LCI Learning

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

Ashok. B.V. (Executive-Legal)     20 August 2010

costomer protection

Dear all,


One of my client ‘A’ intended to purchase the goods from ‘B’ at Rs.100 and is going to sell the same to ‘C’ at Rs.120/-. C is A’s customer.


My query


1. ‘A’ is having the fear that ‘B’ is going to meet directly ‘C’ and make the commitment to sell directly the same goods at cheaper rate.

2. Presently ‘C’ is not known person to B

3. A is intended to execute an agreement with B not to sell the goods directly to C

4. This type of agreement valid under law? If the answer is affirmative? What type of clauses A has to put ?


Kindly Advise it is very urgent




 3 Replies

Daksh (Student)     20 August 2010

Dear Mr.Ashok,

You have not indicated whether you have signed and executed any legal document in this regard and whether the same contains any "NEGATIVE COVENANT IN THIS REGARD"

Keeping in view it is only a question of estoppel if they can't stop you from doing business with C likewise you can't stop (in view of absence of any negative covenant in this regard). 

For yourclien't benefit I would like to suggest the following :


The parties to this Agreement agree and covenant that after execution of this agreement they wil not deal directly with each others already existing clients the list where is being annexed along with this agreement being Annexure -  ___ .

Best Regards


Basavaraj (Asst, Manager-Legal)     20 August 2010

Dear Ashok,

You have not clearly define that “Goods”. It is defends upon the goods and circumstances. However A cannot prevent B from selling goods others including C.


Exp: Now A is getting goods for cheaper rate @Rs.100/- from B, in that what would be the MRP of Goods. B is selling for Rs. 100 based trade understand that any sellers would sell their goods on cheaper rate. See rule 7 of MRTP Act for goods price.


It is common that if C comes to know that A purchased @ Rs.100/- and sold for @ Rs.120/-. C summarily could terminate the Agreement and could purchase the same from B or others, even if A mention or ad any clause as suggested by Mr.Daksh.


Simply business logic is that enter all business terms and make the agreement duration for at-least more than 5 years and don’t give agreement termination option to C. It is advisable that prevention is always better than cure, keep the termination option with A so that A could gain something at least during the agreement period.    


Don’t forget to mention the below clauses in agreement.

1.Exculisve basis between A & C

2. C shall not purchase the goods other than the affiliates of A

3. No termination during the tenure of this agreement.





Hemant Agarwal ( Mumbai : 9820174108)     20 August 2010

To.    Ashok :


You have not yet signed any agreement  as of now.

1.   A agreement is for "positive" performance of doing an Business.  
Hence any restrictions placed for "negative"  performance would be violating the purposes  of Contract Act.    There is always a Contract rescinding option open to either of the parties  and violating of such rights is bad agreement.



2.  However,  a  "MOU"  can be executed between "A" &  "B"    for doing  "positive" performace of selling "B" party  goods routed soley thru  "A" party only,  for so and so duration,  subject to specific amount of business quantum committment by  "A"  to "B".    MOU  may also contain  "positive"  provisions of  doing sole business in specific areas of districts,  i.e. sole-selling rights.


3.  The  "MOU"  may contain  a "positive"  performance clause stating that IF either parties violate the terms and conditions of the MOU,  the parties shall pay to the other a specific pre-determined amount of compensation.


There are many other parameters that are used typically in MOU, for such type of business activities.


Keep Smiling .... Hemant Agarwal

Leave a reply

Your are not logged in . Please login to post replies

Click here to Login / Register