Legal Aspects of Business 1

Name: - Kaklotar Sahil Naresh Bhai

Roll no: - 240
Assignment Topic: - Topic no 01,09
Year: - T.Y.B.B.A. (Finance)
Division: - Finance (01)
Submission Date: - 26/09/2022
Submission to: - Huma shohabuddin

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Q-1:- DISCUSS BRIEFLY THE HISTORY, OBJECTIVE AND SCOPE OF THE INDIAN CONTRACT ACT 1872

Introduction
The Indian Contract Act brings within its ambit the contractual rights that have been granted
to the citizens of India. It endows rights, duties and obligations on the contracting parties to
help them to successfully conclude business- from everyday life transactions to evidencing the
businesses of multi-national companies. The Indian Contract Act, 1872 was enacted on 25th
April, 1872 [Act 9 of 1872] and subsequently came into force on the first day of September
1872. The essence of the India Contract Act has been modelled on that of the English Common
Law.

The extent of modifications made in the Act as per the Indian conditions and its adaptability to
the Indian economy is an important area of research. In this regard it is pertinent to note that
since the enactment of the Act there have been no amendments and thus the Law that was made
in 1872 still stands good. However, these are questions of interpretation that not only depend
on the text of the Act, but also on the English authorities that framed the law and before it, the
subsequent development of law.

The history of the Act brings to light the very origin of the economic processes and in this
regard, the importance of contracting in order to conduct one’s business in everyday life. The
prevalent system in the ancient times was barter and it was based on the mutual principle of
give and take. This was confined to commodities as there was no medium of exchange as is
seen in the form of money today and this system can be traced back in time to the Indus Valley
Civilization (the earliest human civilization). The system still finds relevance in the
contemporary world, where it can be found in commercially and economically underdeveloped
areas.

However, the relevancy of such a system in modern times is questioned as the complexity in
the nature of the economic systems as well as the increasing demand and supply systems due
to the change in the wants and needs of the human beings came to the fore. Also, money had
evolved as the medium of exchange such that the value of every commodity could now be
quantified. Thus, in such an era of greater economic transaction one finds the existence of
Contract Laws and with it, their relevance.

The Indian Contract Act codifies the way we enter into a contract, execute a contract and
implement provisions of a contract and effects of breach of a contract. The contractual capacity
is restricted in certain situations otherwise it is the prerogative of the individual to contract.
There are specific areas which deal with property, movable gods and specific performance such
as the Transfer of Property Act, The Sale of Goods Act and The Specific Relief Act. Some of
these acts, were originally a part of the Indian Contract Act enacted in 1872 but were later

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codified as separate laws. Moreover, the Act is not retrospective in nature. Hence a contract
entered into prior to 1st September 1872, even though to be performed after passing of this Act
is not hit by this Act. Hence, we arrive of the conclusion that the basic framework of
contracting is covered in the Indian Contract Act and it is an important area of law, with roots
deep in the history of civilization- and thus forms the subject matter of this project of this course
of Legal History.
RESEARCH METHODOLOGY
For this project titled, ‘History of the Indian Contract Act, 1872’ the doctrinal method was
judged to be most appropriate. Primary resources referred to in the course of research include
books, journals, law reports and cases, most of them accessed from the NALSAR law library.
Other sources like articles, and the like were accessed online through the use of online
databases. All direct quotations have been properly footnoted
RESEARCH SCHEME
• AIM AND OBJECTIVES
The aim of the project is to trace the history of the Indian Contract Act, 1872 and analyse the
developments that led to its enactment in 1872. The project also ventures to seek the history of
‘Law of Contracts’ in general and present a brief view on the changing notions about the
contract law.

• SCOPE AND LIMITATIONS

The project covers the development of the ‘Law of Contracts’ right from the early stages of
human civilization, making its way through Roman and English notions that eventually led to
the formation of the Indian Contract Act. The project also shows the relevance of such
legislation, codifying the principles of contract making.
The research is limited to the resources available at the NALSAR Library. Books related to the
topic are available at the library. Also, the sources available on the internet helped a
considerable deal. Suggestions from the course-instructor and fellow students have been
incorporated wherever necessary.
EARLY LAW OF CONTRACT: INDIA
• VEDIC AND MEDEIVAL PERIOD
During the entire ancient and medieval periods of human history in India, there was no general
code covering contracts. Principles were thus derived from numerous references- the sources
of Hindu law, namely the Vedas, the Dhramshatras, Smritis, and the Shrutis give a vivid
description of the law similar to contracts in those times. The rules governing contracts form a
part of the law called Vyavaharmayukha.

Studies of the smritis reveal that the concept of contract originated in the Vedic period itself.
Topics, as we know them today like debt deposit and pledges sale without ownership, mortgage
and gifts, which are all contracts in nature, are mentioned therein. The general rules of contract
bear a striking resemblance to the modern law of contract. For e.g., as mentioned in the Manu

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smriti, the first and the foremost requirement for a contract process to start is the competence
of the persons who are willing to enter into a contract. This norm laid down for competence
corresponds with the provisions of the present law (Section 11, Indian Contract Act), namely,
dependents, minors, sanyasis, persons devoid of limbs, those addicted to vices were
incompetent to contract. The Narad smriti categorizes competent persons into three; the king,
the Vedic teacher and the head of the household.

The concept of liability in contract law finds its birth in the Vedic period too. Spiritual debts
were referred as ‘wrin’ and it was constantly reinforced by the srmitis that failure to pay back
the debts meant re-birth as a slave, servant, woman or beast in the house of creditor. So, the
son was liable to pay of his father’s debts even if he did not inherit any property from him.

Towards the end of the medieval age, the law of contracts was pretty much being governed by
two factors; the moral factor and the economic factor. Activities like transfer of property,
performance of services etc. required rules for agreements and promises, which covered not
just business and commercial transactions, but also personal relationships in all walks of life.
This takes us to the next source, i.e., the Arthashastra by Kautilya, which is considered to be
the only existing secular treatise on politics and governments.

During Chandragupta’s reign, contract existed in the form of “bilateral transactions” between
two individuals of group of individuals. The essential elements of these transactions were free
consent and consensus on all the terms and conditions involved. It was an open contract openly
arrived at. It was laid down that the following contracts were void:

• Contracts formed during the night.

• Contracts entered into the interior compartment of the house.
• Contracts made in a forest
• Contracts made in any other secret place
• There were certain exceptions to clandestine contracts such as:
• Contracts made to ward off violence, attack and affray
• Contracts made in celebration of marriage
• Contracts made under orders of government
Contracts made by traders, hunters, spies and others who would roam in the forest frequently.
The contract would be rendered void if there was any undue influence or if the contract was
entered into a fit of anger or under influence of intoxication etc. In general, women could not
make contracts binding on their husbands or against family properties. It was possible for a
competent person to authorise a dependent to enter into transactions. The dependents in such
case included a son whose father was living, a father whose son managed the affairs, a woman
whose husband was alive, a slave or hired servant.

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It has to be noted that money lending was seen as an occupation. Usury was a sin only when
the usurer cheated the debtor, for e.g., when he lent goods of a lower quality, but received
goods of a higher quality in return or if he extracted fourfold or eightfold return from a
distressed debtor. The interest would be fixed with reference to the article pledged or surety
given. Although, all commentaries are not in agreement with the amount of interest to be
charged, they all agree that it was sinful to take exorbitant interest and such interest would not
be enforceable in court. The Yajnavalkya smriti provided that in case of cattle being loaned,
their progeny was to be taken as profit.

Also, the rights and duties (of a Bailee) in a Bailment, as we know it today in the form of
sections 151 and 152 of the Indian Contract Act, 1872, has its root to the Katyaynasmriti
containing a special provision called the ‘silpinyasa’ dealing with the deposit of raw materials
with an artisan- talking about the degree of care attached. The text laid down that “if an artisan
does not return the things deposited with him during the stipulated time, he should be made to
pay its price even in the cases, where the loss is due to acts of God or King. The artisan,
however, is not responsible for the loss of an article which was defective at the very time of
bailment, unless the loss is due to his own fault.”

It is also interesting to note that there was no ‘limitation’ for bringing a suit for money lent.
This was because of the rule of ‘damdupat’ which laid down that ‘the amount of principal and
interest recoverable at one time in a lump sum cannot be more than double the money lent.’ It
took into consideration the fact that debts were not necessarily recoverable from a man himself,
his descendents were also liable. Thus, there was no concept of a ‘limitation period’ for filing
a suit. The rule of ‘damdupat’ is still prevalent in Calcutta and Bombay as it has been upheld
to be a valid custom and thus enjoys enforceability under the savings clause, Section 1.
ISLAMIC LAW
During the Muslim rule in India, all matters relating to contract were governed under the
Mohammedan Law of Contract. The word contract in Arabic is Aqd meaning a conjunction. It
connotes conjunction of proposal (Ijab) and acceptance which is Qabul. A contract requires
that there should be two parties to it one party should make a proposal and the other accept it,
the minds of both must agree that is their declaration must relate to the same matter and the
object of contract must be to produce a legal result.

It also supplied rules to govern specific contracts to commercial, mercantile and proprietary
nature like agency (vakalat), guarantee and indemnity (zamaanat and tamin), partnership
(shirkat), one person’s money and another’s work (muzarabat), bailment (kafalat). All
transactions were treated as secular contracts and rules were provided for settlement of all types
of disputes even relating to property and succession.

Another thing to be noted is that under Islamic Law even marriages (Nikah) were treated as
contracts and till date the situation remains the same. Either of the parties to the marriage makes

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a proposal to the other party and if the other party accepts, it becomes a contract and the
husband either at the time of marriage or after it has to pay an amount to the wife as a symbol
of respect known as Mahr. Also, the Mahommedans were the firsts to recognize the concept of
divorce. This way, a party to marriage could absolve itself of the contractual obligations under
marriage. Muslim marriages are thus considered contracts for these reasons.
THE FIFTEENTH AND SIXTEENTH CENTURIES
The challenge faced by the common law Courts in the fifteenth and sixteenth centuries was to
develop a general criterion for enforcing promises within the framework of the forms of action.
And by the end of the 15th century, two forms of action for enforcing rights, which included
some of those which we now call contractual, had taken a fairly definite shape. These were
action on ‘debt’ and the action on ‘convenant’.
CONVENANT
The word ‘convenant’ is the nearest medieval equivalent to current definition of ‘contract’. The
action of convenant mainly concerned breaches of agreement for services like building or for
sales or leases of land. The primary claim was for performance, and in royal courts the action
was begun by the praecipe writ ordering the defendant to keep the agreement; but judgements
ceased to order specific performance and damages were awarded instead. But the action of
convenant soon fell out of use, not because it was ineffective but because the other action of
‘debt’ proved more effective.
Types of Contracts
1. Valid Contract - A Contract is said to be a valid Contract when the Contract has all the
essential ingredients present in it.

2. Void Contract - A Contract is said to be void when a Contract is void from the beginning
when it was made, and which cannot be enforceable by law. It lacks enforceability.

3. Voidable Contract - A voidable Contract is a Contract, not a void Contract. This contact
can be affirmed or rejected by the parties. This Contract starts as valid but later there
will be an option for the parties to move forward with it or deny it. It can be declared
invalid at the request of any party because of any defect.

4. Illegal Contracts - When the subject matter or the terms or conditions are not accepted
by society and it is already unlawful then it becomes an illegal Contract.

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Proposal
A contract is initiated by making a proposal or offer to another party. The person making such
an offer/proposal is the promisor or offeror, and the one who accepts the same is the promisor
or acceptor.
Acceptance
Section 2(b) of the Indian Contract Act suggests that a proposal is accepted when the person to
whom it is made signifies his/her assent. A proposal so accepted becomes a promise.
Acceptance must be in line with the following specifications:

• It has been communicated.

• It is absolute and unqualified.
• It is only communicated to the offeror.
• It is issued in the prescribed manner.
• It is issued before the specified lapse of time (if any) or within a reasonable time.
• It isn’t made before an offer is communicated.
• Mere silence doesn’t constitute acceptance.

What is the scope of Contract?

The scope of the contract defines all aspects of the document. Contracts have different forms,
and the amount involved ranges from small to large amounts. Some contracts last for years
while others have shorter deadlines. The materials found in contracts also vary depending on
their purpose.

There are many aspects of commercial law, and sometimes it is difficult to define all areas.
Typically, commercial law practice involves human research as it relates to, but is not limited
to, contracts, sale of goods, taxation, insurance, and rental.

The identification phase provides a basic scope of the contract. Some projects have different
development and management affiliations that lie under different scopes of a contract. This
means that the obligations or services go toward other parties.

For instance, a project involving a hospital might include a condition on clinical services. If
the hospital transfers the clinical service to a private partner, the hospital must decide to include
other services, such as cleaning and catering, in addition to its maintenance services. The
hospital must also determine what services to include in the contract’s boundaries.

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There is also expertise in contracts, such as: –

• Membership for a club or

• Domestic or marriage contract
• Unformed contract
• Fully executed contract
a. Meaning, Nature & Scope of Contract Every person enters into multiple contracts everyday
knowingly or unknowingly. Law of Contracts specify the law governing such oral or written
contracts. Whether it is buying groceries from supermarkets, employing domestic help at home,
taking a taxi to work everything falls under this domain.
When one person signifies to another his willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other to such act or abstinence, he is said to make a
proposal.
When the person to whom the proposal is made signifies his assent thereto, the proposal is said
to be accepted. A proposal, when accepted, becomes a promise; The person making the
proposal is called the "promisor", and the person accepting the proposal is called the
"promisee";
When, at the desire of the promisor, the promisee or any other person has done or abstained
from doing, or does or abstains from doing, or promises to do or to abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise;
Every promise and every set of promises, forming the consideration for each other, is an
agreement;
Promises, which form the consideration or part, of the consideration for each other are called
reciprocal promises;
An agreement not enforceable by law is said to be void;
An agreement enforceable by law is a contract;
An agreement which is enforceable by law at the option of one or more of the parties - thereto,
but not at the option of the other or others, is a voidable contract
A contract which ceases to be enforceable by law becomes void when it ceases to be
enforceable.

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Q-2 WHAT ARE THE VARIOUS REMEDIES AVAILABLE TO A PARTY IN CASE OF BREACH OF
CONTRACT?
Breach of a contract
A breach of contract is nothing but the violations committed by the parties to the contract of
any or all of the previously agreed-upon terms of the contract. The breach of a contract can
range from late payment to non-payment of the consideration to failure to do any act or to
refrain from doing so or failing to deliver a promised asset to the other party of the contract. A
breach can either be partial in nature or complete in nature.
Kinds of breach of a contract
The breach of contract is classified into three different categories ranging from the degree of a
breach. They are:
Material breach – This kind of breach of a contract occurs when any of the main components
of a contract is not fulfilled by either of the parties of the contract as promised by them in the
contract. A breach like this defeats the objective of the contract and the aggrieved party is not
left with any other choice but to knock the doors of the court for the redressal of this issue.
Minor breach – This kind of breach of contract is also called partial breach or immaterial breach
of the contract. This kind of breach occurs when any minor or immaterial part of the obligation
of either of the parties to the contract is not fulfilled by them as promised by them in the
contract. In such a situation, the aggrieved party can go for legal remedy if they have suffered
some material loss like financial loss by the breach committed by the other party to the contract.
Anticipatory breach – This kind of breach of the contract occurs when either of the parties to
the contract informs the other party to the contract via some medium like a letter, email, etc
about their incapability to perform any or all of their obligations in the agreed-upon time as
listed down in the contract by them.
Remedies of breach of a contract
Whenever two parties decide to get into a contract, there is always a possibility of a dispute
arising between them with regard to the contract. And in order to deal with such a situation,
Section 73 of the Indian Contract Act, 1872 comes into play. It states that whenever any party
to the contract suffers damage because of the action or inaction of the other party to the contract
then the aggrieved party is entitled to receive compensation from the other party for such
damages. It also states that the aggrieved party can only claim compensation if he has suffered
a loss due to the breach of contract by the other party. The compensation cannot be claimed by
the aggrieved party if the loss suffered by him is not direct or remote in nature.

An aggrieved party usually files a lawsuit against the other party to the contract when the
attempt of resolving the breach or dispute fails by informal methods. The aggrieved party goes
for filing a lawsuit in the Hon’ble District Court if the sum at issue is below Rs. 20,00,000/-
and if it is above Rs. 20,00,000/- then the aggrieved party goes for filing a lawsuit in the
Hon’ble High Court of the state where the contract was executed or as per mutual agreed by
the parties in the contract they signed. When a breach in the contract occurs, the parties to the

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contract may choose to hire an arbitrator and may choose to review the contractual argument
or differences and resolve it through arbitration, mediation, or conciliation.
Types of Remedies for Breach of Contract
There are several common remedies for breach of contracts. The appropriate remedy depends
on the terms of the contract, the nature of the breach, and the specific circumstances of the case.
Compensatory Damages
An award of compensatory damages is the most common of the legal remedies for breach of
contract.
The calculation of compensatory damages is based on the actual losses you have sustained as
a result of the breach of contract. They typically fall into two categories: expectation damages
and consequential damages.
Expectation Damages
Expectation damages—also referred to as general damages—are those that directly result from
the breach of contract.
For example, imagine a company that provides bus tours enters into a contract to buy a bus for
$100,000. However, the seller backs out of the contract and refuses to sell the bus. The bus
company finds another seller with a similar bus, but they won’t take less than $110,000. In that
case, the expectation damages would be $10,000—the difference between the contract price
and the amount the company had to pay another seller for the same product.
Consequential Damages
Consequential damages are those that flow as a natural consequence of the breach.
Consequential damages often comprises profits that a company lost as a result of the breach.
In the case of the bus example, imagine it took an extra week to secure the new bus. As a result,
the tour company had to turn away 1,000 customers that would have each paid $50 for a bus
tour. In that case, the company could likely recover consequential damages for the $50,000
they lost in ticket sales.
Often the breaching party will attempt to avoid paying consequential damages by claiming that
they are too speculative or that they are not foreseeable. Also, sometimes parties to a contract
may limit or preclude either party from recovering consequential damages. An experienced
attorney can help you combat these arguments and maximize your damages award.
Specific Performance
Specific performance is a type of remedy for breach of contract in which a court orders the
breaching party to perform their end of the bargain.
Monetary damages are typically favoured over specific performance as a remedy for breach of
contract. However, specific performance may be available when monetary damages won’t
adequately compensate you. For example, they may apply to a contract for something that is
unique and can’t be easily replaced.

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In the bus example above, monetary damages would be sufficient to compensate the tour
company for its loss. But imagine that the new bus had been used previously by a famous
singer. The tour company wanted to use the bus for tours of the singer’s home town. In that
case, the tour company could argue for specific performance rather than monetary damages
because no other bus would be comparable to the one it contracted to buy.
Injunction
Injunctions serve a similar purpose as specific performance. The difference is that with specific
performance, the court orders a party to do something. With an injunction, the court often
orders a party not to do something.
An injunction may be permanent or temporary. Temporary injunctions are often ordered while
litigation is pending to prevent potential damage. For example, in a lawsuit that concerns a
breach of a noncompete contract, a court might order the defendant to cease the allegedly
competitive activity until the lawsuit is resolved. A permanent injunction, as the name suggests,
is permanent. A judge may issue a permanent injunction as part of their final ruling in a lawsuit.
Rescission
Rescission allows a nonbreaching party to cancel the contract as a remedy for a breach. Rather
than seeking monetary damages, the nonbreaching party can simply refuse to complete their
end of the bargain. Rescission puts the parties back in the position they would have been in had
they never entered into the contract.
However, to justify rescission, the breach must be material. That means that it has to go to the
heart of the contractual agreement.
For example, imagine that you contract to provide catering services for an event. The contract
requires the other party to pay half the contract price by a certain date, but they never pay.
Since payment goes to the heart of the contract, you would be justified in rescinding the
contract and refusing to provide the catering services.
Liquidated Damages
Liquidated damages are a specific amount the parties agree to in the contract as compensation
for a breach.
Contracts often use liquidated damages provisions where it might be difficult to calculate the
correct amount of compensatory damages.
Real estate purchase agreements and construction contracts commonly rely on liquidated
damages. They might be a specific sum, such as the amount of the earnest money on a purchase
contract. Or they could depend on a formula, such as a certain amount of money for each day
a deadline is not met. Partnership agreements are also likely to include liquidated damages
provisions.
Although courts typically uphold liquidated damages clauses, they may disregard them if the
amount of liquidated damages is drastically smaller or greater than the value of the actual harm
the plaintiff has suffered.

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Nominal Damages
A court may award nominal damages as a legal remedy for breach of contract when the plaintiff
cannot support their claim for compensatory damages. With nominal damages, the court
recognizes that a breach of contract occurred, but no harm can be calculated.
While receiving nominal damages may feel like a pyrrhic victory, the plaintiff does get the
benefit of the ruling in their favour. This may be simply a moral victory, or it may pave the
way for the plaintiff to pursue another type of legal action. If the contract has an attorney fee
provision, an award of nominal damages may also enable the plaintiff to seek their attorney
fees from the defendant.
Monetary damages.
The party who breached the contract can be held responsible for the losses caused by the
breach. Both general or expectation damages and consequential damages can result from a
breach of a contract. General or expectation damages refer to the loss directly caused by the
breach. Consequential damages refer to losses that occurred because of the breach but that were
an indirect cause. For example, if you contracted and paid for a machine to be delivered and it
never came, the general losses would include the value of the money you paid for the machine.
The consequential losses could include the loss of business caused by the fact you did not have
the machine you needed to do your work.
Specific performance.
In some cases, the appropriate remedy for a breach of contract is to correct the breach by
forcing the breaching party to complete the terms of the agreement. Specific performance is an
appropriate remedy in situations where monetary damages could not possibly make the non-
breaching party whole for the losses. For example, if there was a contract created for a buyer
to purchase a very rare piece of art, the buyer could not simply find the art elsewhere. The only
remedy that would help the buyer in this circumstance is for the court to require the sale to go
through so the buyer got the unique one-of-a-kind painting that he contracted for.
Rescission.
Rescission allows the non-breaching party to essentially be released from performance
obligations. Recession is a remedy for a breach of contract because it makes clear that the party
is relieved of his duties due to the failure of the other party to perform.
Liquidation damages.
Sometimes, it is very difficult to determine how much a person was damaged by a breach of
contract. To address this problem, some contracts contain liquidated damage clauses.
Essentially, these clauses specify that the non-breaching party will be awarded a specific
amount of money in the event a breach occurs. These clauses will be upheld as long as they are
fair.

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