employment restriction preventing an officer from competing with his former employer for two years.