Contract Law

Q.6. So, once a contract is formed one would always be punished for breach?

Ans. P.S.Atiyah calls this concept as 'sanctity of contract', and this connotes that once a contract is freely & voluntarily entered into, it should be held sacred and should be enforced by Courts of law if it is broken. However, this sanctity has certain exceptions:

  • Fraud;

  • duress;

  • Contract entered to violate the law;

  • Public policy;

  • Impossibility of performance, etc.

Public policy - This essentially looks at the purpose of contract - as otherwise the contract may be completely legal & valid - but owing to its object it would be considered as void. This purpose may be illegal as (a) between the parties or (b) pre-judicial to public interest.

Examples of pre-judicial to public interest:

  • Wagering contract - satta;

  • Surrender of statutory power/rights;

  • Agreement in restraint of personal liberty;

  • Contract is restraint of trade;

  • Contract to commit a crime;

  • Agreement to oust the jurisdiction of the Courts completely.

State of Andhra Pradesh v. T Suryachandra Rao, (2005) 6 SCC 149

Concept of fraud necessarily requires elements of deceit and injury; misrepresentation or false representation and suppression of material document/fact also amounts to fraud u/s.25 of Act.

Percept D'Mark (India) (P) Limited v. Zaheer Khan, (2006) 4 SCC 227.

Agreement in restraint of trade is not limited to employment related contracts, and unless falling within the specific exception under the provision.

Zaheer Khan v. Percept D Mark (India) Private Limited, AIR 2004 Bombay 362(DB)

When an agreement is made with a person thereby restricting his liberty in future agreements, to carry on his affair in the manner he likes, with the person he wants is a restraint of trade.

R.Babu v. TTK LIG Limited, 2005 LLR 71(DB)(Madras); Ambiance India Private Limited v. Shri Naveen Jain, 2005 LLR 837 (Bombay).

An agreement whereby an employee agrees not to join any another competitive concern for a specified period after cessation of employment will be violative of public policy.

Gujarat Housing Board v. Vipul Corporation, AIR 2004 Gujarat 319.

Corporation entered into an agreement for works contract for water-proofing, but there was opposition from the allottees of the houses. Non-performance of work would not be saved by doctrine of frustration u/s.55 & 56 of the Act.

Huda v. Dr. Babeswar Kanhar, (2005) 1 SCC 191.

When there was no performance owing to circumstances beyond control, but was performed at the first subsequent opportunity, it would be a valid performance and would not be hit by doctrine frustration u/s.55 & 56 of the Act.

Q.7. What are the other obligations of parties to contract?

Indochem Electronic v. Additional Collector of Customs, AP, (2006) 3 SCC 721.

Warranty period: When the manufacturer undertakes to continue its repair and maintenance in the same manner in which he was doing it during warranty period, then such extended period would be considered as warranty period u/s.37 of Act.

State of Rajasthan v. Nav Bharat Construction Company, (2006) 1 SCC 86.

Works contract: Rates as prescribed in the works contract requires to be followed by the parties to the extent of agreed work. It is only when extra work is required to be performed that rates specified elsewhere may be utilised u/s.37 of Act.

Amteshwar Anand v. Virender Mohan, (2006) 1 SCC 148.

"Subject to", by itself does not make any contract requiring reciprocal actions from both the parties u/s.52 & 54. It is only when performance of certain actions by one party is pre-conditional for performance of actions by another party that are covered under these provisions.

Q.8. What are the other elaborate forms of contracts?


  • Government contracts - contract law & constitutional principles;

  • Sales of Goods Act

  • Consumer Protection Act

  • Law of Agency

  • Bailment

  • Partnership

  • Power of attorney

  • Hire-purchase agreements;

Eg. Government contracts:

Ajay Krishna v. Union of India, 2005 (1) MPHT 299; Videocon Properties Limited v. Dr. Bhalchandra Laboratories, (2004) 3 SCC 711

Earnest money: Clause requiring deposit of earnest money at the time of seeking an application for tender held illegal; as earnest money is required for performance of the contract. At the time of seeking an application form, there arises no agreement for discharge of services.

Electrosteel Castings Limited v. State of MP, 2006 (1) M.P.L.J. 304.

Tender notice:Contents of the notice inviting tender are within the realm of freedom of contract, and therefore there is very limited scope of judicial review. Therefore, deletion of ISI mark requirement from the tender notice cannot call for judicial intervention on the ground that sub-standard material is being purchased.

Q.9. Which are the legal forums in case of breach of contract?

Ans.This depends upon the nature of contract, what I mean is that when there is some specific kind of contract, then appropriate remedy has been laid down. For example:

  • Consumer Protection Act: District Consumer Forum, etc;

  • Government contracts: Hon'ble High Court;

  • Co-operative societies: Registrar & other authorities;

  • Service matters: Hon'ble High Court & other labour adjudication mechanisms;

  • For all others: Civil Courts