LLM Group 2 Business Law Fundamental Principles of Law of Contract and Allied Laws 2024-25 Question Paper with Solutions

The useful way to discuss these elements is by their failure, and that is how this answer is organised. Every textbook lists the elements; the LLM question is what the law does when one is absent, and the answer is not the same in each case. An agreement may be void from the outset, void only when discovered to be so, voidable at the election of one party, or valid but unenforceable. Knowing which is which decides who can sue, what has to be restored, and whether a third party who has taken an interest is protected.

Element one: an offer and an acceptance producing agreement

Sections 3 to 9 govern communication, acceptance and revocation. Section 4 fixes the moments: the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made; the 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 allows a proposal to be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

Element two: intention to create legal relations

The Act nowhere states this requirement, and that omission is itself a point. It is imported through section 10's requirement of an agreement and through the courts. Balfour v. Balfour, [1919] 2 King's Bench 571, holds that arrangements between spouses in the ordinary course of domestic life are not intended to have legal consequences: a husband working in Ceylon promised his wife thirty pounds a month while she remained in England, and when the marriage failed she could not sue on it. Merritt v. Merritt, [1970] 1 Weekly Law Reports 1211, shows the limit: an agreement between spouses already separated, reduced to writing, was enforceable, because the domestic presumption does not survive the breakdown of the relationship.

Failure here means there is no contract, and the promise is simply outside the law's reach, neither void nor voidable but unenforceable in the sense that the law never took cognisance of it.

Element three: free consent, sections 13 to 22

Section 13 requires consensus ad idem and section 14 defines free consent by excluding five vitiating factors. The consequences of the five are not uniform, and that is the heart of this element.

Mistake behaves quite differently. Where both parties are under a mistake as to a matter of fact essential to the agreement, section 20 makes the agreement void, not voidable. An erroneous opinion as to the value of the thing which forms the subject matter is not, by the Explanation, such a mistake of fact. Section 21 provides that a contract is not voidable because it was caused by a mistake as to any law in force in India, though a mistake as to a foreign law has the same effect as a mistake of fact. Section 22 provides that a contract is not voidable merely because it was caused by one of the parties being under a mistake as to a matter of fact.

The practical difference between void and voidable is the difference between nothing and something. A void agreement never creates rights, so no third party can take under it and restoration is governed by section 65. A voidable contract creates rights until avoided, so a bona fide purchaser for value without notice is protected and restoration is governed by section 64.

Three consequences follow and each earns a mark. A minor's agreement cannot be ratified on attaining majority, because there is nothing to ratify. A minor may nevertheless be a promisee or beneficiary and can enforce a contract made for his benefit, as in Sharafat Ali v. Noor Mohd. and the line of cases treating a minor's mortgage in his favour as good. And section 68 allows a supplier of necessaries to be reimbursed from the minor's property, the liability being on the estate and not personal, which is the Act's way of preventing hardship without contradicting Mohori Bibee.

Element five: lawful consideration and lawful object

Sections 2(d), 23, 24 and 25 govern this element, and the failures divide into two.

Absence of consideration: section 25 makes the agreement void, subject to the three exceptions of a registered promise made on account of natural love and affection between near relations, a promise to compensate past voluntary service, and a written and signed promise to pay a time-barred debt. Explanation 2 removes inadequacy from the field altogether: an agreement is not void merely because the consideration is inadequate, though inadequacy may be evidence on the question whether consent was free.

Section 24 completes the picture on severability: if any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void. Where, however, the lawful and unlawful parts are genuinely separable, the courts have enforced the lawful part.

Element six: not expressly declared void, sections 26 to 30

This element operates irrespective of consent, capacity and consideration, and the failure is always the same: the agreement is void. Section 26 voids an agreement in restraint of the marriage of any person other than a minor. Section 27 voids an agreement in restraint of trade, saving the sale of goodwill. Section 28 voids an agreement in restraint of legal proceedings, expressly saving a contract to refer disputes to arbitration. Section 29 voids uncertain agreements. Section 30 voids agreements by way of wager, and adds that no suit shall be brought for recovering anything alleged to be won on any wager.

Element eight: legal formalities where a statute requires them

Section 10's second paragraph preserves any law requiring writing, attestation or registration, so the general Indian rule is that a contract need not be in writing. Where another statute requires a form and it is not observed, the usual consequence is that the contract is valid but unenforceable, or in some cases void: a sale of immovable property of a hundred rupees and upwards requires a registered instrument under section 54 of the Transfer of Property Act, 1882, and an arbitration agreement must be in writing under section 7(3) of the Arbitration and Conciliation Act, 1996.

The stamping question was settled recently and is worth a line. In In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, decided 13 December 2023, seven judges held unanimously that an unstamped or insufficiently stamped instrument is inadmissible in evidence but is not void or void ab initio, and that the defect is curable. That decision overruled N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., and it is the clearest modern statement of the difference between a defect that destroys an agreement and one that merely blocks its proof.

For full marks, cover: where finality comes from in the Act, sections 35, 36 and 5, and the policy behind it; then the exceptions in order, section 33 corrections, section 34 setting aside with its narrowed public policy, section 37 appeals, section 48 for foreign awards; the 2015 change to section 36 and the striking down of section 87; and the 2025 Constitution Bench decision that has created a new and contested exception.

Where finality comes from

Section 35 of the Arbitration and Conciliation Act, 1996 states the rule in one line: subject to this Part, an arbitral award shall be final and binding on the parties and persons claiming under them respectively. Section 36 then gives it teeth: where the time for making an application to set aside the award under section 34 has expired, the award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court.

The policy is stated in the Statement of Objects and Reasons of the 1996 Act and in the Preamble's reference to the UNCITRAL Model Law. Parties choose arbitration to obtain a quick and final determination by a tribunal of their own choosing. If an award were open to review on the merits, arbitration would become the first tier of a longer process rather than a substitute for litigation, and its only advantages, speed and finality, would be lost. The Arbitration Act, 1940 had exactly that defect: an award had to be filed in court and a decree obtained in terms of it under sections 14 to 17, and the Supreme Court's observation in Guru Nanak Foundation v. Rattan Singh and Sons, (1981) 4 SCC 634, that the way in which proceedings under the 1940 Act were conducted made lawyers laugh and legal philosophers weep, is the standard citation for why the 1996 Act was needed.

Exception two: setting aside under section 34

Section 34 is the principal exception and it is deliberately narrow. Section 34(1) provides that recourse to a Court against an arbitral award may be made only by an application for setting aside in accordance with sub-sections (2) and (3). The word "only" is doing work: there is no appeal on the merits, no revision, and no review.

Section 34(2)(a) lists five grounds which the applicant must establish on the basis of the record of the tribunal, a limitation added by the 2015 amendment which replaced the earlier words "furnishes proof". They are incapacity of a party; invalidity of the arbitration agreement under the law to which the parties have subjected it or, failing indication, under 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 one's 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 the scope, with a proviso permitting severance; and the composition of the tribunal or the arbitral procedure not being in accordance with the agreement of the parties.

The Law Commission's 246th Report (August 2014) recommended reversing that expansion, and the 2015 amendment did so. The substituted Explanation 1 to section 34(2)(b) now confines public policy to three heads: the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; the award is in contravention with the fundamental policy of Indian law; or the award is in conflict with the most basic notions of morality or justice. Explanation 2 provides that the test whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

Section 34(2A), inserted at the same time, moved patent illegality out of public policy and made it a separate and narrower ground: an award arising out of arbitrations other than international commercial arbitrations may be set aside if the Court finds that it is vitiated by patent illegality appearing on the face of the award, with the proviso that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

Sections 34(5) and 34(6), inserted in 2015, require the application to be filed only after issuing prior notice to the other party, accompanied by an affidavit endorsing compliance, and provide that the application shall be disposed of expeditiously and in any event within a period of one year from the date of service of that notice.

Exception three: appeals under section 37

Section 37 provides a limited appeal, and it lies against orders and not against the award. 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 16(3), and granting or refusing an interim measure under section 17. No second appeal lies from an order passed in appeal under the section, though the right to appeal to the Supreme Court is expressly saved.

Kandla Export Corporation v. OCI Corporation, (2018) 14 SCC 715, is worth a line here, holding that an appeal against an order refusing to enforce a foreign award, which section 50 does not provide for, cannot be brought under section 13 of the Commercial Courts Act, 2015, because the special provisions of the Arbitration Act prevail.

The 2015 change to section 36, and section 87

Before 2015 the mere filing of a section 34 application operated as an automatic stay on enforcement, because section 36 made an award enforceable only when the time for a challenge had expired or the challenge had been refused. That converted a narrow exception into a routine delay: a losing party filed under section 34 and enforcement stopped for years. The 2015 amendment substituted section 36 so that filing an application does not by itself render the award unenforceable unless the Court grants a separate stay on a separate application, and the Court may impose conditions.

Parliament tried to restrict that reform in 2019 by inserting section 87, which would have confined the 2015 amendments to arbitrations commenced on or after 23 October 2015. In Hindustan Construction Company Ltd. v. Union of India, decided 27 November 2019 (Nariman, Surya Kant and Ramasubramanian JJ.), the Supreme Court struck down section 87 as manifestly arbitrary and violative of Article 14, holding among other things that a section 34 application is not in the nature of an appeal and that restoring the automatic stay defeated the object of the Act.

Conclusion. The rule of finality is stated in section 35, enforced by section 36 and protected by section 5, and its object is that a party who has chosen arbitration gets a determination and not the first round of a litigation. The exceptions are exhaustive and narrow: correction, interpretation and an additional award by the tribunal itself under section 33; setting aside by the Court under section 34, on five record-based grounds in sub-section (2)(a), on non-arbitrability and public policy in sub-section (2)(b) as confined by the 2015 Explanations, and on patent illegality on the face of the award in sub-section (2A) for domestic awards only; a limited appeal against listed orders under section 37 with no second appeal; and refusal of enforcement of a foreign award under section 48.

Two modern developments define the present position. The 2015 substitution of section 36 removed the automatic stay, and when Parliament sought to undo it by section 87 the Supreme Court struck that section down in Hindustan Construction Company (27 November 2019). And Gayatri Balasamy (30 April 2025) has added, by a majority of four to one, a limited judicial power to modify an award in four defined situations, which is the first exception to finality that the Act itself does not contain and which is for that reason the most contested.

The origin, and why it matters that India codified it

Consideration is an English invention and it is an accident of procedure. Medieval English law enforced promises through the writ of covenant, which required a deed under seal, and through debt, which required a quid pro quo. The action of assumpsit grew up in the sixteenth century to fill the gap, and consideration developed as the answer to the question when the courts would allow assumpsit on an informal promise. It was, from the beginning, a test of enforceability rather than a moral principle, and the classical statement in Currie v. Misa, (1875) Law Reports 10 Exchequer 153, that consideration may consist in some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given or undertaken by the other, is a description of the test rather than a justification of it.

When the Indian Contract Act was drafted, that history was not India's. The draftsmen nevertheless adopted the doctrine, and section 25 states it as a rule of statute: an agreement made without consideration is void. But they adopted it in a modified form, and the three modifications are the beginning of any critical evaluation, because each of them removes one of the standard English criticisms.

The exceptions, grouped by the reason each exists

Grouping the exceptions by rationale rather than reciting them in order is what distinguishes a critical answer, because it shows that the exceptions are not arbitrary and that each admits a different theory of contract.

The first group exists because a formality has replaced the evidentiary function of consideration. Section 25(1) requires an agreement made on account of natural love and affection between parties standing in a near relation to be in writing and registered. Registration is a formality of the same order as the English seal: it makes the promise deliberate and provable, so consideration is no longer needed as evidence of seriousness. Section 25(3), the promise to pay a time-barred debt, likewise requires writing signed by the person to be charged. So does the acknowledgement under section 18 of the Limitation Act, 1963, which is a related device.

The fourth group exists because the promisee has changed position on the faith of the promise. Kedar Nath Bhattacharji v. Gorie Mahomed, (1886) Indian Law Reports 14 Calcutta 64, is the Indian case: a subscription to a town hall fund became binding once the Municipal Commissioners had entered into a building contract on the strength of the subscriptions, the liability incurred at the promisor's desire being the consideration. The reasoning is formally consideration and functionally reliance, which is the point.

The fifth group is a legislative choice to let a creditor be generous. Section 63 allows a promisee to dispense with or remit performance wholly or in part, extend the time, or accept any satisfaction he thinks fit, without consideration. This is where Indian law departs most sharply from England, where Pinnel's Case, (1602) 5 Coke Reports 117a, and Foakes v. Beer, (1884) 9 Appeal Cases 605, hold that part payment of a debt is no satisfaction of the whole without a deed or fresh consideration. The English rule has been so widely criticised that Williams v. Roffey Bros and Nicholls (Contractors) Ltd., [1991] 1 Queen's Bench 1, found a "practical benefit" sufficient to support a promise to pay more, and Re Selectmove Ltd., [1995] 1 Weekly Law Reports 474, declined to extend that reasoning to promises to accept less. India simply legislated the problem away in 1872.

The courts then had to build exceptions to escape the consequences, and the length of the list is itself the criticism. A beneficiary under a trust or a charge on immovable property may sue: Khwaja Muhammad Khan v. Husaini Begum, (1910) 37 Indian Appeals 152, where a father in law charged his immovable property with an allowance to his son's wife and she was held entitled to enforce it though a stranger to the contract. So may a party to a family arrangement or a partition, a person in whose favour a provision for marriage expenses is made, and a person in whose favour the promisor has acknowledged liability or is estopped from denying it.

England abolished the rule by the Contracts (Rights of Third Parties) Act 1999. A third party may enforce a term where the contract expressly so provides or where the term purports to confer a benefit on him and the parties did not intend otherwise. India has not legislated, though the Law Commission of India recommended reform in its Thirteenth Report on the Indian Contract Act, 1872 (1958), proposing that a third party for whose benefit a contract is made should be able to enforce it. Nothing has come of it in more than sixty years, and that inaction is the single strongest criticism a candidate can make.

The third criticism is that the doctrine has been overtaken by promissory estoppel, and that India has taken that doctrine further than England. In Union of India v. Anglo Afghan Agencies, AIR 1968 SC 718, the Government was held bound by an export promotion scheme on the faith of which exporters had acted, though there was no contract. In Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, (1979) 2 SCC 409, Bhagwati J. held that the doctrine is available even in the absence of consideration, that it may be used as a cause of action and not merely as a defence, and that it binds the Government subject only to a defence that the public interest requires otherwise, which the Government must establish. If a representation acted upon can found a claim without consideration, then consideration is no longer the general test of enforceability that section 25 declares it to be.

Conclusion. "No consideration, no contract" is a statutory rule in India, stated in section 25 and required by section 10, and it descends from an English procedural history that India did not share. The 1872 draftsmen adopted it in a substantially softened form: consideration may move from any person under section 2(d), it may be past, and Explanation 2 makes inadequacy irrelevant except as evidence of unfree consent.

The exceptions are not a random list. Sections 25(1) and 25(3) substitute a formality for the evidentiary function of consideration; section 25(2) and Explanation 1 recognise a moral obligation already discharged; sections 185 and 148 make the relationship rather than the exchange the source of duty; the subscription cases enforce reliance; and section 63 is a deliberate legislative decision to let a creditor remit, avoiding the English tangle of Foakes v. Beer altogether.

For full marks, cover: the structure of Part II and where each chapter comes from; then the distinctions one by one, definition, conditions of enforcement, burden of proof, double exequatur, refusal grounds, and current scope; the fact that section 58 makes the two mutually exclusive; and the practical conclusion that Chapter II is now almost dead letter.

The structure of Part II

Part II of the Arbitration and Conciliation Act, 1996 is headed "Enforcement of Certain Foreign Awards" and it has two chapters, each giving effect to a different international instrument.

Chapter I, sections 44 to 52, is headed "New York Convention Awards" and gives effect to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958, which is set out as the First Schedule to the Act.

Distinction one: the definition of a foreign award

Section 44 defines a New York Convention award as an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October 1960, in pursuance of an agreement in writing for arbitration to which the Convention applies, and in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, may by notification declare to be territories to which the Convention applies.

Section 53 defines a Geneva Convention award in similar terms but with a materially different frame: an award on differences relating to matters considered as commercial under the law in force in India, made after 28 July 1924, in pursuance of an agreement for arbitration to which the Protocol set forth in the Second Schedule applies, between persons of whom one is subject to the jurisdiction of one of such Powers as the Central Government may by notification declare to be parties to the Convention and the other of whom is subject to the jurisdiction of some other such Power, and in one of such territories as the Central Government may declare to be territories to which the Convention applies.

Under the Geneva regime, section 57 states positive conditions the party seeking enforcement must satisfy. The award must have been made in pursuance of a submission to arbitration valid under the applicable law; the subject matter must be capable of settlement by arbitration under the law of India; the award must have been made by the tribunal provided for in the submission or constituted in the manner agreed and in conformity with the law governing the arbitration procedure; the award must have become final in the country in which it was made, and it is not final if any proceedings for the purpose of contesting its validity are pending; and the enforcement must not be contrary to the public policy or the law of India.

Under the New York regime, section 47 requires the applicant to produce only three things: the original award or a duly authenticated copy, the original arbitration agreement or a duly certified copy, and such evidence as may be necessary to prove that the award is a foreign award. Section 48 then places the burden of establishing a ground of refusal on the party against whom the award is invoked, in the words "at the request of the party against whom it is invoked, only if that party furnishes to the court proof that ...".

Distinction four: the grounds of refusal

Section 48, in the New York chapter, lists the grounds exhaustively and mirrors Article V of the Convention. On proof by the resisting party: incapacity of a party or invalidity of the agreement under the law to which the parties subjected it or, failing indication, the law of the country where the award was made; want of proper notice of the appointment of the arbitrator or of the proceedings, or inability otherwise to present the case; the award dealing with a difference not contemplated by or not falling within the terms of the submission, with a severance proviso; irregular composition of the tribunal or irregular arbitral procedure; and the award not yet binding, or set aside or suspended at the seat. On the Court's own finding under section 48(2): non-arbitrability under Indian law, 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.

Sections 45 and 54 are the mirror provisions on reference. Section 45, in the New York chapter, requires a judicial authority, on the request of a party, to refer the parties to arbitration where the matter is the subject of a written arbitration agreement to which the Convention applies, unless it finds that the agreement is null and void, inoperative or incapable of being performed. Section 54 is the corresponding provision for the Geneva chapter.

Section 50 and section 59 provide the appeal. An appeal lies from an order refusing to refer parties to arbitration and from an order refusing to enforce a foreign award, but not from an order enforcing one, and Kandla Export Corporation v. OCI Corporation, (2018) 14 SCC 715, held that no additional right of appeal can be found in the Commercial Courts Act, 2015.

One further modern point belongs here. PASL Wind Solutions (P) Ltd. v. GE Power Conversion India (P) Ltd., (2021) 7 SCC 1, held that two companies both incorporated in India may choose a foreign seat, that the resulting award is a foreign award enforceable under Part II, and that such an agreement offends neither section 23 nor section 28 of the Indian Contract Act. The reach of Part II is therefore wider than the phrase "foreign award" suggests: it is not confined to disputes with a foreign party.

The public policy ground: the same words, different results

Both chapters permit refusal on public policy, and the case law shows that the words have been given a narrow meaning for foreign awards and, for a decade, a wide one for domestic awards. That divergence is a distinction between the two chapters and the Part I regime, and it belongs in this answer.

The practical consequence for the comparison this question asks for is that the burden and the standard both favour the award holder under the New York chapter. Under section 57, in the Geneva chapter, the holder had to establish affirmatively that enforcement was not contrary to the public policy or the law of India, which is a wider formula. Under section 48(2)(b) the objector must establish a conflict with public policy alone, and that phrase now carries only three heads, with Explanation 2 expressly excluding a review on the merits. The Geneva formula would have permitted an inquiry into legality that the New York formula does not.

Conclusion. New York Convention awards are governed by Chapter I of Part II, sections 44 to 52, and Geneva Convention awards by Chapter II, sections 53 to 60, and the two are mutually exclusive because section 58 excludes the Geneva chapter wherever the New York Convention applies.

For full marks, cover: sections 27 and 26 and the fact that neither admits a general test of reasonableness; then work the four situations in which the question actually arises, employment during service, employment after service, sale of a business or franchise, and restraints touching marriage; the 2025 decision on service bonds; and the statutory exceptions outside the Act.

The two sections, and the single structural point about both

Section 27: every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. The exception saves an agreement by one who sells the goodwill of a business to refrain from carrying on a similar business within specified local limits, so long as the buyer or a person deriving title from him carries on a like business there, provided the limits appear to the Court reasonable regard being had to the nature of the business.

Section 26: every agreement in restraint of the marriage of any person, other than a minor, is void. There is no exception at all.

Situation one: a restraint operating during employment

A negative covenant that operates while the contract of service subsists is not a restraint of trade at all, and this is the distinction on which most modern cases turn.

Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd., AIR 1967 SC 1098, is the leading case and repays being set out fully. The company had set up a tyre cord yarn plant in collaboration with a foreign manufacturer, which required its Indian partner to keep the process secret and to bind its employees accordingly. Golikari was engaged for five years as a shift supervisor on terms that he would not, during the period of his employment, engage directly or indirectly in any similar business, and would keep confidential the technical information he acquired. He left within a year and joined a rival. The Supreme Court upheld an injunction restraining him for the balance of the term. Shelat J. held that a negative covenant operating during the term of employment is designed to enforce the positive obligation of exclusive service, is intended to protect a legitimate proprietary interest in confidential information, and does not put the employee out of work because he is being paid throughout.

Situation two: a restraint operating after employment ends

Here section 27 bites, and it bites whether the restraint is reasonable or not. Krishan Murgai is the authority. So is Percept D'Mark (India) (P) Ltd. v. Zaheer Khan, (2006) 4 SCC 227, where a right of first refusal in a cricketer's endorsement management agreement was sought to be enforced after the agreement expired; the Supreme Court held it unenforceable under section 27 and restated that a restrictive covenant extending beyond the term of the contract is void, while negative covenants operative during the term are generally not.

An employer is not left without protection, and the answer should say what survives. A covenant protecting trade secrets and confidential information after employment can be enforced, because the obligation is not to restrain trade but to prevent misuse of the employer's property; the enforcement is by injunction against disclosure, not against employment. A garden leave clause, under which the employee remains employed and paid while being kept away from work, falls on the Golikari side of the line, because the contract subsists. And a claim in damages for breach of confidence, or under the law of passing off in respect of customer connection, is unaffected by section 27.

The rule that emerges is clean and should be stated as such: a minimum service clause enforced by liquidated damages is valid; a post-termination non-compete is not. The first buys service for a period the employer is paying for; the second takes away the employee's livelihood after the payment has stopped.

Situation four: sale of a business, partnership and trade combinations

The exception to section 27 covers only the sale of goodwill, and its conditions are cumulative. The restraint must be on the seller; it must be against carrying on a similar business; it must be within specified local limits; it must last only so long as the buyer or a person deriving title from him carries on a like business in those limits; and the limits must appear to the Court reasonable having regard to the nature of the business. A restraint unlimited in space, or one that survives the buyer's abandonment of the business, falls outside the exception and is void.

Restraint of marriage: section 26

Section 26 is stricter than section 27 in three ways, and the comparison is where the marks are. It has no exception. It does not distinguish total from partial restraints, so an agreement not to marry at all, not to marry a particular person, not to marry for a period, and not to marry outside a community are all equally void. And it makes no allowance for consideration or for the parties' consent, because it rests on a public policy about the institution rather than on the protection of a party.

Lowe v. Peers, (1768) 4 Burrow 2225, is the source. The defendant covenanted under seal that he would not marry any person besides the plaintiff, and that if he did he would pay her a thousand pounds. Lord Mansfield held the promise void, observing that there was no promise to marry the plaintiff at all, so the whole tendency of the instrument was to restrain marriage generally.

A restraint on the marriage of a minor is outside section 26 by its express words, and the reason is that the general law already restricts child marriage, most recently under the Prohibition of Child Marriage Act, 2006. The exclusion is therefore not an indulgence to restraints but a recognition that the field is occupied.

Conclusion. Both sections proceed by a legislative judgment rather than a judicial balance. Section 27 voids every agreement in restraint of trade to the extent of the restraint, and Indian law admits no Nordenfelt defence of reasonableness, as Madhub Chunder held in 1874 and Krishan Murgai confirmed in 1981; reasonableness enters only within the goodwill exception and within sections 11(2), 36(2) and 54 of the Partnership Act, 1932.

The distinction that decides the modern cases is temporal. Golikari, Gujarat Bottling and Percept D'Mark establish that a negative covenant operating during the subsistence of a contract is not a restraint of trade, while one operating after it ends is void, and Vijaya Bank v. Prashant B. Narnaware (14 May 2025) has confirmed that a minimum service bond enforced by liquidated damages is on the valid side of that line, being neither a section 27 restraint nor contrary to public policy under section 23. What survives for an employer after service ends is protection of confidential information, not protection from competition.

For full marks, cover: the two governing principles, party autonomy in section 19 and equal treatment in section 18; then the procedure in sequence from section 21 to section 33; and then the critical evaluation, which is where the marks are: delay, the 29A time limit and what it has cost, the unregulated fee problem, and the ad hoc versus institutional debate.

The two principles that govern the whole procedure

Section 18 states the mandatory principle: the parties shall be treated with equality and each party shall be given a full opportunity to present his case. It is not capable of being contracted out of, and it is the source of the natural justice requirement in arbitration.

Place, section 20. The parties are free to agree on the place of arbitration; failing agreement the tribunal determines it having regard to the circumstances of the case, including the convenience of the parties. Sub-section (3) permits the tribunal, unless otherwise agreed, to meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.

The distinction between the seat and the venue lives in this section and is worth a sentence. The seat determines the supervisory jurisdiction and the curial law; the venue is merely where a hearing physically happens. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, established that Part I applies only where the seat is in India, and BGS SGS Soma JV v. NHPC Ltd., (2020) 4 SCC 234, held that where a place is designated as the venue of arbitration proceedings and there is no contrary indicium, that designation is to be read as a designation of the seat.

Language, section 22. The parties are free to agree; failing agreement the tribunal determines it, and the agreement or determination applies to any written statement, any hearing and any award, order or other communication. The tribunal may order that documentary evidence be accompanied by a translation.

Hearings, section 24. Unless the parties have agreed that no oral hearings shall be held, the tribunal shall hold oral hearings at an appropriate stage of the proceedings, on a request by a party. The first proviso, added in 2015, requires the tribunal as far as possible to hold oral hearings for the presentation of evidence or for oral argument on a day to day basis, and not to grant any adjournment unless sufficient cause is made out; the second proviso empowers it to impose exemplary costs on a party seeking an adjournment without sufficient cause. Sub-section (2) requires sufficient advance notice of any hearing or meeting, and sub-section (3) requires that all statements, documents and information supplied by one party be communicated to the other, along with any expert report or evidentiary document on which the tribunal may rely.

Court assistance in evidence, section 27. The tribunal, or a party with the tribunal's approval, may apply to the Court for assistance in taking evidence. The Court may execute the request by ordering that the evidence be provided directly to the tribunal, and may issue the same processes to witnesses as it issues in suits. Persons failing to attend, or guilty of any contempt to the tribunal, are subject to the same penalties and punishments by order of the Court as they would incur for the like offences in suits. This is the only point at which the private tribunal borrows the State's coercive power, and it is the section that makes the rest workable.

Time limit, section 29A. The award in an arbitration other than an international commercial arbitration shall be made within twelve months from the date of completion of pleadings under section 23(4). The parties may by consent extend that by up to six months. Thereafter the mandate terminates unless the Court extends it, and the Court may reduce the fees of the arbitrator by up to five per cent for each month of delay where it finds the delay attributable to the tribunal. For international commercial arbitration the provision is hortatory: the award may be made as expeditiously as possible and endeavour may be made to dispose of the matter within twelve months.

Fast track, section 29B. The parties may agree in writing before or at the time of appointment to have the dispute resolved by a fast track procedure: the tribunal decides on written pleadings, documents and submissions without any oral hearing unless it requests one or the parties ask for one, and the award is to be made within six months from the date the tribunal enters upon the reference.

Section 31(7) governs interest: unless otherwise agreed, the tribunal may include interest at such rate as it deems reasonable for the whole or part of the period between the date on which the cause of action arose and the date of the award, and a sum directed to be paid carries interest at two per cent higher than the current rate of interest prevalent on the date of the award, from that date to the date of payment. Section 31A, inserted in 2015, codifies the costs regime on the principle that the unsuccessful party shall be ordered to pay the costs of the successful party, subject to the tribunal's discretion and to a list of relevant circumstances. Section 32 terminates the proceedings by the final award or by an order of the tribunal in the stated cases.

Correction, section 33. Within thirty days of receipt of the award, a party may with notice to the other request correction of computation, clerical or typographical errors, or, if so agreed, an interpretation of a specific point; and may request an additional award as to claims presented but omitted.

The third criticism is cost, and it is the one practitioners make most. The Fourth Schedule, inserted in 2015, sets a model fee scale, but section 11(14) makes it applicable only where the High Court frames rules, and the Schedule does not apply at all to international commercial arbitration or where the parties have agreed to institutional rules. 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, that the Fourth Schedule ceiling applies per arbitrator and per claim rather than cumulatively, and laid down that fees must be fixed at the outset with the parties' consent. That such a decision was needed at all is a comment on the state of ad hoc practice.

The fifth criticism is that the procedural freedom in section 19 is often not used. Because the tribunal is not bound by the Code or by the law of evidence, it may adopt document-only procedures, chess-clock hearings, or the IBA Rules on the Taking of Evidence. In practice many Indian ad hoc arbitrations replicate civil trial procedure, with pleadings, issues, examination in chief on affidavit, cross examination and long adjournments, which is why the 2015 amendment had to insert a proviso to section 24 telling tribunals to sit on a day to day basis. A statute that has to instruct adjudicators not to adjourn has already lost the argument.

The defence, which a balanced answer should also make, is that the procedural chapter itself is sound. It reproduces the UNCITRAL Model Law closely; sections 18, 19, 24(3) and 27 between them give a tribunal everything it needs to run a fair and fast proceeding; and the failures are failures of practice and of unimplemented reform rather than of drafting. The draft Arbitration and Conciliation (Amendment) Bill, 2024, published for consultation in October 2024 and not yet introduced in Parliament, proposes to recognise the emergency arbitrator, permit audio-visual hearings and tighten timelines further, and would rename the parent Act simply the Arbitration Act now that conciliation has moved to the Mediation Act, 2023. It should be described as a draft, because it is one.

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

1. Concept of international commercial arbitration

Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 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, any country other than India; a body corporate incorporated in any country other than India; an association or body of individuals whose central management and control is exercised in any country other than India; or the Government of a foreign country.

The commercial requirement is construed widely. In R.M. Investments and Trading Co. (P) Ltd. v. Boeing Co., (1994) 4 SCC 541, the Supreme Court held that the expression "commercial" should be construed broadly having regard to the manifold activities which are an integral part of international trade, and it accepted a consultancy and advisory services agreement as commercial.

PASL Wind Solutions (P) Ltd. v. GE Power Conversion India (P) Ltd., (2021) 7 SCC 1, is the modern case that fixes the boundary. Two Indian companies had chosen Zurich as the seat. The Supreme Court held that party autonomy permits two Indian parties to choose a foreign seat, that the resulting award is a foreign award enforceable under Part II, that this does not offend section 23 or section 28 of the Indian Contract Act, and that the parties retain access to interim relief in India under the proviso to section 2(2). The arbitration was not an international commercial arbitration under section 2(1)(f), because both parties were Indian, and the award was nevertheless a foreign award. That pair of propositions in one case is the clearest possible statement of the distinction.

Section 68: necessaries. If a person incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another with necessaries suited to his condition in life, the supplier is entitled to be reimbursed from the property of such incapable person. The liability is on the estate, not personal, which is what makes it consistent with Mohori Bibee v. Dharmodas Ghose, (1903) 30 Indian Appeals 114.

Section 69: payment by an interested person. A person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed. All three conditions matter: the payer must have an interest, must not himself be bound, and the defendant must have been legally bound.

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 such other person enjoys the benefit, the latter must make compensation or restore the thing. State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779, is the leading case: construction work was done for the State at an officer's request under an arrangement that did not comply with the constitutional requirements for a government contract, and the Supreme Court held section 70 available precisely because there was no valid contract, the section existing to prevent unjust enrichment.

Section 65 sits beside Chapter V. When an agreement is discovered to be void, or a contract becomes void, a person who has received any advantage under it must restore it or make compensation. Mohori Bibee marks its limit: the section did not assist a lender who knew of the minority from the outset, because in such a case nothing is discovered.

3. Arbitration Clause

An arbitration clause is the arbitration agreement in its commonest form: a term in a substantive contract by which the parties agree to submit future disputes arising out of that contract to arbitration. 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 an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

Separability is the doctrine that gives the clause its practical strength. Section 16(1)(a) provides that an arbitration clause forming part of a contract shall be treated as an agreement independent of the other terms of the contract, and section 16(1)(b) that a decision by the tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. Without separability, a party could defeat the reference merely by alleging that the main contract was void, which is exactly the allegation the tribunal exists to decide.

In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, decided 13 December 2023 by seven judges, is the most important recent authority on the clause. The question was whether a clause contained in an unstamped or insufficiently stamped instrument could be acted upon. The Court held unanimously that non-stamping renders the instrument inadmissible in evidence under the Stamp Act but not void or void ab initio, that the defect is curable, and that the objection is for the arbitral tribunal rather than for the referral court under section 8 or section 11. It overruled the five-judge decision in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. and the earlier SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd.

4. Time as an essence of contract

Section 55 of the Indian Contract Act, 1872 governs, and it has three paragraphs which do three different things.

First paragraph. When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.

Second paragraph. If it was not the intention of the parties that time should be of the essence, the contract does not become voidable by the failure to do the thing at or before the specified time, but the promisee is entitled to compensation from the promisor for any loss occasioned by the failure.

Third paragraph. If, in a case where time is of the essence, the promisee accepts performance at any time other than that agreed, he cannot claim compensation for any loss occasioned by the non-performance at the time agreed, unless at the time of acceptance he gives notice to the promisor of his intention to do so.

Hind Construction Contractors v. State of Maharashtra, (1979) 2 SCC 70, shows the same principle in a building contract. A time schedule in a construction contract, in a contract that also contained a provision for extension of time and for liquidated damages, was held not to make time of the essence, because those very provisions showed the parties contemplated that completion might be late and had priced the consequence.

Where time is not of the essence, delay does not permit rescission but the promisee may make it of the essence by notice. He must give reasonable notice fixing a date, and if the promisor still fails, the contract may then be treated as at an end. Notice cannot be given by a party who is himself in default or not ready and willing.

The distinction from the Sale of Goods Act, 1930 is worth a line. Section 11 of that Act provides that unless a different intention appears from the terms of the contract, stipulations as to time of payment are not of the essence of a contract of sale, and whether any other stipulation as to time is of the essence depends on the terms. So even in a mercantile contract, the time for payment is presumptively not of the essence while the time for delivery ordinarily is.

On the contract side, unjust enrichment appears in Indian law not as an implied promise but as five named relations in sections 68 to 72 under a heading that refuses the English fiction, with section 65 alongside, and Mafatlal Industries shows the doctrine applying against the claimant as readily as for him. And time as the essence of a contract is, under section 55, entirely a question of the parties' intention, presumed present in mercantile contracts and presumed absent in sales of land, as Chand Rani v. Kamal Rani holds, with the consequence of the presumption being the difference between a right to rescind and a right to compensation alone.