Contract Act 1872 Section 28
Contract Act 1872 Section 28 explains the effect of agreements in restraint of trade and their enforceability.
Contract Act Section 28 deals with agreements that restrict a person's freedom to trade or work. It generally declares such agreements void, except in specific cases where the restraint is reasonable. This section is crucial for maintaining fair competition and protecting individual liberty in commercial activities.
Understanding Section 28 helps businesses and individuals avoid entering into contracts that unlawfully limit trade or employment opportunities. It ensures that contracts promote healthy competition and do not impose unfair restrictions on parties involved.
Contract Act Section 28 – Exact Provision
This provision means that any contract clause preventing a person from practicing their profession or business is generally invalid. However, exceptions exist where the restraint is reasonable in terms of time, place, or scope, such as in sale of goodwill or partnership agreements. The law aims to balance freedom of trade with legitimate business interests.
Declares agreements restraining lawful trade void.
Allows exceptions if restraint is reasonable.
Protects freedom to work and compete.
Applies to professions, trades, and businesses.
Explanation of Contract Act Section 28
This section states that contracts restricting lawful trade or profession are void unless reasonable exceptions apply.
It prohibits agreements that stop a person from practicing their trade or business.
Affects employers, employees, partners, and business buyers.
Legal requirements include reasonableness in duration and geographic scope.
Triggered when a contract includes a restraint clause.
Unreasonable restraints render the contract or clause void.
Purpose and Rationale of Contract Act Section 28
The section protects individual freedom to engage in lawful business and prevents unfair monopolies. It ensures contracts do not impose undue restrictions on trade.
Protects contractual fairness by disallowing harsh restraints.
Ensures free consent without coercion to unfair terms.
Prevents fraud or misuse of bargaining power.
Maintains certainty and competition in the market.
When Contract Act Section 28 Applies
This section applies when contracts include clauses restricting trade or profession. It is invoked by parties affected by such restraints.
Conditions: restraint must be in contract terms.
Invoked by restrained party or third parties.
Affects employment, partnership, business sale contracts.
Scope limited to lawful professions and trades.
Exceptions for reasonable restraints in goodwill sales.
Legal Effect of Contract Act Section 28
Section 28 renders agreements restraining trade void unless the restraint is reasonable. It affects the enforceability of such contract clauses and protects parties from unfair restrictions. It complements Sections 10–30 by ensuring free consent and lawful object in contracts.
Restraint clauses generally void and unenforceable.
Reasonable exceptions may be upheld by courts.
Supports validity of contracts with lawful, fair terms.
Nature of Rights and Obligations under Contract Act Section 28
The section creates a right to engage freely in trade and imposes an obligation not to enforce unreasonable restraints. Duties are mandatory to protect trade freedom. Non-performance of this right by enforcing void restraints may lead to contract invalidation.
Right to freedom of profession and business.
Obligation on parties not to impose unlawful restraints.
Mandatory protection against unfair trade restrictions.
Voidability of contracts with unreasonable restraint clauses.
Stage of Transaction Where Contract Act Section 28 Applies
Section 28 is relevant during contract formation and enforcement stages, especially when restraint clauses are included or challenged.
Pre-contract: negotiation of restraint terms.
Formation: inclusion of restraint clauses.
Performance: enforcement of restraint obligations.
Breach: challenge to restraint enforcement.
Remedies: voiding or modifying restraint clauses.
Remedies and Legal Consequences under Contract Act Section 28
Parties restrained unlawfully can seek to have restraint clauses declared void. Courts may refuse to enforce such clauses, allowing free trade. Remedies include injunction denial, damages for wrongful enforcement, or contract rescission.
Right to sue for declaration of void restraint.
Damages for unlawful enforcement attempts.
Specific performance generally denied for restraint clauses.
Contracts may be void or severable.
Example of Contract Act Section 28 in Practical Use
Person X sells their business to Person Y and agrees not to start a similar business within 10 km for 5 years. If X tries to open a competing shop after 6 years, Y cannot enforce restraint as it is reasonable in time and area. However, if X tries to enforce a 20-year restraint, courts may declare it void for being unreasonable.
Restraint must be reasonable in scope and duration.
Unreasonable restraints are unenforceable.
Historical Background of Contract Act Section 28
This section was introduced to prevent oppressive trade restrictions common in early commercial contracts. Courts historically struck down harsh restraints to promote free trade. Amendments clarified exceptions for goodwill sales and partnership agreements.
Created to protect trade freedom from unfair contracts.
Courts evolved tests for reasonableness of restraint.
Amendments refined scope and exceptions.
Modern Relevance of Contract Act Section 28
In 2026, Section 28 remains vital for regulating non-compete clauses in employment and business sales. It applies to digital contracts and e-commerce, ensuring fair competition online. Modern disputes often involve balancing business interests with individual trade freedom.
Applies to digital and online business agreements.
Regulates non-compete clauses in employment contracts.
Ensures fair competition in e-commerce.
Related Sections
Contract Act Section 2 – Definitions of contract terms.
Contract Act Section 10 – Requirements of a valid contract.
Contract Act Section 23 – Lawful consideration and object.
Contract Act Section 27 – Agreements in restraint of legal proceedings.
IPC Section 415 – Cheating, relevant where consent is obtained by deception.
Evidence Act Section 101 – Burden of proving contract terms.
Case References under Contract Act Section 28
- Niranjan Shankar Golikari v. Century Spg. & Mfg. Co. Ltd. (1967, AIR 1161)
– Established that restraint of trade clauses must be reasonable in time and area to be enforceable.
- Superintendence Company of India (P) Ltd. v. Krishan Murgai (1980, AIR 1710)
– Held that non-compete clauses in employment contracts are valid if reasonable and protect legitimate interests.
- R.G. Anand v. Deluxe Films (1978, AIR 1613)
– Affirmed that restraint of trade agreements are void unless reasonable and necessary for protection of goodwill.
Key Facts Summary for Contract Act Section 28
Section: 28
Title: Restraint of Trade
Category: Validity, enforceability, void contracts
Applies To: Employers, employees, business buyers, partners
Transaction Stage: Contract formation, performance, breach
Legal Effect: Restraint clauses generally void unless reasonable
Related Remedies: Declaration of void, damages, refusal of injunction
Conclusion on Contract Act Section 28
Contract Act Section 28 plays a crucial role in safeguarding the freedom of individuals and businesses to engage in lawful trade and professions. By declaring agreements that impose unreasonable restraints void, it promotes fair competition and prevents monopolistic practices. This provision balances the interests of parties seeking to protect business goodwill with the public policy favoring free trade.
Understanding Section 28 is essential for drafting and enforcing contracts, especially those involving non-compete clauses or sale of business goodwill. It ensures that contractual restraints are reasonable in scope and duration, protecting parties from unfair limitations while upholding legitimate business interests. This section remains highly relevant in modern commercial and employment contexts.
FAQs on Contract Act Section 28
What does Contract Act Section 28 prohibit?
Section 28 prohibits agreements that restrain a person from exercising a lawful profession, trade, or business, declaring such agreements void unless the restraint is reasonable.
Are all restraint of trade agreements void under Section 28?
No, only unreasonable restraints are void. Reasonable restrictions related to sale of goodwill or partnership agreements may be enforceable.
Who can invoke Section 28?
Any party restrained by an agreement from carrying out lawful trade or profession can invoke Section 28 to challenge such restraint.
What factors determine if a restraint is reasonable?
Courts consider duration, geographic scope, and necessity to protect legitimate business interests when assessing reasonableness.
Does Section 28 apply to digital or online contracts?
Yes, Section 28 applies to all contracts, including digital and online agreements, ensuring fair competition in modern commerce.
