LLM Group 2 Business Law Fundamental Principles of Law of Contract and Allied Laws 2024 Question Paper with Solutions

Sir John Salmond's formulation is the standard opening: a contract is an agreement creating and defining obligations between the parties. Sir Frederick Pollock's is the other: every agreement and promise enforceable at law is a contract. Sir William Anson's adds the element of the State: the law of contract is that branch of the law which determines the circumstances in which a promise shall be legally binding on the person making it.

Section 2(h) of the Indian Contract Act, 1872 adopts Pollock's form: an agreement enforceable by law is a contract. The definition contains two ideas, an agreement under section 2(e) and enforceability, and section 10 supplies the conditions of the second.

Two consequences of this nature should be drawn out. First, because the obligation is self-imposed, the law's primary task is to identify what the parties actually undertook, which is why the Act devotes sections 3 to 9 to offer and acceptance and sections 13 to 22 to the quality of consent. Second, because the obligation is self-imposed, the remedy is to put the promisee where performance would have put him, which is the expectation measure in section 73 and not the restoration of a status quo.

The second object is to allocate risk in advance. Much of contract law is a set of default rules about who bears a loss when something goes wrong, which the parties may vary. Section 56 allocates the risk of supervening impossibility. Section 73, restating Hadley v. Baxendale, (1854) 9 Exchequer 341, allocates the risk of unusual consequential loss to the party who knew of it, which gives a party with unusual exposure a reason to disclose it. Section 74 allocates the risk of quantifying loss by permitting the parties to stipulate a sum, subject to the court's control.

The third object is to protect the weaker party against the misuse of the form. This object was not prominent in 1872 and has grown steadily since. It appears in section 16(3), which shifts the burden of disproving undue influence where a transaction is unconscionable; in the section 23 public policy jurisdiction as used in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156; and, outside the Act, in the whole of consumer protection legislation.

Layer two: the special contracts that remain in the Act. Indemnity and guarantee in sections 124 to 147; bailment and pledge in sections 148 to 181; and agency in sections 182 to 238. These are contracts of particular kinds whose incidents Parliament thought it worth codifying.

Layer three: the contracts carved out of the Act into separate statutes. Sections 76 to 123 on the sale of goods were repealed by the Sale of Goods Act, 1930; sections 239 to 266 on partnership were repealed by the Indian Partnership Act, 1932. Both were repealed from the Contract Act rather than being newly created, which is why the general principles of the Contract Act continue to apply to sales and to partnerships except where the special Act provides otherwise: section 3 of the Sale of Goods Act and section 3 of the Partnership Act both say so expressly.

Layer five: the dispute resolution statutes, which is why this paper is called "and Allied Laws". The Arbitration and Conciliation Act, 1996 takes the enforcement of the contract out of the courts wherever the parties have so agreed, and section 28 of the Contract Act expressly saves an arbitration clause from the rule voiding restraints on legal proceedings. The Legal Services Authorities Act, 1987 supplies the Lok Adalat. The Family Courts Act, 1984 supplies a conciliation-first forum for matrimonial disputes. The Mediation Act, 2023, in a change of the first importance to this subject, substituted sections 61 to 81 of the 1996 Act by its Sixth Schedule, so that every statutory reference to conciliation under that Act is now read as a reference to mediation under the 2023 Act. The Commercial Courts Act, 2015 created a dedicated forum, with pre-institution mediation under its section 12A.

Layer seven: the constitutional dimension, which is the one most often omitted. Where the State is a contracting party, Article 299 prescribes the form: every contract made in the exercise of the executive power of the Union or a State must be expressed to be made by the President or the Governor and executed by an authorised person. Non-compliance makes the contract unenforceable, which is precisely why section 70 of the Contract Act is so often invoked against the State, as in State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779. And the State's freedom to choose with whom it contracts is controlled by Article 14: Ramana Dayaram Shetty v. International Airport Authority of India, (1979) 3 SCC 489, held that the State cannot act arbitrarily in awarding a contract, and Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir, (1980) 4 SCC 1, developed the point.

The changing character of the subject

The nineteenth century view was that the law of contract was the law of freely negotiated bargains between equals. 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 the classical statement, and the 1872 Act was enacted in that intellectual climate.

The objects are to make reasonable expectations enforceable so that credit and forward dealing are possible, to allocate risk in advance through default rules such as sections 56, 73 and 74, to protect against misuse of the contractual form where the parties are unequal, and to reduce transaction costs by supplying terms the parties need not negotiate.

The scope is multi-dimensional in seven layers: the general principles in sections 1 to 75; the special contracts of indemnity, guarantee, bailment, pledge and agency retained in the Act; the sale of goods and partnership carved out into the Acts of 1930 and 1932 while remaining subject to the general principles; the remedial statutes, above all the Specific Relief Act, 1963 as amended in 2018; the dispute resolution statutes that give this paper its title, chiefly the Arbitration and Conciliation Act, 1996 as reshaped by the Mediation Act, 2023; the modern regulatory statutes from the Consumer Protection Act, 2019 to the Insolvency and Bankruptcy Code, 2016; and the constitutional dimension in Article 299 and in the Article 14 control of State contracting. A subject that began as the law of the bargain now reaches every one of those.

The Arbitration and Conciliation Act, 1996 repealed all three and replaced them with a single statute. Its Preamble records the reason: the United Nations Commission on International Trade Law adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985 and the UNCITRAL Conciliation Rules in 1980, and the General Assembly recommended that all countries give due consideration to them in view of the desirability of uniformity in the law of arbitral procedures. The 1996 Act was brought into force on 22 August 1996, having first been promulgated as an Ordinance in January of that year.

The reason the 1940 Act had to go can be stated in the Supreme Court's own words, and this is the citation to use. In Guru Nanak Foundation v. Rattan Singh and Sons, (1981) 4 SCC 634, D.A. Desai J. said that interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less formal, more effective and speedy for resolution of disputes avoiding procedural claptrap, and that this led them to arbitration under the Arbitration Act, 1940; "however, the way in which the proceedings under the Act are conducted and without exception challenged in courts, has made lawyers laugh and legal philosophers weep".

Under the 1940 Act the court was present at every stage. An award had to be filed in court under section 14; the court then pronounced judgment according to the award and a decree followed under section 17; the court could remit the award for reconsideration under section 16 and could modify or correct it under section 15; and the court could supersede the arbitration under section 19. An award had no operative effect until the court had acted on it.

The 1996 Act reverses the position by a general prohibition. Section 5 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. It is a non obstante clause pointing outward, excluding every source of jurisdiction not found in the Part itself. Section 35 makes the award final and binding without any court order, and section 36 makes it enforceable as if it were a decree of the court, so no filing, no judgment on the award and no decree are needed.

The 1996 Act abolished the umpire. Section 10 requires the number of arbitrators to be odd: the parties may determine the number provided it shall not be an even number, and failing determination the tribunal consists of a sole arbitrator. Section 11 supplies the appointment machinery, with the default that each party appoints one arbitrator and the two appoint the presiding arbitrator, and with a fall back application to the Supreme Court in an international commercial arbitration and to the High Court in any other case.

Two modern qualifications belong here. The 2015 amendment removed the Chief Justice from section 11 and inserted the Fifth and Seventh Schedules, section 12(5) making a person within the Seventh Schedule ineligible for appointment notwithstanding any prior agreement. And Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), 2024 INSC 857, decided 8 November 2024, held by three to two that a party cannot unilaterally appoint a sole arbitrator or compel the other to choose from a panel it has curated, because the equality obligation in section 18 applies at the appointment stage.

Distinction five: reasons, time and form of the award

The 1940 Act did not require an award to give reasons, and the Supreme Court so held in Raipur Development Authority v. Chokhamal Contractors, (1989) 2 SCC 721, holding that an award is not liable to be set aside merely because no reasons are given. The First Schedule required the award to be made within four months of the arbitrators entering on the reference, extendable by the court.

Section 31(3) of the 1996 Act requires the award to state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or it is an award on agreed terms under section 30. Section 29A, inserted in 2015 and amended in 2019, requires the award in an arbitration other than an international commercial arbitration to be made within twelve months from the completion of pleadings under section 23(4), extendable by six months by consent and thereafter only by the court.

Section 34 of the 1996 Act confines the grounds to a list drawn from Article 34 of the Model Law: incapacity, invalidity of the agreement, want of notice or inability to present the case, excess of jurisdiction with a severance proviso, and irregular composition or procedure; plus non-arbitrability and conflict with the public policy of India, which the 2015 Explanation confines to fraud or corruption, contravention with the fundamental policy of Indian law, and conflict with the most basic notions of morality or justice, expressly excluding a review on the merits. Section 34(2A) adds patent illegality on the face of the award for domestic awards only. Section 34(3) fixes a three month limit with a further thirty days on sufficient cause "but not thereafter". Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131, is the authoritative modern statement.

Distinction seven: foreign awards and conciliation

The 1940 Act said nothing about foreign awards, which were governed by the Acts of 1937 and 1961. Part II of the 1996 Act consolidates both regimes, Chapter I for New York Convention awards in sections 44 to 52 and Chapter II for Geneva Convention awards in sections 53 to 60, with section 49 deeming an enforceable foreign award a decree of the court.

The honest closing point

The 1996 Act has itself needed three amendments, and a good answer says so rather than presenting it as a finished reform. The 2015 Amendment, following the Law Commission's 246th Report of August 2014, cut back public policy, removed the automatic stay in section 36, added the Fifth and Seventh Schedules and section 12(5), inserted section 29A and section 31A. The 2019 Amendment created the Arbitration Council of India and shifted section 29A's starting point, and inserted section 87, which the Supreme Court struck down as manifestly arbitrary in Hindustan Construction Company Ltd. v. Union of India, decided 27 November 2019. The 2021 Amendment inserted a proviso to section 36(3) allowing an unconditional stay where the court is satisfied prima facie that the agreement or the award was induced by fraud or corruption, and omitted the Eighth Schedule.

The distinction should not be drawn as a contrast between a bad Act and a good one. The 1996 Act has required amendment in 2015, 2019 and 2021, one of its own insertions was struck down in Hindustan Construction Company, its 2019 institutional architecture has never been notified, and Gayatri Balasamy in April 2025 restored a limited power to modify an award, which is the one feature of the 1940 scheme that the 1996 Act had most deliberately abolished.

The conceptual point that must be made early is that agency is not simply a contract. Section 185 provides that no consideration is necessary to create an agency, so the relationship can exist where no contract does. What agency creates is a power: the ability of one person to alter the legal relations of another with a third party. The contract of agency, where there is one, governs the internal relationship of principal and agent; the power governs the external relationship of principal and third party. The two can diverge, and almost every difficult agency case is about that divergence.

The maxim qui facit per alium facit per se, he who acts through another acts himself, is the traditional expression, and section 226 is its statutory form: contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner and will have the same legal consequences as if the contracts had been entered into and the acts done by the principal in person.

Creation of agency

By express appointment, section 187. An authority is said to be express when it is given by words spoken or written. No form is generally required, though a power of attorney is usual and is required for some purposes.

By ratification, sections 196 to 200. Where acts are done by one person on behalf of another but without his knowledge or authority, that other may elect to ratify or to disown them; if he ratifies, the same effects follow as if the acts had been performed by his authority. Section 197 allows ratification to be express or implied. Section 198 requires that no valid ratification can be made by a person whose knowledge of the facts is materially defective. Section 200 provides that an act done by one person on behalf of another, without that other's authority, which if done with authority would have the effect of subjecting a third person to damages or terminating his right or interest, does not by ratification produce that effect. Bolton Partners v. Lambert, (1889) 41 Chancery Division 295, is the English case usually cited for the retrospective operation of ratification.

Actual authority is the authority the principal has in fact conferred, expressly or by implication. Its extent is determined by sections 186 to 189 and by the agreement between principal and agent. Section 188 provides that an agent having authority to do an act has authority to do every lawful thing which is necessary in order to do such act, and an agent having authority to carry on a business has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.

Ostensible or apparent authority is the authority the principal has represented the agent to have, whether or not he has in fact conferred it. It operates by estoppel and is enacted in section 237. Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd., [1964] 2 Queen's Bench 480, is the classical statement. Diplock L.J. laid down four conditions: a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced; the representation was made by a person or persons who had actual authority to manage the business; the contractor was induced by the representation to enter into the contract, that is, he in fact relied on it; and, under the company's memorandum and articles, the company was not deprived of the capacity to enter into such a contract or to delegate authority to do so.

Duties of the agent and rights of the principal

Sections 211 to 221 state the duties. The agent must conduct the business according to the principal's directions or, in their absence, according to the custom prevailing in business of the same kind at the place where he conducts it (section 211). He must conduct the business with the skill and diligence generally possessed by persons engaged in similar business, and compensate the principal for the direct consequences of his neglect, want of skill or misconduct (section 212). He must render proper accounts on demand (section 213), must use reasonable diligence to communicate with the principal in difficulty (section 214), must not deal on his own account without the principal's consent (sections 215 and 216), and must pay over sums received (section 218).

Sections 215 and 216 together are the statutory form of the no-conflict and no-profit rules. If an agent deals on his own account in the business of the agency without first obtaining the consent of his principal and acquainting him with all material circumstances, the principal may repudiate the transaction if the case shows either that any material fact has been dishonestly concealed or that the dealings have been disadvantageous to him; and if the agent has made any secret profit, the principal may claim it from him.

Termination of agency

Section 201 lists the modes. An agency is terminated by the principal revoking his authority; by the agent renouncing the business of the agency; by the business of the agency being completed; by either the principal or the agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors.

Revocation is the mode most often examined and is qualified by three sections.

Section 202: agency coupled with an interest is irrevocable. Where the agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of that interest. Illustration (a): A gives authority to B to sell A's land and to pay himself out of the proceeds the debts due to him from A; A cannot revoke this authority, nor can it be terminated by his insanity or death.

Section 208 fixes the time from which termination takes effect, and it is the practically important section. The termination of the authority of an agent does not, so far as regards the agent, take effect before it becomes known to him, or, as regards third persons, before it becomes known to them. Illustration (b): A at Madras, by letter, directs B to sell for him some cotton lying in a warehouse in Bombay, and afterwards by letter revokes his authority to sell, and directs B to send the cotton to Madras; B, after receiving the second letter, enters into a contract with C, who knows of the first letter but not of the second, for the sale of the cotton to C; C pays B the money, with which B absconds; C's payment is good as against A.

Section 209 imposes a duty on the agent, where the principal dies or becomes of unsound mind, to take on behalf of the representatives of his late principal all reasonable steps for the protection and preservation of the interests entrusted to him.

Section 210 provides that the termination of the authority of an agent causes the termination of the authority of all sub-agents appointed by him.

Termination is the point at which all three allocations have to be unwound at once, which is why section 208 splits the moment of effect. As between principal and agent, termination bites on knowledge; as against third parties, on their knowledge. Sections 202 and 204 then carve out the cases where the power cannot be withdrawn at all, because the agent or a third party has already acquired an interest that revocation would destroy.

Agency and the State: where the doctrine is most often litigated in India

The largest single body of Indian agency litigation concerns officers acting for the Government, and it turns on a constitutional provision rather than on the Contract Act.

State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779, is what happens next, and it is the reason this topic matters. Construction work was done for the State at the request of an officer under an arrangement that did not comply with the constitutional formalities. There being no enforceable contract, agency could not assist the contractor. The Supreme Court held that section 70 of the Indian Contract Act, 1872 applied: a person who lawfully does something for another, not intending to do it gratuitously, and whose benefit that other has enjoyed, is entitled to compensation. The remedy for a failed government agency is therefore restitutionary and not contractual.

The agent's authority is actual, measured by the internal arrangement and sections 186 to 188, or ostensible, measured by the principal's representation and governed by section 237 and the four conditions in Freeman and Lockyer. The agent owes the duties in sections 211 to 218, including the no-conflict and no-secret-profit rules in sections 215 and 216, and enjoys lien and indemnity under sections 221 to 223.

Termination under section 201 occurs by revocation, renunciation, completion, death, unsoundness of mind or insolvency, subject to three controls: an agency coupled with an interest is irrevocable under section 202; authority partly exercised cannot be revoked as to acts already done under section 204; and reasonable notice is required under section 206, failing which compensation is due under section 205. Section 208 fixes the moment of effect separately for the agent and for third persons, and section 210 carries the termination down to sub-agents. The scheme is coherent once it is seen as an allocation of the risk created by letting one person bind another, and termination as the orderly unwinding of that allocation.

The need

The need for a Lok Adalat is the need created by pendency, and an answer should give figures rather than adjectives. Roughly five crore cases are pending across the Indian judiciary, the great majority in the district courts, and delay has been the subject of judicial and legislative attention for six decades. The problem is structural: the judge to population ratio remains far below the 50 per million recommended by the Law Commission of India in its 120th Report (1987), and the Supreme Court in Imtiyaz Ahmad v. State of Uttar Pradesh, (2012) 2 SCC 688, found average pendency of over seven years in matters where proceedings had been stayed and had to ask the Law Commission to devise a method for computing the required judge strength, producing the 245th Report (2014) and its recommendation of a rate of disposal method.

The statutory scheme

The Legal Services Authorities Act, 1987, came into force on 9 November 1995, and Chapter VI, sections 19 to 22, governs Lok Adalats.

Section 19 empowers every State Authority, District Authority, Supreme Court Legal Services Committee, High Court Legal Services Committee and Taluk Legal Services Committee to organise Lok Adalats at such intervals and places and for exercising such jurisdiction and for such areas as it thinks fit. The composition is prescribed by rules and ordinarily consists of a serving or retired judicial officer and other persons, usually a lawyer and a social worker.

Section 19(5) states the jurisdiction: a Lok Adalat has jurisdiction to determine and to arrive at a compromise or settlement between the parties to a dispute in respect of any case pending before, or any matter falling within the jurisdiction of and not brought before, any court for which the Lok Adalat is organised. The proviso is essential: the Lok Adalat shall have no jurisdiction in respect of any matter relating to an offence not compoundable under any law.

Section 22 confers on the Lok Adalat the powers of a civil court under the Code of Civil Procedure, 1908 in respect of summoning and enforcing attendance, discovery and production of documents, reception of evidence on affidavit and requisitioning of public records, and provides that it shall be deemed to be a civil court for the purposes of sections 193, 219 and 228 of the Indian Penal Code and section 195 and Chapter XXVI of the Code of Criminal Procedure.

The Permanent Lok Adalat, and the difference that matters

Chapter VIA, sections 22A to 22E, was inserted by the Legal Services Authorities (Amendment) Act, 2002, and it creates a fundamentally different institution which candidates persistently confuse with the ordinary Lok Adalat.

Section 22A defines a public utility service widely: transport of passengers or goods by air, road or water; postal, telegraph or telephone service; supply of power, light or water to the public; systems of public conservancy or sanitation; service in a hospital or dispensary; and insurance service, with power in the Central or State Government to add others by notification.

The constitutional validity of Chapter VIA was upheld in Bar Council of India v. Union of India, (2012) 8 SCC 243, the Court holding that the conferment of adjudicatory power on the Permanent Lok Adalat in respect of public utility services is not unconstitutional, given the ceiling on pecuniary jurisdiction, the exclusion of non-compoundable offences and the composition of the forum.

The nature of the award, and the two leading cases

P.T. Thomas v. Thomas Job, (2005) 6 SCC 478, holds that a Lok Adalat award is a decree by fiction of section 21, is final and binding, and is not appealable, and that the object of the institution is to reduce the burden on the courts and to give relief to litigants who have been waiting for years.

State of Punjab v. Jalour Singh, (2008) 2 SCC 660, is the more important case for a critical answer. A Lok Adalat had passed an order enhancing compensation in a motor accident claim in the absence of any compromise. The Supreme Court set it aside and held in terms that a Lok Adalat has no adjudicatory or judicial function; its functions relate purely to conciliation; it cannot decide a matter on merits; and where no compromise or settlement is arrived at, the case must be returned to the referring court under section 20(5). An "award" that records no genuine consent is a nullity.

The criticism

First, and most seriously, consent is often nominal. The Lok Adalat's entire legitimacy rests on the proposition that the parties agreed. In practice a claimant who has waited eight years for a motor accident award, faced with an insurer offering a discounted sum on the day, is under pressure that has nothing to do with the merits. Jalour Singh addresses the extreme case, where there was no compromise at all, but it cannot address the ordinary case where consent is real in form and coerced in substance by delay.

Second, the absence of appeal is a serious matter precisely because the process is informal. Section 21(2) bars an appeal. There are no reasons, no record of evidence, and often no legal representation. A litigant who settles on a misapprehension of his rights has no remedy short of Article 226 or 227, and Bhargavi Constructions confirms that this is the only route. A forum that gives a decree without reasons and without appeal is defensible only if consent is genuine, which brings the criticism back to the first point.

The defence has to be stated as well. No court system in the world could adjudicate five crore disputes. The Lok Adalat costs the litigant nothing, refunds the court fee under section 21(1), produces an executable decree the same day, and reaches classes of dispute the formal system handles badly. And its award, unlike a private settlement, needs no separate suit to enforce.

Conclusion. The need for the Lok Adalat arises from pendency of the order of five crore cases and from the mandate in Article 39A that economic or other disability shall not deny access to justice, and its importance lies in the fact that it converts a settlement into a decree of the civil court by section 21, refunds the court fee, and does so at no cost to the litigant and usually in a single sitting.

Its statutory basis is Chapter VI of the Legal Services Authorities Act, 1987, under which section 19(5) confines it to compoundable matters, section 20 governs reference, section 21 gives the award the force and finality of a decree with no appeal, and section 22 lends it the civil court's powers of summons and evidence. Chapter VIA creates a materially different institution, the Permanent Lok Adalat for public utility services, which under section 22C(8) may decide a dispute where conciliation fails, a power upheld in Bar Council of India v. Union of India.

For full marks, cover: the definition in section 2(1)(d); then organise the answer by the three sources of the tribunal's authority, the parties' agreement, the statute, and the court, showing how composition, powers and functions flow from each; the mandatory rules that party autonomy cannot displace; and the practical problems of appointment and fees on which the Supreme Court has had to intervene.

Definition

Section 2(1)(d) of the Arbitration and Conciliation Act, 1996 defines "arbitral tribunal" as a sole arbitrator or a panel of arbitrators. The definition is deliberately empty of content: it says nothing about qualifications, nationality, number or method of constitution, and it does not describe the tribunal as a court, a judicial authority or a public body.

That emptiness is the answer to the question, because the tribunal draws its content from three separate sources, and organising the answer by those sources shows why particular rules are mandatory and others are not.

The corollary is that the tribunal's authority is bounded by the agreement. Section 34(2)(a)(iv) makes it a ground that the award deals with a dispute not contemplated by or not falling within the terms of the submission, or contains decisions on matters beyond the scope of the submission, with a proviso permitting severance where the matters submitted can be separated.

Source two: the statute, and the rules party autonomy cannot displace

Four rules are mandatory and they are what a critical answer identifies.

The number may not be even. Section 10(1) permits the parties to determine the number "provided that such number shall not be an even number", and section 10(2) supplies a sole arbitrator by default. The rule exists because the 1940 Act permitted even-numbered tribunals with an umpire under paragraph 2 of its First Schedule, and the umpire's entry on disagreement became a standing source of delay.

A person within the Seventh Schedule cannot sit. Section 12(5), inserted in 2015, provides that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. Only an express agreement in writing after the dispute has arisen can waive it. Section 12(1) imposes the disclosure duty, and the Fifth Schedule lists the grounds which guide whether a doubt as to independence or impartiality is justifiable.

The award must be within time and, ordinarily, reasoned. Section 29A imposes twelve months from the completion of pleadings under section 23(4) for a domestic arbitration, extendable by six months by consent and thereafter only by the court. Section 31(3) requires reasons unless the parties have agreed otherwise or the award is on agreed terms.

Source three: the court

The court supplies the tribunal with three things it cannot obtain for itself.

Limitation on that application was settled in M/s Arif Azim Co. Ltd. v. M/s Aptech Ltd., decided 3 January 2024, holding that Article 137 of the Limitation Act, 1963 governs a section 11(6) application, so it must be brought within three years of the accrual of the right to apply, and that at the section 11 stage the court may decline a reference only where the claim is ex facie time-barred.

Coercive assistance. Section 27 permits the tribunal, or a party with its approval, to apply to the Court for assistance in taking evidence, and the Court may issue the same processes to witnesses as in suits, with the same penalties for default. A private tribunal cannot compel a stranger to attend, and section 27 is the whole answer to that limitation.

Enforcement. Section 36 makes the award enforceable as a decree, and section 17(2) makes an interim order of the tribunal enforceable as an order of the Court.

The power to grant interim measures. Section 17, as substituted in 2015, gives the tribunal the same powers as a court under section 9, at any time during the proceedings or after the award but before enforcement, and section 17(2) makes such an order deemed to be an order of the Court and enforceable under the Code of Civil Procedure. Before 2015 the tribunal's interim orders had no enforcement route at all.

The power to control procedure and evidence. Section 19 frees the tribunal from the Code of Civil Procedure, 1908 and the Indian Evidence Act, 1872, now the Bharatiya Sakshya Adhiniyam, 2023, and lets it determine admissibility, relevance, materiality and weight. Section 26 permits appointment of an expert. Section 25 governs default, and since 2019 permits the tribunal to treat the respondent's right to file a defence as forfeited.

The power to encourage and record settlement. Section 30 permits the tribunal, with the parties' agreement, to use mediation, conciliation or other procedures during the proceedings, and to record a settlement as an award on agreed terms with the same status and effect as an award on the merits.

Functions, arranged as the life of a reference

The tribunal's functions run in sequence and can be recited quickly: to enter on the reference once the proceedings commence under section 21 with the respondent's receipt of the request; to settle the place under section 20 and the language under section 22; to receive pleadings within the six month limit in section 23(4); to hold hearings under section 24, on a day to day basis so far as possible and without adjournment absent sufficient cause; to deal with default under section 25; to receive evidence, appoint experts under section 26 and seek the court's assistance under section 27; to decide according to the applicable substantive law under section 28, taking into account the terms of the contract and trade usages; to decide by majority under section 29; to make a reasoned award within the section 29A timetable, dealing with interest under section 31(7) and costs under section 31A; to terminate the proceedings under section 32; and thereafter to exercise only the residual power of correction, interpretation and additional award under section 33.

Conclusion. The arbitral tribunal is defined by section 2(1)(d) as a sole arbitrator or a panel of arbitrators, and everything else about it comes from three sources. From the parties' agreement come the number, the appointment procedure, the seat, the language, the procedure and, in an international commercial arbitration, the substantive law, and a departure from any of them founds a challenge under section 34(2)(a)(v). From the statute come four rules the parties cannot displace: an odd number under section 10, equal treatment under section 18 which Central Organisation for Railway Electrification (8 November 2024) has extended to the appointment stage, ineligibility under section 12(5) and the Seventh Schedule, and the timetable and reasons requirements in sections 29A and 31(3). From the court come constitution under section 11 where the parties' machinery fails, coercive assistance in taking evidence under section 27, and enforcement of interim orders and of the award under sections 17(2) and 36.

For full marks, cover: for (a), why standard forms exist, why they are a problem for the classical theory, and the four techniques Indian law uses to control them, with Brojo Nath Ganguly and the Consumer Protection Act, 2019; for (b), section 7 in its parts, the essential ingredients, separability, and the recent decisions on stamping and unilateral appointment. Each item carries about twelve and a half marks by the paper's own arithmetic.

a. Standard form Contracts

A standard form contract is one whose terms are settled in advance by one party and offered to the other on a take it or leave it basis. The insurance policy, the bank account opening form, the bill of lading, the airline ticket, the electricity supply agreement, the software licence and the terms of use of a website are all of this kind. The French name, contract of adhesion, describes it better than the English: the weaker party adheres to terms rather than agreeing to them.

The first is a rule of notice. A term is not part of the contract unless reasonable steps were taken to bring it to the other party's attention before or at the time of contracting. Olley v. Marlborough Court Ltd., [1949] 1 King's Bench 532, is the illustration: a notice in a hotel bedroom disclaiming liability for valuables came too late, the contract having been concluded at the reception desk. Thornton v. Shoe Lane Parking Ltd., [1971] 2 Queen's Bench 163, held that the more unusual or onerous the clause, the greater the notice required, Denning M.R. saying it would need to be printed in red ink with a red hand pointing to it. Where a document is signed, the position is stricter: L'Estrange v. F. Graucob Ltd., [1934] 2 King's Bench 394, holds that a party who signs is bound whether or not he read it, subject to fraud or misrepresentation.

The third is the statutory control of unconscionable terms through section 23 of the Contract Act, and this is where Indian law has gone furthest. Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156, is the leading case and should be worked in full. Rule 9(i) of the corporation's service rules permitted termination of a permanent employee's service on three months' notice or pay in lieu, without assigning any reason. The Supreme Court struck the rule down as void under section 23 as opposed to public policy. Madon J. held that the courts will not enforce, and will strike down, an unfair and unreasonable contract or an unfair and unreasonable clause in a contract entered into between parties who are not equal in bargaining power, and that the principle applies where the weaker party has no meaningful choice but to accept a standard form. The Court expressly declined to confine public policy to established heads.

Life Insurance Corporation of India v. Consumer Education and Research Centre, (1995) 5 SCC 482, extended the reasoning to a life insurance policy term restricting a salary saving scheme to government and reputed commercial employees, holding it arbitrary and violative of Article 14 as well as unreasonable in a standard form contract offered by a monopoly.

Other statutes control particular forms: the Insurance Regulatory and Development Authority prescribes policy wordings; the Reserve Bank of India regulates bank charges and the fair practices code; the Real Estate (Regulation and Development) Act, 2016 prescribes the agreement for sale between promoter and allottee; and section 10A of the Information Technology Act, 2000 gives legal recognition to contracts formed by electronic means, which is what makes click-wrap and browse-wrap terms enforceable at all.

b. Arbitration Agreement

Section 7(1) of the Arbitration and Conciliation Act, 1996 defines an arbitration agreement as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

Section 7(2) provides that it may be in the form of an arbitration clause in a contract or in the form of a separate agreement. The first is the ordinary case, a term in a substantive contract dealing with future disputes; the second is a submission agreement, made after a dispute has arisen.

The essential ingredients were stated in K.K. Modi v. K.N. Modi, (1998) 3 SCC 573: an agreement in writing; an intention that the decision of the tribunal will be binding on the parties; that the parties' rights be determined in an impartial and judicial manner with the parties given an opportunity to present their case; that the parties agreed the decision would be enforceable in law; and that the agreement contemplates that substantive rights of the parties will be determined by the tribunal. A clause providing for valuation, certification or expert determination is not an arbitration agreement, and the label the parties used does not settle the question. Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719, adds that a clause saying disputes "may be referred" to arbitration, or that they shall be referred if the parties so agree, is not an arbitration agreement, because it lacks the present intention to be bound.

Section 8 gives the agreement its defensive effect. A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than the date of submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. The 2015 amendment inserted the words "notwithstanding any judgment, decree or order of the Supreme Court or any Court" and confined the court's examination to a prima facie view. Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, held that the court at the reference stage should interfere only where it is manifest that the claim is non-arbitrable or the agreement non-existent, applying the standard "when in doubt, do refer".

Section 28 of the Indian Contract Act, 1872 expressly saves an arbitration agreement from the rule voiding agreements in restraint of legal proceedings, so no objection lies on that ground. Section 40 of the 1996 Act provides that an arbitration agreement is not discharged by the death of a party and is enforceable by or against the legal representative.

Conclusion. A standard form contract is one whose terms are fixed in advance by one party and presented to the other without negotiation. It is efficient and unavoidable in mass transactions, and it defeats the consensus ad idem that section 13 assumes. Indian law controls it in four ways: a rule of notice, requiring onerous terms to be brought home before the contract is made, as Olley and Thornton show; a rule of construction, reading exclusions contra proferentem and requiring clear words to displace the core obligation; the section 23 public policy jurisdiction, under which Central Inland Water Transport Corporation v. Brojo Nath Ganguly struck down an unconscionable term between parties of unequal bargaining power and Life Insurance Corporation v. Consumer Education and Research Centre extended the reasoning; and legislation, above all the definition of an unfair contract in section 2(46) of the Consumer Protection Act, 2019 and the power of the commissions to declare such terms void.

For full marks, cover: all four notes are written below though only two are required. Each is a compressed essay: the provision, the leading case, and the point of difficulty.

a. Appeal against arbitral award

The route a losing party actually travels is the best way to organise this note, and the first step on it is not an appeal at all.

The grounds in section 34(2)(a), to be established by the applicant on the basis of the record, are incapacity of a party; invalidity of the agreement; want of proper notice of the appointment or of the proceedings, or inability otherwise to present the case; the award going beyond the submission, with a severance proviso; and irregular composition or procedure. Section 34(2)(b) adds non-arbitrability and conflict with the public policy of India, confined by the 2015 Explanation to fraud or corruption, contravention with the fundamental policy of Indian law, and conflict with the most basic notions of morality or justice, with a further Explanation that the fundamental policy test shall not entail a review on the merits. Section 34(2A) adds patent illegality on the face of the award, available only for arbitrations other than international commercial arbitrations, and not for an erroneous application of law or a reappreciation of evidence.

Section 34(3) is the time bar and it is unforgiving: three months from receipt of the award, with a further thirty days on sufficient cause "but not thereafter". Those three words have been held to exclude section 5 of the Limitation Act, 1963, so a delay of thirty one days is fatal.

The newest development belongs at the end of the note. In Gayatri Balasamy v. ISG Novasoft Technologies Ltd., 2025 INSC 605, decided 30 April 2025, a five-judge Bench held by four to one that a court under sections 34 and 37 has a limited power to modify an award: where the invalid portion is severable; to correct clerical, computational or typographical errors apparent on the face of the record; in relation to post-award interest; and, in the case of the Supreme Court, under Article 142. Khanna C.J. wrote for the majority; Viswanathan J. dissented. Until that decision the settled position was that a court could set aside, or under section 34(4) adjourn to let the tribunal cure the defect, but never substitute its own conclusion, and the objection to the majority view is that a power to modify sits uneasily with sections 5 and 34(1) and with the finality declared by section 35.

Layer one: ineligibility under section 12(5) and the Seventh Schedule. Notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. The proviso allows the parties to waive the applicability of the sub-section by an express agreement in writing after the dispute has arisen. The Seventh Schedule, drawn from the IBA Guidelines on Conflicts of Interest in International Arbitration, lists among others an arbitrator who is an employee, consultant, adviser or has a past or present business relationship with a party; who has a controlling influence on an affiliate of a party; who regularly advises a party; who is a manager, director or part of the management of a party; who has a close family relationship with a party or with counsel; and who has previously been involved in the case.

Layer two: challenge under sections 12 and 13. Section 12(1), as substituted in 2015, requires a person approached in connection with a possible appointment to disclose in writing, in the form of the Sixth Schedule, any circumstances such as those in the Fifth Schedule likely to give rise to justifiable doubts as to independence or impartiality, and any circumstances likely to affect his ability to devote sufficient time and in particular to complete the arbitration within twelve months. The duty continues throughout the proceedings under section 12(2).

Section 12(3) states the grounds of challenge: circumstances exist giving rise to justifiable doubts as to independence or impartiality, or the arbitrator does not possess the qualifications agreed to by the parties. Section 12(4) restricts a party from challenging an arbitrator it appointed, or in whose appointment it participated, except for reasons of which it becomes aware after the appointment.

The relationship between section 12(5) and section 14 matters. Because a person within the Seventh Schedule is ineligible de jure, the route is not a section 13 challenge but a section 14 application to the Court, and that has been the settled practice since TRF Ltd.

One further disqualification lies outside the Act. Section 80 of the 1996 Act provides that a conciliator shall not act as an arbitrator in any arbitral or judicial proceeding in respect of a dispute that is the subject of the conciliation proceedings. That provision is among sections 61 to 81 which the Sixth Schedule to the Mediation Act, 2023 would substitute, a substitution not yet brought into force, so section 80 remains in operation; the corresponding protection for mediation is in the 2023 Act.

c. Doctrine of Privity of contract

The doctrine has two limbs and Indian law accepts only one of them, which is the whole point of the note.

M.C. Chacko v. State Bank of Travancore, AIR 1970 SC 504, is the Indian authority and its facts are worth stating. A bank held a guarantee from the manager of a business. A deed of partition of the family property recited that liability under the guarantee would be met by the manager's son out of the property allotted to him. The bank sought to enforce that provision. The Supreme Court held it could not: the bank was not a party to the partition deed, and a person not a party to a contract cannot enforce its terms even though the contract was made for his benefit. The Court added that the position would be different if a trust or a charge had been created in the claimant's favour.

The exceptions are the practical content of the note and should be listed with an authority each.

Trust or charge on property. Khwaja Muhammad Khan v. Husaini Begum, (1910) 37 Indian Appeals 152: a father in law agreed with the father of a bride to pay her an allowance for betel leaf expenses, and charged certain immovable property with the payment. The Privy Council held the wife entitled to enforce it though a stranger to the contract, because a charge on specific immovable property had been created in her favour.

The criticism, which is where the marks are. The rule produces an obviously unjust result whenever two parties deliberately contract for the benefit of a third, and the length of the list of exceptions is evidence that the courts have found it unsatisfactory. England abolished it by the Contracts (Rights of Third Parties) Act 1999, under which a third party may enforce a term if the contract expressly so provides or if the term purports to confer a benefit on him and the parties did not intend otherwise. India has not legislated, although the Law Commission of India recommended reform in its Thirteenth Report on the Indian Contract Act, 1872 (1958). That the recommendation has been outstanding for more than sixty years, in a jurisdiction whose statute had already rejected the first limb of the doctrine in 1872, is the sharpest criticism available.

The holdings are four. First, sections 10 and 11 read together require a contracting party to be competent, so an agreement by a person not competent is void ab initio and not merely voidable. Second, the lender's claim for repayment under section 64 failed, because that section applies to a person who rescinds a voidable contract, and a minor's agreement is not voidable. Third, the claim under section 65 failed, because that section speaks of an agreement "discovered to be void", and the lender's own attorney had known of the minority from the outset, so nothing was discovered. Fourth, the plea of estoppel failed: estoppel cannot be used to give effect to an agreement which the statute declares void, and in any event the lender had notice of the true age.

The consequences that follow are the substance of the note.

No ratification. A minor's agreement cannot be ratified on attaining majority, because ratification relates back to the date of the agreement and there was no agreement to which it could relate back. A fresh promise on attaining majority needs fresh consideration; a promise merely to perform the old agreement is unsupported.

No specific performance, and no restitution as such. A contract void ab initio cannot be specifically enforced, either by or against the minor. Section 33 of the Specific Relief Act, 1963 does, however, empower the court, on adjudging the cancellation of an instrument at the instance of a party, to require him to restore any benefit he has received, and to require a defendant who successfully resists on the ground of the plaintiff's incompetence to restore the benefit he received to the extent to which he or his estate has benefited thereby. That is the narrow route by which a lender may recover something, and it is discretionary and equitable rather than contractual.

Minor as an agent, and as a partner. Section 184 provides that as between the principal and third persons any person may become an agent, so a minor may act as an agent and bind his principal, though he incurs no responsibility to the principal. Under section 30 of the Indian Partnership Act, 1932, a minor cannot be a partner but may be admitted to the benefits of partnership with the consent of all the partners, his share being liable for the acts of the firm but he not being personally liable; on attaining majority he has six months to elect whether to become a partner.

On the contract side, privity in India is half the English rule: section 2(d) allows consideration to move from a stranger, as Chinnaya v. Ramayya holds, but M.C. Chacko v. State Bank of Travancore accepts that only a party may sue, subject to exceptions for a trust or charge as in Khwaja Muhammad Khan, for family arrangements, for acknowledgement and estoppel, and for covenants running with land. And an agreement with a minor is void ab initio on the authority of Mohori Bibee v. Dharmodas Ghose, so it cannot be ratified, cannot be specifically enforced and supports no estoppel, while section 68 allows a supplier of necessaries to be reimbursed from the minor's property and section 33 of the Specific Relief Act, 1963 supplies a discretionary power of restoration.