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A grants B a normal commercial franchise to manufacture and sell goods under A's trademark. The…

A normal negative covenant against competing brands during a subsisting franchise promotes the commercial arrangement and is not on that account void under section 27.…

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A grants B a normal commercial franchise to manufacture and sell goods under A's trademark. The agreement is not oppressive or wholly one-sided, and requires B not to deal in competing brands only while the agreement subsists. Which statement is correct under the principle in Gujarat Bottling Co. Ltd. v. Coca Cola Co.?

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Answer and explanation

Correct answer B

A normal negative covenant against competing brands during a subsisting franchise promotes the commercial arrangement and is not on that account void under section 27. Gujarat Bottling distinguishes subsisting restrictions from post-termination restraints; it does not validate every oppressive or wholly one-sided covenant.

See section 27 of the Indian Contract Act, 1872.

Option feedback

Option A

A normal subsisting-franchise exclusivity covenant is not void merely as a restraint of trade.

Option B

On the stated normal franchise facts, this covenant is not an unlawful restraint of trade.

Option C

No fact establishing voidability at B's option is stated.

Option D

Exclusivity during the subsisting normal franchise does not itself make the consideration unlawful.

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