Indian Contract Act – Law Governing Contracts

Hi Readers

In previous posts, we have discussed that contractual relationships between the parties are enforceable by law. Therefore, it is important to know the law related to Contracts. In India, Indian Contract Act governs and regulates contracts and commercial agreements between the parties. Therefore, let us try to understand the act and its significance for contractual relationships. This is necessary because parties need to draft and administer the contract keeping in view of such laws

Also we know that ignorance of law is not an excuse. Accordingly, this further reinforces the importance of this topic. Further, when a party reaches court due to dispute, the court hear/interpret and decide the case in accordance with applicable law only

Business Laws in brief

Laws that govern and regulate business transactions are called Business Laws. A basket of business laws (among others) includes the followings

1) Indian Contract Act 2) Sale of Goods Act 3) Indian Partnership Act

4) Negotiable Instrument Act 5) Information Technology Act

In the above list, Indian Contract Act and Sale of Goods Act are more relevant to Contracts and Procurement. These two laws were enacted long before during British India. Others business laws followed later on when the need arise. In this post, we will confine our discussion to Indian Contract Act only. Sale of Goods Act and its relationship with Indian Contract Act shall be covered in next post

Indian Contract Act, 1872

The law related to contracts is the first and foremost statute enacted during 1872. Original law came into force on first September 1872 and is known as Indian Contract Act, 1872. The law had been amended from time to time and latest amendment of year 1996 known as Indian Contract (Amendment) Act, 1996. The act was originally drafted based on English Contract Law and extends to whole of India except the State of Jammu and Kashmir

Key points regarding Indian Contract Act, 1872

Indian Contract Act, 1872, defines the set of rules in relation to Contracts. It provides norms with regards to the promises made by the parties and agreements reached between them for commercial purpose. Actually. it lay down general principles regarding: formation, communication, validity, performance & consequences for breach of: Contracts. The act also covers the general provisions with regards to Contract of Indemnity and Guaranty; Contract of Bailment & Contingent Contracts. The original contract act had also covered the Contract of Sale of Moveable Goods (Chapter VII) and Contact of Partnership (Chapter XI). However, these chapters are no longer valid because separate legislations have been enacted subsequently to addressed such matters

Indian Contract Act- a general law for all contracts

Indian Contract Act is a general contract law. So, it applies to all kind of contracts and commercial agreement signed by parties based on mutual promises. This Act form the basis for enactment of other business laws (e.g. Sale of Goods Act, Indian Partnerships Act etc.). Such specific laws were enacted later on to address the emerging needs and changing business requirements.

In view of the above, the generic and fundamental provisions of Indian Contract Act, 1872 continue to apply to specific laws enacted for specialized branches of Contracts. Accordingly, the followings business transactions and agreements between the parties, in pursuit of trade, commerce and industry, are governed by Indian Contract Act;

  • Sale (purchase) of goods between buyer and seller
  • Provision of Services or Execution of Works by contractor for the owner
  • Joint Venture or Consortium Agreements
  • Partnership Agreements
  • Collaboration and cooperation contracts

Disclaimer Statements:

References for further study

Indian Contract Act, 1872 (Base Act)

Agreement not declared void Capacity of the parties Consideration necessary for a valid contract Contract Administration Contract Formation Contract Management Contract Objectives Contract Principles Difference between MOU and Contract Equity Free Consent Indian Contract Act Intention to create legal relationships Justice Lawful Consideration Law Governing Contracts Law governing supply contracts MOst suitable use of MOU Offer and Acceptance Reasonableness Sale of Goods Act Significance of MOU Voidable Contracts Void Agreements What is a Contract What is agreement What is consideration What is MOU whether all agreements are contracts