NEED FOR IMPROVEMENT IN THE INDIAN CONTRACT ACT FROM AN INTERNATIONAL PERSPECTIVE

INTRODUCTION

Wherever in a business, a deal is sealed with a handshake; a contract plays an important role. A contract includes all the terms and conditions which are mutually agreed upon between the parties. For this, The Indian Contract Act of 1872 plays a pivotal role. The Indian Contract Act, 1872, is a statute for contractual relations between the parties; including provisions for contract formation and its enforcement. The Indian Contract Act also includes the provisions for quasi-contracts and special contracts. The Special contract includes the provisions for indemnity and guarantee, Bailment, Pledge, and Agent and principle. With the growing startups and businesses across the Globe, the importance of this Act is increasing.

DIGITAL CONTRACT

An increase in the consumer market results in globalization and a boost in international business. Economists predict that India will be the world’s third-largest economy.[1] Many foreign companies want to expand their businesses in India. With this growing business, it is necessary to have written agreements. Most businesses are handled digitally. For international businesses, digital contracts are time-saving. The digital contract saves time compared to physical contracts. Apart from being more secure than physical contracts, editing and reviewing the contracts digitally reduces the occurrence of the risk and is more secure. Digital contracts in association with data protection rules will be a boon to international trade. Section 10A of the Information Technology Act of 2000 provides the provision for e-contracts. It is stated as “Where in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose.” Section 73 of the Indian Contract Act of 1872 provides for the breach of contract. However, there are no provisions for the breach of e-contracts in the Indian Contract Act. With the increase in e-contracts, there must be some measures for breach of e-contracts. 

CONTRACTS MADE IN GOOD- FAITH

In Countries like UAE, the contract law has a provision for bona fide contracts, based on the principle of good faith. It is rather a contractual duty. Article 246(1) of the UAE Civil Code is stated as “a contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith.” Australia has also embodied the concept of good faith in its statute. The implied term of good faith has been provided under Section 13 of the Insurance Contracts Act 1984. Burger King Corporation v Hungry Jack’s Pty Ltd[2], in this case, which it has been argued that due to the breach of good faith, the party cannot terminate the contract. Good faith implies honesty and sincerity. It signifies that the rights of the other party are not infringed. The Indian Contracts Act does not have this principle. This principle protects the party from the breach of contract. Taking into consideration the growing business if the contract is made with good faith, it will provide fruitful results and boost the Indian economy. Like other countries, this principle must be embodied in the Indian contracts act.

DELAY IN THE ENFORCEMENT OF THE CONTRACT

In 2018, India ranks at 163 out of 190 nations in the contract enforcement metrics. This indicator measures the time and cost taken to resolve the commercial dispute. Also, the Economic Survey of 2017-18, draws attention to the stalled projects and legal costs. When a delay in contract enforcement is caused, businesses prefer not to deal with that company.[3] Due to this, the company has to settle for poor-quality goods and services. Also, the Indian Judiciary is already overburdened with pending cases. However, the Indian Government has adopted various steps to address this issue. The Government has set off a two-high-level task force to lay a roadmap for the enforcement of the contract.[4] It would also result in speedy resolution of contractual disputes. The Justice Department has launched an “enforcing contracts portal”.[5] This portal aims to provide an improved contract enforcement process in India. In addition to providing access to commercial laws for quick reference, the portal gives information about the latest information on commercial disputes. But, there has to be a proper provision for it in the Indian Contract Act. The contract enforcement must be completed within a specified period.

CONCLUSION

A contract is an agreement upon which both the parties mutually agree. Contract plays a huge role during business deals. Now businesses are expanding their businesses globally. For this, some improvement in the contract Act is necessary. One of these is a digital contract. Digital contracts are easy to use, environmental friendly, and time-saving. Even the Information Technology Act, of 2000 provides that digital contracts are valid and enforceable. But there are no provisions in the Indian contract about the breach of e-contracts. Also, many countries have embodied the term of good faith in their contract laws. The principle of good –faith connotes fairness and honesty towards the other party. It also prevents the breach of moral and legal rights of the parties contracting. Now the next important measure for which improvement must be made is for the delay in enforcing contracts. Undue delay in contract enforcement needs to be addressed. Though the Government of India is taking various steps to address this issue by introducing an ‘enforcing contracts portal’, and establishing a task force; however, there needs to be some provision in the Act itself.

In my opinion, understanding the growing importance of digital contracts, it must be made more secure. For this, there must be some provisions, including provisions for breach of e-contract. Moreover, the principle of good faith has profound importance. It aids the judiciary to conclude in respect of the breach of contract.  It must be implemented in the Indian Contract as well. Regarding the delay in the enforcement of a contract, there must be a proper limitation period to prevent unreasonable delay.

Author(s) Name: Nidhi Rao (University of Mumbai, School of Law, Thane)

Reference(s):

[1] Dipanjan Roy Chaudhury, “India presents a great investment destination to any international business” (The Economic Times, 19 January 2022) <https://economictimes.indiatimes.com/news/economy/foreign-trade/india-presents-a-great-investment-destination-to-any-international-business/articleshow/88987369.cms> accessed on 23 June 2022

[2] Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187, (2001) 69 NSWLR 558

[3] Vasuki Nandan, ‘ Opinion | The need for strong contract enforcement’ (Mint, 6 Nov 2018) <https://www.livemint.com/Opinion/0BdnhKshccUO1loQ3d6ZON/Opinion–The-need-for-strong-contract-enforcement.html> accessed on 23 June 2022

[4] Yogima Seth Sharma, ‘Niti Aayog sets up task forces for achieving policy certainty in contract enforcement, dispute resolution’ (The Economics Times, 23 March 2021) <https://economictimes.indiatimes.com/news/economy/policy/niti-aayog-sets-up-task-forces-for-achieving-policy-certainty-in-contract-enforcement/articleshow/81633693.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst> accessed on 23 June 2022

[5] <https://pib.gov.in/PressReleasePage.aspx?PRID=1731090> accessed on 23 June 2022