This article is written by Mahak Agarwal from the Institute of Law, Nirma University. This is an exhaustive article which deals with the reasons why the Indian Contract Act needs a re-look.
Table of Contents
The Indian Contract Act, 1872 is a law regulating the contractual relationship between two or more parties- persons, corporations, and governments. It deals with all aspects of contracts, including the formation, efficiency, contract enforceability, allowances and guarantees, bail and pledge, and agency.
Although it is one of India’s oldest laws, legal experts note that the relevance of the Indian Contract Act has multiplied in the current business environment, with a significant increase in the number of contracts concluded between different parties, and the resulting disputes. In recent years, attempts have been made to strengthen corporate governance across boards through new rules on corporate law and to amend the Indian Securities and Exchange Board (SEBI’s) company listing agreement. The time has come for many legal experts to take a close look at the Indian Contract Act and bring it into line with the changing market climate.
Most legal experts claim that the Indian Contract Act is a significant and detailed piece of legislation. In contract law, the principles are based on British contract law. Nevertheless, the Act includes several contrasting clauses.
Reasons why the Indian Contract Act needs a relook
The thirteenth Report of the Law Commission claimed that since the enactment of the Contract Act in 1872, there had been several developments in the fields of law, trade, and commercial ties to be provided for under the Indian Contract Act. England’s common law, which is based on the Indian Contract Act, had its origins in property law. The land was the most valuable form of property in those days, and therefore, the most land-related contract disputes.
The Law Commission, thus noted that the Indian Contract Act was enacted, taking into account the intricacies relating to the transfer and selling of the land. “They looked for certainty and gave justice a second place.” The Law of Contracts appears to become static and technical in this situation. The right to contract in the 19th century is to become the guiding principle of the Law of Contract. Hence, the framework of the Indian Contract Act has to be expanded, taking into account the changes in society and law. Some of the parts of the Indian Contract Act that need a relook are:
Doctrine of Privity
The ‘Doctrine of Contract Privacy’ is a long-established English Law principle that ensures that no one is entitled to or bound by the terms of the contract to which he is not a party. That is, it’s a principle of common law that stipulates that rights or obligations can only be imposed on a contracting party. The law prohibits the third party from having the legal right to enforce the contract, or from enforcing contractual obligations as a result of the contract, and that contractual remedies are for negotiators only. It essentially forbids the compliance of contract conditions on a third party. Therefore, the doctrine has proven troublesome to third parties, since they are not in a position to implement the obligations of contracting parties.
It should be noted that there is not a single clause in the Indian Contract Act, 1872 relating to this doctrine. In India, it was generally recognized through a series of case laws. Section 2(h) of Act 1872 defines a contract as a law-enforceable agreement between two parties, assisted by some consideration. To put it another way, the contract is nothing but a binding agreement. The term ‘ agreement ‘has been specified under Section 2(e) of the Act. Every commitment and every collection of promises, establishing respect for each other, is an agreement according to this Section. Section 2(d) defines consideration as an act that must have been performed upon the wish or request of the promiser. One of the noteworthy features of this Section is that the promised person or any other person may take the act to constitute consideration, which means it’s immaterial who furnished it as long as there’s respect for the pledge. This idea was laid down in the case of Dutton vs. Poole,
In the case of Tweddle vs. Atkinson, the doctrine of contract privacy was firmly established. The Court held : no legal entitlement to an agreement is conferred on the third party, and the promisee could not initiate any legal action unless the consideration of the promise had been moved from him. Consideration must switch from the party, which has the right to sue on the contract. This was further affirmed in the case of Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. The two underlying principles which can be developed from the English law cases which led to the advent of this Doctrine are :
- A person who is not a party to the contract can not enforce a contract, even though it has been made for his benefit.
- Consideration just moves from the promisee.
While the concept of consideration under the Indian Contract Act of 1872 is broader than that of English Law, and consideration may very well be given by a non-contracting party, the Doctrine of Privacy common law principle is widely accepted in India. In the case of Jamna Das v. Ram Avtar, for example, the Privy Council broadened the application of the doctrine by implementing it in India. It was congruously held that an individual who is not a party to the contract could not recoup the money owed by a party to the agreement. The Supreme Court cleared the mystery surrounding the doctrine in 1970. In the case of M.C. Chacko v. State Bank of Travancore, the Supreme Court manifested itself in favor of the Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd case.
Exceptions to the rule
The exemptions from common law to the above provision are based on the legislative exceptions. In the case of Trust, when a contract is concluded between a trustee and another party to enforce his rights attached to the trust formed, the beneficiary shall have the right to sue. In case he can sue the parties when a contract is concluded for an individual’s benefit although he is not a party to the contract.
If a contract requires a party to pay a certain amount to a third party and the party agrees to do so, the third party may sue the party who has accepted the contract being enforced. The contract made by an agent often constitutes an exception to the above statute. In the event of faulty products, the retailer can be sued by a third party if the defects have harmed him/her. An example of this exception is consumer rights rules. In the event of personal injury, the responsible party can be sued by third parties who are not a party to the contract.
If such arrangements are made for a specific family member in the case of a family settlement, then that person can sue for violating the contract. In the case of multilateral and contingent arrangements, the third party is entitled to sue for the protection of its rights.
Need to re-look doctrine of privity
Nevertheless, the law leaves third-party rights to rest; it is ambiguous in nature and lacks clarification. The abolition of the doctrine is necessary in order to allow a third party to sue a contract made for his benefit in certain circumstances as proposed in the 13th law Commission Report, i.e., a specific definition or statutory clause must be introduced, or a separate law for third-party rights must be enacted in certain eligible circumstances similar to contracts (Rights of third parties).
Need for codiﬁcation of supplementary principles
As the Preamble of the Indian Contract Act states that the Act does not claim to be a full Code dealing with contract law. When enacting this Act, the legislature did not wish to exhaustively codify the entire contract law to be enforced by the courts in India or even any specific subdivision thereof. Therefore, it was held “that Sections 124 and 125 of the Act do not lay down the whole law of Indemnity. Consequently, in all cases on which it is vague, the courts had to resort to the rules of English Common Law as concepts of ‘justice, equity and good conscience’. In the 13th law commission report, it was stated that this dependence on English law concepts to supply the shortcomings of an Indian statute does not add to the consistency or simplicity of the law. It is also better to apply to the Act, the rules of English common law that our courts have followed for almost a century so that in many cases it might not be appropriate to appeal to English law.
Another dimension of the reform emerges from the fact that Contract law in India is not found exclusively in the Indian Contract Act, and there are a variety of laws dealing with its various branches. All of these should be combined and included in the Contract Act. But since the Contract Act was enacted the legislative trend has been in the other direction. Not only were separate laws passed on various aspects of commercial transactions, such as the Negotiable Instruments Act, 1881, but sections of the Contract Act itself were taken as individual Acts relating to specific contracts, such as the Selling of Goods Act, 1930, the Partnership Act, 1932.
Doctrine of Consideration
This doctrine was borrowed from English Common Law. According to some distinguished English jurists. Subject-matter legislation requires change. Professor Holdsworth described the doctrine as ‘something of an anachronism and observed that ‘ the conditions of consideration in its present form prevent the enforcement of many contracts which should be enforced if the law really wishes to give effect to the parties’ legitimate intentions, and it would prevent the enforcement of many others if the judges had not used their ingenuity to invent considerations. But the invention of considerations, through logic which is both devious and scientific, adds to the difficulties of the doctrine.’
Therefore, according to Prof. Holdsworth, the solution is not to scrap the doctrine of consideration but to reduce it to a subordinate position in the English contract theory. He proposed, inter alia, that the law should provide for all lawful agreements to be legitimate contracts if the parties intend by their agreement to influence their legal relations, and either factor was present, or the agreement was placed in writing and signed by all the parties to it.
In its present form, the doctrine of consideration serves no practical purpose and should be abolished. The application of the doctrine of consideration to specific rare but not unknown cases has been vague and blurred by excessive dialectical complexity. Equally strong observations are to be found in judicial pronouncements. In the well-known case of the Dunlop Pneumatic Tyre Co, it was observed that, confess that this case is to my mind apt to nip any budding affection which one might have had for the doctrine of consideration. For the effect of that doctrine in the present case is to make it possible for a person to snap his ﬁngers at a bargain deliberately made, a bargain not in itself unfair, and which the person seeking to enforce it has a legitimate interest to enforce.”
It would not be easy to abolish the doctrine as it has become so deeply ingrained in our contract principle that a wholesale reversal of the theory will result in overturning the very foundation on which our contract law is founded and require a complete and comprehensive overtaking of the law. As suggested by the law commission of India, instead of abolishing or adding an alternative to the doctrine, we should make necessary improvements to the current law which would have the effect of avoiding the inequitable and anomalous effects of strict doctrinal adherence. This can be achieved by adding such clauses to Section 25, listing extraordinary situations where a contract is valid without consideration.
Great injustice is often done when a commitment is made that the promiser believes will be kept and that is not acted upon, and it is then held that such a promise is unenforceable on the grounds of lack of consideration. A common example of such a case is where a person decides to pay a charitable institution fee with the expectation that a building will be built with it. The help of the sum subscribed and the charity’s trustees incur expenditure on the confidence in fulfilling the promise.
In India, some judges upheld these assurances on the basis that they were backed by consideration’ inasmuch as the expenditure was incurred “at the promisor’s request,” while other judges held that the facts did not warrant the finding that the expenditure was incurred “at the promisor’s request” and that the agreement was, therefore, without consideration, null and void.” The former view places tremendous pressure on the sense of the sentence ‘to the promisor’s desire.’
“A promise which the promisee should reasonably expect to induce action or tolerance of a definite and significant nature on the part of the promisee, and which induces such action or tolerance, is binding if injustice can only be prevented by fulfilling the promise. In order to put at rest the above-mentioned controversy and to prevent injustice, the 13th report of the law commission of India recommended that an exception be added to Section 25. “A promise which the Promiser knows or reasonably ought to know shall be trusted by the Promisee. shall be enforceable if the Promisee has altered his position to prevent his promise.” Further, The promise does not need to be an actual promise but can be implied by actions, i.e. by acts or omissions. Therefore the words “express or implied” should be inserted after the word “promise”.
Recognize non-compete restrictions
A non-competitive clause is well known under the Contractual Laws as the agreement in any transaction between two parties where one party is the employer and the other the employee. Under this non-compete provision, the employee undertakes and acknowledges the employer’s condition that he will not be the employer’s competitor in the manner and nature of the employer’s work during the course of the work, or even after the employee leaves the employer’s services/job. Under agreements and contracts. The non-compete clause finds its place in the globe under the deals and contracts.
In this respect, Indian law is very clear and strict, no such non-compete agreement shall be binding on the parties and the same shall be null and void. In using the word void ab initio, it has demonstrated that it has maintained that non-compete provision beyond recognition of the agreements for these forms of agreements. Indian courts have also consistently refused to impose post-termination non-competitive clauses in employment contracts as “trade restraint” is inadmissible under Section 27 of the Indian Contract Act-1872, and have held them as unconstitutional and contrary to public policy because of their ability to deprive a person of their fundamental right to earn a living.
However, given the existing social, legal, and corporate circumstances, and the confidentiality required and the dignity of the employments, the judiciary has inclined to give some thought to the non-compete agreements. In the case of ‘Niranjan Shankar Golikari Vs. the Century Spinning and Manufacturing Company Ltd.‘ the Hon’ble Supreme Court observed that-“restraints or negative agreements can be true in the appointment or contracts are valid if they are fair. Further In one case V.F.S. Global Services Pvt. Ltd Vs. Mr. Suprit Roy, the Bombay High Court established the principle that a restriction on the use of trade secrets during or after the termination of employment does not constitute a ‘trade restriction’ pursuant to section 27 of the Act and can, therefore, be enforceable under certain conditions. In Mr. Diljeet Titus, Adv Vs. Mr. Alfred A Adebare & Ors Delhi High Court held that “the specific check was the degree of job control to decide whether it was a service contract …”
Like these, several other High Court judgments have defined certain standards or criteria for testing the validity and legality of enforcing restrictions on these non-competitive agreements. It shows that in some circumstances, Indian courts can impose confidentiality agreements designed to protect the proprietary rights of an employer.
Given that the increase in cross-border trade and an enhanced competitive environment in India, confidentiality, non-compete, and non-solicitation agreements are becoming increasingly common, especially in the IT and technology industries. A large amount of out-sourcing and IT businesses have confidentiality, non-competitive and non-solicitation provisions in agreements with their workers, with terms varying from a few months to several years after the termination of the employment contract. Companies argue that these limitations are necessary to protect their proprietary rights and their privacy.
Similarly, foreign businesses in India also tend to include confidentiality, non-competitive, and non-solicitation clauses in their clauses with senior management and employees, as is normally done in some foreign countries.
While Section 27 of the Indian Contract Act states that all restraining agreements of any occupation, trade, or company are void, the current trend as per different judicial pronouncements leads to the conclusion that reasonable restraint can be permitted to some extent and does not make the contract void ab initio. Reasonable restraint depends on different factors, and restraint must be reasonable in the interests of the parties to ensure sufficient security of the agreement in order to avoid disclosure of trade secrets or business relations. After careful review of Section 27, taking into account the exemption it offers, it can be concluded with confidence that the section means that, in order to be legitimate, a trade restriction agreement must be reasonable between the parties and in line with the public interest.
Include provisions for e-contracts
E-contract is one of its e-business divisions. This has a similar meaning in a conventional business where goods and services are exchanged for specific consideration. The only additional element it has is that the contract takes place here through a digital mode of communication such as the Internet. This allows the sellers the chance to hit the end of the market directly without the intermediaries being involved.
Electronic contracts are born out of the need for speed, ease, and productivity (contracts that are not paper-based but relatively in (electronic form) Imagine a contract that an Indian fabricator and an American exporter would like to enter into. One option will be for one party to draw up two copies of the contract for the first time, sign them, and courier them to the next, who in turn signs both copies and guides a copy back. The other choice is for the two sides to meet somewhere and sign the contract. The entire contract can be completed in seconds in the modern era, with all parties simply adding their digital signatures to a modern copy of the document. There is no need for behind couriers and additional traveling costs in such a situation.
There was initially a concern among the lawmakers that this new technology would be identified, but now many countries have legislation to accept electronic contracts. The modern contract law is unsatisfactory for resolving all the problems that occur in electronic contracts. The Information Technology Act discusses some of the unusual problems that occur when electronic contracts are developed and checked. Thus, A unique chapter is required to regulate all electronic contracts. Presently, it is tried to extend the general principles of the Contract Act to electronic contracts.
Thus clarifying the rules on the creation of e-contracts, the Act must provide for questions relating to the jurisdiction of e-contracts, the rights, and obligations of parties, and cases of one party’s unilateral errors.
Regulate unfair terms of a contract
Legal experts agree that most developed jurisdictions have learned methods of coping with contract inequality and understand the potential for ‘procedural’ and ‘substantial’ injustice. “There should also be the power of the courts to raise a question of injustice even though the parties have not made such a plea. Even the Law Commission has recommended that separate legislation should be enacted to grant protection to parties from such unfair terms.
Actually, contracts may only be declared void or voidable in a court of law if they fall under one or other of the provisions of the Indian Contract Act, 1872 which renders these terms void or voidable. As of today, there is no general legislative provision in the Indian Contract Act, 1872, or the Selling of Goods Act, 1930 whereby the courts may relieve the consumer / weaker party by holding such terms as invalid in contracts because they are unreasonable or unconscionable or unfair.
One of the applicable provisions of the Indian Contract Act, 1872, referring to the inequality of negotiating power between parties and the unfair advantage of one party over the other, is found in Section 16 on ‘undue influence’. The case is a mixture of procedural and substantive inequality and subsection (3) raises only one inference. We shall refer to that section right now.
It will be noted that even sub-section (3) of section 16 deals with unconscionability which is an aspect of ‘substantial’ injustice but ties it to the ‘procedural’ unfairness of will supremacy. Sub-section (3 ) of section 16, it should be noted, does not authorize the Court to strike down the unconscionable terms but only permits the raising of a presumption.
The Commission pointed out that subsection (3) of section 16 had been interpreted by the Privy Council (Poosathurai v. Kannappa Chettiar) as meaning that both the conditions of the dominant role and the unconscionable existence of the contract would have to be identified before an unfair effect could be alleged to result from the contract. Although old, this decision has not been departed from. However, in the 13th Report on the Contract Act, 1872 (at p. 21), the Law Commission of India claimed that there are some cases in which, on equity principles, relief was granted against unreasonable and unconscionable bargains while there is no question of undue control. In an early case of Madras, at U. It was in fact held in Kesavulu Naidu v. Arithulai Ammal that, unless excessive interference was explicitly shown, no relief could be given on the grounds of the unconscionable existence of a contract. Can one allow such a situation to continue?
Another important clause to be addressed in Section 23 of the Contract Act: It deals with ‘substantial’ matters that invalidate a contract but do not explicitly relate to ‘unconscionability’.
Section 23 states that the purpose or object of an agreement is legal unless it is prohibited by law or unless it is of such a nature that, if permitted, it would violate the requirement of any statute; or it is fraudulent, or it includes or suggests harm to the life or property of another life, or the court finds it unethical or contrary to public policy. Therefore, the last clause of section 23 states that no man may do what is contrary to public policy, lawfully. It includes public health security and promotion. This is a theory of law according to which the law limits the freedom of contract or private transactions for the benefit of society.
The Indian Contract Act does not define the term “public policy” or “opposed to public policy.” The expressions “public policy,” “oppose to public policy” or “contrary to public policy” are incapable of specific definitions because of the very nature of the things.
Section 28 of the Contract Act states that agreements absolutely in restraint of legal proceedings are void. Under the exceptions Section 28 protects two forms of contracts:
- A contract under which two or more parties agree that any dispute that may occur between them shall be submitted to arbitration and that only the sum awarded in the arbitration shall be recoverable and shall not be made void.
- It also does not render a contract null and void relating to arbitration matters that have already arisen
Section 28 comes into play when the restriction on the right to sue is ‘absolute’ in the sense that it is absolutely forbidden for the parties to pursue their legal remedies in an ordinary court. A partial limit, as observed by the Supreme Court, will apply in Hakam Singh v. Gammon (India) Ltd. In this case, a clause in the parties ‘ agreement stipulates that “the court of law in the city of Bombay alone shall have jurisdiction to adjudicate on it.” The complainant filed a complaint with Varanasi, but the same was dismissed in the light of the above agreement. The court held that the agreement was not opposed to public policy and did not contravene section 28, and consequently, the lawsuit filed at Varanasi was dismissed.
According to section 28 of the Indian Contract Act, 1872, the individual has the right to have his legal status determined by the ordinary tribunals, except in the case of contracts involving arbitration disputes that may have arisen or 28 that may have arisen. Section 28 affirms the common law and its terms seem to reflect a general rule agreed by the English courts that prevents any agreement intended to revoke the authority of the courts. Section 28 had been amended by the 1996 Indian Contract Act (Amendment) which entered into force in 1997. The amendment gave effect to the suggestions in India’s 97th Law Commission on “Section 28, Indian Contract Act, 1872: Perspective Clauses in Contract” (1984). The Supreme Court laid that:
Conferring jurisdiction to a court which it does not hold under the Code is not available to the parties by agreement. But where two or more courts have the authority to prosecute a suit or case under this Code of Civil Procedure, an agreement between the parties that the conflict between them is to be heard in one of those courts is not contrary to public policy. Such a contract does not contravene Section 28 of the Contract Act.
The arbitration provision in Shiv Satellite Public Co. v. M/s Jain Studios Ltd. specified that the determinations of the arbitrator would be ‘absolute and binding between the parties’ and specified that the parties had reserved the right of appeal or challenge ‘in every jurisdiction.’ It was argued that this problematic provision should not be removed from the provision 29 requiring conflicts to be submitted to arbitration and that the whole clause had been invalid. The Supreme Court held that that part of the arbitration clause which relates to arbitration disputes is severable and is not void.
The Court noted the opposing party’s argument that, because of section 28 of the Act, the portion of the arbitration clause which specified that the ‘arbitration decision shall be final and binding between the parties and the parties waives all rights of appeal or challenge in any jurisdiction’ was inapplicable. The respondent was argued that the ensuing part of the clause requiring the reference of disputes to arbitration was valid and this argument was accepted. However, the Court referred Coring Oil Co. v. Koegles where a provision that gave finality to an arbitration award was deemed not enforceable but the remainder of the provision was held true. The condition in Union Contribution Co. (P) Ltd. v. Chief Engineer, Eastern Command, Lucknow & Anr., was the same when it was held that the finality provision for the award was found to be unenforceable but separable from the arbitration clause.
Need to reform the code of damages
In the practical context, the statute of damages is codified in Sections 73 and 74 by the Contracts Act, 1872. Section 73 outlines the chain of legal implications after a breach of the contract and the key terms used in the contractual terminology used are: ‘compensation for any loss or harm arising from it, which inevitably resulted from such breach in the ordinary course of events, or which the parties understood were likely to arise from such infringement when they entered into the contract….’ It spins a fascinating dynamic in every contract about information, foreseeability, and action by the parties. This section has given rise to numerous and contradictory viewpoints on the implications of any violation and the degree to which the contracting party can be identified.
It was commonly held in Section 74 of the Contract Act, 1872, that this Section is a different version of Section 73 which deals with contracts where the monetary stipulations were specifically laid down. The operative phrase “the party complaining of the violation is entitled to seek from the party violating the contract fair compensation not exceeding the amount so specified or, as the case may be, the penalty for …” assumes primacy and is used as the method for awarding damages. This section embodies the codified text of Indian damages law and, as held by the Supreme Court in its Fateh Chand vs. Balkishan Dass decision of 1963, it states that the aggrieved party is entitled to seek compensation from the party that violated the contract, whether or not the real harm or loss is shown to have been caused by the breach. This merely dispenses with evidence of “real loss or harm;” it does not excuse the award of compensation if, as a result of the violation of the contract, no substantive injury has been incurred at all, as compensation for the breach of the contract should be given to make fair loss or damage which has actually occurred in the normal course of events or which the parties realized when they entered into the contract.
Courts from time to time cited the aforementioned case law in justifying their rulings and used the tests embodied in Sections 73 and 74 in various factual situations. In its 2006 judgment of McDermott International v. Burn Standard Co., for example, the Supreme Court laid down a seminal procedure for the assessment of damages in the case of building contracts, and this became a driving force for the following decades.
The entire law on damages in India has been criticized as being excessively subjective and lending itself, without uniformity or clarity, to the interplay of unrestrained discretion and factual vagaries. While discretion accompanied by the application of the mind results in injustice as between the parties, due to the sheer diversity in the language employed by contracts, the force of circumstances surrounding its breach, and the alleged acts of the parties, it also robs the law of preceding efficacy and a sense of initiative certainty.
Section 11 of the Indian Contract Act (“the Act”) states that if a person is to be qualified to contract, he must have attained the age of majority. The Indian Majority Act, 1875, provides that the voting age in India is 18 years. It is clear, when you read it together, that a person under the age of 18 is not ‘competent’ to contract under Indian contract law. Nevertheless, the confusion emerges from the absence of any clause under the Act allowing for the consequences of concluding a contract in contravention of Section 11.
In the landmark case of Mohori Bibee v. Dharmodas Ghose, the Privy Council was charged with resolving this vagueness, in which the dispute concerned the validity of a mortgage deed performed by a minor in favor of a money lender. The minor argued it was enforceable, claiming that he was not eligible under the Law to enter into a legal contract. A related problem was the possibility of restitution in compliance with Sections 64 or 65 of the Act, which includes reimbursement of any gain gained under a null or void contract.
In effect, the Privy Council had to decide if (a) the mortgage deed was enforceable and legitimate, and (b) the moneylender may claim compensation under the mortgage act for the money advanced by him to the minor. It was held that contracts concluded with a minor would be void ab initio and could not even be considered contracts within the meaning of the Act, in the first place. Accordingly, the enforceability of minors’ contracts has been completely dismissed, and also restitution under Section 65 has been refused, as the Privy Council affirmed that the ‘voidness’ envisaged under this clause presupposes the presence of a contract (while, as noted, an agreement with a minor is never considered an offset contract). This stance has been repeatedly reaffirmed by Indian courts since, including in the recent case of Mathai Mathai v. Joseph Mary, with the Supreme Court upholding the reasoning. The only notable modification to this rigid rule has been the declaration as valid and binding of contracts entered into by guardians on minors’ behalf, provided such contracts are in the interest of the minor.
Despite its longstanding status as a settled principle of Indian contract law, Mohori Bibee’s Privy Council decision suffers from various shortcomings due to its excessive rigidity. Rather than examining and balancing the various moral considerations involved in evaluating the legitimacy of a contract concluded with a minor (which also involves the interests of those dealing equally with a minor), this decision imposes an absolute ban on all minors’ contracts, unless it is administered by a guardian and proved to serve the interests of the minor.
This position will serve as a significant impediment to anyone, considering the high likelihood that the contract might potentially be regarded as invalid from the outset along with no recourse granted to the other party in the event of gain to the minor. Ironically enough then, India’s current position apparently prejudices the very interests of the minor it seeks to protect!
For instance, in the sports industry, While teams and organizations, under Indian contract law, are still free to negotiate with a minor’s guardian, the general situation leads to needless difficulties and creates general confusion in the process. For example, a team would ideally want a youth player to ratify the contract after reaching the age of majority and should have a clause to that effect in the contract.
That would help them secure a player’s long-term services whose growth they greatly facilitated through the original contract. However, since, under Indian law, the agreement is deemed to be null and void, the minor can not ratify the same when he or she reaches the age of majority, nor can there be an enforceable clause in the original contract to that effect. Instead, the parties must renegotiate and agree on a new contract when the player turns 18. And this is far from being a formality, as the player may opt to accept offers from and then sign with another team, leaving his/her original team with little to show for their player investment when he/she was a minor.
It is evident that the Indian Contract Act is in dire need of reform. Most legal experts believe that the Indian Contract Act is well-drafted law, but some amendments will help bring it up-to-date with the current global market practices. Thus foreign parties wishing to do business in India can get more confidence in this.
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