LLM Group 2 Business Law Fundamental Principles of Law of Contract and Allied Laws 2018 Question Paper with Solutions

The five remedies

Remedy one: damages, sections 73 to 75 of the Contract Act. This is the primary and always available remedy and is dealt with in the second half of this answer.

Remedy two: specific performance, under the Specific Relief Act, 1963. The character of this remedy changed on 1 October 2018, when the Specific Relief (Amendment) Act, 2018 came into force. The substituted section 10 provides that the specific performance of a contract shall be enforced by the court subject to the provisions of section 11(2), section 14 and section 16. The old section 10, under which specific performance "may, in the discretion of the court, be enforced", and the old section 20 setting out the discretionary considerations, are gone. Specific performance is now the rule and not the exception, and damages are no longer treated as the presumptively adequate remedy.

The substituted section 20 now provides for substituted performance: where a contract is broken, the affected party may, after giving not less than thirty days' notice in writing, get the contract performed by a third party or by his own agency and recover the expenses and costs from the party in breach; but having obtained substituted performance he cannot thereafter claim specific performance.

Remedy four: rescission, sections 27 to 30 of the Specific Relief Act, 1963, with restoration under section 64 of the Contract Act where a voidable contract is rescinded and under section 65 where an agreement is discovered to be void or a contract becomes void. Section 30 of the Specific Relief Act permits the court, on adjudging rescission, to require the party obtaining relief to restore any benefit received and to make any compensation which justice may require.

Remedy five: quantum meruit. Where a contract is discharged before complete performance, a party who has done work may recover the value of what he has done, under section 65 or section 70. State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779, applied section 70 to construction work done for the State under an arrangement that did not comply with the constitutional requirements for a government contract, holding that the section operates precisely where there is no enforceable contract and that its object is to prevent unjust enrichment.

Rule two: compensation, not punishment. Damages restore rather than penalise, and exemplary damages are not awarded for breach of contract save in two recognised cases, the wrongful dishonour of a cheque by a banker and the breach of a promise to marry.

Rule three: the measure is the expectation measure. The injured party is put, so far as money can, in the position he would have occupied had the contract been performed. In a contract for the sale of goods this is the difference between the contract price and the market price on the date of breach, a rule stated in Murlidhar Chiranjilal v. Harishchandra Dwarkadas, AIR 1962 SC 366, and reflected in sections 55 to 61 of the Sale of Goods Act, 1930. In a building contract it is the cost of completion.

Rule four: the duty to mitigate. The Explanation to section 73 provides that in estimating the loss or damage arising from a breach, the means which existed of remedying the inconvenience caused by the non-performance must be taken into account. Murlidhar Chiranjilal holds that the party complaining of a breach must take all reasonable steps to mitigate and cannot recover for loss which is really due to his own neglect to take those steps.

Rule five: loss must be proved, except within section 74. A claimant who proves a breach but no loss recovers nominal damages only.

Rule seven: compensation on rightful rescission. Section 75 entitles a person who rightly rescinds a contract to compensation for any damage which he has sustained through the non-fulfilment of the contract.

Rule eight: interest. Interest may be awarded under the Interest Act, 1978, and in a contract for the sale of goods under section 61 of the Sale of Goods Act, 1930.

Rule nine: mental distress is generally not compensable in an ordinary commercial contract, Ghaziabad Development Authority v. Union of India, (2000) 6 SCC 113, though the consumer fora regularly compensate for deficiency in service under the Consumer Protection Act, 2019.

Damages are ascertained on nine rules, of which four matter most: the two limbs of remoteness in section 73, restating Hadley v. Baxendale, under which special loss is recoverable only if the circumstances were communicated at the time of contracting; the expectation measure, in a sale being the difference between contract and market price at the date of breach; the duty to mitigate imposed by the Explanation and applied in Murlidhar Chiranjilal; and the treatment of a stipulated sum under section 74 as a ceiling on reasonable compensation, on which Fateh Chand, Maula Bux and Kailash Nath Associates establish that loss remains a sine qua non though its exact amount need not be proved.

Salmond defined a contract as an agreement creating and defining obligations between the parties; Anson defined the law of contract as that branch of law which determines the circumstances in which a promise shall be legally binding. Both formulations point at the same feature: the law supplies enforceability, the parties supply the content.

Two consequences follow. The law's first task is to identify what was undertaken, which is why sections 3 to 9 govern offer and acceptance and sections 13 to 22 the quality of consent. And the remedy is the expectation measure in section 73, putting the promisee where performance would have put him.

What the law will not do follows from the same premise: it will not make a contract for the parties, will not relieve a party of an improvident bargain, and by Explanation 2 to section 25 will not inquire whether the consideration was adequate.

Object

To make reasonable expectations enforceable, without which credit, insurance, construction, employment and carriage would be impossible because every transaction would have to be simultaneous.

Layer two, the special contracts retained in the Act: indemnity and guarantee, sections 124 to 147; bailment and pledge, sections 148 to 181; agency, sections 182 to 238.

Layer three, the contracts carved out. Sections 76 to 123 on the sale of goods were repealed by the Sale of Goods Act, 1930, and sections 239 to 266 on partnership by the Indian Partnership Act, 1932. Section 3 of each of those Acts preserves the general principles of the Contract Act except where inconsistent.

Layer four, the remedial statutes: the Specific Relief Act, 1963, substantially rewritten by the Specific Relief (Amendment) Act, 2018; the Limitation Act, 1963; the Indian Stamp Act, 1899 and the Registration Act, 1908.

Layer five, the dispute resolution statutes that give this paper its title: the Arbitration and Conciliation Act, 1996, an arbitration clause being expressly saved from section 28 of the Contract Act; the Legal Services Authorities Act, 1987; the Family Courts Act, 1984; the Mediation Act, 2023, which substituted sections 61 to 81 of the 1996 Act; and section 12A of the Commercial Courts Act, 2015.

Offer and acceptance producing consensus ad idem, sections 3 to 9 and 13, the proposal distinguished from an invitation to offer in Harvey v. Facey, [1893] Appeal Cases 552, the acceptance required to be absolute under section 7 and communicated under section 4, and made in knowledge of the proposal: Lalman Shukla v. Gauri Datt, (1913) 11 Allahabad Law Journal 489.

Intention to create legal relations, supplied by the courts: Balfour v. Balfour, [1919] 2 King's Bench 571; Merritt v. Merritt, [1970] 1 Weekly Law Reports 1211.

Lawful consideration, section 2(d), at the desire of the promisor as Durga Prasad v. Baldeo, (1880) Indian Law Reports 3 Allahabad 221, requires, from the promisee or any other person, and possibly past; with section 25 voiding an agreement without consideration subject to three exceptions.

Capacity, sections 11 and 12, on which Mohori Bibee v. Dharmodas Ghose, (1903) 30 Indian Appeals 114, holds a minor's agreement void ab initio.

Free consent, sections 13 to 22, where coercion, undue influence, fraud and misrepresentation produce a voidable contract under sections 19 and 19A while bilateral mistake of fact produces a void agreement under section 20.

Consensus ad idem, agreement upon the same thing in the same sense. Enacted in section 13, worked out in the offer and acceptance machinery of sections 3 to 9, and carried to its conclusion in section 20, which makes a bilateral mistake of fact void and not voidable because the minds never met.

Ex nudo pacto non oritur actio, no action arises from a bare promise. This is the bargain principle, enacted in section 25, which makes an agreement without consideration void, subject to the three exceptions, and softened in India by section 2(d), which permits consideration to move from any person and to be past, and by Explanation 2, which makes adequacy irrelevant.

Ex turpi causa non oritur actio, no action arises from a base cause. This is the principle of legality, enacted in section 23, which voids an agreement whose object or consideration is forbidden by law, would defeat any law, is fraudulent, involves injury, or is immoral or opposed to public policy, and in section 24 on severability.

Nemo dat quod non habet and caveat emptor belong to the law of sale rather than of contract generally, but they mark the boundary of the subject: the Sale of Goods Act, 1930 carries them, and section 16 of that Act states caveat emptor with its exceptions for a disclosed purpose and for a sale by description.

Its scope runs from the general principles in sections 1 to 75, through the special contracts retained and those carved out into the Acts of 1930 and 1932, the remedial statutes led by the Specific Relief Act, 1963 as amended in 2018, the dispute resolution statutes that give this paper its title, the modern regulatory statutes headed by the Consumer Protection Act, 2019, and the constitutional dimension in Article 299 and the Article 14 control of State contracting. The essentials are those of section 10, and their failure produces void in some cases and voidable in others, which is the distinction on which marks turn.

Two conditions must therefore be satisfied and both are commonly missed. The relationship must be commercial under the law in force in India, an expression construed broadly in R.M. Investments and Trading Co. (P) Ltd. v. Boeing Co., (1994) 4 SCC 541, having regard to the manifold activities which are an integral part of international trade. And the award must have been made in a notified reciprocating territory. An award made in a Convention State that India has not notified is not a "foreign award" within section 44 and cannot be enforced under Part II at all; the holder is relegated to a suit on the award.

A foreign award must be distinguished from an international commercial arbitration, and the distinction is the commonest error in this topic. Section 2(1)(f) defines an international commercial arbitration by the foreignness of a party, and such an arbitration may be seated in India and governed by Part I throughout. A foreign award is defined by the place where the award was made. PASL Wind Solutions (P) Ltd. v. GE Power Conversion India (P) Ltd., (2021) 7 SCC 1, demonstrates both propositions at once: two Indian companies chose Zurich as the seat, so the arbitration was not an international commercial arbitration under section 2(1)(f), and the award was nevertheless a foreign award enforceable under Part II.

The requirement of finality at the seat produced the difficulty known as double exequatur: to prove finality, an award holder in practice had to obtain leave to enforce in the country of the seat and then a second enforcement order where the assets were. Two sets of proceedings in two countries were needed to collect on one award.

The New York Convention made three changes and each is its relevance. It reversed the burden of proof, so that the award holder produces documents and the party resisting must establish a ground of refusal. It replaced "final" with "binding", so that the pendency of a challenge at the seat is a matter for the resisting party to raise under section 48(1)(e) rather than for the holder to negative. And it confined the grounds of refusal to a short exhaustive list in Article V, enacted as section 48. Section 58 makes the two chapters mutually exclusive, providing that Chapter II does not apply to an award to which the New York Convention applies, so Chapter II is now close to a dead letter.

Section 46 provides that a foreign award which would be enforceable under the Chapter shall be treated as binding for all purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in India. Section 45 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 agreement to which the Convention applies, unless it finds that the agreement is null and void, inoperative or incapable of being performed.

The conditions on which recognition and enforcement may be refused

Section 48(1) lists five grounds, and the burden of proving them lies on the party against whom the award is invoked, in the statutory words "only if that party furnishes to the court proof that".

One, incapacity or invalidity. The parties to the agreement were, under the law applicable to them, under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made.

Five, the award not binding, or set aside. The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. Section 48(3) permits the Court, where an application for setting aside or suspension has been made to such an authority, to adjourn the decision and, on the application of the party claiming enforcement, to order the other party to give suitable security.

Section 48(2) supplies two further grounds which the Court may find for itself. That the subject matter of the difference is not capable of settlement by arbitration under the law of India; and that the enforcement of the award would be contrary to the public policy of India.

The public policy ground is confined by the Explanation substituted in 2015 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 of the dispute.

Two structural points complete the answer. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, overruled Bhatia International v. Bulk Trading SA, (2002) 4 SCC 105, and held that Part I applies only to arbitrations seated in India, so an Indian court has no jurisdiction to set aside a foreign award; the ruling was made prospective, applying to arbitration agreements executed on or after 6 September 2012. And section 50 permits an appeal from an order refusing to refer parties to arbitration under section 45 and from an order refusing to enforce a foreign award, but not from an order enforcing one; 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.

Enforcement is obtained by producing the award, the agreement and proof of foreignness to the High Court under section 47, and the award is then deemed a decree under section 49. Recognition and enforcement may be refused only on the five grounds in section 48(1) which the resisting party must prove, incapacity or invalidity of the agreement, want of notice or inability to present the case, excess of jurisdiction with severance permitted, irregular composition or procedure, and the award not being binding or having been set aside at the seat; and on the two grounds in section 48(2) which the Court may find itself, non-arbitrability under Indian law and conflict with the public policy of India, confined by the 2015 Explanation and by Renusagar and Shri Lal Mahal to fraud or corruption, the fundamental policy of Indian law and basic notions of morality or justice, with no review on the merits.

For high-volume quantum disputes the objection is that adjudication is disproportionate. A motor accident claim, a cheque dishonour matter or a bank recovery suit is usually about how much and not about whether, and the cost and delay of trying such a case exceed what is at stake. The constitutional foundation for the response is Article 39A, inserted by the Constitution (Forty-second Amendment) Act, 1976, which directs the State to secure that the legal system promotes justice on a basis of equal opportunity and that opportunities for securing justice are not denied by reason of economic or other disabilities.

The concept of a Family Court

The Family Courts Act, 1984 was enacted to provide for the establishment of Family Courts with a view to promote conciliation in, and secure speedy settlement of, disputes relating to marriage and family affairs. The concept is a court which is also a conciliator: it retains adjudicatory power but is required to try settlement first and is given a procedure designed for that purpose.

Section 3 requires a Family Court for every area with a population exceeding one million, established by the State Government in consultation with the High Court.

Section 9: conciliation first. In every suit or proceeding, endeavour shall be made by the Family Court in the first instance, where consistent with the nature and circumstances of the case, to assist and persuade the parties in arriving at a settlement, and the Court may adopt such procedure as it deems fit and adjourn for so long as it thinks fit for that purpose.

Section 13: no right to a lawyer. No party shall be entitled as of right to be represented by a legal practitioner, though the Court may in the interest of justice seek the assistance of a legal expert as amicus curiae.

Sections 5, 6 and 12: counsellors and welfare experts. The Court may associate social welfare agencies, the State Government must determine the number and categories of counsellors, and the Court may secure the services of a medical expert or of a person professionally engaged in promoting the welfare of the family.

The concept of a Lok Adalat

A Lok Adalat is not a court at all, and that is its concept. Under Chapter VI of the Legal Services Authorities Act, 1987, in force from 9 November 1995, it settles a dispute by compromise between the parties, and the settlement is then given the force of a decree by statutory fiction.

Section 19(1) empowers the Legal Services Authorities and Committees to organise Lok Adalats; section 19(2) provides for a panel of serving or retired judicial officers and other persons, in practice a judicial officer, an advocate and a social worker. Section 19(5) confines the jurisdiction to arriving at a compromise or settlement, with the proviso that it has no jurisdiction in respect of an offence not compoundable under any law.

Section 20 governs reference, permitting a pending case to be referred where the parties agree, where one applies and the court is prima facie satisfied that there are chances of settlement, or where the court considers the matter appropriate after hearing the parties; and a pre-litigation matter on the application of any one party. Section 20(3) requires the Lok Adalat to be guided by justice, equity, fair play and other legal principles; section 20(5) requires the record to be returned to the referring court where no compromise is reached.

Chapter VIA, sections 22A to 22E, inserted in 2002, creates a different institution under a similar name. The Permanent Lok Adalat for public utility services consists of a district judge as Chairman and two persons with experience of public utility service; jurisdiction attaches before the matter goes to court and ousts the court's jurisdiction once an application is made; and by section 22C(8) it shall, where the parties fail to reach an agreement and the dispute does not relate to an offence, decide the dispute. That is an adjudicatory power the ordinary Lok Adalat does not have, and Bar Council of India v. Union of India, (2012) 8 SCC 243, upheld its validity.

The scale is the measure of the concept's success. The first National Lok Adalat of 2026, on 14 March 2026, settled about 2.84 crore cases worth about 10,920 crore rupees in a single day; the second, on 9 May 2026, settled 2,07,66,548 cases worth about 3,440.81 crore rupees; and about 14.84 crore cases were settled across the four sittings of 2025. The qualification is that the majority are pre-litigation matters, many of them traffic challans and utility defaults.

Conclusion. Family Courts under the Act of 1984 are the concept of a court which conciliates: they have exclusive jurisdiction under section 7 over matrimonial, maintenance, guardianship and related matters, must attempt settlement first under section 9, restrict legal representation under section 13, associate counsellors and welfare experts under sections 5, 6 and 12, are freed from the ordinary law of evidence by section 14, may sit in camera under section 11, and give one appeal to a Division Bench under section 19 with none from a consent decree. The Amendment Act of 2022 retrospectively validated the courts in Himachal Pradesh and Nagaland.

Lok Adalats under Chapter VI of the Act of 1987 are the opposite concept, a forum which is not a court at all, whose jurisdiction under section 19(5) is confined to arriving at a compromise in compoundable matters, whose award section 21 deems a decree with a refund of court fee and no appeal, and which State of Punjab v. Jalour Singh holds to have no adjudicatory function whatever. The Permanent Lok Adalat under Chapter VIA departs from that by deciding public utility disputes under section 22C(8) where conciliation fails. Between them the two institutions represent the two ways Indian law has taken disputes out of ordinary civil procedure: by building a specialised court around conciliation, and by building a forum that decides nothing at all.

Section 2(d) defines consideration as an act, abstinence or promise, done or made at the desire of the promisor, by the promisee or any other person. Three Indian departures from the English rule follow: consideration may move from a stranger, as Chinnaya v. Ramayya, (1882) Indian Law Reports 4 Madras 137, holds; it may be past; and by Explanation 2 its adequacy is irrelevant, though inadequacy is evidence on whether consent was free. The requirement that it move at the promisor's desire is strictly applied: Durga Prasad v. Baldeo, (1880) Indian Law Reports 3 Allahabad 221.

The three statutory exceptions, each with cumulative conditions. Section 25(1): an agreement in writing and registered, made on account of natural love and affection between parties standing in a near relation, on which Rajlukhy Dabee v. Bhootnath Mookerjee, (1900) 4 Calcutta Weekly Notes 488, shows that the relation alone will not do. Section 25(2): a promise to compensate a person who has already voluntarily done something for the promisor. Section 25(3): a promise in writing and signed to pay a time-barred debt.

2. Arbitration Agreement and Arbitration clause in Arbitration Agreement

The two expressions in this note are not two things but a genus and a species, and saying so is the first mark. 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.

An arbitration clause is therefore the arbitration agreement embedded in a substantive contract, ordinarily dealing with future disputes. A submission agreement, made after a dispute has arisen, is the other form.

Separability is what makes the clause more than a term of the contract. Section 16(1)(a) treats an arbitration clause forming part of a contract as an agreement independent of the other terms, and section 16(1)(b) provides that a decision that the contract is null and void does not entail ipso jure the invalidity of the clause. 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, applied that principle to hold that an unstamped or insufficiently stamped instrument is inadmissible in evidence but not void, that the defect is curable, and that the objection is for the tribunal; it overruled N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.

3. Composition and conduct of Arbitral Tribunal

Composition, sections 10 to 15. Section 10: the parties may determine the number provided it shall not be an even number, failing which a sole arbitrator. Section 11: appointment by the agreed procedure, failing which each party appoints one and the two appoint the presiding arbitrator, with a fall back application to the Supreme Court in an international commercial arbitration and the High Court otherwise. Section 11 has not spoken of the Chief Justice since the 2015 amendment, and the 2019 scheme for appointment by graded arbitral institutions has never been notified, sections 2, 3, 10 and 14 of that Amendment Act having been omitted from S.O. 3154(E) of 30 August 2019.

Section 23 requires the statement of claim and defence, permits counterclaim and set off, and by section 23(4) requires pleadings within six months of the arbitrators' receipt of notice of appointment. Section 24 requires oral hearings on request, on a day to day basis so far as possible with no adjournment without sufficient cause, and by section 24(3) requires everything supplied by one party and any expert report the tribunal may rely on to be communicated to both. Section 25 governs default; section 26 experts; section 27 the Court's assistance in taking evidence.

Section 28 fixes the applicable law, section 29 requires a majority decision, section 29A an award within twelve months of the completion of pleadings extendable by six months by consent and thereafter by the Court, and section 29B offers a fast track with an award in six months on written material.

4. Consensus ad idem

Consensus ad idem, agreement upon the same thing in the same sense, is enacted in section 13 of the Indian Contract Act, 1872: two or more persons are said to consent when they agree upon the same thing in the same sense. It is the requirement that the parties' minds meet on the same subject matter and on the same terms, and it is the foundation of the consensus or will theory of contract.

The doctrine is under strain in two situations and a good note says so. In the standard form contract the weaker party's assent is real as to the transaction and fictional as to the terms, which is why Indian courts have reached for section 16(3) and for the section 23 public policy jurisdiction in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156. And in sections 68 to 72, the relations resembling those created by contract, obligation arises with no consensus whatever, as State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779, shows for section 70.

5. Conciliation and commercial Arbitration

The two are the opposite ends of the alternative dispute resolution spectrum, and the note is best built on the contrast.

Sections 61 to 81 would be substituted in their entirety by the Sixth Schedule to the Mediation Act, 2023 (Act 32 of 2023, assented to 14 September 2023), and that substitution has not been brought into force. The substituted section 61 would provide that any statutory provision for resolution of disputes through conciliation is to be construed as a reference to mediation under that Act, and the substituted section 62 would save proceedings already begun. The Schedule takes effect through section 61 of the Mediation Act, which the commencement notification S.O. 4384(E) of 9 October 2023 did not bring into force. Conciliation therefore remains a distinct statutory process under the 1996 Act, and the change is enacted and awaiting commencement.

The two processes meet inside the Act at one point, and it is worth the last line of the note. Section 30 permits an arbitral tribunal, with the agreement of the parties, to use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement, and to record a resulting settlement as an award on agreed terms with the same status and effect as an award on the merits. Arbitration and conciliation were therefore designed to be used together, which is why the Act of 1996 contained both, and the Mediation Act, 2023 has now separated them into two statutes.

For full marks, cover: all three items at about eight marks each, and take a different angle on each from the notes above. For the Convention, its structure Part by Part and India's position. For finality and enforcement, the contrast with the 1940 Act and the 2015 change. For commercial arbitration, the institutional dimension.

1. U.N. Convention Sales

The reference is to the United Nations Convention on Contracts for the International Sale of Goods, adopted at Vienna on 11 April 1980 and in force from 1 January 1988, prepared by the United Nations Commission on International Trade Law and replacing the two Hague Conventions of 1964. More than ninety States are parties, including the United States, China, Japan, Germany and France.

Part I, sphere of application and general provisions, Articles 1 to 13. Article 1 fixes the two routes of application. Article 2 excludes consumer sales, sales by auction or on execution, and sales of stocks, shares, negotiable instruments, money, ships, aircraft and electricity. Article 4 confines the Convention to the formation of the contract and the rights and obligations of the parties, expressly excluding the validity of the contract and the effect on property in the goods. Article 5 excludes liability for death or personal injury. Article 6 permits the parties to exclude the Convention or derogate from any provision, so it is a default regime. Article 7 requires regard to be had to its international character, to uniformity of application and to the observance of good faith in international trade. Article 11 provides that a contract of sale need not be in writing and may be proved by any means, subject to an Article 96 declaration.

The remedies are specific performance subject to Article 28, under which a court need not order it unless it would do so under its own law; avoidance; price reduction under Article 50, a civilian remedy unknown to the common law; and damages under Article 74, limited to the loss the party in breach foresaw or ought to have foreseen at the time of conclusion, which is the Convention's version of the second rule in Hadley v. Baxendale. Article 77 imposes a duty to mitigate, and Article 79 exempts a party who proves that failure was due to an impediment beyond his control which he could not reasonably have been expected to take into account, avoid or overcome.

Part IV, final provisions, Articles 89 to 101, dealing with ratification, reservations and entry into force.

The argument for Indian accession is that Indian exporters already meet the Convention through the choice of foreign counterparties and through foreign forums' conflict rules, while Indian practitioners are unfamiliar with it. The argument against is that the Sale of Goods Act, 1930 already reflects much of the same commercial law and that fundamental breach and price reduction have no counterpart in Indian doctrine.

Finality carries three ideas that should be stated: the tribunal is functus officio, save for the corrections and additional award permitted by section 33; the award determines the rights of the parties and operates as res judicata; and it binds persons claiming under them.

The 2015 amendment made the most important practical change. Before it, the mere filing of a section 34 application operated as an automatic stay on enforcement. The substituted section 36(2) provides that filing shall not by itself render the award unenforceable unless the Court grants an order of stay on a separate application, and section 36(3) permits conditions. When Parliament sought to restrict that reform by inserting section 87 in 2019, the Supreme Court struck it down as manifestly arbitrary and violative of Article 14 in Hindustan Construction Company Ltd. v. Union of India, decided 27 November 2019. The 2021 Amendment then added a second proviso to section 36(3) requiring an unconditional stay where a prima facie case of fraud or corruption in the agreement, the contract or the making of the award is made out.

3. Commercial Arbitration

Commercial arbitration is arbitration of a dispute arising from a commercial relationship, and this treatment takes the institutional dimension, which is where the subject's real problem lies.

The term "commercial" is not defined in the Act but appears in section 2(1)(f) and in sections 44 and 53, and is construed liberally in R.M. Investments and Trading Co. (P) Ltd. v. Boeing Co., (1994) 4 SCC 541, having regard to the manifold activities which are an integral part of international trade. Section 2(1)(a) makes clear that the Act applies to arbitration "whether or not administered by a permanent arbitral institution", which is the statutory recognition of the two forms in which commercial arbitration is conducted.

Ad hoc arbitration is conducted under the parties' own arrangements and under the Act's default rules. Institutional arbitration is conducted under the rules and administration of an arbitral institution, which appoints where the parties fail to, scrutinises the award in some systems, fixes fees on a published scale and manages the timetable.

India's commercial arbitration remains predominantly ad hoc, and the statutory scheme intended to change that has never been brought into force. The Arbitration and Conciliation (Amendment) Act, 2019 inserted Part IA, sections 43A to 43M, creating the Arbitration Council of India with the duty of grading arbitral institutions, and inserted section 11(3A) so that the Supreme Court and the High Courts would designate institutions so graded to make appointments. The commencement notification S.O. 3154(E) of 30 August 2019 brought into force only section 1, sections 4 to 9, sections 11 to 13 and section 15 of that Amendment Act, and left out sections 2, 3, 10 and 14. Section 10 was later commenced by S.O. 4486(E) of 12 October 2023, so Part IA is on the statute book and in force. Section 3 was not, so section 11(3A) does not operate and appointments are still made by the Court under section 11 as amended in 2015. The grading of institutions on which the scheme depends has not been carried through, and in March 2025 the Minister of State informed Parliament that it had not been finalised.

The draft Arbitration and Conciliation (Amendment) Bill, 2024, published by the Department of Legal Affairs for consultation in October 2024 and not introduced in Parliament, would recognise the emergency arbitrator, permit audio-visual hearings, tighten timelines, and rename the parent statute simply the Arbitration Act now that conciliation has moved to the Mediation Act, 2023. It should be described as a draft, because that is what it is.

Conclusion. The United Nations Convention on Contracts for the International Sale of Goods supplies a uniform substantive law of international sale in four Parts, applying by Article 1 where the parties have places of business in different Contracting States, confined by Article 4 to formation and to the parties' rights and obligations, displaceable under Article 6, free of form under Article 11, regulated by fundamental breach under Article 25 and remedied by avoidance, price reduction, specific performance subject to Article 28 and foreseeability-limited damages under Article 74. India is not a party, so it reaches an Indian contract only by choice of law or through a foreign forum's conflict rules.

The modern analysis reduces the theory to three conditions, and stating them gives the answer its spine. The defendant must have been enriched, by the receipt of money, of goods or of services. The enrichment must have been at the expense of the plaintiff, so that there is a direct transfer of value. And the retention of the benefit must be unjust, which does not mean that the court disapproves of it but that it falls within a recognised ground of restitution, such as mistake, failure of consideration, compulsion, necessity or incapacity. English law adds a defence of change of position; Indian law reaches similar results through the terms of sections 65 and 70 and through the principle in Mafatlal Industries.

The relation between unjust enrichment and restitution is that the first is the principle and the second the remedy. Unjust enrichment describes why the defendant must give something up; restitution describes what he must give up, namely the benefit received, measured by its value where the thing itself cannot be returned. Restitution is therefore gain based and not loss based: it is measured by what the defendant received, whereas damages in contract under section 73 are measured by what the plaintiff lost.

The fiction was criticised as soon as it was stated. In Sinclair v. Brougham, [1914] Appeal Cases 398, the House of Lords used it to deny recovery where no contract could lawfully have been implied, which showed the fiction dictating results rather than describing them. The abandonment came with Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd., [1943] Appeal Cases 32, where Lord Wright said that any civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, and that such remedies fall within a third category of the common law, distinct from contract and from tort. English law now treats restitution as an independent source of obligation, and the implied contract theory was finally interred in Lipkin Gorman v. Karpnale Ltd., [1991] 2 Appeal Cases 548.

Certain relations resembling those created by contract under Indian law

The Indian Contract Act, 1872 never adopted the fiction, and the heading of Chapter V is the proof. Sections 68 to 72 are headed "Of certain relations resembling those created by contract". The draftsmen refused to pretend there was a promise and described the relation instead, which is why Indian law reached in 1872 a position English law reached only in 1943. That contrast is exactly what this question is asking about and should be stated in those terms.

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 by the other. Three conditions are cumulative: the plaintiff must have an interest in making the payment, he must not himself be bound to pay, and the defendant must have been bound by law to pay. The illustration is B holding land in Bengal on a lease granted by A the zamindar; the revenue payable by A falls into arrear and the land is advertised for sale, which would annul B's lease; B pays the revenue to prevent the sale, and A is bound to make good to B the amount so paid.

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 to the former in respect of, or to restore, the thing so done or delivered. Three conditions again: the act must be lawful, it must be done without an intention to act gratuitously, and the defendant must have enjoyed the benefit.

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 owes the care required by section 151, must not use the goods for his own purpose, and must make reasonable efforts to find the owner; against that he has a lien for expenses and for any specific reward offered under section 168, and a limited power of sale under section 169 where the thing is commonly the subject of sale and either is in danger of perishing or has attracted lawful charges amounting to two thirds of its value.

Section 72: money paid or thing delivered by mistake or under coercion. A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it. Sales Tax Officer, Banaras v. Kanhaiya Lal Mukundlal Saraf, AIR 1959 SC 135, settled the widest question under the section: money paid under a mistake of law is recoverable, because the word "mistake" in section 72 is unqualified and the English distinction between a mistake of fact and a mistake of law has no application in India. The case must be read with section 21, which provides that a contract is not voidable because caused by a mistake as to Indian law; section 21 governs the validity of the contract, section 72 the recovery of money.

Its words are a real limit. Mohori Bibee holds that the section did not assist a lender who knew of the minority throughout, because in such a case nothing was "discovered". Where section 65 fails, the residual relief is section 33 of the Specific Relief Act, 1963, under which a court adjudging cancellation of an instrument may require restoration of a benefit to the extent the defendant or his estate has benefited.

Section 64 completes the scheme for voidable contracts: a party who rescinds must restore any benefit received. Section 73, third paragraph, provides that where an obligation resembling those created by contract has been incurred and not discharged, the person injured is entitled to the same compensation as if the person in default had contracted to discharge it, which supplies the measure for a Chapter V claim.

Conclusion. Unjust enrichment is the principle that a defendant enriched at the plaintiff's expense in circumstances the law regards as unjust must make restitution, and its three conditions are enrichment, at the plaintiff's expense, and an unjust factor recognised by law. Restitution is the remedy and is gain based, measured by what the defendant received, in contrast with the loss based measure of damages in section 73.

For full marks, cover: what UNCITRAL is and what it produced; the Preamble, which recites the Model Law and the Rules by name; the departures the Indian Act made from the Model Law, which is the "predominant role" the question is really testing; the role of the Model Law in interpretation; and then the objectives from the Statement of Objects and Reasons, each tied to its section.

The paper prints "UNCITRAL Model Bye law". The correct name is the UNCITRAL Model Law on International Commercial Arbitration; a Model Law is not a bye-law, and the slip is the University's. The stem is reproduced as set.

The Preamble to the Arbitration and Conciliation Act, 1996 recites all of this expressly, and quoting it is the direct answer to the first limb of the question. It records that the Commission adopted the Model Law in 1985; that the General Assembly recommended that all countries give due consideration to the said Model Law, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice; that the Commission adopted the Conciliation Rules in 1980; that the General Assembly recommended their use where a dispute arises in the context of international commercial relations and the parties seek an amicable settlement; that the Model Law and Rules make significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial relations; and that it is expedient to make law respecting arbitration and conciliation, taking into account the aforesaid Model Law and Rules.

The Act consolidates the enforcement of foreign awards in Part II, which the Model Law does not deal with at all, that being the province of the New York Convention.

The Act contained a Part III on conciliation, based on the UNCITRAL Conciliation Rules, which no Model Law jurisdiction had. Sections 61 to 81 remain in force, the substitution the Mediation Act, 2023 would make by its Sixth Schedule not having been commenced.

The Act omits the Model Law's provision for a designated court or authority in the form Article 6 contemplates, and instead names the Supreme Court and the High Court in section 11.

The 2015 amendment added provisions the Model Law does not contain: section 29A on time limits, section 29B on the fast track, section 31A on costs, and the Fifth and Seventh Schedules with section 12(5), which draw on the IBA Guidelines on Conflicts of Interest in International Arbitration rather than on the Model Law.

The role of the Model Law in interpretation

Because the Act was enacted to give effect to the Model Law, the Model Law and its travaux are a legitimate aid to construction, and Indian courts have used them.

The limits of that interpretive role should be acknowledged. Where the Indian Act departs from the Model Law, the departure governs, and the Model Law cannot be used to read the departure away. Section 34(2A) on patent illegality and the whole application of Part I to domestic arbitration are examples.

The objectives of the Act

The Statement of Objects and Reasons of the Bill enumerated the main objectives, and this is the list the second limb asks for.

To comprehensively cover international commercial arbitration and conciliation as also domestic arbitration and conciliation. Implemented by the four Part structure and by the repeal of the Acts of 1937, 1940 and 1961.

To make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration. Implemented by section 19, freeing the tribunal from the Code of Civil Procedure, 1908 and the law of evidence and permitting the parties to agree the procedure, subject to the mandatory guarantee in section 18 of equality and a full opportunity to present the case.

To provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms. This was and remains section 74; the Mediation Act, 2023 would replace it, and that substitution has not been brought into force.

To provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two international Conventions relating to foreign arbitral awards applies, will be treated as a foreign award. Part II, sections 44 to 52 for the New York Convention and 53 to 60 for the Geneva Convention, with section 49 deeming an enforceable award a decree.

The amendments added three further objectives. The 2015 Amendment added timeliness through sections 29A and 29B, impartiality through section 12(5) and the Fifth and Seventh Schedules, and enforceability pending challenge through the substituted section 36. The 2019 Amendment added institutional arbitration through Part IA and section 11(3A). The 2021 Amendment added an unconditional stay where fraud or corruption is shown prima facie.

Conclusion. The role of the UNCITRAL instruments in the enactment of the Arbitration and Conciliation Act, 1996 is recited in the Act's own Preamble, which names the Model Law of 1985 and the Conciliation Rules of 1980 and records the General Assembly's recommendation that States give them due consideration in view of the desirability of uniformity. The Act follows the Model Law closely in Part I, provision for provision from section 7 to section 36, and departs from it in four significant ways: by applying Part I to domestic arbitration, by consolidating foreign award enforcement in Part II, by adding a Part III on conciliation, and by adding the 2015 provisions on time, costs and impartiality drawn from the IBA Guidelines. In interpretation the Model Law has done real work, most conspicuously in BALCO, where the territoriality principle of Article 1(2) decided that Part I applies only to India-seated arbitrations.

For full marks, cover: this question is set on both papers in this scan. Here it is answered by following a case through each institution from filing to final order, with the statutory provision and the criticism at each stage, which is a different treatment from the concept-led answer given on the first paper.

The paper prints "LokAdalat" as one word. The stem is reproduced as set.

A case through a Family Court

Stage one: where it is filed, and why nowhere else. Section 7 of the Family Courts Act, 1984 gives a Family Court, in the area for which it is established, all the jurisdiction exercisable by a district court or subordinate civil court in respect of the suits and proceedings in the Explanation, and section 8 provides that no district court or subordinate civil court shall exercise that jurisdiction. The jurisdiction is therefore exclusive, and a suit filed elsewhere is liable to be returned.

Establishment has been uneven and one gap had to be cured by legislation. Two Family Courts in Nagaland (2008) and three in Himachal Pradesh (2019) had been set up by State notifications without the central notification required by section 1(3). The Family Courts (Amendment) Act, 2022 brought the Act into force in Himachal Pradesh from 15 February 2019 and in Nagaland from 12 September 2008, and retrospectively validated everything done under them.

Stage two: the first hearing, and the duty to try settlement. Section 9 requires the Court, in the first instance and where consistent with the nature and circumstances of the case, to assist and persuade the parties in arriving at a settlement, for which purpose it may follow such procedure as it deems fit and adjourn for so long as it thinks fit. Sections 5, 6 and 12 supply the machinery: association of social welfare agencies, counsellors appointed by the State Government in consultation with the High Court, and medical or welfare experts.

The criticism belongs here. A duty to attempt reconciliation is valuable where the marriage is salvageable and harmful where it is not, and applied mechanically it can press a party who alleges cruelty or violence into repeated counselling sessions with the person complained of. Nothing in section 9 requires the Court to consider that, and practice varies widely between courts.

Stage five: judgment and appeal. Section 17 requires the judgment to contain a concise statement of the case, the point for determination, the decision and the reasons. Section 19 allows an appeal to the High Court, on both facts and law, to be heard by a Bench of two or more Judges, within thirty days; but no appeal lies from a decree or order passed with the consent of the parties, nor from an order under Chapter IX of the Code of Criminal Procedure.

A case through a Lok Adalat

Stage one: how it gets there. Section 20 of the Legal Services Authorities Act, 1987 provides three routes for a pending case: the parties agree to refer it; one party applies and the court is prima facie satisfied that there are chances of settlement; or the court itself considers the matter appropriate, after giving the parties a reasonable opportunity of being heard. A pre-litigation matter comes on the application of any one party under section 20(2). Section 19(5) confines the jurisdiction to matters admitting of compromise and excludes non-compoundable offences.

Stage three: the award, or the return of the file. Section 20(5) requires that where no award is made because no compromise could be arrived at, the record be returned to the court from which it came, which shall proceed from the stage reached before the reference as if no reference had been made.

State of Punjab v. Jalour Singh, (2008) 2 SCC 660, enforces that provision: a Lok Adalat which had enhanced compensation without any compromise was held to have acted without jurisdiction, the Supreme Court holding that a Lok Adalat has no adjudicatory or judicial function, that its functions relate purely to conciliation, and that an award recording no compromise is a nullity.

Stage four: the effect of the award. Section 21 provides that every award shall be deemed to be a decree of a civil court or an order of any other court; that where a compromise has been arrived at in a referred case, the court fee paid shall be refunded under the Court Fees Act, 1870; and that every award shall be final and binding on all the parties, with no appeal to any court. P.T. Thomas v. Thomas Job, (2005) 6 SCC 478, confirms the finality.

The scale of the institution should be given. The first National Lok Adalat of 2026, on 14 March 2026, settled about 2.84 crore cases worth about 10,920 crore rupees in a single day; the second, on 9 May 2026, settled 2,07,66,548 cases, of which 1,87,63,883 were pre-litigation, worth about 3,440.81 crore rupees; about 14.84 crore cases were settled across the four sittings of 2025. The qualification is that the bulk are pre-litigation matters, many of them administrative rather than contested, so the figure overstates the burden lifted from the courts.

What the two journeys show

Following a case through each institution exposes the difference better than a definition does. A case in a Family Court is filed, pleaded, referred to a counsellor, heard, decided on the merits and appealed; the conciliation is a stage within an adjudication. A case in a Lok Adalat is referred, discussed and either settled or sent straight back; there is no stage at which anything is decided, and Jalour Singh holds that any attempt to decide is a nullity.

A case in a Lok Adalat is referred under section 20 on one of three grounds, is discussed by a panel guided by justice, equity and fair play under section 20(3) with the civil court's evidentiary powers under section 22, and either produces a compromise, which section 21 deems a decree of the civil court, final, unappealable and with the court fee refunded, or produces nothing, in which case section 20(5) returns the record to the referring court. State of Punjab v. Jalour Singh holds that anything else is a nullity, because the forum has no adjudicatory function. The two institutions therefore answer the same problem in opposite ways, and their safeguards, an appeal in the one and the reality of consent in the other, are located accordingly.

The definition contains two elements, and both are defined elsewhere in the Act. The first is agreement, defined by section 2(e) as every promise and every set of promises forming the consideration for each other, which in turn depends on section 2(a) for proposal, section 2(b) for acceptance and promise, and section 2(d) for consideration. The second is enforceability by law, which section 2(h) does not define at all.

The first criticism of the definition is that it is, taken alone, circular or at least empty. To say that a contract is an agreement enforceable by law tells us nothing about which agreements the law enforces, and that is the only question that matters. The definition would be equally true of a legal system that enforced every promise and of one that enforced none. It classifies rather than explains.

The answer to that criticism, and the reason the Act is not open to it, is section 10. Section 2(h) states the concept and section 10 supplies the test: 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. The two sections must be read together, and a script that quotes section 2(h) without section 10 has answered half the question.

The essentials that section 10 supplies

Essential one: an agreement, that is, a proposal accepted. Sections 3 to 9 govern. A proposal under section 2(a) must be distinguished from an invitation to offer: Harvey v. Facey, [1893] Appeal Cases 552, held a statement of the lowest acceptable price to be no offer. Acceptance must be absolute and unqualified under section 7, so a counter-offer destroys the proposal: Hyde v. Wrench, (1840) 3 Beavan 334. It must be communicated, and section 4 fixes when communication is complete. It must be made in knowledge of the proposal: Lalman Shukla v. Gauri Datt, (1913) 11 Allahabad Law Journal 489. And section 8 permits acceptance by performance, which is how the plaintiff accepted in Carlill v. Carbolic Smoke Ball Co., [1893] 1 Queen's Bench 256.

Essential two: consensus ad idem. Section 13 requires the parties to agree upon the same thing in the same sense. Its absence is fatal, and section 20 makes an agreement void where both parties are under a mistake as to a matter of fact essential to the agreement.

Essential five: capacity. Section 11 requires majority under the Indian Majority Act, 1875, soundness of mind as defined by section 12, and freedom from statutory disqualification. Mohori Bibee v. Dharmodas Ghose, (1903) 30 Indian Appeals 114, holds a minor's agreement void ab initio: it cannot be ratified, supports no estoppel, and is outside sections 64 and 65, the supplier of necessaries being relegated to section 68, which charges the minor's property and not his person.

Essential six: free consent. Section 14 defines it by excluding coercion, undue influence, fraud, misrepresentation and mistake. The consequences differ and the difference is examinable: coercion, fraud and misrepresentation make the contract voidable under section 19, undue influence voidable under section 19A with power in the court to impose terms, and bilateral mistake of fact void under section 20. Derry v. Peek, (1889) 14 Appeal Cases 337, marks the line between fraud and innocent misrepresentation.

In its favour, it correctly identifies the genus and the differentia; it locates the source of the obligation in the parties' agreement; it accommodates the fact that enforceability is a legal quality added to a social act; and, read with section 10, it is not circular at all, because section 10 states the conditions of enforceability exhaustively.

Against it, four points can be made. It says nothing about which agreements the law enforces, and depends entirely on section 10 to do so. It omits the intention to create legal relations, which the courts have had to supply from English law, so the statutory scheme is on its face incomplete. It does not accommodate the voidable contract of section 2(i), which is enforceable only at one party's option. And it presupposes that agreement is always identifiable, which the standard form contract has made doubtful: where one party writes every word, the "agreement" is a fiction as to the terms, which is why Indian courts have had to develop the section 23 jurisdiction in Brojo Nath Ganguly and Parliament has had to define an unfair contract in section 2(46) of the Consumer Protection Act, 2019 and empower the commissions to declare such terms void.

Section 10 supplies what the definition lacks, requiring free consent, capacity, lawful consideration and object, and the absence of any express statutory avoidance, and to those the courts have added an intention to create legal relations. The essentials are cumulative and their failure produces different consequences: incapacity, unlawful object, want of consideration and bilateral mistake produce a void agreement, coercion, undue influence, fraud and misrepresentation a voidable contract, and want of a prescribed form a contract that is merely unenforceable.

Critically, the definition is sound so far as it goes and incomplete in four respects: it depends wholly on section 10 for content, it omits the intention to create legal relations, it does not accommodate the voidable contract of section 2(i), and it presupposes an identifiable agreement in a world of standard form contracts where the courts have had to reach for section 23 and Parliament for section 2(46) of the Consumer Protection Act, 2019. A definition drafted in 1872 for negotiated bargains between equals still states the concept accurately and no longer describes the transaction most often litigated.

Three incidents of that status should be given. He is immune from suit for acts done in good faith in the discharge of his function, which follows from the judicial character of the office and is expressly recognised in institutional rules. He is functus officio once the award is made, save for the powers of correction and additional award in section 33. And he cannot be a judge in his own cause, which is why the Supreme Court held in Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV, decided 30 August 2022, that arbitrators cannot unilaterally fix or revise their own fees, that fees must be settled at the outset with the parties' consent or by the court, and that the Fourth Schedule ceiling applies per arbitrator and per claim rather than cumulatively.

As to qualifications, the Act's starting point is that there are none. Section 11(1): a person of any nationality may be an arbitrator unless otherwise agreed by the parties. The parties may prescribe qualifications, and section 11(8) requires the appointing authority to have due regard to any qualifications required by the agreement; section 12(3)(b) makes the absence of the qualifications agreed to by the parties a ground of challenge.

TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377, held that a person himself ineligible cannot nominate an arbitrator; Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760, extended that to any clause giving a person interested in the outcome the sole power to appoint; and Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), 2024 INSC 857, decided 8 November 2024, held by five judges, three to two, that the equality obligation in section 18 applies at the appointment stage, so a unilateral appointment or a curated panel is impermissible.

2. Arbitration Agreement and Arbitration clause in Arbitration Agreement

The two are genus and species. Section 7(1) 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, and section 7(2) provides that it may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

An arbitration clause is therefore the agreement embedded in a substantive contract, dealing ordinarily with future disputes; a submission agreement is made after a dispute has arisen.

Separability under section 16(1) makes the clause an agreement independent of the contract containing it, and a decision that the contract is null and void does not entail ipso jure the invalidity of the clause. 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, held an unstamped instrument inadmissible but not void, the defect curable, and the objection one for the tribunal; it overruled N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.

Three further points: section 8 requires reference unless the court finds that prima facie no valid arbitration agreement exists, on the standard in Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1; section 28 of the Indian Contract Act, 1872 expressly saves an arbitration agreement from the rule voiding restraints on legal proceedings; and section 40 of the 1996 Act provides that an arbitration agreement is not discharged by the death of a party.

Arbitration, adjudicatory, in which the parties refer the dispute to a tribunal of their own choosing which decides it by an award binding under section 35 and enforceable as a decree under section 36.

The recognised hybrids are med-arb, in which the parties mediate and, failing settlement, arbitrate; early neutral evaluation, a non-binding assessment of the merits; the mini-trial, in which counsel present summarised cases to senior executives with a neutral chair; dispute boards, standing panels used in long construction projects and built into the FIDIC forms; and expert determination, which is not arbitration at all, as K.K. Modi v. K.N. Modi makes clear.

India has two statutory processes of its own. The Lok Adalat under sections 19 to 22 of the Legal Services Authorities Act, 1987, whose award section 21 deems a decree of a civil court with no appeal, and which State of Punjab v. Jalour Singh, (2008) 2 SCC 660, holds to have no adjudicatory function; and the Permanent Lok Adalat under Chapter VIA, which by section 22C(8) decides a public utility dispute where conciliation fails, upheld in Bar Council of India v. Union of India, (2012) 8 SCC 243.

4. Finality and Enforcement of Arbitral Awards

Finality is declared by section 35: subject to Part I, an arbitral award shall be final and binding on the parties and persons claiming under them respectively. Three ideas follow: the tribunal is functus officio save for section 33; the award determines the rights of the parties and operates as res judicata; and it binds successors in title.

Enforcement is provided by section 36: where the time for making an application to set aside under section 34 has expired, the award shall be enforced in accordance with the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court. No filing, no judgment on the award and no decree in terms of it are required, all of which the Arbitration Act, 1940 had demanded under sections 14 and 17.

Gayatri Balasamy v. ISG Novasoft Technologies Ltd., 2025 INSC 605, decided 30 April 2025, has qualified finality for the first time: five judges held by four to one that a court under sections 34 and 37 has a limited power to modify an award, where the invalid portion is severable, to correct clerical, computational or typographical errors on the face of the record, in relation to post-award interest, and in the Supreme Court under Article 142.

5. U. N. Convention on Sales

The reference is to the United Nations Convention on Contracts for the International Sale of Goods, adopted at Vienna on 11 April 1980 and in force from 1 January 1988, prepared by UNCITRAL and replacing the Hague Conventions of 1964. More than ninety States are parties.

India is not a party. It has neither signed nor acceded, so the Convention does not apply to an Indian contract by force of Article 1(1)(a). It reaches an Indian party only where the parties choose it or where a foreign forum's conflict rules lead to the law of a Contracting State under Article 1(1)(b). Indian sale contracts are governed by the Indian Contract Act, 1872 and the Sale of Goods Act, 1930.

Conclusion. These five notes cover the arbitration half of the paper and one contract topic. An arbitrator's status is that of a private adjudicator exercising a judicial function, immune in good faith, functus officio after the award and forbidden by ONGC v. Afcons Gunanusa to fix his own fees; the Act prescribes no qualifications beyond what the parties agree, the Eighth Schedule having never come into force and having been omitted in 2021, and regulates instead by disclosure under section 12(1) and ineligibility under section 12(5).

An arbitration agreement under section 7(1) may take the form of a clause or a separate submission, must be in writing under section 7(4), and is separable under section 16(1) and unaffected by want of stamp after In Re: Interplay. Alternative dispute resolution runs from negotiation through mediation and conciliation to arbitration, with the Lok Adalat and Permanent Lok Adalat as Indian additions and section 89 of the Code of Civil Procedure, 1908 as the court-annexed route. An award is final under section 35 and enforceable as a decree under section 36, without an automatic stay since 2015 and subject to Gayatri Balasamy. And the Vienna Convention on Sale of Goods supplies a uniform law of international sale which India has never adopted.

Third paragraph: where one person has promised to do something which he knew, or with reasonable diligence might have known, and which the promisee did not know, to be impossible or unlawful, he must make compensation to the promisee for any loss which the promisee sustains through the non-performance.

The central Indian proposition is that section 56 is a positive rule of law and not an implied term, and this must be stated. Satyabrata Ghose v. Mugneeram Bangur and Co., AIR 1954 SC 44, is the authority. Land had been sold for development and part of it was requisitioned for military purposes during the war. Mukherjea J. held that the doctrine of frustration is in India covered by section 56, which lays down a rule of positive law; that the English theories of an implied term and of the disappearance of the foundation of the contract are not the basis of the Indian rule; and that the word "impossible" is used not in the literal sense but in a practical sense, so that the test is whether the supervening event strikes at the root of the adventure. On the facts the requisition was temporary, no time for performance was fixed, and the contract was not frustrated.

The effect is automatic and total. The contract becomes void when the act becomes impossible or unlawful; discharge is not at the election of a party, and it operates from that moment. Section 65 then requires any person who has received any advantage under the contract to restore it or to make compensation for it. Unlike the English Law Reform (Frustrated Contracts) Act 1943, section 65 makes no provision for apportioning expenses incurred before the frustrating event, which is the standing criticism of the Indian position.

2. Remedies available to aggrieved parties

Five remedies are available on a breach, and the statute for each should be named.

Specific performance, under the Specific Relief Act, 1963. The Specific Relief (Amendment) Act, 2018, in force 1 October 2018, substituted section 10 so that specific performance shall be enforced subject to sections 11(2), 14 and 16, replacing the old discretionary formula. Specific performance is now the rule and damages the alternative, which reverses more than a century of practice. The substituted section 20 introduces substituted performance on thirty days' notice, barring a later claim to specific performance; section 20A bars an injunction impeding an infrastructure project in the Schedule; section 14A permits the court to engage experts; and section 16(c) continues to require the plaintiff to prove he has performed or has always been ready and willing to perform.

Injunction, sections 36 to 42 of the same Act. A temporary injunction under Order XXXIX of the Code of Civil Procedure, 1908; a perpetual injunction under section 37; a mandatory injunction under section 39; and section 42, which permits an injunction to enforce a negative agreement even where the affirmative one cannot be specifically enforced, as in Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd., AIR 1967 SC 1098.

Where the contract is broken, the innocent party is compensated for what he expected. Section 73 gives the expectation measure, putting him so far as money can in the position he would have occupied had the contract been performed, subject to the two limbs of remoteness and to the duty to mitigate. Section 74 caps a stipulated sum at reasonable compensation. Section 75 preserves damages on rightful rescission. Specific performance, injunction and quantum meruit are alternatives to or supplements of that measure.

Where the contract is frustrated, nobody is compensated for anything. Discharge under the second paragraph of section 56 is automatic and blameless, so there is no breach and therefore no damages. The only relief is restitutionary: section 65 requires any person who has received an advantage under the contract to restore it or to make compensation for it. The measure is gain based, what the defendant received, not loss based, what the plaintiff lost.

The practical consequence for drafting is the reason both topics are set together. Because frustration discharges without compensation and leaves pre-contractual expenditure where it falls, commercial parties do not rely on section 56 at all: they write a force majeure clause which defines the triggering events, suspends rather than terminates performance in the first instance, allocates the costs of delay, and provides for termination and for the financial consequences if the event persists. Where such a clause exists and covers the event, section 56 does not operate, because the parties have provided for it, and the contract governs.

The remedies available to an aggrieved party are damages under sections 73 to 75, with the two limbs of remoteness, the duty to mitigate and the section 74 ceiling on a stipulated sum; specific performance, now enforceable as of right since the Specific Relief (Amendment) Act, 2018 substituted section 10, with substituted performance in the new section 20 and the infrastructure bar in section 20A; injunction under sections 36 to 42, of which section 42 is the provision that enforces a negative covenant; rescission under sections 27 to 30 with restoration under sections 64 and 65; and quantum meruit under sections 65 and 70, on the authority of B.K. Mondal.