LLM Group 2 Business Law Fundamental Principles of Law of Contract and Allied Laws 2019 Question Paper with Solutions

For full marks, cover: the circumstances in which the appointing authority may be moved under section 11, taking each sub-section in turn; the fact that the authority is no longer the Chief Justice and the history of that change through Konkan Railway and SBP and Co.; then disqualification in its three layers, ineligibility, challenge and termination of mandate, with the leading cases; and the 2024 Constitution Bench decision.

The circumstances in which the appointing power arises

Section 11 of the Arbitration and Conciliation Act, 1996 supplies a default appointment machinery and a fall back to a court where the machinery fails. The power to appoint is not a general one: it arises only in defined circumstances, and setting them out in order is the first half of this answer.

Section 11(5) states the third circumstance, for a sole arbitrator: where the parties have not agreed a procedure and fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other, the appointment shall be made on request in the same manner.

Section 11(6) states the fourth and widest circumstance, and it is the one most often invoked. Where an appointment procedure has been agreed, and a party fails to act as required under that procedure, or the parties or the two appointed arbitrators fail to reach an agreement expected of them under that procedure, or a person including an institution fails to perform any function entrusted to him or it under that procedure, a party may request the Court or its designate to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

Section 11(9) adds a further circumstance for international commercial arbitration: in the case of appointment of a sole or third arbitrator in such an arbitration, the Supreme Court or its designate may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

The reason for the change is a decade of litigation about the nature of the power, and it earns marks. In Konkan Railway Corporation Ltd. v. Rani Construction (P) Ltd., (2002) 2 SCC 388, a Constitution Bench held that the Chief Justice's function under section 11 was administrative, not judicial, so no reasoned order was required and no appeal lay. In SBP and Co. v. Patel Engineering Ltd., (2005) 8 SCC 618, a seven-judge Bench overruled Konkan Railway and held that the power is judicial, that the Chief Justice must decide his own jurisdiction, the existence of a valid arbitration agreement and whether the claim is a live one, and that his order is amenable to a petition under Article 136. National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267, then catalogued the issues the Chief Justice must decide, those he may decide and those he should leave to the tribunal.

The 2015 amendment responded to that line in two ways. It moved the power from the Chief Justice as persona designata to the Court itself, which is consistent with its being judicial. And it inserted section 11(6A), providing that the Supreme Court or the High Court, while considering an application, shall confine its examination to the existence of an arbitration agreement, notwithstanding any judgment, decree or order of any court. The object was to reverse the wide inquiry SBP and Co. and Boghara Polyfab had permitted.

Layer one: ineligibility under section 12(5). Notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. The proviso permits waiver only by an express agreement in writing entered into after the dispute has arisen.

The Seventh Schedule, inserted in 2015 and drawn from the IBA Guidelines on Conflicts of Interest in International Arbitration, covers among others an arbitrator who is an employee, consultant or adviser of a party or has a past or present business relationship with it; who has a controlling influence on an affiliate of a party where that affiliate is directly involved; who regularly advises a party and derives significant financial income from it; who is a manager, director or part of the management of a party; who has a close family relationship with a party or with counsel; and who has previously been involved in the case.

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

Section 12(3) states the grounds of challenge: circumstances exist that give rise to justifiable doubts as to independence or impartiality, or the arbitrator does not possess the qualifications agreed to by the parties. Section 12(4) provides that a party may challenge an arbitrator appointed by him, or in whose appointment he participated, only for reasons of which he becomes aware after the appointment.

Section 15 covers the wider cases: the mandate terminates where the arbitrator withdraws for any reason or by agreement of the parties, and a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. Unless otherwise agreed, where an arbitrator is replaced, any hearings previously held may be repeated at the discretion of the tribunal, and an order or ruling made prior to the replacement is not invalid solely because there has been a change.

The relationship between the layers is the point on which a good answer closes. Because a person within the Seventh Schedule is ineligible de jure, the route in such a case is a section 14 application to the Court and not a section 13 challenge before the tribunal, and that has been the settled practice since TRF Ltd. A challenge on justifiable doubts falling short of the Seventh Schedule goes first to the tribunal under section 13 and reaches a court only through section 34.

Disqualification operates in three layers. A person within the Seventh Schedule is ineligible under section 12(5) whatever the parties agreed, and TRF Ltd., Perkins Eastman and now Central Organisation for Railway Electrification have made the consequence severe: the appointment, and any nomination made under it, is void. A person outside that Schedule may be challenged under section 12(3) on justifiable doubts, and section 13 sends that challenge first to the tribunal itself, with the award and a section 34 application as the only route to a court. And an arbitrator's mandate terminates under sections 14 and 15 where he becomes unable to act or fails to act without undue delay, with the Court deciding any controversy and a substitute appointed by the rules that governed the original appointment.

The critical Indian proposition is that section 56 is a positive rule of law, not an implied term. Satyabrata Ghose v. Mugneeram Bangur and Co., AIR 1954 SC 44, is the leading authority. Land had been sold for development and a portion 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 or 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 the question is whether the supervening event strikes at the root of the adventure. On the facts the requisition was temporary, no time for performance had been fixed, and the contract was not frustrated.

The grounds recognised by the cases are six and should be listed.

Destruction of the subject matter. Taylor v. Caldwell, (1863) 3 Best and Smith 826, where a music hall hired for concerts burned down before the first performance.

Death or incapacity of a party where the contract is for personal service, since performance depends on a personal qualification.

Four situations do not amount to frustration and the negative list earns marks. Commercial hardship or a rise in cost does not frustrate: Alopi Parshad and Sons Ltd. v. Union of India, AIR 1960 SC 588, holds that a contract is not frustrated merely because circumstances make performance onerous. Self induced frustration does not count, because the second paragraph requires an event "which the promisor could not prevent". Frustration does not apply where the parties have expressly provided for the event by a force majeure clause, since the contract then governs. And the doctrine has been held not to apply to a completed conveyance of land, since the estate has passed.

The effect is stated by the section itself: the contract becomes void when the act becomes impossible or unlawful. Discharge is automatic, not at the option of a party, and it operates from that moment forward. Section 65 then requires any person who has received any advantage under the contract to restore it or to make compensation.

Three further situations produce voidability. Section 39, where a party has refused to perform or disabled himself from performing in its entirety, entitles the promisee to put an end to the contract. Section 53, where one party prevents the other from performing a reciprocal promise. And section 55, first paragraph, where a promise is not performed at the time fixed and time was of the essence.

Four consequences follow from the nature of a voidable contract and they are the substance of this limb.

It is good until avoided, so obligations under it are enforceable in the meantime and a party who performs is not a volunteer.

Third parties are protected. The proviso to section 19 provides that a contract is not voidable where a third party has acquired rights in good faith and for value before avoidance. This is the practical reason why the void and voidable distinction matters in commerce: a purchaser from a person who obtained goods by fraud takes good title if he buys before rescission, and takes nothing where the agreement was void.

Second, restitution where an agreement is void: section 65. 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 for it, to the person from whom he received it. This is the section that operates after frustration under section 56 and after a bilateral mistake under section 20.

The words "discovered to be void" are a real limit, and Mohori Bibee v. Dharmodas Ghose, (1903) 30 Indian Appeals 114, is the authority. A minor mortgaged his house to a lender whose attorney had written notice of the minority. The Privy Council refused relief under section 65, because the lender knew of the minority throughout, so nothing was discovered; and refused relief under section 64, because that section applies to a voidable contract while a minor's agreement is void ab initio. The lender's only residual hope lies in section 33 of the Specific Relief Act, 1963, which permits the court, on adjudging cancellation, to require restoration of a benefit to the extent to which the defendant or his estate has benefited.

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

Section 71: finder of goods. A finder who takes goods into custody is subject to the same responsibility as a bailee, with the care required by section 151, a lien for expenses under section 168 and a limited power of sale under section 169.

Section 72: mistake or 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, held that money paid under a mistake of law is recoverable, the word "mistake" in section 72 being unqualified and the English distinction between mistake of fact and of law having no application.

Conclusion. Frustration under the second paragraph of section 56 discharges a contract automatically when performance becomes impossible or unlawful by a supervening event the promisor could not prevent, on grounds including destruction of the subject matter, death or incapacity in a personal contract, supervening illegality, the non-occurrence of an event forming the basis of the contract, and war; it does not extend to commercial hardship, to self induced impossibility or to a matter the parties have provided for. Satyabrata Ghose establishes that section 56 is a positive rule of law and that impossibility is read practically.

A voidable contract under section 2(i) is enforceable at the option of one party, arises from coercion, fraud, misrepresentation and undue influence under sections 19 and 19A and from sections 39, 53 and 55, is good until avoided, protects a third party who has taken in good faith and for value under the proviso to section 19, requires restoration under section 64, and may be lost by affirmation, delay, third party rights or impossibility of restitution.

For full marks, cover: the history in sequence from the panchayat to 1996 and then the three amendments; then the second limb, which asks a separate question about effectiveness and carries about half the marks, taking international and national levels separately with evidence.

The historical background

The institution is older than the courts that supervise it. The customary Indian forum was the panchayat, and the classical texts describe a hierarchy: Brihaspati names the kula, the assembly of a family or clan, the sreni, the guild of traders or artisans, and the puga, the assembly of persons of a locality, with an appeal from each to the next and finally to the king's court. The features are those of modern arbitration: a tribunal chosen by the parties or their community, an informal procedure, and a decision resting on acceptance rather than on the coercive power of the State.

The 1940 Act failed for a reason that must be stated precisely: it made arbitration a stage in litigation rather than a substitute for it. An award had to be filed in court under section 14; the court could modify or correct it under section 15, remit it under section 16 and supersede the arbitration under section 19; and a decree followed under section 17. The First Schedule permitted an even number of arbitrators with an umpire. No reasons were required, as Raipur Development Authority v. Chokhamal Contractors, (1989) 2 SCC 721, confirmed, and yet "legal misconduct" in section 30 was read to include an error of law apparent on the face of the award, so merits challenges were routine.

The judicial verdict should be quoted. In Guru Nanak Foundation v. Rattan Singh and Sons, (1981) 4 SCC 634, D.A. Desai J. said that the way in which proceedings under the Act were conducted and without exception challenged in courts "has made lawyers laugh and legal philosophers weep".

Three amendments have followed. The 2015 Amendment, on the Law Commission's 246th Report of August 2014, narrowed public policy, removed the automatic stay in section 36, inserted the Fifth and Seventh Schedules and section 12(5), and added sections 29A, 29B and 31A. The 2019 Amendment created the Arbitration Council of India in Part IA and inserted section 87, which the Supreme Court struck down as manifestly arbitrary in Hindustan Construction Company Ltd. v. Union of India, decided 27 November 2019. The 2021 Amendment provided for an unconditional stay where fraud or corruption is shown prima facie.

Two later developments complete the history and neither is in the textbooks. The 2019 institutional architecture came into force in part and years late: S.O. 3154(E) of 30 August 2019 left out sections 2, 3, 10 and 14 of the Amendment Act, and section 10 was afterwards commenced by S.O. 4486(E) of 12 October 2023, so Part IA is in force while section 3, which would route appointments through graded arbitral institutions under section 11(3A), still is not. And the Mediation Act, 2023 would, by its Sixth Schedule, substitute sections 61 to 81 of the 1996 Act, but section 61 of that Act was omitted from the commencement notification S.O. 4384(E) of 9 October 2023, so conciliation continues to be governed by the 1996 Act.

Indian courts have given effect to that narrow scheme. Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supplement (1) SCC 644, held that public policy for a foreign award means only the fundamental policy of Indian law, the interests of India, or justice or morality. Shri Lal Mahal Ltd. v. Progetto Grano SpA, (2014) 2 SCC 433, held that the wider domestic test in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705, has no application to section 48 and that the enforcing court does not exercise appellate jurisdiction. 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 confined Part I to India-seated arbitrations, ending the practice of Indian courts entertaining challenges to foreign awards.

The limits internationally are three. Enforcement still depends on the reciprocity notification under section 44, so an award from a State India has not notified falls outside Part II. Costs and delay in international arbitration have risen to the point where the institutions themselves have introduced expedited procedures. And the system has no answer where the losing party has no assets in a Convention State.

The Lok Adalat has delivered scale, and the figures are the strongest evidence available. Under the Legal Services Authorities Act, 1987, whose section 21 deems an award a decree of the civil court, National Lok Adalats are held four times a year. 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 great majority are pre-litigation matters, many of them traffic challans and utility defaults, so the figure overstates the burden lifted from the courts. And State of Punjab v. Jalour Singh, (2008) 2 SCC 660, holds that a Lok Adalat has no adjudicatory function and that an award recording no genuine compromise is a nullity, which is the standing check on the institution.

On effectiveness, the honest answer differs at the two levels. Internationally the system works: the New York Convention's reversal of the burden of proof has made foreign awards presumptively enforceable, and Indian courts from Renusagar through BALCO to Shri Lal Mahal have applied that scheme faithfully. Nationally the record is uneven: arbitration has produced neither the speed nor the economy it promised, which is why sections 24, 29A and 31A had to be inserted and why ONGC v. Afcons Gunanusa had to regulate fees, and the institutional reform of 2019 has never been brought into force; while the Lok Adalat has delivered extraordinary scale, 2.84 crore cases in a single day in March 2026, at the cost of a consent that years of delay make difficult to call free.

What laissez faire meant

Laissez faire, "let do", is the doctrine that the State should not interfere in economic life beyond keeping order and enforcing bargains. Its classical statement is Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations (1776), and it was carried into nineteenth century English thought by the Benthamite utilitarians and by the political economists.

The philosophy underlying it is individualism, whose premises are three. Each person is the best judge of his own interest, so a bargain freely made is presumed beneficial to both sides. The autonomy of the individual will is the source of obligation, so a person should be bound by what he has chosen and by nothing else. And the aggregate of self-interested exchanges produces the greatest general welfare, so State intervention in the terms of a bargain is likely to make things worse.

The Indian Contract Act fosters it in four ways. It imposes no general requirement of writing: the second paragraph of section 10 preserves only such formalities as another statute requires. It refuses to price the bargain: Explanation 2 to section 25 provides that inadequacy of consideration does not void an agreement, and Illustration (f) treats a horse worth a thousand rupees sold for ten as a contract. It supplies default rules which the parties may displace, as sections 46 to 50 do for time and manner of performance. And it protects the freedom not to contract, which is why the display of goods is an invitation to offer and not an offer: Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd., [1953] 1 Queen's Bench 401.

Sanctity of contract is the principle that an agreement once made must be performed and will be enforced as made. The court's function, on the quotation's account, is to vindicate it, which means to hold a party to his bargain even where performance has become burdensome.

Its statutory footprint is the largest of any theory in the Act. Section 13 enacts consensus ad idem in terms: two or more persons are said to consent when they agree upon the same thing in the same sense. Sections 3 to 9 are a machinery for locating the moment two wills coincided, section 4 fixing when communication is complete and section 7 requiring an absolute and unqualified acceptance. Section 14 defines free consent negatively, because a will that has been coerced or deceived is not a will. And section 20 makes an agreement void, not voidable, where both parties are under a mistake as to a matter of fact essential to the agreement, a consequence intelligible only if there never was an agreement at all; section 22 confirms the reasoning by providing that a unilateral mistake does not vitiate.

The three ideas therefore fit together exactly as the quotation says. Individualism supplies the philosophy; freedom and sanctity of contract are its two working principles; and the consensus theory is the doctrine through which a court gives effect to both, by asking what the parties agreed and then enforcing it.

Indian courts have responded by refusing to vindicate the bargain. Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156, struck down Rule 9(i) of a corporation's service rules, which permitted termination of a permanent employee on three months' notice without reason, holding it void under section 23 as opposed to public policy. Madon J. laid down that the courts will not enforce, and will strike down, an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who are not equal in bargaining power, and declined to confine public policy to established heads. Life Insurance Corporation of India v. Consumer Education and Research Centre, (1995) 5 SCC 482, extended the reasoning to a life policy term offered by a monopoly.

The second breach is legislative and is now the larger one. The Consumer Protection Act, 2019 defines an unfair contract in section 2(46) by reference to terms causing a significant change in the rights of the consumer, and empowers the commissions to declare such terms null and void. The Competition Act, 2002 voids anti-competitive agreements under section 3. Labour, tenancy and insurance legislation removes whole classes of term from the parties' control. Each of these is a direct legislative rejection of sanctity of contract wherever the parties are unequal.

The honest examination therefore ends in a qualified acceptance of the quotation. It correctly describes the ideology in which the Indian Contract Act was drafted and correctly names the two instruments through which the courts gave it effect. But the movement Maine described from status to contract has, in the last century, been partly reversed: the Legislature and the courts have restored a great deal of status to relationships that laissez faire had made contractual, and they have done so precisely because the premise of individualism, that each person is the best judge of his own interest and free to walk away, is false in a world of monopolies, standard forms and unequal information.

The statement is an accurate account of the law of 1872 and a partial account of the law today. The standard form contract has hollowed out freedom; Central Inland Water Transport Corporation v. Brojo Nath Ganguly and Life Insurance Corporation v. Consumer Education and Research Centre show the courts declining to vindicate an unconscionable bargain under section 23; the Consumer Protection Act, 2019 has legislated the point for consumers; sections 16(3), 23, 74 and 68 to 72 show that even the 1872 Act was never purely individualist; and promissory estoppel now enforces promises the consensus theory could not reach. The function the quotation assigns to the court is one it still performs, but no longer without asking first whether the parties were equal.

The content therefore comes from the essentials the courts have identified. K.K. Modi v. K.N. Modi, (1998) 3 SCC 573, states them: an agreement in writing; an intention that the decision of the tribunal will be binding on the parties; that the parties' rights be determined in an impartial and judicial manner with each given an opportunity to present his case; that the parties intended the decision to be enforceable in law; and that the agreement contemplates that substantive rights of the parties will be determined by the tribunal.

Four features distinguish arbitration from its neighbours.

From litigation, by the source of the tribunal's authority: a court exists by law and a tribunal by agreement, so arbitration is private, the tribunal is chosen, and the procedure is what the parties settle under section 19, free of the Code of Civil Procedure, 1908 and of the law of evidence.

From conciliation and mediation, by the presence of adjudication: a conciliator or mediator assists the parties to a settlement they make themselves, while an arbitrator decides.

Coercion, section 15, is the committing or threatening to commit any act forbidden by the penal law, or the unlawful detaining or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. The threat may be aimed at any person whatever. The reference to the Indian Penal Code is now read as a reference to the Bharatiya Nyaya Sanhita, 2023, in force from 1 July 2024. Chikkam Ammiraju v. Chikkam Seshamma, (1917) Indian Law Reports 41 Madras 33, held a threat of suicide to be coercion.

Undue influence, section 16, arises where the relations between the parties are such that one is in a position to dominate the will of the other and uses that position to obtain an unfair advantage. Section 16(2) deems such a position where a party holds real or apparent authority, stands in a fiduciary relation, or contracts with a person whose mental capacity is affected by age, illness or distress. Section 16(3) shifts the burden of proving that the contract was not induced by undue influence onto the dominant party where the transaction appears unconscionable.

Mistake behaves differently and that is the examinable point. Section 20 makes an agreement void where both parties are under a mistake as to a matter of fact essential to the agreement; section 21 provides that a mistake as to Indian law does not make a contract voidable, though a mistake as to foreign law has the effect of a mistake of fact; and section 22 that a unilateral mistake of fact does not vitiate.

The consequences divide. Coercion, fraud and misrepresentation make the agreement voidable under section 19, undue influence under section 19A with power in the court to impose terms, and bilateral mistake void under section 20. A voidable contract is good until avoided, protects a third party who takes in good faith and for value under the proviso to section 19, and requires restoration under section 64; a void agreement requires restoration under section 65. Section 75 preserves damages on rightful rescission.

Section 31(6) permits an interim award on any matter with respect to which a final award may be made, and such an award is an award for all purposes including challenge.

Section 31(7) governs interest: unless otherwise agreed, the tribunal may award interest at such rate as it deems reasonable for the whole or part of the period between the accrual of the cause of action and the award, and a sum directed to be paid carries interest at two per cent higher than the current rate of interest from the date of the award to the date of payment, unless otherwise directed. Section 31A, inserted in 2015, governs costs on the principle that the unsuccessful party pays.

The effect is given by two sections. Section 35: the award is final and binding on the parties and persons claiming under them. Section 36: once the time for a section 34 application has expired, the award shall be enforced in accordance with the Code of Civil Procedure, 1908, as if it were a decree of the court, with no separate suit and no filing in court as the Arbitration Act, 1940 had required.

A foreign award is a different creature governed by Part II, and by section 49 an enforceable New York Convention award is deemed to be a decree of the High Court.

Section 34(2A) permits setting aside for patent illegality appearing on the face of the award in arbitrations other than international commercial arbitrations, and not for an erroneous application of law or a reappreciation of evidence.

The case law is one arc. Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supplement (1) SCC 644, narrow; ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705, adding patent illegality; ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263, wider still; the 2015 amendment on the Law Commission's 246th Report reversing that; and Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131, confirming the narrowing while setting an award aside for reliance on material not shown to one party.

Section 34(3) is a hard bar: three months from receipt of the award or from the disposal of a section 33 request, with a further thirty days on sufficient cause "but not thereafter", words held to exclude section 5 of the Limitation Act, 1963. Section 34(4) permits the Court to adjourn so that the tribunal may cure the defect. Section 37 allows an appeal against an order setting aside or refusing to set aside, with no second appeal.

Mohori Bibee v. Dharmodas Ghose, (1903) 30 Indian Appeals 114, settled the effect of a minor's agreement. A minor mortgaged his house to a lender whose attorney had written notice of the minority. The Privy Council held the mortgage void ab initio and not merely voidable, because sections 10 and 11 make competence a condition of a contract coming into existence; refused relief under section 64, which applies to a voidable contract; refused relief under section 65, whose words "discovered to be void" do not fit a case where the lender knew throughout; and rejected an estoppel, holding that estoppel cannot validate what the statute makes void.

Soundness of mind. Section 12 provides that a person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. A person usually of unsound mind but occasionally of sound mind may contract when he is of sound mind, and a person usually of sound mind but occasionally of unsound mind may not contract when he is of unsound mind. The illustrations give a patient in a lunatic asylum who is at intervals of sound mind, and a sane man delirious from fever or so drunk that he cannot understand the terms.

Disqualification by law. The third limb covers an alien enemy, since trading with the enemy is prohibited during hostilities; a foreign sovereign or ambassador, who may contract but may not be sued without sanction; an insolvent, whose estate vests in the receiver; a convict during incarceration; and a corporation, whose capacity is limited by its constitutive statute and its objects.

For full marks, cover: all three items, each at about eight marks. For A, section 10 with each element and its section. For B, six ordered distinctions. For C, composition through sections 10 to 15 and conduct through sections 18 to 27.

A. Essentials of valid contract

Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law, and section 10 states the conditions of enforceability: 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.

Capacity. Section 11 requires majority under the Indian Majority Act, 1875, soundness of mind under 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, so it cannot be ratified and supports no estoppel, the supplier of necessaries being relegated to section 68.

Free consent. Section 14 excludes coercion, undue influence, fraud, misrepresentation and mistake. The consequences differ: the first four make the contract voidable under sections 19 and 19A, while bilateral mistake of fact makes the agreement void under section 20.

Lawful object. Section 23 voids an agreement whose object or consideration is forbidden by law, would defeat the provisions of any law, is fraudulent, involves injury to person or property, or is immoral or opposed to public policy. Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC 781, counsels caution in creating new heads of public policy; Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156, shows the head reaching an unconscionable standard form term.

Court intervention, the central distinction. Under the 1940 Act an award had to be filed in court under section 14, could be modified under section 15, remitted under section 16 or the arbitration superseded under section 19, and a decree followed under section 17. Under the 1996 Act, section 5 excludes judicial intervention except as provided; section 35 makes the award final and binding without any order; and section 36 makes it enforceable as if it were a decree, with no filing and no judgment on the award.

Number of arbitrators. The First Schedule to the 1940 Act permitted an even number with an umpire. Section 10 of the 1996 Act requires an odd number, with a sole arbitrator by default.

Jurisdiction over jurisdiction. The 1940 Act had none. Section 16 of the 1996 Act enacts competence-competence and separability, and the seven-judge decision In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, decided 13 December 2023, applied separability to hold an unstamped instrument inadmissible but not void.

Section 10: the parties may determine the number of arbitrators provided it shall not be an even number; failing determination, 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, on the failures listed in sub-sections (4), (5) and (6).

Section 11 has not spoken of the Chief Justice since the 2015 amendment, and the 2019 scheme for appointment through graded arbitral institutions has never been notified, sections 2, 3, 10 and 14 of the 2019 Amendment Act having been left out of S.O. 3154(E) of 30 August 2019.

Section 18 is mandatory: the parties shall be treated with equality and each shall be given a full opportunity to present his case. Section 19: the tribunal is not bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872, now the Bharatiya Sakshya Adhiniyam, 2023, and may determine the admissibility, relevance, materiality and weight of evidence.

Section 20 governs the place, section 21 commencement on the respondent's receipt of the request, and section 22 the language. Section 23 requires the statement of claim and defence, permits counterclaim and set off, and by section 23(4) requires pleadings to be completed within six months of the arbitrators' receipt of notice of appointment.

Section 24 requires oral hearings on request unless excluded, requires hearings 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 or evidentiary document the tribunal may rely on, to be communicated to both. Section 25 governs default. Section 26 permits the appointment of an expert. Section 27 allows the tribunal or a party with its approval to seek the Court's assistance in taking evidence, with the same processes and penalties as in a suit.

The tribunal's composition rests on the odd number rule in section 10, appointment under section 11 by the Court and not the Chief Justice, ineligibility under section 12(5) as extended to the appointment mechanism by Central Organisation for Railway Electrification, challenge before the tribunal under section 13, and termination under sections 14 and 15. Its conduct rests on the mandatory equality of section 18, the procedural freedom of section 19, the timetable of sections 23(4) and 29A, the hearing and disclosure rules of section 24, and the borrowed coercive power of section 27.

For full marks, cover: three limbs. Tender: sections 37 and 38 with the essentials of a valid tender. Anticipatory breach: section 39 with Hochster and Avery v. Bowden and the election. Damages: section 73 with the two rules in Hadley v. Baxendale, mitigation, section 74 and the leading Indian cases.

Limb one: tender of performance

Section 37 imposes the obligation: the parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the Act or any other law. A tender is that offer to perform, and its importance is that a tender which is refused discharges the promisor from further liability while preserving his rights.

Section 38 states the effect and the conditions: where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract.

The illustration to section 38 is the Act's own: A contracts to deliver to B at his warehouse, on 1 March, a hundred bales of cotton of a particular quality; A must bring the cotton to B's warehouse on the appointed day, under such circumstances that B may have a reasonable opportunity of satisfying himself that the thing offered is cotton of the quality contracted for and that there are a hundred bales.

Sections 39 to 61 complete the law of performance: who must perform (sections 40 to 45), the time and place of performance (sections 46 to 50), reciprocal promises (sections 51 to 58), and appropriation of payments (sections 59 to 61).

Limb two: anticipatory breach

Anticipatory breach is a repudiation of the contract before the time fixed for performance has arrived, and section 39 is its statutory home. 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.

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, a supervening event may frustrate the contract and discharge both. Avery v. Bowden, (1855) 5 Ellis and Blackburn 714, is the standing illustration: the charterer indicated he would not load, the shipmaster waited at Odessa insisting on performance, the Crimean War then made performance illegal, and the contract was discharged by frustration, so the shipowner lost his claim.

Frost v. Knight, (1872) Law Reports 7 Exchequer 111, states the election in the language usually quoted: the promisee may treat the notice of intention as inoperative and await the time when the contract is to be executed, holding it alive for the benefit of the other party as well as his own, or he may elect to rescind and sue at once.

Section 39 requires a refusal to perform the promise "in its entirety", so a partial default does not by itself entitle the promisee to put an end to the contract unless the term broken goes to the root or time was of the essence under section 55.

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

Six rules follow and should be listed.

One, compensation and not punishment. Damages are compensatory; exemplary damages are not awarded for breach of contract, save in the recognised exceptions of a wrongful dishonour of a cheque by a banker and a breach of a promise to marry.

Two, the two limbs of remoteness, general damages arising naturally and special damages within the parties' contemplation, the latter recoverable only where the special circumstances were communicated at the time of contracting.

Six, a stipulated sum is a ceiling and not an entitlement. Section 74 provides that where a sum is named in the contract as payable on breach, or the contract contains any stipulation by way of penalty, the injured party is entitled, whether or not actual damage or loss is proved, to reasonable compensation not exceeding the amount so named. The section deliberately abolishes the English distinction between liquidated damages and a penalty drawn in Dunlop Pneumatic Tyre Co. Ltd. v. New Garage and Motor Co. Ltd., [1915] Appeal Cases 79.

Fateh Chand v. Balkishan Das, AIR 1963 SC 1405, holds that section 74 applies to a forfeiture clause and that the court awards reasonable compensation, the party complaining having to prove that he suffered loss though not its precise amount. Maula Bux v. Union of India, (1969) 2 SCC 554, adds that where the loss is of a kind that cannot be proved the named sum may be taken as a reasonable measure. Kailash Nath Associates v. Delhi Development Authority, (2015) 4 SCC 136, is the modern restatement, holding that damage or loss is a sine qua non for the application of the section.

Section 75 completes the scheme: a person who rightly rescinds a contract is entitled to compensation for any damage sustained through its non-fulfilment. Interest may be awarded under the Interest Act, 1978.

For full marks, cover: the nature of a contractual obligation and how it differs from other civil obligations; the objects the law serves; the scope of the subject in layers; then the enumeration of essentials, which is the second limb and carries about a third of the marks.

Nature

A contract is a legally enforceable agreement, and its distinguishing feature is that the obligation is created by the parties themselves. In tort the duty is imposed by law and owed to persons generally; in status it attaches to a relationship such as parent and child; in restitution it follows the receipt of a benefit. Only in contract do the parties write the terms of the duty the State will enforce.

Section 2(h) adopts that idea: an agreement enforceable by law is a contract. Salmond's definition, an agreement creating and defining obligations between the parties, and Anson's, that the law of contract determines the circumstances in which a promise shall be legally binding, are the two usually quoted.

The second is to allocate risk in advance. Section 56 allocates the risk of supervening impossibility. Section 73, restating Hadley v. Baxendale, (1854) 9 Exchequer 341, allocates the risk of unusual consequential loss to the party who knew of it, giving a party with unusual exposure a reason to disclose it. Section 74 allocates the risk of quantifying loss, subject to the court's control.

The third is to protect the weaker party against misuse of the contractual form, an object not prominent in 1872 and grown steadily since: section 16(3), the section 23 jurisdiction used in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156, and the whole of consumer protection legislation.

The fourth is to reduce the cost of transacting, by supplying default terms the parties need not negotiate, as sections 46 to 50 do for time and manner of performance and the Sale of Goods Act, 1930 does through its implied conditions and warranties.

Scope

The scope of the subject is best set out in layers.

The general principles, sections 1 to 75 of the Indian Contract Act, 1872, which apply to every contract in India unless a special law provides otherwise.

The modern regulatory statutes: the Consumer Protection Act, 2019 with its definition of an unfair contract in section 2(46); the Competition Act, 2002; the Insolvency and Bankruptcy Code, 2016; and section 10A of the Information Technology Act, 2000, which gives legal recognition to contracts formed electronically.

The constitutional dimension, most often omitted: Article 299 prescribes the form of a contract made in the exercise of the executive power of the Union or a State, and non-compliance makes it unenforceable, which is why section 70 is so often invoked against the State, as in State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779. Article 14 controls the State's choice of contracting party: Ramana Dayaram Shetty v. International Airport Authority of India, (1979) 3 SCC 489.

The essentials of a valid agreement

Section 10 states them: all agreements are contracts if made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and not hereby expressly declared to be void.

Lawful object, section 23, with severability under section 24.

Not expressly declared void, sections 26 to 30 and the first paragraph of section 56.

Legal formalities where another statute requires them, preserved by the second paragraph of section 10.

How the fundamental principles are being reshaped by electronic contracting

The nature, object and scope of the subject are being altered by the fact that most contracts are now made without a document, a signature or a conversation, and an LLM answer should say so.

Formation. Section 10A of the Information Technology Act, 2000, inserted in 2008, provides that where in a contract formation the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances is expressed in electronic form or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used. Sections 4 and 5 of the same Act give legal recognition to electronic records and electronic signatures, and section 11 attributes an electronic record to the originator.

Consent. The click-wrap and browse-wrap agreement is a standard form contract of the purest kind, and it puts the greatest possible strain on the requirement of consensus ad idem in section 13. A user who clicks "I agree" plainly assents to the transaction and almost never to the terms, and the Indian response has been the same as for paper standard forms: control of the terms rather than denial of the contract, through section 16(3), through the section 23 jurisdiction exercised in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156, and now through section 2(46) of the Consumer Protection Act, 2019, which defines an unfair contract and permits the commissions to declare such terms void.

Scope. Two recent statutes have extended the subject further. The Consumer Protection (E-Commerce) Rules, 2020, made under the Act of 2019, impose disclosure and grievance obligations on marketplace and inventory e-commerce entities, which are contractual terms imposed by regulation rather than negotiated. And the Digital Personal Data Protection Act, 2023 now governs the data-processing terms of almost every consumer contract, requiring notice and consent in a form the Contract Act never contemplated.

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

Section 3 requires the State Government, in consultation with the High Court, to establish a Family Court for every area with a population exceeding one million, and permits establishment elsewhere as it thinks necessary.

Section 7 defines the jurisdiction, and it is exclusive within its field. A Family Court exercises all the jurisdiction of a district court or subordinate civil court in respect of suits and proceedings of the kinds in the Explanation: a suit for a decree of nullity, restitution of conjugal rights, judicial separation or dissolution of marriage; a suit for a declaration as to the validity of a marriage or the matrimonial status of any person; a suit between the parties to a marriage with respect to property; a suit for an order or injunction in circumstances arising out of a marital relationship; a suit for a declaration as to the legitimacy of any person; a suit for maintenance; and a suit in relation to the guardianship of the person or the custody of, or access to, any minor. It also exercises the jurisdiction of a Magistrate of the first class under Chapter IX of the Code of Criminal Procedure, 1973, which is the summary maintenance jurisdiction, now Chapter X of the Bharatiya Nagarik Suraksha Sanhita, 2023.

Section 9 makes conciliation the first duty. In every suit or proceeding, endeavour shall be made by the Family Court in the first instance, where it is possible consistently with the nature and circumstances of the case, to assist and persuade the parties in arriving at a settlement, and for that purpose the Court may follow such procedure as it may deem fit, and may adjourn the proceedings for so long as it thinks fit to enable attempts to be made to effect a settlement.

Section 13 restricts legal representation. No party to a suit or proceeding before a Family Court 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. The object is to keep the proceedings non-adversarial; the criticism is that a party who is legally unrepresented against a better informed spouse is not better off for it, and in practice courts grant leave freely.

Section 12 permits the Court to secure the services of a medical expert or of a person professionally engaged in promoting the welfare of the family. Section 5 permits the association of social welfare agencies, and section 6 requires the State Government to determine, in consultation with the High Court, the number and categories of counsellors, officers and other employees.

The criticisms are three and should be given. The section 13 restriction on representation is widely worked around and, where enforced, may disadvantage the weaker party. The conciliation duty in section 9 can be applied mechanically, pressing reconciliation on a party for whom the marriage is unsafe, which is a serious objection where domestic violence is alleged. And Family Courts remain unevenly established, so that in many districts the ordinary civil courts continue to try matrimonial matters without the specialised procedure the Act contemplates.

Lok Adalat: the statute and the role

The Legal Services Authorities Act, 1987, in force from 9 November 1995, gives statutory form to the Lok Adalat in Chapter VI, sections 19 to 22. Its constitutional foundation is Article 39A, which directs the State to secure that the operation of the legal system promotes justice on a basis of equal opportunity and to provide free legal aid so that opportunities for securing justice are not denied by reason of economic or other disabilities.

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

Section 21 gives the award its force: it is deemed to be a decree of a civil court, the court fee is refunded, and it is final and binding with no appeal. Section 22 confers the civil court's powers of summons, discovery, evidence on affidavit and requisition of public records.

State of Punjab v. Jalour Singh, (2008) 2 SCC 660, is the controlling case: a Lok Adalat has no adjudicatory or judicial function, its functions relate purely to conciliation, it cannot decide on merits, and an award recording no compromise is a nullity. P.T. Thomas v. Thomas Job, (2005) 6 SCC 478, confirms the finality of a genuine award, and Bhargavi Constructions v. Kothakapu Muthyam Reddy, (2018) 13 SCC 480, holds that the only challenge is under Article 226 or 227.

In status. A Family Court is a court: it tries suits, records evidence, decides on the merits and its decree is appealable under section 19. A Lok Adalat is not a court: it records what the parties agree, and its award is a decree only by the fiction in section 21.

In compulsion. A party may be compelled to appear before a Family Court, which has exclusive jurisdiction under section 7; nobody can be compelled to settle before a Lok Adalat, and section 20(5) returns the case when no compromise is reached. The Permanent Lok Adalat is the exception, and that is precisely why it is controversial.

In subject matter and remedy. The Family Court's field is the marital relationship and its consequences, where the parties will continue to deal with each other and where a decree may have to be varied as circumstances change. The Lok Adalat's field is the one-off quantum dispute, where the parties want a figure and will never meet again.

Lok Adalats under Chapter VI of the Legal Services Authorities Act, 1987 settle disputes by compromise, are guided by justice, equity and fair play under section 20(3), and produce an award that section 21 deems a decree of the civil court, final, unappealable and free of court fee. They have delivered extraordinary scale, 2.84 crore cases in a single day in March 2026, and their legitimacy rests wholly on consent, which is why State of Punjab v. Jalour Singh holds that they have no adjudicatory function and that an award without a compromise is a nullity. Together they represent the two ways Indian law has taken disputes out of the ordinary courts: by creating a specialised court with a conciliatory procedure, and by creating a forum that is not a court at all.

The reason is structural. Section 35 makes the award final and binding, and section 36 makes it enforceable as if it were a decree of the court. A party who chose arbitration chose a determination, not the first tier of a longer process. Under the Arbitration Act, 1940 the position was the opposite: the award had to be filed under section 14, could be modified under section 15 or remitted under section 16, and misconduct in section 30 was read to include an error of law apparent on the face of the award, which is why Guru Nanak Foundation v. Rattan Singh and Sons, (1981) 4 SCC 634, said the proceedings had made lawyers laugh and legal philosophers weep.

Step one: the tribunal itself, section 33

Within thirty days of receipt of the award, unless another period is agreed, a party may with notice to the other request the tribunal to correct any computation errors, any clerical or typographical errors or any other errors of a similar nature. The tribunal may make such a correction on its own initiative within thirty days of the award. If the parties have so agreed, a party may request an interpretation of a specific point or part. Section 33(4) permits a request for an additional award as to claims presented in the proceedings but omitted from the award, to be made within thirty days.

The grounds in section 34(2)(b), which the Court may find for itself: that the subject matter is not capable of settlement by arbitration, on which Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, and Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, govern; and that the award is in conflict with the public policy of India.

Public policy is confined by the substituted Explanation 1 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 whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

Section 34(2A) adds patent illegality appearing on the face of the award for arbitrations other than international commercial arbitrations, with the proviso that an award shall not be set aside merely for an erroneous application of the law or by a reappreciation of evidence.

Section 34(3) is the time bar and it is absolute. An application may not be made after three months from the date on which the party making it received the award or, where a section 33 request has been made, from the date that request was disposed of. The proviso permits a further thirty days if the Court is satisfied that the applicant was prevented by sufficient cause, "but not thereafter". Those last three words have been held to exclude section 5 of the Limitation Act, 1963, so a delay of thirty one days beyond the three months cannot be condoned.

Section 34(4) is the only remedial power short of setting aside. On a request by a party, the Court may adjourn the proceedings for a period it determines, to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of the tribunal will eliminate the grounds for setting aside.

Kandla Export Corporation v. OCI Corporation, (2018) 14 SCC 715, is worth a line: no additional right of appeal can be found in section 13 of the Commercial Courts Act, 2015 where the Arbitration Act does not provide one, because the special Act prevails.

The parallel question: does enforcement stop?

Before 2015 the mere filing of a section 34 application operated as an automatic stay, because section 36 made an award enforceable only when the time for challenge had expired or the challenge had been refused. The 2015 amendment substituted section 36 so that filing does not by itself render the award unenforceable; a separate application and a separate order of stay are required, and the Court may impose conditions.

Parliament attempted to restrict that reform by inserting section 87 in 2019, and in Hindustan Construction Company Ltd. v. Union of India, decided 27 November 2019 (Nariman, Surya Kant and Ramasubramanian JJ.), the Supreme Court struck section 87 down as manifestly arbitrary and violative of Article 14, holding that a section 34 application is not in the nature of an appeal and that restoring the automatic stay defeated the object of the Act.

Conclusion. There is no appeal against an arbitral award, and the procedure is a sequence of three steps. Within thirty days a party may go back to the tribunal under section 33 for correction, interpretation or an additional award. Within three months, extendable by thirty days on sufficient cause but not thereafter, a party may apply to the Court under section 34, after prior notice with an affidavit under section 34(5) and for disposal within one year under section 34(6), on five record-based grounds in sub-section (2)(a), on non-arbitrability and public policy in sub-section (2)(b) as confined by the 2015 Explanations, and on patent illegality on the face of the award under sub-section (2A) for domestic awards only, with section 34(4) allowing a remission to the tribunal. From the resulting order an appeal lies under section 37, with no second appeal and Article 136 preserved.

Enforcement runs in parallel: since the 2015 substitution of section 36 a challenge does not stay the award without a separate order, Hindustan Construction Company struck down the attempt to reverse that by section 87, and the 2021 proviso requires an unconditional stay only where fraud or corruption is shown prima facie. Gayatri Balasamy, decided 30 April 2025, has added a limited and contested power to modify.

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 must be satisfied. Rajlukhy Dabee v. Bhootnath Mookerjee, (1900) 4 Calcutta Weekly Notes 488, shows how strictly the third is read: a husband executed a registered deed promising maintenance to his wife, and the Calcutta High Court refused enforcement because the deed's own recital of quarrels and disagreements showed there was no natural love and affection, the near relation and the registration availing nothing.

Section 25(2), past voluntary service. A promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do, is enforceable without consideration. Illustration (c): A finds B's purse and gives it to him; B promises to give A fifty rupees; this is a contract. The service must have been rendered voluntarily, to the promisor, and the promisor must have been in existence and competent to contract at the time.

Gratuitous bailment. Sections 148 and following contemplate a bailment without reward, and the bailee's duty of care under section 151 attaches on the delivery of possession.

Remission. Section 63 allows a promisee to dispense with or remit performance wholly or in part, to extend the time for performance, or to accept any satisfaction he thinks fit, without any consideration for the remission. This is where Indian law departs most sharply from England, where Pinnel's Case, (1602) 5 Coke Reports 117a, and Foakes v. Beer, (1884) 9 Appeal Cases 605, hold that part payment of a debt is no satisfaction of the whole without a deed or fresh consideration. India legislated the problem away in 1872.

Charitable subscription, on a qualification. A bare promise to subscribe is unenforceable, but where the promisee has, on the faith of the promise, undertaken a liability, the promise binds. Kedar Nath Bhattacharji v. Gorie Mahomed, (1886) Indian Law Reports 14 Calcutta 64: a subscription to a town hall fund became enforceable once the Municipal Commissioners had entered into a building contract on the strength of the subscriptions, the liability incurred at the promisor's desire supplying the consideration.

b) Composition of Arbitral Tribunal

Section 2(1)(d) of the Arbitration and Conciliation Act, 1996 defines an arbitral tribunal as a sole arbitrator or a panel of arbitrators, and sections 10 to 15 govern how it is constituted.

Number: section 10. The parties are free to determine the number of arbitrators, provided that such number shall not be an even number; failing determination, the tribunal shall consist of a sole arbitrator. The bar on an even number exists because the First Schedule to the Arbitration Act, 1940 permitted an even number with an umpire, and the umpire's entry on disagreement generated its own delays and litigation.

Impartiality: sections 12 and 13. Section 12(1) requires written disclosure, in the form of the Sixth Schedule, of any circumstances such as those in the Fifth Schedule likely to give rise to justifiable doubts as to independence or impartiality, and of anything likely to affect the ability to complete the arbitration within twelve months; the duty continues under section 12(2). Section 12(5) makes a person within the Seventh Schedule ineligible notwithstanding any prior agreement, waivable only by express written agreement after the dispute has arisen. Section 13 sends a challenge first to the tribunal itself, and if it fails the tribunal proceeds to an award, the challenger's remedy being section 34.

TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377, held that a Managing Director who is 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 equal treatment obligation in section 18 applies at the appointment stage, so a unilateral appointment clause or a curated panel is impermissible, applying the ruling prospectively under Article 142.

Coercion is defined by section 15: the committing or threatening to commit any act forbidden by the penal law, or the unlawful detaining or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. The Explanation provides that it is immaterial whether the penal law was or was not in force where the coercion is employed. The reference to the Indian Penal Code is now a reference to the Bharatiya Nyaya Sanhita, 2023, in force from 1 July 2024. Ranganayakamma v. Alwar Setti, (1889) Indian Law Reports 13 Madras 214, and Chikkam Ammiraju v. Chikkam Seshamma, (1917) Indian Law Reports 41 Madras 33, are the standard illustrations, the second holding a threat of suicide sufficient.

Undue influence is defined by section 16(1): a contract is induced by undue influence where the relations subsisting between the parties are such that one of them is in a position to dominate the will of the other, and he uses that position to obtain an unfair advantage over the other. Section 16(2) deems such a position where a party holds real or apparent authority or stands in a fiduciary relation, or contracts with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

Effect three: the right to rescind is lost in four situations. By affirmation, express or by conduct. By lapse of time, where the party sleeps on his right. Where restitutio in integrum has become impossible because the subject matter has been consumed or altered. And, most importantly in commerce, where a third party has acquired rights in good faith and for value before rescission: the proviso to section 19 so provides. This is the practical reason why the distinction between void and voidable matters, since nothing passes under a void agreement at all.

Effect four: restoration. Section 64 provides that when a person at whose option a contract is voidable rescinds it, the other party need not perform, and the party rescinding must, if he has received any benefit thereunder from another party to the contract, restore such benefit so far as may be to the person from whom it was received.

Effect seven: money or property obtained by coercion is separately recoverable. Section 72 provides that a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it. That claim lies independently of rescission.

Effect eight: damages. Section 75 entitles a person who rightly rescinds a contract to compensation for any damage sustained through its non-fulfilment.

Conclusion. The exceptions to "no consideration no contract" are the three in section 25, a registered promise made on account of natural love and affection between near relations, a promise to compensate past voluntary service, and a written signed promise to pay a time-barred debt, together with completed gifts under Explanation 1, agency under section 185, gratuitous bailment, remission under section 63, the subscription cases and the presumption in the Negotiable Instruments Act, 1881, with promissory estoppel operating as an exception in substance after Motilal Padampat Sugar Mills.

For full marks, cover: the definition in section 2(g) and the two contrasts that give it meaning; then the list in section order, as the word "enlist" invites, giving each its section, its scope, its exceptions and a case where one exists; and close on the consequences and on restitution under section 65, since a list without consequences answers only half the question.

The definition, and the two contrasts

Section 2(g) of the Indian Contract Act, 1872 provides that an agreement not enforceable by law is said to be void. A void agreement is a nullity from inception. It confers no rights, imposes no obligations, cannot be ratified, cannot be sued upon by either party, and no third party can take an interest under it.

A third distinction is worth a line because it is a favourite examination point: void and illegal are not the same. An illegal agreement is void, but a void agreement is not necessarily illegal. The consequence is for collateral transactions: a transaction collateral to an illegal agreement is tainted and unenforceable, while one collateral to a merely void agreement is not. Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC 781, is the authority: a wagering agreement is void under section 30 but not unlawful under section 23, so a partnership formed to enter into wagering transactions was itself valid and a partner could sue for an account.

The list

Section 11 read with section 10: an agreement by a person not competent to contract. Competence requires majority under the Indian Majority Act, 1875, soundness of mind as defined in 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: sections 10 and 11 make competence a condition of a contract coming into existence, so there is nothing to ratify, no estoppel can validate it, section 64 is inapplicable because the agreement is not voidable, and section 65 is inapplicable where the lender knew of the minority and so discovered nothing.

Section 24: an agreement where any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful. The whole agreement is void, though where the lawful and unlawful parts are genuinely separable the courts have enforced the lawful part.

Section 25: an agreement made without consideration, subject to the three exceptions of a registered promise made on account of natural love and affection between near relations, a promise to compensate past voluntary service, and a written signed promise to pay a time-barred debt. Explanation 1 preserves a completed gift and Explanation 2 makes inadequacy irrelevant.

Section 26: an agreement in restraint of the marriage of any person other than a minor. There is no exception, and no distinction between a total and a partial restraint, so an agreement not to marry at all, not to marry a particular person, not to marry for a period and not to marry outside a community are all void. Lowe v. Peers, (1768) 4 Burrow 2225, supplies the principle; Rao Rani v. Gulab Rani, AIR 1942 Allahabad 351, its limit, a Full Bench holding that a provision under which a widow forfeits her share on remarriage is not a restraint on marriage because nobody covenanted not to marry. A marriage brokerage agreement is void under section 23, not section 26.

Section 28: an agreement in restraint of legal proceedings. In its present form, after the amendments of 1997 and 2013, the section voids an agreement which absolutely restricts a party from enforcing his rights by usual legal proceedings; which limits the time within which he may enforce them; or which extinguishes the rights of a party, or discharges a party from liability, on the expiry of a specified period so as to restrict any party from enforcing his rights. Two exceptions are expressly saved: an agreement to refer a future dispute to arbitration, and an agreement to refer an existing question to arbitration. Exception 3, inserted in 2013, saves a guarantee agreement of a bank or a financial institution.

Section 29: an agreement the meaning of which is not certain, or capable of being made certain. Illustration (a): A agrees to sell to B "a hundred tons of oil", and there is nothing whatever to show what kind of oil was intended; the agreement is void for uncertainty. Illustration (b) shows the qualification: where A is a dealer in coconut oil only, the nature of his trade makes the meaning certain. An agreement to enter into an agreement in future fails on the same ground.

Section 56, first paragraph: an agreement to do an act impossible in itself. This is initial impossibility and is distinct from the second paragraph, under which a contract that later becomes impossible or unlawful becomes void.

Section 57: reciprocal promises to do things legal and, under specified circumstances, other things illegal. The first set of promises is a contract and the second is a void agreement. Section 58 provides that in the case of an alternative promise, one branch of which is legal and the other illegal, the legal branch alone can be enforced.

The consequences, and restitution

A void agreement produces four consequences and they complete the answer.

No suit lies on it, by either party, and the court will take the point of its own motion where illegality appears.

No property passes under it, so a person who has parted with goods under a void agreement retains title and may recover the goods themselves, whereas under a voidable contract property passes until rescission and a bona fide purchaser for value is protected.

Conclusion. A void agreement under section 2(g) is one not enforceable by law and is a nullity from inception, distinct from a voidable contract under section 2(i), which is good until avoided and protects a bona fide third party, and from a contract which becomes void under section 2(j); and distinct again from an illegal agreement, since only illegality taints collateral transactions, as Gherulal Parakh holds for a wager.

For full marks, cover: all three items at about eight marks each. For (a) the salient features and India's position, which is the point that separates a good answer from a textbook one. For (b) sections 35, 36 and 49 with the 2015 change and Hindustan Construction Company. For (c) the meaning of commercial, section 2(1)(f), and the institutions.

a) Salient features of the United Nations Convention on Contracts for the International Sale of Goods

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, is the principal attempt to make a uniform substantive law of international sale. It is administered by the United Nations Commission on International Trade Law and replaced the two Hague Conventions of 1964. It has been ratified or acceded to by more than ninety States, including the United States, China, Japan, Germany and France.

Scope, Part I. The Convention applies to contracts of sale of goods between parties whose places of business are in different States, and it governs only the formation of the contract and the rights and obligations of the seller and the buyer. Article 4 provides that it is not concerned with the validity of the contract or of any of its provisions, nor with the effect the contract may have on the property in the goods sold. Article 5 excludes liability for death or personal injury. Article 2 excludes sales of goods bought for personal, family or household use, sales by auction or on execution, and sales of stocks, shares, negotiable instruments, money, ships, aircraft and electricity.

Party autonomy, Article 6. The parties may exclude the application of the Convention or, subject to Article 12, derogate from or vary the effect of any of its provisions. It is a default regime, not a mandatory one.

Freedom from form, Article 11. A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form; it may be proved by any means, including witnesses. Article 96 permits a Contracting State whose legislation requires writing to declare that Article 11 does not apply.

Remedies. The Convention provides for specific performance subject to Article 28, under which a court is not bound to enter a judgment for specific performance unless it would do so under its own law; avoidance for fundamental breach; price reduction under Article 50, a civilian remedy unknown to the common law; and damages under Article 74, measured by the loss suffered as a consequence of the breach, not exceeding the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, which is the Convention's version of the second rule in Hadley v. Baxendale. Article 77 imposes a duty to mitigate. Articles 71 to 73 provide for anticipatory breach and instalment contracts.

Exemption, Article 79. A party is not liable for a failure to perform if he proves that the failure was due to an impediment beyond his control which he could not reasonably have been expected to have taken into account at the time of the conclusion of the contract or to have avoided or overcome. The exemption has effect only for the period during which the impediment exists and does not prevent the other party from exercising any right other than to claim damages.

b) Finality and Enforcement of Arbitral Awards

Finality is declared by section 35 of the Arbitration and Conciliation Act, 1996: subject to Part I, an arbitral award shall be final and binding on the parties and persons claiming under them respectively. Three ideas are contained in it. The tribunal is functus officio once it has made the award, save for the residual powers in section 33. The award determines the rights of the parties and operates as res judicata between them. And it binds persons claiming under them, so a successor in title cannot reopen it.

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 provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court. There is no filing of the award in court, no judgment upon it and no decree in terms of it, all of which the Arbitration Act, 1940 had required under sections 14 and 17.

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

A foreign award has its own finality and enforcement provisions in Part II. Section 46 provides that a foreign award which is enforceable under Chapter I shall be treated as binding for all purposes on the persons as between whom it was made. Section 47 requires the applicant to produce the original award or a duly authenticated copy, the original agreement or a certified copy, and evidence that the award is a foreign award, to the High Court. Section 48 sets out the exhaustive grounds on which enforcement may be refused, with the burden on the party resisting. Section 49 provides that where the Court is satisfied that the foreign award is enforceable, the award shall be deemed to be a decree of that Court. An Indian court has no power to set aside a foreign award, as Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, established by confining Part I to India-seated arbitrations.

The expression is construed liberally. R.M. Investments and Trading Co. (P) Ltd. v. Boeing Co., (1994) 4 SCC 541, held that the term "commercial" should be construed broadly, having regard to the manifold activities which are an integral part of international trade today, and accepted a consultancy and advisory services agreement as commercial. The footnote to Article 1(1) of the UNCITRAL Model Law gives an illustrative list which Indian courts have used: any trade transaction for the supply or exchange of goods or services, distribution agreements, commercial representation or agency, factoring, leasing, construction of works, consulting, engineering, licensing, investment, financing, banking, insurance, exploitation agreements or concessions, joint ventures, and carriage of goods or passengers by air, sea, rail or road.

Domestic commercial arbitration is the ordinary Indian arbitration between two Indian parties in a trade dispute, governed entirely by Part I, decided under Indian substantive law by section 28(1)(a), subject to the twelve month timetable in section 29A, and open to challenge on patent illegality under section 34(2A) as well as on the section 34(2) grounds.

The statutory scheme intended to promote institutional commercial arbitration has never been brought into force. The 2019 Amendment inserted Part IA, sections 43A to 43M, creating the Arbitration Council of India to grade arbitral institutions, and section 11(3A) for appointment through institutions so graded. 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 Act, leaving out sections 2, 3, 10 and 14. Section 10 was commenced four years later by S.O. 4486(E) of 12 October 2023, and section 3 has never been commenced at all, so Part IA is law while the appointment scheme that was to give it effect is not. Indian commercial arbitration therefore remains predominantly ad hoc, without published rules, a fee scale or case management, which is the central practical criticism of the subject and the reason Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV, decided 30 August 2022, had to lay down that arbitrators may not fix their own fees.

Commercial arbitration is arbitration of a commercial dispute, "commercial" being construed liberally in R.M. Investments v. Boeing, and it divides into domestic commercial arbitration under Part I and international commercial arbitration under section 2(1)(f), which turns on the foreignness of a party and carries four distinct consequences. Its institutional form, which the 2019 Amendment was enacted to promote, has never been brought into operation.