LLM Group 2 Business Law Fundamental Principles of Law of Contract and Allied Laws 2023 Question Paper with Solutions

For full marks, cover: the definition in section 2(e) and its place in the chain; then organise the examination as the two-stage inquiry a court actually performs, first whether an agreement exists and second whether it is enforceable; and carry each stage on named authority, since the paper asks for case law in terms.

The definition

Section 2(e) of the Indian Contract Act, 1872 defines an agreement as every promise and every set of promises forming the consideration for each other. The definition cannot be used without the definitions it depends on. Section 2(a) defines a proposal: when one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that other. Section 2(b) provides that when the person to whom the proposal is made signifies his assent, the proposal is accepted, and a proposal when accepted becomes a promise. Section 2(d) defines consideration. Section 2(h) closes the chain: an agreement enforceable by law is a contract.

Stage one: was there an agreement?

Was there a proposal, or only an invitation to make one? Harvey v. Facey, [1893] Appeal Cases 552, is the standard authority. A telegram asked "Will you sell us Bumper Hall Pen? Telegraph lowest cash price". The reply, "Lowest price for Bumper Hall Pen 900 pounds", was held to be a statement of price and not an offer, so the purported acceptance created nothing. Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd., [1953] 1 Queen's Bench 401, holds that goods on a self service shelf are an invitation to treat and the customer makes the offer at the cash desk. An advertisement, a catalogue, a tender notice and an auctioneer's announcement are ordinarily invitations to offer.

Was the acceptance communicated? Section 4 fixes the moments: communication of a proposal is complete when it comes to the knowledge of the person to whom it is made; communication of an acceptance is complete as against the proposer when it is put in a course of transmission to him so as to be out of the power of the acceptor, and as against the acceptor when it comes to the knowledge of the proposer. Section 5 permits revocation of a proposal at any time before the communication of its acceptance is complete as against the proposer.

Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas and Co., AIR 1966 SC 543, applies these sections to instantaneous communication. A contract was negotiated by telephone between Ahmedabad and Khamgaon. The Supreme Court held by a majority that the post rule in section 4 was framed for communication by post or telegram, where there is an interval, and that in the case of instantaneous communication the contract is made where the acceptance is heard, that is, at the place of the offeror. The case matters for jurisdiction and is the Indian starting point for the law on email and electronic acceptance, now supported by section 10A of the Information Technology Act, 2000.

Stage two: is the agreement enforceable?

Were the parties competent? Section 11 requires majority, soundness of mind and the absence of statutory disqualification, and section 12 defines soundness of mind for this purpose. Mohori Bibee v. Dharmodas Ghose, (1903) 30 Indian Appeals 114, holds that a minor's agreement is void ab initio. A minor mortgaged his house to a lender whose attorney knew of the minority. The Privy Council held that sections 10 and 11 require competence as a condition of a contract coming into existence; that section 64 could not help the lender because it applies to a voidable contract; that section 65 could not help him because it speaks of an agreement "discovered to be void" and nothing was discovered; and that estoppel cannot validate what the statute makes void.

Was the consent free? Section 14 defines free consent as consent not caused by coercion, undue influence, fraud, misrepresentation or mistake. The consequences differ and the difference is examinable: coercion, fraud and misrepresentation make the agreement voidable under section 19, undue influence voidable under section 19A with power in the court to impose terms, and bilateral mistake as to a matter of fact essential to the agreement void under section 20.

Was the consideration and object lawful? Section 23 voids an agreement where the consideration or object is forbidden by law, would defeat the provisions of any law, is fraudulent, involves injury to person or property, or is regarded by the Court as immoral or opposed to public policy. Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC 781, is the Supreme Court's leading discussion of public policy under this section, holding that though the heads of public policy are not closed, courts should be slow to invent new heads, and that a wagering agreement, void under section 30, is not for that reason unlawful under section 23, so a partnership formed to enter into wagering transactions was not itself unlawful.

Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156, shows the modern reach of section 23, striking down a service rule permitting termination on three months' notice without reason, as an unfair and unreasonable clause in a contract between parties of unequal bargaining power.

Conclusion. An agreement, under section 2(e), is every promise and every set of promises forming the consideration for each other, and it becomes a contract under section 2(h) only when the law will enforce it. The examination the question calls for is best conducted as the two-stage inquiry a court performs.

At the first stage the question is whether an agreement came into existence: whether there was a proposal rather than an invitation to offer, on the Harvey v. Facey and Carlill line; whether the acceptance was absolute under section 7 and communicated under section 4, on which Bhagwandas Kedia governs instantaneous communication; whether it was made in knowledge of the proposal, as Lalman Shukla requires; whether consideration moved at the promisor's desire, as Durga Prasad v. Baldeo requires; and whether legal relations were intended, as Balfour v. Balfour and Merritt v. Merritt determine.

For full marks, cover: the five remedies with the statute for each; damages in detail because it carries the most marks, with Hadley v. Baxendale restated in section 73, the rules on remoteness, mitigation and measure, and sections 74 and 75; then specific performance as rewritten by the 2018 amendment, which is the currency point; injunction, rescission and quantum meruit; and a closing note on election.

What counts as a breach

A breach is the failure of a party to perform a promise when performance is due, or the disabling of himself from performing. Section 37 imposes the obligation: the parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the Act or any other law. Section 39 covers anticipatory breach: when a party has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified by words or conduct his acquiescence in its continuance.

That is Hadley v. Baxendale, (1854) 9 Exchequer 341, in statutory form, and the case should be worked. A mill shaft broke and the millers gave it to a carrier to take to the makers as a pattern for a new one. The carrier delayed, and the mill stood idle. The millers claimed the lost profits. The Court of Exchequer laid down the two rules: damages should be such as may fairly and reasonably be considered as arising naturally, according to the usual course of things, from the breach itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach. On the facts the carrier did not know the mill would stand idle, and the claim for lost profits failed.

Section 74 governs a stipulated sum. When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or the penalty stipulated for.

The Indian provision deliberately abolishes the English distinction between liquidated damages and a penalty, a distinction drawn in Dunlop Pneumatic Tyre Co. Ltd. v. New Garage and Motor Co. Ltd., [1915] Appeal Cases 79. Under section 74 the named sum is a ceiling, and the court awards reasonable compensation up to it.

Section 75 gives compensation on rightful rescission: a person who rightly rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfilment of the contract. It preserves the damages claim of a party who has treated the contract as at an end.

Two further heads of damages should be mentioned. Interest may be awarded under the Interest Act, 1978, and in a contract for the sale of goods under section 61 of the Sale of Goods Act, 1930. Damages for mental distress are exceptional in contract, though the consumer fora regularly award compensation for deficiency in service, and Ghaziabad Development Authority v. Union of India, (2000) 6 SCC 113, held that damages for mental agony are not ordinarily awarded for breach of an ordinary commercial contract.

Remedy two: specific performance, and the change made in 2018

Specific performance is the equitable remedy compelling a party to do what he promised, and it is governed by the Specific Relief Act, 1963.

Section 14 lists the contracts that cannot be specifically enforced, which after the amendment are: a contract where a party has obtained substituted performance under section 20; a contract the performance of which involves the performance of a continuous duty which the court cannot supervise; a contract so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms; and a contract which is in its nature determinable.

Section 16 states the personal bars, including the requirement in section 16(c) that the plaintiff must prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him. The Explanation makes clear that where the contract involves payment of money it is not essential for the plaintiff to actually tender the money, but he must prove readiness and willingness.

Section 20A, inserted in 2018, bars an injunction in a suit involving a contract relating to an infrastructure project specified in the Schedule, where granting the injunction would cause impediment or delay in the progress or completion of the project. Section 14A empowers the court to engage one or more experts on a specific issue and to secure their attendance.

Section 42 is the provision that matters for restrictive covenants: notwithstanding section 41(e), where a contract comprises an affirmative agreement to do a certain act coupled with a negative agreement not to do a certain act, the circumstance that the court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement. Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd., AIR 1967 SC 1098, is the case: an injunction was granted to enforce a negative covenant of exclusive service during the term of employment.

Remedy four: rescission

Sections 27 to 30 of the Specific Relief Act, 1963 govern rescission of a contract. Section 27 permits a person interested in a contract to sue to have it rescinded where the contract is voidable or terminable by him, or where it is unlawful for causes not apparent on its face and the defendant is more to blame than the plaintiff. Section 30 permits the court, on adjudging rescission, to require the party to whom relief is granted to restore any benefit received and to make any compensation which justice may require.

State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779, is the leading Indian case on section 70. Construction work was carried out for the State at an officer's request under an arrangement that did not comply with the constitutional requirements for a government contract under what is now Article 299. The Supreme Court held that section 70 applied precisely because there was no enforceable contract, and that its object is to prevent unjust enrichment. The case is the standard answer to the problem of the informal government contract.

Election and the interaction of remedies

The remedies are cumulative in some combinations and alternative in others, and a good answer ends on this. A plaintiff may claim damages and rescission together, since section 75 preserves the damages claim of a party who rightly rescinds. He may claim specific performance and compensation together under section 21 of the Specific Relief Act. He may not obtain substituted performance under the amended section 20 and then also claim specific performance, because section 20(3) expressly bars it. And he may not both affirm the contract by suing for the price and disaffirm it by suing for restitution of what he has transferred.

Specific performance is now the primary remedy rather than the exception, the Specific Relief (Amendment) Act, 2018 having substituted section 10 so that it shall be enforced subject to sections 11(2), 14 and 16, introduced substituted performance in the new section 20, barred injunctions impeding infrastructure projects by section 20A and permitted expert evidence by section 14A. Injunction under sections 36 to 42 supplies the negative remedy, with section 42 the provision that makes a restrictive covenant enforceable as in Golikari. Rescission under sections 27 to 30 of that Act, with restoration under sections 64 and 65 of the Contract Act, undoes the transaction. And quantum meruit under sections 65 and 70, on the authority of State of West Bengal v. B.K. Mondal and Sons, values what has been done where no enforceable contract governs it.

First: natural law and pacta sunt servanda

The oldest answer is that promises bind because it is wrong to break them. The canonists took the view that a promise seriously made creates a moral obligation, expressed in the maxim pacta sunt servanda, agreements are to be kept, and that the temporal law should enforce what conscience requires. Grotius, in De Jure Belli ac Pacis (1625), treated the binding force of promises as derived from natural law and made it the foundation of the law of nations.

Its weakness is that it proves too much. If every serious promise bound, a gratuitous promise to make a gift would be enforceable, and no legal system has been willing to go that far. Some filter is required, and the history of contract theory is the history of successive filters.

Its trace in the Indian Act is faint but real. It appears in section 25(2), the promise to compensate a past voluntary service, and in Explanation 1, which preserves a completed gift; in both, the moral element is doing the work.

It is not what courts actually do. They apply an objective test, asking what a reasonable person would have understood, not what the promisor privately intended: Smith v. Hughes, (1871) Law Reports 6 Queen's Bench 597.

It cannot explain the standard form contract, where one party writes every word. The Indian responses are section 16(3), shifting the burden where a transaction is unconscionable, and the section 23 public policy jurisdiction applied in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156, striking down an unconscionable service rule between parties of unequal bargaining power.

It cannot explain the obligations in sections 68 to 72, where liability arises precisely because there was no agreement.

Third: the bargain theory

The answer that displaced the will theory was that what the law enforces is not a promise but an exchange. A promise is binding when a price has been paid for it. This is the theory the doctrine of consideration expresses, and section 25's flat rule, that an agreement made without consideration is void, is its statutory form.

Fourth: the equivalent theory

The equivalent theory holds that a promise binds when something of equivalent value has been given for it. It is the closest of the theories to the civilian doctrine of cause and to the canonists' concern with the just price, and it is the ancestor of every modern control on unfair exchange.

In the Indian Act its footprint is negative, and that is what makes it interesting. Explanation 2 to section 25 rejects it for ordinary contracts. But it returns wherever the Act or the courts do look at the fairness of the exchange: in section 16(3), where an unconscionable transaction shifts the burden of proof; in section 74, which caps recovery at reasonable compensation and so refuses to enforce a stipulated sum out of proportion to the loss, as Fateh Chand v. Balkishan Das, AIR 1963 SC 1405, and Kailash Nath Associates v. Delhi Development Authority, (2015) 4 SCC 136, hold; in the section 23 public policy jurisdiction; and in section 2(46) of the Consumer Protection Act, 2019, which defines an unfair contract by reference to terms causing significant change in the rights of the consumer.

Its failure is a failure of remedy. If reliance were the source of the obligation, the measure of damages would be reliance damages, restoring the promisee to the position he occupied before the promise. Section 73 awards the expectation measure, compensation for the loss caused by the breach, putting the promisee where performance would have put him. A theory that predicts the wrong remedy is not a complete account of the institution.

Sixth: the economic or instrumental account

The modern economic account treats contract law as a device for facilitating exchange and allocating risk at least cost. Its clearest Indian application is the rule on remoteness. Section 73 allows recovery of loss arising naturally and of loss within the parties' contemplation, and excludes remote and indirect loss. That is an information forcing rule: a party with unusual exposure has an incentive to disclose it at the time of contracting, and the risk ends on the party best placed to avoid or insure the loss. Hadley v. Baxendale is, on this account, not a rule about fairness but a rule about who should have spoken up.

Section 74 is explicable the same way. By capping recovery at reasonable compensation, it removes the incentive to stipulate an in terrorem sum designed to compel performance rather than to compensate.

The laissez faire background, and the reversal

All of the nineteenth century theories rest on an economic and political base which the papers in this folder call laissez faire individualism. Its two working principles were freedom of contract, the liberty to make any bargain one chose, and sanctity of contract, the duty of the courts to enforce it as made. Sir Henry Maine's formula in Ancient Law (1861), that the movement of progressive societies has hitherto been a movement from status to contract, is its classic expression, and the Indian Contract Act was enacted eleven years later.

The twentieth century reversed a great deal of that movement. Standard form contracting removed negotiation; consumer, labour and tenancy legislation removed whole classes of term from the parties' control; and the courts, in Brojo Nath Ganguly and in Life Insurance Corporation of India v. Consumer Education and Research Centre, (1995) 5 SCC 482, subjected unequal bargains to review. That is a movement back towards status, and the tension between a code written for equal bargainers and a world of unequal ones is what makes the theory worth examining.

The Indian Contract Act commits itself to none of them and contains provisions that each of them explains. That is not a defect in the Act; it is evidence that the enforcement of promises serves several purposes at once, and that a single theory of contract has never been available.

The essential features of modern arbitration are already present in that arrangement: a tribunal chosen by the parties or by their community, a procedure without formality, a decision on the merits of the dispute rather than on pleading, and enforcement resting on the acceptance of the parties rather than on the coercive power of the State. What the panchayat lacked was what every private tribunal lacks, a means of compelling an unwilling loser, and the whole later statutory history is the history of supplying it.

The colonial statutes

The Bengal Regulations of 1772, 1780 and 1781 made the first statutory provision, permitting parties to submit their disputes to arbitration and providing that the award should be enforceable as a decree of the court. Regulation VII of 1822, Regulation IX of 1833 and Regulation I of 1834 carried the scheme forward in the several Presidencies.

The Code of Civil Procedure, 1859 contained provisions for arbitration in suits, which were reproduced in the Codes of 1877 and 1882 and finally in the Second Schedule to the Code of Civil Procedure, 1908. Alongside it, the Indian Arbitration Act, 1899 applied to arbitration by agreement without the intervention of a court, but only in the Presidency towns of Calcutta, Madras and Bombay.

Its defect was that it made arbitration a stage in litigation rather than a substitute for it. An award had to be filed in court under section 14; the court could modify or correct it under section 15, remit it for reconsideration under section 16, or set it aside under section 30; a decree in terms of the award followed under section 17; and the court could supersede the arbitration under section 19. Nothing happened until the court acted. The First Schedule permitted an even number of arbitrators with an umpire, whose entry on the reference upon disagreement generated its own litigation. There was no requirement of reasons in the award, as Raipur Development Authority v. Chokhamal Contractors, (1989) 2 SCC 721, confirmed, and yet "legal misconduct" in section 30 was construed to include an error of law apparent on the face of the award, so awards were routinely challenged on their merits.

The Model Law and the Act of 1996

The turning point was international rather than domestic. The United Nations Commission on International Trade Law adopted the UNCITRAL Model Law on International Commercial Arbitration on 21 June 1985, and the General Assembly recommended that all States give due consideration to it in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice. UNCITRAL had earlier adopted the Arbitration Rules in 1976 and the Conciliation Rules in 1980.

The Arbitration and Conciliation Act, 1996 was the Indian response, and its Preamble recites exactly that history. It was first promulgated as an Ordinance in January 1996 and enacted with effect from 22 August 1996. It repealed all three earlier statutes and integrated their subject matter into four Parts: Part I for arbitration seated in India, Part II for the enforcement of foreign awards under both convention regimes, Part III for conciliation, and Part IV for supplementary provisions.

The amendments, and what each was for

The 2015 Amendment, following the Law Commission of India's 246th Report of August 2014, was the most substantial. It removed the Chief Justice from section 11 and vested the appointment power in the Supreme Court or the High Court; inserted section 11(6A) confining the court's examination to the existence of an arbitration agreement; inserted the Fifth and Seventh Schedules and section 12(5) making a person within the Seventh Schedule ineligible; substituted section 17 so that the tribunal's interim orders are enforceable as orders of the court; inserted section 29A imposing a time limit and section 29B creating a fast track; inserted section 31A on costs; substituted section 36 to remove the automatic stay on enforcement; and narrowed the public policy ground by substituting the Explanations to sections 34(2)(b) and 48(2), while adding section 34(2A) on patent illegality for domestic awards only.

Two things then happened to the 2019 Amendment and both belong in this answer. First, section 87 was struck down as manifestly arbitrary and violative of Article 14 in Hindustan Construction Company Ltd. v. Union of India, decided 27 November 2019. Second, and more remarkably, the institutional architecture was commenced in pieces and years apart. The commencement notification S.O. 3154(E) of 30 August 2019 appointed that date for section 1, sections 4 to 9, sections 11 to 13 and section 15 of the Amendment Act, and left out sections 2, 3, 10 and 14. Section 3 is the provision that amends section 11; section 10 is the provision that creates the Arbitration Council of India; section 14 is the provision that inserts the Eighth Schedule. Section 10 was brought into force four years later by S.O. 4486(E) of 12 October 2023, so Part IA is now law; section 3 has never been commenced, so the appointment route it was to create does not exist, and the Supreme Court has sought the Union's response to a petition about the delay.

The 2021 Amendment omitted the Eighth Schedule and inserted a second proviso to section 36(3), requiring the court to grant an unconditional stay of the award pending disposal of a section 34 challenge where it is satisfied that a prima facie case is made out that the arbitration agreement or contract, or the making of the award, was induced or effected by fraud or corruption.

That Part is still in force, and Parliament has legislated to replace it. The Mediation Act, 2023 (Act 32 of 2023, assented to on 14 September 2023), by its Sixth Schedule read with its section 61, would substitute sections 61 to 81 of the 1996 Act. The substituted section 61 would provide that any provision in any other enactment for the time being in force providing for resolution of disputes through conciliation be construed as a reference to mediation; the substituted section 62 would save proceedings already initiated; and the words "and conciliation" would go from section 43D. None of that has happened yet. The Schedule operates through section 61 of the Mediation Act, and the commencement notification S.O. 4384(E) of 9 October 2023 brought into force only sections 1, 3 and 26, sections 31 to 38, sections 45 to 47, sections 50 to 54 and sections 56 to 57. Section 61 is not in that list, and India Code's consolidated text of the 1996 Act still prints sections 61 to 81 unaltered.

Section 89 of the Code of Civil Procedure, 1908, inserted by the amendment of 1999 with effect from 1 July 2002, requires the court to formulate the terms of settlement and refer the dispute to arbitration, conciliation, judicial settlement including Lok Adalat, or mediation; Salem Advocate Bar Association v. Union of India, (2005) 6 SCC 344, and Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24, worked out its operation. Section 12A of the Commercial Courts Act, 2015 made pre-institution mediation compulsory for suits not contemplating urgent interim relief.

Conclusion. The law of arbitration in India runs from the panchayat, through the Bengal Regulations of 1772 to 1781 and the fragmented regime of the Indian Arbitration Act, 1899 and the Second Schedule to the Code of Civil Procedure, 1908, to the consolidation of 1940. The Arbitration Act, 1940 failed because it made the award a preliminary to a court decree and let misconduct be read as error of law, which is what produced the observation in Guru Nanak Foundation that the proceedings had made lawyers laugh and legal philosophers weep.

Two features of that recent history are what a good answer ends on, and in both the lesson is the same: read the commencement notification, not the assent. The 2019 institutional architecture was enacted and commenced in pieces. Sections 2, 3, 10 and 14 of the Amendment Act were omitted from S.O. 3154(E) of 30 August 2019; section 10 was commenced four years later by S.O. 4486(E) of 12 October 2023, bringing Part IA and the Arbitration Council of India into force, while section 3 has never been commenced, so appointment through graded arbitral institutions under section 11(3A) is not the law. And the conciliation half of the subject was legislated out of the Act by the Mediation Act, 2023, whose Sixth Schedule would substitute sections 61 to 81, but section 61 of that Act, which carries the Schedule into effect, was omitted from the commencement notification S.O. 4384(E) of 9 October 2023. The Act whose growth this question traces is still, on the statute book, an Act about conciliation.

Guarantee one: equality

Section 18 is mandatory and unqualified: the parties shall be treated with equality and each party shall be given a full opportunity to present his case. It cannot be excluded by agreement, and its breach founds a challenge under section 34(2)(a)(iii).

The Act supports it in three further places. Section 12(1) requires a person approached for appointment to disclose in writing any circumstances likely to give rise to justifiable doubts as to independence or impartiality, in the form of the Sixth Schedule and by reference to the Fifth. Section 12(5) makes a person within the Seventh Schedule ineligible notwithstanding any prior agreement, waivable only by express written agreement after the dispute has arisen. Section 24(3) requires that all statements, documents and other information supplied to the tribunal by one party be communicated to the other, and that any expert report or evidentiary document on which the tribunal may rely be communicated to both.

Section 23 governs pleadings, requiring a statement of claim and a defence and permitting counterclaim and set off, with amendment allowed unless the tribunal considers it inappropriate having regard to delay. Section 25 governs default: failure by the claimant to communicate the statement of claim terminates the proceedings; failure by the respondent to communicate a defence does not operate as an admission, though since 2019 the tribunal may treat the right to file it as forfeited; failure to appear or to produce documents permits the tribunal to continue on the evidence before it.

Section 27 supplies the coercive element the tribunal lacks. The tribunal, or a party with its approval, may apply to the Court for assistance in taking evidence; the Court may issue the same processes to witnesses as in suits and impose the same penalties for default. Without it, a party unable to compel a third party witness could not present his case at all.

Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131, shows the guarantee being enforced: the award was set aside because the majority had based its conclusion on a formula and material that had not been shown to one party, which the Supreme Court held to be a breach of the most basic notions of justice under the substituted Explanation 1 to section 34(2)(b).

Section 31 also requires the date and place, and section 31(7) governs interest, permitting the tribunal to award interest for the period between the accrual of the cause of action and the award, with a statutory rate two per cent above the current rate of interest running from the date of the award to payment. Section 31A, inserted in 2015, codifies costs on the principle that the unsuccessful party pays.

Guarantee four: timeliness

Section 29A, inserted in 2015 and amended in 2019, requires the award in a domestic arbitration within twelve months from the completion of pleadings under section 23(4), extendable by six months with the parties' consent and thereafter only by the court, which may reduce the arbitrators' fees by up to five per cent for each month of delay attributable to the tribunal. Section 29B offers a fast track on written material alone with an award in six months. Section 24's provisos, inserted in 2015, require day to day hearings so far as possible and permit exemplary costs on a party seeking an adjournment without sufficient cause.

Third, the fee provision in section 29A(4) is constitutionally uncomfortable. It permits a court to reduce an arbitrator's remuneration by up to five per cent a month on a finding that the delay was attributable to him. Most Indian arbitrators are retired judges; a provision under which a sitting judge may cut the fees of a retired one, on a finding about the conduct of a case, sits awkwardly beside the independence the Act insists on elsewhere. It has been little used.

Fourth, fees generally have been the most persistent complaint, and the Supreme Court has had to legislate on the point. The Fourth Schedule was inserted in 2015 as a model fee scale, but section 11(14) makes it operative only where the High Court frames rules, and it does not apply to international commercial arbitration or where institutional rules govern. In Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV, decided 30 August 2022, the Supreme Court held that arbitrators cannot unilaterally fix or revise their own fees, since that would make them judges in their own cause; that fees must be settled at the outset with the parties' consent or by the court; and that the Fourth Schedule ceiling applies per arbitrator and per claim, not cumulatively.

Sixth, the freedom in section 19 is systematically underused. The tribunal is free of the Code of Civil Procedure and the law of evidence, and could adopt document-only procedures, time-limited hearings or the IBA Rules on the Taking of Evidence. In practice many Indian ad hoc arbitrations reproduce civil trial procedure with pleadings, issues, evidence on affidavit, prolonged cross examination and adjournments between sittings.

The defence should be stated. The procedural chapter is a faithful adoption of the UNCITRAL Model Law, and there is little wrong with the design. Sections 18, 19, 24(3) and 27 give a tribunal everything it needs to run a fair and expeditious reference. The draft Arbitration and Conciliation (Amendment) Bill, 2024, published for consultation in October 2024, would recognise the emergency arbitrator, permit audio-visual hearings and tighten timelines, and should be described as a draft because it has not been introduced in Parliament.

For full marks, cover: the four doors open to a dissatisfied party and no more; section 33; section 34 with the full arc of the public policy case law, which is what "with relevant case laws" is asking for; section 37; the stay position under section 36 and section 87; and the 2025 Constitution Bench decision on modification.

Only four doors, and why

Section 5 of the Arbitration and Conciliation Act, 1996 provides that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I no judicial authority shall intervene except where so provided in that Part. Section 35 makes the award final and binding, and section 36 makes it enforceable as a decree. A dissatisfied party therefore has no writ, no revision, no suit and no appeal on the merits: only what Part I gives.

Four doors are open. Correction and interpretation by the tribunal under section 33; setting aside by the Court under section 34; appeal against listed orders under section 37; and resistance to enforcement under section 36 read with its provisos.

Section 34(2)(a) lists five grounds, which the applicant must establish on the basis of the record of the arbitral tribunal, a limitation introduced in 2015 replacing "furnishes proof": incapacity of a party; invalidity of the arbitration agreement under the law to which the parties subjected it or, failing indication, the law for the time being in force; want of proper notice of the appointment of an arbitrator or of the proceedings, or inability otherwise to present the case; the award dealing with a dispute not contemplated by, or not falling within the terms of, the submission, or containing decisions on matters beyond its scope, with a severance proviso; and the composition of the tribunal or the arbitral procedure not being in accordance with the agreement of the parties.

Section 34(2)(b) supplies two grounds the Court may find for itself: non-arbitrability of the subject matter under the law for the time being in force, and conflict with the public policy of India.

ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263, widened it further, holding that the "fundamental policy of Indian law" imports three juristic principles: that the decision maker must adopt a judicial approach; that he must observe the principles of natural justice; and that his decision must not be so perverse or irrational that no reasonable person would have arrived at it, applying the Wednesbury standard.

Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, arranged the grounds into a scheme, holding that an award may be set aside where it is contrary to the fundamental policy of Indian law, the interest of India, justice or morality, or is patently illegal, and explaining that an award is against justice when it shocks the conscience of the court and against morality when it is based on an agreement no right thinking person would consider binding.

Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131, is the authoritative post-2015 statement and must be cited. The Supreme Court held that the expansive Western Geco construction no longer survives; that "fundamental policy of Indian law" is to be understood as in Renusagar; that a contravention of substantive law is not by itself a ground; and that patent illegality does not extend to an erroneous application of law or a reappreciation of evidence. On the facts the award was nonetheless set aside, because the majority had relied on a circular and a formula not shown to one party, which offended the most basic notions of justice. The Court then exercised its Article 142 power to uphold the minority award, which is itself an important precedent.

Section 34(4) is the limited remedial power: on a party's request the Court may adjourn the setting aside proceedings for a period it determines, to give the tribunal an opportunity to resume the proceedings or to take such other action as will eliminate the grounds for setting aside.

Door three: section 37

An appeal lies from an order refusing to refer parties to arbitration under section 8; granting or refusing an interim measure under section 9; setting aside or refusing to set aside an award under section 34; accepting a plea under section 16(2) or (3); and granting or refusing an interim measure under section 17. No second appeal lies from an order passed in appeal, though the right to appeal to the Supreme Court is saved, which preserves Article 136.

The scope of a section 37 appeal is narrower than a first appeal in a suit, because the court is reviewing a decision which was itself not a review on the merits: MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163.

The 2025 decision, and why it is the most contested development

Gayatri Balasamy v. ISG Novasoft Technologies Ltd., 2025 INSC 605, decided 30 April 2025, five judges, four to one. Khanna C.J. for the majority held that a court exercising jurisdiction under sections 34 and 37 has a limited power to modify an award: where the invalid portion is severable from the valid; to correct clerical, computational or typographical errors apparent on the face of the record; in relation to post-award interest in appropriate circumstances; and, in the case of the Supreme Court, under Article 142. Viswanathan J. dissented.

The significance is that this is a recourse the statute does not provide. Until then the settled understanding, resting on the word "only" in section 34(1) and on section 5, was that a court could set aside or adjourn under section 34(4) but could never substitute its own conclusion. The objection, made in the dissent and widely in commentary, is that a judicial power to modify is inconsistent with the finality declared by section 35 and with the exclusion in section 5, and that it invites exactly the merits review that the 2015 amendment was designed to end.

The case law traces a single arc. Renusagar fixed a narrow public policy test; Saw Pipes widened it for domestic awards by adding patent illegality; Western Geco widened it further with the three juristic principles; Associate Builders systematised it; the 2015 amendment, on the Law Commission's 246th Report, legislatively reversed Western Geco, confined public policy to three heads and excluded a review on the merits; Ssangyong Engineering confirmed the narrowing while setting aside an award for reliance on undisclosed material; and Delhi Airport Metro Express, whose own judgment was later set aside on a curative petition in 2024 though its statement of principle stands, restated the discipline of restraint. Alongside that arc, Hindustan Construction Company struck down section 87 and restored the removal of the automatic stay, and Gayatri Balasamy (30 April 2025) has now added, by four judges to one, a limited power to modify that the statute nowhere confers and that is for that reason the most contested development in this area since 1996.

The structural point that must lead the note is that Indian law is stricter than English law. After Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd., [1894] Appeal Cases 535, an English restraint is void unless reasonable in the interests of the parties and of the public. Section 27 admits no such general saving. Madhub Chunder v. Rajcoomar Doss, (1874) 14 Bengal Law Reports 76, decided two years after the Act, held an agreement by which one trader abandoned his business in a locality void, Couch C.J. reasoning that the section speaks of restraint without qualification, so the English distinction between partial and total restraint does not apply. Superintendence Company of India (P) Ltd. v. Krishan Murgai, (1981) 2 SCC 246, confirms it: neither reasonableness nor partiality is a defence unless the case falls within the exception.

The exception in section 27 has cumulative conditions: the restraint must be on the seller of goodwill, against a similar business, within specified local limits, lasting only while the buyer or a person deriving title from him carries on a like business there, and the limits must appear reasonable to the Court having regard to the nature of the business. Sections 11(2), 36(2) and 54 of the Indian Partnership Act, 1932 add three further statutory exceptions, each expressly subject to reasonableness.

What survives for an employer after service ends is protection of confidential information and trade secrets, not protection from competition, and the remedy is an injunction against disclosure rather than against employment.

b. Doctrine of unjust enrichment

The principle is that a person enriched at the expense of another, in circumstances the law regards as unjust, must make restitution. Lord Mansfield's formulation in Moses v. Macferlan, (1760) 2 Burrow 1005, is that the defendant is obliged by the ties of natural justice and equity to refund the money.

Section 70, non-gratuitous act. Where a person lawfully does anything for another, or delivers anything to him, not intending to do so gratuitously, and that other enjoys the benefit, compensation or restoration is due. State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779, is the leading case: construction work done for the State at an officer's request under an arrangement failing the constitutional requirements for a government contract was compensable under section 70, the section applying precisely because no valid contract existed.

Section 71, finder of goods. A finder taking goods into custody is subject to the responsibility of a bailee, owes the care required by section 151, has a lien for expenses under section 168 and a power of sale in the cases in section 169.

Section 72, mistake or coercion. Money paid or a thing delivered by mistake or under coercion must be repaid or returned. Sales Tax Officer, Banaras v. Kanhaiya Lal Mukundlal Saraf, AIR 1959 SC 135, held that money paid under a mistake of law is recoverable, the word "mistake" in section 72 being unqualified.

Section 7(3) requires writing, and section 7(4) defines what satisfies it: a document signed by the parties; an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means, the last words added in 2015; or an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. Section 7(5) permits incorporation by reference where the contract is in writing and the reference is such as to make the clause part of the contract, on which M.R. Engineers and Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696, distinguishes a general reference from a specific one.

The essential ingredients are in K.K. Modi v. K.N. Modi, (1998) 3 SCC 573: writing; an intention that the decision be binding; determination of rights in an impartial and judicial manner after an opportunity to present the case; and an intention that the decision be enforceable in law. A clause providing for valuation, certification or expert determination is not an arbitration agreement. Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719, adds that a clause saying disputes "may" be referred, or shall be referred if the parties then agree, lacks the present intention to be bound and is not an arbitration agreement.

Two further points. Section 28 of the Indian Contract Act, 1872 expressly saves an arbitration agreement from the rule voiding restraints on legal proceedings. And after Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), 2024 INSC 857, decided 8 November 2024, an appointment mechanism inside the clause permitting one party to appoint the sole arbitrator, or requiring the other to select from a curated panel, is impermissible under section 18.

d. Concept of International commercial arbitration

Section 2(1)(f) defines international commercial arbitration as arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, where at least one of the parties is an individual who is a national of or habitually resident in a country other than India; a body corporate incorporated in a country other than India; an association or body of individuals whose central management and control is exercised in a country other than India; or the Government of a foreign country.

Four consequences flow from the label. The appointing court under section 11 is the Supreme Court, not the High Court. Under section 28(1)(b) the parties may choose the rules of law governing the substance, whereas a domestic arbitration must be decided under Indian substantive law. Under section 34(2A) the patent illegality ground is not available. And the twelve month deadline in section 29A does not bind: the proviso is hortatory.

Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, is the structural case. Overruling Bhatia International v. Bulk Trading SA, (2002) 4 SCC 105, a five-judge Bench held that Part I applies only where the seat of arbitration is in India, so an Indian court has no jurisdiction to set aside an award made abroad. The ruling was made prospective, applying only to arbitration agreements executed on or after 6 September 2012.

Unjust enrichment appears in India not as a fiction of implied promise but as five named relations in sections 68 to 72, with section 65 alongside, and Mafatlal Industries shows the doctrine applying against the claimant as readily as for him. An arbitration agreement under section 7 must be in writing in one of three forms, is separable under section 16(1), and since In Re: Interplay (13 December 2023) is not defeated by want of stamp. And international commercial arbitration under section 2(1)(f) is defined by the foreignness of a party rather than by the seat, with BALCO confining Part I to India-seated arbitrations and PASL Wind Solutions showing that a foreign award may arise from an arbitration that is not international commercial arbitration at all.