What did the Court say about the right of first refusal?

It may operate during the contract, but extending it beyond expiry to block future deals is a restraint of trade and void under Section 27.

Does Section 27 allow post-termination restraints?

Generally no. Post-contract restraints are void unless they fit narrow statutory or judicial exceptions.

Who won in Percept D’Markr v. Zaheer Khan?

Zaheer Khan won. The appeal was dismissed; the clause restricting him after the contract ended was void.

Is a negative covenant valid during a contract?

Reasonable negative covenants can bind during the term. The problem here was the post-term restriction.

Percept D Markr v. Zaheer Khan

Percept D’Markr v. Zaheer Khan

(2006) 4 SCC 277 — Right of First Refusal • Restraint of Trade • Section 27 ICA

Supreme Court of India Contract • Endorsements ~7 min India

Author: Gulzar Hashmi • Published: 26 Oct 2025

Quick Summary

Percept managed endorsements for cricketer Zaheer Khan. Their contract had a right of first refusal (ROFR) that continued even after the term. Zaheer later signed with Adidas without offering Percept a chance to match. The Supreme Court held: ROFR can work during the contract, but post-termination restraints that block future deals are void under Section 27, Indian Contract Act as restraints of trade. Result: Zaheer won; appeal dismissed.

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Issues

Is the right of first refusal clause valid after the contract ends, or is it a restraint of trade under Section 27?
Was Clause 31(b) a negative covenant that unlawfully restricted Zaheer’s freedom to contract post term?

Rules

Section 27, ICA: Any agreement that restrains anyone from exercising a lawful profession, trade, or business is void (save narrow exceptions).
Negative Covenants: May bind during the contract if they are reasonable and necessary to the engagement, but not to control post-contract freedom to trade.
ROFR Scope: A ROFR tied to the term can be acceptable; extending it beyond the term to block future negotiations becomes a restraint.

Putting a restriction on someone’s freedom to enter contracts after expiry is generally void.

Facts — Timeline

Agreement → Refusal to Extend → New Deal → Suit

1 Nov 2000: Percept and Zaheer sign endorsement agreement for 3 years (starting 30 Oct 2000).

Clause 31: ROFR—Zaheer must share terms of outside offers so Percept can match; wording extended beyond term.

10 Sep 2003: Zaheer declines Percept’s proposal to extend for 5 more years.

Post-term: Zaheer signs an Adidas endorsement without routing through Percept.

Dispute: Percept claims breach of ROFR; Zaheer says post-term restraint is void under S.27.

Timeline of Percept D’Markr v. Zaheer Khan: contract, ROFR, refusal to extend, Adidas deal, litigation

Arguments (Appellant vs Respondent)

Appellant (Percept)

ROFR protects investment in managing and promoting the athlete.
Zaheer was obliged to disclose and allow matching even after expiry.
Clause is a normal industry practice, not an unlawful restraint.

Respondent (Zaheer Khan)

Post-term ROFR restricts future freedom to contract—void under Section 27.
Negative covenant cannot control him after the contract ended.
He could sign with Adidas without first approaching Percept.

Judgment

For Zaheer Khan

The Supreme Court held that while the contract subsists, a restriction like ROFR can operate. After termination, a clause that ties the athlete’s hands and blocks new endorsements is a restraint of trade and is void under Section 27. The appeal was dismissed.

Judgment concept image: post-contract restraint struck down as void under Section 27

Ratio (Legal Principle)

Post-contract restraints that restrict future trade are void. A negative covenant like ROFR may be valid during the term but cannot extend beyond to curb a person’s right to enter new contracts.

Why It Matters

Safeguards talent’s freedom to sign new deals after a contract ends.
Guides drafting: keep ROFRs strictly within the term, not beyond.
Clarifies the strong public policy in India against restraints of trade.

Key Takeaways

Section 27 makes post-term restraints generally void.
ROFR clauses should not bind parties after expiry.
Negative covenants must be reasonable and limited to the contract period.
Athletes and celebrities keep freedom to negotiate fresh endorsements post term.

Mnemonic + 3-Step Hook

Mnemonic: “TERM OK, AFTER NO.”

Term: Clauses like ROFR can work during the agreement.
After: Post-term restraints clash with Section 27.
Outcome: Post-term ROFR = void; party free to sign anew.

IRAC Outline

Issue

Does the ROFR continuing beyond the term violate Section 27 as a restraint of trade?

Rule

Agreements restraining trade are void; reasonable negative covenants are confined to the subsistence of the contract.

Application

ROFR here operated after expiry, stopping Zaheer from new endorsements unless Percept matched—this curbed future trade.

Conclusion

Post-term ROFR is void under Section 27; Zaheer is free to contract; appeal dismissed.

Glossary

Right of First Refusal (ROFR): A promise to offer the existing counterparty a chance to match any third-party offer.
Restraint of Trade: A clause that limits a person’s freedom to work or do business; generally void in India.
Negative Covenant: A promise not to do something (e.g., not to sign with others during the term).