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.

No Right Accrues – To Highest Bidder

In Laxmikant v. Satyawan, (1996) 4 SCC 208, it was held as under:
“The person making the highest bid shall have no right to take back his bid. The decision of the Chairman of the Board of Trustees regarding acceptance or rejection of the bid shall be binding on the said person. The acceptance of the highest bid shall depend on the Board of Trustees. The trust shall reserve to itself the right to reject the highest or any bid.”
In State of U.P. v. Vijay Bahadur Singh, (1982) 2 SCC 365 it was laid down that there is no obligation to accept the highest bid. The Government is entitled even to change its policy from time to time according to the demands of the time.
Thus, it is apparent and explicit that even if the public auction had been completed and the respondent was the highest bidder, no right had accrued to him till the confirmation letter had been issued to him. HUDA v. Orchid Infrastructure Developers (P) Ltd., (2017) 4 SCC 243.

Pre – Existing Duty Doctrine

Pre-existing duty doctrine is a principle under the Contract Act and states that if a party to a contract is under a pre-existing duty to perform, then no consideration is given for any modification of the contract and the modification is therefore voidable. In the 13th edition of Pollock and Mulla Indian Contract and Specific Relief Act in Vol. 1, it is mentioned at page 101 about the pre-existing obligation under law, which provides that:
“The performance of what one is already bound to do, either by general law or by a specific obligation to the other party, is not a good consideration for a promise; because such performance is no legal burden to the promisor, but rather relieves him of a duty. Neither is the promise of such performance a consideration, since it adds nothing to the obligation already existing.” Anuradha Samir Vennangot v. Mohandas Samir Vennangot, (2015) 16 SCC 596.

Waiver of A Right

In P. Dasa Muni Reddy v. P. Appa Rao, (1974) 2 SCC 725 it was held as under:
“Waiver is an intentional relinquishment of a known right or advantage, benefit, claim or privilege which except for such waiver the party would have enjoyed. Waiver can also be a voluntary surrender of a right. The doctrine of waiver has been applied in cases where landlords claimed forfeiture of lease or tenancy because of breach of some condition in the contract of tenancy. The doctrine which the courts of law will recognize is a rule of judicial policy that a person will not be allowed to take inconsistent position to gain advantage through the aid of courts. Waiver sometimes partakes of the nature of an election. Waiver is consensual in nature. It implies a meeting of the minds. It is a matter of mutual intention. The doctrine does not depend on misrepresentation. Waiver actually requires two parties, one party waiving and another receiving the benefit of waiver. There can be waiver so intended by one party and so understood by the other. The essential element of waiver is that there must be a voluntary and intentional relinquishment of a right. The voluntary choice is the essence of waiver. There should exist an opportunity for choice between the relinquishment and an enforcement of the right in question. It cannot be held that there had been a waiver of valuable rights where the circumstances show that what was done was involuntary. There can be no waiver of a non-existent right. Similarly, one cannot waive that which is not one’s right at the time of waiver. Some mistake or misapprehension as to some facts which constitute the underlying assumption without which parties would not have made the contract may be sufficient to justify the court in saying that there was no consent.”
It is important to note that waiver is an intentional relinquishment of a known right, and that, therefore, unless there is a clear intention to relinquish a right that is fully known to a party, a party cannot be said to waive it. But the matter does not end here. It is also clear that if any element of public interest is involved and a waiver takes place by one of the parties to an agreement, such waiver will not be given effect to if it is contrary to such public interest. All India Power Engineer Federation v. Sasan Power Ltd., (2017) 1 SCC 487.

Fairness in Government Dealings

In espousing the equitable notion of exacting fairness in Governmental dealings the Court in Food Corporation of India v. Kamdhenu Cattle Feed Industries, (1993) 1 SCC 71 proclaimed that there was no unfettered discretion in public law and that a sovereign authority possessed powers only to use them for public good. Observing that the investiture of such power imposes with it, the duty to act fairly and to adopt a procedure which is “fair play in action”, it was underlined that it also raises a reasonable or legitimate expectation in every citizen to be treated fairly in his dealings with the State and its instrumentalities.
The observance of this obligation as a part of good administration, is obligated by the requirement of non-arbitrariness in a State action, which as a corollary, makes it incumbent on the State to consider and give due weight to the reasonable or legitimate expectations of the persons, likely to be affected by the decision, so much so that any failure to do so would proclaim unfairness in the exercise of power, thus vitiating the decision by its abuse or lack of bona fides. The besieged decision would then be exposed to the challenge on the ground of arbitrariness. It was propounded that mere reasonable or legitimate expectation of a citizen, may not by itself be a distinct enforceable right in all circumstances, but the failure to consider and give due weight to it, may render the decision arbitrary. It was thus, set down that the requirement of due consideration of legitimate expectation formed a part of the principle of non-arbitrariness, a necessary concomitant of the rule of law. Lalaram and Others v. Jaipur Development Authority, (2016) 11 SCC 31.

Doctrine of Severability

Explaining the doctrine of severability contained in Section 57 of the Indian Contract Act, 1872 in B.O.I. Finance Ltd. v. Custodian and Others, (1997) 10 SCC 488, a three Judge Bench of the Court has held that question of severance arises only in the case of a composite agreement consisting of reciprocal promises. In Shin Satellite Public Company Ltd. v. Jain Studios Ltd.m (2006) 2 SCC 628, the court has observed that the proper test for deciding validity or otherwise of an order or agreement is “substantial severability” and not “textual divisibility”. It was further held by the Court that it is the duty of the court to sever and separate trivial and technical parts by retaining the main or substantial part and by giving effect to the latter if it is legal, lawful and otherwise enforceable. Elektron Lighting Systems Pvt. Ltd. v. Shah Investments Financial Developments and Consultants Pvt. Ltd., 2016 (1) AWC 671.