Category Archives: Contract Law

Blacklisting – Effect of

The Hon’ble Supreme Court in Raghunath Thakur v. State of Bihar, (1989) 1 SCC 229 has held as under:

        “Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objection satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist.” Triveni Engineers v. Dakshinanchal Vidyut Vitran Nigam Ltd., 2020 (1) AWC 297.

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Damages – Arising out of Breach of Contract

Section 73 of the Indian Contract Act makes it clear that damages arising out of a breach of contract is treated separately from damages resulting from obligations resembling those created by contract. When a contract has been broken, damages are recoverable under Paragraph 1 of Section 73 of the Indian Contract Act. When, however, a claim for damages arises from obligations resembling those created by contract, this would be covered by Paragraph 3 of Section 73 of the Indian Contract Act. Mahanagar Telephone Nigam Ltd. v. Tata Communications Ltd., (2019) 5 SCC 341.

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Interpretation of Deed of Contract

The well known rule of interpretation of contracts is that the deed ought to be read as a whole in order to ascertain the true meaning of its several clauses and a word of each clause should be so interpreted as to bring it into harmony with the other provisions of the deed, if that interpretation does no violence to the meaning of which they are naturally susceptible.

        In Multi-Link Leisure Developments Ltd. v. North Lanarkshire Council, 2010 UKSC 47, it was held as under:         “The Court’s task is to ascertain the intention of the parties by examining the words they used and giving them their ordinary meaning in their contractual context. It must start with what it is given by the parties themselves when it is conducting this exercise. Effect is to be given to every word, so far as possible, in the order in which they appear in the clauses in question. Words should not be added which are not there, and words which are there should not be changed, taken out or moved from the place in the clause where they have been put by the parties. It may be necessary to do some of these things at a later stage to make sense of the language. But this should not be done until it has become clear that the language the parties actually used creates an ambiguity which cannot be solved otherwise.” State of Bihar v. Tata Iron and Steel Company Ltd., (2019) 7 SCC 99.

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Fraud and Misrepresentation

A perusal of the definition of the word “fraud”, as defined in Section 17 of the Contract Act, would reveal that the concept of fraud is very wide. It includes any suggestion, as a fact, of that which is not true, by a person who does or does not believe it to be true. It may be contrasted with Section 18(1) of the Contract Act which, inter alia, defines “misrepresentation”. It provides that it is misrepresentation if a positive assertion is made by a person of that which is not true in a manner which is not warranted by the information which he has. This is despite the fact that he may believe it to be true. In other words, in fraud, the person who makes an untruthful suggestion, does not himself believe it to be true. He knows it to be not true, yet he makes a suggestion of the fact as if it were true. In misrepresentation, on the other hand, the person making misrepresentation believes it to be true. But the law declares it to be misrepresentation on the basis of information which he had and what he believed to be true was not true. Therefore, the representation made by him becomes a misrepresentation as it is a statement which is found to be untrue. Fraud is committed if a person actively conceals a fact, who either knows about the fact or believes in the existence of the fact. The concealment must be active. It is here that mere silence has been explained in the Exception which would affect the decision of a person who enters into a contract to be not fraud unless the circumstances are such that it becomes his duty to speak. His silence itself may amount to speech. A person may make a promise without having any intention to perform it. It is fraud. The law further declares that any other act fitted to deceive, is fraud. So also, any act or omission, which the law declares to be fraudulent, amounts to fraud. Running as a golden trend however and as a requirement of law through the various limbs of Section 17 of the Contract Act, is the element of deceit. A person who stands accused of fraud be it in a civil or criminal action, must entertain an intention to commit deception. Deception can embrace various forms and it is a matter to be judged on the facts of each case. It is, apparently, on account of these serious circumstances that fraud has on a legal relationship or a purported legal relationship that the particulars and details of fraud are required if pleaded in a civil suit or a proceeding to which the CPC applies. Electrical Rengali Hydro Electric Project v. Giridhari Sahu, (2019) 10 SCC 695.

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Tender – Rights of Bidder

In Meerut Development Authority v. Association of Management Studies, (2009) 6 SCC 171, the Hon’ble Apex Court held that tender is an offer. It is an invitation to seek communication to convey acceptance. It was further held as under:

        “A tender is an offer. It is something which invites and is communicated to notify acceptance. Broadly stated it must be unconditional; must be in the proper form, the person by whom tender is made must be able to and willing to perform its obligations. The terms of the invitation to tender is in the realm of contract. However, a limited judicial review may be available in cases where it is established that the terms of the invitation to tender were so tailor-made to suit the convenience of any particular person with a view to eliminate all others from participating in the bidding process.

        The bidders participating in the tender process have no other right except the right to equality and fair treatment in the matter of evaluation of competitive bids offered by interested persons in response to notice inviting tenders in a transparent manner and free from hidden agenda. One cannot challenge the terms and conditions of the tender except on the aforesaid ground, the reason being the terms of the invitation to tender are in the realm of contract. No bidder is entitled as a matter of right to insist the authority inviting tenders to enter into further negotiations unless the terms and conditions of notice so provided for such negotiations.” Bihar State Housing Board v. Radha Ballabh Health Care and Research Institute Private Ltd., (2019) 10 SCC 483.

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Term Blacklist – Meaning of

The term “blacklist” has been defined in Black’s Law Dictionary, 9th Edition, in the following manner:

        “To put the name of (a person) on a list of those who are to be boycotted or punished.”

        Wharton’s Law Lexicon, 17th Edition, refers to the term “blacklist” as follows:

        “The term given to any list of persons with whom the person or body compiling the list advises or one should have dealings of the character indicated. Thus the list of defaulters on the Stock Exchange is so named, and various societies and individuals also publish lists with a similar purpose.”

        The terms “blacklist” and “blacklisting” have been described in Advanced Law Lexicon by P.Ramanatha Aiyar, 6th Edition, in the following manner:

        “Blacklist is a list of persons or firms against whom its compiler would warn the public, or some section of the public; a list of persons unworthy of credit, or with whom it is not advisable to make contracts. Thus the official list of defaulters on the Stock Exchange is a blacklist. To put a man’s name on such a blacklist without lawful causes is actionable; and the further publication of such a list will be restrained by injunction. A list of persons, firms, companies boycotted or punished.”

        “Blacklisting is a part of the paraphernalia of strike. It may be said to represent the malignant hate and revenge of the parties resorting to it. In its purpose and effects it is closely allied to a boycott. A “blacklist” is defined to be a list of the persons marked out for special avoidance, antagonism, and enmity on the part of those who prepare the list or those among whom it is intended to circulate , as where a trade union blacklists workmen who refuse to conform to it’s rules; but it is most usually resorted to by combined employers, who exchange lists of their employees who go on strikes, with the agreement that none of them will employ the workmen whose names are on the lists, and comes within the meaning of what is termed a ‘conspiracy’.         List of companies, products or people that are undesirable and to be avoided. In the U.S.A. the term means more specifically the denial of work to certain people on the grounds of their past beliefs or actions”. Baba Traders v. State of U.P., 2020 (1) AWC 500.

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Plea of —Undue Influence

While considering the aspect of plea of undue influence and onus probandi, in Subhas Chandr Das Mushib v. Ganga Prasad Das Mushib, AIR 1967 SC 878, it was held as under:

       “Under Section 16(1) of the Contract Act a contract is said to be induced by undue influence where the relations subsisting between the parties are such that none of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. This shows that the court trying a case of undue influence must consider two things to start with, namely, (1) are the relations between the donor and the donee such that the donee is in a position to dominate the will of the donor, and (2) has the donee used that position to obtain an unfair advantage over the donor?

       The three stages for consideration of a case of undue influence were expounded in Raghunath Prasad Sahu v. Sarju Prasad Sahu, AIR 1924 PC 60, in the following words:

       “In the first place the relations between the parties to each other must be such that one is in a position to dominate the will of the other. Once that position is substantiated, the second stage has been reached, viz., the issue whether the contract has been induced by undue influence. Upon the determination of this issue a third point emerges, which is that of onus probandi. If the transaction appears to be unconscionable, then the burden of proving that the contract was not induced by undue influence is to lie upon the person who was in a position to dominate the will of the other.

       Error is almost sure to arise if the order of these propositions be changed. The unconscionableness of the bargain is not the first thing to be considered. The first thing to be considered is the relations of these parties. Were they such as to put one in a position to dominate the will of the other? Jamila Beguma v. Shami Mohd., (2019) 2 SCC 727.

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No Right to Forfeit the Sum – In the Absence of Forfeiture Clause

A right to forfeit being a contractual right and penal in nature, the parties to a contract must agree to stipulate a term in the contract in that behalf. A fortioti, if there is no stipulation in the contract of forfeiture, there is no such right available to the party to forfeit the same.

The learned author Sir Kim Lewison in his book The Interpretation of Contracts (6th Edn.) while dealing with the subject “Penalties, Termination and Forfeiture Clauses in the Contract” explained the meaning of the expression “forfeiture” in these words:

“A forfeiture clause is a clause which brings an interest to a premature end by reason of a breach of covenant or condition, and the court will penetrate the disguise of a forfeiture clause dressed up to look like something else. A forfeiture clause is not to be construed strictly, but is to receive a fair construction.”

In Doe D Davis v. Elsam, 1828 M&M189 : 173 ER 1126, Lord Tenterden held as under, :

“I do not think provisos of this sort are to be construed with the strictness of conditions at common law. These are matters of contract between the parties, and should, in my opinion, be construed as other contracts.”

Equally well settled principle of law relating to contract is that a party to the contract can insist for performance of only those terms/conditions, which are part of the contract. Likewise, a party to the contract has no right to unilaterally “alter” the terms and conditions of the contract and nor they have a right to “add” any additional terms/conditions in the contract unless both the parties agree to add/alter any such terms/conditions in the contract.

Similarly, if any party adds any additional terms/conditions in the contract without the consent of the other contracting party then such addition is not binding on the other party. Similarly, a party, which adds any such term/condition, has no right to insist on the other party to comply with such additional terms/conditions and nor such party has a right to cancel the contract on the ground that the other party has failed to comply with such additional terms/conditions. Suresh Kumar Wadhwa v. State of M.P., (2017) 16 SCC 757.

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Principle of – Business Efficacy

A commercial document cannot be interpreted in a manner to arrive at a complete variance with what may originally have been the intendment of the parties. Such a situation can only be contemplated when the implied term can be considered necessary to lend efficacy to the terms of the contract. If the contract is capable of interpretation on its plain meaning with regard to the true intention of the parties it will not be prudent to read implied terms on the understanding of a party, or by the court, with regard to business efficacy as observed in Satya Jain v. Anis Ahmed Rushdie, (2013) 8 SCC 131, as follows:
“The principle of business efficacy is normally invoked to read a term in an agreement or contract so as to achieve the result or the consequence intended by the parties acting as prudent businessmen. Business efficacy means the power to produce intended results. The classic test of business efficacy was proposed by Bowen, L.J. in Moorcock, (1889) LR 14 PD 64 (CA). This test requires that a term can only be implied if it is necessary to give business efficacy to the contract to avoid such a failure of consideration that the parties cannot as reasonable businessmen have intended. But only the most limited term should then be implied—the bare minimum to achieve this goal. If the contract makes business sense without the term, the courts will not imply the same. In Moorcock, (1889) LR 14 PD 64 (CA), it was held as under:
“In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both the parties who are businessmen; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances. Transmission Corporation of Andhra Pradesh Ltd. v. GMR Vemagiri Power Generation Ltd., (2018) 3 SCC 716.

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Existence of A Concluded Contract – Is a Sine Qua Non in a claim for compensation

Section 7 of the Contract Act, 1872 provides that in order to convert a proposal into a contract, the acceptance must be absolute and unqualified. The existence of a concluded contract is a sine qua non in a claim for compensation for loss and damages under Section 73 of the Contract Act arising out of a breach of contract. If instead of acceptance of a proposal, a counter – proposal is made, no concluded contract comes into existence.
In U.P. Rajkiya Nirman Nigam Ltd. v. Indure (P) Ltd., also related to a proposal and counter-proposal. Holding that no concluded contract had come into existence, the Hon’ble Apex Court held as under:
“As seen, the material alterations in the contract make a world of difference to draw an inference of concluded contract.” Vedanata Ltd. v. Emirates Trading Agency LLC, (2017) 13 SCC 243.

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