Nur Ali Dubash v Abdul Ali (1892): Calcutta High Court on difference between partial and total restrain of trade.

CASE NAME Nur Ali Dubash v Abdul Ali, (1892) ILR 19 Cal 765
COURT Before the High Court of Calcutta
DECIDED ON March 4, 1892
BENCH Justice Pigot  and Justice Macpherson
AUTHOR OF THE JUDGEMENT Justice PA Macpherson
ABSTRACT

In the present case, there was an agreement between parties with regards to restraint of trade. Restraint of trade is dealt under section 27 of the Indian Contract Act, 1872. Restraint of any lawful profession or business or trade of any kind is considered as void under law. However, with changing times, the courts have considered partial restraint of trade to be valid under the law if found to be reasonable.

According to the facts of the present case, the court found that the partial restraint observed in the agreement was not unreasonable and thus void.

AUTHOR OF THE BRIEF Aarsh Chokshi, Student at Gujarat National Law University.
KEYWORDS Section 27-Indian Contract Act, Partial Restraint of trade, Total Restraint of trade.

INTRODUCTION:

Section 27 of the Indian Contract Act, 1872, provides that any agreement which is done in the ‘restraint’ of any lawful profession, trade or business of any kind is void. The term ‘restraint’ is to be construed as either partial restraint or total restraint. Section 27 of the Contract Act also lays down an exception of Goodwill. This section, due to its relevant subject matter, has been dealt by the judiciary with great concern.

With the emerging form of business activities in the modern times, courts have recognized the difference between total restraint of trade and partial restraint of trade, with the latter being permissible if found to be reasonable. It is in clear terms held by the courts that partial restraint of trade is permissible if it affords fair protection of rights of the party in whose favor a contract is made. With changing times, it cannot be said that a reasonable restraint of trade is against the public interest.

BRIEF FACTS AND PROCEDURAL HISTORY:

  • Plaintiff is ghat serang or stevedores and defendants are dubashes at the port of Chittagong.
  • Due to the intense competition between the plaintiff and defendants, they (plaintiff and defendant no.1) entered into an agreement, whose effect was that it would absolutely restrain defendant no.1 (herein “the defendant”) from carrying on the business of dubash and partially restrain to carry on the business of stevedore.
  • The plaintiff tried to enforce the agreement for certain ship ‘Madagascar’ and defendant refused to act. The plaintiff sued the court for damages from the defendant.
  • The Munsif held the contract illegal under section 27 of Indian contracts act, but subordinate court set aside the order. This appeal is against the impugned order of the Subordinate court.

ISSUES BEFORE THE  BENCH:

  • Whether the agreement for the defendant to not to do services for anyone else in partial restraint of trade?
  • Whether partial restraint of trade, renders the contract illegal under section 27 of Indian contracts act, 1872?

ARGUMENTS OF THE DEFENDANTS:

  • The defendant contended that the contract was illegal under section 27 of Indian Contract Act.
  • They further argued that the ship for which the plaintiff claims damages was not ‘Madagascar’ but some other ship.

DECISION OF THE COURT:

  • The court held that the said agreement was in partial restraint of trade for business, which is void under law. The court has placed reliance upon Madhub Chunder Poramanick v. Rajcoomar Doss, where it was said that section 27 was intended not only to prevent total restraint from carrying business but also partial restraint.
  • The court held that even if stipulation of partial restraint is considered legal, the agreement was nevertheless void as it absolutely restrained defendant from carrying on the business of Dubash. (Section 24, ICA)

HELD: The High Court set aside the order of subordinate court and order of Munsif was restored.

 

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