LLM Group 2 Business Law Fundamental Principles of Law of Contract and Allied Laws 2025-26 Question Paper with Solutions

For full marks, cover: the statutory definition in section 2(1)(d) and why it is deliberately thin; composition through sections 10 to 15, including the even number rule and the Seventh Schedule ineligibility introduced in 2015; the two Constitution Bench decisions of 2024 and 2025 that have changed this area; the tribunal's functions from commencement under section 21 to termination under section 32; its powers under sections 16, 17, 19, 26 and 27; and an honest closing word on what the tribunal cannot do.

What the Act means by an arbitral tribunal

The definition is in section 2(1)(d) of the Arbitration and Conciliation Act, 1996, and it is one line: "arbitral tribunal" means a sole arbitrator or a panel of arbitrators. The Act does not say who may sit, what qualifications are needed or how the tribunal is to be built. That silence is deliberate and it is the drafting philosophy of the whole statute.

Composition: sections 10 to 15

Section 10 governs the number. The parties are free to determine the number of arbitrators, provided that it shall not be an even number; failing such determination, the tribunal shall consist of a sole arbitrator. The bar on an even number exists so that a tribunal cannot deadlock, which is what happened routinely under the Arbitration Act, 1940, where two-arbitrator references with an umpire were common and the umpire's entry was itself a source of dispute.

Section 11 governs appointment. A person of any nationality may be an arbitrator unless the parties agree otherwise. The parties may agree a procedure. Failing agreement, in an arbitration with three arbitrators each party appoints one and the two so appointed appoint the third, who acts as the presiding arbitrator. If a party fails to appoint within thirty days of a request, or the two appointed arbitrators fail to agree on the third within thirty days, the appointment is made on an application to the Supreme Court in an international commercial arbitration and to the High Court in any other case, or to a person or institution designated by that Court.

Sections 13, 14 and 15 complete the picture. Section 13 makes the challenge in the first instance to the tribunal itself, which decides it; if the challenge fails the tribunal continues and makes an award, and the challenging party's remedy is an application under section 34. Section 14 terminates the mandate where the arbitrator becomes de jure or de facto unable to perform, or fails to act without undue delay. Section 15 covers withdrawal, agreed termination and substitution, and provides that a substitute arbitrator is appointed by the rules that applied to the one replaced.

The two Constitution Bench decisions that have changed this area

Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), 2024 INSC 857, decided 8 November 2024, is the most important recent decision on composition. A five-judge Bench presided over by Chandrachud C.J. considered railway contracts under which the employer nominated a panel of its own retired officers and the contractor had to choose its nominee from that panel. By three to two the Court held that such a clause is impermissible: a party cannot unilaterally appoint a sole arbitrator, and cannot compel the other side to select from a panel it has curated.

Functions: what the tribunal actually does

The proceedings begin under section 21. Unless otherwise agreed, arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. The date matters because limitation under section 43 is computed by reference to it.

The tribunal then settles the frame. Section 20 lets the parties agree the place of arbitration and, failing agreement, the tribunal determines it having regard to the circumstances and the convenience of the parties. Section 22 governs the language. Section 23 requires the statement of claim and the defence, and since the 2019 amendment section 23(4) requires them to be completed within six months of the date on which the arbitrator or all the arbitrators received notice in writing of their appointment.

The proceedings end under sections 30 to 32. Section 30 encourages settlement and allows the tribunal to record a settlement as an award on agreed terms, which has the same status and effect as any other award. Section 31 prescribes the form and contents of the award, requires reasons unless the parties have agreed otherwise or it is an agreed award, and by section 31(7) governs interest. Section 31A, inserted in 2015, gives the tribunal power over costs on the principle that costs follow the event. Section 32 terminates the proceedings by the final award, and section 33 preserves a narrow power to correct computational, clerical or typographical errors and, on agreement, to give an interpretation of a specific point.

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 leading recent authority on separability. The question was whether an arbitration clause in an unstamped or insufficiently stamped instrument could be acted upon. The Court held unanimously that non-stamping or insufficient stamping makes the instrument inadmissible in evidence under the Stamp Act, but that this is a curable defect which does not render the agreement void or void ab initio, and that the objection is for the arbitral tribunal to consider, not the referral court. It overruled the five-judge decision in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. and the earlier decision in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd.

Second, the power to grant interim measures. Section 17, as substituted in 2015, gives the tribunal the same power to order interim measures as a court has under section 9, at any time during the proceedings or at any time after the making of the award but before its enforcement. Crucially, section 17(2) provides that such an order shall be deemed to be an order of the Court for all purposes and shall be enforceable as if it were an order of the Court under the Code of Civil Procedure. Before 2015 the tribunal's interim orders had no enforcement machinery at all, which made them close to worthless.

What the tribunal cannot do

The tribunal cannot decide a dispute that is not arbitrable. Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, drew the distinction between rights in rem and rights in personam and listed the categories generally reserved to courts, including criminal offences, matrimonial disputes, guardianship, insolvency and winding up, testamentary matters and tenancy governed by rent control. Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, restated the test in four parts and held that a dispute is not arbitrable where the cause of action operates in rem, where it affects third party rights, where it relates to inalienable sovereign functions, or where a statute expressly or by necessary implication excludes arbitration.

The tribunal cannot bind a stranger to the arbitration agreement, cannot punish for contempt, and cannot enforce its own final award: enforcement is under section 36, which treats the award as a decree of the court once the time for a section 34 application has expired or such an application has been refused.

For full marks, cover: the chain of definitions in section 2 that produces an agreement and then a contract; the proposition that every contract is an agreement but not every agreement is a contract; then each element of section 10 in turn with the section that governs it and at least one worked case; and the Act's own illustrations, which this paper's instruction line expressly invites.

What an agreement is

The Indian Contract Act, 1872, builds the concept in a chain of definitions in section 2, and the chain has to be recited in order because each link uses the one before it. Section 2(a): when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. Section 2(b): when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted, and a proposal when accepted becomes a promise.

Balfour v. Balfour, [1919] 2 KB 571, marks the outer edge of the definition. A husband employed in Ceylon promised his wife, who remained in England on medical advice, thirty pounds a month. The marriage later broke down and she sued on the promise. The Court of Appeal held there was no contract, because agreements between spouses made in the ordinary course of domestic life are not intended to create legal relations. The case is the authority for a requirement the Indian Act nowhere states in terms but which section 10 imports through the words "and are not hereby expressly declared to be void": an intention to create legal relations.

The elements of a valid agreement: section 10

Section 10 is the operative provision: all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Each phrase points to a group of sections and each is taken in turn.

Acceptance must be absolute and unqualified. Section 7 requires that in order to convert a proposal into a promise the acceptance must be absolute and unqualified and be expressed in some usual and reasonable manner. Section 8 provides that performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise, is an acceptance of the proposal. Carlill v. Carbolic Smoke Ball Co., [1893] 1 QB 256, is the case: the company advertised a hundred pound reward to anyone who used its smoke ball as directed and still caught influenza, and said it had deposited a thousand pounds with its bankers to show its sincerity. Mrs Carlill used the ball, caught influenza and sued. The Court of Appeal held the advertisement a general offer to the world capable of acceptance by performance, that the deposit answered the argument that it was mere puff, and that notification of acceptance was not required where the offer dispensed with it.

Lalman Shukla v. Gauri Datt, (1913) 11 All LJ 489, shows the other side of the same rule. A servant sent to search for his master's missing nephew found the boy without knowing that a reward had been announced. The Allahabad High Court held he could not claim it: there can be no acceptance in ignorance of the proposal, because acceptance is the signification of assent to a proposal and a man cannot assent to what he does not know of.

Section 16(2) and 16(3) matter in practice. A person is deemed to be in a position to dominate the will of another where he holds a real or apparent authority, or stands in a fiduciary relation, or makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or bodily or mental distress. Where such a person enters into a transaction which on the face of it or on the evidence appears unconscionable, section 16(3) places the burden of proving that the contract was not induced by undue influence on the party in a position to dominate the will of the other.

Capacity: sections 11 and 12

Section 11 provides that every person is competent to contract who is of the age of majority according to the law to which he is subject, who is of sound mind and who is not disqualified from contracting by any law to which he is subject. Section 12 defines soundness of mind for this purpose as the capacity to understand the contract and to form a rational judgment as to its effect upon his interests.

Lawful consideration and lawful object: sections 2(d), 23, 24 and 25

Section 2(d) defines consideration: when at the desire of the promisor the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. Three features distinguish it from the English definition in Currie v. Misa, (1875) LR 10 Exchequer 153: it must move at the desire of the promisor, it may move from the promisee or any other person, and it may be past.

Section 23 makes the consideration or object unlawful where it is forbidden by law, or is of such a nature that if permitted it would defeat the provisions of any law, or is fraudulent, or involves or implies injury to the person or property of another, or the Court regards it as immoral or opposed to public policy. In each of those cases the agreement is void. Section 24 provides that if any part of a single consideration for one or more objects, or any one of several considerations for a single object, is unlawful, the agreement is void.

Not expressly declared void: sections 26 to 30

The closing words of section 10 pick up a block of sections that void particular agreements irrespective of consent, capacity or consideration. Section 26 voids an agreement in restraint of marriage, other than of a minor. Section 27 voids an agreement by which anyone is restrained from exercising a lawful profession, trade or business, saving only the sale of goodwill. Section 28 voids an agreement in restraint of legal proceedings, in the form it took after the amendments of 1997 and 2013, while expressly saving an agreement to refer disputes to arbitration. Section 29 voids agreements the meaning of which is not certain or capable of being made certain, and section 30 voids agreements by way of wager.

This paper's instruction invites an illustration, and the Act supplies its own. Illustration (a) to section 29 is the standard one: A agrees to sell to B "a hundred tons of oil" without saying what kind of oil, and the agreement is void for uncertainty; but where A is a dealer in coconut oil only, the illustration to the same section treats the meaning as capable of being made certain from the course of dealing.

Conclusion. An agreement, under section 2(e), is every promise and every set of promises forming the consideration for each other, and it becomes a contract under section 2(h) only when it is enforceable by law. Section 10 states the conditions of that enforceability, and each condition has its own group of sections: consensus ad idem through sections 3 to 9 and section 13; free consent through sections 14 to 22, where the crucial distinction is that coercion, fraud, misrepresentation and undue influence make an agreement voidable while bilateral mistake of fact under section 20 makes it void; capacity through sections 11 and 12, on which Mohori Bibee settled that a minor's agreement is void ab initio; lawful consideration and object through sections 2(d), 23, 24 and 25 with its three exceptions and the rule that inadequacy alone does not void; and the absence of an express statutory avoidance through sections 26 to 30.

The elements are cumulative and the failure of any one is fatal, but the consequence of failure differs. That difference, void against voidable, is the practical heart of the topic: a void agreement creates nothing and restoration is governed by section 65, while a voidable contract is good until the party wronged elects to avoid it and is then governed by section 64.

The definition turns on the foreignness of a party, not on the place of arbitration, and this is the single most misunderstood point in the topic. An arbitration between an Indian company and a German company, seated in Mumbai and governed by Indian law throughout, is an international commercial arbitration under section 2(1)(f). Conversely, an arbitration between two Indian companies seated in Singapore is not, though the resulting award is a foreign award.

The clause about a company whose central management and control is exercised abroad was amended in 2015. Before the amendment, section 2(1)(f)(iii) covered a "company or an association or a body of individuals whose central management and control is exercised in any country other than India", which had allowed the argument, accepted in TDM Infrastructure (P) Ltd. v. UE Development India (P) Ltd., that an Indian-incorporated company controlled from abroad could be a foreign party. The word "company" was deleted, so incorporation is now decisive for a body corporate.

Foreign awards: the two convention regimes in Part II

A foreign award is a different thing from an international commercial arbitration, and Part II is where it lives. Part II has two chapters. Chapter I, sections 44 to 52, gives effect to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. Chapter II, sections 53 to 60, gives effect to the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927.

Section 44 defines a foreign award for the New York Convention chapter 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 11 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.

How a foreign award is enforced: sections 47 to 49

Section 47 states what the applicant must produce. The party applying for enforcement must produce before the Court 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. Where the award or agreement is in a foreign language, a translation certified as correct by a diplomatic or consular agent of the country to which the party belongs, or certified as correct in a manner sufficient according to Indian law, must be produced.

The Explanation to section 47, as substituted in 2015, defines "Court" for this purpose as the High Court having original jurisdiction to decide the questions forming the subject matter of the award if the same had been the subject matter of a suit, or the High Court having jurisdiction to hear appeals from decrees of courts subordinate to it. Enforcement of a foreign award is therefore a High Court matter, which the 2015 amendment made explicit to stop foreign award holders being sent to district courts.

Section 48(2) adds two grounds the Court may take on its own: that the subject matter of the difference is not capable of settlement by arbitration under Indian law, and that enforcement would be contrary to the public policy of India. The Explanation as substituted in 2015 confines public policy to three limbs: the award was induced or affected by fraud or corruption; it is in contravention with the fundamental policy of Indian law; or it is in conflict with the most basic notions of morality or justice. A further Explanation makes clear that the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

Section 49 completes the machinery. Where the Court is satisfied that the foreign award is enforceable, the award shall be deemed to be a decree of that Court. There is therefore no separate execution petition on a separate cause; the same proceeding produces a decree which is then executed under the Code of Civil Procedure.

Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, is the structural case. In Bhatia International v. Bulk Trading SA, (2002) 4 SCC 105, the Supreme Court had held that Part I of the Act applies even to arbitrations seated outside India unless expressly or impliedly excluded, which allowed Indian courts to entertain section 34 challenges to foreign-seated awards. In BALCO a five-judge Bench overruled Bhatia International, holding that Part I applies only to arbitrations seated in India and that the seat determines the supervisory jurisdiction. The Court made the ruling prospective, applying it only to arbitration agreements executed on or after 6 September 2012, which is why Bhatia still governs older agreements and why the date must be checked.

PASL Wind Solutions (P) Ltd. v. GE Power Conversion India (P) Ltd., (2021) 7 SCC 1, answered the question BALCO left over. Two companies both incorporated in India had chosen Zurich as the seat. The Supreme Court held that two Indian parties may choose a foreign seat, that the resulting award is a foreign award enforceable under Part II, that nothing in section 23 or section 28 of the Indian Contract Act forbids it, and that the parties retain access to interim relief from an Indian court under the proviso to section 2(2).

A foreign award is a separate concept governed by Part II. Enforcement under the New York Convention chapter requires the award to arise from a commercial relationship and to have been made in a notified reciprocating territory; the holder produces the award, the agreement and proof of foreignness under section 47 to the High Court; the resisting party bears the burden of establishing one of the narrow grounds in section 48; the court may itself refuse on non-arbitrability or public policy, now confined by the 2015 Explanation to fraud or corruption, the fundamental policy of Indian law and basic notions of morality or justice, with no review on the merits; and on being satisfied, the court under section 49 deems the award a decree. Renusagar fixed the narrow public policy test, Shri Lal Mahal kept Saw Pipes out of section 48, BALCO confined Part I to India-seated arbitrations prospectively from 6 September 2012, and PASL Wind Solutions confirmed that two Indian parties may lawfully seat their arbitration abroad.

Section 2(d) defines consideration: when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

The classical English definition, in Currie v. Misa, (1875) LR 10 Exchequer 153, is different in emphasis: a valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. English law thinks in terms of benefit and detriment; the Indian Act thinks in terms of an act or abstinence done at the promisor's desire.

Three differences follow and each is worth stating separately.

Third, adequacy is irrelevant, and the Act says so expressly. Explanation 2 to section 25 provides that an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate, but that the inadequacy may be taken into account by the Court in determining the question whether the consent of the promisor was freely given. Illustration (f) to section 25 is the Act's own example, which this paper's instruction invites: A agrees to sell a horse worth a thousand rupees for ten rupees; A's consent was freely given; the agreement is a contract notwithstanding the inadequacy.

The three exceptions in section 25

Section 25(1): natural love and affection. An agreement made without consideration is not void if it is expressed in writing and registered under the law for the time being in force for the registration of documents, and is made on account of natural love and affection between parties standing in a near relation to each other. All four conditions are cumulative: writing, registration, natural love and affection, and near relation.

Section 25(3): promise to pay a time-barred debt. An agreement without consideration is not void if it is a promise, made in writing and signed by the person to be charged therewith or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits. Illustration (e): A owes B a thousand rupees but the debt is barred by limitation; A signs a written promise to pay B five hundred rupees on account of the debt; this is a contract.

The exceptions outside section 25

Completed gift. Explanation 1 to section 25 provides that nothing in the section shall affect the validity, as between the donor and donee, of any gift actually made. A gift once delivered cannot be recalled for want of consideration.

Agency. Section 185 provides that no consideration is necessary to create an agency. The agent's authority is good though he is promised nothing.

Bailment. Section 148 and the following sections contemplate gratuitous bailment, and section 159 permits the lender in a gratuitous loan for use to require its return at any time.

The critical evaluation

The first criticism is that the doctrine and the rule of privity together defeat honest expectations. Section 2(d) allows consideration to move from a stranger, but Indian courts have nevertheless read a privity of contract rule into the Act: a person who is not a party to the contract cannot sue on it. Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd., [1915] AC 847, is the English source, and M.C. Chacko v. State Bank of Travancore, AIR 1970 SC 504, applied it in India, holding that a person not a party to a contract cannot enforce its terms though the contract was made for his benefit.

The courts have then had to invent exceptions to escape the results. 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 immovable property with an allowance to his son's wife and she was held entitled to enforce it though not a party. So may a party to a family arrangement, a person in whose favour a provision is made in a partition, and a beneficiary of an acknowledgement or estoppel. The list of exceptions is long enough to suggest the rule is doing more harm than work.

The third criticism is that the doctrine is a poor proxy for what the law is actually looking for, which is a serious intention to be legally bound. Consideration was developed in English law as evidence of that intention, and section 25 has frozen the evidence into a requirement. Where the intention is proved beyond doubt, as in a written and attested promise made deliberately, the law still asks for consideration; where consideration is nominal and the intention doubtful, Explanation 2 says the agreement stands. Continental systems achieve the same filtering with the notion of cause and with formal requirements, and English law itself has softened the doctrine through promissory estoppel, which in India has been applied against the Government with unusual vigour in Union of India v. Anglo Afghan Agencies, AIR 1968 SC 718, and Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, (1979) 2 SCC 409, where the Supreme Court held the doctrine available even in the absence of consideration and even against the State, subject to a defence of public interest.

Critically, the rule survives less well than those exceptions suggest. Its worst effects come not from itself but from its companion, the judge-made rule of privity applied in M.C. Chacko, which England abolished by statute in 1999 and which the Law Commission of India proposed to reform in its Thirteenth Report in 1958 without result. The formal conditions in section 25(1) exclude the family promises the exception was meant to protect, as Rajlukhy Dabee shows. The doctrine remains defensible as a rough filter for serious intention in commercial dealings, and indefensible as the reason a beneficiary of a contract made expressly for his benefit is turned away from the court.

The critical structural point is that section 27 is stricter than English law and a candidate must say so. In England, following Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd., [1894] AC 535, a restraint is void as contrary to public policy unless it is reasonable in reference to the interests of the parties and of the public. Reasonableness is therefore a general saving. Section 27 contains no such general saving. The Indian rule is that a restraint is void whether reasonable or not, subject only to the statutory exceptions.

Madhub Chunder v. Rajcoomar Doss, (1874) 14 Bengal Law Reports 76, established this early and it has never been departed from. Two rival traders in the same locality agreed that one would close his business in return for a payment. Sir Richard Couch C.J. held the agreement void under section 27, and made the point that the section speaks of restraint simply, not of restraint that is unreasonable, so the English distinction between partial and total restraint has no place: "the words are 'restrained from exercising a lawful profession, trade or business'. It does not say to what extent."

Restraints during employment are different, and this is where the marks are

Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd., AIR 1967 SC 1098, draws the line the whole topic turns on. The employee was engaged for five years as a shift supervisor in a tyre cord yarn plant set up with foreign collaboration, on terms that he would not engage in any similar business during the period of employment and would keep the technical processes confidential. He left within a year and joined a competitor. The Supreme Court granted an injunction, holding that a negative covenant operating during the term of employment is not in restraint of trade: it is a covenant of exclusive service designed to protect the employer's legitimate interest in confidential information, and it does not compel the employee to remain idle because he is being paid throughout.

The doctrine of restraint of trade, in short, does not apply during the continuance of a contract of employment; it applies when the contract has come to an end. That sentence is the examiner's target and should appear in the answer.

Vijaya Bank v. Prashant B. Narnaware, 2025 INSC 691, decided 14 May 2025, is the newest decision on the section and it was handed down nine months before this paper was set. The employee, who had joined the bank in 1999 and was later selected as Senior Manager, had signed a clause requiring him to serve a minimum of three years or pay two lakh rupees as liquidated damages on premature resignation. He resigned to join another financial institution without paying, and the Karnataka High Court held the bond unenforceable. The Supreme Court reversed and upheld the bond. It held that the clause operated during the term of employment and did not restrain future employment, so it was not hit by section 27; that it was not opposed to public policy under section 23, the employer having a legitimate interest in retention and in recovering the cost of recruitment and training in a public sector bank; and it applied Golikari and Krishan Murgai to draw the line. A minimum service clause is therefore enforceable; a post-termination non-compete is not.

Trade combinations are a distinct case. An agreement between traders to regulate their business, fix prices or divide profits is not necessarily a restraint of trade if its object is to promote the trade rather than to restrain a member from exercising it; but where the real effect is to exclude a member from the trade, section 27 bites. The competition dimension is now separately governed by the Competition Act, 2002, in particular section 3 on anti-competitive agreements and section 27 of that Act on the Commission's orders, and an agreement may survive section 27 of the Contract Act and still be void under the Competition Act.

Restraint of marriage: section 26

Section 26 provides that every agreement in restraint of the marriage of any person, other than a minor, is void. Two features distinguish it from section 27 and both should be stated.

First, section 26 has no exception at all. Section 27 saves the sale of goodwill; section 26 saves nothing. The only carve out is a definitional one: a restraint on the marriage of a minor is outside the section, which reflects the law's own restrictions on child marriage rather than any indulgence to restraints.

Rao Rani v. Gulab Rani, AIR 1942 Allahabad 351, shows the limit of the section and is the more useful Indian case. Two widows of the same man compromised a dispute over his property by agreeing that each would enjoy her share, with the provision that if either remarried she would forfeit her share to the other. On remarriage the forfeiture was resisted as a restraint of marriage. A Full Bench held section 26 inapplicable: the agreement did not restrain either widow from marrying, it merely provided that she would lose the property she had obtained under the compromise if she did, and there was no covenant not to marry at all. The distinction is between an agreement that restrains marriage and an agreement that attaches a consequence to a change of status.

A. Suryanarayana Murthi v. P. Krishna Murthy, AIR 1957 Andhra Pradesh 1012, applies section 26 straightforwardly to a penalty for marrying, holding an agreement void where a party undertook to pay a sum if he married.

Marriage brokerage agreements are a related but distinct head. An agreement to pay a sum to a third party in consideration of his procuring a marriage is void, not under section 26 but under section 23 as opposed to public policy, because it makes a commodity of the marriage relation. Gopi Tihadi v. Gokhei Panda, AIR 1954 Orissa 17, is the usual citation.

Conclusion. Agreements in restraint of trade are void under section 27 to the extent of the restraint, and Indian law, unlike English law after Nordenfelt, admits no general defence of reasonableness: Madhub Chunder and Krishan Murgai both say so in terms. The section's own exception is the sale of goodwill on stated conditions, and the Partnership Act, 1932, adds three more in sections 11(2), 36(2) and 54. The distinction that decides most modern cases is temporal: Golikari, Gujarat Bottling and Percept D'Mark hold that a negative covenant operating during the subsistence of the 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 now confirmed that a minimum service bond enforced by liquidated damages falls on the valid side of that line.

For full marks, cover: why the subject asks for theory at all; then the theories in order, will or consensus theory, bargain theory, injurious reliance, equivalent theory, and the modern instrumental and relational accounts; the laissez faire background that produced them; and, critically, where each theory fails and which Indian provisions are explicable only on a different theory.

Why an LLM paper asks for the theory

A contract is enforced by the State, and the theories of contract are competing answers to a single question: why should the State lend its coercive power to a private promise? The question is not academic in this subject, because the Indian Contract Act, 1872 was drafted at a particular moment in the history of that argument and carries its assumptions. Understanding which theory a provision reflects is what allows a candidate to explain why section 25 voids a gratuitous promise, why Explanation 2 to the same section says inadequacy does not matter, and why sections 68 to 72 impose obligations on people who never promised anything.

First, the law does not in fact inquire into the actual will; it looks at the objective appearance of assent. A party who did not intend what his words conveyed is bound if a reasonable person would have understood him to mean it. Smith v. Hughes, (1871) LR 6 Queen's Bench 597, is the classical statement of the objective test.

Second, the standard form contract has hollowed out the theory. In a printed insurance policy, a bank's account opening form or a software licence, one party writes every word and the other's "will" is confined to accepting or going without. Section 16(3) of the Act, which shifts the burden of disproving undue influence to the dominant party where the transaction is unconscionable, is an attempt to patch this. So is the constitutional doctrine developed in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156, where the Supreme Court struck down a service rule permitting termination on three months' notice without reason as unconscionable and void under section 23 as opposed to public policy, holding that the courts will not enforce an unfair and unreasonable clause in a contract between parties of unequal bargaining power. Life Insurance Corporation of India v. Consumer Education and Research Centre, (1995) 5 SCC 482, extended the reasoning to an insurance policy term.

The criticism is that the theory proves too little and too much at once. Too little, because it cannot explain why the three exceptions in section 25 are enforceable, or why section 185 needs no consideration for agency, or why section 63 lets a creditor remit a debt for nothing. Too much, because a nominal consideration of ten rupees for a horse worth a thousand satisfies the theory while plainly not being an exchange in any economic sense. The bargain theory in practice functions as a formality, a way of marking a promise as seriously meant, and once that is admitted the question is whether consideration is a good formality, which is the reform debate.

The injurious reliance theory

The injurious reliance theory, associated with Grant Gilmore and before him with the American Realists, holds that the reason for enforcing a promise is that the promisee has relied on it to his detriment. The obligation is not created by the will nor bought by the exchange; it arises because the promisor has induced a change of position which it would be unjust to leave uncompensated. On this view contract is a branch of the law of obligations closer to tort than to property, which is the argument of Gilmore's The Death of Contract (1974).

The equivalent theory

The equivalent theory holds that a promise is enforceable when something of equivalent value has been given for it. It is the theory closest to the civilian notion of cause and to the canonists' concern with the just price, and it is the ancestor of the modern law's occasional intervention against unfair exchange.

Its footprint in the Act is negative rather than positive, and that is the interesting point. Explanation 2 to section 25 rejects the equivalent theory for ordinary contracts by saying inadequacy does not matter. But the equivalent theory returns wherever the Act or the courts are prepared to look at the fairness of the exchange: in section 16(3), where an unconscionable transaction shifts the burden of proof; in the section 23 public policy jurisdiction as used in Brojo Nath Ganguly; in section 74, which limits recovery to reasonable compensation not exceeding the sum named, so that a party cannot recover a stipulated sum out of proportion to the loss; and in the Specific Relief Act, 1963, where the court may still refuse specific performance under section 16 in cases of unfair advantage.

The laissez faire background

All of this sits on an economic and political base that the papers in this folder call laissez faire individualism. The nineteenth century view was that the State's role was to hold the ring; that individuals were the best judges of their own interest; and that the two great principles of contract were therefore freedom of contract, the liberty to make any bargain one chose, and sanctity of contract, the duty of the courts to enforce it as made. Sir Henry Maine's formula in Ancient Law (1861), that the movement of progressive societies has hitherto been a movement from status to contract, is the classic expression, and the Indian Contract Act, 1872, was enacted eleven years after it.

Conclusion. The foundation theories are competing answers to why the State enforces a private promise, and the Indian Contract Act, 1872 does not commit itself to any one of them. The will or consensus theory explains sections 13, 14 and 20 and the whole offer and acceptance machinery, and it fails where the parties are unequal or where obligations arise without agreement. The bargain theory explains sections 2(d) and 25, and fails to explain their own exceptions and the enforceability of nominal consideration. The injurious reliance theory explains the subscription cases, section 25(2) and the Indian law of promissory estoppel, and fails because the Act's remedy in section 73 is expectation and not reliance. The equivalent theory is expressly rejected by Explanation 2 to section 25 and quietly readmitted through section 16(3), section 23, section 74 and the Specific Relief Act.

For full marks, cover: all four notes are written out below, though only two are required, because the two chosen differ. Each is a compressed essay of about twelve and a half marks by the paper's own arithmetic if two are attempted: the provision, the leading cases, and the point of difficulty, not a list.

a. Appeal against arbitral award

There is no appeal against an arbitral award, and saying so is the first mark. What the Arbitration and Conciliation Act, 1996 provides is an application to set aside under section 34 and a limited appeal against certain orders under section 37. Section 5 sets the tone: notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I no judicial authority shall intervene except where so provided in that Part.

Section 34(2)(b) adds two grounds the Court may find on its own: that the subject matter is not capable of settlement by arbitration under the law for the time being in force, and that the award is in conflict with the public policy of India. Explanation 1, as substituted in 2015, 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 it is in conflict with the most basic notions of morality or justice. Explanation 2 provides that the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits.

Section 34(2A), inserted in 2015, adds patent illegality appearing on the face of the award as a ground for an award arising out of arbitrations other than international commercial arbitrations, 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.

Section 37 is where the word "appeal" belongs. An appeal lies from an order refusing to refer parties to arbitration under section 8, granting or refusing an interim measure under section 9, setting aside or refusing to set aside an award under section 34, accepting a plea under section 16(2) or (3) that the tribunal has no jurisdiction, and granting or refusing an interim measure under section 17. No second appeal lies from an order passed in appeal under section 37, though the right to appeal to the Supreme Court is saved.

One further point of practical importance. Filing a section 34 application no longer operates as an automatic stay of enforcement. Section 36 was amended in 2015 so that a separate stay order is required, and when Parliament tried in 2019 to confine the amendment by inserting section 87, the Supreme Court struck section 87 down as manifestly arbitrary and violative of Article 14 in Hindustan Construction Company Ltd. v. Union of India, decided 27 November 2019.

b. Anticipatory breach of contract

Anticipatory breach is a repudiation of the contract before the time fixed for performance has arrived, and its statutory home in India is section 39 of the Indian Contract Act, 1872. Section 39 provides that when a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified by words or conduct his acquiescence in its continuance.

The promisee has an election, and the whole practical importance of the doctrine lies in it. He may accept the repudiation, treat the contract as at an end and sue at once; or he may keep the contract alive, wait for the date of performance, and sue then. The election has consequences.

If he accepts the repudiation, damages are assessed as at the date of the repudiation, and he comes under a duty to mitigate from that date. The Explanation to section 73 provides that in estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance must be taken into account.

If he keeps the contract alive, he takes the risk both ways. The contract remains on foot for the benefit of both parties, so the repudiating party may still perform and escape liability, and, more dangerously, an event may occur which frustrates the contract and discharges both. Avery v. Bowden, (1855) 5 Ellis and Blackburn 714, is the standard illustration: the charterer indicated he would not load, the shipmaster waited at Odessa insisting on performance, and the Crimean War then made performance illegal, so the contract was discharged by frustration and the shipowner lost his claim.

c. Doctrine of Unjust Enrichment

Unjust enrichment is the principle that a person who has been enriched at the expense of another, in circumstances the law regards as unjust, must make restitution. Its classical formulation is Lord Mansfield's in Moses v. Macferlan, (1760) 2 Burrow 1005, that the gist of the action for money had and received is that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money. The old common law explanation was an implied or quasi contract, a fictitious promise the law imputed to the defendant; the modern explanation abandons the fiction and treats restitution as an independent source of obligation alongside contract and tort.

Indian law does not use the phrase. Chapter V of the Indian Contract Act, 1872, sections 68 to 72, is headed "Of certain relations resembling those created by contract", and that heading is itself the answer to the English fiction: the draftsmen refused to pretend there was a promise, and described the relation instead. This is the distinction the papers in this folder repeatedly ask about, English "quasi contractual obligations" against the Indian "certain relations resembling those created by contract".

Section 70: non-gratuitous act. Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation in respect of, or to restore, the thing so done or delivered. State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779, is the leading case: work was done for the State at the request of an officer under an arrangement that did not comply with the constitutional formalities for a government contract, and the Supreme Court held section 70 available, since the section applies where there is no valid contract and its whole purpose is to prevent unjust enrichment.

Section 71: finder of goods. A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee. He must take reasonable care under section 151, must not use them for his own purpose, and must try to find the owner; sections 168 and 169 give him a lien for expenses and, in stated circumstances, a power of sale.

Section 65 sits alongside Chapter V and is often required with it. When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under it is bound to restore it or to make compensation. Mohori Bibee shows its limit: the section was held not to help a lender who knew of the minority from the outset, because in that case nothing was "discovered".

The three conditions of a restitutionary claim, drawn from the modern law and useful for structuring an answer, are: that the defendant has been enriched; that the enrichment was at the expense of the plaintiff; and that the retention of the benefit is unjust, meaning that it falls within a recognised ground such as mistake, failure of consideration, compulsion or necessity. To these English law adds the defence of change of position, and Indian law reaches similar results through sections 65 and 70 and the Mafatlal principle.

The scheme as it stood. Section 62 provided for the initiation of conciliation proceedings by a written invitation, which had to state the subject of the dispute, and proceedings commenced when the other party accepted the invitation in writing; if the inviting party received no reply within thirty days, he could treat it as a rejection. Section 63 provided for one conciliator, or by agreement two or three, who as a general rule acted jointly. Section 64 governed appointment, including the power to seek the assistance of a suitable institution.

Section 65 required each party to submit a brief written statement describing the general nature of the dispute and the points at issue, and permitted the conciliator to call for further information. Section 66 provided that the conciliator shall not be bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872.

Sections 69 to 73 fill in the machinery. Section 69 lets the conciliator invite the parties to meet and communicate with them jointly or separately. Section 70 requires him to disclose to the other party the substance of any factual information received from a party, unless that party has given it subject to a specific condition of confidentiality. Section 71 requires the parties to cooperate in good faith. Section 72 permits either party to submit suggestions for settlement on his own initiative. Section 73 governs the settlement agreement: if it appears to the conciliator that there exist elements of a settlement, he formulates the terms and submits them to the parties for observations, reformulates them in the light of those observations, and when the parties reach agreement they draw up and sign the settlement agreement, which the conciliator then authenticates.

Section 74 is the provision that gives conciliation its force, and it is the answer to the question why anyone would use it: the settlement agreement shall have the same status and effect as if it were an arbitral award on agreed terms under section 30, which means it is enforceable under section 36 as a decree of the court without a fresh suit.

Conclusion. The four notes turn on four different provisions and four different ideas. There is no appeal against an arbitral award: section 34 gives a narrow recourse on grounds that exclude a review of the merits, section 37 gives an appeal against listed orders only, and Gayatri Balasamy (30 April 2025) has now added a limited power to modify in four defined situations. Anticipatory breach under section 39 gives the promisee an election, and Hochster v. De La Tour and Avery v. Bowden between them show that the election is real and that keeping the contract alive carries the risk of frustration.

Unjust enrichment is in India not a fiction of implied promise but a set of named relations in sections 68 to 72 headed "certain relations resembling those created by contract", with section 65 alongside them, and Mafatlal Industries shows the doctrine operating against the claimant as readily as for him. And the role of the conciliator, defined by section 67 as assisting the parties independently and impartially while being free to propose a settlement, is now a role performed under the Mediation Act, 2023, sections 61 to 81 of the 1996 Act having been substituted by that Act's Sixth Schedule so that every statutory reference to conciliation is read as a reference to mediation.