Contract Law

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Commercial Contract

Does the arbitration clause in a commercial contract becomes unenforceable due to non-payment of stamp duty, or it is preserved by the separability doctrine? This question has riddled the Supreme Court of India (“SC”) repeatedly and has resulted in contrary views being adopted by various three-judge benches. The issue has been finally laid to rest by a constitution bench of the SC through its judgment dated April 25, 2023 in M/s N. N. Global Mercantile Private Limited v. M/s. Indo Unique Flame Ltd. & Ors.[i] , wherein it held that an unstamped instrument in need of stamping is not a contract and not enforceable in law. Therefore, the arbitration clause contained therein is also unenforceable. Similarly, an arbitration agreement, which attracts stamp duty but is not stamped or insufficiently stamped, cannot be acted upon. Interestingly, the decision has not been unanimous since two Hon’ble Judges have dissented. Continue Reading Does Non-Stamping of a Contract Render an Arbitration Clause Contained in it Unenforceable? The Supreme Court Says Yes

Enforceability of Put Options under SCRA – Bombay HC’s latest judgment finally clears the air!  

Historical Background

The legal position with respect to enforceability of put option clauses has not been a glorious chapter in the history of India’s securities law. The genesis of this vexed issue lies in – (i) the erstwhile Section 20 of the Securities Contracts (Regulation) Act, 1956 (“SCRA”) which had provided that all options in securities shall be illegal[1]; and (ii) a notification issued by the Ministry of Finance in 1969, which inter alia provided that any contract for sale or purchase of securities, other than such spot delivery contract or contract for cash or hand delivery or special delivery in any securities shall be prohibited[2] (“1969 Notification”).Continue Reading Enforceability of Put Options under SCRA – Bombay HC’s latest judgment finally clears the air!  

Contracts Act

Introduction

In its recent judgement of Loop Telecom and Trading Limited v Union of India and Another[1], the Supreme Court denied the Appellant restitution of certain sums paid by it under a void agreement. The Court, while rejecting the claim for restitution u/s 65[2] of the Indian Contract Act, 1872 (“Act”), placed reliance on the doctrine of ‘in pari delicto’, and reiterated that courts shall not assist a party who has paid the money or handed over the property in pursuance of an illegal or immoral contract[3].Continue Reading Restitution Under the Contracts Act: The In Pari Delicto Exception

Vitiating Elements of Free Consent

The concept of freedom of contract has two meanings; first is the freedom of a party to enter into a contract on whatever terms it may consider advantageous to its interests, or to choose not to, and second, that there should be no liability without consent being embodied in a valid contract.[1]Continue Reading Vitiating Elements of Free Consent: A ‘How to Plead Guide’

Rapid Metro Judgment - Reinforcing the Sanctity of Contracts and Public Good

The premise of project financing lies in financing of infrastructure projects undertaken by a special purpose vehicle (“Borrower”), the repayment of which is broadly dependent on the cash flows generated by the projects itself rather than the balance sheet of the Borrower or its promoter/sponsor. The onset of public private partnership (“PPP”) regime in the project financing space in India has been instrumental in implementation of multiple commercially viable projects. The PPP projects are projects based on a contract or concession agreement, between Government or statutory entity on one side and a private sector company on the other side, delivering public utility infrastructure services which can be availed on payment of user charges. It provides an opportunity for private sector participation in financing, designing, construction, operation and maintenance of public sector programme and projects. The licence to develop such projects is given by the statutory authority in various models like build, operate, transfer (BOT), build, develop, operate and transfer (BDOT), build, own, operate and transfer (BOOT) and toll, operate and transfer (TOT). In most cases, PPPs combine the best of both worlds: the private sector with its resources, management skills and technology and the public sector with its regulatory actions and protection of public interest[1].
Continue Reading Rapid Metro Judgment: Reinforcing the Sanctity of Contracts and Public Good

Supreme Court Clarifies that Acceptance of a Conditional Offer with a Further Condition does not Result in a Concluded Contract.

Introduction

In M/s. Padia Timber Company (P) Ltd. v. The Board of Trustees of Vishakhapatnam Port Trust[1], the Supreme Court has reiterated that the acceptance of a conditional offer with a further condition does not result in a concluded contract. The Court has observed that when the acceptor attaches a new condition while accepting the contract already signed by the proposer, the contract is not complete until the proposer accepts the new condition. 
Continue Reading Supreme Court Clarifies that Acceptance of a Conditional Offer with a Further Condition does not Result in a Concluded Contract

 

Competition or unlawful contractual interference

In a recent decision, the Delhi High Court dealt with the tort of unlawful interference in contractual relationships and inter alia held that the said tort has no place in India in view of Section 27 of the Indian Contract Act, 1872 (“Contract Act”).[1]

Background

The developer of a certain property at Amritsar agreed to lease the said property to the Plaintiff for fifteen years, by way of a term sheet. The Plaintiff paid a security deposit to the developer as per the term sheet and proceeded to draw up the main transaction document.

Upon learning that the Defendant (a competitor of the Plaintiff) had been pursuing the developer for the purpose of entering into an agreement with respect to the same property, the Plaintiff informed the Defendant about the term sheet executed by the developer with the Plaintiff and requested the Defendant to desist from pursuing the developer. However, the Plaintiff learnt that the developer had entered into an agreement with the Defendant with respect to the said property. Soon thereafter, the Plaintiff was informed by the developer that the term sheet stood terminated on account of the Plaintiff’s failure to execute the main transaction document within the stipulated time. The developer refunded the security deposit, which was accepted by the Plaintiff without protest. The Plaintiff alleged that (a) the Defendant induced the developer to terminate the term sheet with the Plaintiff; and (b) the Defendant had similarly attempted to interfere with transactions between the Plaintiff and developers of other properties in different cities.

The Plaintiff filed a suit against the Defendant inter alia seeking a permanent injunction to restrain the Defendant from inducing a breach of any agreement between the Plaintiff and third parties in respect of non-functional properties of the Plaintiff across India.
Continue Reading Competition or unlawful contractual interference: The line continues to remain blurred

unfettered right to exclude or limit their liability for breach of contract Part 2

In Part I of this post, we had discussed the concept of exclusion or limitation of liability clauses and the position in India. In this part, we will examine the position of such clauses in England and provide our views on such clauses. 

Position in England 

The application of clauses excluding or limiting liability in England is more consistent. When faced with standard form contracts or contracts where there is inequality of bargaining power, English courts apply the test of fairness or reasonableness of clauses in such contracts and refuse to enforce provisions of contracts that are unconscionable or exploitative.[1]
Continue Reading Do parties have an unfettered right to exclude or limit their liability for breach of contract? – Part II

Do parties have an unfettered right to exclude or limit their liability for breach of contract – Part 1

Introduction

The law of damages in India is codified in Sections 73 and 74 of the Indian Contract Act, 1872 (“Contract Act”). Section 73 of the Contract Act provides that a party that suffers breach of contract is entitled to receive from the party that has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach or which the parties knew, when they made the contract, to be likely to result from a breach. Section 73 of the Contract Act bars the grant of compensation for remote and indirect loss or damage sustained on account of breach of contract.

This bifurcation between damages towards losses, which naturally arise in the usual course of things (first limb) and losses that the parties knew, when they made the contract, to be likely to result from a breach of the contract (second limb), appears to be borrowed from the principle laid down in the celebrated English decision of Hadley v. Baxendale.[1] The first limb is popularly referred to as general damages, whilst the second limb is referred to as special damages i.e. additional loss caused by a breach on account of special circumstances, outside the ordinary course of things, which was in the contemplation of the parties.
Continue Reading Do parties have an unfettered right to exclude or limit their liability for breach of contract? – Part I