THE INDIAN CONTRACT

ACT (ICA), 1872

 Contract Management
Two Important Clauses to be included
Force Majeure Clause
Arbitration Clause
[As per Arbitration (Amendment) Act, 2015 (w.e.f. 1.1.2016)
Arbitral award to be given within 12 months and hearings to
be on day to day basis.
If the Arbitrator gives the award in 6 months, he may be paid an
additional remuneration]
 Force Majeure Clause does not cover:
Difficulty of Performance
Strikes and Lock outs in the establishment
Default of a Third party
Commercial Impossibility
 INDIGO Ticket- A good Example of Force
Majeure Clause
Terms and Conditions
This booking is governed by IndiGo's Fare rules and
conditions of carriage that are Flight Delays, Reschedule or
Cancellations.
At any time after a Booking has been made, we may change
our schedules and/or cancel, terminate, divert, postpone,
reschedule or delay any flight where we reasonably
consider this to be justified by circumstances beyond our
control, or for reasons of safety, or for commercial reasons.
 INDIGO Ticket -- Contd
Circumstances beyond IndiGos control can
include, without limitation, weather, air
traffic control, mechanical failures, acts of
terrorism, acts of nature, force majeure,
strikes, riots, wars, hostilities, disturbances,
governmental regulations, orders, demands
or requirements, shortages of critical
manpower, parts or materials, labour
unrest, etc.
Air Vistara: Additional Grounds
The following are not considered within the
airline control:
Bandh (i.e, sudden strike call resulting in closure of all
services including transport, not allowing even personal
transport, etc.); Bird Strike; Operating Crew unable to
reach due to congestion on roads; Security congestion at
airport terminals; Delays in departure due to Offloading
due Gate No-shows; Consequential delay due to late arrival
of the incoming aircraft due to congestion.
 What is a contract?
Section 2(h)
An agreement enforceable by law is a
contract.
Thus,
Contract = Agreement +
Enforceability at Law
 Agreement?
Section 2(e)

Promise/(s) Promise/(s)
= Agreement
(in exchange for)
 Promise?
Section 2(b)
Promise = Proposal/Offer + Acceptance

Proposal?
Section 2(a)
Expression of willingness
With a view to seek the assent of the
other
Thus, mere expression of willingness doesnt
constitute offer/proposal.
 Acceptance
Section 2(b)
Giving of assent to the proposal.
Enforceability by Law
Agreements which are not enforceable:
Illegal/unlawful agreements, e.g., to
smuggle/to kill
Social Agreements (Balfour vs. Balfour)
 Agreements Declared Void under
ICA
e.g.
Agreement with or by a minor
Agreement in restraint of trade
Marriage brokerage contract
Wagering/Betting Agreements
 Kinds of Contracts
From the point of view of
Enforceability
Void
Voidable
Valid
 Void Agreement vs. Void Contract
Void Agreement
i.e., void-ab-initio i.e. unenforceable from the
very beginning
Void Contract
i.e., Becomes void at a later date
Voidable
i.e., void + able
i.e., capable of being declared void
(unenforceable) at the option of one of the
parties to the contract but not at the option of
the other.
 Valid Contract
Section 10
To be a valid contract, it must satisfy the
following:
1. Offer and Acceptance
2. Consensus-ad-idem (Meeting of minds)
i.e., persons must agree to the same thing
in the same sense and at the same time.
3. Intention to create legal relationship as
against social relationship or
illegal/unlawful relationship.
4. Free and Genuine Consent, i.e., free from
coercion
undue influence
fraud
misrepresentation
mistake
5. Parties competent to contract
6. Lawful consideration and object, i.e.,
something in return and that must be
lawful.
 Valid Contract
(Object and Consideration usually overlap.
However, there may be difference at times e.g.,
object may be to kill competition and for that
purpose in view, a senior manager of the
competitor may be paid a certain amount to
give unrealistically high quotation.)
Here: Object is to kill competition.
Consideration is :
(i) payment of money
(ii) giving high quotations
 Valid Contract
7. Agreement not declared void.
8. Certainty of Meaning: e.g. sale and
purchase of 100 tonnes of oil. But which
oil? Thus, agreement being uncertain not
valid.
But, if the seller deals only in one kind of
oil and one variety, then it shall be valid
since it is capable of being made certain.
 Valid Contract
9. Possibility of performance: Impossibility
whether known to the parties or not,
renders a contract invalid.
10.Necessary legal formalities: e.g. sale-deed
of immovable property.
 Void vs. Illegal Agreements
Void Agreement
Unenforceable
Not Punishable
Collateral transactions unaffected.
Illegal Agreement
Unenforceable
Punishable (fine or imprisonment or both)
Collateral transactions are also void.
 Specific and General Offer
Specific Offer:
made to a specified person or a group of
persons.
can be accepted only by the person to whom
made.
Thus, if offer is addressed to A, B cannot
accept it.
Case Law: Boulton vs. Jones
 General Offer:
which is not a specific offer.
made to the world at large.
can be accepted by anyone by complying
with the terms of the offer.
Case Law: Carlill vs. Carbolic Smoke Ball Co.
 Offer vs. Invitation to offer
Illustrations of Invitation to Offer:
Prospectus issued by a college.
Prospectus issued by a company.
Invitation of bids in an auction.
Price-catalogues, price lists, quotations
Display of goods with a price-tag in a shop
window/or in a store.
 Special Terms in a Contract
Examples: Dry cleaners receipt, couriers
receipt, shipment receipt, insurance policy,
etc.
Binding if communicated or attention
drawn to the fact that there are certain
special terms and conditions.
Not binding if attention is not drawn and the
other party not aware of.
 Express and Implied Contract
Express contract: i.e, where terms of
the contract are stated in words-
spoken or written.
Implied Contract: i.e, where terms of a
contract may be inferred from conduct
of the parties or circumstances of the
case.
 Cross Offers & Counter Offers
Cross Offers
Identical offers cross each other and none of
the parties is aware of the same. Doesnt result
in a contract unless one of them is accepted.

Counter Offer
Instead of accepting an offer, the offeree makes
a counter offer, i.e., accepts the same subject to
certain conditions or qualification.
 Contracts through Post/E-Mail
Communication of Offer
is complete when the offeree has the knowledge of
the same.
Same rule applies in case of general offer
Case Law: Lalman Shukla Vs. Gauri Dutt
Communication of Acceptance
It has two aspects, viz.,
As against the proposer
As against the acceptor
As against the proposer
Communication is complete as soon as a duly
addressed letter of acceptance/e-mail is put
into the course of transmission.
Whether the same reaches the proposer or not.
As against the acceptor
Communication is complete only when the
proposer has received the letter/e-mail and
learnt the contents thereof.
 Communication of Revocation
Communication of revocation (of offer or
acceptance) is complete:
As against the person who makes it when it
is put into the course of transmission.
As against the person to whom it is made,
when it comes to his knowledge.
 Comparing offer to a train of
gunpowder and acceptance to a lighted
match stick How far correct?
William Ansons observation though valid in
the English context doesnt hold good in
India since in India acceptance is revocable.
SERVICE AGREEMENTS Legal position
 Capacity to Contract
Section 11
Only a person:
who is of the age of majority
of sound mind, and
not forbidden under any other law
 Minor
Who is a Minor?
Already discussed.
What happens to a contract with or by a
minor?
Contract is void-ab-initio, i.e., neither the
other party nor the minor can enforce.
Case law : Mohiri Bibi vs. Dharmdas Ghose.
Minor cannot be asked to refund the
benefits received.
However,
Minor can be a promisee/beneficiary.
Minor cannot ratify even after attaining
majority.
What about a situation where minor
represents to be of the age of majority?
 Contract still void
If benefits received can be traced in the
same or altered form, Minor liable to
restore.
Minor liable for necessaries supplied to him
or any loan for necessaries to him or to any
of his dependants.
However, only properties of the minor, if any
shall be liable.
Case law : Nash vs. Inman.
 Mental Incompetence
Idiots
Lunatics
Intoxicated persons
Contract void-ab-initio except for
necessaries as in the case of Minor.
 Section 12
Person usually of unsound mind but
occasionally of sound mind can make a
contract when of sound mind (Onus on the
other party)
Person usually of sound mind but
occasionally of unsound mind cannot make
a contract when of unsound mind (Onus on
the person claiming to be of unsound mind)
 Free Consent
Coercion (Sections 15 and 19)
Committing or threatening to commit an
act forbidden under IPC
Unlawfully detaining the properties of
another
Contract voidable at the option of the
aggrieved party.
Benefits received to be returned.
Undue Influence
One party is in a position to dominate
the will of the other.
Uses that dominance to secure
undue/unfair contractual advantage
 Free ConsentContd
In some relationships, it is
presumed, e.g., Parent and Child;
Spiritual Advisor and Disciple;
Trustee and Beneficiary; Doctor
and Patient; Lawyer and Client.
 Fraud (Section 17)
Active misrepresentation of a material fact
Active concealment of a material fact
A promise made without any intention of
performing it
Any other act fitted to deceive
Any such act or omission which the law
specifically declares to be fraudulent
 Fraud
Contract voidable at the option of the
party defrauded.
Claim for damages.
However, relief available only if party
actually defrauded.
A fraud that does not defraud is no fraud.
Case of defective cannon
 Misrepresentation
Contract rendered voidable.
Damages cannot be claimed.
 Mistake
Of Law
Of Fact
Mistake of Indian Law doesnt render a
contract void or voidable.
Ignorance of law is no excuse
Mistake of foreign Law to be treated as
mistake of fact.
 Mistake of Fact
Unilateral
- does not render contract void except
where induced by fraud
Case Law: Cundy vs. Lindsey
Bilateral
- absence of consent contract is void-ab-
initio
Case Law: Henkel vs. Pape (30 Rifles)
 Consideration - Meaning
Something in return
Section 2(d)
When at the desire of the promisor, the
promisee or any other person has done or
abstained from doing, or does or abstains
from doing, or promises to do or promises
to abstain from doing something, such act
or abstinence or promise is called a
consideration for the promise.
 Consideration - Rules
Past, present or future
Must move at the desire of the
promisor
May move from promisee or any other
person
Need not be adequate but must have
value in the eyes of law
 No Consideration, No Contract
Exceptions
(1)(a) Natural love and affection
(b)Between parties in a near relation
(c) Written
(d)Registered
(2)(a) Promise to compensate
(b) Voluntary act which promisor was
legally bound to do
 No Consideration, No Contract
(3) (a) Written promise
(b) to pay time-barred debt.
(4) Bailment
(5) Agency
(6) Gift
 Breach of contract
Both parties are promisors as well as
promisees
If any of the promisors refuses or fails
to perform, he is said to be guilty of
breach of contract.
 Anticipatory Breach
Breach before time for performance arrives
Promisee may proceed:
(a) As soon as breach is committed; or
(b)Wait till the time of performance arrives
Remedies
(1)Suit for injunction Brook Bond Ltd. vs.
Vijay Mallya
(2)Claim for damages
 Actual Breach
(Refusal or failure when time for
performance is due, or
During performance.
Remedies
Right of Rescission
Claim for damages
Suit for specific Performance
Suit for Injunction
Quantum Meruit
Remedies for Breach of Contract

Claim for Damages

Damages
Damages
U/S Section 74
U/S Section Special
73 Damages
Only damages (No claim for
naturally flowing consequential loss Pre-fixed
from breach unless in the
(Ordinary Contemplation Damages
Damages) of the parties
(Hedley v. Baxendale)

Exemplary Nominal Penalty

Damages Damages
Liquidated Damages
(What can be recovered
is actual loss or
amount prefixed,
whichever is less)
 Ordinary Damages
Measure of ordinary damages is :
The difference between the market price
and the contract price, i.e,
Market price-Contract Price = Ordinary Damages
Any change in price subsequent to the date
of breach is not to be taken into account
No claim for any Remote Loss or
Consequential Loss
 Special Damages
Special damages not directly resulting from
the breach, e.g., Loss of Profit
Special damages are not recoverable unless
the same were in the contemplation of the
parties at the time of making the contract
Case: Hadley vs. Baxendale
 Exemplary/Punitive/Vindictive Damages

Such damages have been awarded in cases

like:
(a) for breach of promise to marry
(b) for wrongful dishonour of a cheque by a
bank
The measure of damages in case of (a) is
dependent on the severity of the shock to the
sentiments of the promisee and in case of (b)
the rule is smaller the amount of the cheque,
larger shall be the amount of damages
 Nominal Damages
Nominal damages means : damages in name
only.
Such damages are awarded where the
promisee suffers no monetary loss
Such damages are awarded at the discretion
of the court
 Liquidated Damages vis--vis Penalty

Both are pre-fixed in the contract itself

If the specified sum represents a fair and genuine pre-
estimate of the likely loss due to breach, it is called
Liquidated Damages.
But, if the sum fixed is disproportionate to the damages
likely to occur, it is deemed to be a Penalty.
In India, what may be recovered, in the event of breach is :
Lesser of the two:
1. The amount of Penalty
2. The amount of Actual Loss
Stipulation for Interest
A stipulation for interest, in case of default, for the
period of default is not a penalty, if the interest is
reasonable
A stipulation for increased interest from the date of
default shall be a stipulation by way of Penalty.
Compond interest: Not Penalty, if stipulated in the
Agreement
Forfeiture of Earnest Money or Security Deposit
Resolution of Disputes through
Arbitration
Must be in writing
As per the Arbitration and
Conciliation Act, 1996, no separate
agreement is required; a clause to the
effect that in case of dispute, matter
shall be referred to Arbitration is
sufficient.
 Even, the word Arbitration is not
required to be specifically mentioned-
[Malikarjun Vs. Gulbarga Univ. AIR
2004 SC 716; Punjab State Vs. Dina
Nath AIR 2007 SC 2157].
NOTE: As per Section 5 of the Arbitration
and Conciliation Act, 1996, provisions of
the Arbitration and Conciliation Act,
1996 are overriding.
In case of reference to Arbitration in the
contract, no party is allowed to move the
Court. Matter must be referred to
Arbitrator(s).
 Terms of Arbitration
Parties are free to decide:
the manner of appointment
The language
Place of arbitration etc.
In the case of Pricol Ltd. v. Johnson Controls
Enterprises Ltd. (2014), the sole arbitrator
was to be appointed mutually but in case of
disagreement by the Singapore
International Arbitration Centre (SIAC) for
proceedings to take place in Singapore.
 Since the parties could not agree Johnson
moved the SIAC to appoint the arbitrator to
which Pricol did not agree and moved the
Supreme Court for appointment of
arbitrator.
Supreme Court upheld the appointment of
Arbitrator by SIAC being in accordance with
the arbitration agreement.
Number of Arbitrators (Section 10):
Parties are free to determine
However, the number should not be
an even number.
Where the parties do not fix any
number, reference shall be to a sole
Arbitrator
 In arbitration with three arbitrators,
each party shall appoint one arbitrator,
and the two appointed arbitrators,
shall appoint the third arbitrator who
shall act as the presiding arbitrator.
 Where parties fail to appoint the sole
arbitrator or the two arbitrators fail to
appoint the Presiding Arbitrator within a
period of 30 days, the appointment shall be
made upon request of a party, by the chief
justice of the High Court or any person or
institution designated by him.
 In case of an international commercial
arbitration, the Chief Justice of India or the
person or institution designated by him may
appoint an arbitrator of a nationality
other than the nationalities of the parties
where the parties belong to different
nationalities
 Appointment of an Expert by
Arbitral Tribunal
Unless otherwise agreed by the parties, the
arbitral tribunal may
Appoint one or more expert to report to it on
specific issues to be determined by the
arbitral tribunal, and
Require a party to give the Expert any
relevant information,
Ask the Expert to be present during oral
hearings to clarify matters.
 Correction and Interpretation of
Award; Additional Award
Within 30 days of the Award, a party, with a
notice to the other party, may request the
Arbitral Tribunal to correct any clerical or
computational errors.

Likewise, if so agreed by the parties, a party,

with notice to the other party, may request
the arbitral tribunal to give an
interpretation of a specific point or part of
the award.
 Again, a party with notice to the other party
may request, within thirty days from the
receipt of the arbitral award, the arbitral
tribunal to make an additional arbitral
award as to claims presented in the
arbitral proceedings but omitted from
the arbitral award.
 If considered justified, the Arbitral Tribunal
will make the additional award within a
period of 60 days.
 Setting Aside an Arbitral Award
Application to the Court , within a period of
3 months,
only on the following grounds:
(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid

under the law ; or
 (iii)the party making the
application was not given proper
notice of the appointment of an
arbitrator or of the arbitral
proceedings or was otherwise
unable to present his case; or
 (iv) the arbitral award deals with a
dispute not contemplated by or
not falling within the terms of
the submission to arbitration, or it
contains decisions on matters
beyond the scope of the
submission to arbitration
 (v) the composition of the arbitral
tribunal or the arbitral procedure was
not in accordance with the agreement of
the parties.
Again, the Court will set aside the Award if the
Court finds that
the subject-matter of the dispute is not
capable of settlement by arbitration under
the law for the time being in force, or
the arbitral award is in conflict with the
 DISPUTES BEYOND JURISDICTION OF
ARBITRATION
Disputes involving criminal offences
Even in case of civil rights following matter
cannot be referred to arbitration:
(a) Matrimonial matters

(b) Industrial Disputes and Revenue matters

(Income Tax & other Tax matters).

(c) Testamentary matters under Succession Act.

 (d) Motor Vehicle Accident Claims.

(e) Matters under Indian Trust Act, Trusteeship

of Charitable Institutions, Public charity
matters.

(f) Determination of guardianship of wards.

(g) As per Section 24 of Indian Contract Act

matters relating to unlawful agreements
Enforcement of Arbitral Award
As per Section 36, an Arbitral award shall
be enforceable in the same manner as if
it were a decree of the Court.
 Enforcement of Certain Foreign
Awards
New York Convention Awards, 1960 and Geneva
Convention Awards, 1924
Regarding Enforcement of Foreign Award/Non-
enforcement, same provisions apply as are contained in the
Arbitration and Conciliation Act, 1996 except:
The award should have become Final in the
country in which it has been made;
The Award must not have been annulled in that
country
The Award in original/English Language certified
copy is deposited.