1. Limitations on Freedom of Contract
Mr. Amit Guleria (Double Medalist; Gold and Silver)
Assistant Professor,
Dr. B.R. Ambedkar National Law University Sonepat
Email: amitdbranlu@gmail.com
2. Limitation on Freedom of Contract
Abstract: The following limitations on freedom of contract make an agreement void, therefore
non-enforceable before any court of law.
Sec. 26, ICA, 1872: Agreement in restraint of marriage, void.—Every agreement in restraint of
the marriage of any person, other than a minor, is void.
Under English Law, agreements which restrain marriage are discouraged as they are injurious to
the increase in population and the moral welfare of the citizens. Back in 1768, a precedent was set
by the Court of King’s Bench in Lowe v. Peers where the defendant had entered a promise under
seal to marry no one but the promisee, on penalty of paying her 1000 pounds within three months
of marrying anyone else.
The Court remarked-
“that it was not a promise to marry her, but not to marry anyone else, and yet she was under no
obligation to marry him.” The Court found the contract void as it was purely restrictive and carried
no promise to carry on either side.
3. The Contract Act was the first law to be placed in India which expressly made any such
agreement, which in its effect would result in restraining the liberty of either of the parties to
marry as per their wish, void.
The basic idea behind this statutory provision was to ensure that the citizens did not lose their
right to marry as per their choice, which is an essential part of a civil society having both personal
and social significance, due to some contractual obligation entered into at any point of time.
Exception Under Section 26
Section 26 of the Indian Contract Act, 1872 is a widely phrased provision with only one
significant exception. It does not hold void any agreement made in restraint, partial or absolute, of
the marriage of a minor. This exception is present as it is against public policy in general to marry
a minor and by exercising restraint on such acts, the agreement restraining such marriages can be
said to further public policy instead, therefore not void.
4. Examples:
Radha agrees with Rakesh, in return for some consideration, that she will not marry
to Mohan. This agreement is one in restraint of marriage and is thereby void.
Rupa’s father promises Rahul, that he won’t marry his daughter Rupa to anyone else
but him (Rahul) only , if only Rahul would pay a sum of Rs. 10,000/PM until their
marriage takes place. This is a void agreement, as it is in restraint of marriage of a
person of age.
In the matter of Lowe v. Peers (1768) [4 Burr. 2225 ; Wilmot, 364 set a
precedent in the law relating to restraint of marriage. In this case, the defendant
contended that if he marries any other person except the plaintiff, he would give
her 1000 pounds within three months of his marriage. It was held that such an
agreement is void.
5. In the recent case of Shrawan Kumar v. Nirmala, (On 04
Dec. 2012 Allahabad High Court) the petitioner filed a suit in
the Allahabad High Court asking the court for an injunction
on the defendant’s marriage to the other person. The plaintiff
contended that the defendant had promised to marry him,
and therefore her marriage with the other person should be
injuncted against. Pankaj Mithal, J. cited Section 26 of the
Indian Contract Act, 1872 while pronouncing his judgment,
whereby he dismissed the petition.
6. Sec. 27, ICA, 1872: Agreement in restraint of trade, void.—
Every agreement by which any one is restrained from exercising
a lawful profession, trade or business of any kind, is to that
extent void.
Section 27, ICA, 1872 provides that an agreement in restraint of
trade is void i.e. any agreement that debars one person from
starting or continuing his trade or profession, in return for some
consideration is void. Therefore, any agreement stopping a
person from trading in the manner he likes or wherever he likes,
on an agreement with other party, in which the other party
benefits from him stopping his trade or profession, will be called
an agreement in restraint of trade.
7. Example:
Mr. Ajay has a business of stationary and books in and around Sonepat. Mr.
Shubham also planned to start a business of similar nature in the same locality.
Fearing competition in the market, Mr. Ajay enters into an agreement with Mr.
Shubham not to start the similar business in that locality for 10 years, and as a
consideration promises to pay Rs. 20,000/- per month. Some time later Mr. Ajay
fails to pay the sum agreed upon i.e. Rs. 20,000/- per month. Mr. Shubham tries to
take the matter in a court of law. The agreement being void, Mr. Shubham has no
case under Section 27 of ICA, 1872.
8. In Madhub Chunder v. Rajcoomar Doss, (1874) 14 BLR 76, the parties were
businessmen in Calcutta. The defendant, Rajcoomar suffered loss due to the plaintiff’s
competition and entered into an agreement with the plaintiff that if he closed his business
there, he would pay him all the advances he had made to his workmen. When the
defendant failed to pay, the plaintiff filed a suit to recover the amount but failed to do so
because it was considered as an agreement in restraint of trade, therefore not enforceable
before the court of law.
In Percept D’Mark India Pvt. Ltd. V. Zaheer Khan AIR 2006 SC 3426, an agreement
was entered by the famous cricketer Zaheer Khan (defendant in the present case) with a
sports management agency for marketing and managing Zaheer Khan’s endorsements.
The contract provided that even after its termination, if Zaheer Khan received an offer
from a third party then he would have to first submit that offer to the Agency (plaintiff in
this case), which could then choose to match that offer. The Supreme Court of India held
that it constitutes ‘restraint’ since it imposed a restriction on the ability of the cricketer
(Zaheer Khan) to contract with a third party and since it operated beyond the term of the
agreement, it was held void.
9. Exception 1.—Saving of agreement not to carry on business of
which good-will is sold.— One who sells the good-will 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 good-will 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 deals with a class of cases which had a leading part in
causing the old rule against agreements in restraint of trade. The
question in England is always whether the restraint objected to is
reasonable with reference to the particular case and not manifestly
injurious to the public interest. (Nordenfelt v. Maxim-Nordenfelt
Guns and Ammunition Co., (1894) AC 535.
10. Sec. 28, ICA, 1872: Agreements in restraint of legal proceedings, void.—
Every agreement,—
(a) by which any party thereto is restricted absolutely from enforcing his rights
under or in respect of any contract, by the usual legal proceedings in the ordinary
tribunals, or which limits the time within which he may thus enforce his rights;
or
(b) which extinguishes the rights of any party thereto, or discharges any party
thereto, from any liability, under or in respect of any contract on the expiry of a
specified period so as to restrict any party from enforcing his rights,
is void to that extent.
11. Exception 1.—Saving of contract to refer to arbitration dispute that may
arise.—This section shall not render illegal a contract, by which two or more
persons agree that any dispute which may arise between them in respect of any
subject or class of subjects shall be referred to arbitration, and that only the
amount awarded in such arbitration shall be recoverable in respect of the dispute
so referred.
Exception 2.—Saving of contract to refer questions that have already
arisen.—Nor shall this section render illegal any contract in writing, by which
two or more persons agree to refer to arbitration any question between them
which has already arisen, or affect any provision of any law in force for the time
being as to references to arbitration4.
12. Exception 3.—Saving of a guarantee agreement of a bank or a financial
institution.—This section shall not render illegal a contract in writing by which
any bank or financial institution stipulate a term in a guarantee or any agreement
making a provision for guarantee for extinguishment of the rights or discharge of
any party thereto from any liability under or in respect of such guarantee or
agreement on the expiry of a specified period which is not less than one year from
the date of occurring or non-occurring of a specified event for extinguishment or
discharge of such party from the said liability.
13. Explanation.—(i) In Exception 3, the expression “bank” means—
(a) a “banking company” as defined in clause (c) of section 5 of the Banking Regulation Act,
1949(10 of 1949);
(b) “a corresponding new bank” as defined in clause (da) of section 5 of the Banking Regulation
Act, 1949(10 of 1949);
(c) “State Bank of India” constituted under section 3 of the State Bank of India Act, 1955 (23 of
1955);
(d) “a subsidiary bank” as defined in clause (k) of section 2 of the State Bank of India (Subsidiary
Banks) Act, 1959(38 of 1959);
(e) “a Regional Rural Bank” established under section 3 of the Regional Rural Banks Act,
1976(21 of 1976);
(f) “a Co-operative Bank” as defined in clause (cci) of section 5 of the Banking Regulation Act,
1949(10 of 1949);
(g) “a multi-State co-operative bank” as defined in clause (cciiia) of section 5 of the Banking
Regulation Act, 1949(10 of 1949); and
(ii) In Exception 3, the expression “a financial institution” means any public financial institution
within the meaning of section 4A of the Companies Act, 1956(1 of 1956).]
14. Sec. 29, ICA, 1872: Agreements void for uncertainty.— Agreements, the
meaning of which is not certain, or capable of being made certain, are void.
The agreement the terms and conditions of which are not certain, render an
agreement void.
Ambiguous agreements are void, in nature, therefore not enforceable in the court
of law.
Illustration:
A agrees to sell to B “a hundred tons of oil”. There is nothing whatever to show
what kind of oil was intended. The agreement is void for uncertainty.
A agrees to sell to B “my white horse for rupees five hundred or rupees one
thousand”. There is nothing to show which of the two prices was to be given. The
agreement is void.
