Tag Archives: Indian Contract Act

Specific Performance of Contract – Starting Point of Limitation

Hon’ble Gujarat High Court in the case of Somabhai Kanjibhai Patel v. Abbasbhai Jafarbhai Daginawala, 1993 (2) GLR 1337, has held that in a contract for sale of all seven plots, sale of one plot only would amount to refusal to perform the contract in its entirety. The starting point of limitation would come into play as soon as performance of the contract in its entirety is refused either expressly or by necessary implication evinced by such contract of sale of one plot therefrom. It is held that if the starting point of limitation is not allowed to run on the ground of refusal of performance of the contract in part, no suit could be instituted till the performance of the contract in its entirety is refused. In that case, the suit filed before the entire contract is broken might be branded as premature. It is held that besides, the starting point of limitation cannot be permitted to be postponed indefinitely as in that case. The prescribed period of limitation under Article 54 of the Act is three years from the date performance of the contract is refused to the knowledge of the litigating party. Shetty Associates Pvt. Ltd. v.Samta Builders Private Limited, (2019) 4 Bom CR 735.

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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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Single Contract Case and Two Contract Case – Distinction Between

 In Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v. Sometal SAL, 2010 Bus LR 880, a distinction was made between a “single contract case” and a “two contract case”. A “single contract case” is one where the arbitration clause is contained in a standard form contract to which there is a general reference in the contract between the parties. On the other hand, where the arbitration clause is contained in an earlier contract/some other contract, and a reference is made to incorporate it in the contract between the parties, it is a “two contract case”. The Court held that incorporation by general reference in a single contract case is valid. However, in a “two contract case”, where reference is made to an arbitration clause in a separate contract, the reference must be specific to the arbitration clause. The judgment in  Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v. Sometal SAL, 2010 Bus LR 880  has been affirmed by the Queen’s Bench Division in SEA 2011 Inc. v. ICT Ltd., 2018 EWHC 520 (Comm).

The Court recognised the following broad categories in which the parties attempt to incorporate an arbitration clause:

“(1A and B make a contract in which they incorporate standard terms. These may be the standard terms of one party set out on the back of an offer letter or an order, or contained in another document to which reference is made; or terms embodied in the rules of an organisation of which A or B or both are members; or they may be terms standard in a particular trade or industry.

(2A and B make a contract incorporating terms previously agreed between A and B in another contract or contracts to which they were both parties.

(3A and B make a contract incorporating terms agreed between A (or B) and C. Common examples are a bill of lading incorporating the terms of a charter to which A is a party; reinsurance contracts incorporating the terms of an underlying insurance; excess insurance contracts incorporating the terms of the primary layer of insurance; and building or engineering sub-contracts incorporating the terms of a main contract or sub-sub-contracts incorporating the terms of a sub-contract. (4A and B make a contract incorporating terms agreed between C and D. Bills of lading, reinsurance and insurance contracts and building contracts may fall into this category.” Giriraj Garg v. Coal India Ltd., (2019) 5 SCC 192.

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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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Relief of Specific Performance – Is Discretionary

A perusal of Section 20 of the Specific Relief Act clearly indicates that the relief of specific performance is discretionary. Merely because the plaintiff is legally right, the Court is not bound to grant him the relief. True it is, that the court while exercising its discretionary power is bound to exercise the same on established judicial principles and in a reasonable manner. Obviously, the discretion cannot be exercised in an arbitrary or whimsical manner. Sub-clause (c) of sub-section (2) of Section 20 provides that even if the contract is otherwise not voidable but the circumstances make it inequitable to enforce specific performance, the court can refuse to grant such discretionary relief. Explanation (2) to the Section provides that the hardship has to be considered at the time of the contract, unless the hardship is brought in by the action of the plaintiff. Surinder Kaur v. Bahadur Singh, (2019) 8 SCC 575.

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Suit for Specific Performance – Rule of Equity Does Not apply

It is well settled that the rule of equity that exists in England, does not apply, and so long as a suit for specific performance is filed within the period of limitation, delay cannot be put against the plaintiff. In Mademsetty Satyanarayana v. G. Yelloji Rao, AIR 1965 SC 1405 it was held as under:         “It is necessary to know the fundamental difference between the two systems – English and Indian – qua the relief of specific performance. In England the relief of specific performance pertains to the domain of equity; in India, to that of statutory law. In England there is no period of limitation for instituting a suit for the said relief and, therefore, mere delay – the time lag depending upon circumstances – may itself be sufficient to refuse the relief; but, in India mere delay cannot be a ground for refusing the said relief, for the statute prescribes the period of limitation. If the suit is in time, delay is sanctioned by law; it is beyond time, the suit will be dismissed as barred by time; in either case, no question of equity arises.” R. Lakshmikantham v. Devaraji, (2019) 8 SCC 62.

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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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Till Adjudication of Demand – Government Cannot Withhold Money of Contractor

In Gangotri Enterprises Ltd. v. Union of India, (2016) 11 SCC 720, it was held that the demand of the Government is crystallised or adjudicated upon, the Government cannot withhold the money of the contractor. This judgment is primarily based on the judgment of the Hon’ble Apex Court in Union of India v. Raman Iron Foundry, (1974) 2 SCC 231. In this case it was held that the Government had no right to appropriate the amount claimed without getting it first adjudicated. It was held as under:

            “But here the order of interim injunction does not expressly or by necessary implication, carry any direction to the appellant to pay the amounts due to the respondent under other contracts. It is not only in form but also in substance a negative injunction. It has no positive content. What is does is merely to injunct the  appellant from recovering, suo motu, the damages claimed by it from out of other amounts due to the respondent. It does not direct that the appellant shall pay such amounts to the respondent. The appellant can still refuse to pay such amounts if it thinks it has a valid defence and if the appellant does so, the only remedy open to the respondent would be to take measures in an appropriate forum for recovery of such amounts where it would be decided whether the appellant is liable to pay such amounts to the respondent or not. No breach of the order of interim injunction as such would be involved in non-payment of such amounts by the appellant to the respondent. The only thing which the appellant is interdicted from doing is to make recovery of its claim for damages by appropriating such amounts in satisfaction of the claim. That is clearly within the power of the court under Section 41(b) of the Arbitration Act, 1940 because the claim for damages forms the subject-matter of the arbitration proceedings and the court can always say that until such claim is adjudicated upon, the appellant shall be restrained from recovering it by appropriating other amounts due to the respondent.” State of Gujarat v. Amber Builders, (2020) 2 SCC 540.  

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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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