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CS Professional · CSR and Social Governance · Partnership Firms

Dev and Esha are partners in a trading firm. Dev has agreed that, while a partner, he will not carry on any business other than that of the firm. Dev later argues that the clause is void because Indian contract law generally treats agreements in restraint of trade as void. What is the position under the Partnership Act?

The clause is valid. The Partnership Act allows the partners' contract to provide, despite the Contract Act's restraint-of-trade rule, that a partner shall not carry on any business other than that of the firm while he is a partner.

  1. AThe clause is void because it restrains Dev's trade
  2. BThe clause is valid only if Esha pays Dev extra remuneration
  3. CThe clause is valid only if registered with the Registrar of Firms
  4. DThe clause may validly provide that a partner shall not carry on any business other than that of the firm while he is a partnerCorrect

Explanation

The Act says that, notwithstanding the Contract Act's restraint-of-trade provision, partners' contracts may bar a partner from carrying on other business while he is a partner. The clause is therefore valid. No extra payment or registration is required by the text.

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