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IAI Actuarial Core Principles · Business Management · Sources of Indian law and valid contracts

Ramesh agrees to pay Neha Rs 50,000 if she does not practise as a consulting actuary anywhere in India for five years after leaving his firm. Neha later practises and Ramesh sues to enforce the restraint. Which is the best application of Indian contract law?

The restraint is void. Section 27 of the Indian Contract Act voids agreements restraining a lawful profession, with a narrow exception for sale of goodwill. A post-employment restriction on Neha is not within it, so consideration, duration or notice cannot rescue it.

  1. AThe restraint is valid because five years is reasonable under all circumstances
  2. BThe restraint is valid because it is supported by consideration of Rs 50,000
  3. CThe restraint is voidable at Neha's option only
  4. DThe agreement in restraint of trade is void to that extent under the Act, subject only to narrow exceptions such as sale of goodwill, which do not apply hereCorrect
  5. The restraint is enforceable if Neha was given notice

Explanation

Section 27 of the Indian Contract Act makes an agreement in restraint of a lawful profession void, except for the sale of goodwill exception. Post-termination restraints on an employee are not within that exception, and reasonableness is not a test. Consideration or notice does not cure the voidness.

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